<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on June 19,
1995
Securities Act Registration No. 33-_____
Investment Company Act File No. 811-4611
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-2
Registration Statement Under the Securities Act of 1933 /X/
Pre-effective Amendment No. ___
Post-effective Amendment No. ___
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 24 /X/
(Check appropriate box or boxes)
----------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One Seaport Plaza, New York, New York 10292
(Address of Principal Executive Offices) (Zip Code)
(212) 214-3334
(Registrant's Telephone Number, including Area Code)
RICHARD P. STRICKLER, 45 Broadway, New York, New York 10004
(Name and Address of Agent for Service)
------------------
Copies to:
Margaret A. Bancroft Frank Bruno Allan S. Mostoff
Dechert Price & Rhoads Brown & Wood Dechert Price & Rhoads
477 Madison Avenue One World Trade Center 1500 K Street, N.W.
New York, NY 10022 New York, NY 10048 Washington, DC 20005
----------------
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration
Statement.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, other than securities offered
in connection with a dividend reinvestment plan, check the
following box. / /
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. /X /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed
Amount Maximum
Title of Securities Being Offering Price
Being Registered Registered Per Unit
- -------------------- ---------- --------------
Auction Market Preferred
Stock, Series G
($.01 par value). . 3,000 shs $25,000
Proposed
Maximum Amount of
Title of Securities Aggregate Registration
Being Registered Offering Price Fee
- ------------------- -------------- ------------
Auction Market Preferred
Stock, Series G
($.01 par value). . $75,000,000 $25,826.07
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
CROSS REFERENCE SHEET
Between Items of Registration Statement (Form N-2) and Prospectus
Parts A and B
Item No. Caption Location in Prospectus
1. Outside Front Cover. . . . . . . . Outside Front Cover
2. Inside Front and Outside Back
Cover Page . . . . . . . . . . . . Inside Front and Outside
Back Cover Page
3. Fee Table and Synopsis . . . . . . Prospectus Summary; Fund
Expenses
4. Financial Highlights . . . . . . . Financial Highlights;
Senior Securities
5. Plan of Distribution . . . . . . . The Offer; Distribution
Arrangements; Fund
Expenses
6. Selling Shareholders . . . . . . . Not Applicable
7. Use of Proceeds. . . . . . . . . . Use of Proceeds
8. General Description of the
Registrant . . . . . . . . . . . . Cover Page of
Prospectus; The Fund;
Risk Factors and Special
Considerations;
Investment Objectives
and Policies; Investment
Restrictions;
Description of Common
Stock
9. Management . . . . . . . . . . . . Management of the Fund;
Management Agreement and
Advisory Agreement; The
Administrative Services
Agreement; Consultant
Agreement; Custodian,
Dividend Paying Agents,
Transfer Agents,
Registrars and Auction
Agent
10. Capital Stock, Long-Term Debt, and
Other Securities . . . . . . . . Description of Common
Stock; Capital Stock;
Certain Provisions of
By-laws; Dividends and
Distributions; Dividend
Reinvestment and Cash
Purchase Plan; Taxation
11. Defaults and Arrears on
Senior Securities. . . . . . . . . Applicable
12. Legal Proceedings. . . . . . . . . Not Applicable
13. Table of Contents of the Statement
of Additional Information. . . . . Not Applicable
14. Cover Page . . . . . . . . . . . . Not Applicable
15. Table of Contents. . . . . . . . . Not Applicable
16. General Information and History. . Not Applicable
17. Investment Objective and Policies. Investment Objective and
Policies; Investment
Restrictions; Portfolio
Transactions and
Brokerage
18. Management . . . . . . . . . . . . Management of the Fund
19. Control Persons and Principal
Holders of Securities. . . . . . . Management of the
Fund -- Share Ownership
20. Investment Advisory and Other
Services . . . . . . . . . . . . . Management Agreement and
Advisory Agreement;
Administrative Services
Agreement; Consultant
Agreement; Custodian,
Dividend Paying Agents,
Transfer Agents,
Registrars and Auction
Agent; Experts
21. Brokerage Allocation and
Other Practices. . . . . . . . . . Portfolio Transactions
and Brokerage
22. Tax Status . . . . . . . . . . . . Taxation
23. Financial Statements . . . . . . . Financial Statements
Part C
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C of this
Registration Statement.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 19, 1995
PROSPECTUS
$75,000,000
The First Australia Prime Income Fund, Inc.
Auction Market Preferred Stock ["AMPS"(R)]
3,000 Shares, Series G -- Liquidation Preference $25,000 Per
Share
--------------
The First Australia Prime Income Fund, Inc. (the "Fund") is
a non-diversified, closed-end management investment company. The
Fund's investment objective is current income through investment
primarily in Australian debt securities. See "Investment
Objective and Policies; Investment Restrictions" and "Special
Considerations and Risk Factors." The Fund's investment manager
is EquitiLink International Management Limited, an affiliate of
EquitiLink Australia Limited, the Fund's investment adviser. The
Prudential Insurance Company of America acts as the Fund's
consultant and Prudential Mutual Fund Management, Inc. acts as
the Fund's administrator. The address of the Fund is One Seaport
Plaza, New York, New York 10292, and its telephone number is
(212) 214-5572.
Dividends on the shares of Auction Market Preferred Stock,
Series G ("AMPS"(R)) offered hereby will be cumulative from the
Date of Original Issue and will be payable commencing on
__________, 1995 and generally on each succeeding Wednesday
thereafter. The dividend rate on the shares of AMPS for the
Initial Dividend Period ending on _________, 1995 will be ___%
per annum. Thereafter, the Applicable Rate on the shares of AMPS
will be reset for each period commencing on a Dividend Payment
Date and ending on the calendar day prior to the next Dividend
Payment Date, on the basis of Bids, Hold Orders and Sell Orders
placed by Beneficial Owners and Potential Beneficial Owners in
the Auction conducted on the Business Day preceding the
commencement of such period. The Applicable Rate that results
from an Auction for any Dividend Period will not be greater than
the Maximum Applicable Rate in effect on the Auction Date. The
Maximum Applicable Rate may range from 150% to 275% (depending on
the credit rating of the AMPS) of the 30-day "AA" Composite
Commercial Paper Rate in effect on the date of the Auction, and
on the Date of Original Issue of the AMPS will be 150% thereof.
See "Description of AMPS--the Auction." Dividends on shares of
AMPS will not qualify for the corporate dividends--received
deduction. See "Taxation."
(Continued on next page)
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_______________
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
_______________
Price to Proceeds to
Public (1) Sales Load(2) Fund(1)(3)
Per Share $ 25,000 $ $
Total $75,000,000 $ $
(1) Plus accumulated dividends, if any, from the Date of
Original Issue.
(2) The Fund, the Investment Manager and the Investment Adviser
have agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(3) Before deduction of expenses, payable by the Fund, estimated
at $_______.
The shares of AMPS are offered by the several Underwriters,
subject to prior sale, when, as and if issued by the Fund and
accepted by the Underwriters, subject to approval of certain
legal matters by counsel for the Underwriters and certain other
conditions. The several Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that one certificate for the
AMPS will be delivered to the nominee of The Depository Trust
Company on or about ____________, 1995.
_____________ (Continued on next page)
(R) Registered Trademark of Merrill Lynch & Co., Inc.
---------------
MERRILL LYNCH & CO. PRUDENTIAL SECURITIES INCORPORATED
---------------
The date of this Prospectus is ___________, 1995.<PAGE>
(Continued from previous page)
Each prospective purchaser should carefully review the
detailed information regarding the Auction Procedures which
appears in this Prospectus, including the Appendices, and should
note that (i) an Order constitutes an irrevocable commitment to
hold, purchase or sell AMPS based upon the results of the related
Auction, (ii) the Auctions will be conducted through telephone
communications, (iii) settlement for purchases and sales will be
on the Business Day following the Auction and (iv) ownership of
AMPS will be maintained in book-entry form by or through the
Securities Depository. Any of the Broker-Dealers may maintain a
secondary trading market in the AMPS outside of Auctions,
however, they have no obligation to do so and there can be no
assurance that a secondary market for the AMPS will develop or,
if it does develop, that it will provide holders with liquidity
of investment. Shares of AMPS may be transferred only pursuant
to a Bid or a Sell Order placed in an Auction through a
Broker-Dealer to the Auction Agent or in the secondary market, if
any.
The shares of AMPS are subject to mandatory and optional
redemption under certain circumstances as described herein. See
"Description of AMPS -- Redemption."
If the Fund fails to pay on any Dividend Payment Date for
the AMPS (or within the applicable grace period) the full amount
of any dividend or the redemption price of shares of AMPS called
for redemption, the Applicable Rate will not be based on the
results of an Auction but instead will be equal to 275% of the
30-day "AA" Composite Commercial Paper Rate until such failure to
pay is cured.
Investors are advised to read this Prospectus and to retain
it for future reference.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the
Securities Exchange Act of 1934 and the Investment Company Act of
1940 and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities of
the Securities and Exchange Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W.,Washington, D.C. 20549, and at the
Securities and Exchange Commission's Northeast Regional Office,
Seven World Trade Center, Suite 6300, New York, New York 10048
and Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials can be obtained from the Public Reference Section of
the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements and other information may also be inspected at the
offices of the American Stock Exchange, Inc., 86 Trinity Place,
New York, New York 10005, on which exchange the Fund's Common
Stock is traded.
Additional information regarding the Fund and the shares of
AMPS offered hereby is contained in the Registration Statement on
Form N-2, including amendments, exhibits and schedules thereto,
relating to such shares filed by the Fund with the Securities and
Exchange Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement. For further
information with respect to the Fund and the shares of AMPS
offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration
Statement may be inspected without charge at the Securities and
Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the
Securities and Exchange Commission upon the payment of certain
fees prescribed by the Securities and Exchange Commission.<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to the more detailed information included elsewhere in
this Prospectus and the Appendices hereto. Capitalized terms not
defined in this Summary are defined in the Glossary and, in
certain cases, elsewhere herein. Unless otherwise indicated, all
references to dollars are to U.S. dollars.
The Fund
The First Australia Prime Income Fund, Inc. (the "Fund") is
a non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940 (the "1940
Act"). The Fund commenced operations in April 1986 and was the
first publicly offered United States registered investment
company organized to invest primarily in Australian debt
securities. The shares of Common Stock, par value $.01 per
share, of the Fund (the "Common Stock") are traded on the
American Stock Exchange under the symbol FAX. See "The Fund" and
"Capital Stock -- Common Stock."
The Offering
The Fund is offering an aggregate of 3,000 shares of AMPS,
at a purchase price of $25,000 per share. Subject to certain
exceptions as set forth under "Description of AMPS -- Dividends -
- - General," generally, each Dividend Period for the AMPS will
have a length of 7 days.
In 1989, the Fund issued in two public offerings an
aggregate of 3,000 shares of Auction Market Preferred Stock in
four series, at a purchase price of $100,000 per share. In late
1992 and late 1993, it issued a fifth and sixth series,
respectively, at the same purchase price. These six series
together with the AMPS offered hereby (collectively, the "Auction
Market Preferred Stock") constitute seven series within a class
of 100,000,000 authorized shares of preferred stock, par value
$.01 per share, of the Fund, issuable in one or more series (the
"Preferred Stock"). The AMPS offered hereby will rank pari passu
with the six series of Auction Market Preferred Stock and with
any other future series of Preferred Stock with respect to the
distribution of assets of the Fund and the payment of dividends.
See "Capital Stock -- Preferred Stock."
Investment Objective and Policies; Portfolio Structure
The Fund's investment objective is current income through
investment primarily in Australian debt securities. The Fund may
also achieve incidental capital appreciation. It is expected
that normally at least 65% of the Fund's total assets will be
invested in Australian dollar denominated debt securities of
Australian banks, federal and state governmental entities and
companies. To achieve its investment objective, the Fund may
invest the remainder of its assets in debt securities of
comparable quality which are denominated in Australian or New
Zealand dollars of other issuers, whether or not domiciled in
Australia or New Zealand, and in U.S. Government Securities and
corporate and bank debt securities of U.S. issuers rated Aa or
Prime-2 or better by Moody's Investors Service, Inc. ("Moody's")
or AA or A-2 or better by Standard & Poor's Corporation ("S&P")
(collectively, "U.S. Securities"). It is the Fund's policy to
limit its investments, as to 65% of its total assets, to issuers
of debt securities rated AA or better by S&P or Aa or better by
Moody's or which, in the judgment of the Investment Manager, are
of equivalent quality. The remainder of the Fund's investments
will be rated A by those rating agencies or, if unrated, will in
the Investment Manager's judgment be of equivalent quality. See
"Investment Objective and Policies; Investment Restrictions."
Management
EquitiLink International Management Limited (the "Investment
Manager") acts as the Fund's Investment Manager and EquitiLink
Australia Limited (the "Investment Adviser") acts as the Fund's
Investment Adviser. The Investment Manager and the Investment
Adviser also serve in these capacities for The First Australia
Fund, Inc., a diversified, closed-end management investment
company, whose shares are listed on the American Stock Exchange,
organized to invest primarily in Australian equity securities;
First Australia Prime Income Investment Company Limited, a
closed-end investment company, whose shares are listed on the
Toronto Stock Exchange, organized to invest primarily in
Australian debt securities; and The First Commonwealth Fund,
Inc., a non-diversified closed-end management investment company
whose shares are listed on the New York Stock Exchange, organized
to invest in high-grade, fixed income securities denominated in
the currencies of Australia, Canada, New Zealand and the United
Kingdom. In addition, the Investment Adviser currently manages
eight Australian public unit trusts and two other closed-end
investment companies whose shares are listed on the Australian
Stock Exchange Limited, as well as two open-end funds marketed in
Taiwan and institutional and private advisory accounts. The
Prudential Insurance Company of America (the "Consultant") acts
as the Fund's consultant. Prudential Mutual Fund Management,
Inc. (the "Administrator") is the Fund's administrator. See
"Management."
The Fund pays the Investment Manager a fee at the annual
rate of 0.65% of the Fund's average weekly net assets applicable
to Common and Preferred Stock up to $200 million, 0.60% of such
assets between $200 million and $500 million, 0.55% of such
assets between $500 million and $900 million and 0.50% of such
assets in excess of $900 million, computed based upon net assets
applicable to Common and Preferred Stock at the end of each week
and payable at the end of each calendar month. Under the
Management Agreement the Investment Manager pays the Investment
Adviser an advisory fee at the annual rate of 0.25% of the Fund's
average weekly net assets applicable to Common and Preferred
Stock up to $1,200 million and 0.20% of such assets in excess of
$1,200 million at the end of each week and payable at the end of
each calendar month.
Dividends
Dividends on the AMPS offered hereby are cumulative from the
Date of Original Issue and are payable commencing on __________,
1995 and on each succeeding Wednesday thereafter, subject to
certain exceptions. See "Description of AMPS -- Dividends."
Dividends for the AMPS will be paid through the Securities
Depository (The Depository Trust Company or a successor
securities depository) on each Dividend Payment Date. The
Securities Depository's normal procedures provide for it to
distribute dividends to Agent Members, who are in turn expected
to distribute such dividends to the person for whom they are
acting as agent in accordance with the instructions of such
person.
The dividend rate of the AMPS for the Initial Dividend
Period ending on _________, 1995 will be ___% per annum. For
each respective Dividend Period thereafter (normally a period of
7 days), the dividend rate on the shares of AMPS will be the
Applicable Rate for such series that the Auction Agent (Chemical
Bank or any successor) advises the Fund has resulted from an
Auction unless the Fund fails to pay on any Dividend Payment Date
(or within the applicable grace period) the full amount of any
dividends thereon or the redemption price of shares of AMPS
called for redemption. In such event, Auctions will be
discontinued until such failure to pay is cured and the
Applicable Rate for the shares will, until such cure and the
reinstitution of Auctions be equal to 275% of the 30-day "AA"
Composite Commercial Paper Rate as set forth under "Description
of AMPS -- Dividends -- Determination of Dividend Rate." The
Applicable Rate that results from an Auction will not be greater
than the rate per annum that is a percentage (determined by
reference to the credit rating of the AMPS) of the 30-day "AA"
Composite Commercial Paper Rate (the "Applicable Percentage") in
effect on the date of the Auction (the "Maximum Applicable
Rate"). The Maximum Applicable Rate may range from 150% to 275%
of the 30-day "AA" Composite Commercial Paper Rate, and on the
Date of Original Issue of the AMPS offered hereby will be 150%
thereof. There is no minimum Applicable Rate that can result
from an Auction. See "Description of AMPS -- Dividends" and
"Description of AMPS -- The Auction."
Auction Procedures
Unless otherwise permitted by the Fund, Beneficial Owners
and Potential Beneficial Owners of AMPS may only participate in
Auctions through their Broker-Dealers. Broker-Dealers will
submit the Orders of their respective customers who are
Beneficial Owners and Potential Beneficial Owners to the Auction
Agent, designating themselves as Existing Holders in respect of
shares subject to Orders submitted or deemed submitted to them by
Beneficial Owners and as Potential Holders in respect of shares
subject to Orders submitted to them by Potential Beneficial
Owners. On or prior to each Auction Date for the AMPS (the
Business Day next preceding the first day of each Dividend
Period), each Beneficial Owner may submit Orders to its Broker-
Dealer as follows:
-- Hold Order -- indicating its desire to hold shares of
AMPS without regard to the Applicable Rate for the next
Dividend Period for such shares.
-- Bid -- indicating its desire to hold shares of AMPS,
provided that the Applicable Rate for the next Dividend
Period for such shares is not less than the rate per
annum specified in such Bid.
-- Sell Order -- indicating its desire to sell shares of
AMPS without regard to the Applicable Rate for the next
Dividend Period for such shares.
A Beneficial Owner may submit different types of Orders to
its Broker-Dealer with respect to shares of AMPS then held by
such Beneficial Owner, provided that the total number of shares
of AMPS covered by such Orders does not exceed the number of
shares of AMPS held by such Beneficial Owner. If, however, a
Beneficial Owner offers through its Broker-Dealer to purchase
additional shares of AMPS in such Auction, such Broker-Dealer,
for purposes of such offer to purchase additional shares, will be
treated as a Potential Beneficial Owner as described below. Bids
by Beneficial Owners through their Broker-Dealers with rates per
annum higher than the Maximum Applicable Rate will be treated as
Sell Orders. A Hold Order shall be deemed to have been submitted
on behalf of a Beneficial Owner if an Order with respect to
shares of AMPS then held by such Beneficial Owner is not
submitted on behalf of such Beneficial Owner for any reason,
including the failure of a Broker-Dealer to submit such
Beneficial Owner's Order to the Auction Agent.
The Maximum Applicable Rate at any Auction will be the
Applicable Percentage of the 30-day "AA" Composite Commercial
Paper Rate on the date of such Auction determined as set forth
below based on the lower of the credit rating or ratings assigned
to the AMPS by Moody's and S&P (the "Rating Agencies"). See
"Description of AMPS -- The Auction -- Orders by Existing Holders
and Potential Holders."
<PAGE>
Credit Rating Applicable Percentage
------------- ---------------------
S&P Moody's
--- -------
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
Potential Beneficial Owners of shares of AMPS may submit
Bids through their Broker-Dealers in which they offer to purchase
shares of AMPS, provided that the Applicable Rate for the next
Dividend Period for such shares is not less than the rate per
annum specified in such Bid. A Bid by a Potential Beneficial
Owner with a rate per annum higher than the Maximum Applicable
Rate will not be considered.
Neither the Fund nor the Auction Agent will be responsible
for a Broker-Dealer's failure to comply with any of the
foregoing.
A Broker-Dealer may also hold AMPS for its own account as a
Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial
Owner and therefore participate in an Auction as an Existing
Holder or Potential Holder on behalf of both itself and its
customers. An Order placed with the Auction Agent by a
Broker-Dealer as an Existing Holder or a Potential Holder as or
on behalf of a Beneficial Owner or a Potential Beneficial Owner,
as the case may be, will be treated in the same manner as an
Order placed with a Broker-Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any failure by a
Broker-Dealer to submit to the Auction Agent an Order in respect
of any AMPS held by it or its customers who are Beneficial Owners
will be treated in the same manner as a Beneficial Owner's
failure to submit to its Broker-Dealer an Order in respect of
AMPS held by it, as described above. Inasmuch as a Broker-Dealer
participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or
Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an
Auction for Existing Holders and Potential Holders also applies
to the underlying beneficial ownership interests represented.
If Sufficient Clearing Bids exist in an Auction (that is, in
general, the number of shares of AMPS subject to bids by
Potential Holders is at least equal to the number of shares of
AMPS subject to Sell Orders by Existing Holders), the Applicable
Rate will be the lowest rate per annum specified in the Submitted
Bids which, taking into account such rate per annum and all lower
rates per annum by Existing Holders and Potential Holders, would
result in Existing Holders and Potential Holders owning all of
the shares of AMPS available for purchase in the Auction. If
Sufficient Clearing Bids do not exist, such Applicable Rate will
be the Maximum Applicable Rate and, in such event, Existing
Holders that have submitted Sell Orders will not be able to sell
in the Auction all, and may not be able to sell any, shares of
AMPS subject to such Sell Orders. Thus, under some
circumstances, Existing Holders and, thus, the Beneficial Owners
they represent, may not have liquidity of investment. If all
Existing Holders submit (or are deemed to have submitted) Hold
Orders in an Auction, the Applicable Rate will be 90% of the
30-day "AA" Composite Commercial Paper Rate in effect on the date
of the Auction.
The Auction Procedures include a pro rata allocation of
shares for purchase and sale, which may result in an Existing
Holder selling or holding, or a Potential Holder purchasing, a
number of shares of AMPS that is less than the number of shares
of AMPS specified in its Order. To the extent the allocation has
this result, a Broker-Dealer will be required to make appropriate
pro rata allocations among its customers and itself.
A Sell Order by an Existing Holder will constitute an
irrevocable offer to sell the shares of AMPS subject thereto, and
a Bid placed by an Existing Holder will also constitute an
irrevocable offer to sell the shares of AMPS subject thereto if
the rate per annum specified in the Bid is higher than the
Applicable Rate determined in the Auction, in each case at a
price per share equal to $25,000. A Bid placed by a Potential
Holder will constitute an irrevocable offer to purchase the
shares of AMPS subject thereto if the rate per annum specified in
such Bid is less than or equal to the Applicable Rate determined
in the Auction, at a price per share equal to $25,000.
Settlement of purchases and sales will be made on the next
Business Day (also a Dividend Payment Date) after the Auction
Date through the Securities Depository. Purchasers will make
payment through their Agent Members in same-day funds settled
through the New York Clearing House to the Securities Depository
against delivery by book entry to their Agent Members. The
Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal
procedures, which now provide for payment in same-day funds. See
"Description of AMPS -- The Auction."
Asset Maintenance
Under the Articles Supplementary of the Fund specifying the
powers, preferences and rights of the shares of AMPS (the
"Articles Supplementary"), the Fund must maintain (i) assets
having in the aggregate a Discounted Value at least equal to the
AMPS Basic Maintenance Amount and (ii) a 1940 Act AMPS Asset
Coverage Ratio at least equal to the 1940 Act AMPS Asset Coverage
Requirement, which currently requires the Fund to have assets
with an aggregate value at least equal to 200% of senior
securities (including the AMPS and other Preferred Stock). See
"Description of AMPS -- Asset Maintenance."
If calculated as of ___________, 1995, after giving effect
to this offering (see "Use of Proceeds"), the 1940 Act AMPS Asset
Coverage Ratio would have been approximately ___%.
The discount factors and guidelines for calculating the
Discounted Value of the Fund's portfolio for purposes of
determining whether the AMPS Basic Maintenance Amount has been
satisfied have been established by Moody's and S&P in connection
with the Fund's receipt of ratings on the shares of AMPS on their
Date of Original Issue of "aa" from Moody's and AA from S&P. See
"Investment Objective and Policies; Investment
Restrictions -- Rating Agency Guidelines."
Minimum Liquidity Level
So long as shares of AMPS are outstanding, the Fund will be
required under its Articles Supplementary to maintain as of each
Valuation Date certain Dividend Coverage Assets with a value not
less than the Dividend Coverage Amount (the "Minimum Liquidity
Level"). See "Description of AMPS -- Minimum Liquidity Level."
Mandatory Redemption
If the AMPS Basic Maintenance Amount or the 1940 Act AMPS
Asset Coverage Requirement is not maintained or restored as
specified herein, shares of AMPS will be subject to mandatory
redemption, out of funds legally available therefor, at the
redemption price of $25,000 per share plus accumulated but unpaid
dividends (whether or not earned or declared) to the date fixed
for redemption. Any such redemption will be limited to the
number of shares of AMPS necessary to restore the AMPS Basic
Maintenance Amount or the 1940 Act AMPS Asset Coverage
Requirement, as the case may be. The Fund's ability to make such
a mandatory redemption may be restricted by the provisions of the
1940 Act. See "Description of AMPS -- Redemption -- Mandatory
Redemption."
Optional Redemption
The shares of AMPS are redeemable at the option of the Fund,
as a whole or in part, on any Dividend Payment Date at $25,000
per share, plus accumulated but unpaid dividends (whether or not
earned or declared). See "Description of AMPS -- Liquidation
Rights."
Voting Rights
Except as otherwise indicated in this Prospectus and except
as otherwise required by applicable law, holders of outstanding
shares of Preferred Stock will vote as a single class together
with holders of shares of the Fund's Common Stock. The 1940 Act
requires that the holders of shares of Preferred Stock of the
Fund, voting as a separate class, have the right to elect at
least two directors at all times and to elect a majority of the
directors at any time two years' dividends on any outstanding
shares of Preferred Stock are unpaid. The holders of Preferred
Stock will vote as a separate class on certain other matters as
required under the Fund's Articles of Amendment and Restatement,
as amended and supplemented (the "Articles"), the 1940 Act and
Maryland law. See "Description of AMPS -- Voting Rights" and
"Certain Provisions of By-laws and Articles of Amendment and
Restatement."
Ratings
It is a condition of this offering that the AMPS be issued
with a rating of at least "aa" from Moody's and AA from S&P.
Taxation
The Fund intends to continue to qualify annually to be
treated as a regulated investment company. If it so qualifies,
it will be relieved of U.S. federal income tax on its net
investment income and capital gains, if any, which it distributes
in accordance with requirements under the Internal Revenue Code
of 1986, as amended (the "Code"). To the extent that the Fund
has earnings available for distribution, its distributions in the
hands of shareholders generally are expected to be treated as
ordinary dividend income, although certain distributions may be
designated by the Fund as capital gain dividends which are
treated as long-term capital gain. Dividends paid by the Fund
(both ordinary and capital) will not qualify for the corporate
dividends-received deduction. Income received by the Fund may be
subject to withholding taxes imposed by Australia and New
Zealand. If the Fund meets certain eligibility requirements set
forth in the Code, it may elect to treat its shareholders as
having paid such taxes. If such an election is made,
shareholders will be required to include in income their
proportionate share of such taxes but may be entitled to a
deduction or credit for such share in computing their federal
income tax. Investors should refer to the discussion entitled
"Taxation" for additional details regarding the tax
considerations relating to AMPS.
Special Considerations and Risk Factors
Investment in the Fund involves special
considerations,including the fact that the Fund invests primarily
in Australian dollar denominated securities. As a result,
changes in the exchange rate of the Australian dollar relative to
the U.S. dollar, which could be material, will affect the U.S.
dollar value of the Fund's assets, its yield and the amount of
securities required to be liquidated in order to meet
distribution requirements established by the Code or to redeem
the AMPS. Moreover, an increase in interest rates in Australia
and New Zealand could be expected to result in a decline in the
value of the Fund's portfolio securities. However, the AMPS
Basic Maintenance Amount, which the Fund is required to maintain
by Moody's and S&P in connection with their rating of the
AMPS,mitigates against risks to holders of AMPS associated with
investment in foreign issues by requiring the Fund to redeem AMPS
before the assets of the Fund, as measured in U.S. dollars,would
be insufficient to pay the AMPS liquidation preference of$25,000
plus accumulated but unpaid dividends (whether or not earned or
declared). The Fund is classified as a "non-diversified"
investment company and, as a result, may be more susceptible than
a more widely diversified fund to any single economic, political
or regulatory occurrence. The Fund's Articles and By-laws
include provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board of Directors. The
issuance of Preferred Stock could have the effect, although not
presently intended, of discouraging takeovers of the Fund. See
"Special Considerations and Risk Factors."
There are a number of specific factors investors in AMPS
should consider:
- The credit ratings of the AMPS could be reduced while
an investor holds the AMPS;
- Neither Broker-Dealers nor the Fund are obligated to
purchase shares of AMPS in an Auction or otherwise, nor
is the Fund required to redeem shares of AMPS in the
event of a failed Auction; and
- If, in an Auction for the AMPS, Sufficient Clearing
Bids do not exist, the Applicable Rate will be the
Maximum Applicable Rate and, in such event, Beneficial
Owners that have submitted Sell Orders will not be able
to sell in the Auction all, or may not be able to sell
any, shares of AMPS subject to such Sell Orders. Thus,
under certain circumstances, Beneficial Owners may not
have liquidity of investment.
The AMPS will not be registered on any stock exchange or on
the National Association of Securities Dealers Automated
Quotation System. The Broker-Dealers may maintain a secondary
market in the shares of AMPS outside the Auction mechanism. The
Broker-Dealers, however, have no obligation to make a secondary
market in the shares of AMPS outside the Auction process, and
there can be no assurance that a secondary market for the AMPS
will develop or, if it does develop, that it will provide holders
with liquidity of investment. If a Broker-Dealer purchases
shares of AMPS in the secondary market or in an Auction, it may
be in a position of owning shares of AMPS at the time Applicable
Rates with respect to the AMPS are determined and it may tender
such shares in any Auction.<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by Price
Waterhouse, LLP, independent accountants, whose reports thereon
were unqualified. This information should be read in conjunction
with the Financial Statements and Notes thereto included
elsewhere in this Prospectus.
Years ended October 31,
-----------------------
PER SHARE OPERATING PERFORMANCE: . 1994 1993 1992
---- ---- ----
Net asset value per common share,
beginning of period. . . . . . . $10.09 $ 9.61 $11.31
------ ------ ------
Net investment income. . . . . . . 1.01 1.19 1.29
Net realized and unrealized
gain (loss) on investments and
foreign currencies . . . . . . . (1.03) .58 (1.42)
------ ------ ------
Total from investment operations (.02) 1.77 (.13)
------ ------ ------
Dividends from net investment
income to preferred shareholders (.12) (.11) (.14)
Dividends from net investment
income to common shareholders. . (.84) (1.08) (1.10)
Distributions from net capital
and currency gains to
preferred shareholders . . . . . (.01) (.01) (.01)
Distributions from net capital
and currency gains to
common shareholders. . . . . . . (.17) (.08) (.29)
------ ------ ------
Total dividends
and distributions. . . . . . . (1.14) (1.28) (1.54)
------ ------ ------
Capital charge in respect to
issuance of shares . . . . . . . (.11) (.01) (.03)
------ ------ ------
Net asset value per common share,
end of period. . . . . . . . . . $ 8.82 $ 10.09 $ 9.61
====== ======= ======
Market price per common share,
end of period. . . . . . . . . . $ 9.56 $ 10.25 $10.00
TOTAL INVESTMENT RETURN BASED ON+:
Market value . . . . . . . . . . . 3.32% 15.00% 4.11%
Net asset value. . . . . . . . . . (3.19%) 17.80% (3.22%)
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses . . . . . . . . . . . . . 1.41%++ 1.44%++ 1.43%*++
Net investment income before
preferred stock dividends. . . . 10.68% 12.13% 12.14%
Preferred stock dividends. . . . . 1.20% 1.13% 1.25%
Net investment income available to
common shareholders. . . . . . . 9.48% 11.00% 10.89%
Portfolio turnover rate. . . . . . 34% 23% 17%
Net assets of common
shareholders, end of
period (000) . . . . . . . . $1,088,631 $1,050,084 $977,933
Average net assets of common
shareholders (000) . . . . . $1,174,394 $1,011,324 $938,072
Senior securities
(preferred stock)
outstanding (000) omitted. . $ 400,000 $ 350,000 $300,000
Asset coverage of preferred
stock at period end. . . . . 372% 400% 426%
- ------------------------------
* Annualized.
+ Total investment return based on market value is calculated
based on the Fund's market value on the first and last day
of each period and total investment return based on net
asset value is calculated based on the Fund's net asset
value on such days. Dividends and distributions are
assumed, for purposes of the calculations, to be reinvested
at prices obtained under the Fund's dividend reinvestment
and cash purchase plan. Total investment returns do not
reflect brokerage commissions. Total investment returns for
periods of less than one full year are not annualized.
++ Includes expenses of both Preferred and Common Stock.
# Ratios calculated on the basis of income, expenses and
preferred share dividends applicable to both the common and
preferred shares relative to the average net assets of
common shareholders.
NOTE: Contained above is audited operating performance for a
share of Common Stock outstanding, total investment
return, ratios to average net assets of common
shareholders and other supplemental data for each of
the periods indicated. This information has been
determined based upon financial information provided
in the financial statements and market value data for
the Fund's Common Stock.
<PAGE>
Years ended October 31,
-----------------------
PER SHARE OPERATING PERFORMANCE: . 1991 1990 1989
---- ---- ----
Net asset value per common share,
beginning of period. . . . . . . $10.02 $ 9.31 $10.81
------ ------ ------
Net investment income. . . . . . . 1.40 1.49 1.32
Net realized and unrealized
gain (loss) on investments and
foreign currencies . . . . . . . 1.37 .73 (1.22)
------ ------ ------
Total from investment operations 2.77 2.22 .10
------ ------ ------
Dividends from net investment
income to preferred shareholders (.24) (.30) (.20)
Dividends from net investment
income to common shareholders. . (1.24) (1.13) (1.08)
Distributions from net capital
and currency gains to
preferred shareholders . . . . . -- -- --
Distributions from net capital
and currency gains to
common shareholders. . . . . . . -- (.08) (.23)
------ ------ ------
Total dividends
and distributions. . . . . . . (1.48) (1.51) (1.51)
------ ------ ------
Capital charge in respect to
issuance of shares . . . . . . . -- -- (.09)
------ ------ ------
Net asset value per common share,
end of period. . . . . . . . . . $11.31 $ 10.02 $ 9.31
====== ======= ======
Market price per common share,
end of period. . . . . . . . . . $10.94 $ 8.94 $ 8.88
TOTAL INVESTMENT RETURN BASED ON+:
Market value . . . . . . . . . . . 38.36% 14.95% 7.38%
Net asset value. . . . . . . . . . 27.62% 22.88% (.44%)
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses . . . . . . . . . . . . . 1.59%++ 1.54%++ 1.35%+
Net investment income before
preferred stock dividends. . . . 13.42% 15.47% 13.46%
Preferred stock dividends. . . . . 2.31% 3.11% 2.07%
Net investment income available to
common shareholders. . . . . . . 11.11% 12.36% 11.39%
Portfolio turnover rate. . . . . . 83% 80% 46%
<PAGE>
Net assets of common
shareholders, end of
period (000) . . . . . . . . $972,569 $861,379 $800,166
Average net assets of common
shareholders (000) . . . . . $899,175 $826,862 $832,779
Senior securities
(preferred stock)
outstanding (000) omitted. . $300,000 $300,000 $300,000
Asset coverage of preferred stock
at period end. . . . . . . . . 424% 387% 367%
- ------------------------------
+ Total investment return based on market value is calculated
based on the Fund's market value on the first and last day
of each period and total investment return based on net
asset value is calculated based on the Fund's net asset
value on such days. Dividends and distributions are
assumed, for purposes of the calculations, to be reinvested
at prices obtained under the Fund's dividend reinvestment
and cash purchase plan. Total investment returns do not
reflect brokerage commissions. Total investment returns for
periods of less than one full year are not annualized.
++ Includes expenses of both Preferred and Common Stock.
# Ratios calculated on the basis of income, expenses and
preferred share dividends applicable to both the common and
preferred shares relative to the average net assets of
common shareholders.
NOTE: Contained above is audited operating performance for a
share of Common Stock outstanding, total investment
return, ratios to average net assets of common
shareholders and other supplemental data for each of
the periods indicated. This information has been
determined based upon financial information provided in
the financial statements and market value data for the
Fund's Common Stock.
<PAGE>
April 24,
Years ended 1986##
October 31, through
--------------- October 31,
PER SHARE OPERATING PERFORMANCE: 1988 1987 1986
---- ---- ----
Net asset value per common share,
beginning of period. . . . . . . $ 8.74 $ 8.26 $ 9.33
------ ------ ------
Net investment income. . . . . . . .97 1.02 .49
Net realized and unrealized
gain (loss) on investments and
foreign currencies . . . . . . . 2.50 .52 (1.46)
------ ------ ------
Total from investment operations 3.47 1.54 (.97)
------ ------ ------
Dividends from net investment
income to preferred shareholders -- -- --
Dividends from net investment
income to common shareholders. . (1.40) (1.06) (.08)
Distributions from net capital
and currency gains to
preferred shareholders . . . . . -- -- --
Distributions from net capital
and currency gains to
common shareholders. . . . . . . -- -- --
------ ------ ------
Total dividends
and distributions. . . . . . . (1.40) (1.06) (.08)
------ ------ ------
Capital charge in respect to
issuance of shares . . . . . . . -- -- (.02)
------ ------ ------
Net asset value per common share,
end of period. . . . . . . . . . $10.81 $ 8.74 $ 8.26!
====== ====== =======
Market price per common share,
end of period. . . . . . . . . . $ 9.56 $ 7.25 $ 8.38
TOTAL INVESTMENT RETURN BASED ON+:
Market value . . . . . . . . . . . 54.42% (2.09%) (9.31%)
Net asset value. . . . . . . . . . 44.84% 19.74% (10.65%)
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses . . . . . . . . . . . . . 1.04% 1.11% 1.09%*
Net investment income before
preferred stock dividends. . . . 9.51% 11.61% 11.75%*
Preferred stock dividends. . . . . -- -- --
Net investment income available to
common shareholders. . . . . 9.51% 11.61% 11.75%*
Portfolio turnover rate. . . . 60% 52% 13%
Net assets of common
shareholders, end of
period (000) . . . . . . . . $928,689 $751,129 $708,012
Average net assets of common
shareholders (000) . . . . . $875,609 $756,274 $703,339
Senior securities
(preferred stock)
outstanding (000) omitted. . --- --- ---
Asset coverage of preferred
stock at period end. . . . . --- --- ---
- ------------------------------
* Annualized.
+ Total investment return based on market value is calculated
based on the Fund's market value on the first and last day
of each period and total investment return based on net
asset value is calculated based on the Fund's net asset
value on such days. Dividends and distributions are
assumed, for purposes of the calculations, to be reinvested
at prices obtained under the Fund's dividend reinvestment
and cash purchase plan. Total investment returns do not
reflect brokerage commissions. Total investment returns for
periods of less than one full year are not annualized.
# Ratios calculated on the basis of income, expenses and
preferred share dividends applicable to both the common and
preferred shares relative to the average net assets of
common shareholders.
## Commencement of investment operations.
! Net asset value immediately after closing of initial public
offering was $9.31.
NOTE: Contained above is audited operating performance for a
share of Common Stock outstanding, total investment
return, ratios to average net assets of common
shareholders and other supplemental data for each of
the periods indicated. This information has been
determined based upon financial information provided in
the financial statements and market value data for the
Fund's Common Stock.
<PAGE>
Senior Securities
The Fund currently has outstanding an aggregate of 4,000
shares of Preferred Stock. The Preferred Stock has been issued
in six series, Series A through F, the first four of which were
issued in 1989, the fifth series of which was issued in late 1992
and the sixth series of which was issued in late 1993. The
shares of Preferred Stock are senior securities having priority
over the shares of Common Stock as to distribution of assets and
payment of dividends. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Fund,
the holders of shares of Preferred Stock currently outstanding
are entitled to receive a preferential liquidating distribution
equal to their original purchase price of $100,000 per share
"Liquidation Preference", plus accrued and unpaid dividends
(whether or not declared), before any payment is made to holders
of Common Stock. The average market value of shares of Preferred
Stock currently outstanding has been equal to their original
$100,000 purchase price. The following tables set forth certain
information relating to the Preferred Stock.
Preferred Stock, Series A-F
Asset
Total Coverage
Amount of Per Liquidation
Preferred Share of Preference
Stock Preferred Per
At 10/31/ Outstanding* Stock Share***
--------- ----------- --------- ----------
1986 . . . . . . . . . . . . -- -- --
1987 . . . . . . . . . . . . -- -- --
1988 . . . . . . . . . . . . -- -- --
1989 . . . . . . . . . . . .$300,000,000 $366,989 $100,000
1990 . . . . . . . . . . . .$300,000,000 $387,535 $100,000
1991 . . . . . . . . . . . .$300,000,000 $424,564 $100,000
1992 . . . . . . . . . . . .$300,000,000 $426,082 $100,000
1993 . . . . . . . . . . . .$350,000,000 $400,137 $100,000
1994 . . . . . . . . . . . .$400,000,000 ________ $100,000
At ____________, 1995 the asset coverage per share of Preferred
Stock was $____________.
_______________
* Based on number of shares multiplied by the liquidation
preference per share.
** Asset coverage per share is derived by dividing the
aggregate number of shares of all of the series of Preferred
Stock outstanding (3,000 through 1992, 3,500 in 1993 and
4,000 in 1994) into the total assets of the Fund less all
liabilities and indebtedness not represented by the
Preferred Stock as at the end of the fiscal periods
indicated.
*** Plus accrued and unpaid dividends, if any.
The dividend rates on the outstanding Preferred Stock are
established through an auction process. The dividend rates on
the series designated Series A-D are set every 28 days and the
dividend rates on the series designated Series E-F are set every
7 days. Generally, the dividend rate has represented a premium
of approximately [25] basis points over the 30 day commercial
paper rate. At ___________, 1995, the annual dividend rates on
Series A through F were, respectively, ____%, ____%, ____%,
____%, ____% and ____%. At such rates, the annual return the
Fund's portfolio must experience (net of expenses) in order to
cover dividend payments on all series is ___%.
The following table is designed to illustrate the effect on
return to a holder of the Fund's Common Stock of the leverage
obtained by the issuance of the Preferred Stock, assuming
hypothetical annual returns on the Fund's portfolio of minus 10
to plus 10 percent. As can be seen, leverage generally increases
the return to common stockholders when portfolio return is
positive and decreases return when the portfolio return is
negative. Actual returns may be greater or less than those
appearing in the table and actual returns may be enhanced or
diminished by fluctuations in foreign currency. See "Special
Considerations and Risk Factors," and "Preferred Stock."
Assumed Portfolio
Return (net of expenses)...... -10% -5% 0% 5% 10%
Corresponding Common
Stock Return(1)............... ____%_____%____% ____%_____%
- ------------
(1) In order to compute "Corresponding Common Stock Return" the
"Assumed Portfolio Return" is multiplied by the total value
of Fund assets as of the beginning of the fiscal year
(November 1, 1994) to obtain an assumed return to the Fund.
This return is then reduced by the value of Preferred Stock
dividends that would be paid during the year based on the
dividend rates in effect at the beginning of the fiscal year
in order to determine the return available to holders of the
Fund's Common Stock. Return available to holders of the
Fund's Common Stock is then divided by the total value of
the Fund's assets as of the beginning of the fiscal year to
determine "Corresponding Common Stock Return".
<PAGE>
CAPITALIZATION
(Unaudited)
The following table sets forth the capitalization of the
Fund as of ___________, 1995 as adjusted to give effect to the
issuance of the shares of AMPS offered hereby.
Net assets applicable to Preferred and Common Stock:
Actual As Adjusted
----------- -----------
(unaudited) (unaudited)
Preferred Stock, par value
$.01 per share, authorized
100,000,000 shares, 4,000
shares of Auction Market
Preferred Stock issued and
outstanding at $100,000 per
share liquidation preference,
as adjusted 7,000 shares
of Auction Market Preferred
Stock issued and outstanding,
with 4,000 shares at $100,000
per share liquidation preference
and 3,000 shares at $25,000
per share liquidation preference . . $400,000,000 $475,000,000
Common Stock, par value
$.01 per share, authorized
200,000,000 shares, ---------
shares issued and outstanding(1). . .
Paid-in capital in excess
of par(1)(2) . . . . . . . . . . . .
Undistributed net investment income. .
Accumulated net realized gains
on investments. . . . . . . . . . . .
Net unrealized appreciation on
investments . . . . . . . . . . . . .
Accumulated net realized and
unrealized foreign exchange
losses. . . . . . . . . . . . . . . .
Total net assets . . . . . . . . .
Net assets applicable
to Common Stock(3) . . . . . . . . . $ $
----------- ------------
- --------------
(1) Reflects the issuance of __________ shares in connection
with a rights offering completed on May 5, 1995 at a
price of $_____ per share.
(2) Adjusted to reflect the charge to paid-in capital of all
estimated issuance costs of the AMPS, including sales load
of $_______ and offering costs of approximately $_______.
(3) After deduction, from total net assets, of the liquidation
preference of the Auction Market Preferred Stock of
$100,000 per share with respect to the 4,000 shares
currently outstanding and, with respect to the net assets
as adjusted, $25,000 per share with respect to the 3,000
shares offered hereby.
<PAGE>
THE FUND
The Fund is a non-diversified, closed-end management
investment company registered under the 1940 Act. The Fund
commenced operations in April 1986 and was the first publicly
offered United States registered investment company organized to
invest primarily in Australian debt securities. Registration of
the Fund under the 1940 Act does not involve supervision of the
Fund's investments by the Securities and Exchange Commission (the
"Commission"). The Fund's investment objective is current income
through investment primarily in Australian debt securities. The
Fund may also achieve incidental capital appreciation.
It is expected that normally at least 65% of the Fund's
total assets will be invested in Australian dollar denominated
debt securities of Australian banks, federal and state
governmental entities and companies. To achieve its investment
objective, the Fund may invest the remainder of its assets in
debt securities of comparable quality which are denominated in
Australian or New Zealand dollars of other issuers, whether or
not domiciled in Australia or New Zealand, and in U.S.
Securities. During periods when, in the Investment Manager's
judgment, changes in the market for Australian and New Zealand
debt securities or other economic conditions warrant a
temporarily defensive investment policy, the Fund may temporarily
reduce its position in such securities and invest in U.S.
Securities. The Fund may enter into repurchase agreements with
banks and broker-dealers pursuant to which the Fund may acquire a
security for a relatively short period (usually no more than one
week) subject to the obligations of the seller to repurchase and
the Fund to resell such security at a fixed time and price. See
"Investment Objective and Policies; Investment Restrictions."
The Fund's Investment Manager is EquitiLink International
Management Limited, an investment management company organized in
Jersey, Channel Islands. The Investment Manager manages, in
accordance with the Fund's stated investment objective, policies
and limitations and subject to the supervision of the Fund's
Board of Directors, the Fund's investments and makes investment
decisions on behalf of the Fund, including the selection of, and
placing of orders with, brokers and dealers to execute portfolio
transactions on behalf of the Fund and the making of investments
in U.S. dollar denominated securities. The Investment Manager's
affiliate, EquitiLink Australia Limited, an Australian
corporation, acts as the Fund's Investment Adviser, providing
portfolio recommendations to the Investment Manager with respect
to Australian and New Zealand dollar denominated securities. The
Investment Manager and the Investment Adviser also serve in these
capacities for The First Australia Fund, Inc., a diversified
closed-end management investment company, whose shares are listed
on the American Stock Exchange, organized to invest primarily in
Australian equity securities which commenced operations in 1985
and First Australia Prime Income Investment Company Limited, a
closed-end investment company, whose shares are listed on the
Toronto Stock Exchange, organized to invest primarily in
Australian debt securities, which commenced operations in 1986.
In addition, the Investment Manager and Investment Adviser
provide management and advisory services to The First
Commonwealth Fund, Inc., a non-diversified, closed-end management
investment company whose shares are traded on the New York Stock
Exchange, organized to invest in high-grade, fixed income
securities denominated in the currencies of Australia, Canada,
New Zealand and the United Kingdom. The Investment Adviser also
manages eight Australian public unit trusts and two other
closed-end investment companies whose shares are listed on the
Australian Stock Exchange Limited, as well as two open-end funds
marketed in Taiwan and institutional and private advisory
accounts. The Investment Manager and the Investment Adviser are
registered with the Commission under the Investment Advisers Act
of 1940. The Prudential Insurance Company of America, as
Consultant, consults with the Investment Manager and the
Investment Adviser with respect to economic factors and trends
and currency movements affecting the Fund. See "Management."
USE OF PROCEEDS
Subject to market conditions, the net proceeds of this
offering (estimated to be $__________ after deducting estimated
issuance costs, including sales load of $_______ and offering
costs of approximately $_______) will be invested within 60 days
of the receipt thereof in accordance with the policies set forth
under "Investment Objective and Policies; Investment
Restrictions." Pending such investment, such proceeds may be
invested in U.S. Securities and repurchase agreements.
SPECIAL CONSIDERATIONS AND RISK FACTORS
It is expected that normally at least 65% of the Fund's
total assets will be invested in Australian dollar denominated
debt securities of Australian banks, federal and state
governmental entities and companies. The Fund may invest the
remainder of its assets in debt securities of comparable quality
which are denominated in Australian or New Zealand dollars of
other issuers and in U.S. Securities. As a result, changes in
the exchange rate of the Australian and New Zealand dollar
relative to the U.S. dollar, which could be material, will affect
the U.S. dollar value of the Fund's assets, its yield and the
amount of securities required to be liquidated in order to meet
distribution requirements established by the Code or to redeem
the AMPS. Moreover, an increase in interest rates in Australia
or New Zealand could be expected to result in a decline in the
value of the Fund's portfolio securities. However, the AMPS
Basic Maintenance Amount, which the Fund is required to maintain
by Moody's and S&P in connection with their rating of the AMPS,
mitigates against risks to holders of AMPS associated with
investment in foreign issues by requiring the Fund to redeem the
AMPS before the assets of the Fund, as measured in U.S. dollars,
would be insufficient to pay the AMPS liquidation preferences of
$25,000 plus accumulated but unpaid dividends (whether or not
earned or declared). See "Description of AMPS -- Asset
Maintenance" and "Description of AMPS -- Redemption." Finally,
income received by the Fund from sources within foreign countries
may be subject to withholding and other taxes imposed by such
country. See "Taxation -- Foreign Withholding Taxes."
As a non-diversified investment company, there is no
investment restriction on the percentage of the Fund's assets
that may be invested at any time in the securities of any issuer.
Thus, subject to the diversification requirements imposed by the
Code applicable to the Fund, the Fund may be more susceptible
than a more widely diversified fund to any single economic,
political or regulatory occurrence. However, in addition to the
diversification restrictions imposed by the Code, the Fund's
investment restrictions prevent it from investing more than 25%
of its total assets at the time of purchase in any one industry
except that the Fund may invest over 25% of its total assets in
securities issued or guaranteed, as to payment of principal and
interest, by Australian governments or governmental agencies.
The Fund also intends to limit its investments in the securities
of any issuer, except for securities issued or guaranteed as to
payment of principal and interest by Australian or New Zealand
commonwealth or state governments or their instrumentalities, to
5% of its assets at the time of purchase. See "Investment
Objective and Policies; Investment Restrictions -- Portfolio
Structure" and "Investment Objective and Policies; Investment
Restrictions -- Investment Restrictions" and "Taxation -- Tax
Treatment of the Fund -- General."
The Fund's Articles and By-laws include provisions that
could have the effect of limiting the ability of other entities
or persons to acquire control of the Fund, the Fund's freedom to
engage in certain transactions, or the ability of the Fund's
Directors or shareholders to amend the Articles or to effect
changes in the Fund's management. The issuance of preferred
stock could have the effect, although not presently intended, of
discouraging takeovers of the Fund. See "Certain Provisions of
Articles of Amendment and Restatement."
There are a number of specific factors investors in AMPS
should consider.
- The credit ratings of the AMPS could be reduced while
an investor holds the AMPS.
- Neither Broker-Dealers nor the Fund are obligated to
purchase shares of AMPS in an Auction or otherwise, nor
is the Fund required to redeem shares of AMPS in the
event of a failed Auction.
- If, in an Auction for the AMPS, Sufficient Clearing
Bids do not exist, the Applicable Rate will be the
Maximum Applicable Rate and, in such event, Beneficial
Owners that have submitted Sell Orders will not be able
to sell in the Auction all, and may not be able to sell
any, shares of AMPS subject to such Sell Orders. Thus,
under certain circumstances, Beneficial Owners may not
have liquidity of investment.
The AMPS will not be registered on any stock exchange
or on the National Association of Securities Dealers Automated
Quotation System. The Broker-Dealers may maintain a secondary
market in the shares of AMPS outside the Auction mechanism. The
Broker-Dealers, however, have no obligation to make a secondary
market in the shares of AMPS outside the Auction process, and
there
can be no assurance that a secondary market for the AMPS will
develop or, if it does develop, that it will provide holders with
liquidity of investment. If a Broker-Dealer purchases shares of
AMPS in the secondary market or in an Auction, it may be in a
position of owning shares of AMPS at the time Applicable Rates
with respect to the AMPS are determined and it may tender such
shares in any Auction.
PORTFOLIO COMPOSITION
The following sets forth certain information with respect to
the composition of the Fund's investment portfolio (excluding
$84,461,511 held in U.S. and Australian dollar denominated
short-term investments) as of January 31, 1995 based on the then
applicable exchange rate of U.S. $0.75965 to A$1.00 and U.S $----
to NZ $1.00.
The Portfolio
% of Total
Market Value Market Value
Number in of Long-Term
of Issues U.S. Dollars Portfolio
--------- ------------- -------------
Australian and
New Zealand
government
securities . . . . . . 20 $425,576,742 30.15%
Australian
semi-government
securities . . . . . . 19 451,163,803 31.96
Australian and
New Zealand
corporate bonds . . . . 16 158,595,831 11.24
Eurobonds . . . . . . . 49 376,137,542 26.65
--- ------------ -----
Total long-term
investment. . . . . 104 $1,411,473,918 100.00%
=== ============== =======
Ratings of Securities Held in the Portfolio
% of Total
Market
Value of
Long-Term
Portfolio
---------
Moody's and/or S&P Ratings*
Aaa/AAA by Moody's or S&P. . . . . . . . . . . . 59.11%
Aa/AA by Moody's or S&P. . . . . . . . . . . . . 38.82
A/A by Moody's or S&P. . . . . . . . . . . . . . 2.07
------
Total Portfolio Rated by Moody's and/or S&P. . . 100.00%
=======
- --------------
* Reflects the lower of the Moody's or S&P rating
For further information, reference should be made to
"Financial Statements."
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES;
INVESTMENT RESTRICTIONS
Investment Objectives and Policies
The Fund's investment objective is current income through
investment primarily in Australian debt securities. The Fund may
also achieve incidental capital appreciation. The objective and
the policies set forth in the following three paragraphs and
under the caption "Investment Restrictions" may not be changed
without the approval of the holders of a majority of the
outstanding shares of the Common Stock and the Preferred Stock,
voting together as a single class, as well as by the holders of a
majority of the outstanding shares of the Fund's Preferred Stock
voting as a separate class without regard to series. A majority
vote, as defined by the 1940 Act, means the affirmative vote of
the lesse of (i) 67% of the relevant shares represented at a
meeting at which more than 50% of such shares are represented, or
(ii) more than 50% of the relevant shares.
Portfolio Structure
It is expected that normally at least 65% of the Fund's
total assets will be invested in Australian dollar denominated
debt securities of Australian banks, federal and state
governmental entities and companies. To achieve its investment
objective, the Fund may invest the remainder of its assets in
debt securities of comparable quality which are denominated in
Australian or New Zealand dollars of other issuers, whether or
not domiciled in Australia or New Zealand, and in U.S.
Securities. The Fund will invest only in debt securities for
which there is an active secondary market and will not purchase
securities as to which there would be any legal restrictions on
sale or disposition by the Fund except that the Fund may invest
up to 10% of its assets in privately placed debt securities which
(i) are Australian or New Zealand dollar denominated, (ii) are
not subject to legal or contractual restriction on their resale,
(iii) mature in four years or less, and (iv) are issued or
guaranteed by banks or companies whose debt securities are rated
Aa or better by Moody's or AA or better by S&P. The Fund will
not invest in convertible debt securities. During periods when,
in the Investment Manager's judgment, changes in the market for
Australian and New Zealand debt securities or other economic
conditions warrant a temporary defensive investment policy, the
Fund may temporarily reduce its position in such securities and
invest in U.S. Securities.
It is the Fund's policy to limit its investments, as to 65%
of its total assets, to issuers or debt securities at the time of
investment rated AA or better by S&P, or Aa or better by Moody's,
or which, in the judgment of the Investment Manager, are of
equivalent quality. The remainder of the Fund's investments will
be rated A by those rating agencies or will in the Investment
Manager's judgment be of equivalent quality.
The Fund may enter into repurchase agreements with banks and
broker-dealers pursuant to which the Fund may acquire a security
for a relatively short period (usually no more than a week)
subject to the obligations of the seller to repurchase and the
Fund to resell such security at a fixed time and price. The Fund
will enter into repurchase agreements only with parties who meet
creditworthiness standards approved by the Fund's Board of
Directors, i.e., banks or broker-dealers which have been
determined by the Fund's Investment Manager to present no serious
risk of becoming involved in bankruptcy proceedings within the
period contemplated by the repurchase transaction.
The Fund will not purchase or sell put or call options,
enter into swaps or futures contracts, or engage in any other
type of derivative security transaction.
As a non-diversified company, there is no investment
restriction on the percentage of the Fund's assets that may be
invested at any time in the securities of any issuer. However,
the Fund intends to limit its investments in the securities of
any issuer, except for securities issued or guaranteed as to
payment of principal and interest by Australian or New Zealand
commonwealth or state governments or their instrumentalities, to
5% of its assets at the time of purchase. The Fund may invest
without limitation in securities of Australian governments or
governmental entities and may invest up to 25% of its assets at
the time of purchase in New Zealand government securities. The
Fund intends to invest in a variety of debt securities, with
differing issuers, maturities and interest rates, and to comply
with the diversification and other requirements of the Code
applicable to regulated investment companies so that the Fund
will not be subject to U.S. federal income taxes on its net
investment income. See "Taxation -- United States." The average
U.S. dollar weighted maturity of the Fund's portfolio is not
expected to exceed 10 years.
Investment Restrictions
The Fund may not:
1. Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of
transactions.
2. Make short sales of securities or maintain a short
position.
3. (a) Issue senior securities, except (i) insofar as the
Fund may be deemed to have issued a senior security in
connection with any repurchase or securities lending
agreement or any borrowing agreement permitted by those
investment restrictions and (ii) that the Fund may
issue one or more series of its preferred stock, if
permitted by the Articles; or (b) borrow money or
pledge its assets, except that the Fund may borrow on
an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions
in amounts not exceeding 10% of its total assets (not
including the amount borrowed) and will not make
additional investments while any such borrowings are
outstanding.
4. Buy or sell commodities, commodity contracts, real
estate or interests in real estate (except that the
Fund may purchase and sell Australian mortgage-backed
securities).
5. Make loans (except that the Fund may purchase debt
securities whether or not publicly traded or privately
placed or may enter into repurchase and securities
lending agreements consistent with the Fund's
investment policies).
6. Make investments for the purpose of exercising control
or management.
7. Act as an underwriter (except to the extent the Fund
may be deemed to be an underwriter in connection with
the sale of securities in the Fund's investment
portfolio).
8. Invest more than 25% of its total assets at the time of
purchase in any one industry (including banking) except
that the Fund will invest over 25% of its total assets
in securities issued or guaranteed, as to payment of
principal and interest, by Australian governments or
governmental entities. U.S. government securities are
excluded from this restriction.
The Fund has no intention to file a voluntary application
for relief under federal bankruptcy law or any similar
application under state law for so long as the Fund is solvent,
and given the investment restrictions of the Fund described
above, in particular, the limitations on the Fund's ability to
incur indebtedness, and the Fund's equity position, management of
the Fund cannot conceive of any circumstances under which the
Fund would run any material risk of becoming insolvent.
Description of Debt Securities
The types of debt securities in which the Fund is permitted
to invest include those described below.
Australian Securities
Commercial Banks. The Fund is permitted to invest in bills
of exchange, certificates of deposit and promissory notes issued
or guaranteed, as to payment of principal and interest, by
Australian commercial banks. Australian commercial banks are
generally comparable to U.S. banks and are subject to regulation
by Australian government authorities. The Investment Adviser
does not believe that there are any special risks associated with
such bank securities. Bills of exchange are negotiable
instruments, issued to finance current transactions, which
generally mature within six months and which are accepted or
endorsed by a commercial bank and thus carry the bank's credit.
Certificates of deposit are negotiable instruments issued by
commercial banks with maturities ranging from a few days to
several years. Promissory notes are negotiable instruments
endorsed and therefore guaranteed by a commercial bank or backed
by a bank letter of credit as to payment of principal and
interest. Maturities generally range up to 180 days. Bank
bills, certificates of deposit and promissory notes are usually
issued at a discount from face value and are traded by dealers in
an active public secondary market.
Governmental Entities. The Fund is permitted to invest in
Federal Commonwealth of Australia (the "Commonwealth") government
bonds and treasury notes and state government and semi-government
bonds and notes. Commonwealth government bonds and treasury
notes represent the obligations of the Commonwealth and are sold
by the Reserve Bank of Australia (the central bank) through
public tenders. Bonds have maturities up to 30 years while notes
are issued in maturities of 13 and 26 weeks. The Commonwealth
also guarantees as to payment of principal and interest similar
debt obligations issued by its instrumentalities. State
government and semi-government bonds and notes are issued by
various states and state instrumentalities and, in the case of
state instrumentalities, are guaranteed by the applicable state
government. Maturities range from less than one year to 15
years. Australian federal and state government debt securities
are frequently listed on the Australian Stock Exchange Limited
but most trading is by dealers in an active public secondary
market.
Companies. The Fund is permitted to invest in
publicly-traded notes and debentures or bills of exchange issued
or guaranteed as to payment of principal and interest by
Australian companies, whether or not guaranteed or backed by a
commercial bank. Such securities have maturities generally
ranging from less than one year to five years and are traded by
dealers in an active public secondary market.
Mortgage-Backed Securities. The Fund is permitted to invest
in Australian mortgage-backed securities, which represent part
ownership by the Fund in a pool of mortgage loans. These loans
are made by private lenders and may have guarantees from
Australian federal and state governmental entities, companies and
agencies. These securities would have to satisfy the Fund's
general credit criteria to qualify for purchase. Characteristics
of several of the major mortgage-backed securities are summarized
below:
FANMACs: FANMAC securities are securities issued by a
trustee against housing loans made through the New South
Wales Department of Housing and consist of a series of
closed trusts or pools. The mortgage manager is the First
Australian National Mortgage Acceptance Corporation Ltd.
("FANMAC"). FANMAC is owned 26% by the Government of the
State of New South Wales with the remainder owned by other
institutions. The Government of the State of New South
Wales has provided the FANMAC Trust with a guarantee as to
availability of funds to meet payment. The securities have
been rated by Australian Ratings Pty. Ltd. ("Australian
Ratings") and S&P. FANMAC securities are subject to a call
provision under which borrowers (mortgagors) can repay early
and the investors in a particular pool can be repaid on a
pro rata basis.
NMMC AUSSIE MACs and National Mortgage Market Bonds:
National Mortgage Market Corporation Ltd. ("NMMC") has
issued both AUSSIE MACs, which are medium term bearer
securities, and National Mortgage Market Bonds. NMMC is a
private company which is 26% owned by the Government of the
State of Victoria and 74% by private institutions. Both
AUSSIE MACs and National Mortgage Market Bonds are rated by
Australian Ratings.
MTCs: Mortgage Trust Certificates ("MTCs") are
securities issued against specific mortgages by a trustee
and are similar to "pass through" certificates. MTCs are
issued on a continuous basis, insured by Australian
insurance companies against both mortgage default and an
early call, and rated by Australian Ratings.
MMSs and ANNIE MAEs: MMSs are mortgage-backed
securities issued by MGICA Securities Ltd., a wholly-owned
subsidiary of AMP Society Ltd., an Australian insurance
company. ANNIE MAEs are securities issued by Australian
National Mortgage Pool Agency Ltd., an affiliate of Bank of
America. Both MMSs and ANNIE MAEs are issued against pools
of mortgages and are rated by Australian Ratings.
Other Debt Securities. Subject to its investment
policy of investing at least 65% of its assets in Australian
dollar denominated debt securities of Australian issuers,
the Fund is permitted to invest in Australian and New
Zealand dollar denominated debt securities, similar in
nature to those described above, regardless of the domicile
of the issuers. Thus, the Fund is permitted to invest in
publicly-traded debt securities of New Zealand issuers and
in publicly-traded debt securities denominated in Australian
or New Zealand dollars of issuers not domiciled in those
countries. The latter securities are usually issued in the
Eurodollar market by multi-national banks and companies
which may have operations in Australia or New Zealand.
The Fund is also permitted to invest up to 10% of its assets
in privately placed debt securities which are Australian and New
Zealand dollar denominated, mature in four years or less and
which are issued or guaranteed by banks or companies whose debt
securities are rated at the time of investment Aa or better by
Moody's or AA or better by S&P. The Fund may not purchase
privately placed securities which are subject to legal or
contractual restrictions on their resale. However, although such
securities will be freely transferable, the resale markets for
privately placed securities are frequently limited, and the Fund
may either be required to dispose of such securities at a
substantial discount from face value or to hold such securities
until maturity. The value of such securities for net asset value
purposes will be determined by the Fund's Board of Directors.
U.S. Securities
Government. The Fund is permitted to invest in U.S.
government securities, including obligations issued or guaranteed
by U.S. government agencies or instrumentalities, some of which
are backed by the full faith and credit of the U.S. Treasury
(such as direct pass-through certificates of the Government
National Mortgage Association ("GNMA")), some of which are
supported by the right of the issuer to borrow from the U.S.
government (such as obligations of Federal Home Loan Banks), and
some of which are backed only by the credit of the issuer itself.
Government obligations do not generally involve the credit risks
associated with other types of interest bearing securities,
although, as a result, the yields available from U.S. government
obligations are generally lower than the yields available from
corporate interest bearing securities. Like other interest
bearing securities, however, the value of government obligations
changes as interest rates fluctuate.
Corporations and Banks. The Fund is permitted to invest for
defensive and other temporary purposes in U.S. corporate debt
instruments rated Aa or better by Moody's or AA or better by S&P
and finance company and corporate commercial paper and other
short-term obligations, in each case rated Prime-1 or Prime-2 by
Moody's or A-2 or better by S&P. The Fund is also permitted to
invest in obligations of U.S. federal or state chartered banks
and bank holding companies rated at the time of investment Aa or
better by Moody's or AA or better by S&P (including certificates
of deposit, bankers' acceptances and other short-term debt
obligations).
Repurchase Agreements
The Fund is permitted to invest in repurchase agreements
with banks and broker-dealers. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually no more than one week) subject
to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). The Investment Manager monitors the
value of such securities daily to determine that the value equals
or exceeds the repurchase price. Under the 1940 Act, repurchase
agreements are considered to be loans made by the Fund which are
collateralized by the securities subject to repurchase.
Repurchase agreements may involve risks in the event of default
or insolvency of the seller, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund will enter into repurchase agreements only
with parties who meet creditworthiness standards approved by the
Fund's Board of Directors, i.e., banks or broker-dealers which
have been determined by the Investment Manager to present no
serious risk of becoming involved in bankruptcy proceedings
within the time frame contemplated by the repurchase transaction.
Rating Agency Guidelines
The Fund intends that, so long as shares of AMPS are
outstanding, the composition of its portfolio will reflect
guidelines established by the Rating Agencies in connection with
the Fund's receipt of a rating for such shares on the Date of
Original Issue of at least "aa" from Moody's and at least AA from
S&P. Moody's and S&P issue ratings for various securities
reflecting the perceived creditworthiness of such securities.
The guidelines are designed to ensure that assets underlying
outstanding debt or preferred stock will be sufficiently varied
and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force
of law but have been adopted by the Fund and will be reflected in
the Articles Supplementary in order at issuance to receive the
above-described ratings for shares of AMPS, which ratings are
generally relied upon by institutional investors in purchasing
such securities. The guidelines provide a set of tests for
portfolio composition and asset coverage that supplement (and in
some cases are more restrictive than) the applicable requirements
under the 1940 Act.
The Fund intends to maintain a Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount.
To the extent any particular portfolio holding does not satisfy
the applicable rating agency guidelines, as the same may be
modified by the Ratings Agencies from time to time, it will not
be included for purposes of calculating the Discounted Value of
the Fund's portfolio. Upon any failure to maintain such
Discounted Value, the Fund will seek to alter the composition of
its portfolio to reattain the AMPS Basic Maintenance Amount on or
prior to the AMPS Basic Maintenance Cure Date, thereby incurring
additional transaction costs and possible losses and/or gains on
disposition of portfolio securities. To the extent any such
failure is not cured in a timely manner, shares of AMPS will be
subject to redemption. See "Description of AMPS -- Redemption --
Mandatory Redemption."
The Fund may, but is not required to, adopt any
modifications to these guidelines that may hereafter be
established by Moody's or S&P. Failure to adopt any such
modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In
addition, any rating agency providing a rating for the shares of
AMPS may, at any time, change or withdraw any such rating. As
set forth in the Articles Supplementary, the Board of Directors
may, without shareholder approval, modify certain terms of the
Articles Supplementary which have been adopted by the Fund
pursuant to the rating agency guidelines, provided the Board of
Directors has obtained written confirmation from the relevant
rating agency that any such change would not impair the rating
then assigned by such agency to the AMPS.
As recently described by Moody's and S&P, a preferred stock
rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock obligations. The ratings on the
AMPS are not recommendations to purchase, hold or sell shares of
AMPS, inasmuch as the ratings do not comment as to market price
or suitability for a particular investor. Nor do the rating
agency guidelines described above address the likelihood that a
holder of shares of AMPS will be able to sell such shares in an
Auction. The ratings are based on current information furnished
to Moody's and S&P by the Fund and the Investment Adviser, and
information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information. The Common Stock has not
been rated by a nationally recognized statistical rating
organization.
S&P AA Rating Guidelines. The Discounted Value of the
Fund's Eligible Portfolio Property is calculated on each
Valuation Date. See "Description of AMPS -- Asset Maintenance --
AMPS Basic Maintenance Amount." S&P Eligible Portfolio Property
currently consists of Australian Bank Bills, Australian Corporate
Bonds, Australian Currency, Australian Exchangeable Eurobonds,
Australian Eurobonds, Australian Government Securities,
Australian Semi-Government Securities, Cash, U.S. Government
Obligations, Repurchase Agreements, Short Term Money Market
Instruments, FNMA Certificates, FHLMC Certificates, FHLMC
Multifamily Securities, GNMA Certificates and GNMA Graduated
Payment Securities.
Generally speaking, securities constituting S&P Eligible
Portfolio Property other than government securities, must be
issued or guaranteed by an entity which is rated at least AA by
S&P. In some cases, the percentage of the S&P Eligible Portfolio
Property which can be held in a particular category or property
or in a particular industry or in securities issued by a single
issuer is limited, or a minimum principal amount of securities of
the same class must be outstanding in order to qualify as S&P
Eligible Portfolio Property.
The Discounted Value for purposes of calculating compliance
with the AMPS Basic Maintenance Amount is obtained by dividing
the market value of each portfolio asset constituting S&P
Eligible Portfolio Property by a stipulated Discount Factor.
Each Discount Factor reflects S&P's assessment of the
liquidation value of a particular category of Eligible Portfolio
Property. This assessment is based, in turn, upon such factors
as issue size and the remaining maturity of the instrument. For
example, U.S. cash is given a Discount Factor of 1.000.
Australian Currency is currently given a Discount Factor of
1.570, while Australian Government Securities with a current
outstanding issue size of at least A$100 million but less than or
equal to A$150 million having a remaining maturity of more than 5
but not more than 10 years from the relevant Valuation Date, is
given a Discount Factor of 1.462 compared with a Discount Factor
of 1.526 for Australian Government Securities of the same size
with maturities in excess of 10, but not more than 20 years from
the relevant Valuation Date.
The Discounted Value of all Australian securities is further
discounted by applying the Discount Factor applicable to
Australian Currency.
Moody's AA Rating Guidelines. The Discounted Value of the
Fund's Moody's Eligible Portfolio Property is calculated on each
Valuation Date. See "Description of AMPS -- Asset Maintenance --
AMPS Basic Maintenance Amount." Moody's Eligible Portfolio
Property currently consists of Australian Bank Bills, Australian
Currency, Australian Exchangeable Eurobonds, Australian
Government Securities, Australian Semi-Government Securities,
Cash, U.S. Government Obligations, Repurchase Agreements, Short
Term Money Market Instruments, FNMA Certificates, FHLMC
Certificates, FHLMC Multifamily Securities, GNMA Certificates and
GNMA Graduated Payment Securities.
Generally speaking, the Australian Securities must be rated
Aa3 or Aaa by Moody's and in some cases, the percentage of
Moody's Eligible Portfolio Property which can be held in a
particular category is limited, or an initial minimum issue size
is required.
The Discounted Value for purposes of calculating compliance
with the AMPS Basic Maintenance Amount is obtained by dividing
the market value of each portfolio asset constituting Moody's
Eligible Portfolio Property by a stipulated Discount Factor.
Each Discount Factor reflects Moody's assessment of the
liquidation value of a particular category of Eligible Portfolio
Property. This assessment is based, in turn, upon such factors
as an issue size and the remaining maturity of the investment.
For example, U.S. cash is given a Discount Factor of 1.000.
Australian Currency is given a Discount Factor of 1.350, while
Australian Government Securities with a current outstanding size
of at least A$100 million but less than or equal to A$150 million
having a remaining maturity of more than 5 but not more than 10
years from the relevant Valuation Date is given a Discount Factor
of 1.730, compared with a Discount Factor of 1.520 for Australian
Government Securities of the same maturities with a current
outstanding issue size greater than A$150 million.
As is the case with S&P, the Discounted Value of all
Australian securities is further discounted by applying the
Discount Factor applicable to the Australian Currency.
Neither Rating Agency has developed Discount Factors for all
of the securities which the Fund may hold pursuant to its
investment objectives and, therefore, certain portfolio assets
are not considered Eligible Portfolio Property by either Agency,
including New Zealand currency and any New Zealand security.
Either Rating Agency may in the future add or delete categories
to its list of Eligible Portfolio Property, modify the
requirements of eligibility or modify existing Discount Factors.
The addition of additional Eligible Portfolio Property or a
reduction in the magnitudes of Discount Factors could make it
easier for the Fund to meet the Rating Agency guidelines.
A description of all categories of Eligible Portfolio
Property and the Discount Factors stipulated by S&P and Moody's
is set forth in the Articles Supplementary.
DESCRIPTION OF AMPS
Certain of the capitalized terms used herein are defined in
the Glossary that appears at the back of this Prospectus.
General
The AMPS will be shares of Preferred Stock of the Fund that
entitle their holders to receive dividends at a rate per annum
that may vary for the successive Dividend Periods for the AMPS.
In general, each Dividend Period will be 7 days in length and the
Applicable Rate for a particular Dividend Period will be
determined by an Auction conducted on the Business Day before the
start of such Dividend Period. Existing Holders desiring to
continue to hold all of their shares of AMPS regardless of the
Applicable Rate resulting from Auctions need not participate.
For an explanation of Auctions and the method of determining the
Applicable Rate, see "Description of AMPS -- The Auction."
Except as otherwise required by law or unless there is no
Securities Depository, all outstanding shares of AMPS will be
represented by a single certificate registered in the name of the
nominee of the Securities Depository (initially expected to be
Cede & Co.), and no person acquiring shares of AMPS will be
entitled to receive a certificate representing such shares. See
Appendix B (Auction Procedures). As a result, the nominee of the
Securities Depository is expected to be the sole holder of record
of the shares of AMPS. Accordingly, each purchaser of AMPS must
rely on (i) the procedures of the Securities Depository and, if
such purchaser is not a member of the Securities Depository, such
purchaser's Agent Member, to receive dividends, distributions and
notices and to exercise voting rights (if and when applicable)
and (ii) the records of the Securities Depository and, if such
purchaser is not a member of the Securities Depository, of such
purchaser's Agent Member, to evidence its beneficial ownership of
shares of AMPS.
When issued and sold, the shares of AMPS will have a
liquidation preference of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) and will be
fully paid and non-assessable. The shares of AMPS will not be
convertible into shares of Common Stock or other capital stock of
the Fund and the holders thereof will have no preemptive rights.
The shares of AMPS will not be subject to any sinking fund but
will be subject to redemption at the option of the Fund on any
Dividend Payment Date with respect thereto and, under certain
circumstances, will be subject to mandatory redemption by the
Fund at the redemption price stated herein. See "Description of
AMPS -- Redemption."
In addition to serving as the Auction Agent in connection
with the Auction Procedures described below, Chemical Bank will
be the transfer agent, registrar, paying agent and redemption
agent for the AMPS. The Auction Agent, however, will serve
merely as the agent of the Fund, acting in accordance with the
Fund's instructions, and will not be responsible for any
evaluation or verification of any matters certified to it.
Except in an Auction, the Fund will have the right (to the
extent permitted by applicable law) to purchase or otherwise
acquire any shares of AMPS, so long as the Fund is current in the
payment of dividends on AMPS and on any other outstanding series
of Preferred Stock. Any shares of AMPS redeemed, purchased or
otherwise acquired by the Fund may not be reissued and will be
cancelled by the Fund.
The following is a brief description of the terms of the
shares of AMPS. This description does not purport to be complete
and is subject to and qualified in its entirety by reference to
the Articles of Incorporation including the Articles
Supplementary. The Articles and the form of Articles
Supplementary establishing the terms of the AMPS have been filed
as exhibits to the Registration Statement of which this
Prospectus is a part.
The Auction
General
Holders of the shares of AMPS will be entitled to receive
cumulative cash dividends on their shares when, as and if
declared by the Board of Directors of the Fund, out of funds
legally available therefor, on each Dividend Payment Date with
respect to the Dividend Period then ending (a period of 7 days,
subject to certain exceptions as set forth under "Description of
AMPS -- Dividends -- General") at the rate per annum equal to the
Applicable Rate for each such Dividend Period.
The provisions of the Articles Supplementary establishing
the terms of the shares of AMPS offered hereby will provide that
the Applicable Rate for the AMPS for each Dividend Period after
the Initial Dividend Period will be equal to the rate per annum
that the Auction Agent advises has resulted on the Business Day
preceding the first day of such Dividend Period due to
implementation of the auction procedures set forth in the
Articles Supplementary (the "Auction Procedures"), in which
persons determine to hold or offer to purchase or sell shares of
AMPS. The Auction Procedures are attached as Appendix B to this
Prospectus. Each periodic operation of such procedures with
respect to the AMPS is hereinafter referred to as an "Auction."
If, however, the Fund should fail to pay or duly provide for the
full amount of any dividend on shares of AMPS offered hereby or
the redemption price of shares of AMPS offered hereby called for
redemption, the Applicable Rate for shares of AMPS will be
determined as set forth under "Description of AMPS -- Dividends -
- - Determination of Dividend
Rate."
Auction Agent Agreement. The Fund will enter into an
agreement (the "Auction Agent Agreement") with Chemical Bank
(together with any successor bank or trust company or other
entity entering into a similar agreement with the Fund, the
"Auction Agent"), which provides, among other things, that the
Auction Agent will follow the Auction Procedures for the purpose
of determining the Applicable Rates for the AMPS. The Fund will
pay the Auction Agent compensation for its services under the
Auction Agent Agreement.
The Auction Agent will act as agent for the Fund in
connection with Auctions. In the absence of bad faith or
negligence on its part, the Auction Agent will not be liable for
any action taken, suffered or omitted, or for any error of
judgment made, by it in the performance of its duties under the
Auction Agent Agreement, and will not be liable for any error of
judgment made in good faith unless the Auction Agent shall have
been negligent in ascertaining the pertinent facts. Pursuant to
the Auction Agent Agreement, the Fund is required to indemnify
the Auction Agent for certain losses and liabilities incurred by
the Auction Agent without negligence or bad faith on its part in
connection with the performance of its duties under such
agreement.
The Auction Agent may terminate the Auction Agent Agreement
upon notice to the Fund, which termination may be no earlier than
the Business Day after the second Dividend Payment Date for the
AMPS, following delivery of such notice. If the Auction Agent
resigns, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially
the same terms and conditions as the Auction Agent Agreement.
The Fund may terminate the Auction Agent Agreement, provided that
prior to such termination the Fund shall have entered into such
an agreement with respect thereto with a successor Auction Agent.
Broker-Dealer Agreements. The Auctions require the
participation of one or more broker-dealers. The Auction Agent
will enter into agreements with Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Prudential Securities Incorporated, and
may enter into similar agreements (collectively, the
"Broker-Dealer Agreements") with one or more other broker-dealers
(collectively, the "Broker-Dealers") selected by the Fund which
agreements provide for the participation of such Broker-Dealer in
Auctions. Such Broker-Dealers to be selected by the Fund may
include affiliates of the Fund. A Broker-Dealer Agreement may be
terminated by the Auction Agent or a Broker-Dealer on five days'
notice to the other party.
Securities Depository. The Depository Trust Company
initially will act as Securities Depository for the Agent Members
with respect to the shares of AMPS. One registered certificate
for all of the shares of AMPS initially will be registered in the
name of Cede & Co., as nominee of the Securities Depository. The
certificate will bear a legend to the effect that such
certificate is issued subject to the provisions restricting
transfers of shares of AMPS contained in the Articles
Supplementary. Cede & Co. initially will be the holder of record
of all shares of AMPS, and Beneficial Owners will not be entitled
to receive certificates representing their ownership interest in
such shares. See Appendix B (Auction Procedures). The
Securities Depository will maintain lists of its participants and
will maintain the positions (ownership interests) of AMPS held by
each Agent Member, whether as the Beneficial Owner thereof for
its own account or as nominee for the Beneficial Owner thereof.
Payments made by the Fund to holders of AMPS will be duly made by
making payments to the nominee of the Securities Depository.
Auction Procedures
The following is a brief summary of the procedures to be
used in conducting Auctions. This summary is qualified by
reference to the Auction Procedures set forth in Appendix B
hereto. The settlement procedures to be used with respect to
Auctions are set forth in Appendix A hereto.
Auction Date. An Auction to determine the Applicable Rate
for the AMPS offered hereby for each Dividend Period (other than
the Initial Dividend Period therefor) will be held on the first
Business Day (as hereinafter defined) preceding the first day of
such Dividend Period (the date of each Auction being referred to
herein as an "Auction Date"). "Business Day" means a day on
which the New York Stock Exchange is open for trading and which
is not a Saturday, Sunday or other day on which banks in The City
of New York are authorized or obligated by law to close;
provided, that for purposes of determining Valuation Dates and
Cure Dates, "Business Day" means a day on which the New York
Stock Exchange and the Australian Stock Exchange Limited are open
for trading and which is not a Saturday, Sunday or other day on
which banks in The City of New York or in Sydney, Australia are
authorized or obligated by law to close. Auctions for shares of
AMPS for Dividend Periods after the Initial Dividend Period will
normally be held every Tuesday after the preceding Dividend
Payment Date, and each subsequent Dividend Period will normally
begin on the following Wednesday (also a Dividend Payment Date).
The Auction Date and the first day of the related Dividend Period
(both of which must be Business Days) need not be consecutive
calendar days. For example, in most cases, if the Tuesday that
normally would be an Auction Date is not a Business Day then,
such Auction Date will be the preceding Monday and the first day
of the related Dividend Period will continue to be the following
Wednesday. See "Description of AMPS -- Dividends" for
information
concerning the circumstances under which the Auction Date or the
first day of a Dividend Period, or both, may be moved to a date
other than such Tuesday and Wednesday, respectively.
Orders by Beneficial Owners, Potential Beneficial Owners,
Existing Holders and Potential Holders. On or prior to each
Auction Date:
(a) each Beneficial Owner may submit to its Broker-Dealer
by telephone a:
(i) Hold Order -- indicating a number of
outstanding shares, if any, of AMPS that such Beneficial
Owner desires to continue to hold without regard to the
Applicable Rate for the next Dividend Period for such
shares;
(ii) Bid -- indicating the number of outstanding
shares, if any, of AMPS that such Beneficial Owner desires
to continue to hold, provided that the Applicable Rate for
the next Dividend Period for such shares is not less than
the rate per annum then specified by such Beneficial Owner;
and/or
(iii) Sell Order -- indicating the number of
outstanding shares, if any, of AMPS that such Beneficial
Owner offers to sell without regard to the Applicable Rate
for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential
Beneficial Owners of shares of AMPS to determine whether
such Potential Beneficial Owners desire to submit Bids
indicating the number of shares of AMPS which they offer to
purchase provided that the Applicable Rate for the next
Dividend Period for such shares is not less than the rates
per annum specified in such Bids.
The communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer and the communication by a
Broker-Dealer, whether or not acting for its own account, to the
Auction Agent of the foregoing information is hereinafter
referred to as an "Order" and collectively as "Orders." A
Beneficial Owner or a Potential Beneficial Owner placing an
Order, including a Broker-Dealer acting in such capacity, whether
or not for its own account, is hereinafter referred to as a
"Bidder" and collectively as "Bidders." Any Order submitted by a
Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior
to the Submission Deadline on any Auction Date shall be
irrevocable.
In an Auction, a Beneficial Owner may submit different types
of Orders with respect to shares of AMPS then held by such
Beneficial Owner, as well as Bids for additional shares of AMPS.
For information concerning the priority given to different types
of Orders placed by Beneficial Owners, see "Submission of Orders
by Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate at any Auction will be the rate
obtained by multiplying the 30-day "AA" Composite Commercial
Paper Rate on the date of such Auction by the Applicable
Percentage determined as set forth below based on the lower of
the credit rating or ratings assigned to the AMPS by Moody's and
S&P (or if Moody's or S&P or both shall not make such rating
available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in
the event that only one such rating be available, the percentage
will be based on such rating).
Credit Rating Applicable Percentage
------------- ---------------------
S&P Moody's
--- -------
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
The Fund will take all reasonable action necessary to enable
Moody's and S&P to continue to provide a rating for the AMPS. If
either Moody's or S&P shall not make such a rating available, or
neither S&P nor Moody's shall make such a rating available,
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after consultation with the Fund, will
select a nationally recognized securities rating agency (a
"Substitute Rating Agency") or two nationally recognized
securities rating agencies ("Substitute Rating Agencies") to act
as a substitute rating agency or substitute rating agencies, as
the case may be.
Any Bid by a Beneficial Owner specifying a rate per annum
higher than the Maximum Applicable Rate will be treated as a Sell
Order, and any Bid by a Potential Beneficial Owner specifying a
rate per annum higher than the Maximum Applicable Rate will not
be considered. See "Determination of Sufficient Clearing Bids,
Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares."
Neither the Fund nor the Auction Agent will be responsible
for a Broker-Dealer's failure to comply with the foregoing.
A Broker-Dealer also may hold AMPS in its own account as a
Beneficial Owner. A Broker-Dealer thus may submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial
Owner and therefore participate in an Auction as an Existing
Holder or Potential Holder on behalf of both itself and its
customers. Any Order placed with the Auction Agent by a
Broker-Dealer as or on behalf of a Beneficial Owner or a
Potential Beneficial Owner will be treated in the same manner as
an Order placed with a Broker-Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any failure by a
Broker-Dealer to submit to the Auction Agent an Order in respect
of any AMPS held by it or its customers who are Beneficial Owners
will be treated in the same manner as a Beneficial Owner's
failure to submit to its Broker-Dealer an Order in respect of
AMPS held by it, as described in the next paragraph. Inasmuch as
a Broker-Dealer participates in an Auction as an Existing Holder
or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its
customers or itself, all discussion herein relating to the
consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership
interests represented. For information concerning the priority
given to different types of Orders placed by Existing Holders,
see "Submission of Orders by Broker-Dealers to Auction Agent."
Each purchase or sale in an Auction will be settled on the
Business Day next succeeding the Auction Date at a price per
share equal to $25,000. See "Notification of Results;
Settlement."
If one or more Orders covering in the aggregate all of the
outstanding shares of AMPS held by a Beneficial Owner are not
submitted to the Auction Agent prior to the Submission Deadline,
either because a Broker-Dealer failed to contact such Beneficial
Owner or otherwise, the Auction Agent shall deem a Hold Order to
have been submitted on behalf of such Beneficial Owner covering
the number of outstanding shares of AMPS held by such Beneficial
Owner and not subject to Orders submitted to the Auction Agent.
If all of the outstanding shares of AMPS are subject to
Submitted Hold Orders, the Applicable Rate for the next Dividend
Period for all shares will be 90% of the 30-day "AA" Composite
Commercial Paper Rate on the applicable Auction Date.
For the purposes of an Auction, shares of AMPS for which the
Fund shall have given notice of redemption and deposited moneys
therefor with the Auction Agent in trust, as set forth under
"Description of AMPS -- Redemption," will not be considered as
outstanding and will not be included in such Auction. Pursuant
to the Articles Supplementary of the Fund, the Fund will be
prohibited from reissuing and its affiliates will be prohibited
from transferring (other than to the Fund) any shares of AMPS
they may acquire. Neither the Fund nor any affiliate of the Fund
may submit an Order in any Auction, except that an affiliate of
the Fund that is a Broker-Dealer may submit an Order on behalf of
a Beneficial Owner or Potential Beneficial Owner.
Submission of Orders by Broker-Dealers to Auction Agent.
Prior to 1:00 P.M., New York City time, on each Auction Date, or
such other time on the Auction Date as may be specified by the
Auction Agent (the "Submission Deadline"), each Broker-Dealer
will submit to the Auction Agent in writing all Orders obtained
by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Fund) as
the Existing Holder or Potential Holder in respect of the shares
of AMPS subject to such Orders. Any Order submitted to a
Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior
to the Submission Deadline on any Auction Date, shall be
irrevocable.
If the rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction
Agent will round such rate per annum up to the next highest one-
thousandth (.001) of 1%.
If one or more Orders are submitted to the Auction Agent on
behalf of an Existing Holder and such Orders cover in the
aggregate more than the number of outstanding shares of AMPS held
by such Existing Holder, such Order will be considered valid in
the following order of priority.
(i) any Hold Order submitted on behalf of such
Existing Holder will be considered valid up to and including
the number of outstanding shares of AMPS held by such
Existing Holder, provided that if more than one Hold Order
is submitted on behalf of such Existing Holder and the
number of shares of AMPS subject to such Hold Orders exceeds
the number of outstanding shares of AMPS held by such
Existing Holder, the number of shares of AMPS subject to
each of such Hold Orders will be reduced pro rata so that
such Hold Orders in the aggregate will cover exactly the
number of outstanding shares of AMPS held by such Existing
Holder;
(ii) any Bids submitted on behalf of such Existing
Holder will be considered valid in the ascending order of
their respective rates per annum if more than one Bid is
submitted on behalf of such Existing Holders, up to and
including the excess of the number of outstanding shares of
AMPS held by such Existing Holder over the number of
outstanding shares of AMPS subject to any Hold Order
referred to in clause (i) above (and if more than one Bid
submitted on behalf of such Existing Holder specifies the
same rate per annum and together they cover more than the
remaining number of shares that can be the subject of valid
Bids after application of clause (i) above and of the
foregoing portion of this clause (ii) to any Bid or Bids
specifying a lower rate or rates per annum, the number of
shares subject to each of such Bids will be reduced pro rata
so that such Bids, in the aggregate, cover exactly such
remaining number of outstanding shares); and the number of
outstanding shares, if any, subject to Bids not valid under
this clause (ii) shall be treated as the subject of a Bid by
a Potential Holder; and
(iii) any Sell Order will be considered valid up to
and including the excess of the number of outstanding
shares of AMPS held by such Existing Holder over the sum of
the shares of AMPS subject to Hold Orders referred to in
clause (i) above and valid Bids by such Existing Holder
referred to in clause (ii) above; provided that if more
than one Sell Order is submitted on behalf of any Existing
Holder and the number of shares of AMPS subject to such
Sell Orders is greater than such excess, the number of
shares of AMPS subject to each of such Sell Orders will be
reduced pro rata so that such Sell Orders, in the
aggregate, will cover exactly the number of shares of AMPS
equal to such excess.
If more than one Bid is submitted on behalf of any Potential
Holder in any Auction, each Bid submitted in such Auction will be
considered a separate Bid with the rate per annum and number of
shares of AMPS specified.
Determination of Sufficient Clearing Bids, Winning Bid Rate=
and Applicable Rate. Not earlier than the Submission Deadline
for each Auction, the Auction Agent will assemble all Orders
submitted or deemed submitted to it by the Broker-Dealer (each
such "hold Order," "Bid" or "Sell Order" as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to as a
"Submitted Hold Order," "Submitted Bid Order" or "Submitted Sell
Order," as the case may be), and will determine the excess of the
number of outstanding shares of AMPS over the number of
outstanding shares of AMPS subject to Submitted Hold Orders (such
excess being referred to as the "Available AMPS") and whether
Sufficient Clearing Bids have been made in such Auction,
Sufficient Clearing Bids will have been made if the number of
outstanding shares of AMPS that are the subject of Submitted Bids
by Potential Holders with rates per annum not higher than the
Maximum Applicable Rate equals or exceeds the number of
outstanding shares that are the subject of Submitted Sell Orders
(including the number of shares subject to Bids by Existing
Holders specifying rates per annum higher than the Maximum
Applicable Rate).
If Sufficient Clearing Bids have been made, the Auction
Agent will determine the lowest rate per annum specified in the
Submitted Bids (the "Winning Bid Rate") which would result in the
number of shares subject to Submitted Bids specifying such rate
per annum or a lower rate per annum being at least equal to the
Available AMPS. If Sufficient Clearing Bids have been made, the
Winning Bid Rate will be the Applicable Rate for the next
Dividend Period for all shares of AMPS then outstanding.
If Sufficient Clearing Bids have not been made (other than
because all outstanding shares of AMPS are the subject of
Submitted Hold Orders), the Applicable Rate for the next Dividend
Period for all shares of AMPS will be equal to the Maximum
Applicable Rate. If Sufficient Clearing Bids have not been made,
Existing Holders that have Submitted Sell Orders will not be able
to sell in the Auction all, and may not be able to sell any,
shares of AMPS subject to such Submitted Sell Order. See
"Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares."
Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. Based on the
determinations described under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" above and
subject to the discretion of the Auction Agent to round as
described below, Submitted Bids and Submitted Sell Orders will be
accepted or rejected in the order of priority set forth in the
Auction Procedure with the result that Existing Holders and
Potential Holders of AMPS will sell, continue to hold and/or
purchase shares of AMPS as set forth below. Existing Holders
that submit or are deemed to have submitted Hold Orders will
continue to hold the shares of AMPS subject to such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid
specifying a rate per annum higher than the Winning Bid
Rate or a Submitted Sell Order will sell the outstanding
shares of AMPS subject to such Submitted Bid or Submitted
Sell Order;
(b) each Existing Holder that placed a Submitted Bid
specifying a rate per annum lower than the Winning Bid Rate
will continue to hold the outstanding shares of AMPS subject
to such Submitted Bid;
(c) each Potential Holder that placed a Submitted Bid
specifying a rate per annum lower than the Winning Bid Rate
will purchase the number of shares of AMPS subject to such
Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid
specifying a rate per annum equal to the Winning Bid Rate
will continue to hold the outstanding shares of AMPS subject
to such Submitted Bid, unless the number of outstanding
shares of AMPS subject to all Submitted Bids of Existing
Holders is greater than the excess of the Available AMPS
over the number of shares of AMPS accounted for in clauses
(b) and (c) above, in which event each Existing Holder with
such a Submitted Bid will sell a number of outstanding
shares of AMPS determined on a pro rata basis based on the
number of outstanding shares of AMPS subject to all such
Submitted Bids by such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid
specifying a rate per annum equal to the Winning Bid Rate
will purchase any Available AMPS not accounted for in
clauses (b), (c) or (d) above on a pro rata basis based on
the shares of AMPS subject to all such Submitted Bids of
Potential Holders.
If Sufficient Clearing Bids have not been made (unless this
results because all outstanding shares of AMPS are the subject of
Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid
specifying a rate per annum equal to or lower than the
Maximum Applicable Rate will continue to hold the
outstanding shares of AMPS subject to such Submitted Bid;
(b) each Potential Holder that placed a Submitted Bid
specifying a rate per annum equal to or lower than the
Maximum Applicable Rate will purchase the number of shares
of AMPS subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid
specifying a rate per annum higher than the Maximum
Applicable Rate or a Submitted Sell Order will sell a number
of outstanding shares of AMPS determined on a pro rata basis
based on the outstanding shares of AMPS subject to all such
Submitted Bids and Submitted Sell Orders.
If as a result of the Auction Procedures described above any
Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a
fraction of a share of AMPS, the Auction Agent will, in such
manner as, in its sole discretion, it shall determine, round up
or down the number of shares of AMPS being sold or purchased on
such Auction Date so that each share sold or purchased by each
Existing Holder or Potential Holder will be a whole share of
AMPS. If any Potential Holder would be entitled or required to
purchase less than a whole share of AMPS, the Auction Agent will,
in such manner as, in its sole discretion, it shall determine,
allocate shares of AMPS for purchase among Potential Holders so
that only whole shares of AMPS are purchased by any such
Potential Holder, even if such allocation results in one or more
of such Potential Holders not purchasing any shares of AMPS.
Notification of Results; Settlement. The Auction Agent will
advise each Broker-Dealer who submitted a Bid or Sell Order in an
Auction on behalf of a Bidder whether such Bid or Sell Order was
accepted or rejected in whole or in part and of the Applicable
Rate for the next Dividend Period for the related shares of AMPS
by telephone at approximately 3:00 P.M., New York City time, on
such Auction Date. Each such Broker-Dealer will then advise such
Bidder whether such Bid or Sell Order was accepted or rejected,
will confirm purchases and sales with each Bidder purchasing or
selling shares of AMPS as a result of the Auction and will advise
each Bidder purchasing or selling shares of AMPS to give
instructions to its Agent Member of the Securities Depository to
pay the purchase price against delivery of such shares or to
deliver such shares against payment therefor as appropriate. If
an Existing Holder selling shares of AMPS as a result of an
Auction shall fail to instruct its Agent Member to deliver such
shares, the Broker-Dealer that submitted such Existing Holder's
Bid or Sell Order will instruct such Agent Member to deliver such
shares against payment therefor. Each Broker-Dealer that
submitted a Hold Order in an Auction on behalf of an Existing
Holder will also advise such Existing Holder of the Applicable
Rate for the next Dividend Period for the AMPS. The Auction
Agent will record each transfer of shares of AMPS on the record
book of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal
procedures, on the Business Day after each Auction Date, the
transactions described above will be executed through the
Securities Depository and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited
as necessary to effect the purchases and sales of shares of AMPS
as determined in such Auction. Purchasers will make payment
through their Agent Members in same-day funds to the Securities
Depository against delivery through their Agent Members; the
Securities Depository will make payment in accordance with its
normal procedures, which now provide for payment in same-day
funds. If the procedures of the Securities Depository applicable
to AMPS shall be changed to provide for payment in next-day
funds, then purchasers may be required to make payment in
next-day funds. If the certificates for shares of AMPS are not
held by the Securities Depository or its nominee, payment will be
made in same-day funds to the Auction Agent against delivery of
such certificates.
If any Existing Holder selling shares of AMPS in an Auction
fails to deliver such shares, the Broker-Dealer of any person
that was to have purchased shares of AMPS in such Auction may
deliver to such person a number of whole shares of AMPS that is
less than the number of shares that otherwise was to be purchased
by such person. In such event, the number of shares of AMPS to
be so delivered will be determined by such Broker-Dealer.
Delivery of such lesser number of shares will constitute good
delivery. Each Broker-Dealer Agreement will also provide that
neither the Fund nor the Auction Agent will have responsibility
or liability with respect to the failure of a Potential
Beneficial Owner, Beneficial Owner or their respective Agent
Members to deliver shares of AMPS or to pay for shares of AMPS
purchased or sold pursuant to an Auction or otherwise.
Broker-Dealers
The Fund will pay the Auction Agent a service fee of 1/4 of
1% per annum of the aggregate liquidation preference of the AMPS,
which fee will be apportioned among the Broker-Dealers on the
basis of the number of shares of AMPS placed by such
Broker-Dealers in the Auctions. For the purposes of the
preceding sentence, shares of AMPS will be placed by a
Broker-Dealer if such shares were (i) the subject of Hold Orders
deemed to have been made by Beneficial Owners that were acquired
by such Beneficial Owners through such Broker-Dealer or (ii) the
subject of the following Orders submitted by such Broker-Dealer:
(A) a Submitted Bid of a Beneficial Owner that resulted in such
Beneficial Owner continuing to hold such shares as a result of
the Auction, (B) a Submitted Bid of a Potential Beneficial Owner
that resulted in such Potential Beneficial Owner purchasing such
shares as a result of the Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer
may submit Orders in Auctions of the AMPS for its own account,
unless the Fund notifies all Broker-Dealers that they may no
longer do so, provided that Broker-Dealers may continue to submit
Hold Orders and Sell Orders. If a Broker-Dealer submits an Order
for its own account in any Auction, it may have knowledge of
Orders placed through it in that Auction and therefore have an
advantage over other Bidders; such Broker-Dealer would not have
knowledge of Orders submitted by other Broker-Dealers in that
Auction.
Dividends
General
The holders of shares of AMPS will be entitled to receive,
when, as and if declared by the Board of Directors of the Fund
out of funds legally available therefor, cumulative cash
dividends on their shares, at the Applicable Rate determined as
set forth below under "Determination of Dividend Rate," payable
on the respective dates set forth below.
Dividends on the shares of AMPS will accumulate from the
date on which the Fund originally issues the shares of AMPS (the
"Date of Original Issue") and will be payable commencing on -----
- --, 1995. Following the Initial Dividend Payment Date, dividends
on the AMPS will be payable on each succeeding Wednesday
thereafter (a "Scheduled Payment Day"), except that if such
Scheduled Payment Day is not a Business Day, then the Dividend
Payment Date shall be the first Business Day succeeding such
Scheduled Payment Day. Although any particular Dividend Payment
Date may not occur on the originally scheduled Wednesday because
of the exceptions discussed above, the next succeeding Dividend
Payment Date, subject to such exceptions, will occur on the next
following originally scheduled Wednesday. Each dividend payment
date determined as provided above is hereinafter referred to as a
"Dividend Payment Date." The record date for the payment of
dividends on the AMPS will be the Auction Date immediately
preceding the Dividend Payment Date.
Prior to each Dividend Payment Date, the Fund is required to
deposit with the Auction Agent sufficient funds for the payment
of declared dividends. The Fund does not intend to establish any
reserves for the payment of dividends.
Each dividend will be paid to the record holder of the AMPS,
which holder is expected to be the nominee of the Securities
Depository. See "Description of AMPS -- The Auction --
Securities Depository." The Securities Depository will credit the
accounts of the Agent Members of the Existing Holders in
accordance with the Securities Depository's normal procedures
which now provide for payment in next-day funds settled through
the New York Clearing House. The Agent Member of a Beneficial
Owner will be responsible for holding or disbursing such payments
on the applicable Dividend Payment Date to the beneficial holders
which held such shares on the Auction Date immediately preceding
the Dividend Payment Date. Dividends in arrears for any past
Dividend Period may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to the nominee of
the Securities Depository. Any dividend payment made on shares
of AMPS shall first be credited against the earliest declared but
unpaid dividends accumulated with respect to the AMPS.
Holders of shares of AMPS will not be entitled to any
dividends, whether payable in cash, property or stock, in excess
of full cumulative dividends except as described under
"Determination of Dividend Rate." No interest will be payable in
respect of any dividend payment or payments on the shares of AMPS
which may be in arrears.
In case the stated dividends on the shares of AMPS, or
shares of any other class or series of stock of the Fund ranking
on a parity with the AMPS as to dividends, are not paid in full,
the AMPS and such other shares of stock of the Fund ranking on a
parity with the AMPS as to dividends will share ratably in the
payment of dividends, including accumulations, if any, in
accordance with the sums which would be payable on such shares if
all dividends were declared and paid in full.
The amount of dividends per share of the AMPS payable for
each Dividend Period shall be computed by multiplying the
Applicable Rate for such Dividend Period by a fraction the
numerator of which will be the number of days in such Dividend
Period such share was outstanding and the denominator of which
will be 360, multiplying the amount so obtained by $25,000, and
rounding the amount so obtained to the nearest cent.
Determination of Dividend Rate
The dividend rate on the shares of AMPS during the period
from and including the Date of Original Issue to and including
the calendar day prior to the Initial Dividend Payment Date (the
"Initial Dividend Period") will be the rate per annum set forth
on the cover page hereof. The Applicable Rate on the shares of
AMPS for each period commencing on a Dividend Payment Date,
including the Initial Dividend Payment Date, and ending on the
calendar day prior to the next Dividend Payment Date (hereinafter
referred to as a "Subsequent Dividend Period," and the Initial
Dividend Period or any Subsequent Dividend Period being
hereinafter referred to as a "Dividend Period") will be the
dividend rate per annum that results from the Auction conducted
with respect to such Dividend Period, except as provided below.
Dividends shall be calculated as set forth in the preceding
paragraph.
If the Fund fails to deposit, in same-day funds, with the
Auction Agent by 12:00 noon, New York City time, (A) on any
Dividend Payment Date an amount sufficient to pay the accumulated
but unpaid dividends (whether or not earned or declared) payable
on such Dividend Payment Date or (B) on any redemption date for
the AMPS an amount sufficient to redeem on such redemption date
the shares as to which notice of redemption has been given then,
in either case, beginning with the Dividend Payment Date or
redemption date, as the case may be, on which such failure occurs
and continuing until the Dividend Payment Date that is or
immediately follows the date the Fund remedies such failure as
provided in the third sentence of this paragraph, the Applicable
Rate for each Dividend Period shall be equal to 275% of the
30-day "AA" Composite Commercial Paper Rate in effect on the
second Business Day preceding the first day of such Dividend
Period. Notwithstanding the foregoing, if the Fund remedies such
failure by depositing, in same-day funds, with the Auction Agent
by 12:00 noon, New York City time, on the first, second or third
Business Day following such Dividend Payment Date or redemption
date, as the case may be, an amount equal to (x) the unpaid
dividends or unpaid redemption payments plus (y) a late charge
computed at an annual rate of 275% of the 30-day "AA" Composite
Commercial Paper Rate in effect on the second Business Day
preceding the date of such failure applied to the amount of such
unpaid dividends or unpaid redemption payments based on the
number of days elapsed from the applicable Dividend Payment Date
or redemption date to the date on which funds for such dividends
or redemption payments are deposited with the Auction Agent
divided by 360, then the Applicable Rate for the then-current
Dividend Period will be that established on the immediately
preceding Auction Date. If, subsequent to the three-Business Day
grace period referred to in the preceding sentence, the Fund
remedies such failure to pay dividends or the redemption payments
by depositing with the Auction Agent all amounts required by the
first sentence of this paragraph plus all accumulated but unpaid
dividends (whether or not earned or declared) the Dividend
Payment Date that is or immediately precedes the date of such
remedy, then the Applicable Rate in respect of each Dividend
Period commencing after such remedy will be determined in
accordance with the Auction Procedures until such time as there
is another failure to pay either dividends or the redemption
payments with respect to shares of AMPS. In the event of any
such remedy described in the preceding sentence, the Fund will,
not more than 30 nor less than five Business Days prior to the
next Auction Date, notify the Auction Agent, all Existing Holders
and the Securities Depository in writing of the date of the next
Auction.
Upon any failure to pay dividends on shares of Preferred
Stock for two years or more the holders of shares of Preferred
Stock will acquire certain additional voting rights. See
"Description of AMPS -- Voting Rights." Although series of
Preferred Stock issued subsequent to the AMPS may have other
rights and remedies, under the Fund's Articles of Incorporation
and Articles Supplementary, such additional voting rights will be
the exclusive remedy of the holders of AMPS upon any failure to
pay dividends on the AMPS. Such additional voting rights are
also the exclusive remedy of the holders of the other existing
series of Auction Market Preferred Stock upon any failure to pay
dividends thereon.
Restrictions on Dividends and Other Payments
Under the 1940 Act, the Fund may not declare dividends or
make other distributions on shares of Common Stock or purchase
any such shares if, at the time of the declaration, distribution
or purchase, as applicable (and after giving effect thereto),
asset coverage (as defined in the 1940 Act) with respect to the
outstanding shares of Preferred Stock would be less than 200% (or
such other percentage as may in the future be required by law).
Moreover, the Articles Supplementary provide that so long as
any shares of AMPS are outstanding, the Fund will not declare,
pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common
Stock or other stock, if any, ranking junior to shares of
Preferred Stock as to dividends or upon liquidation) in respect
of Common Stock or any other stock of the Fund ranking junior to
shares of a series of Preferred Stock as to dividends or upon
liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of Common Stock or
any other such junior stock (except by conversion into or
exchange for stock of the Fund ranking junior to such series of
Preferred Stock as to dividends and upon liquidation) unless
immediately after such transaction (A) the AMPS Basic Maintenance
Amount, the 1940 Act AMPS Assets Coverage Requirement and the
Minimum Liquidity Level (see "Asset Maintenance" and
"Redemption") would be achieved, (B) all accumulated and unpaid
dividends on shares of such series of Preferred Stock and shares
of every other series of Preferred Stock due on or prior to the
date of the transactions have been paid in full (or declared and
sufficient Deposit Securities have been set apart for their
payment) and (C) the Fund has redeemed the full number of shares
of each series of Preferred Stock required to be redeemed by any
provision for mandatory redemption contained in the Articles
Supplementary establishing such series of Preferred Stock. Prior
to the payment of any such dividend or other distribution, the
Fund will provide the Auction Agent and the Rating Agencies with
a Portfolio Valuation Report (which may be the regular weekly
report) and a certificate demonstrating compliance.
Under the Code, the Fund must, among other things,
distribute at least 90% of its investment company taxable income
each year in order to maintain its qualification for tax
treatment as a regulated investment company. The foregoing
limitations on dividends, distributions and purchases may under
certain circumstances impair the Fund's ability to maintain such
qualification. See "Taxation -- United States."
Asset Maintenance
The Fund will be required to satisfy two separate asset
maintenance requirements under the terms of the Articles
Supplementary. These requirements are summarized below.
1940 Act AMPS Asset Coverage Requirement
The Fund will be required under the Articles Supplementary
to maintain with respect to shares of AMPS, as of the last
Valuation Date of each month in which any shares of AMPS are
outstanding, asset coverage of at least 200% with respect to
senior securities which are stock, including the shares of
Auction Market Preferred Stock (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the
minimum assets coverage for senior securities which are stock of
a closed-end investment company as a condition of paying
dividends on its common stock) (the "1940 Act AMPS Asset Coverage
Requirement"). The ratio of the Fund's net assets to its senior
securities representing indebtedness plus the liquidation value
of its senior securities which are stock, including the shares of
Auction Market Preferred stock, is herein referred to as the
"1940 Act AMPS Asset Coverage Ratio." If the Fund fails to
maintain the 1940 Act AMPS Asset Coverage Requirement and such
failure is not cured as of the last Valuation Date occurring in
the following month (the "1940 Act Cure Date"), the Fund will be
required under certain circumstances to redeem all or a portion
the shares of AMPS. See "Redemption -- Mandatory Redemption."
If calculated as of -----------, 1995, after giving effect
to this offering and the receipt of the net proceeds therefrom,
the 1940 Act AMPS Asset Coverage Ratio would have been as
follows:
Value of Fund assets
not constituting senior
securities $ = = %
- ----------------------- ------------ ------ -----
Senior securities $475,000,000
representing indebtedness
plus liquidation value
of the shares of Auction
Market Preferred Stock
AMPS Basic Maintenance Amount
The Fund will be required under the Articles Supplementary
to maintain as of each Valuation Date assets having in the
aggregate a Discounted Value at least equal to the AMPS Basic
Maintenance Amount. If the Fund fails to meet such requirement
as of each Valuation Date and such failure is not cured on or
before the fifth Business Day after such Valuation Date (the
"AMPS Basic Maintenance Cure Date"), the Fund will be required
under certain circumstances to redeem certain of the shares of
AMPS. See "Redemption -- Mandatory Redemption." A "Valuation
Date" means each Friday of each month (or, in the case of the
first Valuation Date, a date selected by the Fund not earlier
than four Business Days prior to, or later than, the Date of
Original Issue); provided that if any such Friday is not a
Business Day, the Valuation Date will be the next preceding
Business Day.
The AMPS Basic Maintenance Amount as of any date is defined
as the dollar amount equal to the sum of (a) $25,000 times the
number of shares of AMPS then outstanding; (b) the aggregate
liquidation preference of other Preferred Stock then outstanding,
if any; [(c) the Dividend Coverage Amount;] (d) projected
dividends as provided in the Articles Supplementary; (e) the
aggregate principal amount of any then outstanding indebtedness
of the Fund for moneyborrowed; (f) projected expenses of the Fund
for the next succeeding three-month period; and (g) the greater
of $50,000 or the Fund's current liabilities as of such date to
the extent not otherwise reflected in any of (a) through (f)
above.
The discount factors and guidelines for determining the
market value of the Fund's portfolio holdings have been based on
criteria established by the Rating Agencies in connection with
rating the AMPS. These factors include, but are not limited to,
the sensitivity of the market value of the relevant asset to
changes in interest rates, the liquidity and depth of the market
for the relevant asset, the credit quality of the relevant asset
(for example, the lower the rating of a debt obligation, the
higher the related discount factor) and the frequency with which
the relevant asset is marked to market. In no event shall the
Discounted Value of any asset of the Fund exceed its unpaid
principal balance or face amount as of the date of calculation.
The discount factor relating to any asset of the Fund or with
respect to the Fund's assets denominated in non-U.S. currencies
and the AMPS Basic Maintenance Amount, the assets eligible for
inclusion in the calculation of the Discounted Value of the
Fund's portfolio and certain definitions and methods of
calculation relating thereto may be changed from time to time by
the Fund. However, the Fund does not presently intend to effect
any such changes which would impair the rating then assigned to
the shares of AMPS by Moody's or S&P.
On or before 10:00 a.m., New York City time on the fourth
Business Day after (i) the date of original issuance of the AMPS,
(ii) each Quarterly Valuation Date thereafter, (iii) any
Valuation Date on which the Fund shall fail to meet the AMPS
Basic Maintenance Amount, (iv) any Valuation Date on which it
cures its failure to satisfy the AMPS Basic Maintenance Amount,
(v) any Valuation Date on which it fails to exceed the AMPS Basic
Maintenance Amount by 25% or more, or (vi) any Valuation Date as
may be specified by S&P, the Fund shall complete and deliver to
Moody's and S&P and the Auction Agent, in cases of clauses (i)
and (ii) and to the relevant Rating Agency, in the case of
clauses (iii)-(vi), a report with respect to the calculation of
the AMPS Basic Maintenance Amount and the value of its portfolio
holdings as of the relevant Valuation Date (a "Portfolio
Valuation Report"). In addition, on or before 5:00 p.m., New
York City time, on the first Business Day after a date on which
shares of Common Stock are repurchased by the Fund, the Fund will
also complete and deliver to the Auction Agent, S&P and Moody's a
Portfolio Valuation Report as of the close of business on the
date the Common Stock was repurchased.
Within seven Business Days after the required date of
delivery of the initial Portfolio Valuation Report or any
Portfolio Valuation Report delivered with respect to a Quarterly
Valuation Date, the Fund shall deliver to the Auction Agent, S&P
and Moody's a report prepared by the Fund's independent
accountants reviewing the accuracy of the calculations made by
the Fund relating to such Portfolio Valuation Report (as well as
any other Portfolio Valuation Report randomly selected by its
independent accountants that was prepared during the quarter).
If any such report prepared by the Fund's independent accountants
shows that an error was made in the most recent AMPS Basic
Maintenance Report, the calculation or determination made by the
independent accountants shall be final and conclusive and shall
be binding on the Fund.
Minimum Liquidity Level
Pursuant to S&P's guidelines, the Fund will be required
under the Articles Supplementary to have, as of each Valuation
Date, Deposit Securities with maturity dates not later than the
day preceding the next succeeding dividend payment date for each
series of Preferred Stock (collectively, "Dividend Coverage
Assets") and having a value not less than the Dividend Coverage
amount (the "Minimum Liquidity Level"). The "Dividend Coverage
Amount," as of any date, means (A) the aggregate amount of
dividends that will accumulate to the date preceding the next
succeeding respective dividend payment date for each series of
Preferred Stock, less (B) the combined value of Dividend Coverage
Assets irrevocably deposited for the payment of dividends on
shares of Preferred Stock. "Deposit Securities" means cash
balances in U.S. dollars, certain direct obligations of the
United States and certain short-term money market instruments.
The definitions of "Dividend Coverage Assets" and "Dividend
Coverage Amount" may be changed from time to time by the Fund
without shareholder approval, but only in the event the Fund
receives confirmation from the Rating Agencies that any such
change would not impair the ratings then assigned to shares of
AMPS.
Redemption
Optional Redemption
To the extent permitted under the 1940 Act and Maryland law,
upon giving a notice of redemption, as provided below, the Fund
at its option may redeem shares of AMPS, in whole or in part, on
the next succeeding scheduled Dividend Payment Date, out of funds
legally available therefor, at a redemption price of $25,000 per
share plus accumulated but unpaid dividends (whether or not
earned or declared) to the date fixed for redemption. The Fund
may not give a notice of redemption relating to an optional
redemption as described in this paragraph unless, at the time of
giving such notice of redemption, the Fund has available Deposit
Securities with maturity or tender dates not later than the day
preceding the applicable redemption date and having a value not
less than the amount due to Beneficial Owners of shares of AMPS
called for redemption by reason of the redemption of their shares
on such redemption date.
The Board of Directors of the Fund has authorized the
issuance of the AMPS because it believes that under current
market conditions such issuance will result in yield enhancement
to the holders of the Fund's Common Stock, i.e., based on current
exchange rates between the Australian dollar and the U.S. dollar
and the difference between the anticipated dividend rate on the
AMPS and the average interest rate on the securities in which the
Fund plans to invest the proceeds from this offering, the Board
anticipates that the average spread between the dividends on the
AMPS and the return to the Fund on the proceeds from this
offering will be favorable. However, there can be no assurance
that such a positive spread will be achieved, either in the short
term or the long term, particularly in view of interest rate and
currency fluctuations, which are beyond the Fund's control. The
Board of Directors of the Fund authorized the issuance of the
other outstanding series of Auction Market Preferred Stock based
upon similar considerations in light of market conditions
prevailing in 1989 and 1992, respectively. Although the Fund
will have the option to redeem the AMPS and the shares of other
outstanding series of Auction Market Preferred Stock on any
dividend payment date for such shares, it may determine not to
redeem them even during periods when there is a temporary
negative spread, i.e., when the dividend rate on the AMPS and on
such other series exceeds the yield on the Fund's portfolio. Any
decisions with respect to redemption will be taken by the Board
based upon recommendations by the Investment Manager. The
Investment Manger has advised the Board that it would not
anticipate recommending redemption except to the extent that the
Investment Manager believes the existence of AMPS and the shares
of other outstanding series of Auction Market Preferred Stock is
having or is likely to have a materially adverse effect on the
net investment income of the Fund. Even in such event, the
Investment Manager may not recommend redemption if, in its
judgment, it would be necessary to liquidate portfolio
securities, in order to make redemption payments, in a manner
that would disrupt the Fund's long-term investment program,
result in the realization of foreign currency gains or losses
that would materially increase or decrease the amount of net
investment income distributable to holders of the Common Stock or
jeopardize the Fund's status as a regulated investment company
under the Code. Nonetheless, if the value of the Australian
dollar and, to a lesser extent, the value of the New Zealand
dollar decline against the value of the U.S. dollar or if changes
in interest rates in the United States, Australia and New Zealand
make it unattractive, in the opinion of the Investment Manager
and the Board of Directors, after consideration of the
above-mentioned and other relevant factors, to continue to have
the AMPS and the shares of other outstanding series of Auction
Market Preferred Stock outstanding, the Board may elect to redeem
all or a portion of the AMPS and such other shares.
Mandatory Redemption
The Fund will be required to redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends
(whether or not earned or declared) to the date fixed for
redemption, certain of the shares of AMPS to the extent permitted
under the 1940 Act and Maryland law, on the date fixed by the
Board of Directors applicable to shares of AMPS called for
redemption, if the Fund fails to maintain the AMPS Basic
Maintenance Amount or the 1940 Act AMPS Asset Coverage
Requirement and such failure is not cured on or before the AMPS
Basic Maintenance Cure Date or the 1940 Act Cure Date (herein
respectively referred to as a "Cure Date"), as the case may be.
The number of shares of AMPS to be redeemed will be equal to the
lesser of (a) the minimum number of shares of AMPS the redemption
of which, if deemed to have occurred immediately prior to the
opening of business on the Cure Date, would, together with all
other shares of the Fund's Preferred Stock subject to redemption
or retirement, result in the satisfaction of the AMPS Basic
Maintenance Amount or the 1940 Act AMPS Asset Coverage
Requirement, as the case may be, on such Cure Date (provided
that, if there is no such minimum number of shares the redemption
of which would have such result, all shares of AMPS then
outstanding will be redeemed), and (b) the maximum number of
shares of AMPS, together with all other shares of the Fund's
Preferred Stock subject to redemption and retirement, that can be
redeemed out of funds expected to be legally available therefor
on such redemption date. In determining the number of shares of
AMPS required to be redeemed in accordance with the foregoing,
the Fund will allocate the number required to achieve (x) the
1940 Act AMPS Asset Coverage Requirement, pro rata among the AMPS
offered hereby and any other Preferred Stock and (y) the AMPS
Basic Maintenance Amount, pro rata among the AMPS offered hereby
and any other Auction Market Preferred Stock previously or
subsequently issued by the Fund. The Fund is required to effect
such a mandatory redemption not later than 30 days after such
Cure Date, except that (i) if the Fund does not have funds
legally available for the redemption of all of the required
number of shares of Preferred Stock, including shares of AMPS,
which are subject to mandatory redemption, (ii) the next Dividend
Payment Date with respect to any share to be redeemed is more
than 30 days after such Cure Date or (iii) the Fund otherwise is
unable to effect such redemption on or prior to such 30th day,
the Fund will redeem those shares of Preferred Stock, including
shares of AMPS, which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption.
Holders of shares of Preferred Stock will receive certain voting
rights if shares of Preferred Stock required to be redeemed are
not so redeemed. See "Description of AMPS -- Voting Rights."
General
If shares of AMPS are to be redeemed, the Fund shall, not
fewer than 30 days prior to the applicable redemption date, file
with the Commission, as required under the 1940 Act, a written
notice of redemption. The notice of redemption shall be (i)
mailed by first-class mail, postage prepaid, to each holder of
shares of AMPS to be redeemed and (ii) published by the Fund in
an Authorized Newspaper, in each case not fewer than 15 nor more
than 20 days prior to such redemption date. Not fewer than five
nor more than 10 days before such mailing date, the Fund shall
mail the notice of redemption to the Paying Agent. Each notice
of redemption shall state (A) the series of Auction Market
Preferred Stock, including the AMPS, to be redeemed, (B) the
redemption date, (C) the redemption price, (D) the place or
places where such AMPS are to be redeemed, (E) that dividends on
the shares to be redeemed will cease to accumulate on such
redemption date, (F) the provision of the Articles Supplementary
under which the redemption is being made, (G) if less than all
the outstanding shares of AMPS are to be redeemed, the number of
shares to be redeemed and the basis upon which the shares to be
redeemed are to be selected and (H) the CUSIP number or numbers
of the shares to be redeemed. No defect in the notice of
redemption or in the mailing or publication thereof will affect
the validity of the redemption proceedings, except as required by
applicable law.
In the event that less than all of the outstanding shares of
AMPS are to be redeemed, the number of shares thereof to be
redeemed will be determined by the Fund and communicated to the
Auction Agent. The Auction Agent will give notice to the
Securities Depository, whose nominee will be the record holder of
all shares of AMPS, and the Securities Depository will determine
the number of shares to be redeemed from the account of the Agent
Member of each Beneficial Owner. Each Agent Member will
determine the number of shares to be redeemed from the account of
each Beneficial Owner for which it acts as agent. An Agent
Member may select for redemption shares from the accounts of some
Beneficial Owners without seeking for redemption any shares from
the accounts of other Beneficial Owners. Notwithstanding the
foregoing, if neither the Securities Depository nor its nominee
is the record holder of all of the shares of AMPS, the particular
shares to be redeemed shall be selected by the Fund by lot, on a
pro rata basis, or by such other method as will not discriminate
unfairly against any record holder of shares of such AMPS.
If the Fund gives notice of redemption, and concurrently or
thereafter deposits in trust with the Paying Agent a sum
sufficient to redeem the shares of AMPS as to which notice of
redemption has been given, with irrevocable instructions and
authority to pay the redemption price to the record holders
thereof, then upon the date of such deposit or, if no such
deposit is made, upon such date fixed for redemption (unless the
Fund shall default in making payment of the redemption price),
all rights of the holders of such shares called for redemption
will cease and terminate, except the right of such holders to
receive the redemption price thereof, but without interest, and
such shares will no longer be deemed to be outstanding. The Fund
will be entitled to receive, from time to time, the interest, if
any, earned on such moneys deposited with the Paying Agent, and
the holders of any shares so redeemed will have no claim to any
such interest. Any funds so deposited which are unclaimed at the
end of one year from such redemption date will be repaid, upon
demand, to the Fund, after which the holders of the shares of
AMPS so called for redemption may look only to the Fund for
payment thereof.
So long as any shares of AMPS are held of record by the
nominee of the Securities Depository, the redemption price for
such shares will be paid on the redemption date to the nominee of
the Securities Depository. The Securities Depository's normal
procedures now provide for it to distribute the amount of the
redemption price to Agent Members who, in turn, are expected to
distribute such funds to the persons for whom they are acting as
agent.
Notwithstanding the provisions for redemption described
above, no shares of AMPS may be redeemed unless all dividends in
arrears on the outstanding shares of AMPS and on all other series
of Preferred Stock ranking on a parity with the AMPS with respect
to the payment of dividends or upon liquidation, have been or are
being contemporaneously paid or set aside for payment; provided,
however, that the Fund without regard to such limitations (x) may
redeem, purchase or otherwise acquire shares of AMPS (A) with
other Preferred Stock as a whole, pursuant to any optional
redemption or (B) pursuant to a purchase or exchange offer made
for all of the outstanding shares of AMPS and other Preferred
Stock, and (y) shall redeem, purchase or otherwise acquire shares
of AMPS with other Preferred Stock as a whole if required
pursuant to a mandatory redemption, to the extent permitted under
the 1940 Act, Maryland law and the Articles of Incorporation.
Liquidation Rights
Upon any liquidation, dissolution or winding up of the Fund,
whether voluntary or involuntary, the holders of shares of AMPS
will be entitled to receive, out of the assets of the Fund
available for distribution to shareholders, before any
distribution or payment is made upon any shares of Common Stock
or any other capital stock of the Fund ranking junior in right of
payment upon liquidation to AMPS, $25,000 per share together with
the amount of any dividends accumulated but unpaid (whether or
not earned or declared) thereon to the date of distribution, and
after such payment the holders of AMPS will be entitled to no
other payments. If such assets of the Fund are insufficient to
make the full liquidating payment on the AMPS and liquidating
payments on any other series of Preferred Stock, then such assets
will be distributed among the holders of the shares of AMPS and
the holders of shares of such other series of Preferred Stock
ratably in accordance with the respective preferential amounts
which would be payable on all of such stock if all such
liquidating amounts payable were paid in full. A consolidation
or merger of the Fund with or into any other corporation or
corporations or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all or any part
of the assets of the Fund shall not be deemed or construed to be
a liquidation, dissolution or winding up of the Fund.
Voting Rights
Except as otherwise indicated in this Prospectus and except
as otherwise required by applicable law, holders of shares of
Auction Market Preferred Stock will have equal voting rights with
holders of shares of Common Stock (one vote per share) and will
vote together with holders of shares of Common Stock as a single
class.
In connection with the election of the Fund's directors,
holders of shares of Preferred Stock, voting as a separate class
without regard to series, will be entitled at all times to elect
two of the Fund's directors, and the remaining directors will be
elected by holders of shares of Common Stock. In addition, if at
any time unpaid dividends on any outstanding shares of Preferred
Stock are equal to two full years' dividends thereon, or the Fund
fails to redeem any shares of Preferred Stock required to be
redeemed, or the holders of any other shares of Preferred Stock
are entitled to elect a majority of the directors of the Fund,
then the number of directors constituting the Board of Directors
will automatically be increased by the smallest number that, when
added to the two directors elected exclusively by the holders of
shares of Preferred Stock as described above, would constitute a
majority of the Board of Directors as so increased by such
smallest number; and at a special meeting of shareholders which
will be called and held as soon as practicable, and at all
subsequent meetings at which directors are to be elected, the
holders of shares of Preferred Stock, voting as a separate class
without regard to series, will be entitled to elect the smallest
number of additional directors that, together with the two
directors which such holders will be in any event entitled to
elect, constitutes a majority of the total number of directors of
the Fund as so increased. The terms of office of the persons who
are directors at the time of that election will continue. If the
Fund thereafter pays or declares and sets apart for payment in
full all dividends payable on all outstanding shares of Preferred
Stock, including shares of AMPS, for all past Dividend Periods
and redeems all shares of Preferred Stock required to be redeemed
and holders of no other series of Preferred Stock are entitled to
elect a majority of the directors of the Fund, then the voting
rights stated in the preceding sentence will cease, and the terms
of office of all the additional directors elected by the holders
of shares of Preferred Stock, including shares of AMPS (but not
of the directors with respect to whose election the holders of
Common Stock were entitled to vote or the two directors the
holders of shares of Preferred Stock, including shares of AMPS,
have the right to elect in any event), will terminate
automatically.
The affirmative vote of the holders of two-thirds of the
outstanding shares of Preferred Stock, including shares of AMPS,
voting as a separate class without regard to series, is required
to amend, or repeal any of the preferences, rights or powers of
holders of shares of Preferred Stock, including shares of AMPS,
so as to affect such preferences, rights, or powers. The Board
of Directors may, however, without shareholder approval, amend,
alter or repeal any or all of the provisions reflecting the
various rating agency guidelines described herein provided the
Fund receives confirmation from the rating agencies that any such
amendment, alteration or repeal would not impair the ratings then
assigned to shares of AMPS. Unless a higher percentage is
provided for in the Articles (see "Anti-Takeover Provisions"),
the affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including shares of AMPS,
voting as a separate class without regard to series, will be
required to approve any plan of reorganization adversely
affecting such shares or any action requiring a vote of security
holders under Section 13(a) of the 1940 Act including, among
other things, changes in the Fund's investment objective or
changes in the investment restrictions described as fundamental
policies under "Investment Objective and Policies; Investment
Restrictions." The class vote of holders of shares of Preferred
Stock described above will in each case be in addition to a
separate vote of the requisite percentage of shares of Common
Stock and shares of Preferred Stock voting together without
regard to class necessary to authorize the action in question.
The foregoing voting provisions will not apply to any series
of Preferred Stock if, at or prior to the time when the act with
respect to which such vote would otherwise be required shall be
effected, all outstanding shares of such series have been (i)
redeemed or (ii) called for redemption and sufficient funds have
been deposited in trust to effect such redemption.
MANAGEMENT
Management Agreement and Advisory Agreement
EquitiLink International Management Limited (the "Investment
Manager") serves as Investment Manager to the Fund and EquitiLink
Australia Limited (the "Investment Adviser") serves as Investment
Adviser to the Fund pursuant to a management agreement dated
December 15, 1992 (the "Management Agreement") and an advisory
agreement dated February 1, 1990 (the "Advisory Agreement"). The
current Management Agreement was initially approved on December
12, 1989 by a majority of the Fund's Board of Directors and by a
majority of the Fund's Directors who were not interested persons
(as defined in the 1940 Act) of the Fund, the Investment Manager
or the Investment Adviser (the "Disinterested Directors"), and
the current Advisory Agreement was similarly approved by the
Fund's Board of Directors on December 15, 1992. The current
Management Agreement and Advisory Agreement were approved by the
shareholders of the Fund at the annual meetings held on March 15,
1990 and March 15, 1993 respectively. Since those dates, the
continuance of each of the Management Agreement and the Advisory
Agreement has been approved annually in accordance with its terms
by the Fund's Board of Directors. Pursuant to the existing and
previous management agreements and advisory agreements with the
Fund, the Investment Manager and Investment Adviser have served
in these capacities since the Fund was organized in 1986.
The Investment Manager is a Jersey, Channel Islands
corporation organized in October 1985 with its registered office
located at Union House, Union Street, St. Helier, Jersey,
Channel Islands. The Investment Manager's shares are principally
owned by Laurence S. Freedman and Brian M. Sherman.
The Investment Adviser is a wholly owned subsidiary of
EquitiLink Limited, an Australian corporation. The registered
offices of both the Investment Adviser and EquitiLink Limited are
located at 44 Pitt Street, Sydney, N.S.W., Australia. EquitiLink
Limited is a public company whose ordinary shares are listed on
the Australian Stock Exchange Limited. The directors of
EquitiLink Limited (Messrs. B.M. Sherman, L.S. Freedman, D.
Manor, E.F. Herbert and N. Spatt) and their affiliates hold
approximately 60% of the issued capital of EquitiLink Limited.
The shares of EquitiLink Limited are principally owned by
Laurence S. Freedman and Brian M. Sherman.
Each of the Investment Manager and the Investment Adviser
has all, or a substantial part of, its assets located outside the
United States. As a result, it may be difficult for U.S.
investors to enforce judgments of the courts of the United States
against the Investment Manager and the Investment Adviser
predicated on the civil liability provisions of the federal
securities laws of the United States. The Fund has been advised
that there is substantial doubt as to the enforceability in the
courts of Australia of judgments against the Investment Adviser
predicated upon the civil liability provisions of the federal
securities laws of the United States. The Fund has been advised
that it is unlikely that the courts of Jersey would adjudge civil
liability against the Investment Manager in an original action
predicated solely on the federal securities laws of the United
States. However, although there is no arrangement in place
between Jersey and the United States for the reciprocal
enforcement of judgments, a judgment rendered by a court in the
United States against the Investment Manager predicated upon such
provisions would generally be enforceable by the Jersey courts.
The Investment Manager and the Investment Adviser are advised by
United States counsel with respect to the federal securities laws
of the United States.
Pursuant to Rule 0-2 promulgated under the Investment
Advisers Act of 1940, the Manager and the Adviser have designated
the Securities and Exchange Commission as an agent upon whom may
be served any process, pleadings or other papers in any civil
suit or action brought in any appropriate court in any place
subject to the jurisdiction of the United States where the cause
of action arises out of any activity occurring in connection with
the conduct of the business of the Manager or Adviser and is
founded directly or indirectly upon the provisions of the
Securities Act of 1933, the Securities Exchange Act of 1934, the
Trust Indenture Act of 1939, the 1940 Act, the Investment
Advisers Act of 1940 or any rule or regulation under any of such
acts.
Terms of the Management Agreement. The Management Agreement
provides that the Investment Manager will manage, in accordance
with the Fund's stated investment objective, policies and
limitations and subject to the supervision of the Fund's Board of
Directors, the Fund's investments and make investment decisions
on behalf of the Fund including the selection of, and placing of
orders with, brokers and dealers to execute portfolio
transactions on behalf of the Fund. The Management Agreement
further provides that the Investment Manager shall not be liable
for any error of judgment or for any loss suffered by the Fund in
connection with matters to which the Management Agreement
relates, except a loss resulting from a breach of fiduciary duty
with respect to receipt of compensation for services (in which
case any award of damages shall be limited as provided in the
1940 Act) or a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of, or from
reckless disregard by the Investment Manager of, it duties and
obligations under the Management Agreement.
The Management Agreement provides that the Investment
Manager may, at its expense, employ, consult or associate with
itself, such person or persons as it believes necessary to assist
it in carrying out its obligations thereunder, provided however,
that if any such person would be an "investment adviser" as
defined under the 1940 Act, that (a) the Fund is a party to any
contract with such a person and (b) the contract is approved by
the Fund's Directors, Disinterested Directors, and shareholders,
as required by the 1940 Act.
Management Fee. The Management Agreement provides that, as
compensation for its services to the Fund, the Fund will pay the
Investment Manager a fee computed at the annual rate of 0.65% of
the Fund's average weekly net assets applicable to Common and
Preferred Stock up to $200 million, 0.60% of such assets between
$200 million and $500 million, 0.55% of such assets between $500
million and $900 million, and 0.50% of such assets in excess of
$900 million computed upon net assets applicable to Common and
Preferred stock at the end of each week and payable at the end of
each calendar month. Because of the Fund's objective of
investing in Australian and New Zealand securities, its expense
ratio, of which this fee is a component, may be higher than that
of closed-end U.S. investment companies of comparable size.
For the fiscal years ended October 31, 1994, 1993 and 1992,
the Fund paid or accrued on behalf of the Investment Manager
aggregate management fees of $8,681,243, $7,618,656 and
$7,026,202, respectively. During the same periods, the
Investment Manager informed the Fund that it paid aggregate
advisory fees of $3,668,127, $3,403,309 and $3,102,382,
respectively, to the Investment Adviser and aggregate consultant
fees of $662,270, $581,303 and $535,738, respectively, to the
Consultant.
Payment of Expenses. The Management Agreement obligates the
Investment Manager to bear all expenses of its employees and
overhead incurred in connection with its duties under the
Management Agreement and to pay all salaries and fees of the
Fund's Directors and officers who are interested persons (as
defined in the 1940 Act) of the Investment Manager. Pursuant to
the Management Agreement, the Fund will bear all of its own
expenses including: expenses of organizing the Fund; fees of the
Fund's Disinterested Directors; out-of-pocket travel expenses for
all Directors; interest expense; taxes and governmental fees,
brokerage commissions and other expenses incurred in acquiring or
disposing of the Fund's portfolio securities; expenses of
preparing stock certificates; expenses in connection with the
issuance, offering, distribution, sale or underwriting of
securities issued by the Fund; expenses of registering and
qualifying the Fund's shares for sale with the Securities and
Exchange Commission and in various states and foreign
jurisdictions, auditing, accounting, insurance and legal costs;
custodian, dividend disbursing and transfer agent expenses of
obtaining and maintaining stock exchange listings of the Fund's
shares; and the expenses of shareholders' meetings and of the
preparation and distribution of proxies and reports to
shareholders.
Duration and Termination. The Management Agreement provides
that it will continue in effect for 12 month periods, provided
that each continuance is specifically approved annually by (1)
the vote of the majority of the Fund's Disinterested Directors
cast in person at a meeting called for the purpose of voting on
such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a
majority of the Fund's Board of Directors. The Management
Agreement may be terminated at any time by the Fund without the
payment of any penalty, upon vote of a majority of the Fund's
Directors or a majority of the outstanding voting securities of
the Fund on 60 days' written notice to the Investment Manager.
The Management Agreement will terminate automatically in the
event of its assignment (as defined in the 1940 Act). In
addition, the Investment Manager may terminate the Management
Agreement on 90 days' written notice to the Fund.
Terms of the Advisory Agreement. The Advisory Agreement
provides that the Investment Adviser will make recommendations to
the Investment Manager as to specific portfolio securities which
are denominated in Australian or New Zealand dollars, to be
purchased, retained or sold by the Fund and will provide or
obtain such research and statistical data as may be necessary in
connection therewith. The Advisory Agreement further provides
that the Investment Adviser shall give the Investment Manager and
the Fund the benefit of the Investment Adviser's best judgment
and efforts in rendering services under the Advisory Agreement.
The Advisory Agreement provides that neither the Investment
Manager nor the Investment Adviser shall be liable for any error
of judgment or for any loss suffered by the Fund in connection
with matters to which the Advisory Agreement relates, except a
loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of
damages shall be limited as provided in the 1940 Act) or a loss
resulting from willful misfeasance, bad faith or gross negligence
on the part of the Investment Manager or the Investment Adviser,
as appropriate, in the performance of, or from reckless disregard
by such party of such party's obligations and duties under, the
Advisory Agreement.
Advisory Fee. The Advisory Agreement provides that the
Investment Manager will pay the Investment Adviser a fee computed
at the annual rate of 0.25% of the Fund's average weekly net
assets applicable to Common and Preferred Stock up to $1,200
million and 0.20% of such assets in excess of $1,200 million at
the end of each week and payable at the end of each calendar
month.
Payment of Expenses. The Advisory Agreement obligates the
Investment Adviser to bear all expenses of its employees and
overhead incurred in connection with its duties under the
Advisory Agreement and to pay all salaries and fees of the Fund's
Directors and Officers who are interested persons (as defined in
the 1940 Act) of the Investment Adviser but who are not
interested persons of the Investment Manager.
Duration and Termination. The Advisory Agreement provides
that it will continue in effect for 12 month periods, provided
that each continuance is specifically approved annually by (1)
the vote of the majority of the Fund's Disinterested Directors
cast in person at a meeting called for the purpose of voting on
such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a
majority of the Fund's Board of Directors. The Advisory
Agreement may be terminated with respect to the Fund at any time
by the Fund without the payment of any penalty, upon vote of a
majority of the Fund's Directors or a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the
Investment Manager and the Investment Adviser. The Advisory
Agreement will terminate automatically as to any party in the
event of its assignment (as defined in the 1940 Act) by that
party. In addition, the Investment Manager or the Investment
Adviser may terminate the Advisory Agreement as to such party on
90 days' written notice to the Fund and the other party.
Portfolio Management
The Fund's investment decisions are made in a collegial
manner. Two Investment Adviser Committees, the Asset Allocations
Committee and the Investment Strategy Committee, make broad
decisions as to the allocation of assets and investments, leaving
decisions with respect to the selection of particular securities
to an employee of the Investment Adviser who then recommends to
the Investment Manager that certain securities be bought or sold.
Administration Agreement
Pursuant to an Administration Agreement effective as of
December 13, 1988, (the "Administration Agreement"), Prudential
Mutual Fund Management, Inc. (the "Administrator"), an indirect
wholly owned subsidiary of the Fund's Consultant, provides office
facilities and personnel adequate to perform the following
services for the Fund: oversee the determination and publication
of the Fund's net asset value in accordance with its policy as
adopted from time to time by the Board of Directors; oversee the
maintenance of the books and records of the Fund required under
Rule 31a-1(b)(4) under the 1940 Act; prepare the Fund's U.S.
federal, state and local income tax returns; prepare financial
information for the Fund's proxy statements and quarterly and
annual reports to shareholders; prepare any asset maintenance or
other reports related to preferred stock; prepare the Fund's
periodic financial reports to the Securities and Exchange
Commission; and respond to or refer to the Fund's officers or
transfer agent shareholder inquiries relating to the Fund.
The Fund pays the Administrator a fee computed at the annual
rate of 0.15% of the Fund's average weekly net assets applicable
to common and preferred shares up to $900 million, and 0.10% of
such assets in excess of $900 million, based upon the net asset
value applicable to Common and Preferred Stock at the end of each
week and payable at the end of each calendar month. For the
fiscal years ended October 31, 1994, 1993 and 1992, the Fund paid
the Administrator fees of $2,023,337, $1,814,528 and $1,696,834,
respectively. The Administrator's offices are located at One
Seaport Plaza, New York, New York 10292.
Consultant Agreement
Pursuant to a Consultant Agreement, The Prudential Insurance
Company of America acts as Consultant to the Investment Manager
and the Investment Adviser with respect to economic factors and
trends and currency movements affecting the Fund. The Investment
Manager pays the Consultant a fee at the annual rate of 0.05% of
the Fund's average weekly net assets applicable to the Common and
Preferred Stock up to $200 million, 0.046% of such assets between
$200 million and $500 million, 0.042% of such assets between $500
million and $900 million and 0.038% of such assets in excess of
$900 million valued and paid in the same manner as fees paid the
Investment Manager and Investment Adviser of the Fund.
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The names and addresses of the Directors and officers of the
Fund are set forth below, together with their positions and their
principal occupations during the past five years and, in the case
of the Directors, their positions with certain other
organizations and companies. Directors who are "interested
persons" of the Fund, as defined by the 1940 Act, are indicated
by an asterisk.
While the Fund is a Maryland corporation, certain of its
Directors and officers (Messrs. Calvert-Jones, Maddock, Sacks,
Fraser, Sherman, Cutler, Elsum, Freedman, Manor, Yontef and
Randall) are non-residents of the United States and have all, or
a substantial part, of their assets located outside the United
States. As a result, it may be difficult for U.S. investors to
effect service of process upon such Directors and officers within
the United States to effectively enforce judgments of courts of
the United States predicated upon civil liabilities of such
Directors or officers under the federal securities laws of the
United States. The Fund has been advised that it is unlikely
that the courts of Jersey would adjudge civil liability against
Directors and officers resident in Jersey in an original action
predicated solely on the federal securities laws of the United
States. However, although there is no arrangement in place
between Jersey and the United States for the reciprocal
enforcement of judgments, a judgment against such Directors and
officers in an original action predicated on such provisions
rendered by a court in the United States would generally be
enforceable by the Jersey courts. There is doubt as to the
enforceability in Australia and Canada, the countries in which
other Directors and officers are resident, of these civil
liability provisions, whether or not such liabilities are based
upon judgments of courts in the United States or are pursuant to
original actions.
Position with Principal Occupation
Name and Address the Fund** and Other Affiliation
- ---------------- ------------- ---------------------
Anthony E. Aaronson(+)
116 South Anita Avenue
Los Angeles, CA 90049 Class I
Director Director, The First
Australia Fund, Inc.
(since 1985); Vice
President, Fortune
Fashions (1992-1993);
President, Fashion Fabric
Division, Forrest Fabrics
(textiles) (August
1991-1992); Director, PKE
Incorporated (consulting
company) (1988-1990);
Director, Textile
Association of Los
Angeles (1990-1993);
Director O.T.C. Sales,
Emday Fabric Co.
(textiles) (1986-91);
Executive Vice-President
and Secretary-Treasurer,
J&J Textiles Inc.
(1982-1986).
John A. Calvert-Jones
Level 31
101 Collins Street
Melbourne, Victoria 3000
Australia Class I
Director Director, The First
Australia Fund, Inc.
(since 1985); Chairman of
the Board (1984-1994) and
Chief Executive Officer
(1984-1991), Prudential-
Bache Securities
(Australia) Limited;
Partner, Cortis & Carr
(stockbrokers)(1970-1984
); Director, Slough
Estates Australia Pty.
Limited (property),
Sedgwick Pty. Limited
(insurance) and Crown
Limited.
Roger C. Maddock*
Union House
Union Street
St. Helier
Jersey, Channel
Islands Class I
Director Director, The First
Australia Fund, Inc, and
The First Commonwealth
Fund, Inc. (since 1992);
Chairman and Managing
Director, EquitiLink
International Management
Limited (since 1985);
Partner, Jackson Fox,
Chartered Accountants
(since 1981); Director,
Worthy Trust Company
Limited (since 1993);
Director, Professional
Consultancy Services
Limited (since 1983);
Director, Honeywell
Spring Limited (since
1987); Director, The
EquitiLink Private Gold
Investment Fund Limited
(since 1992); Director,
CentraLink-EquitiLink
Investment Company
Limited (since 1994).
John T. Sheehy(+)
6920 Koll Center Parkway
Suite 225
Pleasanton, CA 94566 Class I
Director Director, The First
Australia Fund, Inc.
(since 1985), First
Australia Prime Income
Investment Company
Limited (since 1986) and
The First Commonwealth
Fund, Inc. (since 1992);
Director, Greater Pacific
Food Holdings, Inc.
(food industry investment
company) (since 1993);
Partner, Sphere Capital
Partners (corporate
consulting) (since 1987);
Director, Sphere Capital
Advisors (investment
adviser); Director, Sandy
Corporation (corporate
consulting, communication
and training) (since
1986); Associate
Director, Bear Stearns &
Co. Inc. (1985-1987);
previously, Limited
Partner, Bear Stearns &
Co. Inc.
Rt. Hon. Malcolm Fraser(++)
A.C., C.H.
55 Collins Street
Melbourne, Victoria 3000
Australia Class II
Director Director, The First
Australia Fund, Inc.
(since 1985), First
Australia Prime Income
Investment Company
Limited (since 1986) and
The First Commonwealth
Fund, Inc. (since 1992);
partner, Nareen Pastoral
Company (agriculture);
Fellow, Center for
International Affairs,
Harvard University,
International Council of
Associates, Claremont
University; Chairman,
CARE Australia (since
1987); President, CARE
International (since
1990); Member, Byrnes
International Advisory
Board, University of
South Carolina (1985-
1990); ANZ International
Board of Advice; (1987-
1993); InterAction
Council for Former Heads
of Government; Co-
Chairman, Commonwealth
Eminent Persons Group on
Southern Africa
(1985-1986); Chairman,
United Nations Committee
on African Commodity
Problems (1989-1990);
Consultant, The
Prudential Insurance
Company of America;
International Consultant
on Political, and
Strategic Affairs (since
1983); Parliamentarian-
Prime Minister of
Australia (1975-1983).
Harry A. Jacobs, Jr.*
One New York Plaza
New York, NY 10292 Class II
Director Director, The First
Australia Fund, Inc.
(since 1985); Chairman
and Chief Executive
Officer, Prudential
Mutual Fund Management,
Inc. (June-September
1993); Senior Director,
Prudential Securities
Incorporated (since
1986); previously,
Chairman of the Board,
Prudential Securities
Incorporated (1982-1985);
Chairman of the Board and
Chief Executive Officer,
Bache Group, Inc.
(1977-1982); Director,
Center for National
Policy; Trustee, The
Trudeau Institute
(eleemosynary); Director
of 26 investment
companies affiliated with
Prudential Securities
Incorporated.
Howard A. Knight
300 Park Avenue
New York, NY 10022 Class II
Director Director, The First
Australia Fund, Inc.
(since 1993); Private
Investor and Consultant;
President of Investment
Banking, Equity
Transactions and
Corporate Strategy,
Prudential Securities
Incorporated (1991-1994);
former Chairman and Chief
Executive Officer, Avalon
Corporation (1984-1990);
Managing Director,
President and Chief
Executive Officer, Weeks
Petroleum Limited
(1982-1984); General
Counsel, member of the
Executive Committee and
Director, Farrell Lines
Incorporated (1976-1982);
Partner, Cummings &
Lockwood (1969-1976).
Peter D. Sacks(+)
11 King Street West
Ste. 1002
Toronto, Ontario M5H 1A3
Canada Class II
Director Director, The First
Commonwealth Fund, Inc.
(since 1992); President
and Director, Toron
Capital Markets, Inc.
(currency, interest rate
and commodity risk
management) (since 1988);
Vice President and
Treasurer, Midland Bank
Canada (1987-1988); Vice
President and Treasurer,
Chase Manhattan Bank of
Canada (1985-1987).
Brian M. Sherman*
44 Pitt Street
Sydney, N.S.W. 2000
Australia Class II
Director;
President
(since 1986) President and Director,
The First Australia Fund,
Inc. (since 1985); Joint
Managing Director, First
Australia Prime Income
Investment Company
Limited (since 1986);
Director and sole Vice
President, The First
Commonwealth Fund, Inc.
(since 1992); Chairman
and Joint Managing
Director, EquitiLink
Limited (since 1986);
Chairman and Joint
Managing Director,
EquitiLink Australia
Limited (since 1981);
Director, EquitiLink
International Management
Limited (since 1985);
Joint Managing Director,
MaxiLink Limited (since
1987); Executive
Director, MaxiLink
Securities Limited (since
1987); Director, First
Resources Development
Fund Limited (since
1994); Director, Ten
Group Limited (since
1994); Director,
Telecasters North
Queensland Limited (since
1993); Fund and Portfolio
Manager, Westpac Banking
Corporation (1976-1981);
Manager-Investments,
Outwich Limited (an
affiliate of Baring
Brothers & Co. Ltd.)
(merchant bank)
(1972-1976).
Sir Roden Cutler (++), V.C.,
A.K., K.C.M.G.,
K.C.V.O., C.B.E.,
K.St.J.
22 Ginahgulla Road
Bellevue Hill,
N.S.W. 2023
Australia Class III
Director;
Chairman of
the Board
(since 1986) Director and Chairman of
the Board, The First
Australia Fund, Inc.
(since 1985), First
Australia Prime Income
Investment Company
Limited (since 1986) and
The First Commonwealth
Fund, Inc. (since 1992);
Australia Director,
Rothmans Holding Ltd.
(formerly Rothmans Pall
Mall) (tobacco) (1981-
1994); Chairman, State
Bank of New South Wales
(1981-1986); Governor of
New South Wales,
Australia (1966-1981).
David Lindsay Elsum(++)
9 Maygrove
South Yarra, Victoria
3141
Australia Class III
Director Director, The First
Australia Fund, Inc.
(since 1985), First
Australia Prime Income
Investment Company
Limited (since 1986) and
The First Commonwealth
Fund, Inc. (since 1992);
President, State
Superannuation Fund of
Victoria; Director,
MaxiLink Ltd.; Managing
Director, The MLC Limited
(insurance) (1984-1985);
Managing Director,
Renison Goldfields
Consolidated Limited
(mining) (1983-1984);
Member, Administrative
Appeals Tribunal; Member,
Corporations and
Securities Panel of the
Australian Securities
Commission of Australian
States and Territories;
Chairman, Queen Victoria
Market.
Laurence S. Freedman*
44 Pitt Street
Sydney, N.S.W. 2000
Australia Class III
Directors;
Sole Vice
President
(since 1986) Sole Vice President and
Director, The First
Australia Fund, Inc.
(since 1985); Joint
Managing Director, First
Australia Prime Income
Investment Company
Limited (since 1986);
President and Director,
The First Commonwealth
Fund, Inc. (since 1992);
Founder and Joint
Managing Director,
EquitiLink Limited (since
1986); Joint Managing
Director, EquitiLink
Australia Limited (since
1981); Director,
EquitiLink International
Management Limited (since
1985); Chairman and Joint
Managing Director,
MaxiLink Limited (since
1987); Executive
Director, MaxiLink
Securities Limited (since
1987); Chairman and
Director, First Resources
Development Fund Limited
(since 1994); Director,
Ten Group Limited (since
1994); Director,
Telecasters North
Queensland Limited (since
1993); Managing Director,
Link Enterprises
(International) Pty.
Limited (investment
management company)
(since 1980); Manager of
Investments, Bankers
Trust Australia Limited
(1978-1980); Investment
Manager, Consolidated
Goldfields (Australia)
Limited (natural
resources investments)
(1975-1978).
Michael R. Horsburgh
675 Third Avenue
22nd Floor
New York, NY 10017 Class III
Director Director, The First
Australia Fund, Inc.
(since 1985); Director,
The First Commonwealth
Fund, Inc. (since 1994);
Director and Chief
Executive Officer,
Horsburgh Carlson
Investment Management,
Inc. (since 1991);
Director, The First
Hungary Fund; Managing
Director, Barclays de
Zoete Wedd Investment
Management (U.S.A.)
(1990-1991); Special
Associate Director, Bear
Stearns & Co, Inc.
(1989-1990); Senior
Managing Director, Bear
Stearns & Co. Inc.
(1985-1989); General
Partner, Bear Stearns &
Co. Inc. (1981-1985);
previously Limited
Partner, Bear Stearns &
Co. Inc.
<PAGE>
William J. Potter(++)
261 Madison Avenue
3rd Floor
New York, NY 10016 Class III
Director Director, The First
Australia Fund, Inc.
(since 1985), The First
Commonwealth Fund, Inc.
(since 1992) and First
Australia Prime Income
Investment Company
Limited (since 1986);
Partner, Sphere Capital
Partners (corporate
consulting) (since 1989);
President, Ridgewood
Partners, Ltd.
(investment banking)
(since 1989); Managing
Director, Prudential-
Bache Securities Inc.
(1984-1989); Director,
National Foreign Trade
Association; Director,
Alexandria Bancorp
Limited; Director, Global
Investment System, Ltd;
Director, Impulsora del
Fondo Mexico; Director,
Canadian Health
Foundation; First Vice
President, Barclays Bank,
plc (1982-1984);
previously various
positions with Toronto
Dominion Bank.
David Manor*
44 Pitt Street
Sydney, N.S.W. 2000
Australia Preferred
Director;
Treasurer
(since 1987) Treasurer, The First
Australia Fund, Inc.
(since 1987); Director
and Treasurer, The First
Commonwealth Fund, Inc.
(since 1992); Treasurer,
First Australia Prime
Income Investment Company
Limited (since 1987);
Executive Director,
EquitiLink Australia
Limited and EquitiLink
Limited; Director,
EquitiLink International
Management Limited and
EquitiLink U.S.A., Inc.
Marvin Yontef*
P.O. Box 85
1400 Commerce Court West
Toronto, Ontario
Canada M5L1B9 Preferred
Director Partner, Stikeman,
Elliott (Canadian law
firm); Director of and
counsel to First
Australia Prime Income
Investment Company
Limited.
Roy M. Randall
19-29 Martin Place
Sydney, N.S.W. 2000
Australia Secretary Partner, Freehill,
Hollingdale & Page,
Australian counsel to the
Fund.
Eugene S. Stark
One Seaport Plaza
New York, NY 10292 Chief Financial
Officer and
Assistant
Treasurer First Vice President
(since 1990) and Vice
President (1987-1989),
Prudential Mutual Fund
Management, Inc.
Kenneth T. Kozlowski
One Seaport Plaza
New York, NY 10292 Assistant
Treasurer Vice President,
Prudential Mutual Fund
Management, Inc. (since
1992); Fund Accounting
Manager, Pruco Life
Insurance Company (life
insurance division of The
Prudential Insurance
Company) (1990-1992);
Assistant Treasurer, The
Prudential Series Fund,
Inc. (1990-1992).
Margaret A. Bancroft
477 Madison Avenue
New York, NY 10022 Assistant
Secretary Partner, Dechert Price &
Rhoads, U.S. counsel to
the Fund.
Allan S. Mostoff
1500 K Street, N.W.
Washington, D.C. 20005 Assistant
Secretary Partner, Dechert Price &
Rhoads, U.S. counsel to
the Fund.
_______________
* Directors considered by the Fund and its counsel to be
persons who are "interested persons" (as defined in the
1940 Act) of the Fund or of the Fund's Investment Manager
or Investment Adviser. Mr. Jacobs is deemed to be an
interested person because of his affiliation with Prudential
Securities Incorporated, a broker-dealer registered under
the Securities Exchange Act of 1934, as amended. Messrs.
Freedman, Maddock, Manor and Sherman are deemed to be
interested persons because of his affiliation with the
Fund's Investment Manager and Investment Adviser, or because
they are officers of the Fund or both. Mr. Yontef is deemed
to be an interested person because the law firm of which he
is a partner acts as legal counsel for the Investment
Adviser and its parent.
** The Board of Directors is currently divided into three
classes (not including the Preferred Directors). The terms
of the Class I, II and III Directors expire in 1998, 1996
and 1997 respectively. Section 18 of the 1940 Act requires
that the holders of any preferred shares, voting separately
as a class without regard to series, have the right to elect
at least two Directors at all times. The Preferred
Directors were elected by the holders of the Preferred Stock
in accordance with Section 18.
(+) Member, Audit Committee.
(++) Member, Contract Review Committee.
Board Committees
The Board of Directors has a standing Audit Committee, which
consists of certain Directors who are not "interested persons" of
the Fund as defined in the 1940 Act. The principal purpose of
the Audit Committee is to review the scope of the annual audit
conducted by the Fund's independent accountants and the
evaluation by such accountants of the accounting procedures
followed by the Fund. The Board of Directors also has a standing
Contract Review Committee that reviews and makes recommendations
to the Board with respect to entering into, renewing or amending
the Management Agreement, the Advisory Agreement, the Consultant
Agreement and the Administration Agreement. The Board of
Directors does not have a standing nominating committee.
Relationship of Directors or Nominees with the Investment Adviser
and the Investment Manager
EquitiLink Australia Limited, the Investment Adviser, is a
wholly-owned subsidiary of EquitiLink Limited, a public company
whose ordinary shares are listed on the Australian Stock Exchange
Limited.
Messrs. Freedman, Sherman and Manor, all Directors of the
Fund, also serve as directors of EquitiLink International
Management Limited, the Investment Manager. Mr. Maddock, a
Director of the Fund, is also chairman and managing director of
the Investment Manager. In addition, Messrs. Freedman and
Sherman are the principal shareholders of the Investment Manager,
of which Mr. Manor is also a shareholder. Messrs. Freedman,
Sherman and Manor also serve as, respectively, joint managing
director, joint managing director and chairman, and executive
director of the Investment Adviser. Messrs. Freedman and Sherman
are the principal shareholders of EquitiLink Limited, of which
Messrs. Maddock and Manor are also shareholders.
During the fiscal year ended October 31, 1994, Professional
Consultancy Services Limited, a limited company organized under
the laws of Jersey, Channel Islands, provided administrative
services to the Investment Manager in connection with its
activities on behalf of the Fund and other U.S. and foreign
investment companies and entities in return for a fee in the
amount of $720,000. Mr. Maddock is a director and a principal
shareholder of Professional Consultancy Services Limited.
Compensation of Directors and Certain Officers
The following table sets forth certain information regarding
compensation of Directors by the Fund and by the Fund and by the
fund complex of which the Fund is a part (the "Fund Complex") for
the fiscal year ended October 31, 1994. (The Fund Complex
consists of all investment companies having EquitiLink Australia
Limited as investment adviser.) Officers of the Fund and
Directors who are interested persons of the Fund do not receive
any compensation from the Fund or any other investment company in
the Fund Complex that is a U.S. registered investment company.
<PAGE>
Compensation Table
Fiscal Year Ended October 31, 1994
Pension
or Re- Total Com-
tirement sation From
Aggre- Benefits Estimated Registrant
gate Com- Accrued Annual and Fund
pensation As Part Benefits Complex
Name of From of Fund Upon Paid to
Person, Position Registrant Expenses Retirement Directors+
________________ __________ _________ __________ __________
Directors:
Anthony E. Aaronson $13,750 N/A N/A $18,950 (2)
John A. Calvert-
Jones 0 N/A N/A 0 (2)
Sir Roden Cutler 13,750 N/A N/A 32,950 (4)
David Linday Elsum 13,750 * * 44,596* (4)
Rt. Hon. Malcom
Fraser 13,750 N/A N/A 32,950 (4)
Laurence S. Freedman 0 N/A N/A 0 (6)
Michael R. Horsburgh 13,750 N/A N/A 18,950 (2)
Harry A. Jacobs, Jr. 0 N/A N/A 0 (2)
Howard A. Knight 1,719** N/A N/A 2,369**(2)
Roger C. Maddock 0 N/A N/A 0 (3)
William J. Potter 13,750 N/A N/A 32,950 (4)
Peter D. Sacks 13,750 N/A N/A 20,250 (2)
John T. Sheehy 13,750 N/A N/A 32,950 (4)
Brian M. Sherman 0 N/A N/A 0 (6)
Preferred Directors:
David Manor 0 N/A N/A 0 (2)
Marvin Yontef 0 N/A N/A 7,500 (2)
_____________________
+ The number in parentheses indicates the total number of
boards of investment companies in the Fund Complex on which
the Director serves.
* Mr. Elsum serves as a director of MaxiLink Limited, an
Australian investment company to which the Investment
Adviser serves as investment manager. As required by
Australian law, MaxiLink Limited has for each of the past
two years contributed A$600 of Retirement Fund Benefits to
the David L. Elsum Superannuation Fund on behalf of Mr.
Elsum, to be invested and reinvested by the Trustee of that
fund. Upon Mr. Elsum's retirement, the total value at that
time of such amounts, together with future Retirement Fund
Benefits paid on his behalf, less applicable taxes and
charges, will be payable in full to Mr. Elsum. The amount
of $44,596 includes the fee of A$15,000 paid by MaxiLink
Limited to Mr. Elsum in his capacity as director of that
company. For purposes of this table, this amount has been
converted to $11,646 using the exchange rate in effect on
December 30, 1994.
** Mr. Knight received no fees for that portion of the fiscal
year in which he was an interested person (as defined in the
1940 Act) of the Fund.
Share Ownership
As of January 31, 1995, the Directors and officers of the
Fund as a group owned an aggregate of less than 1/4 of 1% of the
outstanding Common Stock. No Director or officer of the Fund
owns any outstanding Preferred Stock.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For the fiscal year ended October 31, 1992, the Fund paid
brokerage commissions for the execution of its portfolio
transactions on an agency basis in the amount of approximately
$8,000 to SBC Australia Limited, equaling 100% of brokerage
commissions paid by the Fund for that year. The amount of such
transactions aggregated approximately $39,000,000. SBC Australia
was affiliated with the Investment Adviser from June 1990 through
June 1994. During the fiscal years ended October 31, 1993 and
1994, the Fund paid no brokerage commissions.
NET ASSET VALUE OF COMMON STOCK
Net asset value per share of Common Stock is determined no
less frequently than the close of business (generally 5:00 p.m.
New York City time) on the last business day of each week
(generally Friday) by dividing the value of net assets of the
Fund (the value of its assets less its liabilities, accumulated
and unpaid dividends (whether or not earned or declared) on
outstanding shares of Preferred Stock and the aggregate
liquidation value of such shares of Preferred Stock) by the total
number of shares of Common Stock outstanding. In valuing the
Fund's assets, all securities for which market quotations are
readily available on an Australian, New Zealand or United States
exchange are valued, where practicable, at the last reported
sales price prior to the time of determination. If there were no
sales price on that date or if the securities are not quoted on
any such exchange, the value will be based on the lower of the
quotations from two leading brokers in the relevant debt
securities market. Investments having a maturity of 60 days or
less are valued at amortized cost. Securities and assets for
which market quotations are not readily available are valued at
fair value using methods determined in good faith by or under the
direction of the Board of Directors of the Fund, including
valuations that reference other securities which are considered
comparable in quality, interest rate and maturity.
The Australian and New Zealand values of the Fund's assets
and liabilities are translated into U.S. dollars at the closing
selling rate of the U.S. dollar against the Australian dollar
and New Zealand dollar at the end of each calendar week quoted by
a money center bank or, if no such rate is quoted at such time,
at such other appropriate rate as may be determined by the Fund's
Board of Directors.
TAXATION
The following is intended to be a general summary of certain
tax consequences that may result to the Fund and its
shareholders. It is not intended as a complete discussion of all
such tax consequences, nor does it purport to deal with all
categories of investors. Investors are therefore advised to
consult with their tax advisers before making an investment in
the Fund.
United States
Tax Treatment of the Fund--General.
The Fund intends to continue to qualify annually to be
treated as a regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must,
among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such
stock, securities or currencies ("Qualifying Income
Requirement"); (b) derive in each taxable year less than 30% of
its gross income from the sale or other disposition of certain
assets (namely (i) stock or securities, (ii) options, futures and
forward contracts (other than those on foreign currencies), and
(iii) foreign currencies (including options, futures and forward
contracts on such currencies) not directly related to the Fund's
principal business of investing in stocks or securities (or
options and futures with respect to stocks and securities)) held
less than three months; (c) diversify its holdings so that, at
the end of each quarter of the taxable year (i) at least 50% of
the market value of the Fund's assets is represented by cash and
cash items, U.S. government securities, the securities of other
regulated investment companies and other securities, with such
other securities of any one issuer limited for purposes of this
calculation to an amount not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer
(other than U.S. government securities or the securities of
other regulated investment companies); and (d) distribute at
least 90% of its investment company taxable income (which
includes, among other items, dividends, interest, and net
short-term capital gains in excess of net long-term capital
losses) each taxable year. The U.S. Treasury Department has
authority to promulgate regulations pursuant to which gains from
foreign currency (and options, futures and forward contracts on
foreign currency) not directly related to a regulated investment
company's business of investing in stocks and securities would
not be treated as qualifying income for purposes of the
Qualifying Income Requirement. To date, such regulations have
not been promulgated.
As a regulated investment company, the Fund generally will
not be subject to U.S. federal income tax on its investment
company taxable income and net capital gains (net long-term
capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from prior years), if any,
that it distributes to shareholders. However, the Fund would be
subject to corporate income tax (currently at a 35% rate) on any
undistributed income. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. The
Fund currently has no capital loss carryforward. Amounts not
distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the tax, the Fund must distribute
during each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98%
of its capital gains in excess of its capital losses (adjusted
for certain ordinary losses) for the twelve month period ending
on October 31 of the calendar year, and (3) all such ordinary
income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as
having been paid on December 31 if it is declared by the Fund in
October, November or December with a record date in such month
and is paid by the Fund in January of the following year.
Accordingly, such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared. To
prevent application of the excise tax, the Fund intends to make
its distributions in accordance with the calendar year
distribution requirement.
If in any taxable year the Fund fails to qualify as a
regulated investment company under the Code, the Fund would be
taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the
Fund in computing its taxable income. In addition, in the event
of a failure to qualify, the Fund's distributions, to the extent
derived from the Fund's current or accumulated earnings and
profits, would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to shareholders
as ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If the Fund
fails to qualify as a regulated investment company in any year,
it must pay out its earnings and profits accumulated in that
year in order to qualify again as a regulated investment company.
Issuance of Preferred Stock
The Internal Revenue Service has taken the position in a
revenue ruling that a regulated investment company which has two
or more classes of shares cannot effectively designate
distributions made to each class in any year as consisting of
more than that class's proportionate share of particular types of
income including capital gain dividends and foreign source
income. When both Common Stock and Preferred Stock are
outstanding, the Fund intends to designate distributions made to
each class as consisting of particular types of income, in
accordance with the class's proportionate shares of such income.
Thus, the Fund intends to designate as capital gain dividends a
proportionate part of the dividends paid to holders of Preferred
and Common Stock. Also, if the Fund is eligible to and does
elect to pass foreign taxes through to its shareholders, the Fund
intends to designate dividends paid to each class of shareholders
as consisting of a proportionate share of the foreign taxes paid
by the Fund. In the opinion of Dechert Price & Rhoads, counsel
to the Fund, the issuance of AMPS in several series will not
cause distributions on such shares to be ineligible for the
dividends-paid deduction for the Fund.
If the Fund does not meet its asset maintenance
requirements, it may be required to suspend distributions to the
holders of its Common and/or Preferred Stock until such coverage
is restored. Such suspension of distributions might prevent the
Fund from qualifying as a regulated investment company for
federal income tax purposes, or, if the Fund retains such
qualification, may cause the Fund to incur income and excise
taxes on its undistributed income. Further, the Fund may be
required to redeem Preferred Stock in order to restore asset
coverage to an acceptable level. In order to effect such
redemptions, the Fund may be required to dispose of assets for
cash. Such dispositions may result in recognition of gain or
loss to the Fund for tax purposes. This gain or loss (or gain or
loss from the remittance to the United States of proceeds from
the disposition of assets) may be treated, in whole or in part
for federal income tax purposes, as gain or loss due to
fluctuations in foreign currency values, which under current law
is ordinary rather than capital in character. Ordinary gain or
loss will increase, decrease, or possibly eliminate the Fund's
investment company taxable income distributable to holders of
Common Stock, Preferred Stock or both. For example, if losses
attributable to foreign currency fluctuations exceed other
investment company taxable income during a taxable year, the Fund
would not be able to make ordinary dividend distributions and
distributions for the taxable year would be treated in whole or
in part as a return of capital to shareholders for federal income
tax purposes, rather than as an ordinary dividend, reducing each
shareholder's tax basis in his Fund shares, or as gain from the
disposition of shares. Conversely, gain (including gain
attributable to foreign currency fluctuations) arising from the
sale of Fund assets to redeem Preferred Stock would increase the
amounts required to be distributed to holders of Common Stock in
order for the Fund to retain its qualification as a regulated
investment company and/or to avoid imposition of income or excise
taxes on the Fund. In addition, a sale of the Fund's assets
could adversely affect its status as a regulated investment
company, particularly in light of U.S. tax law limitations on
the ability of a company such as the Fund to dispose of assets
held for less than three months while retaining its status as a
regulated investment company.
Currency Fluctuations -- "Section 988" Gains or Losses
Under the Code, the gains or losses attributable to
fluctuations in exchange rates which occur between the time the
Fund accrues interest or other receivables, or accrues expenses
or other liabilities, denominated in a currency which is not a
functional currency for the Fund and the time the Fund actually
collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a currency which is
not a functional currency of the Fund, gains or losses
attributable to fluctuations in the value of the currency between
the date of acquisition of the security and the date of
disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988"
gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
The Fund uses the Australian dollar as its functional
currency in accounting for its investments in Australia and New
Zealand. As a result, the Fund is not required to take into
account gains or losses attributable to fluctuations in the value
of this functional currency, which otherwise would be treated as
Section 988 gains or losses, described above. However,
remittances from Australia to the United States will result in
recognition of ordinary gains or losses attributable to
fluctuations in the value of the Australian dollar.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed
by such countries. For example, the Fund's interest income
derived from Australian sources currently is subject to a 10%
Australian withholding tax. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, the Fund will be eligible and
intends to elect to "pass-through" to the Fund's shareholders the
amount of foreign taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his
proportionate share of the foreign taxes paid by the Fund, and
will be entitled either to deduct (as an itemized deduction) his
pro rata share of foreign taxes in computing his taxable income
or to use it as a foreign tax credit against his U.S. federal
income tax liability, subject to limitations. No deduction for
foreign taxes may be claimed by an individual shareholder who
does not itemize deductions. The deduction for foreign taxes is
not allowable in computing alternative minimum taxable income of
non-corporate shareholders. Each shareholder will be notified
within 60 days after the close of the Fund's taxable year whether
the foreign taxes paid by the Fund will "pass-through" for the
year and of the amount of such taxes deemed paid by the
shareholder.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax
attributable to his foreign source taxable income. For this
purpose, if the pass-through election is made, the source of the
Fund's income flows through to its shareholders. With respect to
the Fund, certain gain from the sale of securities will be
treated as derived from U.S. sources and currency fluctuation
gains, including fluctuation gains from certain foreign currency
denominated debt securities, receivables and payables, may be
treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income
passed through by the Fund. Shareholders may be unable to claim
a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. The foreign tax credit can be
used to offset only 90% of the alternative minimum tax (as
computed under the Code for purposes of this limitation) imposed
on corporations and individuals. If the Fund is not eligible to
make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its income
and distributions by the Fund will be treated as U.S. source
income.
The foregoing is only a general description of the foreign
tax credit and, because application of the credit depends on the
particular circumstances of each shareholder, shareholders are
advised to consult their own tax advisers.
Assuming that the Fund is eligible and does elect to pass
foreign taxes through to its shareholders, the Fund currently
intends to designate common and preferred shareholders'
proportionate shares of foreign taxes in the same proportion as
the income subject to such taxes is distributed to each such
shareholder.
Backup Withholding
The Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required certifications
or where the Internal Revenue Service has notified the Fund or a
shareholder that the shareholder is subject to backup
withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against the shareholder's
U.S. federal income tax liability.
Foreign Shareholders
The tax consequences to a foreign shareholder of an
investment in the Fund may be different from those described
herein. Foreign shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to
them in an investment in the Fund.
Other Taxation
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular
situation. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them
of an investment in the Fund.
Foreign Taxes
The following discussions are based upon the advice of
Freehill, Hollingdale & Page, Australian counsel for the Fund,
and Chapman Tripp Sheffield Young, New Zealand counsel for the
Fund, and are general and unexhaustive summaries of Australian
and New Zealand tax considerations which may be applicable to the
Fund under current law.
Australia
Pursuant to the United States Australia Double Tax
Agreement, the Fund will not be regarded as having a permanent
establishment in Australia if it has no fixed place of business
or place of management in Australia and if there is no person
(other than a broker or other agent of independent status) in
Australia who has authority to conclude contracts on behalf of
the Fund and habitually exercises that authority. The Fund does
not intend to have a fixed place of business or place of
management in Australia or to give any person (other than a
broker or other agent of independent status) in Australia the
authority to conclude contracts on behalf of the Fund; and
accordingly, under current Australian law, the Fund will be
regarded as a non-resident of Australia and none of the Fund's
profits arising from the disposal of its assets should be subject
to Australian taxes. The Fund will be subject to an interest
withholding tax at the rate of 10% on all interest payments
(including discounts on money market securities) under corporate
debt instruments, money market securities and Australian
Commonwealth Government and State Government securities (unless a
certificate of exemption from the interest withholding tax is
obtained by the issuer in respect of a particular issue).
Australian interest withholding tax does not apply to interest on
Eurodollar obligations issued by non-residents of Australia where
the interest is not an expense incurred by that person in
carrying on business in Australia at or through a permanent
establishment in Australia of that nonresident. See "Taxation --
United States -- Foreign Withholding Taxes." Generally, the Fund
will not be subject to a stamp duty on its investments in
government and semi-government securities, promissory notes and
bills of exchange.
New Zealand
Under current New Zealand law, the Fund will be regarded as
a non-resident of New Zealand and will be relieved of New Zealand
taxes on business profits under the Convention between the United
States of America and New Zealand for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income (the "Convention"), if the Fund does not have a
permanent establishment in New Zealand, and assuming the Fund to
be a resident of the United States as that phrase is defined in
the Convention, and that the Fund's principal class of shares
will be the subject of regular and substantial trading on a
recognized stock exchange (as so defined).
Pursuant to the Convention, the Fund will not be regarded as
having a permanent establishment in New Zealand if it has no
fixed place of business, place of management, branch or office in
New Zealand and if there is no person (other than a broker,
general commission agent, or other agent of independent status
acting, in each case, in the ordinary course of its business) who
acts on behalf of the Fund and has and habitually exercises in
New Zealand authority to conclude contracts in the name of the
Fund. The Fund does not intend to have a fixed place of
business, place of management, branch, or office in New Zealand
or to give any person (other than a broker, general commission
agent, or other agent of independent status acting, in each case,
in the ordinary course of its business) the authority to conclude
contracts in the name of the Fund in New Zealand, and accordingly
none of the business profits or gains from the alienation of debt
securities except for interest (as provided below) of the Fund
should be subject to New Zealand taxes. Interest (as defined for
New Zealand tax law purposes) paid to the Fund by an "approved
issuer" on debt obligations that the "approved issuer" has issued
and in respect of which a prescribed "approved issuer levy" has
been paid, will be subject to New Zealand interest non-resident
withholding tax at the rate of zero percent. All other interest
(as so defined) paid to the Fund will be subject to New Zealand
interest non-resident withholding tax at the rate of 10% on the
gross amount of all payments of interest (as so defined) deemed
to be derived from New Zealand under corporate debt instruments,
money market securities and New Zealand Government and local
authority debt securities, except, in the latter two cases, where
interest is payable out of New Zealand and in the case of local
authority debt securities, the approval of the New Zealand
Government has been given for that interest payment on such debt
securities to be exempted from New Zealand income tax.
The issue to and transfer by the Fund of debt instruments
will not be subject to New Zealand stamp duty or Goods and
Services Tax.
Tax Treatment of Preferred Stockholders
Dividend Distributions. Each series of Preferred Stock will
constitute stock of the Fund for federal income tax purposes and,
accordingly, to the extent of the Fund's current and accumulated
earnings and profits, distributions paid in cash to holders of
the Fund's shares will be taxable as ordinary income for federal
income tax purposes unless designated by the Fund as capital gain
dividends. Dividends received by corporate shareholders will not
be eligible for the dividends-received deduction.
For federal income tax purposes, dividends paid by the Fund
out of its investment company taxable income will be taxable to a
U.S. shareholder as ordinary income. To the extent that the
Fund designates distributions of net capital gains as capital
gain dividends, such distributions will be taxable to a
shareholder as long-term capital gain, regardless of how long the
shareholder has held the Fund's shares.
The Fund presently intends that, pursuant to the terms of
any Preferred Stock issued, the Fund will designate as capital
gain dividends a proportionate part of the dividends paid to
holders of Preferred and Common Stock.
Sale of Shares. Upon the sale or other disposition of
shares of the Fund, a shareholder may realize a capital gain or
loss which generally will be long-term or short-term, depending
upon the shareholder's holding period for the shares. Similarly,
a redemption, if any, of Preferred Stock by the Fund generally
will give rise to capital gain or loss if the shareholder does
not own (and is not regarded under certain tax law rules of
constructive ownership as owning)any Common Stock in the Fund and
provided that the redemption proceeds do not represent declared
but unpaid dividends. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Any loss realized by a shareholder on a disposition of Fund
shares held by the shareholder for six months or less will be
treated as long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder
with respect to such shares.
CAPITAL STOCK
Common Stock
The Fund's Articles authorize the issuance of up to
200,000,000 shares of Common Stock having a par value of $.01 per
share. All shares of Common Stock are equal as to dividends,
assets and voting privileges and have no conversion, preemptive
or other subscription rights. In the event of liquidation, each
share of Common Stock is entitled to its proportion of the Fund's
assets after the payment of debts and expenses and after payment
of the aggregate liquidation preferences to holders of Preferred
Stock, including the liquidation preference of $100,000 per share
with respect to shares of Auction Market Preferred Stock, Series
A-F and $25,000 per share with respect to the AMPS offered
hereby, plus accumulated but unpaid dividends (whether or not
earned or declared), on the outstanding shares of Preferred
Stock. Holders of shares of Common Stock are entitled to one
vote per share and do not have cumulative voting rights.
Preferred Stock
The Fund's Articles of Incorporation authorize the issuance
of up to 100,000,000 shares of Preferred Stock, with an aggregate
liquidation preference of up to $500,000,000, having a par value
of $.01 per share, in one or more series, with rights as
determined by the Board of Directors, by action by the Board of
Directors without the approval of the holders of Common Stock.
An aggregate of 4,000 shares of Auction Market Preferred Stock in
six series, designated as Series A, Series B, Series C, Series D,
Series E and Series F, with an aggregate liquidation preference
of $400,000,000, is currently outstanding. Under the 1940 Act,
the Fund is permitted to have outstanding more than one series of
Preferred Stock so long as no single series has a priority over
another series as to the distribution of assets of the Fund or
the payment of dividends.
No Preemptive Rights
No holder of shares of the Fund has any preemptive right to
acquire from the Fund any capital stock of the Fund whether now
or hereafter authorized.
Liquidation Preference
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Fund, the holders of shares of
any series of Preferred Stock will be entitled to receive a
preferential liquidating distribution (to equal the original
purchase price per share plus accrued and unpaid dividends,
whether or not declared) before any distribution of assets is
made to holders of Common Stock. After payment of the full
amount of the liquidating distribution to which they are
entitled, the Preferred Stockholders will not be entitled to any
further participation in any distribution of assets by the Fund.
The following table shows the amount of (i) capital stock
authorized, (ii) capital stock held by the Fund or for its own
account and (iii) capital outstanding stock for each class of
authorized securities of the Fund as of _____________, 1995.
Amount
Outstanding
Amount Held (Exclusive of
By Fund or Amount Held By
Amount For Its Fund or For Its
Title of Class Authorized Account Account
-------------- ---------- ---------- ---------------
Common Stock . . 200,000,000 -0- _________
Auction Market
Preferred Stock. . 100,000,000 -0- 4,000
<PAGE>
CERTAIN PROVISIONS OF THE BY-LAWS AND
ARTICLES OF AMENDMENT AND RESTATEMENT
The Fund presently has provisions in its Articles and
By-lawsthat could have the effect of limiting (i) the ability of
other entities or persons to acquire control of the Fund, (ii)
the Fund's freedom to engage in certain transactions or (iii) the
ability of the Fund's Directors or shareholders to amend the
Articles or effect changes in the Fund's management. The
provisions of the Articles and By-laws may be regarded as
"anti-takeover" provisions. The Fund's By-laws provide for a
staggered election of those Directors who are elected by the
holders of Common Stock, with such Directors divided into three
classes, each having a term of three years. Accordingly, only
those Directors in one class may be changed in any one year and
it would require two years to change a majority of the Board of
Directors. This system of electing Directors may have the effect
of maintaining the continuity of management and, thus, make it
more difficult for the Fund's shareholders to change the majority
of Directors.
Article Ninth of the Fund's Articles stipulates that a "fair
price" be paid for the Fund's shares in the event of a proposed
merger or other business combination which is not approved by
either 75% of the Continuing Directors of the Board of Directors
or the holders of 75% of the outstanding shares of the Fund
voting both as a single class and separately as to each class
(the "Fair Price Provision"). The stipulated "fair price" is the
higher of:
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by an Interested Party (as hereinafter defined) for any shares
acquired by it (a) within the two-year period immediately prior
to the first public announcement of the proposal of a business
combination (the "Announcement Date"), or (b) in the
transaction in which an Interested Party first becomes the
beneficial owner of voting shares of the Fund (a "Threshold
Transaction"), whichever is higher; and
(ii) in the case of Common Stock, the net asset value per
share of such Common Stock on the Announcement Date or on the
date of the Threshold Transaction, whichever is higher, and in
the case of any Preferred Stock, the highest preferential
amount per share to which the holders of shares of such class
of Preferred Stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Fund, regardless of whether the business
combination to be consummated constitutes such an event.
Article Ninth requires the same super majority vote to amend
the Articles to "open end" the Fund by making the Fund's Common
Stock redeemable or to adopt any shareholder proposal as to
specific investment decisions with respect to the Fund's assets.
Shareholders of an open-end investment company may require the
company to redeem their shares in kind or in cash at any time
(except in certain circumstances authorized by the 1940 Act) at
their net asset value less any redemption charge. If shares are
redeemed in kind, shareholders may incur brokerage commissions.
Conversion to open-end status would require the redemption of all
outstanding shares of Auction Market Preferred Stock.
An "Interested Party" includes any person, other than an
investment company advised by the Investment Manager or any of
its affiliates, which proposes to enter into a business
combination.
A "Continuing Director" means any member of the Board of
Directors who is not an interested Party or an affiliate of an
Interested Party and has been a member of the Board of Directors
for a period of at least 12 months, or is a successor of a
Continuing Director who is unaffiliated with an Interested Party
and is recommended to succeed a Continuing Director by a majority
of the Continuing Directors then on the Board of Directors.
CUSTODIAN, DIVIDEND PAYING AGENTS, TRANSFER AGENTS,
REGISTRARS AND AUCTION AGENT
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02171, acts as the Fund's custodian for
assets of the Fund held in the United States and the Fund's
dividend paying agent, transfer agent and registrar for the
Fund's Common Stock. Chemical Bank acts as Auction Agent for the
Preferred Stock and also acts as transfer agent, registrar,
dividend disbursing agent and redemption agent for the Preferred
Stock.
Rules adopted under the 1940 Act permit the Fund to maintain
its foreign securities and cash in the custody of certain
eligible foreign banks and securities depositories. Pursuant to
those Rules, the Fund's portfolio of securities and cash, when
invested in foreign securities, are held by its sub-custodians,
Australia and New Zealand Banking Group Limited, Westpac Banking
Corporation, and State Street London Limited Selection of the
sub-custodians has been made by the directors of the Fund
following a consideration of a number of factors, including, but
not limited to, the reliability and financial stability of the
institution; the ability of the institution to perform capably
custodial services for the Fund; the reputation of the
institution in its national market; the political and economic
stability of the countries involved; and risks of potential
nationalization and expropriation of Fund assets.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Prudential Securities Incorporated (the "Underwriters") each
severally has agreed, subject to the terms and conditions set
forth in the Purchase Agreement with the Fund, the Investment
Manager, the Investment Adviser and EquitiLink Limited, to
purchase from the Fund 1,500 shares of AMPS. The Purchase
Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters
will be obligated to purchase all of the AMPS if any are
purchased.
The Fund has been advised by the Underwriters that they
propose initially to offer the AMPS to the public at the public
offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in
excess of $______ per share. The Underwriters may allow, and
such dealers may reallow, a discount note in excess of $______
per share to certain other dealers. After the initial public
offering, the public offering price, concession and discount may
be changed. The sales load of $______ per share is equal to
_____% of the initial public offering price. Investors must pay
for any shares of AMPS purchased in the initial public offering
on or before __________, 1995.
The Underwriters will act in Auctions as Broker-Dealers as
set forth under "Description of Preferred Shares -- The Auction -
- - General -- Broker-Dealer Agreements" and will be entitled to
fees for services as Broker-Dealers as set forth under
"Description of Preferred Shares -- Broker-Dealers." Each of such
firms may also provide information to be used in ascertaining the
applicable reference rates. Each of the Underwriters engages in
transactions with, and perform services for, the Fund in the
ordinary course of business.
The Fund, the Investment Manager, the Investment Adviser and
EquitiLink Limited have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the
Underwriters may be required to make in respect thereof.
Prudential Securities Incorporated and the Administrator are
indirect subsidiaries of the Consultant. Harry A. Jacobs, Jr.,
a director of the Fund, is Senior Director of Prudential
Securities Incorporated. Eugene S. Stark, Assistant Treasurer of
the Fund, is a First Vice President of Prudential Mutual Fund
Management, Inc. and Kenneth T. Kozlowski, Assistant Treasurer of
the Fund, is a Vice President of Prudential Mutual Fund
Management, Inc.
EXPERTS
The financial statements, insofar as they relate to the
periods through October 31, 1994, included in this Prospectus,
have been so included in reliance on the report of Price
Waterhouse, LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares offered hereby will be passed on
for the Fund by Dechert Price & Rhoads, New York, New York, and
certain legal matters relating to the shares will be passed on
for the Underwriters by Brown & Wood, New York, New York.
Dechert Price & Rhoads and Brown & Wood will rely as to matters
of Maryland law on the opinion of Venable, Baetjer and Howard,
Baltimore, Maryland. Matters of Australian law will be passed on
for the Fund by Freehill, Hollingdale & Page, Sydney, Australia.
Matters of New Zealand law will be passed on for the Fund by
Chapman Tripp Sheffield Young, Wellington, New Zealand. Roy M.
Randall, a partner of Freehill, Hollingdale & Page, serves as
Secretary of the Fund. Margaret A. Bancroft and Allan S.
Mostoff, members of Dechert Price & Rhoads, each serve as an
Assistant Secretary of the Fund.
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
October 31, 1994
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
LONG-TERM INVESTMENTS--127.5%
AUSTRALIA--125.1%
Government and Semi-government--76.7%
Commonwealth of Australia--36.1%
Commonwealth of Australia,
A$ 20,000 12.00%, 11/15/96............. $ 15,697,443
4,000 13.50%, 5/15/97.............. 3,255,191
25,000 12.50%, 1/15/98.............. 19,977,788
5,000 13.00%, 4/15/98.............. 4,072,814
25,000 6.25%, 3/15/99............... 16,157,914
15,000 14.00%, 4/15/99.............. 12,747,122
35,000 12.00%, 7/15/99.............. 27,896,942
50,000 7.00%, 4/15/00............... 32,273,149
49,900 13.00%, 7/15/00.............. 41,494,392
5,000 13.00%, 12/15/00............. 4,179,588
30,000 12.00%, 11/15/01............. 24,079,117
36,000 9.50%, 8/15/03............... 25,247,964
10,000 9.00%, 9/15/04............... 6,743,388
100,000 7.50%, 7/15/05............... 59,798,850
Commonwealth Bank of
Australia,
70,000 12.00%, 7/15/99.............. 55,154,648
Telecom,
10,000 13.00%, 2/1/96............... 7,863,633
1,000 12.50%, 10/1/96.............. 792,659
45,000 12.00%, 9/1/98............... 35,584,153
--------------
393,016,755
--------------
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
New South Wales--11.0%
New South Wales Treasury
Corporation,
A$ 10,500 8.50%, 3/1/96................ $ 7,771,986
50,000 12.50%, 4/1/97............... 39,470,774
45,000 12.00%, 12/1/01.............. 35,698,720
20,000 12.60%, 5/1/06............... 21,337,243
State Bank of New South
Wales,
20,000 13.00%, 3/15/96.............. 15,627,790
--------------
119,906,513
--------------
Northern Territory--3.0%
Northern Territory Authority,
40,000 12.50%, 7/15/01.............. 32,139,840
--------------
Queensland--1.5%
Queensland Treasury
Corporation,
21,000 12.00%, 7/15/99.............. 16,652,497
--------------
South Australia--6.4%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05.............. 4,041,232
South Australian Financing
Authority,
30,000 12.50%, 3/15/98.............. 23,843,682
60,000 10.00%, 1/15/03.............. 42,224,235
--------------
70,109,149
--------------
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Tasmania--6.4%
Tasmanian Public Finance
Corporation,
A$ 62,750 12.50%, 1/15/01.............. $ 50,340,661
24,000 9.00%, 11/15/04.............. 15,562,012
5,000 11.00%, 4/15/06.............. 3,610,466
--------------
69,513,139
--------------
Victoria--5.7%
Treasury Corporation of
Victoria,
5,000 12.50%, 9/15/97.............. 3,965,485
50,000 12.50%, 7/15/00.............. 40,188,161
22,600 12.50%, 10/15/03............. 18,286,667
--------------
62,440,313
--------------
Western Australia--6.6%
Western Australia Treasury
Corporation,
10,000 12.50%, 4/1/98............... 7,965,337
18,000 9.00%, 4/15/99............... 12,790,455
64,000 12.00%, 8/1/01............... 50,632,800
--------------
71,388,592
--------------
Total Australian government
and semi-government
(cost US$868,531,682)........ 835,166,798
--------------
See Notes to Financial Statements.
<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Eurobonds--33.9%
Diversified Industrials--0.8%
Australian National Railway,
A$ 2,138 9.50%, 2/25/99............... $ 1,546,028
BMW Australia Finance,
1,700 10.25%, 3/17/97.............. 1,270,634
EksportFinans,
4,000 7.00%, 6/28/00............... 2,504,379
Federal Airports Corporation,
1,975 7.00%, 2/16/04............... 1,118,919
Finnish Eksport Credit,
2,925 9.25%, 12/30/99.............. 2,058,525
--------------
8,498,485
--------------
Natural Resources--0.8%
Mobil Australia Corp.,
1,000 12.00%, 4/18/97.............. 774,752
Shell Australia,
5,000 10.125%, 4/1/97.............. 3,734,136
1,786 10.00%, 12/19/97............. 1,319,166
State Electricity Commission
of Victoria,
1,000 12.25%, 5/30/01.............. 786,109
3,000 11.00%, 4/9/02............... 2,219,245
--------------
8,833,408
--------------
Services--22.4%
Banque Nationale de Paris,
14,000 9.00%, 8/13/02............... 9,481,364
Commonwealth Bank of
Australia,
1,000 12.75%, 1/7/98............... 794,210
2,000 8.75%, 9/14/00............... 1,387,322
Credit Lyonnais Australia,
5,000 8.625%, 12/29/97............. 3,551,538
GG Securities,
5,000 9.25%, 3/24/03............... 3,355,209
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
International Bank for
Reconstruction
& Development,
A$ 1,000 14.50%, 6/7/96............... $ 800,300
McDonald's Australia,
1,000 10.50%, 11/5/98.............. 742,941
New South Wales Treasury
Corporation,
10,000 7.50%, 2/1/98................ 6,939,394
5,000 11.50%, 7/1/99............... 3,895,602
20,000 12.00%, 12/1/01.............. 15,714,530
5,000 6.50%, 5/1/06................ 2,632,251
32,000 12.60%, 5/1/06............... 26,165,775
Province Aples Cotes D'Azur,
12,000 8.25%, 9/15/99............... 8,156,197
Province of Quebec,
390 9.50%, 10/2/02............... 270,652
Queensland Treasury
Corporation,
40,000 8.00%, 5/14/97............... 29,103,433
40,000 8.00%, 7/14/99............... 27,424,457
55,000 8.00%, 8/14/01............... 36,371,238
Queensland Treasury Corporation,
3,000 12.00%, 8/15/01.............. 2,388,599
30,000 8.00%, 5/14/03............... 18,925,663
15,000 10.50%, 5/15/03.............. 11,058,861
Rural & Industries Bank,
5,000 8.75%, 9/9/99................ 3,494,055
2,000 7.75%, 6/9/03................ 1,242,463
South Australia Financing
Authority,
2,000 10.50%, 11/6/98.............. 1,492,884
1,500 12.00%, 6/12/01.............. 1,168,413
State Bank of New South
Wales,
1,000 14.25%, 9/28/99.............. 838,092
5,500 12.25%, 2/26/01.............. 4,349,362
3,000 10.75%, 3/12/02.............. 2,221,752
5,000 9.00%, 9/17/02............... 3,368,558
10,000 9.25%, 2/18/03............... 6,797,818
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
State Bank of South
Australia,
A$ 7,500 9.50%, 10/15/02.............. $ 5,148,460
Tasmanian Public Finance
Authority,
1,000 14.00%, 12/22/95............. 782,376
2,000 10.75%, 11/20/01............. 1,466,584
Toronto-Dominion Bank,
1,000 11.25%, 7/15/98.............. 764,679
Treasury Corporation of
Victoria,
2,000 11.00%, 3/12/02.............. 1,479,648
--------------
243,774,680
--------------
Supranational Global--9.9%
Credit Locale de France,
10,000 7.50%, 9/15/97............... 6,977,473
Eurofima,
40,000 9.875%, 1/17/07.............. 27,816,070
European Bank for
Reconstruction &
Development,
45,000 9.00%, 10/15/02.............. 30,664,799
European Investment Bank,
42,000 10.25%, 10/1/01.............. 30,949,847
Swedish National Housing,
15,000 7.50%, 8/22/96............... 10,824,272
--------------
107,232,461
--------------
Total Australian Eurobonds
(cost US$393,931,099)...... 368,339,034
--------------
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Corporate Bonds--14.5%
Diversified Industrials--0.9%
Federal Airports Corporation,
5,000 10.50%, 7/15/99.............. 3,698,571
10,000 8.25%, 6/2/03................ 6,211,616
--------------
9,910,187
--------------
Services--13.6%
Australian & Overseas
Telecommunication
Corporation,
A$ 55,350 12.50%, 11/15/00............. $ 44,201,530
40,000 11.50%, 10/15/02............. 30,458,786
2,000 7.80%, 7/17/03............... 1,187,144
41,000 12.00%, 5/15/06.............. 31,466,758
20,000 10.50%, 12/15/17............. 12,987,196
2,000 8.75%, 1/15/20............... 1,092,537
10,000 10.50%, 1/15/20.............. 6,478,679
2,000 12.50%, 1/15/20.............. 1,528,001
FANMAC Limited,
Mortgage Series 25,
847 10.33%, 6/15/02.............. 615,901
Premier Trust 22,
3,940 11.40%, 12/15/01............. 2,956,353
Macquarie Bank Limited,
10,000 14.20%, 1/3/96............... 7,848,284
1,000 9.75%, 8/1/00................ 695,535
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98............... 3,466,506
5,000 6.75%, 2/25/99............... 3,265,682
--------------
148,248,892
--------------
Total Australian corporate
bonds
(cost US$166,805,110)...... 158,159,079
--------------
Total Australian long-term
investments
(cost US$1,429,267,891)...... 1,361,664,911
--------------
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
NEW ZEALAND--2.4%
Corporate Bonds--0.3%
Electric Corporation of New
Zealand,
NZ$ 5,000 10.00%, 10/15/01
(cost US$3,275,590)........ $ 3,134,686
--------------
Government Bonds--2.0%
New Zealand Government Bonds,
5,000 6.50%, 2/15/00............... 2,762,728
30,000 10.00%, 3/15/02
(cost US$23,687,141)....... 19,375,663
--------------
22,138,391
--------------
Eurobonds--0.1%
Telecom New Zealand Finance,
1,500 9.25%, 7/1/02
(cost US$996,653).......... 900,388
--------------
Total New Zealand long-term
investments
(cost US$27,959,384)....... 26,173,465
--------------
Total long-term investments
(cost US$1,457,227,275).... 1,387,838,376
--------------
SHORT-TERM INVESTMENTS--6.2%
AUSTRALIA--3.7%
Government and Semi-Government--2.5%
Commonwealth of Australia--2.1%
Telecom,
A$ 30,000 12.00%, 9/1/95............... 23,060,909
--------------
Northern Territory--0.4%
Northern Territory Authority,
5,000 13.00%, 11/30/94............. 3,731,597
--------------
Total Australian government
and semi-government
(cost US$28,401,048)......... 26,792,506
--------------
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Eurobonds--0.7%
Diversified Industrials--0.1%
Amro Australia Limited,
A$ 1,300 14.75%, 5/15/95.............. $ 996,602
--------------
Services--0.6%
Commonwealth Bank of
Australia,
4,250 14.00%, 2/2/95............... 3,196,855
Deutsche Bank Finance,
1,000 12.75%, 3/15/95.............. 754,976
General Electric of Canada,
1,000 14.25%, 8/8/95............... 772,425
McDonald's Canada,
3,000 15.00%, 6/28/95.............. 2,316,537
--------------
7,040,793
--------------
Total Australian Eurobonds
(cost US$8,675,886).......... 8,037,395
--------------
See Notes to Financial Statements.
<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Corporate Bonds--0.5%
Services--0.5%
Australian & Overseas
Telecommunication
Corporation,
A$ 2,800 12.50%, 8/15/95.............. $ 2,157,432
Ford Credit Australia
Limited,
5,000 12.25%, 9/15/95.............. 3,837,744
--------------
Total Australian corporate
bonds
(cost US$6,243,164).......... 5,995,176
--------------
Total Australian short-term
investments
(cost US$43,320,098)......... 40,825,077
--------------
UNITED STATES--2.5%
US$26,694 Repurchase Agreement, State
Street Bank and Trust
Company, 4.70%, 10/31/94
due 11/1/94 in the amount
of $26,697,485 (cost
$26,694,000; collateralized
by $27,960,000 U.S.
Treasury Bill, due 4/15/95;
value including
accrued
interest--US$27,277,830)... 26,694,000
--------------
Total short-term investments
(cost US$70,014,098)......... 67,519,077
--------------
See Notes to Financial Statements.<PAGE>
<PAGE>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Total Investments--133.7%
(cost US$1,527,241,373; Note
3)......................... 1,455,357,453
Other assets in excess of
liabilities--3.0%.......... 33,273,928
Liquidation value of
preferred stock--(36.7%)... (400,000,000)
--------------
Net Assets Applicable to
Common Shareholders--100%.. $1,088,631,381
==============
See Notes to Financial Statements.<PAGE>
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
October 31, 1994
- ----------------------------------------------------------
Assets
Investments, at value (cost
$1,527,241,373)..................... $1,455,357,453
Foreign currency, at value (cost
$4,297,587)......................... 4,343,520
Cash.................................. 302,074
Interest receivable................... 43,474,138
Other assets.......................... 103,255
--------------
Total assets...................... 1,503,580,440
--------------
Liabilities
Dividends payable-common stock........ 9,260,691
Withholding taxes payable............. 3,026,584
Dividends payable-preferred stock..... 991,518
Accrued expenses and other
liabilities......................... 881,976
Investment management fee payable..... 658,319
Administration fee payable............ 129,971
--------------
Total liabilities................. 14,949,059
--------------
Total Net Assets...................... $1,488,631,381
==============
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
123,475,879 shares)............. $ 1,234,759
Paid-in capital in excess of
par............................... 1,139,805,668
Preferred stock ($.01 par value per
share and $100,000 liquidation
value per share applicable to
4,000 shares; Note 4 400,000,000
--------------
1,541,040,427
Undistributed net investment
income.............................. 7,837,454
Accumulated net realized gains on
investments....................... 12,575,509
Net unrealized depreciation on
investments......................... (111,147,558)
<PAGE>
<PAGE>
- ----------------------------------------------------------
Accumulated net realized and
unrealized foreign exchange
gains............................. 38,325,549
--------------
Total net assets.................... $1,488,631,381
==============
Net assets applicable to common
shareholders...................... $1,088,631,381
==============
Net asset value per common share:
($1,088,631,381 / 123,475,879 shares
of common stock issued and
outstanding)........................ $8.82
==============
See Notes to Financial Statements.
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Year Ended October 31, 1994
- ----------------------------------------------------------
Net Investment Income
Income
Interest and discount earned (net of
foreign withholding taxes of
$11,210,887)....................... $ 141,958,404
-------------
Expenses
Investment management fee............ 8,681,243
Custodian's fees and expenses........ 2,236,000
Administration fee................... 2,023,337
Auction agent's fees and expenses.... 1,180,000
Reports to shareholders.............. 790,000
Transfer agent's fees and expenses... 658,000
Directors' fees and expenses......... 395,000
Independent accountant's fees and
expenses............................. 212,000
Insurance expense.................... 141,000
Legal fees and expenses.............. 130,000
Excise tax........................... 44,000
Miscellaneous........................ 51,776
-------------
Total expenses..................... 16,542,356
-------------
Net investment income.................. 125,416,048
-------------
Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currencies
Net realized gain on investment
transactions......................... 29,213,379
Net change in unrealized appreciation
on investments....................... (310,171,836)
-------------
Net loss on investments................ (280,958,457)
-------------
Net decrease in total net assets from
operations before net foreign
exchange gains....................... (155,542,409)
Net realized and unrealized foreign
exchange gains....................... 156,775,702
-------------
Net Increase In Total Net Assets
Resulting From Operations.............. $ 1,233,293
=============
See Notes to Financial Statements.<PAGE>
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Year Ended October 31, 1994
- ----------------------------------------------------------
Increase (Decrease) in Cash
(Including Foreign Currency)
Cash flows used for operating
activities
Interest received (net of foreign
withholding taxes)................. $ 134,017,670
Expenses paid........................ (16,757,550)
Sales of short-term portfolio
investments, net..................... 34,970,000
Purchases of long-term portfolio
investments.......................... (668,032,088)
Proceeds from sales of long-term
portfolio
investments........................ 495,452,991
Other................................ 109,782
-------------
Net cash used for operating
activities......................... (20,239,195)
-------------
Cash flows from financing activities
Net proceeds from issuance of
preferred shares................... 48,885,000
Net proceeds from rights offering.... 99,756,499
Dividends and distributions paid to
preferred shareholders............. (15,094,963)
Dividends and distributions paid to
common shareholders (net of $21,145,354
paid in the issuance of shares).... (102,938,376)
-------------
Net cash from financing
activities......................... 30,608,160
-------------
Effect of changes in exchange rate..... (10,965,502)
-------------
Net decrease in cash................... (596,537)
Cash at beginning of year............ 5,242,131
-------------
Cash at end of year.................. $ 4,645,594
=============
<PAGE>
<PAGE>
- ----------------------------------------------------------
Reconciliation of Net Increase in Total
Net Assets from Operations to Net Cash
(Including Foreign Currency) Used For
Operating Activities
Net increase in total net assets
resulting from
operations........................... $ 1,233,293
-------------
Increase in investments.............. (137,609,097)
Increase in interest receivable...... (8,169,511)
Net decrease in other assets......... 109,782
Increase in accrued expenses and
other liabilities.................. 13,583
Net realized gain on investment
transactions......................... (29,213,379)
Net change in unrealized appreciation
on investments........................ 310,171,836
Net realized and unrealized foreign
exchange gains..................... (156,775,702)
-------------
Total adjustments.................. (21,472,488)
-------------
Net cash used for operating
activities............................. $ (20,239,195)
=============
See Notes to Financial Statements.
<PAGE>
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Changes
in Net Assets
- ----------------------------------------------------------
Year Ended October 31,
Increase (Decrease) -------------------------------
in Total Net Assets 1994 1993
-------------- --------------
Operations
Net investment income... $ 125,416,048 $ 122,662,930
Net realized gain on
investment
transactions.......... 29,213,379 22,605,058
Net change in unrealized
appreciation
(depreciation) on
investments........... (310,171,836) 100,977,731
-------------- --------------
Net increase (decrease)
in total net assets
resulting from
operations before net
foreign exchange gains
(losses).............. (155,542,409) 246,245,719
Net realized and
unrealized foreign
exchange gains
(losses).............. 156,775,702 (63,920,276)
-------------- --------------
Net increase in total net
assets resulting from
operations.............. 1,233,293 182,325,443
-------------- --------------
Dividends to shareholders
from net investment
income:
Common shares........... (102,870,871) (111,388,272)
Preferred shares........ (14,114,110) (11,442,189)
-------------- --------------
(116,984,981) (122,830,461)
-------------- --------------
<PAGE>
<PAGE>
- ----------------------------------------------------------
Distributions to
shareholders
from net realized
capital gains:
Common shares........... (21,110,324) (7,620,888)
Preferred shares........ (1,577,675) (647,593)
-------------- --------------
(22,687,999) (8,268,481)
-------------- --------------
Fund share transactions
Net proceeds from
issuance of preferred
shares................ 48,885,000 48,965,686
Net proceeds from rights
offering of Fund
shares................ 156,956,449 --
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions and in
connection with
dividends paid in
stock................. 21,145,354 21,959,398
-------------- --------------
226,986,803 70,925,084
-------------- --------------
Total increase............ 88,547,116 122,151,585
Total Net Assets
Beginning of year......... 1,400,084,265 1,277,932,680
-------------- --------------
End of year............... $1,488,631,381 $1,400,084,265
============== ==============
See Notes to Financial Statements.<PAGE>
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Notes to Financial Statements
- ----------------------------------------------------------
The First Australia Prime Income Fund, Inc. (the ``Fund'') was
incorporated in Maryland on March 14, 1986 as a closed-end,
non-diversified investment company. The Fund's investment
objective is current income through investment primarily in
Australian debt securities. The Fund may also achieve incidental
capital appreciation. It is expected that normally at least 65%
of the Fund's total assets will be invested in Australian dollar
denominated debt securities of Australian banks, federal and
state governmental and corporate entities. To achieve its
investment objective, the Fund may invest the remainder of its
assets in debt securities of comparable quality which are
denominated in Australian or New Zealand dollars of other
issuers, whether or not domiciled in Australia or New Zealand,
and in U.S. Government securities and corporate and bank debt
securities of U.S. issuers rated Aa or Prime-2 or better by
Moody's Investors Service, Inc. (``Moody's'') or AA or A-2 or
better by Standard &Poor's Corporation (``S&P''). It is the
Fund's policy to limit its investments,as to 65% of its total
assets, to issuers of debt securities rated AA or better by
S&P--Australian Ratings Pty. Ltd. or S&P or Aa or better by
Moody's or which,in the judgement of the Investment Manager, are
of equivalent quality. The remainder of the Fund's investments
will be rated A by those rating agencies or,if unrated, will in
the Investment Manager's judgement be of equivalent quality.The
ability of issuers of debt securities, including foreign currency
balances on deposit with the Fund's Australian and New Zealand
subcustodian banks, held by the Fund to meet their obligations
may be affected by economic or political developments in a
specific industry or region.
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the Fund in the preparation of its
financial statements.
Basis of Presentation: The financial statements of the Fund are
prepared in accordance with United States generally accepted
accounting principles using the United States dollar as both the
functional and reporting currency.
Foreign Currency Translation: Australian dollar (``A$'') and New
Zealand dollar (``NZ$'') amounts are translated into United
States dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities at the exchange rates at the end of the fiscal year;
<PAGE>
(ii) purchases and sales of investment securities, income
and expenses at the rates of exchange prevailing on the
respective dates of such transactions. The Fund isolates that
portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations
arising from changes in the market prices of the securities held
at fiscal year end.Similarly, the Fund isolates the effect of
changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of portfolio securities sold
during the fiscal year. Net realized and unrealized foreign
exchange gains of $156,775,702 include realized foreign exchange
gains and losses from sales and maturities of portfolio
securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities
transactions, the difference between the amounts of interest,
discount and foreign withholding taxes recorded on the Fund's
books and the US dollar equivalent amounts actually received or
paid and changes in unrealized foreign exchange gains and losses
in the value of portfolio securities and other assets and
liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of
domestic origin, including unanticipated movements in the value
of the foreign currency relative to the U.S. dollar.
The exchange rate at October 31, 1994 was US$.7422 to A$1.00
for the Australian dollar and US$.6156 to NZ$1.00 for the New
Zealand dollar.
Security Valuation: Investments are stated at value. Investments
for which market quotations are readily available are valued
based on prices provided by a pricing service or the lower of the
quotations from two leading Australian or New Zealand brokers in
the debt securities market, in the event that a price cannot be
obtained by the pricing service. Securities for which market
quotations are not readily available are valued at fair value
using methods determined in good faith by or under the direction
of the Fund's Board of Directors.
Short-term securities which mature in more than 60 days are
valued at current market quotations. Short-term securities which
mature in 60 days or less are valued at amortized cost.
In connection with transactions in repurchase agreements with
U.S. financial institutions, it is the Fund's policy that its
custodian take possession of the underlying collateral
securities, the value of which exceeds the principal amount of
the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction exceeds one business day,
the collateral is valued on a daily basis to determine its
adequacy. If the seller defaults and the value of the collateral
declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by
the Fund may be delayed or limited.
Securities Transactions and Investment Income: Securities
transactions are recorded on the trade date. Realized and
unrealized gains and losses from security and currency
transactions are calculated on the identified cost basis.
Interest income is recorded on an accrual basis. Discounts on
short-term securities are accreted over the life of the security.
Dividends and Distributions: It is the Fund's current policy to
pay dividends from net investment income. The Fund will also
declare and pay distributions at least annually from net realized
gains on investment transactions and net realized foreign
exchange gains, if any. Dividends and distributions to common
shareholders are recorded on the ex-dividend date. Dividends and
distributions to preferred shareholders are accrued on a weekly
basis and are determined as described in Note 4.
Income distributions and capital and currency gains
distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing
treatments for foreign currencies, loss deferrals and recognition
of market discount.
Taxes: For federal income tax purposes, substantially all of the
Fund's transactions are accounted for using the Australian dollar
as the functional currency. Accordingly, only realized currency
gains and losses resulting from the repatriation of A$ into US$
or NZ$ into US$ are recognized for tax purposes.
No provision has been made for United States income taxes
because it is the Fund's policy to continue to meet the
requirements of the United States Internal Revenue Code
applicable to regulated investment companies and to distribute
all of its taxable income to shareholders. Australia and New
Zealand impose a withholding tax of 10% on most interest and
discount earned.
Cash Flow Information: The Fund invests in securities and
distributes dividends from net investment income and net realized
gains from investment and currency transactions which are paid in
cash or are reinvested at the discretion of shareholders. These
activities are reported in the Statement of Changes in Net Assets
and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic
and foreign currency.
Reclassification of Capital Accounts: Effective November 1, 1993,
the Fund began accounting and reporting for distributions to
shareholders in accordance with Statement of Position 93-2:<PAGE>
Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund
changed the classification of the undistributed and accumulated
earnings accounts to better disclose the differences between
financial statement amounts and those determined in accordance
with income tax regulations. The effect caused by adopting this
statement was to decrease undistributed net investment income by
$14,108,005, decrease accumulated net realized gains on
investments by $47,772,790 and increase accumulated net realized
and unrealized foreign exchange losses by $61,880,795 compared to
amounts previously reported through October 31, 1993. During the
fiscal year ended October 31, 1994, the Fund increased
undistributed net investment income by $7,637,028, decreased
accumulated net realized gains on investments by $5,465,421 and
decreased accumulated net realized foreign exchange gains by
$2,171,607. Net investment income, net realized gains and net
assets were not affected by this change. Accumulated realized and
unrealized foreign exchange gains shown in the composition of net
assets at October 31, 1994 represent foreign exchange gains for
book purposes that have not yet been recognized for tax purposes.
Note 2. Agreements
The Fund has agreements with EquitiLink International
Management Limited (the "Investment Manager"), EquitiLink
Australia Limited (the "Investment Adviser"), The Prudential
Insurance Company of America (the "Consultant"), and Prudential
Mutual Fund Management, Inc. (the "Administrator"). The
Investment Manager and the Investment Adviser are affiliated
companies; the Administrator is an indirect wholly-owned
subsidiary of the Consultant.
The Investment Manager makes investment decisions on behalf of
the Fund on the basis of recommendations and information
furnished to it by the Investment Adviser and the Consultant,
including the selection of and the placement of orders with
brokers and dealers to execute portfolio transactions on behalf
of the Fund.
The management agreement provides the Investment Manager with
a fee, computed weekly and payable monthly, at the following
annual rates: 0.65% of the Fund's average weekly total net assets
of common and preferred shareholders up to $200 million, 0.60% of
such assets between $200 million and $500 million, 0.55% of such
assets between $500 million and $900 million and 0.50% of such
assets in excess of $900 million. The administration agreement
provides the Administrator with a fee at the annual rate of 0.15%
of the Fund's average weekly total net assets of common and
preferred shareholders up to $900 million and 0.10% of such
assets in excess of $900 million. The Investment Manager pays
fees to the Investment Adviser and the Consultant for their
services rendered. The Investment Manager informed the Fund that<PAGE>
it paid $3,668,127 to the Investment Adviser and $662,270 to the
Consultant during the fiscal year ended October 31, 1994.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments, for the fiscal year ended October 31,
1994 aggregated $668,032,088 and $495,452,991, respectively.
The United States federal income tax basis of the Fund's
investments at October 31, 1994 was $1,566,862,428 and
accordingly, net unrealized depreciation for United States
federal income tax purposes was $111,504,975 (gross unrealized
appreciation--$16,722,661; gross unrealized
depreciation--$128,227,636).
Note 4. Capital
There are 200 million shares of common stock authorized. Of
the 123,475,879 common shares outstanding at October 31, 1994,
the Investment Manager owned 31,732 shares.
In connection with a rights offering, shareholders of record
on September 17, 1993 were issued one-sixth of a non-transferable
right for each full share of common stock owned, entitling
shareholders the opportunity to acquire one newly issued share of
common stock for every whole right held at a subscription price
equal to a 5% discount from the lesser of net asset value on the
expiration date (October 22, 1993) or the average market value on
that date and the four business days preceding the expiration
date. On November 12, 1993 the Fund issued 17,311,869 shares of
common stock at $9.48 per share and rights offering costs of
$1,005,700 ($.01 per share) and brokerage and dealer-manager
commissions of $6,154,369 ($.05 per share) were charged to
paid-in capital of common shareholders resulting in net proceeds
to the Fund of $156,956,449. Prudential Securities Incorporated,
an affiliate of the Consultant and the Administrator, and its
financial advisors earned approximately $2,060,000 of the
aforementioned commissions with respect to its participation in
the rights offering.
The Fund issued 2,128,167 shares during the fiscal year ended
October 31, 1994 in connection with the reinvestment of dividends
and distributions paid to shareholders enrolled in the dividend
reinvestment plan.
The Fund issued 1,672,102 shares during the fiscal year ended
October 31, 1993 in connection with the reinvestment of dividends
and distributions paid to shareholders enrolled in the dividend
reinvestment plan and 559,335 shares in connection with a cash
dividend paid in stock.
<PAGE>
There are 100 million shares of $.01 par value of preferred
stock authorized with an aggregate liquidation preference of up
to $500 million. The preferred shares have rights as determined
by the Board of Directors. The 4,000 shares of Auction Market
Preferred Stock (``Preferred Stock'') outstanding consist of six
series as follows: Series A--750 shares, Series B--750 shares,
Series C--500 shares, Series D--1,000 shares, Series E--500
shares and Series F--500 shares. Series E preferred shares were
issued on December 23, 1992 (net proceeds $48,965,686). Series F
preferred shares were issued on December 20, 1993; underwriting
discounts ($875,000) and offering costs (estimated at $240,000)
incurred in connection with the offering have been charged to
paid-in capital in excess of par of the common stock. Prudential
Securities Incorporated advised the Fund that it received
approximately $437,500 in underwriting fees in connection with
the Series F preferred share offering. The Preferred Stock has a
liquidation value of $100,000 per share plus any accumulated but
unpaid dividends.
Dividends on each series of preferred shares are cumulative at
a rate established at the initial public offering and are
typically reset every 28 days for Series A through D and every
seven days for Series E and F based on the results of an auction.
Dividend rates ranged from 3.00% to 5.045% during the fiscal year
ended October 31, 1994. Under the Investment Company Act of 1940,
the Fund may not declare dividends or make other distributions on
shares of common stock or purchase any such shares if, at the
time of the declaration, distribution or purchase, asset coverage
with respect to the outstanding Preferred Stock would be less
than 200%.
The Preferred Stock is redeemable at the option of the Fund,
in whole or in part, on any dividend payment date at $100,000 per
share plus any accumulated but unpaid dividends. The Preferred
Stock is also subject to mandatory redemption at $100,000 per
share plus any accumulated but unpaid dividends if certain
requirements relating to the composition of the assets and
liabilities of the Fund as set forth in the Articles of
Incorporation are not satisfied.
The holders of Preferred Stock have voting rights equal to the
holders of common stock (one vote per share) and will vote
together with holders of shares of common stock as a single
class. However, holders of Preferred Stock are also entitled to
elect two of the Fund's directors.
Note 5. Dividends and Distributions
On November 14, 1994 and December 13, 1994 the Board of Directors
of the Fund declared dividends and distributions from
undistributed net investment income of $.075 per common share
payable on December 16, 1994 and January 13, 1995 to common<PAGE>
shareholders of record on November 30, 1994 and December 30,
1994. On December 13, 1994 the Board of Directors of the Fund
also declared a distribution of $.075 per share from capital
gains payable on January 31, 1995 to shareholders of record on
December 30, 1994.
Subsequent to October 31, 1994, dividends and distributions
declared and paid on preferred shares totalled approximately
$2,475,300 for the six outstanding preferred share series in the
aggregate through December 13, 1994.
Note 6.
Quarterly Data
(Unaudited)
Net investment
income
Per
Quarterly Total Common
Period Income Amount share
- ---------- ----------- ----------- --------
11/1/92 to
1/31/93 $35,252,188 $31,740,904 $.31
2/1/93 to
4/30/93 34,157,242 30,529,286 .30
5/1/93 to
7/31/93 34,139,795 30,389,017 .29
8/1/93 to
10/31/93 33,702,339 30,003,723 .29
11/1/93 to
1/31/94 35,611,751 31,643,294 .26
2/1/94 to
4/30/94 35,940,426 31,877,989 .26
5/1/94 to
7/31/94 35,375,916 31,328,526 .25
8/1/94 to
10/31/94 35,030,311 30,566,239 .24
<PAGE>
<PAGE>
Net realized and
unrealized
gains (losses) on
investments and
foreign currencies
Per
Quarterly Common
Period Amount share
- ------------ ------------- ----------
11/1/92 to
1/31/93 $(19,945,575) $(.19)
2/1/93 to
4/30/93 112,827,754 1.09
5/1/93 to
7/31/93 (10,743,276) (.10)
8/1/93 to
10/31/93 (22,476,390) (.22)
11/1/93 to
1/31/94 96,221,242 .78
2/1/94 to
4/30/94 (134,738,538) (1.10)
5/1/94 to
7/31/94 (35,788,451) (.29)
8/1/94 to
10/31/94 (49,877,008) (.42)
<PAGE>
<PAGE>
Net increase
(decrease)
in net assets
resulting from
operations
Per
Quarterly common
Period Amount share
- ---------- ---------------------
11/1/92 to
1/31/93 $ 11,795,329 $ .12
2/1/93 to
4/30/93 143,357,040 1.39
5/1/93 to
7/31/93 19,645,741 .19
8/1/93 to
10/31/93 7,527,333 .07
11/1/93 to
1/31/94 127,864,536 1.04
2/1/94 to
4/30/94 (102,860,549) (.84)
5/1/94 to
7/31/94 (4,459,925) (.04)
8/1/94 to
10/31/94 (19,310,769) (.18)
<PAGE>
<PAGE>
Dividends and Distributions
-----------------------------------------------
Common Shares Preferred shares
---------------------- ----------------------
Per Per
Quarterly common common
period Amount share Amount share
- ----------- ----------- ------- ----------- --------
11/1/92 to
1/31/93 $35,186,719 $.35 $3,579,387 $.03
2/1/93 to
4/30/93 27,857,287 .27 2,836,895 .03
5/1/93 to
7/31/93 27,919,578 .27 2,828,903 .03
8/1/93 to
10/31/93 28,045,576 .27 2,844,597 .03
11/1/93 to
1/31/94 32,858,529 .27 3,056,070 .03
2/1/94 to
4/30/94 31,166,968 .25 3,507,996 .03
5/1/94 to
7/31/94 30,382,609 .25 4,301,424 .03
8/1/94 to
10/31/94 29,573,089 .24 4,826,295 .04
<PAGE>
<PAGE>
Common
share price
on the
American
Stock
Quarterly Exchange
period High Low
- ----------- -----------------
11/1/92 to
1/31/93 $10 1/2 $ 8 7/8
2/1/93 to
4/30/93 11 3/8 9 9/16
5/1/93 to
7/31/93 11 10 1/8
8/1/93 to
10/31/93 11 5/16 9 3/4
11/1/93 to
1/31/94 11 10
2/1/94 to
4/30/94 11 9 7/8
5/1/94 to
7/31/94 10 13/16 10
8/1/94 to
10/31/94 10 5/8 9
<PAGE>
<PAGE>
- --------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Financial Highlights
- ------------------------------------------------------------
Years ended October 31,
- ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1994 1993
Net asset value per common share,
beginning of year................... $ 10.09 $ 9.61
------- -------
Net investment income................. 1.01 1.19
Net realized and unrealized gain
(loss) on investments and
foreign currencies.................. (1.03) .58
------- -------
Total from investment operations.... (.02) 1.77
------- -------
Dividends from net investment
income to preferred shareholders.... (.12) (.11)
Dividends from net investment income
to common shareholders.............. (.84) (1.08)
Distributions from net capital and
currency gains to preferred
shareholders........................ (.01) (.01)
Distributions from net capital and
currency gains to common
shareholders........................ (.17) (.08)
------- -------
Total dividends and distributions... (1.14) (1.28)
------- -------
Capital charge in respect to issuance
of shares........................... (.11) (.01)
------- -------
Net asset value per common share,
end of year.......................... $ 8.82 $ 10.09
======= ========
Market price per common share,
end of year......................... $ 9.56 $ 10.25
======= ========<PAGE>
<PAGE>
TOTAL INVESTMENT RETURN BASED ON(+):
Market value....................... 3.32% 15.00%
Net asset value.................... (3.19)% 17.80%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses.......................... 1.41%(++)1.44%(++)
Net investment income before preferred
stock dividends................. 10.68% 12.13%
Preferred stock dividends......... 1.20% 1.13%
Net investment income available to
common shareholders.............. 9.48% 11.00%
Portfolio turnover rate........... 34% 23%
Net assets of common shareholders,
end of year (000 omitted).......... $ 1,088,631 $ 1,050,084
Average net assets of common shareholders
(000 omitted)................... $ 1,174,394 $ 1,011,324
Senior securities (preferred stock)
outstanding (000 omitted)........ $ 400,000 $ 350,000
Asset coverage of preferred stock at
year end......................... 372% 400%
<PAGE>
<PAGE>
- -------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Financial Highlights (cont'd)
- -------------------------------------------------------------
Years ended October 31,
- -------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1992 1991 1990
Net asset value per common share,
beginning of year............... $ 11.31 $ 10.02 $ 9.31
------- ------- ------
Net investment income............. 1.29 1.40 1.49
Net realized and unrealized gain
(loss) on investments and
foreign currencies.............. (1.42) 1.37 .73
------ ------- ------
Total from investment operations (.13) 2.77 2.22
------ ------- ------
Dividends from net investment
income to preferred shareholders (.14) (.24) (.30)
Dividends from net investment income to
common shareholders............. (1.10) (1.24) (1.13)
Distributions from net capital and currency
gains to preferred
shareholders.................... (.01) -- --
Distributions from net capital and currency
gains to common
shareholders.................... (.29) -- (.08)
------ ----- -----
Total dividends and distributions (1.54) (1.48) (1.51)
------ ------ -----
Capital charge in respect to issuance of
shares........................... (.03) -- --
------ ----- -----
Net asset value per common share, end of
year............................. $ 9.61 $ 11.31 $ 10.02
====== ======= =======
Market price per common share,
end of year..................... $ 10.00 $ 10.94 $ 8.94
======= ======= ======<PAGE>
<PAGE>
TOTAL INVESTMENT RETURN BASED ON(+):
Market value...................... 4.11% 38.36% 14.95%
Net asset value................... (3.22)% 27.62% 22.88%
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS/SUPPLEMENTAL
DATA#:
Expenses...................... 1.43%(++)1.59%(++)1.54%(++)
Net investment income before
preferred stock dividends........ 12.14% 13.42% 15.47%
Preferred stock dividends......... 1.25% 2.31% 3.11%
Net investment income available to
common shareholders............. 10.89% 11.11% 12.36%
Portfolio turnover rate........... 17% 83% 80%
Net assets of common shareholders,
end of year (000 omitted)....... $977,933 $972,569 $861,379
Average net assets of common
shareholders (000 omitted)...... $938,072 $899,175 $826,862
Senior securities (preferred stock)
outstanding (000 omitted)....... $300,000 $300,000 $300,000
Asset coverage of preferred stock at
year end........................ 426% 424% 387%
<PAGE>
<PAGE>
(+) Total investment return is calculated assuming a purchase
of common stock on the first day and a sale on the last day of
each year reported. Dividends and distributions are assumed, for
purposes of this calculation, to be reinvested at prices obtained
under the Fund's dividend reinvestment plan. Total investment
return does not reflect brokerage commissions.
(++) Includes expenses of both preferred and common stock.
# Ratios calculated on the basis of income, expenses and
preferred share dividends applicable to both the common and
preferred shares relative to the average net assets of common
shareholders.
NOTE: Contained above is operating performance for a share of
common stock outstanding, total investment return, ratios to
average net assets of common shareholders and other supplemental
data for each of the years indicated. This information has been
determined based upon financial information provided in the
financial statements and market value data for the Fund's common
shares.
See Notes to Financial Statements.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The First Australia Prime Income Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments, and the
related statements of operations, of cash flows and of changes in
net assets and the financial highlights present fairly, in all
material respects, the financial position of The First Australia
Prime Income Fund, Inc. (the ``Fund'') at October 31, 1994, the
results of its operations and its cash flows for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with
generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
of these financial statements in accordance with generally
accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits,
which included confirmation of securities at October 31, 1994 by
correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 20, 1994
<PAGE>
<PAGE>
GLOSSARY
" "AA" Composite Commercial Paper Rate," on any date, means
(i) the interest equivalent of the 30-day rate on commercial
paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P, or the equivalent of such rating by S&P or another
rating agency, as such 30-day rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New
York for the Business Day immediately preceding such date, or
(ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of
the interest equivalent of the 30-day rate on commercial paper
placed on behalf of such issuers, as quoted to the Auction Agent
on a discount basis or otherwise by the Commercial Paper Dealers
for the close of business on the Business Day immediately
preceding such date. If the Commercial Paper Dealer does not
quote a rate required to determine the 30-day "AA" Composite
Commercial Paper Rate, the 30-day "AA" Composite Commercial Paper
Rate will be determined on the basis of the quotation or
quotations furnished by and any Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers selected by the
Fund to provide such rate or rates not being supplied by the
Commercial Paper Dealer. "Interest Equivalent" as used herein
means the equivalent yield on a 360-day basis of a discount basis
security to an interest bearing security.
"Administrator" means Prudential Mutual Fund Management,
Inc.
"Affiliate" means any Person known to the Auction Agent to
be controlled by, in control of, or under common control with,
the Fund.
"Agent Member" means the member of the Securities Depository
that will act on behalf of a Beneficial Owner or Potential
Beneficial Owner.
"AMPS" means the Auction Market Preferred Stock, Series G,
of the Fund, liquidation preference $25,000 per share, plus
accumulated but unpaid dividends (whether or not earned or
declared).
"AMPS Basic Maintenance Amount" has the meaning set forth on
page __ of this Prospectus.
"AMPS Basic Maintenance Cure Date" has the meaning set forth
on page __ of this Prospectus.
"Applicable Percentage" has the meaning set forth on page __
of this Prospectus.
"Applicable Rate" means the rate per annum at which
dividends are payable on the AMPS for any Dividend Period.
"Articles" means the Articles of Amendment and Restatement
of the Fund, as amended and supplemented from time to time,
including by the Articles Supplementary and the articles
supplementary creating the other series of Auction Market
Preferred Stock.
"Articles Supplementary" means the Articles Supplementary of
the Fund specifying the powers, preferences and rights of the
shares of AMPS.
"Auction" means each operation of the Auction Procedures
with respect to the AMPS.
"Auction Agent" means Chemical Bank Company unless and until
another commercial bank, trust company, or other financial
institution appointed by a resolution of the Board of Directors
of the Fund or a duly authorized committee thereof enters into an
agreement with the Fund to follow the Auction Procedures for the
purpose of determining the Applicable Rate and to act as transfer
agent, registrar, paying agent and redemption agent.
"Auction Agent Agreement" means the agreement entered into
between the Fund and the Auction Agent which provides, among
other things, that the Auction Agent will follow the Auction
Procedures for the purpose of determining the Application Rate.
"Auction Date" means the first Business Day next preceding
the first day of a Dividend Period for the AMPS.
"Auction Market Preferred Stock" has the meaning set forth
on page __ of this Prospectus.
"Auction Procedures" means the procedures for conducting
Auctions set forth in Appendix B to this Prospectus.
"Australian Bank Bills" means bills of exchange (as defined
in the Bills of Exchange Act of the Commonwealth of Australia)
issued, accepted or endorsed by Australian banks with (x) in the
case of S&P (i) a rating from S&P at least as high as S&P's
then-current rating for the AMPS or (ii) in the case of any Bank
Bill with a remaining term to maturity from the date of
determination of 365 days or less, a rating from S&P at least as
high as S&P's short-term rating comparable to its then-current
rating for the AMPS and (y) in the case of Moody's (i) a
long-term foreign currency debt rating from Moody's of at least
Aa3 or (ii) in the case of any Bank Bill with a remaining term to
maturity from the date of determination of 180 days or less, a
rating from Moody's of Prime-1 or (iii) any other rating as
Moody's shall approve in writing.
"Australian Corporate Bonds" means debt obligations of
Australian corporations (other than Australian Government
Securities, Australian Semi-Government Securities, Australian
Bank Bills, Australian Eurobonds, Australian Exchangeable
Eurobonds and Australian Short-Term Securities) provided, that
such debt obligations shall not be deemed to be Eligible
Portfolio Property by S&P unless they have the following
characteristics: (a) the principal amount outstanding on the date
of determination is at least equal to A$50 million, (b) the
security is publicly traded, (c) the security is non-callable,
or, if the security is callable, the basis for pricing is to the
call date, (d) the security is rated at least AA- by S&P, (e) the
security has a tender panel, (f) the maturity date of the
security is not later than the 10th anniversary of the Valuation
Date of such security and (g) the security is issued by one of
the following issuers:
(i) Issuers with a public long-term S&P rating or whose
parent has a public long-term rating and there is an explicit
guarantee backing the subsidiary's debt service payments
("Guaranteed Australian Corporate Bonds"). These issuers
currently include:
FANMAC Premier Trust Co. No. 1-22 and any subsequent issues
rated by S&P -- Australian Ratings
Ford Credit Australia
National Australia Bank
State Bank of Victoria
Custom Credit Corporation Ltd.
(ii) Issuers, which shall be designated in writing from time
to time by S&P, without a public long-term S&P rating but whose
parent has a long-term S&P rating but has not explicitly
guaranteed the subsidiary's debt service payments
("Non-Guaranteed Corporate Bonds").
In addition, if the determination is being made for S&P, (a)
not more than 10% of the aggregate Discounted Value of the
Eligible Portfolio Property of the Fund can consist of Australian
Corporate Bonds issued by a single issuer, (b) not more than 50%
(if the issue is rated AAA by S&P) or 33.3% (if the issue is
rated AA or A by S&P) or 20% (if the issue is rated BBB by S&P)
of the aggregate Discounted Value of the Eligible Portfolio
Property of the Fund can consist of Australian Corporate Bonds
from issues representing a single industry, (c) not more than 5%
of the then-outstanding principal amount of any one issue can be
included in Eligible Portfolio Property and (d) not more than 20%
of the outstanding aggregate principal amount of the Australian
Corporate Bonds held by the Fund and included in Eligible
Portfolio Property shall be comprised of securities with a then
outstanding issue size of less than A$100 million.
"Australian Currency" means such coin or currency of
Australia as at the time shall be legal tender for payment of
public and private debts, as well as cash deposits with Offshore
Banking Units of Banque Nationale de Paris.
"Australian Eurobonds" (including guaranteed and
non-guaranteed Eurobonds) means debt securities which are
denominated in Australian Currency, and which have the following
characteristics: (a) the principal amount outstanding on the date
of determination is at least equal to A$50 million, (b) the
security is publicly traded, (c) the security is non-callable,
or, if the security is callable, the basis for pricing is to the
call date, (d) the security is rated at least AA- by S&P, (e) the
maturity date of the security is not later than the 10th
anniversary of the Valuation Date of such security and (f) the
security is issued by one of the following issuers:
(i) Issuers with a public long-term S&P rating or whose
parent has a public long-term S&P rating and there is an explicit
guarantee backing the subsidiary's debt service payments
("Australian Guaranteed Eurobonds"). These issuers currently
include:
Australian Telecom
Finnish Export Credit Corp.
National Australia Bank
State Bank of New South Wales
State Electricity of Victoria
Swedish Export Credit Corp.
(ii) Issuers, which shall be designated in writing from time
to time by S&P, without a public long-term S&P rating but whose
parent has a long-term S&P rating but has not explicitly
guaranteed the subsidiary's debt service payments ("Australian
Non-Guaranteed Eurobonds").
In addition, if the determination is being made for S&P, (a)
not more than 10% of the aggregate Discounted Value of the
Eligible Portfolio Property of the Fund can consist of Australian
Eurobonds from a single issuer, (b) not more than 50% (if the
issue is rated AAA by S&P) or 33.3% (if the issue is rated AA or
A by S&P) or 20% (if the issue is rated BBB by S&P) of the
aggregate Discounted Value of the Eligible Portfolio Property of
the Fund can consist of Australian Eurobonds from issues
representing a single industry, (c) not more than 5% of the then
outstanding principal amount of any one issue can be included in
Eligible Portfolio Property and (d) not more than 20% of the
outstanding aggregate principal amount of the Australian
Eurobonds held by the Fund and included in S&P Eligible Portfolio
Property shall be comprised of securities with an outstanding
issue size of less than A$50 million.
"Australian Exchangeable Eurobonds" means securities which
are denominated in Australian Currency issued by the New South
Wales Treasury Corporation or the Queensland Treasury Corporation
which confer upon the holder an option to exchange such
securities for, respectively, a like principal amount of New
South Wales Treasury Inscribed Stock or Queensland Treasury
Corporation Inscribed Stock of identical maturity and coupon.
"Australian Government Securities" means, in the case of
S&P, all publicly traded securities issued and guaranteed by the
Government of the Commonwealth of Australia with fixed maturities
(i.e. no perpetuals) and in the case of Moody's, any publicly
traded security which is (i) either issued by the Government of
the Commonwealth of Australia and is rated Aaa by Moody's or is
guaranteed by the Government of the Commonwealth of Australia and
is rated Aaa by Moody's, (ii) is denominated and payable in
Australian Currency or is convertible into a security
constituting Eligible Portfolio Property by Moody's and (iii) is
not a variable rate, indexed-linked, zero coupon or stripped
security.
"Australian Ratings" means Australian Ratings Pty. Ltd. or
its successors.
"Australian Semi-Government Securities" means publicly
traded semi-government securities with a fixed maturity (i.e., no
perpetuals) issued by the following entities which, except as
indicated are explicitly guaranteed by the Government of the
Commonwealth of Australia or the respective Australian State and
which, in the case of S&P, include Australian Exchangeable
Eurobonds and in the case of Moody's are (i) either rated Aaa by
Moody's or are guaranteed by either the Commonwealth of Australia
and rated Aaa or any semi-sovereign Australian entity whose
domestic currency long-term debt is rated Aaa by Moody's, (ii)
are denominated and payable in Australian Currency or are
convertible into a security constituting Eligible Portfolio
Property by Moody's and (iii) are not a variable rate,
indexed-linked, zero coupon or stripped security.
1. Electricity Trust of South Australia, a body
established under the Electricity Trust of South Australia Act
1946 (South Australia).
2. Gas & Fuel Corporation of Victoria, a corporation
established under the Gas and Fuel Corporation Act of 1950
(Victoria).
3. Melbourne & Metropolitan Board of Works, a board
constituted under section 4 of the Melbourne & Metropolitan Board
of Works Act 1958 (Victoria).
4. New South Wales Treasury Corporation, a corporation
constituted under section 4 of the Treasury Corporation Act 1983
(New South Wales), including its Australian Convertible Eurobond
issues, in the case of S&P.
5. A Territory authority being an authority within the
meaning of that term under section 43 of the Northern Territory
(Self Government) Act (Commonwealth) provided that the specific
issue is guaranteed by the Treasurer of the Commonwealth of
Australia.
6. The State Electricity Commission of Qld, a commission
constituted under the Electricity Act of 1976 (Qld).
7. Queensland Treasury Corporation, a corporation
established under the Treasury Corporation Act 1988 (Qld),
including its Australian Convertible Eurobond issues, in the case
of S&P.
8. South Australian Government Financing Authority, an
authority established under the Government Financing Authority
Act 1982 (South Australia).
9. State Electricity Commission of Victoria, a commission
established under the State Electricity Commission Act of 1958
(Victoria).
10. State Energy Commission of Western Australia, a
commission established under the State Energy Commission Act 1979
(Western Australia).
11. The Australian Telecommunications Commission, a
commission established under section 4 of the Telecommunications
Act 1975 (Commonwealth).
12. (with respect to S&P only) and without any guarantee by
the Commonwealth of Australia or the respective Australian State:
Australian and Overseas Telecommunications Corporation, Limited.
13. Victorian Public Authorities Finance Agency, an agency
constituted under section 3 of the Victorian Public Authorities
Act 1984 (Victoria).
14. Australian Industry Development Corporation, a body
established under section 5 of the Australian Industries
Development Corporation Act (Commonwealth).
15. South Australian Finance Trust Limited, a body
corporate proclaimed by the Governor of South Australia to be a
semi-government authority pursuant to the Public Finance and
Audit Act 1987 (South Australia).
16. The Western Australian Treasury Corporation.
17. Hydro-Electricity Commission of Tasmania.
18. Tasmanian Public Finance Corp.
19. Tasmanian Development Authority.
20. Australian Trade Commission.
21. (with respect to S&P only) FANMAC Premier Trust Co.
(Nos. 1-22) and any subsequent issues rated by S&P -- Australian
Ratings.
22. (with respect to S&P only) Australian Wool Corporation.
23. Commonwealth Bank of Australia.
24. State Bank of New South Wales.
25. In the case of S&P, Australian Exchangeable Eurobonds.
"Australian Short Term Securities" means promissory notes
and other short term commercial paper issued by Australian
institutions which, for purposes of S&P, are rated A-1+ by S&P or
have a long-term rating from S&P at least as high as their
then-current comparable rating of AMPS and, for purposes of
Moody's, are rated Prime-1 by Moody's or have a long-term foreign
currency debt rating from Moody's of at least Aa3 and a maturity
of less than 270 days in the case of commercial paper.
"Authorized Newspaper" means The Wall Street Journal, or if
not published on such date, The New York Times, of if neither of
such papers is published on such date, a newspaper, printed in
the English language, of general circulation in the Borough of
Manhattan, The City of New York, that carries financial news and
is customarily published on each Business Day, whether or not
published on Saturdays, Sundays or holidays.
"Available AMPS" has the meaning specified in paragraph
8(d)(i) of the Auction Procedures.
"Beneficial Owner" means a customer of a Broker-Dealer who
is listed on the records of that Broker-Dealer (or, if
applicable, the Auction Agent) as a holder of shares of AMPS or a
Broker-Dealer that holds AMPS for its own account.
"Bid" has the meaning specified in paragraph 8(b)(i) of the
Auction Procedures.
"Bidder" has the meaning specified in paragraph 8(b)(i) of
the Auction Procedures.
"Board of Directors" or "Board" means the Board of Directors
of the Fund or, unless otherwise required by the context, any
duly authorized and empowered committee thereof.
"Broker-Dealer" means any broker-dealer, or other entity
permitted by law to perform the functions required of a
Broker-Dealer in the Auction Procedures, that has been selected
by the Fund and has entered into a Broker-Dealer Agreement with
the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into
between the Auction Agent and a Broker-Dealer, pursuant to which
such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" has the meaning set forth on page ___ of this
Prospectus.
"Cash" means such coin or currency of the United States of
America as at the time shall be legal tender for payment of
public and private debts.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commercial Paper Dealers" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated and such other commercial paper
dealer or dealers as the Fund may from time to time appoint, or,
in lieu of any thereof, their respective affiliates and
successors.
"Commission" means the U.S. Securities and Exchange
Commission.
"Common Stock" means the common stock, par value $.01 per
share, of the Fund.
"Cure Date" means the AMPS Basic Maintenance Cure Date or
the 1940 Act Cure Date, as the case may be.
"Consultant" means The Prudential Insurance Company of
America.
"Date of Original Issue" means, with respect to any share of
AMPS, the date on which such share is initially issued by the
Fund.
"Deposit Securities" has the meaning set forth on page ___
of this Prospectus.
"Discounted Value" of any asset of the Fund means the market
value thereof, as determined by the Fund in accordance with
guidelines established by the Board of Directors from time to
time, reduced by the discounts required under guidelines
established by the Rating Agencies in connection with the Fund's
receipt of a rating on the shares of AMPS from Moody's of at
least "aa" and from S&P of at least AA.
"Dividend Coverage Amount" has the meaning set forth on page
___ of this Prospectus.
"Dividend Coverage Assets" has the meaning set forth on page
___ of this Prospectus.
"Dividend Payment Date" means each date of payment of
dividends on the AMPS.
"Dividend Period" means the Initial Dividend Period and each
subsequent period commencing on a Dividend Payment Date and
ending on the calendar day prior to the next Dividend Payment
Date for the AMPS.
"Existing Holder" means a Broker-Dealer or any such other
person as may be permitted by the Fund that is listed as the
holder of record of shares of AMPS in the records of the Auction
Agent.
"FANMAC Certificates" has the meaning set forth on page ___
of this Prospectus.
"FHLMC" means the Federal Home Loan Mortgage Corporation
created by Title III of the Emergency Home Finance Act of 1970,
and includes any successor thereto.
"FHLMC Certificate" means a mortgage participation
certificate in physical or book-entry form, the timely payment of
interest on and the ultimate collection of principal of which is
guaranteed by FHLMC, and which evidences a proportional undivided
interest in, or participation interest in, specified pools of
fixed-, variable- or adjustable-rate, fully amortizing, level pay
mortgage loans with terms up to 30 years, secured by first liens
on one- to four-family residences.
"FHLMC Multifamily Security" means a "Plan B Multi-family
Security" in physical or book-entry form, the timely payment of
interest on and the ultimate collection of principal of which is
guaranteed by FHLMC, and which evidences a proportional undivided
interest in, or participation interest in, specified pools of
fixed-rate, fully amortizing, level pay mortgage loans with terms
up to 30 years, secured by first-priority mortgages on
multifamily residences containing 5 or more units and which are
designed primarily for residential use, the inclusion of which in
the Eligible Portfolio Property will not, in and of itself,
impair, or cause the AMPS to fail to retain, the rating assigned
to such AMPS by each of the Rating Agencies, as evidenced by a
letter to such effect from each of the Rating Agencies.
"FNMA" means the Federal National Mortgage Association, a
United States Government-sponsored private corporation
established pursuant to Title VIII of the Housing and Urban
Development Act of 1968, and includes any successor thereto.
"FNMA Certificate" means a mortgage pass-through certificate
in physical or book-entry form, the full and timely payment of
principal of and interest on which is guaranteed by FNMA, and
which evidences a proportional undivided interest in specified
pools of fixed-, variable- or adjustable-rate, fully amortizing,
level pay mortgage loans with terms up to 30 years, secured by
first liens on one- to four-family residences.
"Fund" means The First Australia Prime Income Fund, Inc., a
Maryland corporation that is the issuer of the AMPS.
"GNMA" means the Government National Mortgage Association,
and includes any successor thereto.
"GNMA Certificates" mean a fully modified pass-through
certificate in physical or book-entry form, the full and timely
payment of principal of and interest on which is guaranteed by
GNMA and which evidences a proportional undivided interest in
specified pools of fixed-, variable- or adjustable-rate, fully
amortizing, level pay mortgage loans with terms up to 30 years,
secured by first liens on one- to four-family residences.
"GNMA Graduated Payment Security" means a fully modified
pass-through certificate in physical or book-entry form, the full
and timely payment of principal of and interest on which is
guaranteed by GNMA, which obligation is backed by the full faith
and credit of the United States, and which evidences a
proportional undivided interest in specified pools of graduated
payment mortgage loans with terms up to 30 years, with payments
that increase annually at a predetermined rate for up to the
first five or ten years of the mortgage loan and that are secured
by first-priority mortgages on one- to four-unit residences;
provided that such loans shall be past the graduated payment
period.
"GNMA Multifamily Security" means a fully modified
certificate in physical or book-entry form, the full and timely
payment of principal of and interest on which is guaranteed by
GNMA, which obligation is backed by the full faith and credit of
the United States, and which evidences a proportional undivided
interest in specified pools of fixed-rate mortgages, level pay
loans with terms up to 30 years secured by first-priority
mortgages on multifamily residences, the inclusion of which in
Eligible Portfolio Property will not, in and of itself, impair or
cause the AMPS to fail to retain the rating assigned to such AMPS
by each of the Rating Agencies as evidenced by a letter to such
effect from each of the Rating Agencies.
"Hold Order" has the meaning specified in paragraph 8(b)(i)
of the Auction Procedures.
"Initial Dividend Payment Date" means the date set forth
herein upon which dividends on shares of the AMPS will first be
payable.
"Initial Dividend Period" means the period from and
including the Date of Original Issue to but excluding the Initial
Dividend Payment Date for the AMPS.
"Investment Adviser" means EquitiLink Australia Limited.
"Investment Manager" means EquitiLink International
Management Limited.
"Maximum Applicable Rate" has the meaning set forth on page
___ of this Prospectus.
"Minimum Liquidity Level" has the meaning set forth on page
___ of this Prospectus.
"Moody's" means Moody's Investors Service, Inc. or its
successors.
"Offshore Banking Units" means cash deposits denominated in
the currency of Australia deposited with an Australian branch of
a foreign bank authorized to operate as an offshore banking unit
by the Government of Australia's Australian Taxation Office
which, in the case of Moody's, is (i) a branch carrying the same
credit rating as the parent bank, (ii) is a deposit rated as
least P-1 under circumstances in which the rating of the deposit
is capped at the sovereign rating ceiling of the parent bank's
home country, as well as the bank deposit rating ceiling of
Australia, or (iii) is a deposit held by a branch whose parent
bank is rated at least Aa3/P-1 under circumstances in which the
rating of the parent bank is capped at the sovereign rating
ceiling of the parent bank's home country, as well as the bank
deposit rating ceiling of Australia and which, to date, are
limited to cash deposits with an overseas banking unit of Banque
Nationale de Paris.
"Order" has the meaning specified in paragraph 8(b)(i) of
the Auction Procedures.
"Potential Beneficial Owner" means a customer of a
Broker-Dealer or a Broker-Dealer that is not a Beneficial Owner
of shares of AMPS but that wishes to purchase such shares, or
that is a Beneficial Owner that wishes to purchase additional
shares of AMPS.
"Potential Holder" means any Broker-Dealer or any such
person as may be permitted by the Fund, including any Existing
Holder who may be interested in acquiring shares of AMPS (or, in
the case of an Existing Holder, additional shares of AMPS).
"Preferred Stock" means shares of any series of preferred
stock of the Fund, par value $.01 per share, including shares of
AMPS.
"Rating Agencies" means Moody's and S&P, or any successors
thereto.
"Repurchase Agreements" means, repurchase obligations with
respect to a U.S. Government Obligation, FNMA Certificate, FHLMC
Certificate or GNMA Certificate under which the Fund buys such
securities from counterparties who agree to buy back such
securities within one Business Day from the date such repurchase
obligations were entered into where the counterparty is either
(i) a depository institution the deposits of which (x) are
insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation, (y) the
commercial paper or other unsecured short-term debt obligations
of which are rated Prime-1 by Moody's and A-1+ by S&P, and (z)
the long-term debt obligations of which are rated at least A-2 by
Moody's; or (ii) a broker-dealer registered as such with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended, (x) the commercial paper or
other unsecured short-term debt obligations of which are rated
Prime-1 by Moody's and A-1+ by S&P and (z) the long-term debt
obligations of which are rated at least A-2 by Moody's.
"S&P" means Standard & Poor's Corporation or its successors.
"Securities Depository" means The Depository Trust Company
and its successors and assigns or any successor securities
depository selected by the Fund that agrees to follow the
procedures required to be followed by such securities depository
in connection with shares of AMPS.
"Sell Order" has the meaning specified in paragraph 8(b)(i)
of the Auction Procedures.
"Short Term Money Market Instruments" means the following
kinds of instruments, if on the date of purchase or other
acquisition by the Fund of such instrument the remaining term to
maturity thereof is not more than 30 days:
(a) demand deposits in, certificates of deposit of, and (in
the case of S&P only) bankers' acceptances issued by, any
depository institution, the deposits of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and
Loan Insurance Corporation, provided that, at the time of the
Fund's investment therein, the commercial paper or other
unsecured short-term debt obligations of such depository
institution are rated Prime-1 by Moody's and A-1+ by S&P and are
issued by institutions whose long-term debt obligations are rated
at least A-2 by Moody's;
(b) commercial paper rated at the time of the Fund's
investment therein Prime-1 by Moody's and A-1+ by S&P and issued
by institutions whose long-term debt obligations are rated at
least A-2 by Moody's; provided, however, that in the case of
Moody's such commercial paper must have a maturity of 270 days or
less.
"Submission Deadline" means 12:30 P.M., New York City time,
on each Auction Date, or such other time on such Auction Date as
may be specified from time to time by the Auction Agent as the
time by which each Broker-Dealer must submit to the Auction Agent
in writing all Orders obtained by it for the Auction to be
conducted on such Auction Date.
"Submitted Bid" has the meaning specified in paragraph
8(d)(i) of the Auction Procedures.
"Submitted Hold Order" has the meaning specified in
paragraph 8(d)(i) of the Auction Procedures.
"Submitted Order" has the meaning specified in paragraph
8(d)(i) of the Auction Procedures.
"Submitted Sell Order" has the meaning specified in
paragraph 8(d)(i) of the Auction Procedures.
"Subsequent Dividend Period" means each Dividend Period
after the Initial Dividend Period for the AMPS.
"Substitute Commercial Paper Dealers" means such substitute
commercial paper dealer or dealers as the Fund may from time to
time appoint or, in lieu of any thereof, their respective
affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies"
shall means a nationally recognized securities rating agency and
two nationally recognized securities rating agencies
respectively, selected by Merrill Lynch, Pierce, Fenner & Smith
Incorporated, or its respective affiliates and successors, after
consultation with Fund, to act as a substitute rating agency or
substitute rating agencies, as the case may be, to determine the
credit ratings of the AMPS.
"Sufficient Clearing Bids" has the meaning specified in
paragraph 8(d)(i) of the Auction Procedures.
"U.S. Government Obligations" means direct obligations of
the United States, provided that such direct obligations are
entitled to the full faith and credit of the United States and
that any such obligations, other than United States Treasury
Bills, provide for the periodic payment of interest and the full
payment of principal at maturity or call for redemption.
"U.S. Securities" has the meaning set forth on page ___
ofthis Prospectus.
"Valuation Date" has the meaning set forth on page ___ of
this Prospectus.
"Winning Bid Rate" means, in the event Sufficient Clearing
Bids has been made, the lowest specified rate in the Submitted
Bids which would result in the number of shares subject to
Submitted Bids specifying such rate or a lower being at least
equal to the Available AMPS.
"1940 Act" means the Investment Company Act of 1940, as
amended from time to time.
"1940 Act AMPS Asset Coverage Ratio" has the meaning set
forth on page ___ of this Prospectus.
"1940 Act AMPS Asset Coverage Requirement" has the meaning
setforth on page ___ of this Prospectus.
"1940 Act Cure Date" has the meaning set forth on page ___
of this Prospectus.
<PAGE>
APPENDIX A
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth
the procedures expected to be followed in connection with the
settlement of each Auction and will be incorporated by reference
in the Auction Agent Agreement and each Broker-Dealer Agreement.
Nothing contained in this Appendix A constitutes a representation
by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be
performed by such party. Capitalized terms used herein shall
have the respective meanings specified in the forepart of this
Prospectus or Appendix B hereto, as the case may be.
(a) On each Auction Date, the Auction Agent shall notify by
telephone the Broker-Dealers that participated in the Auction
held on such Auction Date and submitted an Order on behalf of any
Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding
Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted a Bid or a Sell Order on behalf of a Beneficial
Owner, the number of shares, if any, of AMPS to be sold by
such Beneficial Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Beneficial Owner,
the number of shares, if any, of AMPS to be purchased by
such Potential Beneficial Owner;
(v) if the aggregate number of shares of AMPS to be
sold by all Beneficial Owners on whose behalf such
Broker-Dealer submitted a Bid or a Sell Order exceeds the
aggregate number of shares of AMPS to be purchased by all
Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid, the name or names of one or
more Buyer's Broker-Dealers (and the name of the Agent
Member, if any, of each such Buyer's Broker-Dealer) acting
for one or more purchasers of such excess number of shares
of AMPS and the number of such shares to be purchased from
one or more Beneficial Owners on whose behalf such
Broker-Dealer acted by one or more Potential Beneficial
Owners on whose behalf each of such Buyer's Broker-Dealers
acted;
(vi) if the aggregate number of shares of AMPS to be
purchased by all Potential Beneficial Owners on whose behalf
such Broker-Dealer submitted a Bid exceeds the aggregate
number of shares of AMPS to be sold by all Beneficial Owners
on whose behalf such Broker-Dealer submitted a Bid or a Sell
Order, the name or names of one or more Seller's Broker-
Dealers (and the name of the Agent Member, if any, of each
such Seller's Broker-Dealer) acting for one or more sellers
of such excess number of shares of AMPS and the number of
such shares to be sold to one or more Potential Beneficial
Owners on whose behalf such Broker-Dealer acted by one or
more Beneficial Owners on whose behalf each of such Seller's
Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction
with respect to the AMPS.
(b) On each Auction Date, each Broker-Dealer that submitted
an Order on behalf of any Beneficial Owner or Potential
Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, instruct each Potential Beneficial Owner on
whose behalf such Broker-Dealer submitted a Bid that was
accepted, in whole or in part, to instruct such Potential
Beneficial Owner's Agent Member to pay to such Broker-Dealer
(or its Agent Member) through the Securities Depository the
amount necessary to purchase the number of shares of AMPS to
be purchased pursuant to such Bid against receipt of such
shares and advise such Potential Beneficial Owner of the
Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Beneficial Owner on whose
behalf such Broker-Dealer submitted a Sell Order that was
accepted, in whole or in part, or a Bid that was accepted,
in whole or in part, to instruct such Beneficial Owner's
Agent Member to deliver to such Broker-Dealer (or its Agent
Member) through the Securities Depository the number of
shares of AMPS to be sold pursuant to such Order against
payment therefor and advise any such Beneficial Owner that
will continue to hold shares of AMPS of the Applicable Rate
for the next succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted a Hold Order of the Applicable Rate
for the next succeeding Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such
Broker-Dealer submitted an Order of the Auction Date for the
next succeeding Auction; and
(v) advise each Potential Beneficial Owner on whose
behalf such Broker-Dealer submitted a Bid that was accepted,
in whole or in part, of the Auction Date for the next
succeeding Auction.
(c) On the basis of the information provided to it pursuant
to (a) above, each Broker-Dealer that submitted a Bid or a Sell
Order on behalf of a Potential Beneficial Owner or an Beneficial
Owner shall, in such manner and at such time or times as in its
sole discretion it may determine, allocate any funds received by
it pursuant to (b)(i) above and any shares of AMPS received by it
pursuant to (b)(ii) above among the Potential Beneficial Owners,
if any, on whose behalf such Broker-Dealer submitted Bids, the
Beneficial Owners, if any, on whose behalf such Broker-Dealer
submitted Bids that were accepted or Sell Orders, and any Broker-
Dealer or Broker-Dealers identified to it by the Auction Agent
pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial
Owner shall instruct its Agent Member as provided in (b)(i)
or (ii) above, as the case may be;
(ii) each Seller's Broker-Dealer which is not an
Agent Member of the Securities Depository shall instruct
its Agent Member to (A) pay through the Securities
Depository to the Agent Member of the Beneficial Owner
delivering shares to such Broker-Dealer pursuant to (b)(ii)
above the amount necessary to purchase such shares against
receipt of such shares, and (B) deliver such shares through
the Securities Depository to a Buyer's Broker-Dealer (or
its Agent Member) identified to such Seller's Broker-Dealer
pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an
Agent Member of the Securities Depository shall instruct
its Agent Member to (A) pay through the Securities
Depository to a Seller's Broker-Dealer (or its Agent
Member) identified pursuant to (a)(vi) above the amount
necessary to purchase the shares to be purchased pursuant
to (b)(i) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to
the Agent Member of the purchaser thereof against payment
therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in
(d)(i) above shall instruct the Securities Depository to
execute the transactions described under (b)(i) or (ii)
above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent
Member shall instruct the Securities Depository to execute
the transactions described in (d)(ii) above, and the
Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member
shall instruct the Securities Depository to execute the
transactions described in (d)(iii) above, and the
Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of AMPS in an
Auction fails to deliver such shares (by authorized book-entry),
a Broker-Dealer may deliver to the Potential Beneficial Owner on
behalf of which it submitted a Bid that was accepted a number of
whole shares of AMPS that is less than the number of shares that
otherwise was to be purchased by such Potential Beneficial Owner.
In such event, the number of shares of AMPS to be so delivered
shall be determined solely by such Broker-Dealer. Delivery of
such lesser number of shares shall constitute good delivery.
Notwithstanding the foregoing terms of this paragraph (f), any
delivery or non-delivery of shares which shall represent any
departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction
Agent shall have been notified of such delivery or non-delivery
in accordance with the provisions of the Auction Agent Agreement
and the Broker-Dealer Agreements.
<PAGE>
APPENDIX B
AUCTION PROCEDURES
The following procedures will be set forth in provisions of
the Articles Supplementary relating to the AMPS, and will be
incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. The terms not defined below are defined
in the forepart of this Prospectus except that the term
"Corporation" means the Fund. Nothing contained in this Appendix
B constitutes a representation by the Fund that in each Auction
each party referred to herein will actually perform the
procedures described herein to be performed by such party.
8. Auction Procedures
(a) Certain Definitions.
As used in this Paragraph 8, the following terms shall have
the following meanings, unless the context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being
auctioned pursuant to this Paragraph 8.
(ii) "Auction Date" shall mean the first Business Day
preceding the first day of a Dividend Period.
(iii) "Available AMPS" shall have the meaning
specified in Paragraph 8(d)(i) below.
(iv) "Bid" shall have the meaning specified in
Paragraph 8(b)(i) below.
(v) "Bidder" shall have the meaning specified in
Paragraph 8(b)(i) below.
(vi) "Hold Order" shall have the meaning specified in
Paragraph 8(b)(i) below.
(vii) "Maximum Applicable Rate" at any Auction will be
the rate obtained by multiplying the 30-day "AA" Composite
Commercial Paper Rate on the date of such Auction by the
Applicable Percentage determined as set forth below based on
the lower of the credit rating or ratings assigned to the
AMPS by Moody's and S&P (or if Moody's or S&P or both shall
not make such rating available, the equivalent of either or
both of such ratings by a Substitute Rating Agency or two
Substitute Rating Agencies or, in the event that only one
such rating shall be available, the percentage will be based
on such rating).
<PAGE>
<PAGE>
Credit Rating
S&P Moody's Applicable Percentage
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
The Fund shall take all reasonable action necessary to
enable S&P and Moody's to provide a rating for the AMPS. If
either S&P or Moody's shall not make such a rating available, or
if neither S&P nor Moody's shall make such a rating available,
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after consultation with the Fund,
shall select a nationally recognized statistical rating
organization or two nationally recognized statistical rating
organizations to act as a Substitute Rating Agency or Substitute
Rating Agencies, as the case may be.
(viii) "Order" shall have the meaning specified in
Paragraph 8(b)(i) below.
(ix) "Sell Order" shall have the meaning specified
in Paragraph 8(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 P.M.,
New York City time, on any Auction Date or such other time
on any Auction Date as may be specified by the Auction Agent
from time to time as the time by which each Broker-Dealer
must submit to the Auction Agent in writing all Orders
obtained by it for the Auction to be conducted on such
Auction Date.
(xi) "Submitted Bid" shall have the meaning
specified in Paragraph 8(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning
specified in Paragraph 8(d)(i) below.
(xiii) "Submitted Order" shall have the meaning
specified in Paragraph 8(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning
specified in Paragraph 8(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the
meaning specified in Paragraph 8(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning
specified in Paragraph 8(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial
Owners, Existing Owners and Potential Holders.
(i) Unless otherwise permitted by the Fund,
Beneficial Owners and Potential Beneficial Owners may only
participate in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial
Owners to the Auction Agent, designating themselves as
Existing Holders in respect of shares subject to Orders
submitted or deemed submitted to them by Beneficial Owners
and as Potential Holders in respect of shares subject to
Orders submitted to them by Potential Beneficial Owners. A
Broker-Dealer may also hold shares of AMPS in its own
account as a Beneficial Owner. A Broker-Dealer may thus
submit Orders to the Auction Agent as a Beneficial Owner or
a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf
of both itself and its customers. On or prior to the
Submission Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-
Dealer information as to:
(1) the number of outstanding shares, if any, of
AMPS held by such Beneficial Owner which such
Beneficial Owner desires to continue to hold without
regard to the Applicable Rate for the next succeeding
Dividend Period;
(2) the number of outstanding shares, if any, of
AMPS held by such Beneficial Owner which such
Beneficial Owner desires to continue to hold, provided
that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per
annum specified by such Beneficial Owner; and/or
(3) the number of outstanding shares, if any, of
AMPS held by such Beneficial Owner which such
Beneficial Owner offers to sell without regard to the
Applicable Rate for the next succeeding Dividend
Period; and
(B) each Broker-Dealer, using a list of Potential
Beneficial Owners that shall be maintained in good faith for
the purpose of conducting a competitive Auction, shall
contact Potential Beneficial Owners, including Persons that
are not Beneficial Owners, on such list to determine the
number of outstanding shares, if any, of AMPS which each
such Potential Beneficial Owner offers to purchase, provided
that the Applicable Rate for the next succeeding Dividend
Period shall not be less than the rate per annum specified
by such Potential Beneficial Owner.
For the purposes hereof, the communications by a Beneficial
Owner or Potential Beneficial Owner to a Broker-Dealer, or the
communication by a Broker-Dealer acting for its own account to
the Auction Agent, or the communications by a Broker-Dealer on
behalf of a Beneficial Owner or Potential Beneficial Owner to the
Auction Agent, of information referred to in clause (A) or (B) of
this Paragraph 8(b)(i) is hereinafter referred to as an "Order"
and each Beneficial Owner and each Potential Beneficial Owner
placing an Order, including a Broker-Dealer acting in such
capacity for its own account and each Broker-Dealer placing an
Order on behalf of a Beneficial Owner or Potential Beneficial
Owner, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this
Paragraph 8(b)(i) is hereinafter referred to as a "Hold Order";
an Order containing the information referred to in clause (A)(2)
of this Paragraph 8(b)(i) or clause (C) of Paragraph 8(b)(ii) is
hereinafter referred to as a "Bid"; and an Order containing the
information referred to in clause (A)(3) of this Paragraph
8(b)(i) is hereinafter referred to as a "Sell Order." Inasmuch as
a Broker-Dealer participates in an Auction as an Existing Holder
or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its
customers or itself, all discussion herein relating to the
consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership
interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute
an irrevocable offer to sell:
(1) the number of outstanding shares of AMPS
specified in such Bid if the Applicable Rate determined
on such Auction Date shall be less than the rate per
annum specified in such Bid; or
(2) such number or a lesser number of outstanding
shares of AMPS to be determined as set forth in
Paragraph 8(e)(i)(D) if the Applicable Rate determined
on such Auction Date shall be equal to the rate per
annum specified therein; or
(3) a lesser number of outstanding shares of AMPS
to be determined as set forth in Paragraph 8(e)(ii)(C)
if such specified rate per annum shall be higher than
the Maximum Applicable Rate and Sufficient Clearing
Bids do not exist.
(B) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of outstanding shares of AMPS
specified in such Sell order; or
(2) such number or a lesser number of outstanding
shares of AMPS to be determined as set forth in
Paragraph 8(e)(ii)(C) if Sufficient Clearing Bids do
not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of outstanding shares of AMPS
specified in such Bid if the Applicable Rate determined
on such Auction Date shall be higher than the rate per
annum specified in such Bid; or
(2) such number or a lesser number of outstanding
shares of AMPS to be determined as set forth in
Paragraph 8(e)(i)(E) if the Applicable Rate determined
on such Auction Date shall be equal to the rate per
annum specified therein.
(c) Submissions of Orders by Broker-Dealers to Auction
Agent.
(i) Each Broker-Dealer shall submit in writing or
through the Auction Agent's Auction Processing System to the
Auction Agent prior to the Submission Deadline on each
Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Fund)
as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and
as a Potential Holder in respect of shares subject to Orders
submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order
(which shall be the Broker-Dealer unless otherwise
permitted by the Fund);
(B) the aggregate number of outstanding shares of
AMPS that are the subject of such Order;
(C) to the extent that such Bidder is an Existing
Holder:
(1) the number of outstanding shares, if
any, of AMPS subject to any Hold Order placed by such
Existing Holder;
(2) the number of outstanding shares, if
any, of AMPS subject to any Bid placed by such
Existing Holder and the rate per annum specified in
such Bid; and
(3) the number of outstanding shares, if
any, of AMPS subject to any Sell Order placed by such
Existing Holder; and
(D) to the extent such Bidder is a Potential
Holder, the rate per annum specified in such Potential
Holder's Bid.
(ii) If any rate per annum specified in any Bid
contains more than three figures to the right of the
decimal point, the Auction Agent shall round such rate up
to the next highest one-thousandth(.001) of 1%.
(iii) If an Order or Orders covering all of the
outstanding shares of AMPS held by an Existing Holder are
not submitted to the Auction Agent prior to the Submission
Deadline, the Auction Agent shall deem a Hold Order to have
been submitted on behalf of such Existing Holder covering
the number of outstanding shares of AMPS held by such
Existing Holder and not subject to Orders submitted to the
Auction Agent.
(iv) If one or more Orders on behalf of an
Existing Holder covering in the aggregate more than the
number of outstanding shares of AMPS held by such Existing
Holder are submitted to the Auction Agent, such Orders
shall be considered valid as follows and in the following
order of priority:
(A) any Hold Order submitted on behalf of
such Existing Holder shall be considered valid up to
and including the number of outstanding shares of AMPS
held by such Existing Holder; provided that if more
than one Hold Order is submitted on behalf of such
Existing Holder and the number of shares of AMPS
subject to such Hold Orders exceeds the number of
outstanding shares of AMPS held by such Existing
Holder, the number of shares of AMPS subject to each
of such Hold Orders shall be reduced pro rata so that
such Hold Orders, in the aggregate, cover exactly the
number of outstanding shares of AMPS held by such
Existing Holder;
(B) any Bids submitted on behalf of such Existing
Holder shall be considered valid, in the ascending
order of their respective rates per annum if more
than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number
of outstanding shares of AMPS held by such Existing
Holder over the number of shares of AMPS subject to
any Hold Order referred to in Paragraph 8(c)(iv)(A)
above (and if more than one Bid submitted on behalf of
such Existing Holder specified the same rate per annum
and together they cover more than the remaining number
of shares that can be the subject of valid Bids after
application of Paragraph 8(c)(iv)(A) above and of the
foregoing portion of this Paragraph 8(c)(iv)(B) any
Bid or Bids specifying a lower rate or rates per
annum, the number of shares subject to each of
such Bids shall be reduced pro rata so that such Bids,
in the aggregate, cover exactly such remaining number
of shares); and the number of shares, if any, subject
to Bids not valid under this Paragraph 8(c)(iv)(B)
shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell order shall be considered valid up
to and including the excess of the number of
outstanding shares of AMPS held by such Existing
Holder over the number of shares of AMPS subject to
Hold Orders referred to in Paragraph 8(c)(iv)(A) and
Bids referred to in Paragraph 8(c)(iv)(B); provided
that if more than one Sell Order is submitted on
behalf of any Existing Holder and the number of shares
of AMPS subject to such Sell Orders is greater than
such excess, the number of shares of AMPS subject to
each Sell orders shall be reduced pro rata so that
such Sell Orders, in the aggregate, cover exactly the
number of shares of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a
separate Bid with the rate per annum and number of shares
of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner or
a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission
Deadline on any Auction Date shall be irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid
Rate and Applicable Rate.
(i) Not earlier than the Submission Deadline on
each Auction Date, the Auction Agent shall assemble all
Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order," a "Submitted Bid"
or a "Submitted Sell Order," as the case may be, or as a
"Submitted Order") and shall determine:
(A) the excess of the total number of outstanding
shares of AMPS over the number of Outstanding shares of
AMPS that are the subject of Submitted Holder Orders
(such excess being hereinafter referred to as the
"Available AMPS");
(B) from the Submitted Orders whether the number
of outstanding shares of AMPS that are the subject of
Submitted Bids by Potential Holders specifying one or
more rates per annum equal to or lower than the Maximum
Applicable Rate exceeds or is equal to the sum of:
(1) the number of outstanding shares of AMPS
that are the subject of Submitted Bids by Existing
Holders specifying one or more rates per annum
higher than the Maximum Applicable Rate, and
(2) the number of outstanding shares of AMPS
that are subject to Submitted Sell orders;
If such excess or such equality exists
(other than because the number of outstanding
shares of AMPS in clauses (1) and (2) above are
each zero because all of the outstanding shares of
AMPS are the subject of Submitted Hold Orders),
then "Sufficient Clearing Bids" exist; and
(C) If Sufficient Clearing Bids exist, the lowest
rate per annum specified in the Submitted Bids (the
"Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other
submitted Bids from Existing Holders specifying
lower rates per annum were rejected, thus
entitling such Existing Holders to continue to
hold the shares of AMPS that are the subject of
such Submitted Bids, and
(2) each Submitted Bid from Potential
Holders specifying the Winning Bid Rate and all
other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted,
thus entitling the Potential Holders to purchase
the shares of AMPS that are the subject of such
Submitted Bids, would result in the number of
shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum
being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to Paragraph 8(d)(i), the Auction
Agent shall advise the Fund of the Maximum Applicable Rate
and, based on such determinations, the Applicable Rate for
the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that
the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist
(other than because all of the outstanding shares of
AMPS are the subject of Submitted Hold Orders), that
the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Maximum Applicable Rate;
or
(C) if all of the outstanding shares of AMPS
are the subject of Submitted Hold Orders, that the
Applicable Rate for the next succeeding Dividend Period
shall be equal to 90% of the 30-day "AA" Composite
Commercial Paper Rate on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares.
Based on the determinations made pursuant to Paragraph
8(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other
action as set forth below:
(i) If Sufficient Clearing Bids have been made,
subject to the provisions of Paragraph 8(e)(iii) and
Paragraph 8(e)(iv), Submitted Bids and Submitted Sell Orders
shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing
Holders shall be accepted and the Submitted Bid of each
of the Existing Holders specifying any rate per annum
that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to
sell the outstanding shares of AMPS that are the
subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing
Holders specifying any rate per annum that is lower
than the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold
the outstanding shares of AMPS that are the subject of
such Submitted Bid;
(C) the Submitted Bid of each of the Potential
Holders specifying any rate per annum that is lower
than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing
Holders specifying a rate per annum that is equal to
the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the
outstanding shares of AMPS that are the subject of such
Submitted Bid, unless the number of outstanding shares
of AMPS subject to all such Submitted Bids shall be
greater than the number of outstanding shares of AMPS
("Remaining Shares") equal to the excess of Available
AMPS over the number of outstanding shares of AMPS
subject to Submitted Bids described in Paragraph
8(e)(i)(B) and Paragraph 8(i)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be
accepted, and each such Existing Holder shall be
required to sell outstanding shares of AMPS, but only
in an amount equal to the difference between (1) the
number of outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid and (2)
the number of shares of AMPS obtained by multiplying
(x) the number of Remaining Shares by (y) a fraction
the numerator of which shall be the number of
outstanding shares of AMPS held by such Existing Holder
subject to such Submitted bid and the denominator of
which shall be the sum of the numbers of outstanding
shares of AMPS subject to such Submitted Bids made by
all such Existing Holders that specified a rate per
annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential
Holders specifying a rate per annum that is equal to
the Winning Bid Rate shall be accepted but only in an
amount equal to the number of outstanding shares of
AMPS obtained by multiplying (x) the difference between
the Available AMPS and the number of outstanding shares
of AMPS subject to Submitted Bids described in
Paragraph 8(e)(i)(B), Paragraph 8(e)(i)(C) and
Paragraph 8(e)(i)(D) by (y) a fraction the numerator of
which shall be the number of outstanding shares of AMPS
subject to such Submitted Bid and the denominator of
which shall be the sum of the number of outstanding
shares of AMPS subject to such Submitted Bids made by
all such Potential Holders that specified rates per
annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made
(other than because all of the outstanding shares of AMPS
are subject to Submitted Hold Orders), subject to the
provisions of Paragraph 8(e)(iii), Submitted Orders shall
be accepted or rejected as follows in the following order
of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder
specifying any rate per annum that is equal to or lower
than the Maximum Applicable Rate shall be rejected,
thus entitling such Existing Holder to continue to hold
the outstanding shares of AMPS that are the subject of
such Submitted Bid;
(B) the Submitted Bid of each Potential Holder
specifying any rate per annum that is equal to or lower
than the Maximum Applicable Rate shall be accepted,
thus requiring such Potential Holder to purchase the
outstanding shares of AMPS that are the subject of such
Submitted Bid; and
(C) the Submitted Bids of each Existing Holder
specifying any rate per annum that is higher than the
Maximum Applicable Rate shall be accepted and the
Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the
difference between (1) the number of outstanding shares
of AMPS then held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and (2) the
number of shares of AMPS obtained by multiplying (x)
the difference between the Available AMPS and the
aggregate number of outstanding shares of AMPS subject
to Submitted Bids described in Paragraph 8(e)(ii)(A)
and Paragraph 8(e)(ii)(B) by (y) a fraction the
numerator of which shall be the number of outstanding
shares of AMPS held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of outstanding
shares of AMPS subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described
in Paragraph 8(e)(i) or Paragraph 8(e)(ii), any Existing
Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase,
a fraction of a share of AMPS on any Auction Date, the
Auction Agent shall, in such manner as in its sole
discretion it shall determine, round up or down the number
of shares of AMPS to be purchased or sold by an Existing
Holder or Potential Holder on such Auction Date so that each
outstanding shares of AMPS purchased or sold by each
Existing Holder or Potential Holder on such Auction Date
shall be a whole share of AMPS.
(iv) If, as a result of the procedures described
in Paragraph 8(e)(i), any Potential Holder would be entitled
or required to purchase less than a whole share of AMPS on
any Auction Date, the Auction Agent, in such manner as in
its sole discretion it shall determine, shall allocate
shares of AMPS for purchase among Potential Holders so that
only whole shares of AMPS are purchased on such Auction Date
by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any
shares of AMPS on such Auction Date.
(v) Based on the results of each Auction, the
Auction Agent shall determine, with respect to each
Broker-Dealer that submitted Bids or Sell Orders on behalf
of Existing Holders or Potential Holders, the aggregate
number of the outstanding shares of AMPS to be purchased and
the aggregate number of outstanding shares of AMPS to be
sold by such Potential Holders and Existing Holders and, to
the extent that such aggregate number of outstanding shares
to be purchased and such aggregate number of outstanding
shares to be sold differ, the Auction Agent shall determine
to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer shall deliver, or
from which other Broker-Dealer or Broker-Dealers acting for
one or more sellers such Broker-Dealer shall receive, as the
case may be, outstanding shares of AMPS.
9. Miscellaneous
(a) To the extent permitted by applicable law, the Board of
Directors may interpret or adjust the provisions of the Articles
Supplementary to resolve any inconsistency or ambiguity, remedy
any formal defect or make any other change or modification which
does not adversely affect the rights of Beneficial Owners of
shares of AMPS and if such inconsistency or ambiguity reflects an
incorrect provision thereof then the Board of Directors may
authorize the filing of a Certificate of Correction.
(b) A Beneficial Owner or an Existing Holder (A) may sell,
transfer or otherwise dispose of shares of AMPS only pursuant to
a Bid or Sell Order in accordance with the procedures described
in Paragraph 8 or to or through a Broker-Dealer, provided that in
the case of all transfers other than pursuant to Auctions such
Existing Holder or Broker-Dealer (acting on its own behalf or on
behalf of a Beneficial Owner), if applicable, or its Agent Member
advises the Auction Agent of such transfer and (B) except as
otherwise required by law, shall have the ownership of the shares
of AMPS held by it maintained in book entry form by the
Securities Depository in the account of its Agent Member, which
in turn will maintain records of such Beneficial Owner's
beneficial ownership. Neither the Fund nor any Affiliate shall
submit an Order in any Auction. Any Beneficial Owner that is an
Affiliate shall not sell, transfer or otherwise dispose of shares
of AMPS to any Person other than the Fund. All of the
outstanding shares of AMPS shall be represented by a single
certificate registered in the name of the nominee of the
Securities Depository unless otherwise required by law or unless
there is no Securities Depository. If there is no Securities
Depository, at the Fund's option and upon its receipt of such
documents as it deems appropriate, any shares of AMPS may be
registered in the Stock Register in the name of the Beneficial
Owner thereof and such Beneficial Owner thereupon will be
entitled to receive certificates therefor and required to deliver
certificates therefor upon transfer or exchange thereof.
(c) The Corporation will exercise its best efforts to
maintain an Auction Agent pursuant to an agreement containing
terms not materially less favorable to the Corporation than the
terms of the Auction Agent Agreement first entered into by the
Corporation pursuant to the resolutions adopted by the Board of
Directors on December 13, 1988.
(d) The Corporation will use its best efforts to maintain a
rating of the AMPS from each of the Rating Agencies.
(e) All notices or communications, unless otherwise
specified in the By-laws of the Corporation or the Articles
Supplementary, will be sufficiently given if in writing and
delivered in person or mailed by first-class mail, postage
prepaid. Notice will be deemed given on the earlier of the date
received or the date seven days after which such notice is
mailed.
(f) So long as any shares of AMPS are outstanding, the
Corporation will not engage in "short sales" or "hedging" or
enter into "futures contracts" or "option contracts" (other than
Forward Contracts) with respect to the Eligible Portfolio
Property.
<PAGE>
=============================== ==============================
No dealer, salesperson or
other individual has been
authorized to give any informa-
tion or to make any representa-
tions not contained in this
Prospectus and, if given or $75,000,000
made, such information or
representation must not be The First Australia
relied upon as having been
authorized. This Prospectus Prime Income Fund, Inc.
does not constitute an offering
of any securities other than
the registered securities to
which it relates or an offer Auction Market Preferred Stock
to any person in any State or
jurisdiction of the United ["AMPS"(R)]
States or any country where
such offer would be unlawful. 3,000 Shares of Series G
_______________
TABLE OF CONTENTS
Page
Available Information. . . .
Prospectus Summary . . . . .
Financial Highlights . . . .
Capitalization . . . . . . .
The Fund . . . . . . . . . .
Use of Proceeds. . . . . . .
Special Considerations and --------------
Risk Factors . . . . . . . PROSPECTUS
Portfolio Composition. . . . --------------
Investment Objective and
Policies; Investment
Restrictions . . . . . . .
Description of AMPS. . . . .
Management . . . . . . . . .
Management of the Fund . . .
Portfolio Transactions
and Brokerage. . . . . . .
Net Asset Value of
Common Stock . . . . . . .
Taxation . . . . . . . . . .
Capital Stock. . . . . . . .
Certain Provisions of the By- Merrill Lynch & Co.
Laws and Articles of Amend-
ment and Restatement . . . Prudential Securities
Custodian, Dividend Incorporated
Paying Agents, Transfer
Agents, Registrars and
Auction Agent. . . . . . .
Underwriting . . . . . . . .
Experts. . . . . . . . . . .
Legal Matters. . . . . . . .
Financial Statements--
April 30, 1995 . . . . . . _______, 1995
Financial Statements--
October 31, 1994 . . . . .
Glossary . . . . . . . . . . (R) Registered trademark of
Appendix A . . . . . . . . . A-1 Merrill Lynch & Co., Inc.
Appendix B . . . . . . . . . B-1
=============================== ==============================
<PAGE>
PART B
NOT APPLICABLE
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements:
Audited
(i) Portfolio of Investments as of October 31, 1994
(ii) Statement of Assets and Liabilities as of
October 31, 1994
(iii) Statement of Operations for the fiscal year
ended October 31, 1994
(iv) Statement of Cash Flows for the fiscal year
ended October 31, 1994
(v) Statement of Changes in Net Assets for the
fiscal years ended October 31, 1994 and October
31, 1993
(vi) Notes to the Financial Statements
(vi) Financial Highlights for the five fiscal years
ended October 31, 1994
(vii) Report of Independent Accountants
Exhibits:
(a)(1) -- Articles of Amendment and Restatement dated
December 14, 1988. (Previously filed as Exhibit
(1)(a)(3) to Amendment No. 6 to Registrant's
Registration Statement on Form N-2, File No.
811-4611 (the "Original Registration
Statement").)*
(a)(2) -- Article of Amendment dated May 29, 1991
(Previously filed as Exhibit (1)(a)(6) to
Amendment No. 12 to the Original Registration
Statement.)*
(b)(1) -- By-laws as amended through December 21, 1988.
(Previously filed as Exhibit 2 to Amendment No. 6
to Original Registration Statement.)*
(2) -- Amendment dated January 20, 1991 to the By-Laws
of Registrant. (Previously filed as Exhibit
2(a)(8) to Amendment No. 6 to Original
Registration Statement.)*
(c) -- Inapplicable.
(d)(1) -- Specimen certificate representing shares of
Series G AMPS.**
(2) -- Form of Articles Supplementary Creating Auction
Market Preferred Stock, Series G.**
(e) -- Dividend Reinvestment and Cash Purchase Plan.
(Previously filed as Exhibit (e) to Amendment No.
21 to Original Registration Statement.)*
(f) -- Inapplicable.
(g)(1) -- Management Agreement with EquitiLink
International Management Limited ("EIML") and
EquitiLink Australia Limited ("EAL") dated
February 1, 1990. (Previously filed as Exhibit
6(a)(4) to Amendment No. 10 to Original
Registration Statement.)*
(2) -- Advisory Agreement with EIML and EAL dated
December 15, 1992. (Previously filed as Exhibit
(g)(1)(2) to Amendment No. 18 to Original
Registration Statement).*
(3) -- Consultant Agreement among the Registrant, EIML,
and The Prudential Insurance Company of America
dated February 18, 1987, as amended effective
January 1, 1991. (Previously filed as Exhibit
(g)(3) to Amendment No. 23 to Original
Registration Statement.)*
(h) -- Form of Purchase Agreement covering the sale of
shares of Series G AMPS to the Underwriters;
Master Agreement Among Underwriters and Standard
Dealers Agreement.**
(i) -- Inapplicable.
(j)(1) -- Custodian Contract between the Registrant and
State Street Bank and Trust Company ("State
Street") dated April 11, 1986. (Previously filed
as Exhibit (9)(A) to Pre-Effective Amendment No.
2 to Original Registration Statement.)*
(2) -- Amendment No. 1 to Custody Agreement between
Registrant and State Street. (Previously filed
as Exhibit 9(a)(2) to Amendment No. 1 to
Original Registration Statement.)*
(3) -- Amendment No. 2 dated November 26, 1986 to
Custody Agreement between the Registrant and
State Street. (Previously filed as Exhibit
9(a)(3) to Amendment No. 1 to Original
Registration Statement.)*
(4) -- Sub-custodian Agreement between State Street
London Limited and State Street Bank and Trust
Company dated as of November 13, 1985.
(Previously filed as Exhibit (9)(D) to (Pre-
Effective) Amendment No. 2 to the Original
Registration Statement.)*
(5) -- Sub-custodian Agreement between State Street Bank
and Trust Company and Westpac Banking Corporation
dated as of January 1, 1993. (Previously filed
as Exhibit 9(j)(5) to Amendment No. 23 to the
Original Registration Statement.)*
(6) -- Sub-custodian Agreement between State Street Bank
and Trust Company and ANZ Banking Group (New
Zealand) Limited, dated as of May 11, 1993.
(Previously filed as Exhibit (j)(6) to Amendment
No. 23 to the Original Registration Statement.)*
(k)(1) -- Transfer Agency Agreement between the Registrant
and State Street dated April 11, 1986.
(Previously filed as Exhibit 10(A) to Pre-
Effective Amendment No. 2 to Original
Registration Statement.)*
(2) -- Administration Agreement between the Registrant
and Prudential Mutual Fund Management, Inc. dated
December 9, 1988. (Previously filed as Exhibit
10(c)(2) to Amendment No. 6 to Original
Registration Statement.)*
(3) -- Form of Auction Agent Agreement.**
(4) -- Form of Broker-Dealer Agreement.**
(5) -- Form of DTC Letter Agreement.**
(l)(1) -- Opinion and Consent of Dechert Price & Rhoads.**
(2) -- Opinion of Venable, Baetjer and Howard.**
(m) -- Inapplicable.
(n) -- Opinion and Consent of Independent
Accountants.**
(o) -- Inapplicable.
(p) -- Subscription Agreement between the Registrant and
EIML dated April 14, 1986. (Previously filed as
Exhibit (14) to Original Registration
Statement.)*
(q) -- Inapplicable.
(r) -- Inapplicable.
(s) -- Powers of attorney and certified copy of Board
resolutions.***
_______________
* Incorporated by reference herein.
** To be filed by amendment.
*** Filed herewith.
Item 25. Marketing Arrangements
See Purchase Agreement to be filed as Exhibit (h).
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth estimated expenses to be
incurred in connection with the offering described in the
Registration Statement:
Registration fees. . . . . . . . . . . . . . . . $ 25,862
Printing . . . . . . . . . . . . . . . . . . . .
Fees and expenses of qualification under state securities laws
(including fees of counsel). . . . . . . . . . 15,000
Legal fees and expenses. . . . . . . . . . . . .
Rating agency fees . . . . . . . . . . . . . . .
Auditing fees and expenses . . . . . . . . . . .
Miscellaneous. . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . .
_______________
* To be filed by amendment.
Item 27. Persons Controlled by or Under Common Control with
Registrant.
None.
Item 28. Number of Holders of Securities (as of October 31,
1995).
Title of Class Number of Record Holders
Common Stock ($.01 par value per share) _______
Auction Market Preferred Stock, Series A
($.01 par value per share) 1
Auction Market Preferred Stock, Series B
($.01 par value per share) 1
Auction Market Preferred Stock, Series C
($.01 par value per share) 1
Auction Market Preferred Stock, Series D
($.01 par value per share) 1
Auction Market Preferred Stock, Series E
($.01 par value per share) 1
Auction Market Preferred Stock, Series F
($.01 par value per share) 1
Item 29. Indemnification
Section 2-418 of the General Corporation Law of the State of
Maryland, the State in which the Registrant was organized,
empowers a corporation, subject to certain limitations, to
indemnify its directors against expenses (including attorneys'
fees, penalties, judgments, fines and settlements) actually and
reasonably incurred by them in connection with any suit or
proceeding to which they are a party unless it is established
that (i) the director's act or omission was material to the
matter giving rise to the proceeding and (1) was committed in bad
faith, or (2) was the result of active and deliberate dishonesty,
or (ii) the director actually received improper personal benefit
in money, property or services, or (iii) with respect to a
criminal action or proceeding, the director had reasonable cause
to believe that the action or omission was unlawful. Article IX,
of the Registrant's By-Laws (as amended through January 20, 1991)
provides:
Article IX. Indemnification. The Corporation shall
indemnify (a) its Directors and officers, whether serving the
Corporation or at its request any other entity, to the full
extent required or permitted by (i) the General Laws of the State
of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by
law, and (ii) the Investment Company Act of 1940, as amended, and
(b) other employees and agents to such extent as shall be
authorized by the Board of Directors and be permitted by law.
The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such resolutions or contracts implementing such provisions or
such further indemnification arrangements as may be permitted by
law.
Reference is made to Section 7 of the Purchase Agreement to
be filed as Exhibit (h) to this Registration Statement for
provisions relating to indemnification of the Underwriters.
Reference is made to Section 3 of the Purchase Agreement
filed as Exhibit (h) to this Registration Statement and to
Section 3 of the Advisory Agreement filed as Exhibit (g)(2)
herewith for provisions relating to limitation of liability of
the Investment Manager and Investment Adviser. Reference is made
to Section 3 of the same Advisory Agreement for provisions
relating to limitation of liability of the Investment Adviser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser.
Information as to the directors and officers of the
Investment Manager and the Investment Adviser is included in
their respective Forms ADV filed with the Commission and is
incorporated herein by reference thereto.
Item 31. Location of Accounts and Records.
Prudential Mutual EquitiLink State Street
Fund Management, International Bank and
Inc. Management Limited Trust Company
One Seaport Plaza Union House 225 Franklin Street
New York, New York 10292 Union Street Boston, MA 02110
For records pursuant to St. Helier, Jersey For all other
Rule 31a-1(b)(4) For records pursuant to records
Rule 31a-1(b)(5), (6), (9),
(10) and (11) and Rule 31a-1(f)
Item 32. Management Services.
Not applicable.
Item 33. Undertakings.
(1) Registrant undertake to suspend offering of its shares
until it amends its prospectus if (a) 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 (b) 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.
(5) (a) The Registrant hereby undertakes that for the
purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time
it was declared effective.
(b) The Registrant hereby undertakes that for the
purposes 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
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and/or the Investment Company Act of 1940, the Registrant has
duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned thereunto duly
authorized, in the City of New York on this _____ day of ________
_________, 1995.
The First Australia Prime Income Fund, Inc.
_______________________*___________________
Brian M. Sherman
President
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:
Name Title Date
_____*______ President and Director ___________, 1995
Brian M. Sherman (Principal Executive
Officer)
_____*______ Treasurer and Director ___________, 1995
David Manor (Principal and Financial
and Accounting Officer)
_____*______ Director ___________, 1995
Anthony E. Aaronson
_____*______ Director ___________, 1995
John Anthony Calvert-Jones
_____*______ Director and Chairman ___________, 1995
Sir Arthur Roden Cutler of the Board
_____*______ Director ___________, 1995
David Elsum
_____*______ Director ___________, 1995
Rt. Hon. Malcolm Fraser
_____*______ Director ___________, 1995
Laurence S. Freedman
<PAGE>
_____*______ Director ___________, 1995
Michael R. Horsburgh
_____*______ Director ___________, 1995
Harry A. Jacobs Jr.
_____*______ Director ___________, 1995
Howard A. Knight
_____*______ Director ___________, 1995
Roger C. Maddock
_____*______ Director ___________, 1995
William J. Potter
_____*______ Director ___________, 1995
Peter D. Sacks
_____*______ Director ___________, 1995
John T. Sheehy
_____*______ Director ___________, 1995
Marvin Yontef
*By /s/ Margaret A. Bancroft
______________________________
Margaret A. Bancroft
as Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
++(d)(1) Specimen certificate representing
shares of Series G AMPS
++(d)(2) Form of Article Supplementary creating
Auction Market Preferred Stock, Series
G
++(h) Form of Purchase Agreement covering the
sale by Registrant of the AMPS to the
Underwriters
++(k)(4) Form of Auction Agent Agreement
++(k)(5) Form of Broker-Dealer Agreement
++(k)(6) Form of DTC Letter Agreement
++(1)(1) Opinion and Consent of Dechert Price &
Rhoads
++(1)(2) Opinion of Venable, Baetjer and Howard
++(n) Opinion and Consent of Independent
Accountants
+(r) Financial Data Schedule
+(s) Powers of Attorney and Certified copy
of Board resolution
_______________
+ Filed herewith.
++ To be filed by amendment.
<TABLE> <S> <C>
<ARTICLE> 6 Exhibit (r)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 1,527,241,373
<INVESTMENTS-AT-VALUE> 1,455,357,453
<RECEIVABLES> 43,474,138
<ASSETS-OTHER> 405,329
<OTHER-ITEMS-ASSETS> 4,343,520
<TOTAL-ASSETS> 1,503,580,440
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,949,059
<TOTAL-LIABILITIES> 14,949,059
<SENIOR-EQUITY> 400,000,000
<PAID-IN-CAPITAL-COMMON> 1,141,040,427
<SHARES-COMMON-STOCK> 123,475,879
<SHARES-COMMON-PRIOR> 104,035,843
<ACCUMULATED-NII-CURRENT> 7,837,454
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,575,509
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (111,147,558)
<NET-ASSETS> 1,488,631,381
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 141,958,404
<OTHER-INCOME> 0
<EXPENSES-NET> (16,542,356)
<NET-INVESTMENT-INCOME> 125,416,048
<REALIZED-GAINS-CURRENT> 29,213,379
<APPREC-INCREASE-CURRENT> 310,171,836
<NET-CHANGE-FROM-OPS> 1,233,293
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116,984,981)
<DISTRIBUTIONS-OF-GAINS> (22,687,999)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,311,869
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2,128,167
<NET-CHANGE-IN-ASSETS> 88,547,116
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 59,288,340
<OVERDISTRIB-NII-PRIOR> (5,877,364)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,681,243
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (16,542,356)
<AVERAGE-NET-ASSETS> 1,174,394,000
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> 1.01
<PER-SHARE-GAIN-APPREC> (1.03)
<PER-SHARE-DIVIDEND> (.96)
<PER-SHARE-DISTRIBUTIONS> (.18)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.82
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EXHIBIT (s)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Brian M. Sherman Officer and 6/8/95
- ------------------------------ Director
Brian M. Sherman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ David Manor Officer and 6/8/95
- ------------------------------ Director
David Manor
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Laurence S. Freedman Officer and 6/8/95
- ------------------------------ Director
Laurence S. Freedman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Anthony E. Aaronson Director 6/8/95
- ------------------------------
Anthony E. Aaronson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ John A. Calvert-Jones Director 6/8/95
- ------------------------------
John A. Calvert-Jones
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Sir Roden Cutler Director 6/8/95
- ------------------------------
Sir Roden Cutler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ David Lindsay Elsum Director 6/8/95
- ------------------------------
David Lindsay Elsum
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Rt. Hon. Malcolm Fraser Director 6/1/95
- ------------------------------
Rt. Hon. Malcolm Fraser
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Michael R. Horsburgh Director 5/26/95
- ------------------------------
Michael R. Horsburgh
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Harry A. Jacobs, Jr. Director 6/8/95
- ------------------------------
Harry A. Jacobs, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Howard A. Knight Director 6/8/95
- ------------------------------
Howard A. Knight
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Roger C. Maddock Director 5/30/95
- ------------------------------
Roger C. Maddock
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ William J. Potter Director 5/30/95
- ------------------------------
William J. Potter
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Peter D. Sacks Director 5/26/95
- ------------------------------
Peter D. Sacks
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ John T. Sheehy Director 6/8/95
- ------------------------------
John T. Sheehy
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and Lawrence B. Stoller and each
of them, as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such attorney-
in-fact in such attorney-in-fact's name, place and stead, to sign
any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any
amendments or supplements thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
could do in person in his capacity as a Director or Officer of
the Fund, hereby ratifying and confirming all that said attorney-
in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/S/ Marvin Yontef Director 5/26/95
- ------------------------------
Marvin Yontef
