<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1995
SECURITIES ACT REGISTRATION NO. 33-60341
INVESTMENT COMPANY ACT FILE NO. 811-4611
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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. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
One Seaport Plaza New York, New York 10292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(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:
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<S> <C> <C>
MARGARET A. BANCROFT FRANK P. 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, NEW YORK 10022 NEW YORK, NEW YORK 10048 WASHINGTON, DC 20005
</TABLE>
------------------------
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
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Auction Market Preferred Stock,
Series G ($.01 par value)............ 3,000 shs $25,000 $75,000,000 $25,826.07(1)
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</TABLE>
(1) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states 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.
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<PAGE> 2
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
------------------------
CROSS REFERENCE SHEET
BETWEEN ITEMS OF REGISTRATION STATEMENT (FORM N-2) AND PROSPECTUS
PARTS A AND B
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<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
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<C> <S> <C>
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 Not Applicable
Information..........................................
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
</TABLE>
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> 3
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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 14, 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 August , 1995 and generally on each
succeeding Wednesday thereafter. The dividend rate on the shares of AMPS for the
Initial Dividend Period ending on August , 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.
<TABLE>
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PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(1)(3)
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<S> <C> <C> <C>
Per Share............................. $25,000 $ $
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Total................................. $75,000,000 $ $
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</TABLE>
(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 $255,000.
------------------------
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 July , 1995.
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(R) Registered trademark of Merrill Lynch & Co., Inc.
------------------------
MERRILL LYNCH & CO. PRUDENTIAL SECURITIES INCORPORATED
------------------------
The date of this Prospectus is July , 1995.
<PAGE> 4
(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 here
by, 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.
2
<PAGE> 5
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
3
<PAGE> 6
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 Advisory 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 August , 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
August , 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
4
<PAGE> 7
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."
<TABLE>
<CAPTION>
CREDIT RATING
- -------------------------------------- APPLICABLE
S&P MOODY'S PERCENTAGE
- ---------------- ----------------- -----------------
<S> <C> <C>
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%
</TABLE>
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.
5
<PAGE> 8
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 April 30, 1995, after giving effect to the issuance of
shares of Common Stock in connection with a rights offering completed on May 5,
1995 and this offering (see "Use of Proceeds"), the 1940 Act AMPS Asset Coverage
Ratio would have been approximately 379%.
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."
6
<PAGE> 9
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 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
7
<PAGE> 10
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.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the five years
in the period ended October 31, 1994, has been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEARS ENDED OCTOBER 31,
PER SHARE OPERATING ---------- ----------------------------------------------------------------
PERFORMANCE: 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value per common share, beginning
of period................................... $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02 $ 9.31
---------- ---------- ---------- -------- -------- --------
Net investment income........................ .48 1.01 1.19 1.29 1.40 1.49
Net realized and unrealized gain (loss) on
investments and foreign currencies.......... .16 (1.03) .58 (1.42) 1.37 .73
---------- ---------- ---------- -------- -------- --------
Total from investment operations.......... .64 (.02) 1.77 (.13) 2.77 2.22
---------- ---------- ---------- -------- -------- --------
Dividends from net investment income to
preferred shareholders...................... (.08) (.12) (.11) (.14) (.24) (.30)
Dividends from net investment income to
common shareholders......................... (.45) (.84) (1.08) (1.10) (1.24) (1.13)
Distributions from net capital and currency
gains to preferred shareholders............. (.02) (.01) (.01) (.01) -- --
Distributions from net capital and currency
gains to common shareholders................ (.07) (.17) (.08) (.29) -- (.08)
---------- ---------- ---------- -------- -------- --------
Total dividends and distributions......... (.62) (1.14) (1.28) (1.54) (1.48) (1.51)
---------- ---------- ---------- -------- -------- --------
Capital charge in respect to issuance
of shares................................... -- (.11) (.01) (.03) -- --
---------- ---------- ---------- -------- -------- --------
Net asset value per common share, end
of period................................... $ 8.84 $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02
========= ========= ========= ======== ======== ========
Market price per common share, end
of period................................... $ 7.88 $ 9.56 $ 10.25 $ 10.00 $ 10.94 $ 8.94
TOTAL INVESTMENT RETURN BASED ON+:
Market value................................. (12.47)% 3.32% 15.00% 4.11% 38.36% 14.95%
Net asset value.............................. 6.53% (3.19)% 17.80% (3.22)% 27.62% 22.88%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/
SUPPLEMENTAL DATA#:
Expenses..................................... 1.50%++* 1.41%++ 1.44%++ 1.43%*++ 1.59%++ 1.54%++
Net investment income before preferred stock
dividends................................... 10.93%* 10.68% 12.13% 12.14% 13.42% 15.47%
Preferred stock dividends.................... 2.11%* 1.20% 1.13% 1.25% 2.31% 3.11%
Net investment income available to common
shareholders................................ 8.82%* 9.48% 11.00% 10.89% 11.11% 12.36%
Portfolio turnover rate...................... 18% 34% 23% 17% 83% 80%
Net assets of common shareholders, end of
period (000)................................ $1,099,599 $1,088,631 $1,050,084 $977,933 $972,569 $861,379
Average net assets of common shareholders
(000)....................................... $1,114,561 $1,174,394 $1,011,324 $938,072 $899,175 $826,862
Senior securities (preferred stock)
outstanding (000) omitted................... $ 400,000 $ 400,000 $ 350,000 $300,000 $300,000 $300,000
Asset coverage of preferred stock at period
end......................................... 374% 372% 400% 426% 424% 387%
<CAPTION>
APRIL 24,
1986##
THROUGH
OCTOBER
YEARS ENDED OCTOBER 31, 31,
PER SHARE OPERATING ---------------------------------- --------
PERFORMANCE: 1989 1988 1987 1986
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value per common share, beginning
of period................................... $ 10.81 $ 8.74 $ 8.26 $ 9.33++
-------- -------- -------- --------
Net investment income........................ 1.32 .97 1.02 .49
Net realized and unrealized gain (loss) on
investments and foreign currencies.......... (1.22) 2.50 .52 (1.46)
-------- -------- -------- --------
Total from investment operations.......... .10 3.47 1.54 (.97)
-------- -------- -------- --------
Dividends from net investment income to
preferred shareholders...................... (.20) -- -- --
Dividends from net investment income to
common shareholders......................... (1.08) (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................ (.23) -- -- --
-------- -------- -------- --------
Total dividends and distributions......... (1.51) (1.40) (1.06) (.08)
-------- -------- -------- --------
Capital charge in respect to issuance
of shares................................... (.09) -- -- (.02)
-------- -------- -------- --------
Net asset value per common share, end
of period................................... $ 9.31 $ 10.81 $ 8.74 $ 8.26
======== ======== ======== ========
Market price per common share, end
of period................................... $ 8.88 $ 9.56 $ 7.25 $ 8.38
TOTAL INVESTMENT RETURN BASED ON+:
Market value................................. 7.38% 54.42% (2.09)% (9.31)%
Net asset value.............................. (.44)% 44.84% 19.74% (10.65)%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/
SUPPLEMENTAL DATA#:
Expenses..................................... 1.35%+ 1.04% 1.11% 1.09%*
Net investment income before preferred stock
dividends................................... 13.46% 9.51% 11.61% 11.75%*
Preferred stock dividends.................... 2.07% -- -- --
Net investment income available to common
shareholders................................ 11.39% 9.51% 11.61% 11.75%*
Portfolio turnover rate...................... 46% 60% 52% 13%
Net assets of common shareholders, end of
period (000)................................ $800,166 $928,689 $751,129 $708,012
Average net assets of common shareholders
(000)....................................... $832,779 $875,609 $756,274 $703,339
Senior securities (preferred stock)
outstanding (000) omitted................... $300,000 -- -- --
Asset coverage of preferred stock at period
end......................................... 367% -- -- --
</TABLE>
- ---------------
* Annualized.
+ 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.
## 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, except for the period ended April 30, 1995 which is unaudited.
This information has been determined based upon financial information
provided in the financial statements and market value data for the Fund's
Common Stock.
9
<PAGE> 12
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
<TABLE>
<CAPTION>
ASSET
COVERAGE
TOTAL AMOUNT PER LIQUIDATION
OF PREFERRED SHARE OF PREFERENCE
STOCK PREFERRED PER
AT OCTOBER 31, OUTSTANDING* STOCK** SHARE***
- --------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
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 $400,024 $100,000
1994............................................... $400,000,000 $372,158 $100,000
</TABLE>
At April 30, 1995 the asset coverage per share of Preferred Stock was
$374,900.
- ---------------
* 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. The dividend rate has fluctuated at small premiums
over and discounts to the 30 day commercial paper rate. At April 30, 1995, the
annual dividend rates on Series A through F were, respectively, 6.08%, 5.99%,
6.02%, 6.04%, 5.99% and 6.0%. 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 1.61%.
10
<PAGE> 13
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."
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses)...... -10% -5% 0% 5% 10%
Corresponding Common Stock Return(1)............ -15.61% -8.71% -1.80% 5.10% 12.01%
</TABLE>
- ---------------
(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".
11
<PAGE> 14
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Fund as of April
30, 1995 and as adjusted (a) to reflect the issuance of 30,723,350 shares of
Common Stock in connection with a rights offering completed on May 5, 1995 at a
price of $7.64 per share, and (b) to give effect to the issuance of the shares
of AMPS offered hereby.
Net assets applicable to Preferred and Common Stock:
<TABLE>
<CAPTION>
APRIL 30,
1995 AS ADJUSTED
(UNAUDITED) (UNAUDITED)
-------------- --------------
<S> <C> <C>
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 for issuance of AMPS,
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, 124,355,752 shares issued and outstanding, as
adjusted, 155,079,102 shares issued and outstanding(1)...... 1,243,558 1,550,792
Paid-in capital in excess of par(1)(2)........................ 1,147,485,322 1,370,616,898
Undistributed net investment income........................... 5,513,483 5,513,483
Accumulated net realized losses on investments................ (1,155,824) (1,155,824)
Net unrealized depreciation on investments.................... (64,827,446) (64,827,446)
Accumulated net realized and unrealized foreign exchange
gains....................................................... 11,340,357 11,340,357
-------------- --------------
Total net assets......................................... 1,499,599,450 1,798,038,260
============= =============
Net assets applicable to Common Stock(1)(2)(3)................ $1,099,599,450 $1,323,038,260
============= =============
</TABLE>
- ---------------
(1) Reflects the issuance of 30,723,350 shares of common stock in connection
with the rights offering.
(2) Adjusted to reflect the charge to paid-in capital of all estimated issuance
costs of the AMPS, including sales load of $1,125,000 and offering costs of
approximately $255,000.
(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.
12
<PAGE> 15
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 $73,620,000 after deducting estimated issuance costs, including sales load
of $1,125,000 and offering costs of approximately $255,000) 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.
13
<PAGE> 16
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
14
<PAGE> 17
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 $78,940,660 held in
U.S. and Australian dollar denominated short-term investments) as of April 30,
1995 based on the then applicable exchange rate of U.S. $.7275 to A$1.00 and
U.S. $.6722 to NZ $1.00.
THE PORTFOLIO
<TABLE>
<CAPTION>
% OF
TOTAL
MARKET
VALUE
NUMBER MARKET VALUE OF
OF IN LONG-TERM
ISSUES U.S. DOLLARS PORTFOLIO
--- -------------- ------
<S> <C> <C> <C>
Australian and New Zealand government 16 $ 323,170,445
securities................................... 23.64%
Australian semi-government securities ......... 21 518,822,287 37.94
Australian and New Zealand corporate bonds..... 16 158,196,519 11.57
Eurobonds...................................... 49 367,156,216 26.85
--- -------------- ------
Total long-term investments............... 102 $1,367,345,467 100.00%
=== ============= ======
</TABLE>
RATINGS OF SECURITIES HELD IN THE PORTFOLIO
<TABLE>
<CAPTION>
% OF
TOTAL
MARKET
VALUE
OF
LONG-TERM
PORTFOLIO
------
<S> <C>
MOODY'S AND/OR S&P RATINGS*
Aaa/AAA by Moody's or S&P...................................... 62.90%
Aa/AA by Moody's or S&P........................................ 36.08
A/A by Moody's or S&P.......................................... 1.02
------
Total Portfolio Rated by Moody's and/or S&P............... 100.00%
======
</TABLE>
-----------------------
* Reflects the lower of the Moody's or S&P rating
For further information, reference should be made to "Financial
Statements."
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
lesser 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.
15
<PAGE> 18
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
16
<PAGE> 19
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
17
<PAGE> 20
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 ("FANMAC Certificates") 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
18
<PAGE> 21
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
19
<PAGE> 22
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.
20
<PAGE> 23
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
21
<PAGE> 24
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
22
<PAGE> 25
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
23
<PAGE> 26
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).
<TABLE>
<CAPTION>
CREDIT RATING
- ----------------------------------------- APPLICABLE
S&P MOODY'S PERCENTAGE
- ------------------ ------------------ ------------------
<S> <C> <C>
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%
</TABLE>
24
<PAGE> 27
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
25
<PAGE> 28
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 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).
26
<PAGE> 29
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
27
<PAGE> 30
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
28
<PAGE> 31
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 per
annum 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 August , 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.
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<PAGE> 32
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
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<PAGE> 33
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
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<PAGE> 34
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 April 30, 1995, after giving effect to the issuance of
shares of common stock in connection with a rights offering completed on May 5,
1995 and this offering and the receipt of the net proceeds therefrom, the 1940
Act AMPS Asset Coverage Ratio would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Value of Fund assets less
liabilities not constituting
senior securities $1,798,038,260 = 3.79 = 379%
- ----------------------------------- --------------
Senior securities representing $ 475,000,000
indebtedness plus liquidation value
of the shares of Auction Market
Preferred Stock
</TABLE>
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) projected dividends as provided in the Articles
Supplementary; (d) the aggregate principal amount of any then outstanding
indebtedness of the Fund for money borrowed; (e) projected expenses of the Fund
for the next succeeding three-month period; and (f) 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 (e) 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 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
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<PAGE> 35
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.
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,
1992 and 1993, 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
33
<PAGE> 36
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.
34
<PAGE> 37
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
35
<PAGE> 38
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.
36
<PAGE> 39
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 February 1, 1990 (the "Management Agreement") and an
advisory agreement dated December 15, 1992 (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, D.R. Andrews, O. Sananikone-Fletcher,
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 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 be enforceable by action or counterclaim
or be recognized by the Jersey courts as a defense to an action or as conclusive
of an issue in an action unless obtained by fraud or otherwise than in
accordance with the principles of natural justice or unless contrary to public
policy or unless the proceedings in the United States court were not duly served
on the defendant in the original action. 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
37
<PAGE> 40
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
38
<PAGE> 41
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
39
<PAGE> 42
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.
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 be enforceable by
action or counterclaim or be recognized by the Jersey courts as a defense to an
action or as conclusive of an issue in an action unless obtained by fraud or
otherwise than in accordance with the principles of natural justice or unless
contrary to public policy or unless the proceedings in the United States court
were not duly served on the defendant in the original action. 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.
40
<PAGE> 43
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Anthony E. Aaronson(+) Class I Director Director, The First Australia Fund,
116 South Anita Avenue Los Inc. (since 1985); Vice President,
Angeles, CA 90049 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 Class I Director Director, The First Australia Fund,
Level 31 Inc. (since 1985); Chairman of the
101 Collins Street Board (1984-1994) and Chief
Melbourne, Victoria 3000 Executive Officer (1984-1991),
Australia 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* Class I Director Director, The First Australia Fund,
Union House Inc, and The First Commonwealth
Union Street Fund, Inc. (since 1992); Chairman
St. Helier and Managing Director, EquitiLink
Jersey, Channel Islands International Management Limited
(since 1985); Partner, Jackson
Fox, Chartered Accountants (since
1981); Director, Worthy Trust
Company Limited (since 1993);
Director, Professional Con-
sultancy 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 Lim-
ited (since 1994).
John T. Sheehy(+) Class I Director Director, The First Australia Fund,
6920 Koll Center Parkway Inc. (since 1985), First Australia
Suite 225 Prime Income Investment Company
Pleasanton, CA 94566 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.
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Rt. Hon. Malcolm Fraser(++) Class II Director Director, The First Australia Fund,
A.C., C.H. Inc. (since 1985), First Australia
55 Collins Street Prime Income Investment Company
Melbourne, Victoria 3000 Limited (since 1986) and The First
Australia 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); Presi-
dent, 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; CoChairman,
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.* Class II Director Director, The First Australia Fund,
One New York Plaza Inc. (since 1985); Chairman and
New York, NY 10292 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 Incorpo-
rated (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.
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Howard A. Knight Class II Director Director, The First Australia Fund,
300 Park Avenue Inc. (since 1993); Private
New York, NY 10022 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(+) Class II Director Director, The First Commonwealth
11 King Street West Fund, Inc. (since 1992); President
Ste. 1002 and Director, Toron Capital
Toronto, Ontario M5H 1A3 Markets, Inc. (currency, interest
Canada 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* Class II Director; President and Director, The First
44 Pitt Street President (since 1986) Australia Fund, Inc. (since 1985);
Sydney, N.S.W. 2000 Joint Managing Director, First
Australia 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).
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Sir Roden Cutler (++), V.C., Class III Directors; Director and Chairman of the Board,
A.K., K.C.M.G., Chairman of the Board The First Australia Fund, Inc.
K.C.V.O., C.B.E., (since 1986) (since 1985), First Australia
K.St.J. Prime Income Investment Company
22 Ginahgulla Road Limited (since 1986) and The First
Bellevue Hill, Commonwealth Fund, Inc. (since
N.S.W. 2023 1992); Australia Director,
Australia 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 (++) Class III Director Director, The First Australia Fund,
9 Maygrove Inc. (since 1985), First Australia
South Yarra, Victoria 3141 Prime Income Investment Company
Australia 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 Se-
curities Panel of the Australian
Securities Commission of
Australian States and Territories;
Chairman, Queen Victoria Market.
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Laurence S. Freedman* Class III Directors; Sole Vice President and Director,
44 Pitt Street Sole The First Australia Fund, Inc.
Sydney, N.S.W. 2000 Vice President (since (since 1985); Joint Managing
Australia 1986) 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 Class III Director Director, The First Australia Fund,
675 Third Avenue Inc. (since 1985); Director, The
22nd Floor First Commonwealth Fund, Inc.
New York, NY 10017 (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.
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
William J. Potter (++) Class III Director Director, The First Australia Fund,
156 W. 56th Street Inc. (since 1985), The First
17th Floor Commonwealth Fund, Inc. (since
New York, NY 10019 1992) and First Australia Prime
Income Investment Company Limited
(since 1986); Partner, Sphere
Capital Partners (corporate
consulting) (since 1989); Presi-
dent, 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, Battery
Technologies, Inc.; Director,
Compuflex Inc.; Director, In-
ternational Panorama Resource
Inc.; 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* Preferred Director; Treasurer, The First Australia Fund,
44 Pitt Street Treasurer (since 1987) Inc. (since 1987); Director and
Sydney, N.S.W. 2000 Treasurer, The First Commonwealth
Australia 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* Preferred Director Partner, Stikeman, Elliott (Canadian
P.O. Box 85 law firm); Director of and counsel
5300 Commerce Court West to First Australia Prime Income
Toronto, Ontario Investment Company Limited.
Canada M5L1B9
Roy M. Randall Secretary Partner, Freehill, Hollingdale &
19-29 Martin Place Page, Australian counsel to the
Sydney, N.S.W. 2000 Fund.
Australia
Eugene S. Stark Chief Financial Officer First Vice President (since 1990)
One Seaport Plaza and Assistant Treasurer and Vice President (1987-1989),
New York, NY 10292 Prudential Mutual Treasurer Fund
Management, Inc.
Kenneth T. Kozlowski Assistant Treasurer Vice President, Prudential Mutual
One Seaport Plaza Fund Management, Inc. (since
New York, NY 10292 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).
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Margaret A. Bancroft Assistant Secretary Partner, Dechert Price & Rhoads,
New York, NY 10022 U.S. counsel to the Fund.
Allan S. Mostoff Assistant Secretary Partner, Dechert Price & Rhoads,
1500 K Street, N.W. U.S. counsel to the Fund.
Washington, D.C. 20005
</TABLE>
- ---------------
* 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.
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<PAGE> 50
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.
COMPENSATION TABLE
FISCAL YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
PENSION TOTAL
OR COMPENSATION
RETIREMENT FROM
BENEFITS REGISTRANT
ACCRUED AND
AS ESTIMATED FUND
AGGREGATE PART ANNUAL COMPLEX
COMPENSATION OF BENEFITS PAID
FROM FUND UPON TO
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS+
- -------------------------------------------- ------- ----- ----- -------
<S> <C> <C> <C> <C>
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* (6)
Rt. Hon. Malcolm 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)
</TABLE>
- ---------------
+ 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.
48
<PAGE> 51
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 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");
49
<PAGE> 52
(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 or 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
or 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
50
<PAGE> 53
income, in accordance with the class' proportionate shares (based on
distributions to each class) 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
51
<PAGE> 54
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. Ordinary
income dividends paid by the Fund to shareholders who are nonresident aliens or
foreign entities generally will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under an applicable treaty. 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. A foreign shareholder may be
subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. Foreign shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Fund.
52
<PAGE> 55
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
53
<PAGE> 56
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.
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<PAGE> 57
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 May
5, 1995.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
(EXCLUSIVE
OF
AMOUNT HELD
AMOUNT HELD BY FUND
BY FUND OR OR FOR
AMOUNT FOR ITS ITS
TITLE OF CLASS AUTHORIZED ACCOUNT ACCOUNT)
- --------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Common Stock............................................. 200,000,000 -0- 155,079,102
Auction Market Preferred Stock........................... 100,000,000 -0- 4,000
</TABLE>
CERTAIN PROVISIONS OF THE BY-LAWS AND
ARTICLES OF AMENDMENT AND RESTATEMENT
The Fund presently has provisions in its Articles and By-laws that 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
55
<PAGE> 58
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.
56
<PAGE> 59
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
July , 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.
57
<PAGE> 60
- ------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--124.3%
AUSTRALIA--121.6%
GOVERNMENT AND SEMI-GOVERNMENT--
74.3%
COMMONWEALTH OF AUSTRALIA--35.4%
Commonwealth of Australia,
A$ 20,000 12.00%, 11/15/96.............. $ 15,194,279
4,000 13.50%, 5/15/97............... 3,150,454
25,000 12.50%, 1/15/98............... 19,686,702
5,000 13.00%, 4/15/98............... 3,989,866
25,000 6.25%, 3/15/99................ 16,473,697
15,000 14.00%, 4/15/99............... 12,553,417
35,000 12.00%, 7/15/99............... 27,875,845
50,000 7.00%, 4/15/00................ 33,037,604
49,900 13.00%, 7/15/00............... 41,636,516
5,000 13.00%, 12/15/00.............. 4,170,068
30,000 12.00%, 11/15/01.............. 24,401,449
36,000 9.50%, 8/15/03................ 25,984,155
10,000 9.00%, 9/15/04................ 6,977,528
100,000 7.50%, 7/15/05................ 62,510,458
Commonwealth Bank of Australia,
70,000 12.00%, 7/15/99............... 55,359,567
Telecom,
1,000 12.50%, 10/1/96............... 755,713
45,000 12.00%, 9/1/98................ 35,359,130
-------------
389,116,448
-------------
NEW SOUTH WALES--8.7%
New South Wales Treasury
Corporation,
50,000 12.50%, 4/1/97................ 38,585,885
45,000 12.00%, 12/1/01............... 36,174,949
20,000 12.60%, 5/1/06................ 20,731,429
-------------
95,492,263
-------------
NORTHERN TERRITORY--2.9%
Northern Territory Authority,
40,000 12.50%, 7/15/01............... 32,121,754
-------------
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
QUEENSLAND--1.5%
Queensland Treasury Corporation,
A$ 1,000 12.00%, 7/15/99............... $ 16,558,371
-------------
SOUTH AUSTRALIA--6.5%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05............... 4,228,632
South Australian Financing
Authority,
30,000 12.50%, 3/15/98............... 23,654,816
60,000 10.00%, 1/15/03............... 43,648,704
-------------
71,532,152
-------------
TASMANIA--6.5%
Tasmanian Public Finance
Corporation,
62,750 12.50%, 1/15/01............... 51,006,830
24,000 9.00%, 11/15/04............... 16,165,346
5,000 11.00%, 4/15/06............... 3,805,117
-------------
70,977,293
-------------
VICTORIA--6.2%
Treasury Corporation of
Victoria,
5,000 12.50%, 9/15/97............... 3,900,201
50,000 12.50%, 7/15/00............... 40,627,251
22,600 12.50%, 10/15/03.............. 18,767,814
7,000 10.25%, 11/15/06.............. 5,109,154
-------------
68,404,420
-------------
WESTERN AUSTRALIA--6.6%
Western Australia Treasury
Corporation,
10,000 12.50%, 4/1/98................ 7,886,466
18,000 9.00%, 4/15/99................ 12,934,722
64,000 12.00%, 8/1/01................ 51,440,436
-------------
72,261,624
-------------
Total Australian government
and semi-government
(cost US$842,447,542)......... 816,464,325
-------------
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 61
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
EUROBONDS--33.3%
DIVERSIFIED INDUSTRIALS--1.0%
Australian National Railway,
A$ 2,138 9.50%, 2/25/99................ $ 1,539,602
BMW Australia Finance,
1,700 10.25%, 3/17/97............... 1,248,499
EksportFinans,
4,000 7.00%, 6/28/00................ 2,592,054
Federal Airports Corporation,
7,000 7.00%, 2/16/04................ 4,044,582
Finnish Eksport Credit,
2,925 9.25%, 12/30/99............... 2,058,887
-------------
11,483,624
-------------
NATURAL RESOURCES--0.8%
Mobil Australia Corp.,
1,000 12.00%, 4/18/97............... 756,971
Shell Australia,
5,000 10.125%, 4/1/97............... 3,673,658
1,786 10.00%, 12/19/97.............. 1,308,346
State Electricity Commission of
Victoria,
1,000 12.25%, 5/30/01............... 790,007
3,000 11.00%, 4/9/02................ 2,252,799
-------------
8,781,781
-------------
SERVICES--21.8%
Banque National de Paris,
14,000 9.00%, 8/13/02................ 9,588,213
Commonwealth Bank of Australia,
1,000 12.75%, 1/7/98................ 778,360
2,000 8.75%, 9/14/00................ 1,389,291
Credit Lyonnais Australia,
5,000 8.625%, 12/29/97.............. 3,517,515
GG Securities,
5,000 9.25%, 3/24/03................ 3,405,225
International Bank for
Reconstruction & Development,
1,000 14.50%, 6/7/96................ 767,047
McDonald's Australia,
1,000 10.50%, 11/5/98............... 739,235
New South Wales Treasury
Corporation,
10,000 7.50%, 2/1/98................. 6,990,040
5,000 11.50%, 7/1/99................ 3,898,965
12,000 12.00%, 12/1/01............... 9,679,478
5,000 6.50%, 5/1/06................. 2,788,945
32,000 12.60%, 5/1/06................ 26,923,096
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
Province Aples Cotes D'Azur,
A$ 12,000 8.25%, 9/15/99................ $ 8,187,608
Province of Quebec,
390 9.50%, 10/2/02................ 263,335
Queensland Treasury Corporation,
40,000 8.00%, 5/14/97................ 28,599,780
40,000 8.00%, 7/14/99................ 27,740,821
55,000 8.00%, 8/14/01................ 36,904,559
3,000 12.00%, 8/15/01............... 2,417,294
30,000 8.00%, 5/14/03................ 19,607,768
15,000 10.50%, 5/15/03............... 11,222,310
Rural & Industries Bank,
5,000 8.75%, 9/9/99................. 3,492,976
2,000 7.75%, 6/9/03................. 1,254,290
South Australia Financing
Authority,
2,000 10.50%, 11/6/98............... 1,483,126
1,500 12.00%, 6/12/01............... 1,174,283
State Bank of New South Wales,
1,000 14.25%, 9/28/99............... 827,066
5,500 12.25%, 2/26/01............... 4,364,445
3,000 10.75%, 3/12/02............... 2,247,932
5,000 9.00%, 9/17/02................ 3,429,014
10,000 9.25%, 2/18/03................ 6,965,233
State Bank of South Australia,
7,500 9.50%, 10/15/02............... 5,227,646
Tasmanian Public Finance
Authority,
2,000 10.75%, 11/20/01.............. 1,485,264
Toronto-Dominion Bank,
1,000 11.25%, 7/15/98............... 752,541
Treasury Corporation of
Victoria,
2,000 11.00%, 3/12/02............... 1,501,750
-------------
239,614,451
-------------
SUPRANATIONAL GLOBAL--9.7%
Credit Locale de France,
10,000 7.50%, 9/15/97................ 7,047,658
Eurofima,
40,000 9.875%, 1/17/07............... 28,445,259
European Bank of Reconstruction
& Development,
45,000 9.00%, 10/15/02............... 31,206,705
European Investment Bank,
38,000 10.25%, 10/1/01............... 28,816,052
Swedish National Housing,
15,000 7.50%, 8/22/96................ 10,709,531
-------------
106,225,205
-------------
Total Australian Eurobonds
(cost US$385,682,204)......... 366,105,061
-------------
</TABLE>
See Notes to Financial Statements.
59
<PAGE> 62
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--14.0%
DIVERSIFIED INDUSTRIALS--0.9%
Federal Airports Corporation,
A$ 5,000 10.50%, 7/15/99............... $ 3,729,275
10,000 8.25%, 6/2/03................. 6,458,893
-------------
10,188,168
-------------
SERVICES--13.1%
Australian & Overseas
Telecommunication Corporation,
55,350 12.50%, 11/15/00.............. 44,904,704
40,000 11.50%, 10/15/02.............. 31,084,630
2,000 7.80%, 7/17/03................ 1,391,752
41,000 12.00%, 5/15/06............... 32,707,952
20,000 10.50%, 12/15/17.............. 13,679,915
2,000 8.75%, 1/15/20................ 1,373,695
10,000 10.50%, 1/15/20............... 6,831,300
2,000 12.50%, 1/15/20............... 1,676,292
FANMAC Limited, Mortgage Series
25,
770 10.33%, 6/15/02............... 569,530
Premier Trust 22,
3,530 11.40%, 12/15/01.............. 2,692,576
Macquarie Bank Limited,
1,000 9.75%, 8/1/00................. 705,493
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98................ 3,497,203
5,000 6.75%, 2/25/99................ 3,275,657
-------------
144,390,699
-------------
Total Australian corporate bonds
(cost US$157,679,735)......... 154,578,867
-------------
Total Australian long-term
investments
(cost US$1,385,809,481)....... 1,337,148,253
-------------
NEW ZEALAND--2.7%
GOVERNMENT--2.3%
New Zealand government bonds,
NZ$ 5,000 6.50%, 2/15/00................ 3,164,276
30,000 10.00%, 3/15/02............... 22,364,131
-------------
Total New Zealand
government bonds
(cost US$23,687,142).......... 25,528,407
-------------
EUROBONDS--0.1%
Telecom New Zealand Finance,
1,500 9.25%, 7/1/02,
(cost US$996,653)............. 1,051,155
-------------
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.3%
Electric Corporation of New
Zealand,
NZ$ 5,000 10.00%, 10/15/01,
(cost US$3,275,590)........... $ 3,617,652
-------------
Total New Zealand long-term
investments
(cost US$27,959,385).......... 30,197,214
-------------
Total long-term investments
(cost US$1,413,768,866)....... 1,367,345,467
-------------
SHORT-TERM INVESTMENTS--7.2%
AUSTRALIA--6.4%
GOVERNMENT AND SEMI-GOVERNMENT--4.8%
COMMONWEALTH OF AUSTRALIA--2.7%
Telecom,
A$ 30,000 12.00%, 9/1/95................ 22,094,982
10,000 13.00%, 2/1/96................ 7,489,979
-------------
29,584,961
-------------
NEW SOUTH WALES--2.1%
New South Wales Treasury
Corporation,
10,500 8.50%, 3/1/96................. 7,628,211
State Bank of New South Wales,
20,000 13.00%, 3/15/96............... 15,068,567
-------------
22,696,778
-------------
Total Australian government and
semi-government
(cost US$55,833,503).......... 52,281,739
-------------
EUROBONDS--0.4%
DIVERSIFIED INDUSTRIALS--0.1%
Amro Australia Limited,
1,300 14.75%, 5/15/95............... 947,485
-------------
SERVICES--0.3%
General Electric of Canada,
1,000 14.25%, 8/8/95................ 736,390
McDonald's Canada,
3,000 15.00%, 6/28/95............... 2,200,856
Tasmanian Public Finance
Authority,
1,000 13.00%, 12/22/95.............. 745,826
-------------
3,683,072
-------------
Total Australian Eurobonds
(cost US$5,193,416)........... 4,630,557
-------------
</TABLE>
See Notes to Financial Statements.
60
<PAGE> 63
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--1.2%
SERVICES--1.2%
Australian & Overseas
Telecommunication Corporation,
A$ 2,800 12.50%, 8/15/95............... $ 2,063,074
Ford Credit Australia Limited,
5,000 12.25%, 9/15/95............... 3,686,898
Macquarie Bank Limited,
10,000 14.20%, 1/3/96................ 7,296,392
-------------
Total Australian corporate bonds
(cost US$15,001,265).......... 13,046,364
-------------
Total Australian short-term
investments
(cost US$76,028,184).......... 69,958,660
-------------
UNITED STATES--0.8%
Repurchase Agreement, State
Street Bank and Trust Company,
5.87%, 4/28/95, due 5/1/95 in
the amount of $8,986,394 (cost
$8,982,000; collateralized by
$8,590,000 U.S. Treasury Note,
8.25%, due 7/15/98; value
including accrued
US$8,982 interest--US$9,164,765)....... 8,982,000
-------------
Total short-term investments
(cost US$85,010,184).......... 78,940,660
-------------
TOTAL INVESTMENTS--131.5%
(cost US$1,498,779,050; Note
3)............................ 1,446,286,127
OTHER ASSETS IN EXCESS OF
LIABILITIES--4.8%............. 53,313,323
LIQUIDATION VALUE OF PREFERRED
STOCK--(36.3%)................ (400,000,000)
-------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS--100%............ $1,099,599,450
=============
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 64
- -----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995
(UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value
(cost $1,498,779,050).................... $1,446,286,127
Foreign currency, at value
(cost $26,384,127)....................... 26,219,853
Cash....................................... 493,615
Interest receivable........................ 41,631,189
Other assets............................... 36,157
--------------
Total assets........................... 1,514,666,941
--------------
LIABILITIES
Dividends payable -- common stock.......... 9,326,681
Withholding taxes payable.................. 2,851,872
Dividends payable -- preferred stock....... 1,100,147
Accrued expenses and other liabilities..... 991,990
Investment management fee payable.......... 665,411
Administration fee payable................. 131,390
--------------
Total liabilities...................... 15,067,491
--------------
TOTAL NET ASSETS........................... $1,499,599,450
==============
Total net assets were composed of:
Common stock:
Par value ($.01 per share, applicable
to 124,355,752 shares)............... $ 1,243,558
Paid-in capital in excess of par....... 1,147,485,322
Preferred stock ($.01 par value per share
and $100,000 liquidation value per
share applicable to 4,000 shares; Note
4)..................................... 400,000,000
--------------
1,548,728,880
Undistributed net investment income...... 5,513,483
Accumulated net realized losses on
investments............................ (1,155,824)
Net unrealized depreciation on
investments............................ (64,827,446)
Accumulated net realized and unrealized
foreign exchange gains................. 11,340,357
--------------
Total net assets......................... $1,499,599,450
==============
Net assets applicable to common
shareholders......................... $1,099,599,450
==============
Net asset value per common share:
($1,099,599,450 / 124,355,752 shares of
common stock issued and outstanding)..... $8.84
=====
</TABLE>
- -----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1995
(UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income
Interest and discount earned (net of
foreign withholding taxes of
$5,649,683)............................. $ 68,700,321
-------------
Expenses
Investment management fee................. 4,164,289
Custodian's fees and expenses............. 1,109,000
Administration fee........................ 975,222
Auction agent's fees and expenses......... 585,000
Reports to shareholders................... 392,000
Transfer agent's fees and expenses........ 326,000
Directors' fees and expenses.............. 199,000
Independent accountant's fees and
expenses................................ 106,000
Legal fees and expenses................... 80,000
Insurance expense......................... 71,000
Miscellaneous............................. 42,219
-------------
Total operating expenses................ 8,049,730
-------------
Net investment income before excise tax..... 60,650,591
Excise tax................................ 252,248
-------------
Net investment income....................... 60,398,343
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized loss on investment
transactions.............................. (1,128,829)
Net change in unrealized appreciation
on investments............................ 46,320,112
-------------
Net gain on investments..................... 45,191,283
-------------
Net increase in total net assets from
operations before net foreign exchange
losses.................................... 105,589,626
Net realized and unrealized foreign
exchange losses........................... (25,507,752)
-------------
NET INCREASE IN TOTAL NET ASSETS
RESULTING FROM OPERATIONS................... $80,081,874
===========
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 65
- -----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1995
(UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided from operating
activities
Interest received (net of foreign
withholding
taxes).................................. $ 70,368,558
Expenses paid............................. (8,183,453)
Sales of short-term portfolio investments,
net..................................... 17,712,000
Purchases of long-term portfolio
investments............................. (262,538,407)
Proceeds from sales of long-term portfolio
investments............................. 272,159,901
Other..................................... 67,098
-------------
Net cash provided from operating
activities.............................. 89,585,697
-------------
Cash flows used for financing activities
Dividends and distributions paid to
preferred shareholders.................. (13,694,295)
Dividends and distributions paid to common
shareholders (net of $7,688,453 paid in
the issuance of shares)................. (55,244,891)
-------------
Net cash used for financing activities.... (68,939,186)
-------------
Effect of changes in exchange rate.......... 1,421,363
-------------
Net increase in cash........................ 22,067,874
Cash at beginning of period............... 4,645,594
-------------
Cash at end of period..................... $ 26,713,468
=============
RECONCILIATION OF NET INCREASE IN TOTAL NET
ASSETS FROM OPERATIONS TO NET CASH
(INCLUDING FOREIGN CURRENCY) PROVIDED FROM
OPERATING ACTIVITIES
Net increase in total net assets resulting
from operations........................... $ 80,081,874
-------------
Decrease in investments................... 27,333,494
Decrease in interest receivable........... 1,842,949
Net decrease in other assets.............. 67,098
Decrease in accrued expenses and
other liabilities....................... (56,187)
Net realized loss on investment
transactions............................ 1,128,829
Net change in unrealized appreciation on
investments............................. (46,320,112)
Net realized and unrealized foreign
exchange losses......................... 25,507,752
-------------
Total adjustments....................... 9,503,823
-------------
Net cash provided from operating
activities................................ $ 89,585,697
=============
</TABLE>
- -------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF CHANGES
IN NET ASSETS
(UNAUDITED)
- -------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
INCREASE (DECREASE) ENDED OCTOBER 31,
IN TOTAL NET ASSETS APRIL 30, 1995 1994
-------------- --------------
<S> <C> <C>
Operations
Net investment income..... $ 60,398,343 $ 125,416,048
Net realized gain (loss)
on investment
transactions............ (1,128,829) 29,213,379
Net change in unrealized
appreciation
(depreciation) on
investments............. 46,320,112 (310,171,836)
-------------- --------------
Net increase (decrease) in
total net assets
resulting from
operations before net
foreign exchange gains
(losses)................ 105,589,626 (155,542,409)
Net realized and
unrealized foreign
exchange gains
(losses)................ (25,507,752) 156,775,702
-------------- --------------
Net increase in total net
assets resulting from
operations................ 80,081,874 1,233,293
-------------- --------------
Dividends to shareholders
from net investment
income:
Common shares............. (55,868,136) (102,870,871)
Preferred shares.......... (11,660,124) (14,114,110)
-------------- --------------
(67,528,260) (116,984,981)
-------------- --------------
Distributions to
shareholders from net
realized capital gains:
Common shares............. (7,131,198) (21,110,324)
Preferred shares.......... (2,142,800) (1,577,675)
-------------- --------------
(9,273,998) (22,687,999)
-------------- --------------
Fund share transactions
Net proceeds from issuance
of preferred shares..... -- 48,885,000
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................... 7,688,453 21,145,354
-------------- --------------
7,688,453 226,986,803
-------------- --------------
Total increase.............. 10,968,069 88,547,116
TOTAL NET ASSETS
Beginning of period......... 1,488,631,381 1,400,084,265
-------------- --------------
End of period............... $1,499,599,450 $1,488,631,381
============== ==============
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 66
- ---------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- ---------------------------------------------------------
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 The following is a
POLICIES 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.
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.
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 period;
(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 period 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 period.
Net realized and unrealized foreign exchange losses of $25,507,752 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of interest, discount and foreign withholding
taxes recorded on the Fund's books and the US dollar equivalent amounts actually
received or paid and changes in unrealized foreign exchange gains and losses in
the value of portfolio securities and other assets and liabilities arising as a
result of changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin,
including unanticipated movements in the value of the foreign currency relative
to the U.S. dollar.
The exchange rate at April 30, 1995 was US$.7275 to A$1.00 for the
Australian dollar and US$.6722 to NZ$1.00 for the New Zealand dollar.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized
64
<PAGE> 67
and unrealized gains and losses from security and currency transactions are
calculated on the identified cost basis. Interest income is recorded on an
accrual basis. Discounts on short-term securities are accreted over the life of
the security.
Dividends and Distributions: It is the Fund's current policy to pay dividends
from net investment income. The Fund will also declare and pay distributions at
least annually from net realized gains on investment transactions and net
realized foreign exchange gains, if any. Dividends and distributions to common
shareholders are recorded on the ex-dividend date. Dividends and distributions
to preferred shareholders are accrued on a weekly basis and are determined as
described in Note 4.
Income distributions and capital and currency gains distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for foreign currencies, loss deferrals and recognition of
market discount.
Taxes: For federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the Australian dollar as the
functional currency. Accordingly, only realized currency gains and losses
resulting from the repatriation of A$ 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: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
During the fiscal period ended April 30, 1995, the Fund increased undistributed
net investment income by $4,805,946, decreased accumulated net realized gains on
investments by $3,328,506 and decreased accumulated net realized foreign
exchange gains by $1,477,440. 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 April 30, 1995
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 Man-
agement 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 it paid $1,814,561 to the
Investment Adviser and $319,767 to the Consultant during the fiscal period ended
April 30, 1995.
NOTE 3. PORTFOLIO Purchases and sales of
SECURITIES investment securities,
other than short-term
investments, for the
fiscal period ended April 30, 1995 aggregated
$262,538,407 and $272,159,901, respectively.
The United States federal income tax basis of the Fund's investments at
April 30, 1995 was $1,509,759,807 and accordingly, net unrealized depreciation
for United States federal income tax purposes was $63,473,680 (gross unrealized
appreciation -- $24,855,883; gross unrealized depreciation -- $88,329,563).
NOTE 4. CAPITAL There are 200 million
shares of common stock
authorized. Of
the 124,355,752 common shares outstanding at
April 30, 1995, the Investment Manager
owned 39,782 shares.
In connection with a rights offering, shareholders of record on March 17,
1995 were issued one-fifth 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
65
<PAGE> 68
expiration date (April 20, 1995) or the average market value on that date and
the three business days preceding the expiration date. On May 5, 1995 the Fund
issued 30,723,350 shares of common stock at $7.64 per share and rights offering
costs of $1,105,345 ($.01 per share) and brokerage and dealer-manager
commissions of $8,802,239 ($.07 per share) were charged to paid-in capital of
common shareholders resulting in net proceeds to the Fund of $224,818,810. The
net asset value per share of the Fund's common shareholders was reduced by
approximately $0.38 per share as a result of this share issuance. Prudential
Securities Incorporated, an affiliate of the Consultant and the Administrator,
and its financial advisors earned approximately $1,772,000 of the aforementioned
commissions with respect to its participation in the rights offering.
The Fund issued 177,377 shares during the fiscal period ended April 30, 1995
in connection with the reinvestment of dividends and distributions paid to
shareholders enrolled in the dividend reinvestment plan and 702,496 shares in
connection with a cash dividend paid in stock.
The Fund also 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.
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 F preferred shares were issued on December 20, 1993 (net
proceeds $48,885,000). 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 4.80% to 6.625% during the
fiscal period ended April 30, 1995. 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 On May 15, 1995 the
AND DISTRIBUTIONS Board of Directors of
the Fund declared a
distribution from
undistributed
net investment income of $.075 per common
share payable on June 9, 1995 to common
shareholders of record on May 31, 1995.
Subsequent to April 30, 1995, dividends and distributions declared and paid
on preferred shares totalled approximately $2,806,900 for the six outstanding
preferred share series in the aggregate through June 8, 1995.
66
<PAGE> 69
NOTE 6. QUARTERLY DATA
<TABLE>
<CAPTION>
NET REALIZED AND NET INCREASE DIVIDENDS
UNREALIZED (DECREASE) AND
GAINS (LOSSES) ON IN NET ASSETS DISTRIBUTIONS
NET INVESTMENT INVESTMENTS AND RESULTING FROM COMMON
INCOME FOREIGN CURRENCIES OPERATIONS SHARES
PER PER PER
QUARTERLY TOTAL COMMON COMMON COMMON
PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT
- ----------- ----------- ---------------------- ------------------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/1/92 to
1/31/93 $35,252,188 $31,740,904 $.31 $ (19,945,575) $(.19) $ 11,795,329 $ .12 $35,186,719
2/1/93 to
4/30/93 34,157,242 30,529,286 .30 112,827,754 1.09 143,357,040 1.39 27,857,287
5/1/93 to
7/31/93 34,139,795 30,389,017 .29 (10,743,276) (.10) 19,645,741 .19 27,919,578
8/1/93 to
10/31/93 33,702,339 30,003,723 .29 (22,476,390) (.22) 7,527,333 .07 28,045,576
11/1/93 to
1/31/94 35,611,751 31,643,294 .26 96,221,242 .78 127,864,536 1.04 32,858,529
2/1/94 to
4/30/94 35,940,426 31,877,989 .26 (134,738,538) (1.10) (102,860,549) (.84) 31,166,968
5/1/94 to
7/31/94 35,375,916 31,328,526 .25 (35,788,451) (.29) (4,459,925) (.04) 30,382,609
8/1/94 to
10/31/94 35,030,311 30,566,239 .24 (49,877,008) (.42) (19,310,769) (.18) 29,573,089
11/1/94 to
1/31/95 34,633,348 30,535,230 .24 35,683,598 .29 66,218,828 .53 34,967,014
2/1/95 to
4/30/95 34,066,973 29,863,113 .24 (16,000,067) (.13) 13,863,046 .11 28,032,320
<CAPTION>
COMMON
SHARE PRICE
ON THE
PREFERRED SHARES AMERICAN
PER PER STOCK
QUARTERLY COMMON COMMON EXCHANGE
PERIOD SHARE AMOUNT SHARE HIGH LOW
- ----------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
11/1/92 to
1/31/93 $.35 $3,579,387 $.03 $10 1/2 $ 8 7/8
2/1/93 to
4/30/93 .27 2,836,895 .03 11 3/8 9 9/16
5/1/93 to
7/31/93 .27 2,828,903 .03 11 10 1/8
8/1/93 to
10/31/93 .27 2,844,597 .03 11 5/16 9 3/4
11/1/93 to
1/31/94 .27 3,056,070 .03 11 10
2/1/94 to
4/30/94 .25 3,507,996 .03 11 9 7/8
5/1/94 to
7/31/94 .25 4,301,424 .03 10 13/16 10
8/1/94 to
10/31/94 .24 4,826,295 .04 10 5/8 9
11/1/94 to
1/31/95 .30 7,742,677 .06 9 9/16 8
2/1/95 to
4/30/95 .22 6,060,247 .04 8 7/8 7 1/2
</TABLE>
67
<PAGE> 70
- --------------------------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- -------- -------- --------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of
period....................................... $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02 $ 9.31
---------- ---------- ---------- -------- -------- --------
Net investment income.......................... .48 1.01 1.19 1.29 1.40 1.49
Net realized and unrealized gain (loss) on
investments and foreign currencies........... .16 (1.03) .58 (1.42) 1.37 .73
---------- ---------- ---------- -------- -------- --------
Total from investment operations............. .64 (.02) 1.77 (.13) 2.77 2.22
---------- ---------- ---------- -------- -------- --------
Dividends from net investment income to
preferred shareholders....................... (.08) (.12) (.11) (.14) (.24) (.30)
Dividends from net investment income to common
shareholders................................. (.45) (.84) (1.08) (1.10) (1.24) (1.13)
Distributions from net capital and currency
gains to preferred shareholders.............. (.02) (.01) (.01) (.01) -- --
Distributions from net capital and currency
gains to common shareholders................. (.07) (.17) (.08) (.29) -- (.08)
---------- ---------- ---------- -------- -------- --------
Total dividends and distributions............ (.62) (1.14) (1.28) (1.54) (1.48) (1.51)
---------- ---------- ---------- -------- -------- --------
Capital charge in respect to issuance of
shares....................................... -- (.11) (.01) (.03) -- --
---------- ---------- ---------- -------- -------- --------
Net asset value per common share, end of
period....................................... $ 8.84 $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02
========== ========== ========== ======== ======== ========
Market price per common share, end of period... $ 7.88 $ 9.56 $ 10.25 $ 10.00 $ 10.94 $ 8.94
========== ========== ========== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON+:
Market value................................... (12.47)% 3.32% 15.00% 4.11% 38.36% 14.95%
Net asset value................................ 6.53% (3.19)% 17.80% (3.22)% 27.62% 22.88%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses....................................... 1.50%++* 1.41%++ 1.44%++ 1.43%++ 1.59%++ 1.54%++
Net investment income before preferred stock
dividends.................................... 10.93%* 10.68% 12.13% 12.14% 13.42% 15.47%
Preferred stock dividends...................... 2.11%* 1.20% 1.13% 1.25% 2.31% 3.11%
Net investment income available to common
shareholders................................. 8.82%* 9.48% 11.00% 10.89% 11.11% 12.36%
Portfolio turnover rate........................ 18% 34% 23% 17% 83% 80%
Net assets of common shareholders, end of
period (000 omitted)......................... $1,099,599 $1,088,631 $1,050,084 $977,933 $972,569 $861,379
Average net assets of common shareholders (000
omitted)..................................... $1,114,561 $1,174,394 $1,011,324 $938,072 $899,175 $826,862
Senior securities (preferred stock) outstanding
(000 omitted)................................ $ 400,000 $ 400,000 $ 350,000 $300,000 $300,000 $300,000
Asset coverage of preferred stock at period
end.......................................... 374% 372% 400% 426% 424% 387%
</TABLE>
- ---------------
* Annualized.
+ Total investment return is calculated assuming a purchase of common stock
on the first day and a sale on the last day of each period reported.
Dividends and distributions are assumed, for purposes of this calculation,
to be reinvested at prices obtained under the Fund's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions. Total
returns for periods of less than a full year are not annualized.
++ Includes expenses of both preferred and common stock.
# Ratios calculated on the basis of income, expenses and preferred share
dividends applicable to both the common and preferred shares relative to
the average net assets of common shareholders.
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data for
the Fund's common shares.
See Notes to Financial Statements.
68
<PAGE> 71
- ------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
- ------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
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
-------------
NEW SOUTH WALES--11.0%
New South Wales Treasury
Corporation,
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
-------------
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
SOUTH AUSTRALIA--6.4%
Electricity Trust of South
Australia,
A$ 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
-------------
TASMANIA--6.4%
Tasmanian Public Finance
Corporation,
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$868,531,682)......... 835,166,798
-------------
EUROBONDS--33.9%
DIVERSIFIED INDUSTRIALS--0.8%
Australian National Railway,
2,138 9.50%, 2/25/99................ 1,546,028
BMW Australia Finance,
1,700 10.25%, 3/17/97............... 1,270,634
EksportFinans,
4,000 7.00%, 6/28/00................ 2,504,379
Federal Airports Corporation,
1,975 7.00%, 2/16/04................ 1,118,919
Finnish Eksport Credit,
2,925 9.25%, 12/30/99............... 2,058,525
-------------
8,498,485
-------------
</TABLE>
See Notes to Financial Statements.
69
<PAGE> 72
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
NATURAL RESOURCES--0.8%
Mobil Australia Corp.,
A$ 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
International Bank for
Reconstruction & Development,
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
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
State Bank of New South Wales,
A$ 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
State Bank of South Australia,
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$393,931,099)......... 368,339,034
-------------
CORPORATE BONDS--14.5%
DIVERSIFIED INDUSTRIALS--0.9%
Federal Airports Corporation,
5,000 10.50%, 7/15/99............... 3,698,571
10,000 8.25%, 6/2/03................. 6,211,616
-------------
9,910,187
-------------
SERVICES--13.6%
Australian & Overseas
Telecommunication Corporation,
55,350 12.50%, 11/15/00.............. 44,201,530
40,000 11.50%, 10/15/02.............. 30,458,786
2,000 7.80%, 7/17/03................ 1,187,144
41,000 12.00%, 5/15/06............... 31,466,758
20,000 10.50%, 12/15/17.............. 12,987,196
2,000 8.75%, 1/15/20................ 1,092,537
10,000 10.50%, 1/15/20............... 6,478,679
2,000 12.50%, 1/15/20............... 1,528,001
</TABLE>
See Notes to Financial Statements.
70
<PAGE> 73
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
FANMAC Limited, Mortgage Series
25,
A$ 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$1,429,267,891)....... 1,361,664,911
-------------
NEW ZEALAND--2.4%
CORPORATE BONDS--0.3%
Electric Corporation of New
Zealand,
10.00%, 10/15/01 (cost
NZ$ 5,000 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............... 19,375,663
-------------
(cost US$23,687,141).......... 22,138,391
-------------
EUROBONDS--0.1%
Telecom New Zealand Finance,
9.25%, 7/1/02 (cost
1,500 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$28,401,048).......... 26,792,506
-------------
EUROBONDS--0.7%
DIVERSIFIED INDUSTRIALS--0.1%
Amro Australia Limited,
A$ 1,300 14.75%, 5/15/95............... 996,602
-------------
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------
<C> <S> <C>
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
-------------
CORPORATE BONDS--0.5%
SERVICES--0.5%
Australian & Overseas
Telecommunication Corporation,
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
-------------
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
=============
</TABLE>
See Notes to Financial Statements.
71
<PAGE> 74
- ---------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
- ---------------------------------------------------------
<TABLE>
<S> <C>
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)
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
=====
</TABLE>
- ---------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1994
- ---------------------------------------------------------
<TABLE>
<S> <C>
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
=============
</TABLE>
See Notes to Financial Statements.
72
<PAGE> 75
- ---------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1994
- ---------------------------------------------------------
<TABLE>
<S> <C>
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
=============
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)
=============
</TABLE>
- ---------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
STATEMENT OF CHANGES
IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INCREASE (DECREASE) -------------------------------
IN TOTAL NET ASSETS 1994 1993
-------------- --------------
<S> <C> <C>
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)
-------------- --------------
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
============== ==============
</TABLE>
See Notes to Financial Statements.
73
<PAGE> 76
- ---------------------------------------------------------
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 The following is a
POLICIES 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;
(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.
74
<PAGE> 77
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: 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 Man-
agement 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 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 Purchases and sales of
SECURITIES 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.
75
<PAGE> 78
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.
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 On November 14, 1994
AND DISTRIBUTIONS 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
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.
76
<PAGE> 79
NOTE 6. QUARTERLY DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED AND NET INCREASE DIVIDENDS
UNREALIZED (DECREASE) AND
GAINS (LOSSES) ON IN NET ASSETS DISTRIBUTIONS
NET INVESTMENT INVESTMENTS AND RESULTING FROM COMMON
INCOME FOREIGN CURRENCIES OPERATIONS SHARES
PER PER PER
QUARTERLY TOTAL COMMON COMMON COMMON
PERIOD INCOME AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT
- ----------- ----------- ---------------------- ------------------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/1/92 to
1/31/93 $35,252,188 $31,740,904 $.31 $ (19,945,575) $(.19) $ 11,795,329 $ .12 $35,186,719
2/1/93 to
4/30/93 34,157,242 30,529,286 .30 112,827,754 1.09 143,357,040 1.39 27,857,287
5/1/93 to
7/31/93 34,139,795 30,389,017 .29 (10,743,276) (.10) 19,645,741 .19 27,919,578
8/1/93 to
10/31/93 33,702,339 30,003,723 .29 (22,476,390) (.22) 7,527,333 .07 28,045,576
11/1/93 to
1/31/94 35,611,751 31,643,294 .26 96,221,242 .78 127,864,536 1.04 32,858,529
2/1/94 to
4/30/94 35,940,426 31,877,989 .26 (134,738,538) (1.10) (102,860,549) (.84) 31,166,968
5/1/94 to
7/31/94 35,375,916 31,328,526 .25 (35,788,451) (.29) (4,459,925) (.04) 30,382,609
8/1/94 to
10/31/94 35,030,311 30,566,239 .24 (49,877,008) (.42) (19,310,769) (.18) 29,573,089
<CAPTION>
DIVIDENDS
AND COMMON
DISTRIBUTIONS SHARE PRICE
COMMON ON THE
SHARES PREFERRED SHARES AMERICAN
PER PER STOCK
QUARTERLY COMMON COMMON EXCHANGE
PERIOD SHARE AMOUNT SHARE HIGH LOW
- ----------- -------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
11/1/92 to
1/31/93 $.35 $3,579,387 $.03 $10 1/2 $ 8 7/8
2/1/93 to
4/30/93 .27 2,836,895 .03 11 3/8 9 9/16
5/1/93 to
7/31/93 .27 2,828,903 .03 11 10 1/8
8/1/93 to
10/31/93 .27 2,844,597 .03 11 5/16 9 3/4
11/1/93 to
1/31/94 .27 3,056,070 .03 11 10
2/1/94 to
4/30/94 .25 3,507,996 .03 11 9 7/8
5/1/94 to
7/31/94 .25 4,301,424 .03 10 13/16 10
8/1/94 to
10/31/94 .24 4,826,295 .04 10 5/8 9
</TABLE>
77
<PAGE> 80
- --------------------------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1994 1993 1992 1991 1990
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of year.......... $ 10.09 $ 9.61 $ 11.31 $ 10.02 $ 9.31
---------- ---------- -------- -------- --------
Net investment income........................................ 1.01 1.19 1.29 1.40 1.49
Net realized and unrealized gain (loss) on investments and
foreign currencies......................................... (1.03) .58 (1.42) 1.37 .73
---------- ---------- -------- -------- --------
Total from investment operations......................... (.02) 1.77 (.13) 2.77 2.22
---------- ---------- -------- -------- --------
Dividends from net investment income to preferred
shareholders............................................... (.12) (.11) (.14) (.24) (.30)
Dividends from net investment income to common
shareholders............................................... (.84) (1.08) (1.10) (1.24) (1.13)
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) -- (.08)
---------- ---------- -------- -------- --------
Total dividends and distributions........................ (1.14) (1.28) (1.54) (1.48) (1.51)
---------- ---------- -------- -------- --------
Capital charge in respect to issuance of shares.............. (.11) (.01) (.03) -- --
---------- ---------- -------- -------- --------
Net asset value per common share, end of year................ $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02
---------- ---------- -------- -------- --------
Market price per common share, end of year................... $ 9.56 $ 10.25 $ 10.00 $ 10.94 $ 8.94
========== ========== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON+:
Market value................................................. 3.32% 15.00% 4.11% 38.36% 14.95%
Net asset value.............................................. (3.19)% 17.80% (3.22)% 27.62% 22.88%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses..................................................... 1.41%++ 1.44%++ 1.43%++ 1.59%++ 1.54%++
Net investment income before preferred stock dividends....... 10.68% 12.13% 12.14% 13.42% 15.47%
Preferred stock dividends.................................... 1.20% 1.13% 1.25% 2.31% 3.11%
Net investment income available to common shareholders....... 9.48% 11.00% 10.89% 11.11% 12.36%
Portfolio turnover rate...................................... 34% 23% 17% 83% 80%
Net assets of common shareholders, end of year (000
omitted)................................................... $1,088,631 $1,050,084 $977,933 $972,569 $861,379
Average net assets of common shareholders (000 omitted)...... $1,174,394 $1,011,324 $938,072 $899,175 $826,862
Senior securities (preferred stock) outstanding (000
omitted)................................................... $ 400,000 $ 350,000 $300,000 $300,000 $300,000
Asset coverage of preferred stock at year end................ 372% 400% 426% 424% 387%
</TABLE>
- ---------------
+ 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.
78
<PAGE> 81
- --------------------------------------------------------------------------------
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
79
<PAGE> 82
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 32 of
this Prospectus.
"AMPS Basic Maintenance Cure Date" has the meaning set forth on page 32 of
this Prospectus.
"Applicable Percentage" has the meaning set forth on page 4 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 the cover
page of this Prospectus.
80
<PAGE> 83
"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,
81
<PAGE> 84
(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 Aa by Moody's or are guaranteed
by either the Commonwealth of Australia and rated Aa or any semi-sovereign
Australian entity whose domestic currency long-term debt is rated Aa 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).
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<PAGE> 85
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.
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25. In the case of S&P, Australian Exchangeable Eurobonds.
26. Securities issued by the Australian State Government of Victoria
through the Treasury Corporation of Victoria.
"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 23 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.
"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
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<PAGE> 87
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 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 18 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.
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<PAGE> 88
"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 4 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.
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<PAGE> 89
"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 19 of this Prospectus.
"Valuation Date" has the meaning set forth on page 32 of this Prospectus.
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<PAGE> 90
"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 31
of this Prospectus.
"1940 Act AMPS Asset Coverage Requirement" has the meaning set forth on
page 31 of this Prospectus.
"1940 Act Cure Date" has the meaning set forth on page 32 of this
Prospectus.
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<PAGE> 91
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
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<PAGE> 92
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
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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.
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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).
<TABLE>
<CAPTION>
CREDIT RATING
- ----------------------------------------- APPLICABLE
S&P MOODY'S PERCENTAGE
- ------------------ ------------------ ------------------
<S> <C> <C>
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%
</TABLE>
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
B-1
<PAGE> 95
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
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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
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(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
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<PAGE> 98
"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.
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(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;
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(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
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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.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY
WHERE SUCH OFFER WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Financial Highlights.................. 9
Capitalization........................ 12
The Fund.............................. 13
Use of Proceeds....................... 13
Special Considerations and Risk
Factors............................. 14
Portfolio Composition................. 15
Investment Objective and Policies;
Investment Restrictions............. 15
Description of AMPS................... 21
Management............................ 37
Management of the Fund................ 40
Portfolio Transactions and
Brokerage........................... 49
Net Asset Value of Common Stock....... 49
Taxation.............................. 49
Capital Stock......................... 54
Certain Provisions of the By-Laws and
Articles of Amendment and
Restatement......................... 55
Custodian, Dividend Paying Agents,
Transfer Agents, Registrars and
Auction Agent....................... 56
Underwriting.......................... 57
Experts............................... 57
Legal Matters......................... 57
Financial Statements -- April 30,
1995................................ 58
Financial Statements -- October 31,
1994................................ 69
Glossary.............................. 80
Appendix A............................ A-1
Appendix B............................ B-1
</TABLE>
$75,000,000
THE FIRST AUSTRALIA
PRIME INCOME FUND, INC.
AUCTION MARKET PREFERRED STOCK
["AMPS"(R)]
3,000 SHARES OF SERIES G
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
JULY , 1995
(R)Registered trademark of Merrill Lynch & Co., Inc.
- ------------------------------------------------------
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- ------------------------------------------------------
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<PAGE> 103
PART B
NOT APPLICABLE
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS:
<TABLE>
<C> <S>
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
(vii) Financial Highlights for each of the five fiscal years in the period ended October
31, 1994
(viii) Report of Independent Accountants
UNAUDITED
(i) Portfolio of Investments as of April 30, 1995
(ii) Statement of Assets and Liabilities as of April 30, 1995
(iii) Statement of Operations for the six months ended April 30, 1995
(iv) Statement of Cash Flows for the six months ended April 30, 1995
(v) Statement of Changes in Net Assets for the six months ended April 30, 1995 and
fiscal year ended October 31, 1994
(vi) Notes to the Financial Statements for the six months ended April 30, 1995 and for
each of the five fiscal years in the period ended October 31, 1994
(vii) Financial Highlights for the six months ended April 30, 1995 and for each of the
five fiscal years in the period ended October 31, 1994
</TABLE>
EXHIBITS:
<TABLE>
<C> <C> <S>
(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.
</TABLE>
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<TABLE>
<C> <C> <S>
(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)(1) -- Form of Purchase Agreement covering the sale of shares of Series G AMPS to the
Underwriters.**
(2) -- Master Agreement Among Underwriters and Standard Dealer Agreement. (Previously
filed as Exhibit (h) to Amendment No. 20 to Original Registration Statement.)*
(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)(1) -- Financial Data Schedule for year ended 10/31/94.***
(s) -- Powers of attorney (previously filed) and certified copy of Board resolutions.**
27 -- Financial Data Schedule for 6 months ended 4/30/95.**
</TABLE>
- ---------------
* Incorporated by reference herein.
** Filed herewith.
*** Previously filed.
C-2
<PAGE> 105
ITEM 25. MARKETING ARRANGEMENTS
See Purchase Agreement to be filed as Exhibit (h)(1).
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:
<TABLE>
<S> <C>
Registration fees......................................................... $ 25,862
Printing.................................................................. 32,000
Fees and expenses of qualification under state securities laws
(including fees of counsel)............................................. 15,000
Legal fees and expenses................................................... 110,000
Rating agency fees........................................................ 37,500
Auditing fees and expenses................................................ 30,000
Miscellaneous............................................................. 4,638
--------
Total..................................................................... $255,000
========
</TABLE>
--------------------
* To be filed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES (AS OF JUNE 30, 1995).
<TABLE>
<CAPTION>
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
--------------------------------------------- ------------
<S> <C>
Common Stock
($.01 par value per share) 155,079,102
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
</TABLE>
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
C-3
<PAGE> 106
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 Management Agreement filed as Exhibit
(g)(1) 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.
<TABLE>
<S> <C> <C>
Prudential Mutual Fund EquitiLink International State Street Bank and
Management, 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 records
Rule 31a-1(b)(4) For records pursuant to
Rule 31a-1(b)(5), (6), (9),
(10) and (11) and Rule
31a-1(f)
</TABLE>
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
C-4
<PAGE> 107
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.
C-5
<PAGE> 108
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 14th day of July,
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:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------------ --------------
<S> <C> <C>
* President and Director July 14, 1995
- ----------------------------------- (Principal Executive Officer)
Brian M. Sherman
* Treasurer and Director (Principal July 14, 1995
- ----------------------------------- Financial
David Manor and Accounting Officer)
* Director July 14, 1995
- -----------------------------------
Anthony E. Aaronson
* Director July 14, 1995
- -----------------------------------
John Anthony Calvert-Jones
* Director and Chairman of the Board July 14, 1995
- -----------------------------------
Sir Arthur Roden Cutler
* Director July 14, 1995
- -----------------------------------
David Elsum
* Director July 14, 1995
- -----------------------------------
Rt. Hon. Malcolm Fraser
* Director July 14, 1995
- -----------------------------------
Laurence S. Freedman
* Director July 14, 1995
- -----------------------------------
Michael R. Horsburgh
* Director July 14, 1995
- -----------------------------------
Harry A. Jacobs Jr.
</TABLE>
C-6
<PAGE> 109
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------------ --------------
<S> <C> <C>
* Director July 14, 1995
- -----------------------------------
Howard A. Knight
* Director July 14, 1995
- -----------------------------------
Roger C. Maddock
* Director July 14, 1995
- -----------------------------------
William J. Potter
* Director July 14, 1995
- -----------------------------------
Peter D. Sacks
* Director July 14, 1995
- -----------------------------------
John T. Sheehy
* Director July 14, 1995
- -----------------------------------
Marvin Yontef
*By /s/ MARGARET A. BANCROFT
- -----------------------------------
Margaret A. Bancroft
as Attorney-in-Fact
</TABLE>
C-7
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------- ----------------------------------------------------------------------- ---
<C> <S> <C>
++(d)(1) Specimen certificate representing shares of Series G AMPS
++(d)(2) Form of Article Supplementary creating Auction Market Preferred Stock,
Series G
++(h)(1) 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
++(l)(1) Opinion and Consent of Dechert Price & Rhoads
++(l)(2) Opinion of Venable, Baetjer and Howard
++(n) Opinion and Consent of Independent Accountants
+(r)(1) Financial Data Schedule for year ended 10/31/94
++(s) Powers of Attorney (previously filed) and Certified copy of Board
resolution
++27 Financial Data Schedule for six months ended 4/30/95
</TABLE>
- ---------------
+ Previously filed.
++ Filed herewith.
C-8
<PAGE> 1
Auction Market Preferred Exhibit (d)(1)
Stock, Series G
Number
1 SHARES
3000
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF MARYLAND CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE CUSIP ____________
IN NEW YORK, NY
THIS CERTIFIES THAT
CEDE & CO.
IS THE OWNER OF THREE THOUSAND (3000)
FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED
STOCK, SERIES G, PAR VALUE $.01 PER SHARE, LIQUIDATION PREFERENCE
$25,000 PER SHARE PLUS AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID
DIVIDENDS THEREON (WHETHER OR NOT EARNED OR DECLARED) OF
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
transferable on the books of said Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
In Witness Whereof, THE FIRST AUSTRALIA PRIME INCOME FUND, INC. has
caused its corporate seal to be hereto affixed and this certificate to be
executed in its name and behalf by its duly authorized officers.
<TABLE>
<S> <C>
Dated: , 1995
---------------
Countersigned and Registered:
-----------------------
CHEMICAL BANK President
Transfer Agent
-----------------------
Assistant Secretary
Authorized Signature
</TABLE>
<PAGE> 2
THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED HEREBY
IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER. THE
CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTION TO ANY STOCKHOLDER,
WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION.
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
A full statement of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of stock which the Corporation is authorized to issue and the
differences in the relative rights and preferences between the shares of each
class and series to the extent that they have been set, and the authority of
the Board of Directors to set the relative rights and preferences of subsequent
classes and series, will be furnished by the Corporation to any stockholder,
without charge, upon request to the Secretary of the Corporation at its
principal office.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
--------- ---------
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of survivorship under Uniform Gifts to
and not as tenants in common Minors Act
--------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received ________________________________________ hereby sell, assign
and transfer unto Please insert social security or other identifying number of
assignee
________________________________________________________________________________
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________ shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with fully power of substitution in the premises.
<TABLE>
<S> <C>
Dated
------------------
---------------------------------------------
NOTICE: The Signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any
change whatever.
</TABLE>
<PAGE> 1
Exhibit (d)(2)
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Articles Supplementary creating a series of
Auction Market Preferred Stock
The First Australia Prime Income Fund, Inc., a Maryland corporation
having its principal Maryland office in the City of Baltimore in the State of
Maryland (the "Corporation"), certifies to the State Department of Assessments
and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the board of
directors of the Corporation by article fifth of its charter, the board of
directors authorized the issuance of a series of up to 3,000 shares of its
authorized preferred stock, par value $.01 per share, liquidation preference
$25,000 per share, designated Auction Market Preferred Stock, Series G.
SECOND: Pursuant to section 2-411 of the Maryland General Corporation
law and authority granted by article fourth of the Corporation's by-laws, the
board of directors of the Corporation has appointed a pricing committee (the
"Pricing Committee") and has authorized such Pricing Committee to fix,
consistent with, and subject to, the authorization referred to in Article FIRST
of these Articles Supplementary, the terms of the shares of Auction Market
Preferred Stock, Series G.
THIRD: The preferences, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption, of the
shares of such series of preferred stock are as follows:
DESIGNATION
Series G: A series of 3,000 shares of preferred stock, par value $.01
per share, liquidation preference $25,000 per share, is hereby designated
"Auction Market Preferred Stock Series G." Each share of Auction Market
Preferred Stock, Series G shall be issued on the Date of Original Issue (as
herein defined); have an Initial Dividend Payment Date (as herein defined) of
, 1995; and have such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set forth in the
Corporation's Articles of Incorporation applicable to preferred stock of the
Corporation, as are set forth in these Articles Supplementary. The Auction
Market Preferred Stock, Series G shall constitute a separate series of
preferred stock of the Corporation, and each share of Auction Market Preferred
Stock, Series G shall be identical.
<PAGE> 2
1. Definitions.
Capitalized terms not defined in this paragraph 1 shall have
the respective meanings specified in paragraph 8(a) hereof. Unless the context
or use indicates another or different meaning, the following terms shall have
the following meanings, whether used in the singular or plural:
"'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 any
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 any Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers selected by the Corporation 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.
"Accountant's Confirmation" has the meaning set forth in
paragraph 7(b)(iii) hereof.
"Administrator" means Prudential Mutual Funds Management, Inc.
or any successor administrator to the Corporation who acts in such capacity.
"Affilate" shall mean any Person known to the Auction Agent to
be controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means the member of the Securities Depository
that will act on behalf of a Beneficial Owner or a Potential Beneficial Owner.
"AMPS" means the Auction Market Preferred Stock, Series G, and
where appropriate, any other series of the Corporation's Auction Market
Preferred Stock.
2
<PAGE> 3
"AMPS Basic Maintenance Amount" means, as of any date, 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 aggregate Projected Dividend
Amount; (d) the aggregate principal amount of any then outstanding indebtedness
of the Corporation for money borrowed; (e) projected expenses of the
Corporation for the next succeeding three-month period; and (f) the greater of
$50,000 or the Corporation's current liabilities as of such date to the extent
not otherwise reflected in any of (a) through (e) above. The Board of
Directors shall have the authority, to the extent permitted by Maryland law, to
adjust, modify, alter or change from time to time the elements comprising the
AMPS Basic Maintenance Amount from those set forth in these Articles
Supplementary if the Rating Agencies advise the Corporation in writing that the
change will not adversely affect their respective then-current ratings of the
AMPS.
"AMPS Basic Maintenance Cure Date," with respect to the
failure by the Corporation to maintain the AMPS Basic Maintenance Amount (as
required by paragraph 7(b) hereof) as of each Valuation Date, means the fifth
Business Day following such Valuation Date.
"ANNIE MAEs" are securities issued against mortgage pools by
Australian National Mortgage Pool Agency Ltd., an affiliate of Security Pacific
National Bank.
"Applicable Percentage" has the meaning set forth under
"Maximum Applicable Rate" below.
"Applicable Rate" has the meaning specified in paragraph
3(c)(i) below.
"Articles of Incorporation" means the Articles of
Incorporation of the Corporation, as amended and restated from time to time,
including as amended by these Articles Supplementary.
"Auction" means each operation of the Auction Procedures.
"Auction Agent" means Chemical Bank unless and until another
commercial bank, trust company, or other financial institution appointed by a
resolution of the Board of Directors enters into an agreement with the
Corporation 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" has the meaning specified in
paragraph 3(c)(i) below.
3
<PAGE> 4
"Auction Date" has the meaning specified in paragraph 8(a)
below.
"Auction Procedures" means the procedures for conducting
Auctions set forth in paragraph 8 below.
"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.
4
<PAGE> 5
(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 Corporation 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 Corporation 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 Corporation and included
in Eligible Portfolio Property shall be comprised of securities with a then
outstanding issue size of less than A$100 million.
The Board of Directors shall have the authority to adjust,
modify, alter or change from time to time the list of securities and
eligibility criteria as set forth above if each Rating Agency advises the
Corporation in writing that the change or specification will not adversely
affect its then-current rating of the AMPS.
"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:
5
<PAGE> 6
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 Corporation 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
Corporation 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 Corporation and included in S&P Eligible Portfolio
Property shall be comprised of securities with an outstanding issue size of
less than A$50 million.
The Board of Directors shall have the authority to adjust,
modify, alter or change from time to time the list of securities and eligible
criteria as set forth above if each Rating Agency advises the Corporation in
writing that the change or specification will not adversely affect its then
current rating of the AMPS.
"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
6
<PAGE> 7
payable in Australian Currency or is convertible into a security constituting
Eligible Portfolio Property by Moody's and (iii) is not a variable rate,
index-linked, zero coupon or stripped security.
"Australian Ratings" means Australian Ratings Pty Ltd or its
successors.
"Australian Securities" means ANNIE MAEs, Australian Bank
Bills, Australian Corporate Bonds, Australian Eurobonds, Australian
Exchangeable Eurobonds, Australian Government Securities, Australian
Semi-Government Securities, Australian Short-term Securities, MMSs, MTCs, and
NMMC Securities.
"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 Aa by Moody's or are guaranteed
by either the Commonwealth of Australia and rated Aa or any semi-sovereign
Australian entity whose domestic currency long-term debt is rated Aa 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 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
7
<PAGE> 8
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 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 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.
8
<PAGE> 9
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
26. Securities issued by the Australian State Government
of Victoria through the Treasury Corporation of Victoria.
The Board of Directors shall have the authority to adjust,
modify, alter or change from time to time the list of securities as set forth
above if each Rating Agency advises the Corporation in writing that the change
or specification will not adversely affect its then current rating of AMPS.
"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-l+ 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, or 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.
"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.
"Board of Directors" means the Board of Directors of the
Corporation or, except as used in paragraphs 3(a) and 6 hereof, any duly
authorized and empowered committee thereof.
9
<PAGE> 10
"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, Cure Dates
and any Failure to Cure, "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.
"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.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner
& Smith Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares of the common stock, par value
$.01 per share, of the Corporation.
"Corporate Bonds" means debt obligations of U.S. corporations
(other than Short Term Money Market Instruments or U.S. Government Obligations)
rated Aa or better by Moody's or AA or better by S&P, which corporate debt
obligations (a) provide for the periodic payment of interest thereon in cash,
(b) do not provide for conversion or exchange into equity capital at any time
over their respective lives, (c) have been registered under the Securities Act
of 1933, as amended, and (d) have not had notice given in respect thereof that
any such corporate debt obligations are the subject of an offer by the issuer
thereof of exchange or tender for cash, securities or any other type of
consideration (except that corporate debt obligations in an amount not
exceeding 10% of the aggregate value of the Corporation's assets at any time
shall not be subject to the provisions of this clause (d)). In addition, no
corporate debt obligation held by the Corporation shall be deemed a Corporate
Bond (i) if it fails to meet the criteria in column (1) below or (ii) to the
extent (and only to the proportionate extent) the acquisition or holding
thereof by the Corporation causes the Corporation to exceed any applicable
limitation set forth in column (2) or (3) below as of any relevant date of
determination (provided that in the event that the Corporation shall exceed any
such limitation, the Corporation shall designate, in its sole discretion, the
particular Corporate Bond(s) and/or portions
10
<PAGE> 11
thereof which shall be deemed to have caused the Corporation to exceed such
limitation):
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3
-------- -------- --------
Maximum
Maximum Percent of Value
Percent of Value of Corporation
of Corporation Assets, Including
Assets, Including Eligible Port-
Eligible Port- folio Property,
Minimum Original folio Property, Invested in any
Rating Issue Size of Invested in any One Industry
(1) Each Issue One Issuer(2) Category (2)
---------- ---------------------- ------------------------ ------------------------
($ in millions)
<S> <C> <C> <C>
Aaa/AAA . . . . . . . $100 10.0% 50.0%
Aa/AA . . . . . . . . 100 10.0 33.3
</TABLE>
- --------------------
(1) In the event that a Corporate Bond has received a different rating
from each of the Rating Agencies, the lower of the two ratings will be
controlling. Rating designations include (+) or (-) modifiers to the
rating where appropriate.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
The Board of Directors shall be authorized to adjust, modify,
alter or change from time to time the assets (and/or the characteristics
thereof) included within the definition of Corporate Bonds for purposes of
determining compliance with the AMPS Basic Maintenance Amount to encompass
other assets constituting, and/or other characteristics of, corporate debt
obligations from those set forth in these Articles Supplementary if the Rating
Agencies advise the Corporation in writing that the change will not adversely
affect their respective then-current ratings of the AMPS.
"Corporation" means The First Australia Prime Income Fund, Inc.
"Custodian" means State Street Bank and Trust Company or any
successor custodian to the Corporation who acts in such capacity.
"Cure Date" means the AMPS Basic Maintenance Cure Date or the
1940 Act Cure Date, as the case may be.
"Date of Original Issue" means, with respect to any share of
AMPS, the date on which the Corporation originally issues such share.
11
<PAGE> 12
"Deposit Securities" means Cash, U.S. Government Obligations,
Repurchase Agreements and Short Term Money Market Instruments. Except for
purposes of determining compliance with the AMPS Basic Maintenance Amount, each
Deposit Security shall be deemed to have a value equal to its principal or face
amount payable at maturity plus any interest payable thereon after delivery of
such Deposit Security but only if payable on or prior to the applicable payment
date in advance of which the relevant deposit is made.
"Discount Factor" means, for any asset held by the
Corporation, the number set forth opposite each such type of asset in the
following table or such other factor required under the guidelines established
by the Rating Agencies from time to time (it being understood that any asset
held by the Corporation and not listed in the following table or as provided in
writing by the Rating Agencies shall have a Discounted Value of zero):
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor (2)
- ----------------------------------- ------ ----------
<S> <C> <C>
Cash and Short Term Money Market
Instruments other than commercial
paper with a remaining term to
maturity equal to or less than
46 days 1.000(1) 1.000
commercial paper with a remaining
term to maturity equal to or
less than 46 days 1.150 1.000
Repurchase Agreements 1.000 1.000
Australian Government Securities:
with any current outstanding issue
size and with a remaining term to
maturity shorter than 46 days from
the Valuation Date 1.000(1) 1.000
with a current outstanding issue
size less than A$100,000,000 and
with a remaining term to maturity
equal to or longer than 46 days but
not more than 2 years from the
Valuation Date 1.730 1.470
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- ------ ----------
<S> <C> <C>
with a current outstanding issue
size of at least A$100,000,000
but less than or equal to A$150,000,000
and with a remaining term to maturity
equal to or longer than 46 days but not
more than 2 years from the Valuation
Date 1.730 1.340
with a current outstanding issue
size greater than A$150,000,000
and with a remaining term to
maturity equal to or longer than
46 days but not more than 2 years
from the Valuation Date 1.520 1.340
- 0 -
with a current outstanding issue
size less than A$100,000,000 and
with a remaining term to maturity
longer than 2 years but not more than
5 years from the Valuation Date 1.730 1.580
with a current outstanding issue
size of at least A$100,000,000 but
less than or equal to A$150,000,000
and with a remaining term to maturity
longer than 2 years but not more than
5 years from the Valuation Date 1.730 1.436
with a current outstanding issue
size greater than A$150,000,000 and
with a remaining term to maturity
longer than 2 years but not more than
5 years from the Valuation Date 1.730 1.436
- 0 -
with a current outstanding issue size
less than A$100,000,000 and with a
remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.730 1.608
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- ------ ----------
<S> <C> <C>
with a current outstanding issue size
of at least A$100,000,000 but less than
or equal to A$150,000,000 and with a
remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.730 1.462
with a current outstanding issue size
greater than A$150,000,000 and with a
remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.520 1.462
- 0 -
with a current outstanding issue size
less than A$100,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years
from the Valuation Date 1.730 1.679
with a current outstanding issue size
of at least A$100,000,000 but less than
or equal to A$150,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years from
the Valuation Date 1.730 1.526
with a current outstanding issue size
greater than A$150,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years
from the Valuation Date 1.520 1.526
Australian Semi-Government Securities (3):
(other than Tasmania in the case of
both Moody's and S&P and the Australian
State Government of Victoria in the case
of Moody's)
with any current outstanding issue
size and with a remaining term to
maturity shorter than 46 days from
the Valuation Date 1.000(1) 1.000
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- ------ ----------
<S> <C> <C>
with a current outstanding issue
size less than A$100,000,000
and with a remaining term to
maturity equal to or longer
than 46 days but not more than
2 years from the Valuation Date 1.730 1.639
with a current outstanding issue
size of at least A$100,000,000
but less than or equal to A$150,000,000
and with a remaining term to
maturity equal to or longer than
46 days but not more than 2 years
from the Valuation Date 1.730 1.490
with a current outstanding issue
size greater than A$150,000,000
and with a remaining term to
maturity equal to or longer than
46 days but not more than 2 years
from the Valuation Date 1.520 1.490
- 0 -
with a current outstanding issue
size less than A$100,000,000 and
with a remaining term to maturity
longer than 2 years but not more
than 5 years from the Valuation
Date 1.730 1.745
with a current outstanding issue
size of at least A$100,000,000 but
less than or equal to A$150,000,000
and with a remaining term to maturity
longer than 2 years but not more than
5 years from the Valuation Date 1.730 1.586
with a current outstanding issue
size greater than A$150,000,000 and
with a remaining term to maturity
longer than 2 years but not more than
5 years from the Valuation Date 1.520 1.586
- 0 -
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- ------ ----------
<S> <C> <C>
with a current outstanding issue
size less than A$100,000,000 and with
a remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.730 1.773
with a current outstanding issue
size of at least A$100,000,000 but less
than or equal to A$150,000,000 and with
a remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.730 1.612
with a current outstanding issue
size greater than A$150,000,000 and
with a remaining term to maturity longer
than 5 years but not more than 10 years
from the Valuation Date 1.520 1.612
- 0 -
with a current outstanding issue size
less than A$100,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years from
the Valuation Date 1.730 1.844
with a current outstanding issue size
of at least A$100,000,000 but less than
or equal to A$150,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years from
the Valuation Date 1.730 1.676
with a current outstanding issue size
greater than A$150,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years
from the Valuation Date 1.520 1.676
- 0 -
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- ------ ----------
<S> <C> <C>
Australian Semi-Government Securities
(Tasmanian and, with respect to
Moody's only, Australian Semi-
Government Securities issued by the
Australian State Government of
Victoria) (4):
with any current outstanding issue
size and with a remaining term to
maturity shorter than 46 days from
the Valuation Date 1.050 1.000
with a current outstanding issue
size less than A$100,000,000 and
with a remaining term to maturity
equal to or longer than 46 days
but not more than 2 years from
the Valuation Date 1.820 1.694
with a current outstanding issue
size of at least A$100,000,000
but less than or equal to A$150,000,000
and with a remaining term to
maturity equal to or longer than
46 days but not more than 2 years
from the Valuation Date 1.820 1.540
with a current outstanding issue
size greater than A$150,000,000
and with a remaining term to
maturity equal to or longer than
46 days but not more than 2 years
from the Valuation Date 1.600 1.540
- 0 -
with a current outstanding issue
size less than A$100,000,000 and
with a remaining term to maturity
longer than 2 years but not more
than 5 years from the Valuation
Date 1.820 1.800
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- ------ ----------
<S> <C> <C>
with a current outstanding issue
size of at least A$100,000,000 but
less than or equal to A$150,000,000
and with a remaining term to maturity
longer than 2 years but not more than
5 years from the Valuation Date 1.820 1.636
with a current outstanding issue size
greater than $A150,000,000 and with a
remaining term to maturity longer than
2 years but not more than 5 years from
the Valuation Date 1.600 1.636
- 0 -
with a current outstanding issue size
less than A$100,000,000 and with a
remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.820 1.828
with a current outstanding issue size
of at least A$100,000,000 but less than
or equal to A$150,000,000 and with a
remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.820 1.662
with a current outstanding issue size
greater than A$150,000,000 and with a
remaining term to maturity longer than
5 years but not more than 10 years from
the Valuation Date 1.600 1.662
- 0 -
with a current outstanding issue size
less than A$100,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years
from the Valuation Date 1.820 1.899
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor
- ----------------------------------- ------ ------
<S> <C> <C>
with a current outstanding issue size
of at least A$100,000,000 but less than
or equal to A$150,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years from
the Valuation Date 1.820 1.726
with a current outstanding issue size
greater than A$150,000,000 and with a
remaining term to maturity longer than
10 years but not more than 20 years from
the Valuation Date 1.600 1.726
- 0 -
Australian Bank Bills:
with maturities of less than or
equal to 46 days from the Valuation
Date 1.000(1) 1.000
with maturities of 47-56 days from
the last Valuation Date 1.350 1.400
with maturities of 57-90 days from
the Valuation Date 1.350 1.400
with maturities of 91-180 days from
the Valuation Date 1.350 1.450
Australian Currency 1.350* 1.570
Australian Guaranteed Eurobonds:
with a current outstanding issue size
less than or equal to A$50,000,000 with
a remaining term to maturity of more
than 56 days from the Valuation Date ---- 2.000
</TABLE>
- ----------------------------------
* If any Overseas Banking Unit constituting Australian Currency has a
maturity of more than 46 days from the Valuation Date, the principal amount of
the cash deposit shall be offset by an amount equal to the penalty for early
withdrawal and in the event interest earned on any Overseas Banking Unit is not
exempt from interest withholding tax, the Corporation may not include interest
earned as a component of the value of the deposit unless taxes incurred on
interest earned have been paid.
19
<PAGE> 20
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor
- ----------------------------------- ------ ------
<S> <C> <C>
with a current outstanding issue size
exceeding A$50,000,000 with a remaining
term to maturity of more than 56 days
from the Valuation Date ---- 1.900
with any current outstanding issue
size and with a remaining term to
maturity of less than 56 days from
the Valuation Date ---- 1.000
Australian Non-Guaranteed Eurobonds:
with a current outstanding issue
size less than or equal to
A$50,000,000 with a remaining term
to maturity of more than 56 days
from the Valuation Date ---- 2.150
with a current outstanding issue
size exceeding A$50,000,000 with a
remaining term to maturity of more
than 56 days from the Valuation Date ---- 2.000
with any current outstanding issue
size and with a remaining term to
maturity of less than 56 days from
the Valuation Date ---- 1.000
Guaranteed Australian Corporate Bonds:
with a current outstanding issue size
less than or equal to A$100,000,000
with a remaining term to maturity of
more than 56 days from the Valuation
Date ---- 1.700
with a current outstanding issue size
exceeding A$100,000,000 with a remaining
term to maturity of more than 56 days
from the Valuation Date ---- 1.600
with any current outstanding issue size
and with a remaining term to maturity of
less than 56 days from the Valuation Date ---- 1.000
Non-Guaranteed Australian Corporate Bonds:
with a current outstanding issue size
less than or equal to A$100,000,000 with
a remaining term to maturity of more than
56 days from the Valuation Date ---- 1.800
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor
- ----------------------------------- ------ ------
<S> <C> <C>
with a current outstanding issue size
exceeding A$100,000,000 with a remaining
term to maturity of more than 56 days
from the Valuation Date ---- 1.700
with any current outstanding issue size
and with a remaining term to maturity
of less than 56 days from the Valuation
Date ---- 1.000
Guaranteed Australian Corporate Bonds:
with a current outstanding issue size
less than or equal to A$150,000,000
with a remaining term to maturity of
more than 56 days ---- 1.70
with a current outstanding issue size
exceeding A$150,000,000 with a remaining
term to maturity of more than 56 days ---- 1.60
with any current outstanding issue size
and with a remaining term to maturity of
less than 56 days ---- 1.00
Australian Exchangeable Eurobonds 2.050 **
----
Non-Guaranteed Australian Corporate Bonds:
with a current outstanding issue size
less than or equal to A$150,000,000 with
a remaining term to maturity of more than
56 days ---- 1.80
GNMA Certificates with fixed interest
rates (5) 1.300
GNMA Certificates with adjustable
interest rates 1.480 1.300
FHLMC and FNMA Certificates with
fixed interest rates (7) 1.350
FHLMC and FNMA Certificates with
adjustable interest rates 1.610 1.350
FHLMC Multifamily Securities 1.650
FHLMC and FNMA Certificates with
variable interest rates 1.350
GNMA Graduated Payment Securities 1.500 (5)(6)(7)
</TABLE>
- -----------------------------------
** included in Australian Semi-Government categories
21
<PAGE> 22
<TABLE>
<CAPTION>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor
- ----------------------------------- ------ ------
<S> <C> <C>
U.S. Government Obligations having
a remaining term to maturity of 90
days or less 1.060 1.000
U.S. Government Obligations having a
remaining term to maturity of more
than 90 days but not more than one
year 1.060 1.060
U.S. Government Obligations having a
remaining term to maturity of more
than one year but not more than
two years 1.110 1.200
U.S. Government Obligations having a
remaining term to maturity of more
than two years but not more than
three years 1.150 1.200
U.S. Government Obligations having a
remaining term to maturity of more
than three years but not more than
four years 1.200 1.200
U.S. Government Obligations having a
remaining term to maturity of more
than four years but not more than
five years 1.240 1.200
U.S. Government Obligations having a
remaining term to maturity of more
than five years but not more than
seven years 1.290 1.250
U.S. Government Obligations having a
remaining term to maturity of more
than seven years but not more than
10 years 1.340 1.250
U.S. Government Obligations having a
remaining term to maturity of more
than 10 years but not more than
15 years 1.370 1.300
U.S. Government Obligations having a
remaining term to maturity of more
than 15 years but not more than
20 years 1.410 1.380
U.S. Government Obligations having a
remaining term to maturity of more
than 20 years but not more than
30 years 1.420 1.380
- --------------------
</TABLE>
(1) In the case of Moody's, the remaining term to maturity of Eligible
Portfolio Property with a Moody's Discount Factor of 1.000 shall be
measured from the last Valuation Date on
22
<PAGE> 23
which the AMPS Basic Maintenance Amount was met for the purpose of
determining the number of shares of AMPS to be redeemed which would
result in satisfaction of the AMPS Basic Maintenance Amount as
contemplated by paragraph 5(b) hereof.
(2) Provided that in the case of S&P, the current outstanding issue size
(as determined on each Quarterly Valuation Date) is equal to or
greater than A$10,000,000.
(3) Excluding securities of Hydro-Electricity Commission of Tasmania,
Tasmanian Public Finance Corp. and Tasmanian Development Authority.
(4) Securities of Hydro-Electricity Commission of Tasmania, Tasmanian
Public Finance Corp. and Tasmanian Development Authority.
(5) The Discount Factor determined therefor in writing by the Rating
Agency.
(6) Unless the Rating Agencies shall agree in writing, GNMA Graduated
Payment Securities with a coupon rate lower than 5% shall not be
included in Eligible Portfolio Property.
(7) A Discount Factor of 1.50 applies in the case of GNMA Graduated
Payment Securities as to which the Corporation notifies the Auction
Agent that scheduled principal payments are being made to holders; in
the case of GNMA Graduated Payment Securities as to which the
Corporation notifies the Auction Agent that scheduled principal
payments are not being made to holders, the Discount Factor shall be
that which is determined in writing by the Rating Agencies.
The Board of Directors shall have the authority to adjust,
modify, alter or change from time to time the initial Discount Factor as set
forth above applied to determine the Discounted Value of any item of Eligible
Portfolio Property or may specify from time to time a Discount Factor for any
asset constituting Eligible Portfolio Property if each Rating Agency advises
the Corporation in writing that the change or specification will not adversely
affect its then-current rating of the AMPS.
"Discounted Value," with respect to any asset held by the
Corporation, means the quotient of the Market value of such asset divided by
the applicable Discount Factor; provided that in no event shall the Discounted
Value of any asset constituting Eligible Portfolio Property as of any date
exceed the unpaid principal balance or face amount of such asset as of that
date; provided further that the Discounted Value of all Australian
23
<PAGE> 24
Securities and New Zealand securities shall be further discounted by the
Discount Factor applicable to, respectively, Australian Currency and New
Zealand currency.
"Dividend Payment Date", with respect to each series of AMPS,
means each date of payment of dividends as provided in paragraph 3(b)
below.
"Dividend Period" means the Initial Dividend Period and each
subsequent Period commencing on a Dividend Payment Date and ending on and
including the calendar day prior to the next Dividend Payment Date.
"Dollar" or "$" shall mean U.S. dollars. Amounts in
Australian or New Zealand dollars shall be converted to U.S. dollars at the
rates reported by Morgan Guaranty Trust Company for the date of determination
or such other source as shall have been approved in writing by the Rating
Agencies.
"Eligible Portfolio Property" means 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 and, if the calculation is
being made for S&P, Australian Eurobonds and Australian Corporate Bonds;
provided, (i) if the determination is being made by Moody's, (x) that not more
than 20% in the aggregate of the total Discounted Value of Eligible Portfolio
Property shall consist either of Australian Government and/or Australian
Semi-Government Securities with a current outstanding issue size less than
A$150,000,000 and (y) not more than 10% in the aggregate of the total
Discounted Value of Eligible Portfolio Property shall consist of Australian
Semi-Government Securities described under items 17, 18 and 19 of such
definition or Australian Exchangeable Eurobonds described under item 25 of such
definition and (ii) if the determination is being made for S&P that no
Australian Government Securities or Australian Semi-Government Securities
contained in Eligible Portfolio Property shall have a current outstanding issue
size less than A$10,000,000 (as determined on each Quarterly Valuation Date);
provided further that, if the determination is being made for S&P, not more
than 10% in the aggregate of the total Discounted Value of the Eligible
Portfolio Property shall consist of Australian Semi-Government Securities
issued by any single issuer (except that in the case of New South Wales
Treasury Corporation, such percentage shall be 25%) and that not more than 20%
in the aggregate of the total Market Value of the Eligible Portfolio Property
shall consist of Australian Semi-Government Securities guaranteed by any single
state (except that in the case of each of Victoria and New South Wales, such
percentage shall be 25%).
24
<PAGE> 25
The Board of Directors shall have the authority to specify from time to time
other assets as Eligible Portfolio Property if the Rating Agencies advise the
Corporation in writing that the specification will not adversely affect their
respective then-current ratings of the AMPS; it being understood that the
components of Eligible Portfolio Property may differ between S&P and Moody's.
"Existing Holder" means a Broker-Dealer or any such other
Person as may be permitted by the Corporation that is listed as the holder of
record of shares of AMPS in the records of the Auction Agent.
"Failure to Cure" shall mean a failure by the Corporation to
maintain the AMPS Basic Maintenance Amount or 1940 Act AMPS Asset Coverage
Requirement, as the case may be, which failure is not cured by the relevant
Cure Date.
"FANMAC Certificates" 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 partially 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 an assurance as to
availability of funds to meet payments. The securities have been rated by
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.
"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 Multifamily
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-
25
<PAGE> 26
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.
"Forward Contract" means a contract, entered into following a
Failure to Cure, between the Corporation and a commercial bank or other
financial institution whose short-term debt is rated at least A-l+ by S&P or
whose long-term debt is rated at least AA by S&P (an "Eligible Bank"), which
provides that the Corporation will sell a specified amount of Australian
Currency to such Eligible Bank on a specified date for a specified amount of
U.S. dollars. The date of payment in U.S. dollars shall not be later than the
30th day following the Valuation Date related to the Failure to Cure and the
amount of U.S. dollars shall be sufficient to redeem all shares of AMPS
required to be redeemed. On the Date of Original Issue and on each Quarterly
Valuation Date thereafter, the Corporation will confirm in writing to S&P that
the Corporation has a credit-line with an Eligible Bank (the "Credit Line
Test"). The Credit Line Test shall be deemed to be satisfied on any date if
the Corporation has delivered such confirmation to S&P on the Date of Original
Issue or the most recent Quarterly Valuation Date, as the case may be. The
Board of Directors shall have the authority, to the extent permitted by
Maryland law, to adjust, modify, alter or change from time to time the elements
comprising the Forward Contract from those set forth in these Articles
Supplementary if S&P advises the Corporation in writing that the change will
not adversely affect its then-current rating of the AMPS.
"GNMA" means the Government National Mortgage Association, and
includes any successor thereto.
26
<PAGE> 27
"GNMA Certificate" 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 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 mortgage, level pay loans
with terms up to 30 years secured by first-priority mortgages on multifamily
residences, 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.
"Holder" means a Person identified as a holder of shares of
AMPS in the Stock Register.
"Independent Accountants" means the Corporation's independent
accountants, which shall be a nationally recognized accounting firm.
"Industry Category" means, as to any Corporate Bond, any of
the industry categories set forth in the following table:
(1) Aerospace and Defense: Major Contractor, Subsystems,
Research, Aircraft Manufacturing, Arms, Ammunition;
(2) Automobile: Automotive Equipment,
Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers,
Motor Homes, Dealers;
27
<PAGE> 28
(3) Banking: Bank Holding, Savings and Loans, Consumer
Credit, Small Loan, Agency, Factoring, Receivables;
(4) Beverage, Food and Tobacco: Beer and Ale,
Distillers, Wines and Liquors, Distributors, Soft Drink Syrup,
Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy
Products, Meat Products, Poultry Products, Snacks, Packaged Foods,
Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars,
Leaf/Snuff, Vegetable Oil;
(5) Buildings and Real Estate: Brick, Cement, Climate
Controls, Contracting, Engineering, Construction, Hardware, Forest
Products (building-related only), Plumbing, Roofing, Wallboard, Real
Estate, Real Estate Development, REITs, Land Development;
(6) Chemicals, Plastics and Rubber: Chemicals
(non-agriculture), Industrial Gases, Sulphur, Plastics, Plastic
Products, Abrasives, Coatings, Paints, Varnish, Fabricating;
(7) Containers, Packaging and Glass: Glass, Fiberglass,
Containers made of: Glass, Metal, Paper, Plastic, Wood or Fiberglass;
(8) Personal and Non-Durable Consumer Products
(Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries,
Cleaning Supplies, School Supplies;
(9) Diversified/Conglomerate Manufacturing;
(10) Diversified/Conglomerate Service;
(11) Diversified Natural Resources, Precious Metals and
Minerals: Fabricating, Distribution, Mining and Sales;
(12) Ecological: Pollution Control, Waste Removal, Waste
Treatment, Waste Disposal;
(13) Electronics: Computer Hardware, Electric Equipment,
Components, Controllers, Motors, Household Appliances, Information
Service Communication Systems, Radios, TVs, Tape Machines, Speakers,
Printers, Drivers, Technology;
(14) Finance: Investment Brokerage, Leasing, Syndicating,
Securities;
(15) Farming and Agriculture: Livestock, Grains, Produce,
Agricultural Chemicals, Agricultural Equipment, Fertilizers;
28
<PAGE> 29
(16) Grocery: Grocery Stores, Convenience Food Stores;
(17) Healthcare, Education and Childcare: Ethical Drugs,
Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs,
Hospitals, Hospital Supplies, Medical Equipment;
(18) Home and Office Furnishings, Housewares, and Durable
Consumer Products: Carpets, Floor Coverings, Furniture, Cooking,
Ranges;
(19) Hotels, Motels, Inns and Gaming;
(20) Insurance: Life, Property and Casualty, Broker,
Agent, Surety;
(21) Leisure, Amusement, Motion Pictures, Entertainment:
Boating, Bowling, Billiards, Musical Instruments, Fishing, Photo
Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping),
Tourism, Resorts, Games, Toy Manufacturing, Motion Picture Production
Theaters, Motion Picture Distribution;
(22) Machinery (Non-Agriculture, Non-Construction,
Non-Electronic): Industrial, Machine Tools, Steam Generators;
(23) Mining, Steel, Iron and Non-Precious Metals: Coal,
Cooper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated
Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales;
(24) Oil and Gas: Crude Producer, Retailer, Well Supply,
Service and Drilling;
(25) Personal, Food and Miscellaneous Services;
(26) Printing, Publishing and Broadcasting: Graphic Arts,
Paper, Paper Products, Business Forms, Magazines, Books, Periodicals,
Newspapers, Textbooks, Radio, TV, Cable, Broadcasting Equipment;
(27) Cargo Transport: Rail, Shipping, Railroads,
Rail-care Builders, Ship Builders, Containers, Container Builders,
Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer
Manufacturing, Air Cargo, Transport;
(28) Retail Stores: Apparel, Toy, Variety, Drugs,
Department, Mail Order Catalog, Showroom;
29
<PAGE> 30
(29) Telecommunications: Local, Long Distance,
Independent, Telephone, Telegraph, Satellite, Equipment, Research,
Cellular;
(30) Textiles and Leather: Producer, Synthetic Fiber,
Apparel Manufacturer, Leather Shoes;
(31) Personal Transportation: Air, Bus, Rail, Car Rental;
(32) Utilities: Electric, Water, Hydro Power, Gas,
Diversified.
The Board of Directors shall have the authority to change the
industry categories applicable with respect to the Corporation from those set
forth in these Articles Supplementary if the Rating Agencies advise the
Corporation in writing that the change will not adversely affect their
respective then-current ratings of the AMPS.
"Initial Dividend Payment Date" has the meaning set forth in
paragraph 3(b) below.
"Initial Dividend Period" has the meaning specified in
paragraph 3(b) below.
"Investment Company Act" means the Investment Company Act of
1940 (15 U.S. Code Section 80 et seq.), as amended from time to time.
"Lien" has the meaning set forth in paragraph 3(d)(iv) below.
"Market Value" means the amount determined with respect to
specific assets of the Corporation in the manner set forth below, it being
understood that Market Value shall include any interest accrued thereon but, in
the case of Moody's, only if the next interest coupon on such asset is due and
payable within 47 days of the Reporting Date, and that a designated Pricing
Service may be used where indicated.
(a) as to Australian Securities, the Administrator or the
Custodian shall value such securities at the last trade price quoted by a
designated Pricing Service if such trade price reflects a trade on, or within 1
local business day prior to, the Reporting Date. If no such trade price is
available, the Administrator or the Custodian shall value such securities,
where practicable, at the bid prices or the mean between the bid and asked
price quoted by a designated Pricing Service on the Reporting Date, or if such
quotes are not readily available, at fair value as determined by a designated
Pricing Service (or the Administrator or Custodian if the Rating Agencies so
permit)
30
<PAGE> 31
using methods which include: consideration of yields or prices of assets of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. Either the Administrator
or the Custodian or a designated Pricing Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. In the
event the Administrator or the Custodian or a designated Pricing Service is
unable to value a security, the security shall be valued at the lower of two
dealer bids (both of which shall be in writing or by telecopy, telex or other
electronic transcription, computer obtained quotation reduced to written form
or similar means) provided to the Corporation, by two recognized securities
dealers in Australia, with respect to Australian Securities, such securities
dealers making a market in the applicable securities.
(b) as to GNMA Certificates, GNMA Graduated Payment
Securities, FNMA Certificates, FHLMC Certificates and FHLMC Multifamily
Securities, the Pricing Service (or the Administrator or the Custodian, if the
Rating Agencies so permit) shall value such securities as the product of (i)
the aggregate unpaid principal amount of the mortgage loans evidenced by each
such certificate or security, as the case may be, as of the close of business
in New York City on the last Business Day prior to such date of determination
and (ii) the lower of the bid prices for the same kind of certificate or, if
not available, some other security having, as nearly as practicable, comparable
interest rates and maturities, as quoted to the Corporation by two nationally
recognized securities dealers, who are members of the National Association of
Securities Dealers selected by the Corporation and making a market therein,
with at least one such quotation in writing plus, (x) if the determination is
being made for Moody's, accrued interest to the date of determination if the
next interest coupon on such security is due and payable within 46 days of such
date of determination and (y) if the determination is being made for S&P,
accrued interest;
(c) as to Australian Currency and as to Cash, demand
deposits (and in the case of S&P only, bankers' acceptances) included in Short
Term Money Market Instruments, the Administrator or the Custodian shall value
such currency or securities as the face value thereof;
(d) as to next Business Day repurchase agreements, the
face value thereof; and
(e) as to U.S. Government Obligations, the Administrator
or the Custodian shall value such securities at the bid prices quoted by a
designated Pricing Service or the mean between the bid and asked price quoted
by a designated Pricing Service on the Reporting Date, or if such quotes are
not readily available, at fair value as determined by a designated Pricing
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<PAGE> 32
Service (or the Administrator or the Custodian, if the Rating Agencies so
permit) using methods which include: consideration of yields or prices of
assets of comparable quality, type of issue, coupon, maturity and rating;
indications as to value from dealers; and general market conditions. Either
the Administrator, the Custodian or a designated Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Administrator or the Custodian or a designated
Pricing Service is unable to value a security, the security shall be valued at
the lower of two dealer bids (at least one of which shall be in writing or by
telecopy, telex or other electronic transcription, computer obtained quotation
reduced to written form or similar means) provided for the Corporation by two
nationally recognized securities dealers, who are members of the National
Association of Securities Dealers selected by the Corporation and making a
market therein.
Without amending the Articles of Incorporation, (i) the
calculation of the Market Value of an asset constituting Eligible Portfolio
Property may be changed to any method recognized by the Rating Agencies from
that set forth in these Articles Supplementary and (ii) a method recognized by
the Rating Agencies for calculating the Market Value of any asset identified as
Eligible Portfolio Property may be specified if the Rating Agencies advise the
Corporation in writing that the change or specification will not adversely
affect their respective then-current ratings of the AMPS.
"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).
<TABLE>
<CAPTION>
Applicable
Credit Rating Percentage
----------------------------------------------------------
S&P Moody's
--- -------
<S> <C> <C>
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "al" 160%
BBB- to BBB+ "baa3" to "baal" 250%
Below BBB- Below "baa3" 275%
</TABLE>
The Corporation shall take all reasonable action necessary to
enable S&P and Moody's to provide a rating for the
32
<PAGE> 33
AMPS. If either S&P or Moody's 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 respective affiliates and
successors, after consultation with the Corporation, shall select a nationally
recognized securities rating agency or two nationally recognized securities
rating agencies to act as a Substitute Rating Agency or Substitute Rating
Agencies, as the case may be.
"Moody's" means Moody's Investors Service, Inc. or its
successors.
"MMSs" are mortgage-backed securities issued against mortgage
pools by MGICA Securities Ltd., a wholly-owned subsidiary of AMP Society Ltd. ,
an Australian insurance company, and rated by Australian Ratings.
"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.
"New Zealand Securities" means those New Zealand government,
semi-government and other securities determined from time to time in writing
by the Rating Agencies.
"1940 Act AMPS Asset Coverage Ratio" means, as of the date of
determination, the ratio of the Fund's net assets to its senior securities
representing indebtedness plus the liquidation value of its Preferred Stock,
including the shares of AMPS.
"1940 Act AMPS Asset Coverage Requirement" means the
requirement that the Corporation maintain, with respect to shares of AMPS, as
of the last Friday of each month in which any shares of AMPS are outstanding,
asset coverage of at least 200% with respect to senior securities representing
indebtedness plus the liquidation value of its Preferred Stock, including the
shares of AMPS (or such other asset coverage as may in the future be specified
in or under the Investment Company Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition of
paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by
Corporation to maintain the 1940 Act AMPS Asset Coverage Requirement (as
required by paragraph 7(a) hereof) as of the Valuation Date of each month,
means the last Valuation Date of the following month.
"NMMC Securities" National Mortgage Market Corporation Ltd.
("NMMC") has issued both AUSSIE MACs, which are medium term
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<PAGE> 34
bearer securities, and National Mortgage Market Bonds. NMMC is a private
company which is owned partially by the Government of the State of Victoria and
partially by private institutions. Both AUSSIE MACs and National Mortgage
Bonds are rated by Australian Ratings.
"Notice of Redemption" has the meaning specified in paragraph
5(f) below.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer, the Secretary, any Assistant Treasurer, any
Assistant Secretary or Assistant Controller of the Corporation.
"Officers' Certificate" means a certificate signed by an
Officer of the Corporation.
"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 at 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.
"Other AMPS" means the auction market preferred stock or
remarketed preferred stock or similar adjustable rate preferred stock of the
Corporation other than the AMPS.
"Other Permitted Assets" means Australian Corporate Bonds,
Australian Eurobonds, Australian Exchangeable Eurobonds, Australian Short Term
Securities, New Zealand Securities, FANMAC Certificates, NMMC Securities, MTCs,
MMSs, ANNIE MAEs, GNMA Multifamily Securities and Corporate Bonds.
"Paying Agent" means Chemical Bank and its successors or any
other paying agent appointed by the Corporation to perform the functions
performed by the Paying Agent.
"Person" means an individual, a corporation, a company, a
voluntary association, a partnership, a trust, an unincorporated organization
or a government or any agency, instrumentality or political subdivision
thereof.
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<PAGE> 35
"Preferred Stock" means the preferred stock of the Corporation
including the AMPS.
"Portfolio Calculation" shall have the meaning specified in
paragraph 7(b)(ii).
"Portfolio Valuation Report" means a report executed by the
Corporation with respect to the valuation (in U.S. dollars) of the Eligible
Portfolio Property, as described in paragraph 7 hereof; provided, that all or
any portion of any such report may be prepared by the custodian for the
Eligible Portfolio Property, EquitiLink Australia Limited, The Prudential
Insurance Company of America, Prudential Mutual Fund Management, Inc. and or
EquitiLink International Management Limited; provided further that such
Portfolio Valuation Report may be delivered to the Auction Agent and the Rating
Agencies in summary form, however, the Corporation shall retain a copy of the
full Portfolio Valuation Report in its files and make such report available to
its Independent Accountants and the Rating Agencies upon their request.
"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" shall mean any Broker-Dealer or any such
other Person as may be permitted by the Corporation, 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).
"Pricing Service" shall mean any of Reuters Information
Services, Inc., Telerate Systems, Inc., Bloomberg L.P. or any other pricing
service designated by the Board of Directors of the Corporation provided the
Corporation obtains written assurance from S&P and Moody's that such
designation will not impair the rating then assigned by S&P and Moody's to the
AMPS.
"Projected Dividend Amount" for the AMPS and other Preferred
Stock, if any, shall mean, if the date of determination is a Valuation Date,
the amount of dividends, based on the number of shares of AMPS and other
Preferred Stock, if any, outstanding on such Valuation Date, projected to
accumulate on such shares from the next succeeding Dividend Payment Date or
Dates until the 63rd day after such Valuation Date, at the following dividend
rates:
(a) if the Valuation Date is the Date of Original Issue or a
Dividend Payment Date, for the period beginning on (and including) the first
following Dividend Payment Dates and ending
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<PAGE> 36
on (and including) the 63rd day following such Valuation Date, the product of
2.40 and (x) the Maximum Applicable Rate on the Date of Original Issue (in the
case of the Date of Original Issue) or (y) the Maximum Applicable Rate as of
the last occurring Auction Date (in the case of any Dividend Payment Date); and
(b) if such Valuation Date is not the Date of Original Issue
or a Dividend Payment Date, (i) for the period beginning on (and including) the
first following Dividend Payment Dates and ending on (but not including) the
sooner of the second following Dividend Payment Date for such shares or the
64th day following such Valuation Date, the product of 2.40 and (x) the Maximum
Applicable Rate on the Date of Original Issue (in the case of a Valuation Date
occurring prior to the first Auction Date) or (y) the Maximum Applicable Rate
on the last occurring Auction Date (in the case of any other Valuation Date),
(ii) for the period, if any, beginning on (and including) the second following
Dividend Payment Date and ending on (but not including) the 64th day following
such Valuation Date, the product of 2.40 and the rate specified in clause (x)
or (y) above and (iii) for the period, if any, beginning on (and including) the
third following Dividend Payment Date and ending on (but not including) the
64th day following such Valuation Date the product of 2.94 and the rate
specified in clause (x) or (y) above.
If the date of determination is not a Valuation Date, then the
Projected Dividend Amount on such date of determination shall equal the
Projected Dividend Amount therefor on the immediately Preceding Valuation Date,
adjusted to reflect any decrease in the number of shares of AMPS outstanding.
The calculation of the Projected Dividend Amount may be made on bases other
than those set forth above if the Rating Agencies shall have advised the
Corporation in writing that the revised calculation of the Projected Dividend
Amount would not adversely affect their respective then-current ratings of the
AMPS.
"Quarterly Valuation Date" means, so long as any shares of
AMPS are outstanding, the last Valuation Date of January, April, July and
October of each year.
"Rating" means a rating assigned by S&P or Moody's to a
particular security or to a particular issuer; provided, however, in the case
of S&P, a particular unrated security will be deemed to have received the
rating S&P has assigned to a rated debt security if S&P shall have received a
letter from the President, Vice President, or Treasurer of the Corporation
certifying that the unrated issue is identical to the rated issue in respect of
(i) its terms, (ii) its ranking, (iii) its issuer and (iv) guarantees and any
other support mechanisms provided by the issuer or any third party to enhance
the credit of the rated security; and
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"Rating Agencies" means Moody's and S&P or their successors so
long as such rating agency is then rating the AMPS.
"Reporting Date," with respect to any price referred to in the
definition of the Market Value of an item of Eligible Portfolio Property, shall
mean the date as of which the Market Value of such item of Eligible Portfolio
Property is to be determined.
"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 Act of 1934, as amended, (x) the commercial paper or other
unsecured short-term debt obligation 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.
"Securities Depository" means The Depository Trust Company and
any successor thereto.
"Scheduled Payment Day" has the meaning specified in paragraph
3(b) below.
"Short Term Money Market Instruments" means the following
kinds of instruments, if on the date of purchase or other acquisition by the
Corporation 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 Corporation'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 Corporation's
investment therein Prime-1 by Moody's and A-1+ by
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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.
"S&P" means Standard & Poor's Corporation or any successor
thereto.
"Stock Books" means the books maintained by the Auction Agent
setting forth at all times a current list, as determined by the Auction Agent
of Existing Holders of AMPS.
"Stock Register" means the register of Holders maintained on
behalf of the Corporation by the Auction Agent in its capacity as transfer
agent and registrar for the AMPS.
"Subsequent Dividend Period" has the meaning specified in
paragraph 3(b) below.
"Substitute Commercial Paper Dealers" means such substitute
commercial paper dealer or dealers as the Corporation may from time to time
appoint or, in lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies"
mean a nationally recognized securities rating agency or two nationally
recognized securities rating agencies, respectively, selected by Merrill Lynch,
Pierce, Fenner & Smith Incorporated, or its affiliate or successor, in
consultation with the Corporation to act as the substitute rating agency or
substitute rating agencies, as the case may be, to determine the credit ratings
of the shares of AMPS.
"Type I Corporate Bonds" as of any date means Corporate Bonds
whose Moody's rating is Aaa and whose S&P rating is AAA as of such date.
"Type II Corporate Bonds" as of any date means Corporate Bonds
whose Moody's rating is at least Aa and whose S&P rating is at least AA+ to AA-
as of such date.
"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.
"Valuation Date" means each Friday or, if such day is not a
Business Day, the next preceding Business Day, provided, that the first
Valuation Date may occur on any other date established by the Corporation;
provided, further, that such date
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shall not be earlier than 4 Business Days prior to, and not later than, the
Date of Original Issue.
"Voting Period" has the meaning specified in paragraph 6(b)
below.
2. Fractional Shares. No fractional shares of AMPS shall be
issued.
3. Dividends.
(a) Holders of shares of AMPS shall be entitled to receive,
when, as, and if declared by the Board of Directors out of funds legally
available therefor, cumulative cash dividends at the Applicable Rate per annum
(determined as set forth below) payable on the respective dates set forth
(b) Dividends on the shares of AMPS shall accumulate from the
Date of Original Issue. Accumulated dividends shall be payable commencing on
, 1995 (the day after the Date of Original Issue), with respect to the
Auction Market Preferred Stock, Series G (hereinafter, the "Initial Dividend
Payment Date"); and on each day thereafter which is the last day of each
succeeding 7 day period after such date. If any such last day (the "Scheduled
Payment Day") is not a Business Day, dividends payable on such Scheduled
Payment Day shall be paid on the first Business Day succeeding such Scheduled
Payment Day. Any date on which a dividend on the AMPS is payable pursuant to
this paragraph 3(b) is herein called a "Dividend Payment Date". The period
beginning on (and including) the Date of Original Issue and ending on (but not
including) the Initial Dividend Payment Date is referred to herein as the
"Initial Dividend Period". Each successive period commencing on, and
including, the Dividend Payment Date for the previous Dividend Period and
ending on and including the calendar day preceding the next succeeding Dividend
Payment Date is referred to herein as a "Subsequent Dividend Period" and the
Initial Dividend Period and each Subsequent Dividend Period together are
sometimes referred to herein as "Dividend Periods". The record date for the
payment of dividends on each series of AMPS will be the Auction Date
immediately preceding the Dividend Payment Date.
(c) (i) The Applicable Rate for the Auction Market
Preferred Stock, Series G shall be % per annum for the Initial
Dividend Period. For the purpose of calculating the rate of dividends
per annum payable on shares of AMPS (the "Applicable Rate") for each
Subsequent Dividend Period the Corporation shall enter into an
agreement with the Auction Agent (the "Auction Agent Agreement"). The
Applicable Rate on the shares of AMPS for each Subsequent Dividend
Period shall be determined by the Auction Agent in accordance with the
Auction Agent Agreement, which shall provide that the
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Auction Agent will follow the Auction Procedures described in
paragraph 8 hereof to determine the Applicable Rate. In the event
there is no Auction Agent on the Business Day prior to the first day
of a Dividend Period, the Applicable Rate for such Dividend Period
shall be equal to the Maximum Applicable Rate that could have resulted
pursuant to the Auction Procedures, as determined by the Corporation,
on such Business Day. If no Auction is held on any Auction Date for
any other reason, the Applicable Rate for the Dividend Period
beginning on the Business Day following such Auction Date shall be
equal to the Maximum Applicable Rate that could have resulted pursuant
to the Auction Procedures, as determined by the Auction Agent (or, if
there is no Auction Agent, by the Corporation), on such Business Day.
The Corporation shall exercise its best efforts to maintain an Auction
Agent pursuant to an agreement containing terms no less favorable to
the Corporation than the terms of the Auction Agent Agreement.
(ii) The amount of dividends per share payable on
shares of AMPS for each Dividend Period or part thereof shall be
determined by the Corporation and shall be an amount equal to $25,000
per share of AMPS multiplied by the product of (1) the Applicable Rate
for such Dividend Period and (2) a fraction, the numerator of which
shall be the actual number of days in such Dividend Period or part
thereof and the denominator of which shall be 360. All dollar amounts
used in or resulting from such calculations will be rounded to the
nearest cent (with 0.5 cents being rounded up).
(iii) If the Corporation fails to deposit, in
same-day funds, with the Paying Agent by 12:00 noon, New York City
time, (A) on any Dividend Payment Date for any series of AMPS an
amount sufficient to pay the dividends (whether or not earned or
declared) payable on such Dividend Payment Date for any series of AMPS
or (B) on any redemption date for any series of AMPS an amount
sufficient to redeem on such date fixed for redemption the shares of
such series as to which notice of redemption has been given (including
an amount equal to dividends thereon, whether or not earned or
declared, accumulated but unpaid to such redemption date), 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 Corporation remedies such failure as provided in the third
sentence of this paragraph, the Applicable Rate for each Dividend
Period for the series to which such Dividend Payment Date or such
redemption date relates shall be equal to 275% of the "AA" Composite
Commercial Paper Rate in effect on the second Business Day preceding
the first day of
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<PAGE> 41
such Dividend Period. Notwithstanding the foregoing, if the
Corporation remedies such failure by depositing, in same-day funds,
with the Paying Agent by 12:00 noon, New York City time, on the first,
second or third Business Day following such Dividend Payment Date or
date fixed for redemption, 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 "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 date fixed for
redemption to the date on which funds for such dividends or redemption
payments are deposited with the Paying 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 Corporation remedies such failure to pay dividends or
the redemption payments by depositing with the Paying Agent all
amounts required by the first sentence of this paragraph plus all
dividends (computed at the rate specified in the first sentence of
this paragraph) accumulated (whether or not earned or declared) but
unpaid to 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 Corporation will, not more
than 30 nor less five Business Days prior to the next Auction Date,
notify the Auction Agent, all Holders and the Securities Depository in
writing of the date of the next Auction.
(d) (i) The Corporation will not issue any other
series or class of stock which is senior to the AMPS. The Corporation
will not issue any series or class of stock which is on a parity with
the shares of AMPS unless it has been advised in writing by the Rating
Agencies that such issuance will not adversely affect their respective
then-current ratings of the AMPS. No Holders of shares of AMPS shall
be entitled to any dividends, whether payable in cash, property or
stock, in excess of full cumulative dividends, as provided in this
paragraph 3, on shares of AMPS. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payments on
any shares of AMPS that may be in arrears.
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(ii) For so long as shares of AMPS are outstanding,
the Corporation shall not declare, pay or set apart for payment any
dividend or other distribution in respect of the Common Stock or any
other stock of the Corporation ranking junior to the shares of AMPS 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 stock of the Corporation ranking junior to the
shares of AMPS as to dividends or upon liquidation), unless, in each
case, immediately thereafter, (A) the AMPS Basic Maintenance Amount
would be met, (B) the 1940 Act AMPS Assets Coverage Requirement would
be met, (C) all mandatory redemptions of shares of Preferred Stock
pursuant to paragraph 5(b) hereof have been completed, and (D) all
accumulated and unpaid dividends for all past dividend periods for all
Preferred Stock shall have been or are contemporaneously paid in full
(or declared and sufficient Deposit Securities have been set apart for
their payment). Prior to the payment of any such dividend or other
distribution, the Corporation 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 with
the foregoing conditions.
(iii) Any dividend payment made on the shares of
AMPS shall first be credited against the dividends accumulated with
respect to the earliest Dividend Period for which dividends have not
been paid.
(iv) For so long as any shares of AMPS are
outstanding, the Corporation shall not create, incur or suffer to
exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any material lien,
mortgage, pledge, charge, security interest, security agreement,
conditional sale or trust receipt or other material encumbrance of any
kind (collectively "Liens") upon any of its Eligible Portfolio
Property, except for (A) Liens the validity of which are being
contested in good faith by appropriate proceedings, (B) Liens for
taxes that are not then due and payable or that can be paid thereafter
without penalty, (C) Liens to secure payment for services rendered by
the Auction Agent in connection with the AMPS and (D) Liens otherwise
incurred in connection with borrowings made in the ordinary course of
business in accordance with the Corporation's stated investment
objective, policies and restrictions.
(e) Not later than 12:00 noon, New York City time, on the
Business Day next preceding each Dividend Payment Date, the
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Corporation shall deposit with the Paying Agent Deposit Securities constituting
immediately available funds in an amount sufficient to pay the dividends that
are payable on such Dividend Payment Date. The Corporation may direct the
Paying Agent with respect to the investment of any such Deposit Securities,
provided that the proceeds of any such investment will be available at the
opening of business on such Dividend Payment Date in immediately available
funds.
(f) Dividends in arrears for any past Dividend Period may be
declared and paid to the Holders at any time, without reference to any regular
Dividend Payment Date.
(g) For dividends paid in respect of any fiscal year of the
Corporation, any dividends declared on the AMPS shall be paid first from earned
surplus, to the extent thereof, and then from any other legally available
source, and any dividends declared on the Common Stock shall be paid from
earned surplus or other sources to the extent not distributed to the Existing
Holders. Further, for dividends paid in respect of any fiscal year of the
Corporation, any dividends declared on AMPS shall be paid from current and
accumulated earnings and profits (within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code")) to the extent available, pro rata from
investment company taxable income (as that term is defined in section 852(b)(2)
of the Code and before taking into account the deduction for dividends paid)
and from net capital gain (as that term is defined in Code section 1222(11)).
To the extent current and accumulated earnings and profits remain after
satisfying the Existing Holders, dividends paid in respect of any fiscal year
of the Corporation declared on the Common Stock shall be paid from current and
accumulated earnings and profits, from investment company taxable income
(before the deduction for dividends paid) and from net capital gain, to the
extent not distributed to Existing Holders. Distributions of net capital gain
of the Corporation for a taxable year to Existing Holders and holders of Common
Stock shall be designated by the Corporation as capital gain dividends (under
Code section 852(b)(3)) in the same proportion as net capital gain of the
Corporation for the taxable year in respect of which the distribution is made
is distributed to such Existing Holders and holders of Common Stock.
Designations of foreign taxes deemed paid by stockholders (pursuant to Code
section 853) shall be made in the same proportion as income subject to such
taxes is distributed to stockholders for the taxable year in respect of which
the distribution is made. The Board of Directors or any duly authorized
committee thereof may change the allocation of income and/or designations
described herein, if, in its sole judgment, it deems it advisable to do so for
the purpose of maintaining the qualification of the Corporation as a regulated
investment company for federal income tax purposes and/or to avoid tax
consequences which, in the sole
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judgment of the Board of Directors, would be adverse to the Corporation or its
stockholders.
4. Liquidation Rights
(a) In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the Holders of shares
of AMPS shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, but before any distribution or
payment shall be made in respect of the Common Stock or any other stock of the
Corporation ranking junior to the AMPS as to liquidation payments, a
liquidation distribution in the amount of $25,000 per share, plus an amount
equal to all unpaid dividends accumulated to and including the date fixed for
such distribution or payment (whether or not earned or declared by the
Corporation, but excluding interest thereon), but such Holders shall be
entitled to no further participation in any distribution or payment in
connection with any such liquidation, dissolution or winding up.
(b) If, upon any such liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the Holders of all outstanding
shares of AMPS shall be insufficient to permit the payment in full of such
Holders of the amounts to which they are entitled, then such available assets
shall be distributed among the Holders of shares of Preferred Stock, including
the AMPS, ratably in any such distribution of assets according to the
respective amounts which would be payable on all such shares if all amounts
thereon were paid in full.
(c) Neither the consolidation or merger of the Corporation
with or into any other corporation or corporations, nor the sale, lease or
exchange by the Corporation of all or substantially all of its property and
assets, shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation for purposes of this paragraph 4.
5. Redemption
Shares of the AMPS shall be redeemable by the Corporation as
provided below:
(a) To the extent permitted under the Investment Company Act
and Maryland law, the Corporation at its option, upon filing with the
Commission, mailing and publishing a Notice of Redemption as described in
paragraph 5(f) hereof, may redeem shares of AMPS, in whole or in part, on the
next succeeding scheduled Dividend Payment Dates for those shares of AMPS
called for redemption, out of funds legally available therefor, at a redemption
price equal to $25,000 per share plus an amount equal to dividends thereon
(whether or not earned or declared)
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accumulated to but unpaid through the date fixed for redemption. The
Corporation 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 Corporation 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 Holders of
shares of AMPS by reason of the redemption of their shares on such redemption
date.
(b) The Corporation shall redeem, at a redemption price of
$25,000 per share plus accumulated but unpaid dividends through the date of
redemption, shares of AMPS to the extent permitted under the Investment Company
Act and Maryland law, on the date fixed by the Board of Directors applicable to
those shares of AMPS called for redemption, if the Corporation fails to
maintain the AMPS Basic Maintenance Amount or 1940 Act AMPS Asset Coverage
Requirement, as the case may be, and such failure is not cured on or before the
Cure Date as reflected in a Portfolio Valuation Report delivered to the Auction
Agent and the Rating Agencies and confirmed by the Corporation's Independent
Accountants. The number of shares to be redeemed shall be equal to the lesser
of (i) 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,
together with all shares of other Preferred Stock subject to redemption or
retirement, would 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 together with
all shares of other Preferred Stock subject to redemption or retirement then
outstanding shall be redeemed), and (ii) the maximum number of shares of AMPS
together with all shares of other Preferred Stock subject to redemption or
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 Corporation shall
allocate the amount required to achieve (x) the 1940 Act AMPS Asset Coverage
Requirement, pro rata among the AMPS and any other Preferred Stock and (y) the
AMPS Basic Maintenance Amount, pro rata, among the AMPS and any Other AMPS.
The Corporation shall effect such redemption not later than 30 days after such
Cure Date, except that if the Corporation does not have funds legally available
for the redemption of all the required number of shares of AMPS which are
subject to mandatory redemption, the next Dividend Payment Date with respect to
any share to be redeemed is more than 30 days after such Cure Date or the
Corporation otherwise is unable to effect such redemption on or prior to such
30th day, the Corporation shall redeem those shares of AMPS which it was unable
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to redeem on the earliest practicable date on which it is able to effect such
redemption.
(c) So long as the AMPS shall be rated by Moody's, the
Corporation shall, by the fifth Business Day after a Failure to Cure, be
required to hold an amount, composed of Cash or any other asset constituting
Eligible Portfolio Property which has a Moody's Discount Factor as of such
fifth Business Day of 1.000 and which matures prior to the date set for
redemption which has an aggregate Discounted Value at least equal to the
redemption payment for the shares of AMPS to be redeemed; provided, however,
that this obligation may be satisfied by depositing Cash in trust as
contemplated by paragraph 5(h) below; and provided further that the Corporation
shall sell assets prior to such fifth Business Day if necessary to meet the
requirements of this paragraph (c), it being understood that in no event shall
it sell any asset prior to maturity which had a Moody's Discount Factor of
1.000 measured as of the last Valuation Date on which the AMPS Basic
Maintenance Amount was met if it would be necessary to utilize such asset in
order to make any redemption payment contemplated by this paragraph 5.
(d) Notwithstanding the other provisions of this paragraph 5,
no shares of AMPS may be redeemed other than as specified below, unless all
accumulated and unpaid dividends on all outstanding shares of AMPS and other
Preferred Stock for all past dividend periods shall have been or are
contemporaneously paid or declared and Deposit Securities maturing on or prior
to the date fixed for redemption are set apart for the payment of such
dividends; provided, however, that the Corporation 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 an 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
Investment Company Act, Maryland law and the Articles of Incorporation.
(e) If fewer than all the outstanding shares of AMPS are to
be redeemed, the shares to be redeemed shall be identified by the Board of
Directors by lot, on a pro rata basis, or in such other manner as will not
discriminate unfairly against any record holder of shares of such AMPS.
(f) Whenever shares of AMPS are to be redeemed, the
Corporation shall, not fewer than 30 days prior to the applicable redemption
date, file with the Commission as required under the Investment Company Act, a
written notice of redemption (a "Notice of Redemption"). The Notice of
Redemption shall be (i) mailed by first-class mail, postage prepaid, to each
holder of shares of
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AMPS to be redeemed, and (ii) published by the Corporation in an Authorized
Newspaper, 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
Corporation shall mail the Notice of Redemption to the Paying Agent. Each
Notice of Redemption shall state (A) the series of AMPS or Other 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 these 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 shall affect the validity of the redemption proceedings,
except as required by applicable law.
(g) On each redemption date, the Securities Depository shall
surrender the certificate evidencing the shares of AMPS. Each Holder of shares
of AMPS that were called for redemption shall then be entitled to receive
payment of the redemption price for each share. If fewer than all of the
shares represented by such certificate are to be redeemed, the Corporation
shall issue a new certificate for the shares not redeemed.
(h) If the Corporation shall give a Notice of Redemption,
then by 12:00 noon, New York City time, on the Business Day next preceding the
date fixed for redemption the Corporation shall deposit with the Paying Agent
Deposit Securities constituting immediately available funds in an amount
sufficient to redeem the shares of AMPS to be redeemed. In such event the
Corporation shall give the Paying Agent irrevocable instructions and authority
to pay the redemption price to the holders of the shares of AMPS called for
redemption upon the redemption date. The Corporation may direct the Paying
Agent with respect to the investment of any Deposit Securities so deposited
provided that the proceeds of any such investment will be available at the
opening of business on such redemption date. The Deposit Securities deposited
with the Paying Agent pursuant to the immediately preceding sentence and the
shares of AMPS to be redeemed and funds deposited with a paying agent with
irrevocable instructions to pay the redemption price with respect to any other
shares of Preferred Stock for which a notice of redemption has been duly given
shall be excluded from the calculation of the AMPS Basic Maintenance Amount,
the 1940 Act AMPS Asset Coverage Ratio, and the 1940 Act AMPS Asset Coverage
Requirement. Upon the date of such deposit, or if no such deposit is made,
then upon such date fixed for redemption (unless the Corporation shall default
in making payment of the redemption price), all rights of the Holders of the
shares of AMPS so called
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for redemption shall cease and terminate except the right of the Holders
thereof to receive the redemption price thereof inclusive of accumulated but
unpaid dividends, but without any interest, and such shares shall no longer be
deemed outstanding for any purpose. The Corporation shall be entitled to
receive, promptly after the date fixed for redemption, any cash in excess of
the aggregate redemption price of the shares of AMPS called for redemption on
such date and any remaining Deposit Securities. Any assets so deposited which
are unclaimed at the end of one year from such redemption date shall, to the
extent permitted by law, be repaid to the Corporation, after which the Holders
of the shares of AMPS so called for redemption shall look only to the
Corporation for payment thereof. The Corporation shall be entitled to receive,
from time to time after the date fixed for redemption, any interest on the
Deposit Securities so deposited.
(i) Shares of AMPS that have been redeemed, purchased or
otherwise acquired by the Corporation may not be reissued, shall not be deemed
outstanding, and shall be retired and cancelled. Shares with respect to which
a Notice of Redemption has been given as provided in paragraph 5(e) above shall
not be deemed outstanding for purposes of the Auction Procedures set forth in
paragraph 8 hereof.
(j) In addition to redemption rights expressly established
under these Articles Supplementary, the Corporation may repurchase shares of
AMPS to the extent now or hereafter permitted by the laws of the State of
Maryland and by the Investment Company Act.
(k) If the Corporation shall not have funds legally available
for the redemption of all the shares of the AMPS to be redeemed on any
redemption date (or is otherwise legally unable to effect such redemption), the
Corporation shall redeem on such redemption date the number of shares of AMPS
as it shall be legally able to redeem, ratably from each Existing Holder whose
shares are to be redeemed and the remainder of the shares of the AMPS required
to be redeemed shall be redeemed, as provided in paragraph 5(b) above.
6. Voting Rights
(a) General. Each holder of AMPS shall be entitled to one
vote for each share held on each matter on which the holders of the AMPS are
entitled to vote and, except as otherwise provided in the Articles of
Incorporation, these Articles Supplementary or by law, the holders of the AMPS
and the Common Stock shall vote together as one class on all matters submitted
to the stockholders; provided, however, that at any meeting of stockholders of
the Corporation at which directors are to be elected, the holders of Preferred
Stock of all series, voting separately as a single class, shall be entitled to
elect two
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<PAGE> 49
members of the Board of Directors, and the holders of Common Stock, voting
separately as a single class, shall be entitled to elect the balance of the
members of the Board of Directors.
(b) Right to Elect Majority of Board of Directors.
(i) During any period in which (A) dividends on any
outstanding Preferred Stock of any series shall be due and unpaid in
an amount equal to two full years' dividends; or (B) the Corporation
fails to redeem any shares of Preferred Stock that are required to be
redeemed pursuant to paragraph 5(b) above or that would have been so
redeemed but for the requirement that redemption be made out of
legally available funds, or (C) holders of any other shares of
Preferred Stock are entitled to elect a majority of the directors of
the Corporation (the "Voting Period"), the number of directors
constituting the Board of Directors shall automatically be increased
by the smallest number that, when added to the two directors elected
by the holders of Preferred Stock pursuant to paragraph 6(a) above,
will constitute a majority of the total number of directors so
increased; and at a special meeting of stockholders, which shall be
called and held as soon as practicable, and at all subsequent meetings
at which directors are to be elected, the holders of Preferred Stock
of all series voting separately as a single class shall be entitled to
elect the smallest number of additional directors of the Corporation
who, together with the two directors elected by the holders of
Preferred Stock pursuant to paragraph 6(a) above, will constitute a
majority of the total number of directors of the Corporation so
increased. The terms of office of the persons who are directors at
the time of that election shall continue.
(ii) If the Corporation thereafter shall pay, or
declare and set apart for payment, in full all dividends payable on
all outstanding shares of Preferred Stock of all series for all past
dividend periods and if the Corporation has remedied any failure to
redeem shares of Preferred Stock that are required to be redeemed
pursuant to paragraph 5(b) above, and holders of no other series of
Preferred Stock are entitled to elect a majority of the directors of
the Corporation, the Voting Period and the voting rights stated in
this paragraph 6(b) shall cease, and the terms of office of all
additional directors elected by the holders of Preferred Stock (but
not of the directors elected by the holders of Common Stock or the two
directors regularly elected by the holders of Preferred Stock as
provided in paragraph 6(a)) shall terminate automatically, subject
always, however, to the revesting of such voting rights in the holders
of shares of Preferred Stock upon the further
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<PAGE> 50
occurrence of any of the events described in clauses (A), (B) or (C)
of paragraph 6(b)(i).
(c) Voting Procedures.
(i) As soon as practicable after the accrual of any
right of the holders of shares of Preferred Stock to elect directors
pursuant to paragraph 6(b), the Corporation shall call a special
meeting of, and mail a notice to, such holders of shares of Preferred
Stock. Such special meeting shall be held not less than 10 nor more
than 80 days after the date of mailing of such notice. If the
Corporation fails to send such notice, the meeting may be called by
any holder of shares of Preferred Stock on like notice. The record
date for determining the holders of shares of Preferred Stock entitled
to notice of and to vote at such special meeting shall be the close of
business on the fifth Business Day preceding the day in which such
notice is given. At any such special meeting and at each meeting at
which directors are elected held during a Voting Period, the holders
of shares of Preferred Stock, voting together as a class (to the
exclusion of the holders of shares of Common Stock), shall be entitled
to elect the number of directors prescribed in paragraph 6(b) above on
a one-vote-per-share basis. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of the holders of
shares of Preferred Stock, present in person or by proxy or any
officer of the Corporation present entitled to preside or act as
Secretary of such meeting shall have the power to adjourn the meeting
without further notice to a date not more than 120 days after the
original record date for such meeting.
(ii) For purposes of determining any rights of the
holders of shares of Preferred Stock to vote on any matter, whether
such right is created by the Articles of Incorporation, these Articles
Supplementary, by statute or otherwise, no holder of shares of
Preferred Stock shall be entitled to vote and no share of Preferred
Stock shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum, if
prior to or concurrently with the time of determination of shares
entitled to vote or shares deemed outstanding for quorum purposes, as
the case may be, such share shall have been redeemed or called for
redemption as provided in paragraph 5(e) and sufficient Deposit
Securities with maturities on or prior to the redemption date shall
have been deposited in trust with the Paying Agent to effect such
redemption.
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<PAGE> 51
(iii) The directors elected by the holders of shares
of Preferred Stock pursuant to paragraph 6(b) shall (subject to the
provisions of any applicable law) be subject to removal only by the
vote of the holders of a majority of shares of Preferred Stock
outstanding. Any vacancy on the Board of Directors occurring by
reason of such removal or otherwise (in the case of directors subject
to election by the holders of shares of Preferred Stock) may be filled
only by vote of the holders of at least a majority of shares of
Preferred Stock outstanding, and if not so filled such vacancy shall
(subject to the provisions of any applicable law) be filled by a
majority of the remaining directors (or the remaining director) who
were elected by the holders of shares of Preferred Stock. Any other
vacancy on the Board of Directors during a Voting Period shall be
filled as provided in the Corporation's By-Laws.
(iv) At any time when the holders of shares of
Preferred Stock become entitled to elect additional directors pursuant
to paragraph 6(b), the maximum number of directors fixed by the
By-Laws of the Corporation or otherwise shall automatically be
increased by the number of such additional directors if required; and
at such time as the holders of shares of Preferred Stock shall no
longer be entitled to elect directors pursuant to paragraph 6(b), such
exact number shall automatically be decreased by the number by which
they were increased by reason of this provision.
(d) Corporate Acts. So long as any shares of AMPS are
outstanding, the Corporation shall not, subject to the requirements of the
Investment Company Act and Maryland law, without the affirmative vote or
consent of the holders of at least two-thirds of the votes of the shares of
AMPS outstanding at the time, either in person or by proxy, either in writing
or at a meeting (voting separately as one class) in addition to any vote
required by Article Fifth of the Articles of Incorporation: (x) amend, alter
or repeal the provisions of the Articles of Incorporation including these
Articles Supplementary, whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting
power of such shares of AMPS or the Holders thereof, or (y) create, authorize,
issue, incur or suffer to exist any indebtedness for borrowed money or any
direct or indirect guarantee of any such indebtedness, provided, however, that
the Corporation may authorize the issuance of indebtedness for borrowed money,
for temporary or emergency purposes or for the clearance of transactions, in an
aggregate amount not to exceed the lesser of $10,000,000 or 10% of the
aggregate liquidation preference of the shares of AMPS outstanding at any one
time without any such consent or approval, provided that, with or without the
consent or approval of the holders, such action would not result in the
lowering of the then-current rating of the shares of AMPS by the
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<PAGE> 52
Rating Agencies (as evidenced in writing by the Rating Agencies); provided that
any increase in the amount of the authorized AMPS or the creation and issuance
of other series of Preferred Stock, or any increase in the amount of authorized
shares of such series or of any other series of Preferred Stock, in each case
ranking on a parity with or junior to the AMPS will not be deemed to materially
and adversely affect such rights, preferences, privileges or voting powers
unless such issuance would cause the Corporation not to satisfy the 1940 Act
AMPS Asset Coverage Requirement or the AMPS Basic Maintenance Amount.
The foregoing voting provisions shall not apply 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 AMPS shall have been
redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
(e) Exclusive Remedy. Unless otherwise required by law, the
Holders shall not have any relative rights or preferences or other special
rights other than those specifically set forth herein. In the event that the
Corporation fails to pay any dividends on the shares of AMPS or the Corporation
fails to redeem any shares of AMPS which it is required to redeem, or any other
event occurs which requires the mandatory redemption of AMPS and the required
Notice of Redemption has not been given, the exclusive remedy of the Holders
shall be the right to vote for directors pursuant to the provisions of this
paragraph 6. In no event shall the Holders have any right to sue for, or bring
a proceeding with respect to, such dividends or redemptions or damages for the
failure to receive the same.
(f) Notification to Rating Agencies. In the event a vote of
holders of AMPS is required pursuant to the provisions of Section 13(a) of the
Investment Company Act, the Corporation shall, not later than ten Business Days
prior to the date on which such vote is to be taken, notify the Rating Agencies
that such vote is to be taken and the nature of the action with respect to
which such vote is to be taken.
7. Asset Coverage.
(a) 1940 Act AMPS Asset Coverage Requirement.
The Corporation shall maintain, as of the last Valuation Date
of each month in which any share of AMPS is outstanding, the 1940 Act AMPS
Asset Coverage Requirement. The calculation of the 1940 Act AMPS Asset
Coverage Ratio shall be included in each Portfolio Valuation Report.
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<PAGE> 53
(b) AMPS Basic Maintenance Amount.
(i) For so long as any shares of AMPS are
outstanding, the Corporation will maintain, on each Valuation Date, as
evidenced by the completion of a Portfolio Valuation Report, Eligible
Portfolio Property having an aggregate Discounted Value at least equal
to the AMPS Basic Maintenance Amount, each as of such Valuation Date.
(ii) On or before 10:00 a.m. New York City time on
the fourth Business Day after (A) the Date of Original Issuance, (B)
each Quarterly Valuation Date thereafter, (C) any Valuation Date on
which the Corporation shall fail to meet the AMPS Basic Maintenance
Amount, (D) any Valuation Date on which it cures its failure to
satisfy the AMPS Basic Maintenance Amount, (E) any Valuation Date on
which it fails to meet AMPS Basic Maintenance Amount by 25% or more,
or (F) any Valuation Date as may be specified by S&P, the Corporation
shall complete and deliver to Moody's and S&P and the Auction Agent,
in the case of clauses (A) and (B) and to the relevant Rating Agency,
in the case of clauses (C) - (F), a Portfolio Valuation Report as of
the relevant Valuation Date. 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 Corporation, the Corporation
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. All such Portfolio Valuation Reports
shall be deemed to have been delivered to Moody's, S&P or the Auction
Agent upon receipt of a copy or telecopy or other electronic
transcription thereof if on the same day the Corporation mails the
Portfolio Valuation Report for delivery on the next possible Business
Day. A failure by the Corporation to deliver a Portfolio Valuation
Maintenance Report as contemplated by this paragraph 7(b)(ii) shall be
deemed to be delivery of a Portfolio Valuation Maintenance Report
indicating a failure to satisfy the Portfolio Valuation Amount.
(iii) 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 in accordance with paragraph 7(b)(ii) above, the
Corporation shall deliver to the Auction Agent and the Rating Agencies
a report or reports (the "Accountant's Confirmation") reviewing the
portfolio calculations, prepared by the Corporation's Independent
Accountants, relating to such Portfolio Valuation Report (as well as
to any other Portfolio Valuation Report randomly selected by the
Independent
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<PAGE> 54
Accountants that was prepared during the quarter ending on such
Quarterly Valuation Date) substantially to the effect that (A) the
Independent Accountants have read such Portfolio Valuation Report
(each, a "Report"); (B) with respect to the 1940 Act AMPS Asset
Coverage Ratio and the AMPS Basic Maintenance Amount, the result of
the calculations set forth in each Report have been recalculated and
are numerically correct; (C) with respect to the excess or deficiency
of the aggregate Discounted Value of the Eligible Portfolio Property
amount when compared to the AMPS Basic Maintenance Amount, the results
of the calculation set forth in each Report have been recalculated and
are numerically correct; (D) with respect to (x) any trade price, bid
or mean price (or such alternative permissible factor used in
calculating the Market Value) provided to the Corporation for purposes
of valuing securities in the Corporation's portfolio, the Independent
Accountant has compared the price used in such Report to the trade
price, the bid or mean price listed in such Report as provided to the
Corporation and verified that such information agrees; (y) with
respect to the lower of two bid prices provided to the Corporation for
purposes of valuing securities in the portfolio, the Independent
Accountants have compared the price used in each Report with the lower
of the two bid prices listed in the Report and verified that such
information agrees (in the event such information does not agree, the
Independent Accountants will provide a listing in their report of such
differences); and (E) that the assets listed in each Report conform
with the definition of Eligible Portfolio Property. If any letter
reviewing the portfolio calculations delivered pursuant to this
paragraph shows that an error was made in an Portfolio Valuation
Report for a particular Valuation Date for which such Accountant's
Confirmation was required to be delivered or shows that a lower
aggregate Discounted Value for the aggregate of all Eligible Portfolio
Property was determined by the Independent Accountants, the
calculation or determination made by such Independent Accountants
shall be final and conclusive and shall be binding on the Corporation,
and the Corporation shall promptly amend the Portfolio Valuation
Report and deliver the amended Portfolio Valuation Report to the
Auction Agent, S&P and Moody's.
(iv) For so long as shares of AMPS are rated by
Moody's, in managing the Corporation's portfolio, the Investment
Manager will not alter the composition of the Corporation's portfolio
if, in the reasonable belief of the Investment Manager, the effect of
any such alteration would be to cause the Corporation to have Eligible
Portfolio Property with an aggregate Discounted Value, as of the
immediately preceding Valuation Date, less than the AMPS Basic
Maintenance Amount as of such Valuation Date;
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<PAGE> 55
provided, however, that in the event that, as of the immediately
preceding Valuation Date, the aggregate Discounted Value of Eligible
Portfolio Property exceeded the AMPS Basic Maintenance Amount by 25%
or less, the Investment Manager will not alter the composition of the
Corporation's portfolio in a manner reasonably expected to reduce the
aggregate Discounted Value of Eligible Portfolio Property unless the
Corporation shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of Eligible Portfolio
Property would exceed the AMPS Basic Maintenance Amount.
(c) Calculation of AMPS Basic Maintenance Amount;
Accounting Treatment.
(i) Eligible Portfolio Property of the Corporation
shall be determined on an accrual basis in accordance with customary
practice under which Eligible Portfolio Property purchased and not yet
received are so reflected as Eligible Portfolio Property.
(ii) Dividends on the Common Stock which are payable
in Common Stock shall, after the effective date of any election by a
holder of Common Stock to receive such dividend, be excluded from
current liabilities.
(iii) Withholding taxes with respect to interest
earned on any asset of the Corporation if such interest is not
included in Eligible Portfolio Property, shall be excluded from
current liabilities.
(iv) With respect to Eligible Portfolio Property
sold by the Corporation as of or prior to the Valuation Date, (x) if
the determination is being made for Moody's, the sales price of such
property will be reflected as Cash or Australian Currency, as
appropriate, in Eligible Portfolio Property, to the extent that such
receivable is due and payable within 5 Business Days (determined as
for a Valuation Date) and is not subject to any dispute and (y) if the
determination is being made for S&P, the Market Value of such Property
will be reflected in Eligible Portfolio Property and will be
discounted at the appropriate Discount Factor.
(d) Other Permitted Assets. In addition to Eligible
Portfolio Property, the Corporation may own Other Permitted Assets and may also
own other securities, if the inclusion of any such type of other securities is
deemed by the Board of Directors to be in the best interest of the Corporation.
Other Permitted Assets and such other securities may be included in Eligible
Portfolio Property if the Rating Agencies have advised the Corporation in
writing that the inclusion of such Other Permitted
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<PAGE> 56
Assets or other securities in Eligible Portfolio Property would not adversely
affect their respective then-current ratings of the shares of AMPS.
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).
<TABLE>
<CAPTION>
Applicable
Credit Ratings Percentage
-------------- ----------
S&P Moody's
--- -------
<S> <C> <C>
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%
</TABLE>
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<PAGE> 57
The Corporation 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 Corporation, 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
Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, 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
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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
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<PAGE> 59
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) or clause
(C) of Paragraph 8(b)(ii) 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) 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
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<PAGE> 60
(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 Corporation) 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 Corporation);
(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.
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<PAGE> 61
(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) to 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.
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<PAGE> 62
(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 Hold 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:
62
<PAGE> 63
(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 Corporation
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 90% of the 30-day "AA" Composite
Commercial Paper Rate.
(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:
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<PAGE> 64
(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
64
<PAGE> 65
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
65
<PAGE> 66
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
66
<PAGE> 67
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 Corporation 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 Corporation. 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 Corporation'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.
67
<PAGE> 68
IN WITNESS WHEREOF, THE FIRST AUSTRALIA PRIME INCOME FUND, INC., has caused
these presents to be signed in its name and on its behalf by its President and
its corporate seal to be hereunder affixed and attested by its Assistant
Secretary on this __ day of ____________, 1995, and its President acknowledges
that these Articles Supplementary are the act and deed of The First Australia
Prime Income Fund, Inc., and, under the penalties of perjury, that the matters
and facts set forth herein with respect to authorization and approval are true
in all material respects to the best of his knowledge, information and belief.
<TABLE>
<S> <C>
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
By:
--------------------------------
Brian M. Sherman, President
ATTEST:
- ---------------------------
Assistant Secretary
</TABLE>
68
<PAGE> 1
EXHIBIT (h)(1)
Draft of 7/12/95
3,000 Shares Series G
The First Australia Prime Income Fund, Inc.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK ["AMPS"(R)]
(Liquidation Preference $25,000 Per Share)
PURCHASE AGREEMENT
July __, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
c/o Merrill Lynch & Co.
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, NY 10281-1305
Dear Sirs:
The First Australia Prime Income Fund, Inc., a Maryland corporation (the
"Fund"), EquitiLink International Management Limited, a Jersey, Channel Islands
corporation (the "Manager"), and EquitiLink Australia Limited, a New South
Wales, Australia corporation (the "Adviser") each confirms its agreement with
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Prudential Securities Incorporated ("Prudential") (the
"Underwriters", which term shall also include any Underwriter substituted as
hereinafter provided in Section 11) with respect to the sale by the Fund and
the purchase by the Underwriters, acting severally and not jointly, of 3,000
shares of Auction Market Preferred Stock, Series G, par value $.01 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared), of the Fund (the
"Shares") as set forth in Schedule A
- ---------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
hereto, except as may be provided otherwise in the Pricing Agreement, as
hereinafter defined. EquitiLink Limited, a New South Wales, Australia
corporation, joins in this Agreement with respect to the provisions of Section
7 and 8 hereof.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Fund and the Underwriters shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Fund and the Underwriters and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as supplemented by
the Pricing Agreement. From and after the date of the execution and delivery
of the Pricing Agreement, this Agreement shall be deemed to incorporate the
Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. 33-60341) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"), and a notification on Form
N-8A of registration of the Fund as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
of the Commission under the 1940 Act (together with the rules and regulations
under the 1933 Act, the "Rules and Regulations") and has filed such amendments
to such registration statement on Form N-2, if any, and such amended
preliminary prospectuses as may have been required to the date hereof. The
Fund will prepare and file such additional amendments thereto and such amended
prospectuses as may hereafter be required. Such registration statement (as
amended, if applicable) and the prospectus constituting a part thereof
(including in each case the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) or Rule 434 of the Rules and Regulations), as from
time to time amended or supplemented pursuant to the 1933 Act, are hereinafter
referred to as the "Registration Statement" and the "Prospectus", respectively,
except that if any revised prospectus shall be provided to the Underwriters by
the Fund for use in connection with the offering of the Shares which differs
from the Prospectus on file at the Commission at the time the Registration
Statement becomes effective (whether such revised prospectus is required to be
filed by the Fund pursuant to Rule 497(b) or Rule 497(h) of the Rules and
Regulations), the term "Prospectus" shall refer to each such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If the Fund elects to rely on Rule 434 under the Rules and Regulations, all
references to the Prospectus shall be deemed to include, without limitation,
the form of prospectus and the term sheet, taken together, provided to the
Underwriters by the Fund in reliance on Rule 434 under the 1933 Act (the "Rule
434 Prospectus"). If the Fund files a registration statement to register a
portion of the Shares and relies on Rule
2
<PAGE> 3
462(b) for such registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference to
"Registration Statement" herein shall be deemed to include both the
registration statement referred to above (No. 33-60341) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the 1933 Act.
The Fund understands that the Underwriters propose to make a public
offering of the Shares as soon as the Underwriters deem advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund, the Manager
and the Adviser each severally represents and warrants to each Underwriter as
of the date hereof and as of the date of the Pricing Agreement (such later date
being hereinafter referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective and
at the Representation Date, the Registration Statement will comply in all
material respects with the requirements of the 1933 Act, the 1940 Act and
the Rules and Regulations and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. At
the time the Registration Statement becomes effective, at the
Representation Date and at Closing Time referred to in Section 2, the
Prospectus (unless the term "Prospectus" refers to a prospectus which has
been provided to the Underwriters by the Fund for use in connection with
the offering of the Shares which differs from the Prospectus on file with
the Commission at the time the Registration Statement becomes effective,
in which case at the time such prospectus is first provided to the
Underwriters for such use) will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Fund in writing
by any Underwriter expressly for use in the Registration Statement or
Prospectus.
(ii) The accountants who certified the statement of assets and
liabilities included in the Registration Statement are independent public
accountants as required by the 1933 Act and the Rules and Regulations.
3
<PAGE> 4
(iii) The financial statements included in the Registration Statement
present fairly the financial position of the Fund as at the date indicated
and the results of its operations for the period specified; such financial
statements have been prepared in conformity with generally accepted
accounting principles; and the information in the Prospectus under the
heading "Capitalization" sets forth the capitalization of the Fund as of
its date and after giving effect to the sale of the Shares as if they were
sold as of such date and the information under the heading "Portfolio
Composition" sets forth the composition of the investment portfolio of the
Fund as of its date.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, of the Fund, or in the earnings, business affairs
or business prospects of the Fund, whether or not arising in the ordinary
course of business, (B) there have been no transactions entered into by
the Fund which are material to the Fund other than those in the ordinary
course of business, and (C) except for regular monthly dividends on the
outstanding shares of common stock, par value $.01 per share (the "Common
Shares"), or the outstanding shares of auction market preferred stock,
Series A through F, par value $.01 per share, liquidation preference
$100,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) (the "Preferred Shares"), of
the Fund, there has been no dividend or distribution of any kind declared,
paid or made by the Fund or any class of its capital stock.
(v) The Fund has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland
with corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration
Statement; the Fund is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the failure
to so qualify, either individually or in the aggregate, would have a
material adverse effect upon the operations or financial condition of the
Fund; and the Fund has no subsidiaries.
(vi) The Fund is registered with the Commission under the 1940 Act as
a closed-end, non-diversified management investment company, and no order
of suspension or revocation of such registration has been issued or
proceedings therefor initiated or threatened by the Commission.
4
<PAGE> 5
(vii) The authorized, issued and outstanding capital stock of the Fund
at ___________ __, 1995 is as set forth in the Prospectus under the
caption "Capital Stock"; the outstanding Common Shares and Preferred
Shares have been duly authorized by all requisite corporate action on the
part of the Fund are validly issued and are fully paid and non-assessable;
the Shares have been duly authorized by all requisite corporate action on
the part of the Fund for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Fund pursuant to this
Agreement against payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and nonassessable; the
Common Shares, the Preferred Shares and the Shares conform in all material
respects to the descriptions thereof set forth in the Prospectus under the
caption "Capital Stock"; and the issuance of the Shares to be purchased by
the Underwriters is not subject to preemptive rights.
(viii) The Fund is not in violation of its articles of amendment and
restatement, as amended (the "Charter") or by-laws (the "By-Laws") or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which it is a party or by which it or its properties may be bound; and the
execution and delivery of this Agreement, the Pricing Agreement, and the
Auction Agent Agreement and the Depository Agreement referred to in the
Registration Statement (as used herein, the "Auction Agent Agreement" and
the "Depository Agreement", respectively) and the consummation of the
transactions contemplated herein and therein have been duly authorized by
all necessary corporate action and will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Fund
pursuant to any material contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Fund is a party or by which
it may be bound or to which any of the property or assets of the Fund is
subject, nor will such action result in any violation of the provisions of
the Charter or By-laws of the Fund or, to the best knowledge of the Fund,
the Manager or the Adviser, any law, administrative regulation or
administrative or court decree applicable to the Fund; and no consent,
approval, authorization or order of any court or governmental authority or
agency is required for the consummation by the Fund of the transactions
contemplated by this Agreement, the Pricing Agreement, the Auction Agent
Agreement and the Depository Agreement except such as has been obtained
under the 1940 Act or as may be required under the 1933 Act, state
securities or Blue Sky laws or foreign securities laws in connection with
the purchase and distribution of the Shares by the Underwriters.
5
<PAGE> 6
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to carry on its businesses as contemplated in
the Prospectus and the Fund has not received any notice of proceedings
relating to the revocation or modification of any such licenses, permits,
consents, orders, approvals or authorizations.
(x) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Fund, the Manager or the Adviser threatened against
or affecting, the Fund, which might result in any material adverse change
in the condition, financial or otherwise, business affairs or business
prospects of the Fund, or might materially and adversely affect the
properties or assets of the Fund; and there are no material contracts or
documents of the Fund which are required to be filed as exhibits to the
Registration Statement by the 1933 Act, the 1940 Act or by the Rules and
Regulations which have not been so filed.
(xi) The Fund owns or possesses, or can acquire on reasonable terms,
adequate trademarks, service marks and trade names necessary to conduct
its business as described in the Registration Statement, and the Fund has
not received any notice of infringement of or conflict with asserted
rights of others with respect to any trademarks, service marks or trade
names which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the conduct
of the business, operations, financial condition or income of the Fund.
(xii) The Fund intends to direct the investment of the proceeds
of the offering described in the Registration Statement in such a manner
as to comply with the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended ("Subchapter M of the Code"), and intends to
qualify as a regulated investment company under Subchapter M of the Code.
(xiii) This Agreement, the Management Agreement, the Advisory
Agreement and the Custodian Agreement have each been duly authorized by
all requisite corporate action on the part of the Fund, executed and
delivered by the Fund and each complies with all applicable provisions of
the 1940 Act, except that with respect to this Agreement no representation
is made as to compliance with Section 17(i) of the 1940 Act.
(xiv) The Auction Agreement and the Depository Agreement have
each been duly authorized by all requisite corporate action on the part of
the Fund for execution and delivery by
6
<PAGE> 7
the Fund and, assuming the due authorization, execution and delivery
thereof by the other parties thereto, when executed and delivered by the
Fund, will constitute a valid and binding obligation of the Fund,
enforceable in accordance with its terms, except that enforceability
thereof may be subject to (A) bankruptcy, insolvency, reorganization,
moratorium and other laws now or hereafter in effect relating to
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity).
(b) The Manager represents and warrants to each Underwriter as of the
date hereof and as of the Representation Date as follows:
(i) The Manager has been duly organized as a corporation under
the laws of Jersey, Channel Islands with corporate power and authority to
conduct its business as described in the Prospectus.
(ii) The Manager is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is not prohibited by the Advisers Act or the 1940 Act, or the rules and
regulations under such acts, from acting under the Management Agreement
for the Fund as contemplated by the Prospectus.
(iii) The description of the Manager in the Prospectus is true and
correct and does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and there are no
pending legal proceedings that would be required to be described under
Item 12 of Form N-2.
(iv) This Agreement has been duly authorized, executed and delivered
by the Manager; the Management Agreement is in full force and effect and
constitutes a valid and binding obligation of the Manager, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting
creditors' rights generally and to general equity principles; and neither
the execution and delivery of this Agreement nor the performance by the
Manager of its obligations hereunder will conflict with, or result in a
breach of, any of the terms and provisions of, or constitute, with or
without the giving of notice or the lapse of time or both, a default
under, the Management Agreement, any other agreement or instrument to
which the Manager is a party or by which the Manager is bound, or any law,
order, rule or regulation applicable to it of any jurisdiction, court,
federal or state regulatory body, administrative agency or other
governmental body, stock
7
<PAGE> 8
exchange or securities association having jurisdiction over the Manager or
its respective properties or operations.
(v) The Manager has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(vi) The Fund will not be subject to taxation under the laws of
Jersey, Channel Islands by virtue of its relationship with the Manager.
(c) The Adviser represents and warrants to each Underwriter as of the
date hereof and as of the Representation Date as follows:
(i) The Adviser has been duly organized as a corporation under
the laws of New South Wales, Australia with corporate power and authority
to conduct its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under
the Advisers Act and is not prohibited by the Advisers Act or the 1940
Act, or the rules and regulations under such acts, from acting under the
Advisory Agreement for the Fund as contemplated by the Prospectus.
(iii) The description of the Adviser in the Prospectus is true and
correct and does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and there are no
pending legal proceedings that would be required to be described under
Item 10 of Form N-2.
(iv) This Agreement has been duly authorized, executed and delivered
by the Adviser; the Advisory Agreement is in full force and effect and the
Advisory Agreement constitutes a valid and binding obligation of the
Adviser, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting creditors' rights generally and to general
equity principles; and neither the execution and delivery of this
Agreement nor the performance by the Adviser of its obligations hereunder
will conflict with, or result in a breach of, any of the terms and
provisions of, or constitute, with or without giving notice or lapse of
time or both, a default under, the Advisory Agreement, any other agreement
or instrument to which the Adviser is a party or by which the Adviser is
bound, or any law, order, rule or regulation applicable to it of any
jurisdiction, court, federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities
8
<PAGE> 9
association having jurisdiction over the Adviser or its properties or
operations.
(v) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(vi) The Fund will be regarded as a non-resident of Australia
for purposes of Australian tax laws. Pursuant to the United States
Australia Double Tax Agreement, (i) the Fund will not be regarded as
having a permanent establishment in Australia, (ii) the Fund will not
acquire assets which would be regarded as "taxable Australian assets," and
(iii) none of the Fund's profits arising from the disposal of its assets
will be subject to Australian taxes.
(d) Any certificate signed by any officer of the Fund, the Manager or
the Adviser and delivered to the Underwriters or counsel for the Underwriters
shall be deemed a representation and warranty by the Fund, the Manager or the
Adviser, as the case may be, to the Underwriters, as to the matters covered
thereby.
SECTION 2. Sale and Delivery to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Fund
agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter agrees to purchase from the Fund, at the price per share set forth
in the Pricing Agreement, the number of Shares set forth in Schedule A opposite
the name of such Underwriter (except as otherwise provided in the Pricing
Agreement), plus any additional number of Shares which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 11 hereof.
(i) If the Fund has elected not to rely upon Rule 430A under the
Rules and Regulations, the initial public offering price and the purchase price
per share to be paid by the Underwriters for the Shares has been determined and
set forth in the Pricing Agreement, dated the date hereof, and an amendment to
the Registration Statement and the Prospectus will be filed before the
Registration Statement becomes effective.
(ii) If the Fund has elected to rely upon Rule 430A under the
Rules and Regulations, the purchase price per share to be paid by the
Underwriters for the Shares shall be an amount equal to the applicable initial
public offering price, less an amount per share to be determined by agreement
between the Underwriters and the Fund. The initial public offering price per
share shall be a fixed price to be determined by agreement between the
Underwriters and the Fund. The initial public offering price and the purchase
price, when so determined, shall be set forth in the Pricing
9
<PAGE> 10
Agreement. In the event that such price has not been agreed upon and the
Pricing Agreement has not been executed and delivered by all parties thereto by
the close of business on the fourteenth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, except as provided in Section 5, unless otherwise
agreed to by the Fund, the Manager, the Adviser and the Underwriters.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Brown & Wood, One World Trade
Center, New York, New York 10048-0557, or at such other place as shall be
agreed upon by the Underwriters and the Fund, at 10:00 A.M., New York City
time, on the third business day (unless postponed in accordance with the
provisions of Section 11) following the date the Registration Statement becomes
effective or, if the Fund has elected to rely upon Rule 430A under the Rules
and Regulations, the third business day after execution of the Pricing
Agreement (or, if pricing takes place after 4:30 P.M., New York City time on
either the date the Registration Statement becomes effective or the date of
execution of the Pricing Agreement, as applicable, the fourth business day
after such applicable date), or such other time not later than ten business
days after such date as shall be agreed upon by the Underwriters and the Fund
(such time and date of payment and delivery being herein called "Closing
Time"). Payment shall be made to the Fund by Federal funds check or checks or
similar same-day funds and payable to the order of the Fund, against delivery
to the Underwriters of the certificate for the Shares to be purchased by them.
The Shares shall be represented by one certificate registered in the name of
Cede & Co., as nominee for The Depository Trust Company. The certificate for
the Shares will be made available by the Fund for examination by the
Underwriters not later than 3:00 P.M. on the last business day prior to Closing
Time.
SECTION 3. Covenants of the Fund. The Fund covenants with each
Underwriter as follows:
(a) The Fund will use its best efforts to cause the Registration
Statement to become effective under the 1933 Act, and will advise the
Underwriters promptly as to the time at which the Registration Statement
and any amendments thereto (including any post-effective amendment)
becomes so effective and, if required, to cause the issuance of any orders
exempting the Fund from any provisions of the 1940 Act and will advise the
Underwriters promptly as to the time at which any such orders are granted.
(b) The Fund will notify the Underwriters immediately, and
confirm the notice in writing, (i) of the effectiveness of the
Registration Statement and any amendment thereto (including any
post-effective amendment), (ii) of the receipt of any
10
<PAGE> 11
comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose, and (v) of the issuance by the Commission of an order of
suspension or revocation of the notification on Form N-8A of registration
of the Fund as an investment company under the 1940 Act or the initiation
of any proceeding for that purpose. The Fund will make every reasonable
effort to prevent the issuance of any stop order described in subsection
(iv) hereunder or any order of suspension or revocation described in
subsection (v) hereunder and, if any such stop order or order of
suspension or revocation is issued, to obtain the lifting thereof at the
earliest possible moment. If the Fund elects to rely on Rule 434 under
the Rules and Regulations, the Fund will prepare a term sheet that
complies with the requirements of Rule 434 under the Rules and Regulations
and the Fund will provide the Underwriters with copies of the form of Rule
434 Prospectus, in such number as the Underwriters may reasonably request
by the close of business in New York on the business day immediately
succeeding the date of the Pricing Agreement.
(c) The Fund will give the Underwriters notice of its intention
to file any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Fund proposes for use by the
Underwriters in connection with the offering of the Shares, which differs
from the prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether such revised prospectus is required
to be filed pursuant to Rule 497(b) or Rule 497(h) of the Rules and
Regulations, or any term sheet prepared in reliance on Rule 434 of the
Rules and Regulations), whether pursuant to the 1940 Act, the 1933 Act, or
otherwise, and will furnish the Underwriters with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement to which the Underwriters or counsel for the Underwriters shall
reasonably object.
(d) The Fund will deliver to the Underwriters, as soon as
practicable, two signed copies of the Registration Statement as originally
filed and of each amendment thereto, in each case with two sets of the
exhibits filed therewith, and will also deliver to the Underwriters a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto (but without exhibits to the Registration Statement
or any such amendment) for each of the Underwriters.
11
<PAGE> 12
(e) The Fund will furnish to each Underwriter, from time to time
during the period when the Prospectus is required to be delivered under
the 1933 Act, such number of copies of the Prospectus (as amended or
supplemented) as each Underwriter may reasonably request for the purposes
contemplated by the 1933 Act or the Rules and Regulations.
(f) If any event shall occur as a result of which it is
necessary, in the opinion of counsel for the Underwriters, to amend or
supplement the Prospectus in order to make the Prospectus not misleading
in the light of the circumstances existing at the time it is delivered to
a purchaser, the Fund will forthwith amend or supplement the Prospectus by
preparing and furnishing to the Underwriters a reasonable number of copies
of an amendment or amendments of or a supplement or supplements to, the
Prospectus (in form and substance satisfactory to counsel for the
Underwriters) which will amend or supplement the Prospectus so that the
Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the Underwriters,
to qualify the Shares for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United
States as the Underwriters may designate, and will maintain such
qualifications in effect for a period of not less than one year after the
date hereof. The Fund will file such statements and reports as may be
required by the laws of each jurisdiction in which the Shares have been
qualified as above provided.
(h) The Fund will make generally available to its security
holders as soon as practicable, but no later than 60 days after the close
of the period covered thereby, an earning statement (in form complying
with the provisions of Rule 158 of the Rules and Regulations) covering a
twelve-month period beginning not later than the first day of the Funds's
fiscal quarter next following the "effective" date (as defined in said
Rule 158) of the Registration Statement.
(i) Between the date of this Agreement and the termination of any
trading restrictions or Closing Time, whichever is later, the Fund will
not, without your prior consent, offer or sell, or enter into any
agreement to sell, any equity or equity related securities of the Fund
other than the Shares and the Common Shares issued in reinvestment of
dividends or distributions.
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<PAGE> 13
(j) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance
upon Rule 430A of the Rules and Regulations, then immediately following
the execution of the Pricing Agreement, the Fund will prepare, and file or
transmit for filing with the Commission in accordance with such Rule 430A
and Rule 497(h) of the Rules and Regulations, copies of amended
Prospectus, or, if required by such Rule 430A, a post-effective amendment
to the Registration Statement (including an amended Prospectus),
containing all information so omitted.
(k) The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the
Code.
SECTION 4. Covenants of the Underwriters. Each of the Underwriters
covenants and agrees with the Fund that no later than the second business day
succeeding Closing Time, it will provide the Fund and the Auction Agent (as
defined in the Prospectus) with a list of the persons to whom it has sold
Shares, the number of Shares sold to each such person and the number of Shares
it is holding as of the date of such notice.
SECTION 5. Payment of Expenses. The Fund will pay all expenses incident
to the performance of its obligations under this Agreement, including, but not
limited to, expenses relating to (i) the printing and filing of the
registration statement as originally filed and of each amendment thereto, (ii)
the preparation, issuance and delivery of the certificate for the Shares to the
Underwriters, (iii) the fees and disbursements of the Fund's counsel and
accountants, (iv) the qualification of the Shares under securities laws in
accordance with the provisions of Section 3(g) of this Agreement, including
filing fees and any reasonable fees or disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of
the Blue Sky Survey, (v) the printing and delivery to the Underwriters of
copies of the registration statement as originally filed and of each amendment
thereto, of the preliminary prospectus, and of the Prospectus and any
amendments or supplements thereto including any term sheet delivered by the
Fund pursuant to Rule 434 of the Rules and Regulations, (vi) the printing and
delivery to the Underwriters of copies of the Blue Sky Survey and (vii) the
fees charged by rating agencies for the rating of the Shares.
If this Agreement is terminated by the Underwriters in accordance with the
provisions of Section 6 or Section 10(a)(i), the Fund shall reimburse the
Underwriters for all of their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters. In the
event the transactions contemplated hereunder are not consummated, the Fund
agrees to pay all of the costs and expenses set forth in the
13
<PAGE> 14
first paragraph of this Section 5 which the Fund would have paid if such
transactions had been consummated.
The Manager agrees that, to the extent the Fund fails to fulfill its
obligations in the preceding paragraph, the Manager will pay all the costs and
expenses set forth in Section 5 and the Manager agrees that any right which at
any time the Manager may have under any applicable laws to require that
recourse be had to the assets of the Fund before any claim is enforced against
the Manager in respect of the obligations assumed under this paragraph of this
Section 5 is hereby abandoned and waived.
SECTION 6. Conditions of Underwriters' Obligations. The obligations of
the Underwriters hereunder are subject to the accuracy of the representations
and warranties of the Fund, the Manager and the Adviser herein contained, to
the performance by the Fund, the Manager and the Adviser of their respective
obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the date of this Agreement,
or at a later time and date not later, however, than 5:30 P.M. on the
first business day following the date hereof, or at such later time and
date as may be approved by a majority in interest of the Underwriters, and
at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission. If the
Fund has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Shares and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall
have been transmitted to the Commission for filing pursuant to Rule 497(h)
of the Rules and Regulations within the prescribed time period, and prior
to Closing Time the Fund shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules
and Regulations.
(b) At Closing Time, the Underwriters shall have received:
(1) The favorable opinion, dated as of Closing Time, of
Dechert Price & Rhoads, counsel for the Fund and special United
States counsel for the Manager and the Adviser, to the effect
that:
(i) The Fund has been duly incorporated and is
validly existing as a corporation in good standing under
the laws of the State of Maryland.
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<PAGE> 15
(ii) The Fund has corporate power and authority to
own, lease and operate its properties and conduct its
business as described in the Registration Statement and
the Prospectus.
(iii) The Fund is duly qualified as a foreign
corporation to transact business and is in good standing
in each jurisdiction in which the failure to so qualify,
either individually or in the aggregate, would have a
material adverse effect on the operations or financial
condition of the Fund.
(iv) The outstanding Common Shares and the
outstanding Preferred Shares have been duly authorized by
requisite corporate action on the part of the Fund and
have been validly issued and are fully paid and
non-assessable.
(v) The Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Fund
pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be
validly issued and fully paid and nonassessable; the
issuance of the Shares is not subject to any preemptive
or other rights to subscribe for any of the Shares under
any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Fund is a party or
by which the Fund or any of its properties are bound
which has been filed as an exhibit to the Registration
Statement which are the only such instruments which have
been specifically identified to such counsel by the Fund
as material to the business or financial condition of the
Fund, or under the Charter or By-Laws of the Fund, or
under the Maryland Corporation Law; the statements set
forth in the Prospectus under the heading "Capital
Stock", insofar as such statements constitute a summary
of legal matters or documents referred to therein,
provide a fair summary of such legal matters or
documents.
(vi) This Agreement and the Pricing Agreement each
has been duly authorized, executed and delivered by the
Fund and each complies with all applicable provisions of
the 1940 Act (except that counsel need express no opinion
as to compliance with Section 17(i) of the 1940 Act).
(vii) The Registration Statement is effective under
the 1933 Act and, to the best of their know-
15
<PAGE> 16
ledge and information, no stop order suspending the
effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission.
(viii) At the time the Registration Statement became
effective the Registration Statement (other than the
financial statements included therein, as to which no
opinion need be rendered) complied as to form in all
material respects with the requirements of the 1933 Act
and the 1940 Act and the Rules and Regulations. The Rule
434 Prospectus conforms to the requirements of Rule 434
in all material respects.
(ix) To the best of their knowledge and information,
there are no legal or governmental proceedings pending or
threatened against the Fund which are required to be
disclosed in the Registration Statement, other than those
disclosed therein.
(x) To the best of their knowledge and information,
there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments of the
Fund required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or
filed as exhibits thereto, the descriptions thereof are
correct in all material respects, references thereto are
correct, and no default exists in the due performance or
observance of any material obligation, agreement,
covenant or condition contained in any contract,
indenture, loan agreement, note or lease so described,
referred to or filed.
(xi) No consent, approval, authorization or order of
any court or governmental authority or agency is required
in connection with the sale of the Shares to the
Underwriters, except such as has been obtained under the
1933 Act, the 1940 Act or the Rules and Regulations or
such as may be required under state securities laws; and
to the best of their knowledge and information, the
execution and delivery of this Agreement, the Pricing
Agreement, the Management Agreement, the Advisory
Agreement, the Custody Agreement, the Auction Agent
Agreement and the Depository Agreement and the
consummation of the transactions contemplated herein and
therein will not conflict
16
<PAGE> 17
with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Fund
pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument known to such
counsel to which the Fund is a party or by which it may
be bound or to which any of the property or assets of the
Fund is subject, nor will such action result in any
violation of the provisions of the Charter or By-Laws of
the Fund, or any law or administrative regulation, or, to
the best of their knowledge and information,
administrative or court decree.
(xii) The Management Agreement, the Advisory
Agreement, the Custody Agreement, the Auction Agent
Agreement and the Depository Agreement have each been
duly authorized and approved by the Fund and comply as to
form in all material respects with all applicable
provisions of the 1940 Act, and each has been duly
executed by the Fund.
(xiii) The Fund is registered with the Commission under
the 1940 Act as a closed-end, non-diversified management
investment company, and all required action has been
taken by the Fund under the 1933 Act, the 1940 Act and
the Rules and Regulations to make the public offering and
consummate the sale of the Shares pursuant to this
Agreement; the provisions of the Charter and By-Laws of
the Fund comply as to form in all material respects with
the requirements of the 1940 Act; and, to the best of
their knowledge and information, no order of suspension
or revocation of such registration under the 1940 Act,
pursuant to Section 8(e) of the 1940 Act, has been issued
or proceedings therefor initiated or threatened by the
Commission.
(xiv) The information in the Prospectus under the
caption "Taxation-United States", to the extent that it
constitutes matters of law or legal conclusions, has been
reviewed by them and is correct in all material respects.
(xv) The Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by
the Advisers Act or the 1940 Act, or the rules and
regulations under such acts, from acting under the
Management Agreement for the Fund as contemplated by the
Prospectus.
17
<PAGE> 18
(xvi) The Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by
the Advisers Act or the 1940 Act, or the rules and
regulations under such acts, from acting under the
Advisory Agreement for the Fund as contemplated by the
Prospectus.
(2) The favorable opinion, dated as of Closing Time, of
Mourant du Feu & Jeune, counsel to the Manager, in form and
substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Manager has been duly organized as a company
incorporated under the laws of Jersey, Channel Islands,
with corporate power and authority to conduct its
business as described in the Registration Statement and
the Prospectus.
(ii) This Agreement has been duly authorized,
executed and delivered by the Manager; each of this
Agreement and the Management Agreement constitutes a
valid and binding obligation of the Manager; no consent,
approval, authorization or order of any Jersey, Channel
Islands court or governmental authority or agency is
required which has not been obtained for the performance
of this Agreement or the Management Agreement by the
Manager; and to the best of such counsel's knowledge and
information, neither the execution and delivery of this
Agreement or the Management Agreement nor the performance
by the Manager of its obligations hereunder or thereunder
will conflict with, or result in a breach of any of the
terms and provisions of, or constitute, with or without
the giving of notice or the lapse of time or both, a
default under, any agreement or instrument to which the
Manager is a party or by which the Manager is bound, or
any law, order, rule or regulation applicable to the
Manager of any jurisdiction, court, federal or state
regulatory body, administrative agency or other
governmental body, stock exchange or securities
association having jurisdiction over the Manager or its
properties or operations.
(iii) To the best of such counsel's knowledge and
information, the description of the Manager in the
Registration Statement and the Prospectus does not
contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein
or necessary to make the statements therein not
misleading.
18
<PAGE> 19
(iv) The Fund will not be subject to taxation under
the laws of Jersey, Channel Islands by virtue of its
relationship with the Manager.
(3) The favorable opinion, dated as of Closing Time, of
Freehill, Hollingdale & Page, Australian counsel to the Fund and
the Adviser, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) The Adviser has been duly organized as a
corporation under the laws of New South Wales, Australia
with corporate power and authority to conduct its
business as described in the Prospectus.
(ii) This Agreement has been duly authorized,
executed and delivered by the Adviser; each of this
agreement and the Advisory Agreement constitutes a valid
and binding obligation of the Adviser; no consent,
approval, authorization or order of any court or
governmental authority or agency is required which has
not been obtained for the performance of this agreement
or the Advisory Agreement by the Adviser; and to the best
of such counsel's knowledge and information, neither the
execution and delivery of this Agreement or the Advisory
Agreement nor the performance by the Adviser of its
obligations hereunder or thereunder will conflict with,
or result in a breach of, any of the terms and provisions
of, or constitute, with or without the giving of notice
or the lapse of time or both, a default under, any
agreement or instrument to which the Adviser is a party
or by which the Adviser is bound, or any law, order, rule
or regulation applicable to the Adviser of any
jurisdiction, court, federal or state regulatory body,
administrative agency or other governmental body, stock
exchange or securities association having jurisdiction
over the Adviser or its properties or operations; and if
this Agreement were to be governed by the laws of New
South Wales (the domestic law of the Adviser) it would be
enforceable according to its terms.
(iii) Pursuant to the United States Australia Double
Tax Agreement, (A) the Fund will not be regarded as
having a permanent establishment in Australia and (B)
assuming the Fund does not acquire assets which would be
regarded as "taxable Australian assets," none of the
Fund's profits
19
<PAGE> 20
arising from the disposal of its assets will be subject
to Australian taxes.
(iv) The information in the Prospectus under the
caption "Taxation -- Foreign Taxes -- Australia," to the
extent that it covers matters of Australian law or legal
conclusions thereunder, has been reviewed by them and is
confirmed.
(v) To the best of such counsel's knowledge and
information, the description of the Adviser in the
Registration Statement and the Prospectus does not
contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein
or necessary to make the statements therein not
misleading.
(vi) This Agreement has been duly authorized,
executed and delivered by EquitiLink Limited and
constitutes a valid and binding obligation of EquitiLink
Limited.
(4) The favorable opinion, dated as of Closing Time, of
Chapman Tripp Sheffield Young, New Zealand counsel for the Fund,
in form and substance satisfactory to counsel for the
Underwriters, to the effect that the information in the Prospectus
under the caption "Taxation--Foreign Taxes--New Zealand," to the
extent that it covers matters of law or legal conclusions, has
been reviewed by them and is confirmed.
(5) The favorable opinion, dated as of Closing Time,
of Brown & Wood, counsel for the Underwriters, with respect to the
matters set forth in (i), (v) to (viii), inclusive, and (xiii) of
subsection (b)(1) of this Section.
(6) In giving their opinions required by subsections
(b)(1) and (b)(5) of this Section, Dechert Price & Rhoads and
Brown & Wood shall additionally state that nothing has come to
their attention that would lead them to believe that the
Registration Statement (other than the financial statements
included therein, as to which no belief need be stated), at the
time it became effective or at the Representation Date, contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus
(other than the financial statement included therein, as to which
no belief need be stated), at the Representation Date (unless the
term "Prospectus" refers to a prospectus which has been provided
to the
20
<PAGE> 21
Underwriters by the Fund for use in connection with the offering
of the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes
effective, in which case at the time they are first provided to
the Underwriters for such use) or at Closing Time, included an
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading. In rendering their opinions, Dechert Price & Rhoads
and Brown & Wood may rely, as to matters of Maryland law, on the
opinion of Venable, Baetjer and Howard, dated Closing Time,
provided that Dechert Price & Rhoads and Brown & Wood each shall
state that such opinion is satisfactory in form and substance to
such counsel and that the Underwriters are justified in relying on
it.
(c) At Closing Time, (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be stated
therein in accordance with the 1933 Act, the 1940 Act and the Rules and
Regulations and in all material respects shall conform to the requirements
of the 1933 Act, the 1940 Act and the Rules and Regulations and the
Prospectus shall not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, and no action, suit or proceeding at law or in equity shall be
pending or, to the knowledge of the Fund, the Manager or the Adviser,
threatened against the Fund, the Manager or the Adviser which would be
required to be set forth in the Prospectus other than as set forth
therein, (ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, any material adverse change in the condition, financial or
otherwise, of the Fund or in its earnings, business affairs or business
prospects, whether or not arising in the ordinary course of business, from
that set forth in the Registration Statement and Prospectus, (iii) the
Manager and the Adviser shall each have the financial resources available
to it necessary for the performance of its services and obligations as
contemplated in the Registration Statement and the Prospectus and (iv) no
proceedings shall be pending or, to the knowledge of the Fund, the Manager
or the Adviser, threatened against the Fund, the Manager or the Adviser
before or by any Federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, financial
condition or income of either the Fund, the Manager or the Adviser other
than as set forth in the Registration Statement and the Prospectus; and
the Underwriters shall have received, at Closing Time, a
21
<PAGE> 22
certificate of the President or Treasurer of the Fund and of the Managing
Director of each of the Manager and the Adviser dated as of Closing Time,
evidencing, to the best of their knowledge and belief, after reasonable
investigation, compliance with the appropriate provisions of this
subsection (c).
(d) At Closing Time, the Underwriters shall have received
certificates, dated as of Closing Time, (i) of the President or Treasurer
of the Fund to the effect that the representations and warranties of the
Fund contained in Section 1(a) are true and correct with the same force
and effect as though expressly made at and as of Closing Time, (ii) of the
Managing Director of the Manager to the effect that the representations
and warranties of the Manager contained in Sections 1(a) and 1(b) are true
and correct with the same force and effect as though expressly made at and
as of Closing Time and (iii) of the Managing Director of the Adviser to
the effect that the representations and warranties of the Adviser
contained in Sections 1(a) and 1(c) are true and correct with the same
force and effect as though expressly made at and as of Closing Time.
(e) At the time of execution of this Agreement, the Underwriters
shall have received from Price Waterhouse a letter, dated such date in
form and substance satisfactory to the Underwriters, to the effect that:
(i) they are independent accountants with respect to the
Fund within the meaning of the 1933 Act and the Rules and
Regulations;
(ii) in their opinion, the financial statements examined by
them and included in the Registration Statement comply as to form
in all material respects with the applicable accounting
requirements of the 1933 Act and the 1940 Act and the Rules and
Regulations; and
(iii) they have performed specified procedures, not
constituting an audit, including a reading of the latest available
interim financial statements of the Fund, a reading of the minute
books of the Fund, inquiries of officials of the Fund responsible
for financial accounting matters and such other inquiries and
procedures as may be specified in such letter, and on the basis of
such inquiries and procedures nothing came to their attention that
caused them to believe that (A) the unaudited financial statements
as of April 30, 1995 and for the period from November 1, 1994
through April 30, 1995 included in the Registration Statement do
not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act
22
<PAGE> 23
Regulations applicable to unaudited interim financial statements
included in registration statements or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financed
statements included in the Registration Statement and (B) at the
date of the latest available financial statements read by such
accountants, or at a subsequent specified date not more than three
days prior to the date of this Agreement, there was any change in
the capital stock or net assets of the Fund as compared with
amounts shown on the statement of net assets included in the
Prospectus; and
(iv) in addition to the procedures referred to in clause (iii)
above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts,
percentages, numerical data, financial information and financial
statements appearing in the Registration Statement, which have
previously been specified by you and which shall be specified in
such letter, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting and
financial records of the Fund.
(f) At Closing Time, the Underwriters shall have received from
Price Waterhouse a letter, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the "specified date" referred
to shall be a date not more than three days prior to Closing Time.
(g) At Closing Time, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Shares as herein contemplated and to pass upon related proceedings, or in
order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Fund, the Manager and the Adviser in
connection with the organization and registration of the Fund under the
1940 Act and the issuance and sale of the Shares as herein contemplated
shall be satisfactory in form and substance to the Underwriters and
counsel for the Underwriters.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriters by notice to the Fund at any time at or prior to Closing Time, and
such termination shall be without liability of any party to any other party
except as provided in Section 5.
23
<PAGE> 24
SECTION 7. Indemnification. (a) The Fund and the Manager, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the information deemed to
be part of the Registration Statement pursuant to Rule 430A or Rule 434 of
the Rules and Regulations, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever as incurred to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever (including the fees and
disbursements of counsel chosen by the Underwriters) reasonably incurred
in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriters expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto). The foregoing indemnity with respect to any untrue
statement contained in or omission from a preliminary prospectus shall not
inure to the benefit of the Underwriter (or
24
<PAGE> 25
any person controlling such Underwriter) from whom the person asserting any
such loss, liability, claim, damage or expense purchased any of the Shares
which are the subject thereof if the Fund or the Manager sustains the burden of
proving that such person was not sent or given a copy of the Prospectus (or the
Prospectus as amended or supplemented) (in each case exclusive of the documents
from which information is incorporated by reference) at or prior to the written
confirmation of the sale of such Shares to such person and the untrue statement
contained in or omission from such preliminary prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented).
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Fund and the Manager, their respective directors, each of the Fund's officers
who signed the Registration Statement, and each person, if any, who controls
the Fund and the Manager within the meaning of Section 15 of the 1933 Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Fund by such Underwriter expressly for use in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto).
(c) EquitiLink Limited and the Adviser agree that, to the extent that the
Fund and the Manager fail to indemnify each Underwriter, and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the 1933
Act, in accordance with the provisions of subsection (a) of this Section or the
Manager fails to indemnify each Underwriter and each controlling person as
provided in subsection (c) of this Section, EquitiLink Limited and the Adviser
will indemnify and hold harmless each Underwriter and each such controlling
person to the extent provided in such subsections (a) and (c), respectively.
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. An indemnifying party
may participate at its own expense in the defense of any such action. In no
event shall the indemnifying parties be liable for the fees and expenses of
more than one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
25
<PAGE> 26
(e) For purposes of this Section 7, all references to the Registration
Statement, any preliminary prospectus or the Prospectus, or any amendment or
supplement to any of the foregoing, shall be deemed to include, without
limitation, any electronically transmitted copies thereof, including, without
limitation, any copies filed with the Commission pursuant to EDGAR.
SECTION 8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 7 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Fund, the Manager, the
Adviser, EquitiLink Limited and the Underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement as incurred by the Fund, the Manager,
the Adviser and the Underwriters, as incurred, in such proportions that the
Underwriters are responsible for that portion represented by the percentage
that the aggregate underwriting compensation payable pursuant to Section 2
hereof bears to the aggregate initial public offering price of the Shares sold
under this Agreement and the Fund, the Manager, the Adviser and EquitiLink
Limited are responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section,
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act shall have the same rights to contribution as such
Underwriter, and each director of the Fund, the Manager, the Adviser and
EquitiLink Limited, respectively, each officer of the Fund who signed the
Registration Statement, and each person, if any, who controls the Fund, the
Manager, the Adviser or EquitiLink Limited within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as the Fund, the
Manager, the Adviser and EquitiLink Limited, respectively.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or the Pricing Agreement, or contained in certificates of officers of
the Fund, the Manager or the Adviser submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of
the Fund, the Manager or the Adviser and shall survive delivery of the Shares
to the Underwriters.
SECTION 10. Termination of Agreement. (a) The Underwriters, by notice to
the Fund, may terminate this Agreement at any time at or prior to Closing Time
(i) if there has been, since the date of this Agreement or since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the condition, financial or otherwise, or in the
26
<PAGE> 27
earnings, business affairs or business prospects of the Fund, the Manager or
the Adviser, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or elsewhere or any outbreak of hostilities or other calamity
or crisis or any escalation of existing hostilities the effect of which is such
as to make it, in the Underwriters' judgment, impracticable to market the
Shares or enforce contracts for the sale of the Shares, or (iii) if trading
generally on the American Stock Exchange, the New York Stock Exchange, or the
Sydney Stock Exchange has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by any of said exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by United
States or New York authorities or Australian federal authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except
as provided in Section 5.
SECTION 11. Default by One or More of the Underwriters. If one of the
Underwriters shall fail or refuse at Closing Time to purchase the Shares which
it is obligated to purchase under this Agreement and the Pricing Agreement (the
"Defaulted Shares"), the Underwriters shall have the right, within 48 hours
thereafter, to make arrangements for the non-defaulting Underwriter, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Shares in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such arrangements
within such 48-hour period, then this Agreement shall terminate without
liability on the part of the non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either of the Underwriters or the Fund shall have the right to
postpone Closing Time for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements.
SECTION 12. Jurisdiction of Courts of New York. The Manager, the Adviser
and EquitiLink Limited each hereby appoints EquitiLink U.S.A., Inc., 45
Broadway, New York, New York 10006 as its authorized agent (the "Authorized
Agent") upon which process may be served in any action by any Underwriter,
arising out of or based upon this Agreement which may be instituted in any
state or federal court in The City of New York, and the Manager, the Adviser
and EquitiLink Limited each expressly accepts the jurisdiction of any
27
<PAGE> 28
such court in respect of such action. Such appointments shall be irrevocable
unless and until the appointment of a successor Authorized Agent and such
successor's acceptance of such appointment. The Manager, the Adviser and
EquitiLink Limited each will take any and all action, including the filing of
any and all documents and instruments, that may be necessary to continue such
appointment or appointments in full force and effect as aforesaid and will
appoint a successor Authorized Agent if the Authorized Agent named above ceases
operations in The City of New York. Service of process upon the Authorized
Agent and written notice of such service mailed or delivered to the Manager,
the Adviser or EquitiLink Limited at its address set forth in Section 13 hereof
shall be deemed in every respect service of process upon the Manager, the
Adviser or EquitiLink Limited, as the case may be.
SECTION 13. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriters shall be directed to Merrill Lynch & Co., Merrill Lynch World
Headquarters, North Tower, World Financial Center, New York, New York 10281,
Attention: Richard N. Doyle, Jr., Director; notices to the Fund shall be
directed to the Fund, Attention: Eugene Stark, c/o Ken Kozlowski, Prudential
Mutual Fund Management, Inc., One Seaport Plaza, 25th Floor, New York, New York
10292; notices to the Manager shall be sent to the Manager at Union House,
Union Street, St. Helier, Jersey, Channel Islands, Attention: Roger C.
Maddock; notices to the Adviser shall be sent to the Adviser at 44 Pitt Street,
Sydney, New South Wales, Australia, Attention: David Manor; and notices to
EquitiLink Limited shall be sent to EquitiLink Limited at 44 Pitt Street,
Sydney, New South Wales, Australia, Attention: David Manor.
SECTION 14. Parties. This Agreement and the Pricing Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Fund, the
Adviser, the Manager and their respective successors. Nothing expressed or
mentioned in this Agreement or the Pricing Agreement is intended or shall be
construed to give any person, firm or corporation, other than the parties
hereto and their respective successors and the controlling persons and officers
and directors referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement
and the Pricing Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the parties hereto and thereto and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Shares from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
28
<PAGE> 29
SECTION 15. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day
refer to New York City time.
29
<PAGE> 30
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a single binding agreement
among the Underwriters, the Fund, the Manager and the Adviser in accordance
with its terms.
Very truly yours,
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
By:
------------------------------
Name:
Title:
EQUITILINK INTERNATIONAL
MANAGEMENT LIMITED
By:
------------------------------
Name:
Title:
EQUITILINK AUSTRALIA LIMITED
By:
------------------------------
Name:
Title:
EQUITILINK LIMITED
By:
------------------------------
Name:
Title:
30
<PAGE> 31
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------------
Authorized Signatory
Investment Banking Group
31
<PAGE> 32
Schedule A
<TABLE>
<CAPTION>
Name of Underwriters Number of Shares
-------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . -----
Prudential Securities Incorporated . . . . . . . -----
-------------------
TOTAL 3,000
===================
</TABLE>
32
<PAGE> 33
EXHIBIT A
3,000 Shares Series G
The First Australia Prime Income Fund, Inc.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK ["AMPS"(R)]
(Liquidation Preference $25,000 Per Share)
PRICING AGREEMENT
July __, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
c/o Merrill Lynch & Co.
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Reference is made to the Purchase Agreement, dated July __, 1995 (the
"Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Prudential Securities
Incorporated (the "Underwriters") of the respective number of shares, as set
forth in Schedule A to the Purchase Agreement of Auction Market Preferred
Stock, Series G, liquidation preference $25,000 per share plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) (the
"Shares") of The First Australia Prime Income Fund, Inc. (the "Fund").
- -------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
A-1
<PAGE> 34
Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with each
Underwriter as follows:
1. The initial public offering price per share for the
Shares, determined as provided in said Section 2, shall be $25,000, plus
accumulated dividends, if any, from the date of original issue.
2. The purchase price per share for the Shares to be paid by
the several Underwriters shall be $______, being an amount equal to the
initial public offering price set forth above less $_____ per share.
3. The dividend rate for the Shares for the initial dividend
period ending August __, 1995 will be _____%.
A-2
<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Fund in accordance with its terms.
Very truly yours,
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
By:
------------------------------
Name:
Title:
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
-----------------------------------
Authorized Signatory
Investment Banking Group
A-3
<PAGE> 1
Exhibit (k)(4)
================================================================================
AUCTION AGENT AGREEMENT
BETWEEN
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
AND
CHEMICAL BANK
DATED AS OF JULY __, 1995
RELATING TO
AUCTION MARKET PREFERRED STOCK(R)
("AMPS"(R))
SERIES G
OF
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
================================================================================
(R) REGISTERED TRADEMARK OF MERRILL LYNCH & CO., INC.
<PAGE> 2
THIS AUCTION AGENT AGREEMENT dated as of July __, 1995 between
THE FIRST AUSTRALIA PRIME INCOME FUND, INC., a Maryland corporation (the
"Company"), and CHEMICAL BANK, a New York corporation.
The Company proposes to duly authorize and issue 3,000 shares
of Auction Market Preferred Stock(R) Series G, with a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) ("Series G AMPS") pursuant to the Company's
Articles Supplementary (as defined below). The Company desires that CHEMICAL
BANK perform certain duties as auction agent in connection with each auction of
shares of AMPS and as the transfer agent, registrar, paying agent and
redemption agent with respect to the shares of AMPS (the "Auction Agent") upon
the terms and conditions of this Agreement, and hereby appoints CHEMICAL BANK
as said Auction Agent in accordance with those terms and conditions.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company and the Auction Agent agree as
follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the
Settlement Procedures (as defined below), the following terms shall have the
following meanings, unless the context otherwise requires:
(a) "Affiliate" shall mean any Person made known to
the Auction Agent to be controlled by, in control of or under common
control with, the Company.
(b) "Agent Member" shall mean such Person's agent
member of the Securities Depositary.
(c) "Articles Supplementary" shall mean the Articles
Supplementary of the Company, establishing the powers, preferences and
rights of the Series G AMPS filed on July __, 1995 in the Office of
the State Department of Assessments and Taxation of the State of
Maryland, substantially in the form attached hereto as Exhibit A.
(d) "Auction" shall have the meaning specified in
Section 2.1 hereof.
(e) "Auction Procedures" shall mean the Auction
Procedures that are set forth in paragraph 8 of the Articles
Supplementary.
(f) "Authorized Officer" shall mean each Senior Vice
President, Vice President, Assistant Vice President, Trust Officer and
Assistant Treasurer of the Auction Agent assigned to its Corporate
Trust Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a
communication to the Company.
- ----------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 3
(g) "Beneficial Owner" shall mean 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 one or more shares of
AMPS or a Broker-Dealer that holds shares of AMPS for its own account.
(h) "Broker-Dealer Agreement" shall mean each
agreement between the Auction Agent and a Broker-Dealer substantially
in the form attached hereto as Exhibit B.
(i) "Business Day" shall have the meaning specified
in the Articles Supplementary. Within 10 days after the Date of
Original Issue, and on an annual basis thereafter, the Company will
provide a list of Australian holidays to the Auction Agent for the
forthcoming twelve-month period.
(j) "Company Officer" shall mean the Chairman and
Chief Executive Officer, the President, each Vice President (whether
or not designated by a number or word or words added before or after
the title "Vice President"), the Secretary, the Treasurer, each
Assistant Secretary and each Assistant Treasurer of the Company and
every other officer or employee of the Company designated as a
"Company Officer" for purposes hereof in a notice from the Company to
the Auction Agent.
(k) "Holder" shall be a holder of record of one or
more shares of the AMPS listed as such in the stock register
maintained by the Paying Agent pursuant to Section 4.6.
(l) "Settlement Procedures" shall mean the
Settlement Procedures attached as Exhibit B to the Broker- Dealer
Agreement.
1.3 Rules of Construction. Unless the context or use
indicates another or different meaning or intent, the following rules shall
apply to the construction of this Agreement:
(a) Words importing the singular number shall
include the plural number and vice versa.
(b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and
other words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of
day shall be to New York City time.
(e) Capitalized terms not defined herein shall have
the meaning ascribed to them in the Articles Supplementary.
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<PAGE> 4
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.
(a) The Articles Supplementary provide that the
Applicable Rate on shares of the AMPS, for each Dividend Period
therefor after the Initial Dividend Period shall be the rate per annum
that the Auction Agent advises results from implementation of the
Auction Procedures. Pursuant to a resolution adopted by the Board of
Directors of the Company, the Company has appointed Chemical Bank as
Auction Agent for purposes of the Auction Procedures. The Auction
Agent hereby accepts such appointment and agrees that, on each Auction
Date, it shall follow the procedures set forth in this Section 2 and
the Auction Procedures for the purpose of determining the Applicable
Rate for the AMPS for the next Dividend Period therefor. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction
Procedures and the Settlement Procedures are incorporated herein by
reference in their entirety and shall be deemed to be a part hereof to
the same extent as if such provisions were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance of Registry
of Existing Holders.
(a) Pursuant to Section 2.5 hereof, the Company
shall not designate any Person to act as a Broker-Dealer without prior
written approval of the Auction Agent (which approval shall not be
unreasonably withheld). At the time of the closing of the initial
issuance and sale of the AMPS (the "Closing"), the Company shall
provide the Auction Agent with a list of the Broker-Dealers previously
approved by the Auction Agent and shall cause to be delivered to the
Auction Agent for execution by the Auction Agent a Broker-Dealer
Agreement signed by each such Broker-Dealer. The Auction Agent shall
keep such list current and accurate, and shall indicate thereon, or on
a separate list, the identity of each Existing Holder, if any, whose
most recent Order was submitted by a Broker-Dealer on such list and
resulted in such Existing Holder continuing to hold or purchasing
shares of AMPS. Not later than seven days prior to any Auction Date
for which any change in such list of Broker-Dealers is to be
effective, the Company shall notify the Auction Agent in writing of
such change and, if any such change is the addition of a Broker-Dealer
to such list, the Company shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement
signed by such Broker-Dealer. The Auction Agent shall have entered
into a Broker-Dealer Agreement with each Broker-Dealer prior to the
participation of any such Broker- Dealer in any Auction.
(b) (i) In the event that the Auction Date for any
Auction shall be changed after the Auction Agent shall have
given the notice referred to in clause (vii) of Paragraph (a)
of the Settlement Procedures, the Auction Agent, by such
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<PAGE> 5
means as the Auction Agent deems practicable, shall give
notice of such change to the Broker-Dealers not later than the
earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on
the old Auction Date.
(ii) If, after the date of this Agreement,
there is any change in the prevailing rating of AMPS by either
of the rating agencies (or substitute or successor rating
agencies) referred to in the definition of the Maximum
Applicable Rate, thereby resulting in any change in the
corresponding applicable percentage for the AMPS, as set forth
in said definition (the "Applicable Percentage"), the Company
shall notify the Auction Agent in writing of such change in
the Applicable Percentage prior to 9:00 A.M. on the Auction
Date for AMPS next succeeding such change. The Applicable
Percentage for the AMPS on the date of this Agreement is 150%.
The Auction Agent shall be entitled to rely on the last
Applicable Percentage of which it has received notice from the
Company (or, in the absence of such notice, the Applicable
Percentage set forth in the preceding sentence) in determining
the Maximum Applicable Rate as set forth in Section 2.2(c)(i)
hereof.
(c) (i) On each Auction Date, the Auction Agent
shall determine the 30-day "AA" Composite Commercial Paper
Rate and the Maximum Applicable Rate. If the 30 day "AA"
Composite Commercial Paper Rate is not quoted on an interest
basis but is quoted on a discount basis, the Auction Agent
shall convert the quoted rate to an interest rate, as set
forth in Paragraph 1 of the Articles Supplementary; or, if the
rate obtained by the Auction Agent is not quoted on an
interest or discount basis, the Auction Agent shall convert
the quoted rate to an interest rate after consultation with
the Company as to the method of such conversion. Not later
than 9:30 A.M. on each Auction Date for each series of AMPS,
the Auction Agent shall notify the Company and the
Broker-Dealers by telephone of the 30-day "AA" Composite
Commercial Paper Rate so determined and the Maximum Applicable
Rate.
(ii) If the 30-day "AA" Composite Commercial
Paper Rate is to be based on rates supplied by Commercial
Paper Dealers and one or more of the Commercial Paper Dealers
shall not provide a quotation for the determination of the
30-day "AA" Composite Commercial Paper Rate, the Auction Agent
shall immediately notify the Company so that the Company can
determine whether to select a Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers to provide the
quotation or quotations not being supplied by any Commercial
Paper Dealer or Commercial Paper Dealers. The Company shall
promptly advise the Auction Agent of any such selection. If
the Company does not select any such Substitute Commercial
Paper Dealer or Substitute Commercial Paper Dealers, then the
rates shall be supplied by the remaining Commercial Paper
Dealer or Commercial Paper Dealers.
(d) (i) The Auction Agent shall maintain a
current registry of the Existing Holders of the shares of AMPS
for purposes of each Auction. The
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<PAGE> 6
Company shall provide or cause to be provided to the Auction
Agent on the date of closing of the initial issuance and sale
of the AMPS, a list of the initial Existing Holders of the
AMPS, and the Broker-Dealer of each such Existing Holder
through which such Existing Holder purchased such shares. The
Auction Agent may rely upon, as evidence of the identities of
the Existing Holders, such list, the results of each Auction
and notices from any Existing Holder, the Agent Member of any
Existing Holder or the Broker-Dealer of any Existing Holder
with respect to such Existing Holder's transfer of any shares
of AMPS to another Person.
(ii) In the event of any partial redemption
of the AMPS, upon notice by the Company to the Auction Agent
of such partial redemption, the Auction Agent shall promptly
request the Securities Depository to notify the Auction Agent
of the identities of the Agent Members (and the respective
numbers of shares) from the accounts of which shares have been
called for redemption and the person or department at such
Agent Member to contact regarding such redemption and, at
least two Business Days prior to the Auction preceding the
date of redemption with respect to shares of the AMPS being
partially redeemed, the Auction Agent shall request each Agent
Member so identified to disclose to the Auction Agent (upon
selection by such Agent Member of the Existing Holders whose
shares are to be redeemed) the number of shares of such series
of AMPS of each such Existing Holder, if any, to be redeemed
by the Company; provided the Auction Agent has been furnished
with the name and telephone number of a person or department
at such Agent Member from which it is to request such
information. In the absence of receiving any such information
with respect to an Existing Holder, from such Existing
Holder's Agent Member or otherwise, the Auction Agent may
continue to treat such Existing Holder as the beneficial owner
of the number of shares of the AMPS shown in the Auction
Agent's registry of Existing Holders.
(iii) The Auction Agent shall register a
transfer of the beneficial ownership of shares of the AMPS
from a Existing Holder to another Person only if (A) such
transfer is pursuant to an Auction or (B) if such transfer is
made other than pursuant to an Auction, the Auction Agent has
been notified in writing in a notice substantially in the form
of Exhibit D to the Broker-Dealer Agreements, by such Existing
Holder, the Agent Member of such Existing Holder, or the
Broker-Dealer of such Existing Holder of such transfer. The
Auction Agent is not required to accept any notice of transfer
delivered for an Auction unless it is received by the Auction
Agent by 3:00 P.M. on the Business Day next preceding the
applicable Auction Date. The Auction Agent shall rescind a
transfer made on the registry of the Existing Holders of any
shares of AMPS if the Auction Agent has been notified in
writing in a notice substantially in the form of Exhibit E to
the Broker-Dealer Agreement by the Broker-Dealer of any Person
that (i) purchased any shares of AMPS and the seller failed to
deliver such shares or (ii) sold any shares of AMPS and the
purchaser failed to make payment to such Person upon delivery
to the purchaser of such shares.
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<PAGE> 7
(e) The Auction Agent may request that the
Broker-Dealers, as set forth in Section 2.2(c) of the Broker- Dealer
Agreements, provide the Auction Agent with a list of the Existing
Holders of such Broker-Dealers and the aggregate principal amount of
shares of AMPS held by such Existing Holders. Except as provided in
Section 2.7 hereof, the Auction Agent shall keep confidential any such
information and shall not disclose any such information so provided to
any Person other than the relevant Broker-Dealer and the Company,
provided that the Auction Agent reserves the right to disclose any
such information if it is advised by its counsel that its failure to
do so would be unlawful.
2.3 Auction Schedule. The Auction Agent shall conduct
Auctions in accordance with the schedule set forth below. Such schedule may be
changed by the Auction Agent with the consent of the Company, which consent
shall not be unreasonably withheld or delayed. The Auction Agent shall give
notice of any such change to each Broker-Dealer. Such notice shall be received
prior to the first Auction Date on which any such change shall be effective.
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 a.m Auction Agent advises the Company and the
Broker-Dealers of 30-day "AA" Composite Commercial
Paper Rate and the Maximum Applicable Rate as set
forth in Section 2.2(c)(i) hereof.
9:30 a.m.-1:00 p.m. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Paragraph
8(c)(i) of the Articles Supplementary. Submission
deadline is 1:00 p.m.
Not earlier than Auction Agent makes determination
1:00 p.m. pursuant to Paragraph 8(d)(i) of the Articles
Supplementary.
By approximately Auction Agent advises Company of
3:00 p.m. results of Auction as provided in Paragraph
8(d)(ii) of the Articles Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of AMPS allocated as provided in Paragraph
8(e) of the Articles Supplementary. Auction Agent
gives notice of Auction results as set forth in
Section 2.4 hereof.
</TABLE>
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<PAGE> 8
2.4 Notice of Auction Results. On each Auction Date, the
Auction Agent shall notify Broker-Dealers of the results of the Auction held on
such date by telephone as set forth in Paragraph (a) of the Settlement
Procedures.
2.5 Broker-Dealers.
(a) Not later than 12:00 noon on the Business Day
immediately preceding each Dividend Payment Date, the Company shall
deposit with the Auction Agent a service charge to be paid to the
Broker-Dealers in an amount in immediately available or next day funds
equal to the product of (i) a fraction, the numerator of which is the
number of days in the Dividend Period beginning on such Dividend
Payment Date and the denominator of which is 360, (ii) 1/4 of 1%,
(iii) $25,000, and (iv) the aggregate number of outstanding shares of
AMPS for which the Auction is conducted. The Auction Agent shall
apply such monies as set forth in Section 2.5 of the Broker-Dealer
Agreements and shall thereafter remit to the Company any remaining
funds paid to the Auction Agent pursuant to this Section 2.5(a).
(b) The Company shall not designate any Person to
act as a Broker-Dealer without the prior written approval of the
Auction Agent, which written approval shall not be unreasonably
withheld. The Company may designate an affiliate to act as a
Broker-Dealer.
(c) The Auction Agent shall terminate any
Broker-Dealer Agreement as set forth therein if so directed by the
Company.
(d) Subject to Section 2.5(b) hereof, the Auction
Agent shall from time to time enter into such Broker- Dealer
Agreements as the Company shall request.
(e) The Auction Agent shall maintain a list of
Broker-Dealers.
2.6 Ownership of Shares of AMPS and Submission of Bids by
Company and Affiliates. Neither the Company nor any Affiliate of the Company
may submit any Sell Order or Bid, directly or indirectly, in any Auction,
except that an Affiliate of the Company that is a Broker-Dealer may submit a
Sell Order or Bid on behalf of a Beneficial Owner or Potential Beneficial
Owner. The Company shall notify the Auction Agent if the Company or, to the
best of the Company's knowledge, any Affiliate of the Company becomes a
Beneficial Owner of any shares of AMPS. Any shares of AMPS (i) redeemed by the
Company shall not be reissued or (ii) purchased or otherwise acquired by its
Affiliates shall not be transferred (other than to the Company). The Auction
Agent shall have no duty or liability with respect to enforcement of this
Section 2.6.
2.7 Access to and Maintenance of Auction Records. The
Auction Agent shall afford to the Company, its agents, independent public
accountants and counsel, access at reasonable times during normal business
hours to review and make extracts or copies (at the Company's sole cost and
expense) of all books, records, documents and other information concerning the
conduct and results of Auctions, provided that any such agent, accountant, or
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<PAGE> 9
counsel shall furnish the Auction Agent with a letter from a Company Officer
requesting that the Auction Agent afford such person access. The Auction Agent
shall maintain records relating to any Auction for a period of two years after
such Auction (unless requested by the Company to maintain such records for such
longer period not in excess of six years, then for such longer period), and
such records shall, in reasonable detail, accurately and fairly reflect the
actions taken by the Auction Agent hereunder. The Company agrees to keep any
information regarding the customers of any Broker-Dealer received from the
Auction Agent in connection with this Agreement or any Auction confidential and
shall not disclose such information or permit the disclosure of such
information without the prior written consent of the applicable Broker-Dealer
to anyone except such agent, accountant or counsel engaged to audit or review
the results of Auctions as permitted by this Section 2.7. Any such agent,
accountant or counsel, before having access to such information, shall agree to
keep such information confidential and not to disclose such information or
permit disclosure of such information without the prior written consent of the
applicable Broker-Dealer. The Auction Agent shall have no duty or liability
with respect to enforcement of the agreements set forth in the two preceding
sentences. Upon the decision of the Auction Agent to no longer hold such
records, the Auction Agent shall promptly return to the Company all such
records referred to in this Section 2.7.
3. The Auction Agent as Paying Agent.
3.1 Paying Agent. The Board of Directors of the Company
has adopted a resolution pursuant to which Chemical Bank has been appointed as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the Company in connection with any shares of AMPS (the "Paying Agent"). The
Paying Agent hereby accepts such appointment and agrees to act in accordance
with its standard procedures and the provisions of the Articles Supplementary
which are specified herein as Paying Agent with respect to the shares of AMPS
and as set forth in this Section 3.
3.2 The Company's Notices to Paying Agent. Whenever any
shares of AMPS are to be redeemed, the Company shall promptly so notify the
Paying Agent in writing not fewer than five and not more than ten days prior to
the date the Notice of Redemption is required to be mailed pursuant to the
Articles Supplementary. Such notice by the Company shall contain the
information required to be stated in the Notice of Redemption. The Paying
Agent shall have no responsibility to confirm or verify the accuracy of any
such notice.
3.3 Company to Provide Deposit Securities for Dividends
and Redemptions.
(a) Not later than 12:00 noon on the Business Day
immediately preceding each Dividend Payment Date, the Company shall
deposit with the Paying Agent Deposit Securities constituting
immediately available funds in an amount equal to the declared
dividends to be paid to Holders on such Dividend Payment Date and
shall give the Paying Agent irrevocable instructions to apply such
funds to the payment of such dividends on such Dividend Payment Date.
(b) If the Company shall give a Notice of Redemption
then, by 12:00 noon of the Business Day immediately preceding the date
fixed for redemption, the
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<PAGE> 10
Company shall deposit in trust with the Paying Agent Deposit
Securities constituting immediately available funds in an amount
sufficient to redeem such shares of AMPS called for redemption and
shall give the Paying Agent irrevocable instructions and authority to
pay the redemption price to the Holders of shares of AMPS called for
redemption.
(c) The Company may direct the Paying Agent, in
writing or orally with such direction promptly confirmed in writing,
with respect to the investment of any Deposit Securities deposited
pursuant to paragraphs (a) or (b) of this Section 3.3 in short-term
investments specified by the Company which mature on or before the
opening of business on such Dividend Payment Date or the date fixed
for redemption, as the case may be, provided that the proceeds of such
overnight investments will be available at the opening of business on
the Dividend Payment Date or the date fixed for redemption, as the
case may be. The investments made pursuant to the foregoing sentence
are solely for the account and at the risk of the Company, and the
Paying Agent shall not be liable or responsible for any loss, in whole
or in part, resulting from such investments. Upon the request of the
Company the Paying Agent shall promptly transmit any interest received
on such investments to the Company.
3.4 Disbursing Dividend and Redemption Price. After
receipt of the immediately available funds and instructions from the Company
described in Sections 3.3(a) and (b) above, the Paying Agent shall pay to the
Holders entitled thereto (i) on each corresponding Dividend Payment Date,
dividends on the AMPS, and (ii) on any date fixed for redemption, the
redemption price of any shares of AMPS called for redemption. The amount of
dividends for any Dividend Period to be paid by the Paying Agent to Holders
will be determined by the Company as set forth in Paragraph 3 of the Articles
Supplementary. The redemption price to be paid by the Paying Agent to the
Holders of any shares of AMPS called for redemption will be determined as set
forth in Paragraph 5 of the Articles Supplementary. The Company shall notify
the Paying Agent in writing of a decision to redeem any shares of AMPS on or
prior to the date specified in Section 3.2 above, and such notice by the
Company to the Paying Agent shall contain the information required to be stated
in the Notice of Redemption required to be mailed by the Company to such
Holders. The Paying Agent shall have no duty to determine the redemption price
and may rely on the amount thereof set forth in the Notice of Redemption.
3.5 Company's Failure to Provide Dividends. In the event
that the Company fails to deposit, on or prior to the third Business Day
following a Dividend Payment Date or date fixed for redemption, any funds
required to be deposited by Section 3 (c) (iii) of the Articles Supplementary,
the Applicable Rate for the Dividend Period for the series to which such
Dividend Payment Date or such redemption date relates 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. The Auction
Agent shall obtain such rate and shall promptly notify the Broker-Dealers of
the same.
3.6 Company's Certificates to Auction Agent. The Company
shall deliver to the Auction Agent Portfolio Valuation Reports and Accountant's
Confirmations, in each case, as provided in paragraphs 7 (b) and 7 (f) of the
Articles Supplementary. The Auction Agent's sole
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<PAGE> 11
duty with respect to these certificates shall be to receive them periodically
and to maintain them in accordance with Section 2.7 hereof.
4. The Paying Agent as Transfer Agent and Registrar.
4.1 Original Issue of Stock Certificates. On the Date of
Original Issue, one certificate for all shares of the AMPS, shall be issued by
the Company and registered in the name of Cede & Co., as nominee of the
Securities Depository, and countersigned by the Paying Agent.
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of AMPS shall be registered
solely in the name of the Securities Depository or its nominee. If the
Securities Depository shall give notice of its intention to resign as such, and
if the Company shall not have selected a substitute Securities Depository
acceptable to the Paying Agent prior to such resignation, then upon such
resignation, the shares of AMPS may, at the Company's request, be registered
for transfer or exchange, and new certificates thereupon shall be issued in the
name of the designated transferee or transferees, upon surrender of the old
certificates in form deemed by the Paying Agent properly endorsed for transfer
with (a) all necessary endorsers' signatures guaranteed in such manner and form
as the Paying Agent may require by a guarantor reasonably believed by the
Paying Agent to be responsible, (b) such assurances as the Paying Agent shall
deem necessary or appropriate to evidence the genuineness and effectiveness of
each necessary endorsement and (c) satisfactory evidence of compliance with all
applicable laws relating to the collection of taxes or funds necessary for the
payment of such taxes. If the certificates for shares of AMPS are not held by
the Securities Depositary or its nominee, payments upon transfer of shares in
an Auction shall be made in same day funds to the Auction Agent against
delivery of certificates therefor.
4.3 Removal of Legend. Any request for removal of a
legend indicating a restriction on transfer from certificates evidencing shares
of AMPS, shall be accompanied by an opinion of counsel stating that such legend
may be removed and such shares transferred free of the restriction described in
such legend, said opinion to be delivered under cover of a letter from a
Company Officer authorizing the Paying Agent to remove the legend on the basis
of said opinion.
4.4 Lost Stock Certificates. The Paying Agent shall
issue and register replacement certificates for certificates represented to
have been lost, stolen or destroyed, upon the fulfillment of such requirements
as shall be deemed appropriate by the Company and the Paying Agent, subject at
all times to provisions of law, the By-Laws of the Company governing such
matters and resolutions adopted by the Company with respect to lost securities.
The Paying Agent may issue new certificates in exchange for and upon the
cancellation of mutilated certificates. Any request by the Company to the
Paying Agent to issue a replacement or new certificate pursuant to this Section
4.4 shall be deemed to be a representation and warranty by the Company to the
Paying Agent that such issuance will comply with such provisions of applicable
law and the By-Laws and resolutions of the Company.
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<PAGE> 12
4.5 Disposition of Cancelled Certificates; Record
Retention. The Paying Agent shall retain stock certificates which have been
cancelled in transfer or in exchange and accompanying documentation in
accordance with applicable rules and regulations of the Securities and Exchange
Commission for two calendar years from the date of such cancellation. The
Paying Agent shall afford to the Company, its agents and counsel access at
reasonable times during normal business hours to review and make extracts or
copies (at the Company's sole cost and expense) of such certificates and
accompanying documentation. Upon the expiration of this two-year period, the
Paying Agent shall deliver to the Company the cancelled certificates and
accompanying documentation. The Company shall, at its expense, retain such
records for a minimum additional period of four calendar years from the date of
delivery of the records to the Company and shall make such records available
during this period at any time, or from time to time, for reasonable periodic,
special, or other examinations by representatives of the Securities and
Exchange Commission and the Board of Governors of the Federal Reserve System.
The Company shall also undertake to furnish to the Securities and Exchange
Commission and to the Board of Governors of the Federal Reserve System, upon
demand, at either the principal office or at any regional office, complete,
correct and current hard copies of any and all such records. Thereafter such
records shall not be destroyed by the Company without the approval of the
Paying Agent, which shall not be unreasonably withheld, but will be safely
stored for possible future reference.
4.6 Stock Register. The Paying Agent shall maintain the
stock register which shall contain a list of the Holders, the number of shares
held by each Holder and the address of each Holder. The Paying Agent shall
record in the stock register any change of address of a Holder upon notice by
such Holder. In case of any request or demand for the inspection of the stock
register or any other books of the Company in the possession of the Paying
Agent, the Paying Agent will notify the Company and secure instructions as to
permitting or refusing such inspection. The Paying Agent reserves the right,
however, to exhibit the stock register or other records to any person in case
it is advised by its counsel that its failure to do so would (i) be unlawful or
(ii) expose it to liability, unless the Company shall have offered
indemnification satisfactory to the Paying Agent.
4.7 Return of Deposit Securities. Any cash in excess of
the aggregate redemption price of shares of AMPS called for redemption and any
remaining Deposit Securities deposited with the Auction Agent by the Company
for any reason under this Agreement, including for the payment of dividends or
the redemption of shares of AMPS, that remain with the Auction Agent shall be
returned to the Company promptly after the date fixed for such dividend
payments or redemptions. Any assets so deposited remaining unclaimed after 12
months shall, to the extent permitted by law, be repaid to the Company upon the
written request of the Company.
5. Representations and Warranties.
(a) The Company represents and warrants to the
Auction Agent that:
(i) the Company is a duly incorporated and
validly existing corporation in good standing under the laws
of the State of Maryland and has full
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<PAGE> 13
power to execute and deliver this Agreement and to authorize,
create and issue the shares of AMPS;
(ii) the Company is registered with the
Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as a closed-end
non-diversified management investment company;
(iii) this Agreement has been duly and
validly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with
its terms, subject as to such enforceability to bankruptcy,
insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and
to general equity principles;
(iv) the form of the certificates evidencing
the shares of AMPS complies with all applicable laws of the
State of Maryland;
(v) the shares of AMPS have been duly and
validly authorized by the Company and, upon completion of the
initial sale of the shares of AMPS and receipt of payment
therefor, will be validly issued, fully paid and
nonassessable;
(vi) the offering of the shares of AMPS has
been registered under the Securities Act of 1933, as amended
(the "1933 Act"), and no consent, approval, authorization or
order of any court or governmental authority or agency is
required in connection with the execution and delivery of this
Agreement or the issuance of the shares of AMPS except such as
has been obtained under the 1940 Act, the 1933 Act or as may
be required by applicable state securities laws;
(vii) the execution and delivery of this
Agreement and the issuance and delivery of the shares AMPS do
not and will not conflict with, violate, or result in a breach
of, the terms, conditions or provisions of, or constitute a
default under, the Articles of Incorporation or the By-Laws of
the Company, or to the best knowledge of the Company of any
law or regulation applicable to the Company, any order or
decree of any court or public authority having jurisdiction
over the Company, or any mortgage, indenture, contract,
agreement or undertaking to which the Company is a party or by
which it is bound; and
(viii) no taxes are payable upon or in
respect of the execution of this Agreement or the issuance of
the shares of AMPS.
(b) The Auction Agent represents and warrants to the
Company that the Auction Agent is duly organized and is validly
existing as a corporation in good standing under the laws of the State
of New York and has the corporate power to enter into and perform its
obligations under this Agreement.
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<PAGE> 14
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for
the Company hereunder and owes no fiduciary duties to any other Person
by reason of this Agreement.
(b) The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into
this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its
part, the Auction Agent shall 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 this Agreement. The Auction Agent
shall not be liable for any error of judgment made in good faith
unless the Auction Agent shall have been negligent in ascertaining (or
failing to ascertain) the pertinent facts necessary to make such
judgment.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be
protected in acting or refraining from acting upon any communication
authorized hereby including any written instruction, notice, request,
direction, consent, report, certificate, share certificate or other
instrument, paper or document reasonably believed by it to be genuine.
The Auction Agent shall not be liable for acting upon any telephone
communication authorized hereby which the Auction Agent believes in
good faith to have been given by the proper parties. The Auction
Agent may record telephone communications with the Company or with the
Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of
its choice, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to
advance, expend or risk its own funds or otherwise incur or become
exposed to financial liability in the performance of its duties
hereunder.
(d) The Auction Agent may perform its duties and
exercise its rights hereunder either directly or by or through agents
or attorneys.
6.3 Auction Agent's Disclaimer. The Auction Agent makes
no representation as to the validity or adequacy of this Agreement, the
Broker-Dealer Agreements or the AMPS.
- 13 -
<PAGE> 15
6.4 Compensation, Expenses and Indemnification.
(a) The Company shall pay the Auction Agent from
time to time reasonable compensation for all services rendered by it
under this Agreement and the Broker-Dealer Agreements.
(b) The Company shall reimburse the Auction Agent
upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Auction Agent in accordance with any
provision of this Agreement and the Broker-Dealer Agreements
(including the reasonable compensation, expenses and disbursements of
its agents and counsel), except any expense, disbursement and advances
attributable to its negligence or bad faith.
(c) The Company shall indemnify the Auction Agent
for and hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of
or in connection with its agency under this Agreement and the
Broker-Dealer Agreements, including the costs and expenses of
defending itself against any claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder,
except such as may result from its negligence or bad faith.
7. Miscellaneous.
7.1 Term of Agreement.
(a) This Agreement shall remain in effect until no
shares of AMPS remain outstanding, unless it shall be terminated as
provided in this Section 7.1. The Company may terminate this
Agreement at any time by so notifying the Auction Agent, provided that
the Company has entered into an agreement in substantially the form of
this Agreement with a successor auction agent. The Auction Agent may
terminate this Agreement upon prior notice to the Company on the date
specified in such notice, which shall be no earlier than the Business
Day after the later of the second Dividend Payment Date for the AMPS
after delivery of such notice or the date on which the Company enters
into an agreement with a successor auction agent, whichever comes
first. If the Auction Agent resigns, the Company shall use its best
efforts to enter into an agreement with a successor auction agent
containing substantially the same terms and conditions as this
Agreement.
(b) Except as otherwise provided in this Paragraph
7.1(b), the respective rights and duties of the Company and the
Auction Agent under this Agreement shall cease upon termination of
this Agreement. The Company's representations, warranties, covenants
and obligations to the Auction Agent under Sections 5 and 6.4 hereof
shall survive the termination hereof. Upon termination of this
Agreement, the Auction Agent shall (i) at the Company's request,
promptly deliver to the Company copies of all books and records
maintained by it in connection with its duties hereunder, and (ii) at
the request of the Company, promptly transfer to the Company or any
successor auction agent any funds deposited by the Company with the
Auction Agent pursuant to this Agreement
- 14 -
<PAGE> 16
which have not previously been distributed by the Auction Agent in
accordance with this Agreement.
7.2 Communications. Except for (i) communications
authorized to be made by telephone pursuant to this Agreement or the Auction
Procedures and (ii) communications in connection with Auctions (other than
those expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given to such party addressed to it at its
address, or telecopy number set forth below:
<TABLE>
<S> <C>
If to the Company, The First Australia Prime
addressed: Income Fund, Inc.
44 Pitt Street
Sydney NSW 2000
Australia
Attention: David Manor
Telephone No.: 011-61-2-258-8644
Telecopier No.: 011-61-2-251-1098
or: 011-61-2-233-4073
If to the Auction Agent, Chemical Bank
addressed: 450 W. 33rd St.
15th Floor
New York, New York 10001
Attention: Corporate Trust Group
Telephone No.: (212) 946-3498
Telecopier No.: (212) 946-7652
</TABLE>
7.3 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred between the parties relating to the
subject matter hereof except for agreements relating to the compensation of the
Auction Agent.
7.4 Benefits. Nothing herein, expressed or implied,
shall give to any Person, other than the Company, the Auction Agent and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed
to be modified, amended, rescinded, cancelled or waived, in whole or
in part, except by a written instrument signed by a duly authorized
representative of the party to be charged. The Company shall notify
the Auction Agent of any change in the Articles Supplementary prior to
the effective date of any such change.
- 15 -
<PAGE> 17
(b) Failure of either party hereto to exercise any
right or remedy hereunder in the event of a breach hereof by the other
party shall not constitute a waiver of any such right or remedy with
respect to any subsequent breach.
7.6 Successor and Assigns. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the respective
successors and permitted assigns of each of the Company and the Auction Agent.
This Agreement may not be assigned by either party hereto absent the prior
written consent of the other party, which consent shall not be unreasonably
withheld.
7.7 Severability. If any clause, provision or section
hereof shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any of the remaining clauses, provisions or sections
hereof.
7.8 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
7.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said state.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the date first above written.
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
By:
-----------------------------
Title: Attorney-in-Fact for
Brian M. Sherman,
President
CHEMICAL BANK, as Auction Agent
By:
-----------------------------
Title:
- 16 -
<PAGE> 1
EXHIBIT (k)(5)
Draft of 7/12/95
================================================================================
BROKER-DEALER AGREEMENT
between
CHEMICAL BANK
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Dated as of July __, 1995
Relating to
AUCTION MARKET PREFERRED STOCK(R)
("AMPS")
Series G
of
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
================================================================================
(R) Registered trademark of Merrill Lynch Co., Inc.
<PAGE> 2
BROKER-DEALER AGREEMENT dated as of July __, 1995 between CHEMICAL
BANK, a New York corporation (the "Auction Agent") (not in its individual
capacity but solely as agent of The First Australia Prime Income Fund, Inc., a
Maryland corporation (the "Company"), pursuant to authority granted to it in
the Auction Agent Agreement dated as of July __, 1995, between the Company and
the Auction Agent (the "Auction Agent Agreement") and MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED (together with its successors and assigns
hereinafter referred to as "BD").
The Company has duly authorized and issued 3,000 shares of Auction
Market Preferred Stock Series G, with a liquidation preference of $25,000 per
share plus accumulated but unpaid dividends (whether or not earned or declared)
(the "AMPS") pursuant to the Company's Articles Supplementary (as defined
below).
The Company's Articles Supplementary provide that the dividend
rate on the AMPS for each Dividend Period therefor after the Initial Dividend
Period shall be the Applicable Rate therefor, which in general, shall be the
rate per annum the Auction Agent appointed by the Company advises results from
implementation of the Auction Procedures (as defined below). Pursuant to
resolutions adopted by the Board of Directors of the Company, the Company has
appointed CHEMICAL BANK as auction agent for purposes of the Auction
Procedures, and pursuant to Section 2.5(d) of the Auction Agent Agreement, the
Company has requested and directed the Auction Agent to execute and deliver
this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction
1.1 Terms Defined by Reference to the Articles Supplementary
and the Auction Agent Agreement. Capitalized terms not defined herein shall
have the respective meanings specified in the Articles Supplementary of the
Company and in the Auction Agent Agreement.
1.2 Terms Defined Herein. As used herein and in the
Settlement Procedures (as defined below), the following terms shall have the
following meanings, unless the context otherwise requires:
- ----------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 3
(a) "Articles Supplementary" shall mean the Articles
Supplementary, as amended from time to time, of the Company, establishing
the powers, preferences and rights of the Series G AMPS, filed on July __,
1995 in the office of the State Department of Assessments and Taxation
of the State of Maryland.
(b) "Auction" shall have the meaning specified in
Section 2.1 hereof.
(c) "Auction Procedures" shall mean the Auction
procedures that are set forth in Paragraph 8 of the Articles
Supplementary.
(d) "Authorized Officer" shall mean each Senior Vice
President, Vice President, Assistant Vice President, Trust Officer and
Assistant Treasurer of the Auction Agent assigned to its Corporate Trust
Group and every other officer or employee of the Auction Agent designated
as an "Authorized Officer" for purposes of this Agreement in a
communication to BD.
(e) "BD Officer" shall mean each officer or employee
of BD designated as a "BD Officer" for purposes of this Agreement in a
communication to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this
Agreement and any substantially similar agreement between the Auction
Agent and a Broker-Dealer.
(g) "Business Day" shall have the meaning specified
in the Articles Supplementary.
(h) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit A.
1.3 Rules of Construction. Unless the context or use
indicates another or different meaning or intent, the following rules shall
apply to the construction of this Agreement:
(a) Words importing the singular number shall include
the plural number and vice versa.
(b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other
words of similar import refer to this Agreement as a whole.
2
<PAGE> 4
(d) All references herein to a particular time of day
shall be to New York City time.
2. The Auction.
2.1 Purpose: Incorporation by Reference of Auction Procedures
and Settlement Procedures.
(a) On each Auction Date, the provisions of the
Auction Procedures will be followed by the Auction Agent for the purpose
of determining the Applicable Rate for the AMPS. Each periodic operation
of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction
Procedures and the Settlement Procedures are incorporated herein by
reference in their entirety and shall be deemed to be a part of this
Agreement to the same extent as if such provisions were fully set forth
herein.
(c) BD agrees to act as, and assumes the obligations
of and limitations and restrictions placed upon, a Broker-Dealer under
this Agreement. BD understands that other Persons meeting the
requirements specified in the definition of "Broker-Dealer" contained in
Paragraph 8(a)(ix) of the Articles Supplementary may participate as
Broker-Dealers in Auctions. BD agrees to handle customer orders in
accordance with its respective duties under applicable securities laws and
rules.
(d) BD and other Broker-Dealers may participate in
Auctions for their own accounts. However, the Company may by notice to BD
an all other Broker-Dealers prohibit all Broker-Dealers from submitting
Bids in Auctions for their own accounts, provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders.
2.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for
the AMPS, the Auction Agent shall advise BD and the Company by telephone
of the 30-day "AA" Composite Commercial Paper Rate and the Maximum
Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any
Auction shall be changed after the Auction Agent has given the notice
referred to in clause (vii) of paragraph (a) of the Settlement Procedures,
the Auction Agent, by such means as the Auction Agent deems practicable,
shall give notice of such change to BD not later than the earlier of 9:15
A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
3
<PAGE> 5
Thereafter, BD shall promptly notify customers of BD that BD believes are
Beneficial Owners of shares of AMPS of such change in the Auction Date.
(c) On the date of this agreement, and from time to
time upon request of the Auction Agent, BD will provide the Auction Agent
with a list of the respective customers BD believes are Existing Holders
and the number of shares of AMPS held by such Existing Holders. BD shall
comply with any such request, and the Auction Agent shall keep
confidential any such information, including information received as to
the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the respective
Broker-Dealer and the Company, unless otherwise required by law.
2.3 Auction Schedule: Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct
Auctions for the AMPS in accordance with the schedule set forth below.
Such schedule may be changed at any time by the Auction Agent with the
consent of the Company, which consent shall not be unreasonably withheld
or delayed. The Auction Agent shall give notice of any such change to BD.
Such notice shall be received prior to the first Auction Date on which any
such change shall be effective.
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 A.M. Auction Agent advises the Company and Broker-Dealer, of 30-day "AA" Composite
Commercial Paper Rate and the Maximum Applicable Rate as set forth in Section
2.2(a) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to it by Broker-Dealers as
provided in Paragraph 8(c)(i) of the Articles Supplementary. Submission Deadline
by 1:00 P.M.
Not earlier than Auction Agent makes determinations pursuant to Paragraph 8(d)(i) of the
1:00 P.M. Articles Supplementary.
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C>
By approximately Auction Agent advises Company
3:00 P.M. of the rates determined pursuant to the Auction, as provided in Paragraph
8(d)(ii) of the Articles Supplementary.
Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in
part and shares of AMPS are allocated as provided in Paragraph 8(e) of the
Articles Supplementary.
Auction Agent gives notice of Auction results as set forth in Section 2.4(a)
hereof.
</TABLE>
(b) BD agrees to maintain a list of Potential
Beneficial Owners and to contact the Potential Beneficial Owners on such
list on or prior to each Auction Date for the purposes set forth in
Paragraph 8(b)(i)(8) of the Articles Supplementary.
(c) BD shall submit Orders to the Auction Agent in
writing in substantially the form attached hereto as Exhibit B. BD shall
submit separate Orders to the Auction Agent for each Potential Beneficial
Owner or Beneficial Owner on whose behalf BD is submitting an Order and
shall not net or aggregate the Orders of Potential Beneficial Owners or
Beneficial Owners on whose behalf BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a
written notice, substantially in the form attached hereto as Exhibit C, of
transfers of shares of AMPS, made through BD by a Beneficial Owner to
another person other than pursuant to an Auction, and (ii) a written
notice, substantially in the form attached hereto as Exhibit D, of the
failure of shares of AMPS to be transferred to or by any Person that
purchased or sold shares of AMPS through BD pursuant to an Auction. The
Auction Agent is not required to accept any notice delivered pursuant to
the terms of the foregoing sentence with respect to an Auction unless it
is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.
2.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall
notify BD by telephone as set forth in paragraph (a) of the Settlement
Procedures. On the Business Day next succeeding
5
<PAGE> 7
such Auction Date, the Auction Agent shall notify BD in writing of the
disposition of all Orders submitted by BD in the Auction held on such
Auction Date.
(b) BD shall notify each Beneficial Owner or
Potential Beneficial Owner on whose behalf BD has submitted an Order as
set forth in paragraph (b) of the Settlement Procedures and take such
other action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner selling shares of AMPS in an Auction fails
to deliver such shares, the BD of any Person that was to have purchased shares
of AMPS in such Auction may deliver to such Person a number of whole share 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
shall be determined by such BD. Delivery of such lesser number of shares shall
constitute good delivery. Upon the occurrence of any such failure to deliver
shares, such BD shall deliver to the Auction Agent the notice required by
Section 2.3(e)(ii) hereof. Notwithstanding the foregoing terms of this Section
2.4(b), any delivery or nondelivery of shares of AMPS which represents 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 terms of
Section 2.3(e) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.4(b).
2.5 Service Charge to Be Paid to BD. On each Dividend
Payment Date for the AMPS, the Auction Agent shall pay a service charge to BD,
from monies received from the Company, in same day or next day funds equal to
the product of (i) a fraction the numerator of which is the number of days in
the Dividend Period beginning on such Dividend Payment Date and the denominator
of which is 360, (ii) 1/4 of 1%, (iii) $25,000 and (iv) the sum of (A) the
aggregate number of shares of AMPS placed by BD in the applicable Auction that
were (x) the subject of a Submitted Bid of a Beneficial Owner submitted by BD
and continued to be held as a result of such submission and (y) the subject of
a Submitted Bid of a Potential Beneficial Owner submitted by BD and were
purchased as a result of such submission plus (B) the aggregate number of
shares of AMPS subject to valid Hold Orders (determined in accordance with
Paragraph 8 of the Articles Supplementary) submitted to the Auction Agent by BD
plus (C) the number of shares of AMPS deemed to be subject to Hold Orders by BD
on behalf of Beneficial Owners pursuant to Paragraph 8 of the Article
Supplementary that were acquired by such Beneficial Owners through BD.
For purposes of subclause (iv)(C) of the foregoing sentence, if
any Beneficial Owner who acquired shares of AMPS
6
<PAGE> 8
through BD transfers those shares to another Person other than pursuant to an
Auction, then the Broker-Dealer for the shares so transferred shall continue to
be the BD, provided, however, that if the transfer was effected by, or if the
transferee is, a Broker-Dealer other than BD, then such Broker-Dealer shall be
the Broker-Dealer for such shares.
2.6 Settlement.
(a) If any Potential Beneficial Owner on whose behalf
BD has submitted an Order fails to deliver funds with respect to any
Auction, BD shall promptly deliver such funds to the party entitled to
receive such funds. If any Beneficial Owner on whose behalf BD has
submitted an Order fails to instruct its Agent Member to deliver shares of
AMPS against payment therefor, BD shall instruct such Agent Member to
deliver such shares against payment therefor. The delivery of funds by BD
for the purchase of shares of AMPS by a Potential Beneficial Owner, as
provided above, shall not relieve such Potential Beneficial Owner of any
liability to BD for payment for such shares. The Auction Agent shall have
no duty or liability with respect to enforcement of this Section 2.6.
(b) Neither the Auction Agent nor the Company shall
have any responsibility or liability with respect to the failure of BD, a
Beneficial Owner, a Potential Beneficial Owner or its respective Agent
Member to deliver shares of AMPS or to pay for shares of AMPS sold or
purchased pursuant to the Auction Procedures or otherwise.
3. The Auction Agent.
3.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for
the Company hereunder and owes no fiduciary duties to any person by reason
of this Agreement.
(b) The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its
part, the Auction Agent shall 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 this Agreement. The Auction Agent shall
not be liable for any error of judgment made in good faith unless the
Auction Agent shall have been negligent in ascertaining (or failing to
ascertain) the pertinent facts.
7
<PAGE> 9
3.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected
in acting or refraining from acting upon any communication authorized by
this Agreement and upon any written instruction, notice, request,
direction, consent, report, certificate, share certificate or other
instrument, paper or document believed by it to be genuine. The Auction
Agent shall not be liable for acting upon any telephone communication
authorized by this Agreement which the Auction Agent believes in good
faith to have been given by the Company or by a Broker-Dealer. The
Auction Agent may record telephone communications with the Broker-Dealers.
(b) The Auction Agent may consult with counsel of its
own choice, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to
advance, expend or risk its own fund or otherwise incur or become exposed
to financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and
exercise its rights hereunder either directly or by or through agents or
attorney.
3.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the AMPS.
4. Miscellaneous.
4.1 Termination. Any party may terminate this Agreement at
any time upon five days prior notice to the other party.
4.2 Agent Member. At the date hereof, BD is a participant of
the Securities Depository.
4.3 Communications. Except for (i) communications authorized
to be made by telephone pursuant to this Agreement or the Auction Procedures
and (ii) communications in connection with the Auctions (other than those
expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopier number set forth below:
8
<PAGE> 10
If to BD Merrill Lynch, Pierce, Fenner & Smith
addressed: Incorporated
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Attention: Carter Kegel
Telecopier No.: (212) 449-6637
Telephone No.: (212) 449-4940
If to the Auction Chemical Bank
Agent, addressed: 450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trust Group
Telecopier No.: (212) 946-3498
Telephone No.: (212) 946-7652
or such other address, telephone or telecopier number as such party may
hereafter specify for such purpose by notice to the other party. Each such
notice, request or communication shall be effective when delivered at the
address specified herein. Communications shall be given on behalf of BD by a
BD Officer and on behalf of the Auction Agent by an Authorized Officer. BD may
record telephone communications with the Auction Agent.
4.4 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are no other representations, endorsements, proxies, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof.
4.5 Benefits. Nothing in this Agreement, express or implied,
shall give to any person, other than the Company, the Auction Agent and BD and
their respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim under this Agreement.
4.6 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed
to be modified, amended, rescinded, cancelled or waived in whole or in
part, except by a written instrument signed by a duly authorized
representative of the party to be charged.
(b) Failure of either party to this Agreement to
exercise any right or remedy hereunder in the event of a breach of this
Agreement by the other party shall not constitute a waiver of any such
right or remedy with respect to any subsequent breach.
9
<PAGE> 11
4.7 Successors and Assigns. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the respective successors
and permitted assigns of each of BD and the Auction Agent. This Agreement may
not be assigned by either party hereto absent the prior written consent of the
other party; provided, however, that this Agreement may be assigned by the
Auction Agent to a successor Auction Agent selected by the Company without the
consent of BD.
4.8 Severability. If any clause, provision or section of
this Agreement shall be ruled invalid or unenforceable by any court of
competent jurisdiction, the invalidity or unenforceability of such clause,
provision or section shall not affect any remaining clause, provision or
section hereof.
4.9 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
5. Governing law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
10
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
CHEMICAL BANK
By:
---------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Name:
Title:
11
<PAGE> 13
EXHIBIT A
SETTLEMENT PROCEDURES
See Appendix A to the Prospectus
A-1
<PAGE> 14
EXHIBIT B
(Submit only one Order on this Order form)
ORDER FORM
To: Chemical Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Corporate Trust Group
Auction Desk
_______________
Date of Auction
Re: THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
SERIES G ("AMPS")
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder:_______________________________
Bidder places the Order listed below covering the number of shares
indicated (complete only one blank):
_________________ shares now held by Bidder, and the Order is a (check one)
/ / Hold order; or
/ / Hold at a rate of ___%; or
/ / Sell order; or
___ shares not now held by Bidder (a Potential Holder),
and the Order is a Bid at a rate of ___%
Notes:
(1) If submitting more than one Order for one Bidder, use additional Order
forms.
(2) If one or more Orders covering in the aggregate more than the number of
outstanding shares of AMPS held by any Broker Dealer on behalf of a Beneficial
Owner are submitted, such Order shall be considered valid in the order of
priority set forth in the Auction Procedures.
B-1
<PAGE> 15
(3) A Hold Order may be placed only by a Broker Dealer on behalf of a
Beneficial Owner covering a number of shares of AMPS not greater than the
number of shares currently held by such Broker Dealer on behalf of such
Beneficial Owner.
(4) Broker Dealers on behalf of Potential Beneficial Owners may make only
Bids, each of which must specify a rate. If more than one Bid is submitted on
behalf of any Potential Beneficial Owner, each Bid submitted shall be a
separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%).
Name of Broker-Dealer:
-------------------------
By :
-------------------------
B-2
<PAGE> 16
EXHIBIT C
(To be used only for transfers made other than pursuant to an
Auction).
TRANSFER FORM
Re: The First Australia Prime Income Fund, Inc.
Series G ("AMPS")
We are (check one):
/ / the Broker-Dealer for the Beneficial Owner named below; or
/ / the Agent Member for such Beneficial Owner
We hereby notify you that such Beneficial Owner has transferred
____ shares of Series G AMPS to __________________________
--------------------------
(Name of Beneficial Owner)
--------------------------
(Name of Broker-Dealer)
--------------------------
(Name of Agent Member)
C-1
<PAGE> 17
EXHIBIT D
(To be used only for failures to deliver
AMPS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ___________________ (the "Purchaser"),
which purchased _______ shares of Series G AMPS of The First
Australia Prime Income Fund, Inc. in the Auction held on
__________________ from the seller of such shares.
II. We are a Broker-Dealer for __________________ (the "Seller"),
which sold ___ shares of Series G AMPS of The First Australia
Prime Income Fund, Inc. in the Auction held on
_______________________________ to the Purchaser of such shares.
We hereby notify you that (check one) --
___ the Seller failed to deliver such shares to the purchaser
___ the Purchaser failed to make payment to the Seller upon
delivery of such shares
___ the following Broker-Dealer failed to deliver to us such
shares: _______________
___ the following Broker-Dealer failed to make payment to us
upon delivery of such shares: _____________
Name:
-----------------------
(Name of Broker-Dealer)
By:
-----------------------
Printed Name:
Title:
D-1
<PAGE> 1
Exhibit (k)(6)
Book-Entry-Only Auction-Rate/Money Market Preferred/and
Remarketed Preferred Securities
Letter of Representations
[To be Completed by Issuer and Trust Company]
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
[Name of Issuer]
CHEMICAL BANK
[Name of the Trust Company]
July , 1995
------
(Date)
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: The First Australia Prime Income Fund, Inc. --
3000 Shares of Auction Market Preferred Stock
["AMPS"], Series G
(Issue Description, including Cusip Number)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue (the "Securities"). Trust
Company will act as transfer agent, registrar, dividend disbursing agent, and
redemption agent with respect to the Securities. The Securities will be issued
pursuant to a prospectus, private placement memorandum, or other such document
authorizing the issuance of the Securities dated
-1-
<PAGE> 2
July _____, 1995 (the "Document"). Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Prudential Securities Incorporated
("underwriters") are distributing the Securities through The Depository Trust
Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on July _____, 1995, there
shall be deposited with DTC one Security certificate registered in the name of
DTC's nominee, Cede & Co., which represents the total number of Securities
issued. Said certificate shall remain in DTC's custody as provided in the
Document. If, however, the aggregate principal amount of the Securities
exceeds $150 million, one certificate will be issued with respect to each $150
million of principal amount and an additional certificate will be issued with
respect to any remaining principal amount. Each $150 million Securities
certificate shall bear the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration
of transfer, exchange, or payment, and any certificate issued
is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as
is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with, to the extent Maryland Law so permits the Issuer to provide, no
provision for revocation of
-2-
<PAGE> 3
consents or votes by subsequent holders) and shall, to the extent possible,
send notice of such record date to DTC not less than 15 calendar days in
advance of such record date. Notices to DTC pursuant to this Paragraph by
telecopy shall be sent to DTC's Reorganization Department at (212) 709-6896 or
(212) 709-6897, and receipt of such notices shall be confirmed by telephoning
(212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or by any
other means shall be sent to DTC's Reorganization Department as indicated in
Paragraph 4.
3. In the event of a full or partial redemption of the
outstanding Securities, Issuer or Trust Company shall send a notice to DTC
specifying: (a) the number of Securities to be redeemed; and (b) the date such
notice is to be mailed to Security holders or published (the "Publication
Date"). Such notice shall be sent to DTC by a secure means (e.g., legible
telecopy, registered or certified mail, overnight delivery) in a timely manner
designed to assure that such notice is in DTC's possession no later than the
close of business on the business day before or, if possible, two business days
before the Publication Date. Issuer or Trust Company shall forward such notice
either in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The
party sending such notice shall have a method to verify subsequently the use of
such means and the timeliness of such notice.) The Publication Date shall be
not less than 30 days nor more than 60 days prior to the redemption date.
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to DTC's
Call Notification Department at (516) 227-4039 or (516) 227-4190. If the party
sending the notice does not receive a telecopy receipt from DTC confirming that
the notice has been received, such party shall telephone (516) 227-4070.
Notices to DTC pursuant to this Paragraph by mail or by any other means shall
be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice
by Issuer or Trust Company to Security holders specifying the terms of the
tender and the Publication Date of such notice shall be sent to DTC by a secure
means in the manner set forth in the preceding Paragraph. Notices to DTC
pursuant to this Paragraph and notices of other corporate actions (including
mandatory tenders, exchanges, and capital changes) by telecopy
-3-
<PAGE> 4
shall be sent to DTC's Reorganization Department at (212) 709-1093 or (212)
709-1094, and receipt of such notices shall be confirmed by telephoning (212)
709-6884. Notices to DTC pursuant to the above by mail or by any other means
shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
5. All notices and payment advices sent to DTC shall contain the
CUSIP number of the Securities.
6. The Document indicates that the dividend rate for the
Securities may vary from time to time. Absent other existing arrangements with
DTC, Issuer or Trust Company shall give DTC notice of each such change in the
dividend rate, on the same day that the new rate is determined, by telephoning
the Supervisor of DTC's Dividend Announcement Section at (212) 709-1270, or by
telecopy sent to (212) 709-1723. Such verbal or telecopy notice shall be
followed by prompt written confirmation sent by a secure means in the manner
set forth in Paragraph 3 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
7. The Document indicates that each purchaser of Securities must
sign a purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as
Cede & Co. is the sole record owner of the Securities, Cede & Co. shall be
entitled to all voting rights applicable to the Securities and to receive the
full amount of all dividends, liquidation proceeds, and redemption proceeds
payable with respect to the Securities, even if the credits of Securities to
the DTC accounts of any DTC Participant ("Participant") result from transfers
or failures to transfer in violation of the provisions of the purchaser's
letter. Issuer and Trust Company acknowledge that DTC shall treat any
Participant having Securities credited to its DTC accounts as entitled to the
full benefits of ownership of such Securities. Without limiting the generality
of the preceding sentence, Issuer and Trust Company acknowledge that DTC shall
treat any Participant having Securities credited to its DTC accounts as
entitled to receive dividends, distributions, and
-4-
<PAGE> 5
voting rights, if any, in respect of Securities and, subject to Paragraphs 11
and 12, to receive certificates evidencing Securities if such certificates are
to be issued in accordance with Issuer's certificate of incorporation. (The
treatment by DTC of the effects of the crediting by it of Securities to the
accounts of Participants described in the preceding two sentences shall not
affect the right of Issuer, participants in auctions relating to the
Securities, purchasers, sellers, or holders of Securities against any
Participant.) DTC shall not have any responsibility to ascertain whether any
transfer of Securities is made in accordance with the provisions of the
purchaser's letter.
8. Transactions in the Securities shall be eligible for same-day
funds settlement in DTC's Same-Day Funds Settlement ("SDFS") system.
A. Dividend payments shall be received by Cede & Co., as
nominee of DTC, or its registered assigns in same-day
funds on each payment date (or the equivalent in
accordance with existing arrangements between Issuer
or Trust Company and DTC). Such payments shall be
made payable to the order of Cede & Co. Absent any
other existing arrangements, such payments shall be
addressed as follows:
Manager; Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, New York 10004-2695
B. Redemption payments shall be made in same-day funds
by Trust Company in the manner set forth in the SDFS
Paying Agent Operating Procedures, a copy of which
previously has been furnished to Trust Company.
9. DTC may direct Issuer or Trust Company to use any other number
or address as the number or address to which notices, payments of dividends, or
redemption proceeds may be sent.
10. In the event of a redemption necessitating a reduction in the
number of Securities outstanding, DTC, in its discretion: (a) may request
Issuer or Trust Company to issue and authenticate a new Security certificate;
or (b) may make an appropriate notation on the Security certificate indicating
the date and amount of such reduction in the number of Securities outstanding,
-5-
<PAGE> 6
except in the case of final redemption, in which case the certificate will be
presented to Issuer or Trust Company prior to payment, if required.
11. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.
12. DTC may discontinue providing its services as securities
depository with respect to the Securities as any time by giving reasonable
notice to Issuer or Trust Company (at which time DTC will confirm with Issuer
or Trust Company the aggregate principal amount of Securities outstanding).
Under such circumstances, at DTC's request Issuer and Trust Company shall
cooperate fully with DTC by taking appropriate action to make available one or
more separate certificates evidencing Securities to any DTC Participant having
Securities credited to its DTC accounts.
13. Issuer hereby authorizes DTC to provide to Trust Company
security position listings of Participants with respect to the Securities from
time to time at the request of Trust Company. Issuer also authorizes DTC, in
the event of a partial redemption of Securities, to provide Trust Company, upon
request, with the names of those Participants whose positions in Securities
have been selected for redemption by DTC. DTC will use its best efforts to
notify Trust Company of those Participants whose positions in Securities have
been selected for redemption by DTC. Issuer authorizes and instructs Trust
Company to provide DTC with such signatures, examples of signatures, and
authorizations to act as may be deemed necessary or appropriate by DTC to
permit DTC to discharge its obligations to its Participants and appropriate
regulatory authorities. Such requests for security position listings shall be
sent to DTC's Reorganization Department in the manner set forth in Paragraph 4.
This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act.
14. Issuer: (a) understands that DTC has no obligation to, and
will not, communicate to its Participants or to any person
-6-
<PAGE> 7
having an interest in the Securities any information contained in the Security
Certificate(s); and (b) acknowledges that neither DTC's Participants nor any
person having an interest in the Securities shall be deemed to have notice of
the provisions of the Security certificate(s) by virtue of submission of
submission of such certificate(s) to DTC.
15. Nothing herein shall be deemed to require Trust Company to
advance funds on behalf of Issuer.
<TABLE>
<S> <C>
Very truly yours,
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
(Issuer)
By:
----------------------------------
(Authorized Officer's Signature)
CHEMICAL BANK
(Trust Company)
By:
---------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
--------------------------
</TABLE>
Notes:
A. If there is a Trust Company (as defined in this Letter of
Representations), Trust Company as well as Issuer must sign
this Letter. If there is no Trust Company, in signing this
Letter, Issuer itself undertakes to perform all of the
obligations set forth herein.
B. Schedule A contains statements that DTC believes
accurately describe DTC, the method of effecting book-entry
transfers of
-7-
<PAGE> 8
securities distributed through DTC, and certain related
matters.
cc: Underwriter
Underwriter's Counsel
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Prudential Securities Incorporated
Brown & Wood
-8-
<PAGE> 9
SCHEDULE A
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC--bracketed material may be
applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act
as securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One fully-registered Security certificate
will be issued for [each issue of] the Securities, [each] in the aggregate
principal amount of such issue, and will be deposited with DTC. [If, however,
the aggregate principal amount of [any) issue exceeds $150 million, one
certificate will be issued with respect to each $150 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The Rules applicable to DTC and its Participants are on file with the
Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by
or through Direct Participants, which will receive a
-9-
<PAGE> 10
credit for the Securities on DTC's records. The ownership interest of each
actual purchaser of each Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Securities, except in
the event that use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited
by Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Securities with DTC and their registration
in the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Securities: DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
5. Conveyance of notices and other communications by DTC to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
[6. Redemption notices shall be sent to Cede & Co. If less than
all of the Securities within an issue are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each Direct Participant in such
issue to be redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect
to Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Issuer as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
-10-
<PAGE> 11
8. Principal and interest payments on the Securities will be made
to DTC. DTC's practice is to credit Direct Participants' accounts on payable
date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on payable date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Agent, or
the Issuer, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Issuer or the Agent, disbursement of such payments to
Direct Participants shall be the responsibility of DTC, and disbursement of
such payments to the Beneficial Owners shall be the responsibility of Direct
and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to the
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to the [Tender/Remarketing] Agent. The
requirement for physical delivery of Securities in connection with a demand for
purchase or a mandatory purchase will be deemed satisfied when the ownership
rights in the Securities are transferred by Direct Participants on DTC's
records.]
10. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to the Issuer or the Agent. Under such circumstances, in the event that
a successor securities depository is not obtained, Security certificates are
required to be printed and delivered.
11. The Issuer may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In
that event, Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the Issuer believes to be
reliable, but the Issuer takes no responsibility for the accuracy thereof.
-11-
<PAGE> 1
Exhibit (l)(1)
DECHERT PRICE & RHOADS
477 Madison Avenue
New York, New York 10022-5891
(212) 326-3500
Fax (212) 308-2041
July 14, 1995
The First Australia Prime Income Fund, Inc.
44 Pitt Street
Sydney, N.S.W. 2000
Australia
Re: The First Australia Prime Income Fund, Inc.
Securities Act Registration No. 33-60341
Investment Company Act File No. 811-4611
Ladies and Gentlemen:
We have acted as counsel for The First Australia Prime Income
Fund, Inc. (the "Fund") in connection with the above-captioned registration
statement (the "Registration Statement"). In our capacity as counsel, we have
examined the Fund's articles of incorporation and its by-laws, each as amended
to date, and are familiar with the Fund's corporate proceedings in connection
with the authorization of the issuance by the Fund of 3000 shares of the
Auction Market Preferred Stock, Series G, par value $.01 per share (the "AMPS")
as contemplated by the Registration Statement. We are also familiar with the
form of articles supplementary relating to the AMPS (the "Articles
Supplementary") that have been filed as an exhibit to the Registration
Statement. In rendering this opinion, we have also made such examination of
law and of fact reasonably available to us as we have deemed necessary in
connection with the opinion hereafter set forth, and we have relied, with
respect to matters of Maryland law, on the opinion of Venable, Baetjer and
Howard, LLP, a copy of which is attached hereto.
Based upon such examination, we are of the opinion that when
the price to the underwriters of the AMPS has been determined by the Board of
Directors' Pricing Committee pursuant to authority delegated to it by the Board
of Directors and the Articles Supplementary have been (i) approved by the Board
of Directors and completed pursuant to action by the Board of Directors'
Pricing Committee in accordance with authority
<PAGE> 2
The First Australia Prime Income Fund, Inc.
July 14, 1995
Page 2
delegated to it by the Board of Directors and (ii) filed with the Maryland
State Department of Assessments and Taxation, the shares of AMPS will have been
duly authorized and, when, thereafter, sold, issued and paid for in the manner
contemplated by the Registration Statement, will have been validly and legally
issued, fully paid, and non-assessable.
We hereby consent to the inclusion of this opinion as an
exhibit to the Registration Statement and to the reference to our firm under
the caption "Legal Matters." In giving such consent, we do not hereby admit
that we are within the category of persons whose consent is required by Section
7 of the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
<PAGE> 1
Exhibit (l)(2)
VENABLE, BAETJER AND HOWARD, LLP
1800 Mercantile Bank and Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201
(410) 244-7400
Fax (410) 244-7742
July 14, 1995
Dechert Price & Rhoads
477 Madison Avenue
New York, New York l0022-5891
Re: The First Australia Prime Income Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for The First Australia
Prime Income Fund, Inc., a Maryland corporation (the "Fund"), in connection
with the issuance of 3000 shares of its Auction Market Preferred Stock, Series
G, par value $.01 per share (the "AMPS").
As Maryland counsel for the Fund, we are familiar with its Charter and
Bylaws. We have examined the prospectus included in its Registration Statement
on Form N-2 for the AMPS (Securities Act Registration No. 33-60341, Investment
Company Act File No. 811-4611 (the "Registration Statement")), substantially in
the form in which it is to become effective (the "Prospectus"). We are also
familiar with the form of Articles Supplementary relating to the AMPS (the
"Articles Supplementary") that have been filed as an exhibit to the
Registration Statement. We have further examined and relied upon a certificate
of the Maryland State Department of Assessments and Taxation ("SDAT") to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland.
We have also examined and relied upon such corporate records of the
Fund and other documents and certificates with respect to factual matters as we
have deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies. We have further
assumed that the issuance of 3000 shares of AMPS Series G by the Fund will not
cause the Fund to fail the AMPS Basic Maintenance Amount or the 1940 Act AMPS
Asset Coverage
<PAGE> 2
Dechert Price & Rhoads
July 14, 1995
Page 2
Requirement pertinent to the Fund s outstanding AMPS, Series A-F, as those two
terms are defined in the Articles Supplementary creating AMPS Series A-F.
Based on such examination, we are of the opinion and so advise you
that when the price to the Underwriters of the AMPS has been determined by the
Pricing Committee pursuant to authority delegated to it by the Board of
Directors and the Articles Supplementary have been (i) approved by the Board of
Directors and completed pursuant to action by the Board of Directors' Pricing
Committee in accordance with authority delegated to it by the Board of
Directors and (ii) filed with SDAT, the shares of AMPS to be offered for sale
pursuant to the Prospectus will have been duly authorized and, when thereafter,
sold, issued and paid for as contemplated by the Prospectus, will have been
validly and legally issued and will be fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the
authorization and issuance of stock, but it does not extend to the securities
or "Blue Sky" laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to
the Fund that is to be filed as an exhibit to the Registration Statement. We
consent to the reference to us under the caption "Legal Matters" in the
Prospectus and to the filing of this opinion as an exhibit to the Registration
Statement. We do not thereby admit that we are "experts" within the meaning of
the Securities Act of l933 and the rules and regulations thereunder.
Very truly yours,
/s/ VENABLE, BAETJER
AND HOWARD, LLP
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
registration statement on Form N-2 of our report dated December 20, 1994,
relating to the financial statements and financial highlights of The First
Australia Prime Income Fund, Inc., which appears in such Prospectus. We also
consent to the references to us under the headings "Financial Highlights" and
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 13, 1995
<PAGE> 1
Exhibit (s)
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Certificate of Assistant Secretary
I, Margaret A. Bancroft, the duly authorized Assistant Secretary of The
First Australia Prime Income Fund, Inc., a Maryland corporation (the "Fund")
hereby certify that the Board of Directors of the Fund has adopted by written
consent the following resolution, which remains in full force and effect and
has not been changed or modified:
RESOLVED, that each officer of the Fund now or hereafter elected be,
and each of them hereby is, authorized to execute, or grant power of
attorney to counsel with power of substitution to execute, a Registration
Statement on Form N-2 under the Securities Act of 1933 and the Investment
Company Act of 1940, or any other appropriate form, to offer and sell up to
3,000 shares of the Series G AMPS of the Fund; to execute, or grant power
of attorney to counsel with power of substitution to execute, any
amendments, supplements or post-effective amendments thereto in such form
as may be approved by said officers or by any attorney-in-fact acting
pursuant to the authority hereby conferred upon each of them; to file or
authorize the filing of such documents with the Securities and Exchange
Commission; and to designate agents for service of process.
Dated: July 13, 1995 /s/ Margaret A. Bancroft
--------------------------------
Margaret A. Bancroft
Assistant Secretary, The First
Australia Prime Income Fund, Inc.
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