As filed with the Securities and Exchange Commission on July 19, 1996
Securities Act Registration No. 33-
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. |_|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28 |X|
(Check appropriate box or boxes)
_______________
THE FIRST AUSTRALIA PRIME INCOME FUND,
INC.
(Exact Name of Registrant as Specified in Charter)
One Seaport Plaza New York, New York 10292
(Address of Principal Executive Offices) (Zip Code)
(212) 214-3334
(Registrant's Telephone Number, including Area Code)
Richard P. Strickler
45 Broadway
New York, New York 10004
(Name and Address of Agent for Service)
---------------
Copies to:
Margaret A. Bancroft Frank P. Bruno Allan S. Mostoff
Dechert Price & Rhoads Brown & Wood LLP 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
---------------
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. |_|
<PAGE>
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
<TABLE>
<CAPTION>
=============================================================================================================
Proposed Proposed
Amount Maximum Maximum
Title of Securities Being Offering Price Aggregate Amount of
Being Registered Registered Per Unit Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auction Market Preferred Stock,
Series H and Series I ($.01 par value).. 6,000 shs $25,000 $150,000,000 $51,724.14
=============================================================================================================
</TABLE>
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>
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
---------------
CROSS REFERENCE SHEET
Between Items of Registration Statement (Form N-2) and Prospectus
Parts A and B
<TABLE>
<CAPTION>
Item No. Caption Location in Prospectus
---------------- ----------------------
<S> <C> <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
Information........................................... Not Applicable
14. Cover Page............................................ Not Applicable
15. Table of Contents..................................... Not Applicable
16. General Information and History....................... Not Applicable
17. Investment Objective and Policies..................... Investment Objective and Policies; Investment
Restrictions; Portfolio Transactions and
Brokerage
18. Management............................................ Management of the Fund
19. Control Persons and Principal Holders of Securities... Management of the Fund -- Share Ownership
20. Investment Advisory and Other Services................ Management Agreement and Advisory
Agreement; Administrative Services
Agreement; Consultant Agreement;
Custodian, Dividend Paying Agents,
Transfer Agents, Registrars and Auction
Agent; Experts
21. Brokerage Allocation and Other Practices.............. Portfolio Transactions and Brokerage
22. Tax Status............................................ Taxation
23. Financial Statements.................................. Financial Statements
</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>
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 nor qualification under the securities laws of any such state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY XX, 1996
PROSPECTUS
$150,000,000
The First Australia Prime Income Fund, Inc.
Auction Market Preferred Stock ["AMPS"(R)]
3,000 Shares, Series H -- Liquidation Preference $25,000 Per Share
3,000 Shares, Series I -- 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 ("AMPS"(R))
offered hereby will be cumulative from the Date of Original Issue and will be
payable (a) in the case of Series H AMPS commencing on , 1996 and (b) in the
case of Series I AMPS, commencing on , 1996 and, for both series, generally on
each succeeding thereafter. The dividend rate on the shares of Series H AMPS for
the Initial Dividend Period ending on , 1996 will be % per annum and the
dividend rate on the shares of Series I AMPS for the Initial Dividend Period
ending on , 1996 will be % per annum. Thereafter, the Applicable Rate on the
shares of each series 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.
===============================================================================
Price to Proceeds to
Public(1) Sales Load(2) Fund(1)(3)
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Per Share................ $25,000 $ $
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Total.................... $150,000,000 $ $
===============================================================================
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
<PAGE>
(2) The Fund, the Investment Manager and the Investment Adviser have agreed
to indemnify the Underwriters against certain liabilities under the Securities
Act of 1933, as amended. See "Underwriting." (3) Before deduction of expenses,
payable by the Fund, estimated at $ .
---------------
The shares of AMPS are offered by the several Underwriters, subject to
prior sale, when, as and if issued by the Fund and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The several Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that one certificate for each series of the AMPS will be
delivered to the nominee of The Depository Trust Company on or about , 1996.
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
---------------
Merrill Lynch & Co.
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
---------------
The date of this Prospectus is , 1996.
<PAGE>
(Continued from previous page)
Each prospective purchaser should carefully review the detailed information
regarding the Auction Procedures which appears in this Prospectus, including the
Appendices, and should note that (i) an Order constitutes an irrevocable
commitment to hold, purchase or sell AMPS based upon the results of the related
Auction, (ii) the Auctions will be conducted through telephone communications,
(iii) settlement for purchases and sales will be on the Business Day following
the Auction and (iv) ownership of AMPS will be maintained in book-entry form by
or through the Securities Depository. Any of the Broker-Dealers may maintain a
secondary trading market in the AMPS outside of Auctions, however, they have no
obligation to do so and there can be no assurance that a secondary market for
the AMPS will develop or, if it does develop, that it will provide holders with
liquidity of investment. Shares of AMPS may be transferred only pursuant to a
Bid or a Sell Order placed in an Auction through a Broker-Dealer to the Auction
Agent or in the secondary market, if any.
The shares of AMPS are subject to mandatory and optional redemption under
certain circumstances as described herein. See "Description of AMPS --
Redemption."
If the Fund fails to pay on any Dividend Payment Date for any series of
AMPS (or within the applicable grace period) the full amount of any dividend or
the redemption price of shares of a series 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. The Securities and Exchange Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with the Securities and Exchange Commission.
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
2
<PAGE>
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.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and the Appendices
hereto. Capitalized terms not defined in this Summary are defined in the
Glossary and, in certain cases, elsewhere herein. Unless otherwise indicated,
all references to dollars are to U.S. dollars.
The Fund
The First Australia Prime Income Fund, Inc. (the "Fund") is a
non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund commenced operations
in April 1986 and was the first publicly offered United States registered
investment company organized to invest primarily in Australian debt securities.
The shares of Common Stock, par value $.01 per share, of the Fund (the "Common
Stock") are traded on the American Stock Exchange under the symbol FAX. See "The
Fund" and "Capital Stock -- Common Stock."
The Offering
The Fund is offering 3,000 shares of Series H Auction Market Preferred
Stock (the "Series H AMPS") and 3,000 shares of Series I Auction Market
Preferred Stock (the "Series I AMPS"), in each case 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 series
offered hereby will have a length of days.
The Fund currently has outstanding an aggregate of 19,000 shares of Auction
Market Preferred Stock. The Auction Market Preferred Stock has been issued in
seven series, Series A through G. The first three series were issued on January
19, 1989, the fourth series on August 1, 1989, the fifth series on December 16,
1992, the sixth series on December 20, 1993, and the seventh on July 27, 1995.
These seven series, together with the Series H AMPS and Series I AMPS offered
hereby (collectively, the "AMPS") constitute nine 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 Series H
AMPS and Series I AMPS offered hereby will rank pari passu with the seven series
of Auction Market Preferred Stock currently outstanding 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.
4
<PAGE>
Securities"). It is the Fund's policy to limit its investments, as to 65%
of its total assets, to issuers of debt securities rated AA or better by S&P or
Aa or better by Moody's or which, in the judgment of the Investment Manager, are
of equivalent quality. The remainder of the Fund's investments will be rated A
by those rating agencies or, if unrated, will in the Investment Manager's
judgment be of equivalent quality. See "Investment Objective and Policies;
Investment Restrictions."
Management
EquitiLink International Management Limited (the "Investment Manager") acts
as the Fund's Investment Manager and EquitiLink Australia Limited (the
"Investment Adviser") acts as the Fund's Investment Adviser. The Investment
Manager and the Investment Adviser also serve in these capacities for The First
Australia Fund, Inc., a diversified, closed-end management investment company,
whose shares are listed on the American Stock Exchange, organized to invest
primarily in Australian equity securities; First Australia Prime Income
Investment Company Limited, a closed-end investment company, whose shares are
listed on the Toronto Stock Exchange, organized to invest primarily in
Australian debt securities; and The First Commonwealth Fund, Inc., a
non-diversified closed-end management investment company whose shares are listed
on the New York Stock Exchange, organized to invest in high-grade, fixed income
securities denominated in the currencies of Australia, Canada, New Zealand and
the United Kingdom. In addition, the Investment Adviser currently manages eight
Australian public unit trusts and two other closed-end investment companies
whose shares are listed on the Australian Stock Exchange Limited, as well as two
open-end funds marketed in Taiwan and institutional and private advisory
accounts. The Prudential Insurance Company of America (the "Consultant") acts as
the Fund's consultant. Prudential Mutual Fund Management, Inc. (the
"Administrator") is the Fund's administrator. See "Management."
Through May, 1996, the Fund paid 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. Effective June 1, 1996, the Investment Manager
agreed to reduce its fee to 0.45% of such assets in excess of $1,750 million.
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 shares of Series H AMPS and Series I AMPS offered hereby
are cumulative from the Date of Original Issue and are payable (a) in the case
of Series H AMPS, commencing on , 1996 and (b) in the case of Series I AMPS,
commencing on , 1996, and, for each series, generally on each succeeding
thereafter, subject to certain exceptions. See "Description of AMPS --
Dividends." Dividends for the Series H AMPS and Series I 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.
5
<PAGE>
The dividend rate on the shares of Series H AMPS for the Initial Dividend
Period ending on , 1996 will be % per annum and the dividend rate on the shares
of Series I AMPS for the Initial Dividend Period ending on , 1996 will be % per
annum. For each respective Dividend Period thereafter (normally a period of
days), the dividend rate on the shares of Series H AMPS and Series I AMPS will
be the Applicable Rate for such series that the Auction Agent (The Chase
Manhattan Bank N.A. 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
Separate Auctions will be conducted for each series of AMPS. As used in the
following description of the Auction Procedures, unless the context otherwise
requires, "AMPS" means the series of AMPS subject to the related Auction, and
"Beneficial Owners," "Potential Beneficial Owners," "Existing Holders" and
"Potential Holders" means Beneficial Owners, Potential Beneficial Owners,
Existing Holders and Potential Holders of such series, respectively.
Unless otherwise permitted by the Fund, Beneficial Owners and Potential
Beneficial Owners of AMPS may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. On or prior to each Auction Date for the AMPS (the
Business Day next preceding the first day of each Dividend Period), each
Beneficial Owner may submit Orders to its Broker-Dealer as follows:
o Hold Order -- indicating its desire to hold shares of AMPS without
regard to the Applicable Rate for the next Dividend Period for such
shares.
o 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.
o 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
6
<PAGE>
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."
Credit Rating
------------------------------------------
S&P Moody's Applicable Percentage
------------------ ----------------- ---------------------
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
Potential Beneficial Owners of shares of AMPS may submit Bids through their
Broker-Dealers in which they offer to purchase shares of AMPS, provided that the
Applicable Rate for the next Dividend Period for such shares is not less than
the rate per annum specified in such Bid. A Bid by a Potential Beneficial Owner
with a rate per annum higher than the Maximum Applicable Rate will not be
considered.
Neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with any of the foregoing.
A Broker-Dealer may also hold AMPS for its own account as a Beneficial
Owner. A Broker- Dealer may thus submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of both itself and
its customers. An Order placed with the Auction Agent by a Broker-Dealer as an
Existing Holder or a Potential Holder as or on behalf of a Beneficial Owner or a
Potential Beneficial Owner, as the case may be, will be treated in the same
manner as an Order placed with a Broker- Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any failure by a Broker- Dealer to submit
to the Auction Agent an Order in respect of any AMPS held by it or its customers
who are Beneficial Owners will be treated in the same manner as a Beneficial
Owner's failure to submit to its Broker-Dealer an Order in respect of AMPS held
by it, as described above. Inasmuch as a Broker-Dealer participates in an
Auction as an Existing Holder or a Potential Holder only to represent the
interests of a Beneficial Owner or Potential Beneficial Owner, whether it be its
customers or itself, all discussion herein relating to the consequences of an
Auction for Existing Holders and Potential Holders also applies to the
underlying beneficial ownership interests represented.
If Sufficient Clearing Bids exist in an Auction (that is, in general, the
number of shares of AMPS subject to bids by Potential Holders is at least equal
to the number of shares of AMPS subject to Sell Orders by Existing Holders), the
Applicable Rate will be the lowest rate per annum specified in the Submitted
Bids which, taking into account such rate per annum and all lower rates per
annum by
7
<PAGE>
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, 1996, after giving effect to the issuance of
shares of Common Stock in connection with a rights offering completed on May 31,
1996 and this offering (see "Use of Proceeds"), the 1940 Act AMPS Asset Coverage
Ratio would have been approximately %.
The discount factors and guidelines for calculating the Discounted Value of
the Fund's portfolio for purposes of determining whether the AMPS Basic
Maintenance Amount has been satisfied have been established by Moody's and S&P
in connection with the Fund's receipt of ratings on the shares of AMPS on their
Date of Original Issue of "aa" from Moody's and AA from S&P. See "Investment
Objective and Policies; Investment Restrictions -- Rating Agency Guidelines."
8
<PAGE>
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 of each series 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.
9
<PAGE>
Special Considerations and Risk Factors
Investment in the Fund involves special considerations, including the fact
that the Fund invests primarily in Australian dollar denominated securities. As
a result, changes in the exchange rate of the Australian dollar relative to the
U.S. dollar, which could be material, will affect the U.S. dollar value of the
Fund's assets, its yield and the amount of securities required to be liquidated
in order to meet distribution requirements established by the Code or to redeem
the AMPS. Moreover, an increase in interest rates in Australia and New Zealand
could be expected to result in a decline in the value of the Fund's portfolio
securities. However, the AMPS Basic Maintenance Amount, which the Fund is
required to maintain by Moody's and S&P in connection with their rating of the
AMPS, mitigates against risks to holders of AMPS associated with investment in
foreign issues by requiring the Fund to redeem AMPS before the assets of the
Fund, as measured in U.S. dollars, would be insufficient to pay the AMPS
liquidation preference of $25,000 plus accumulated but unpaid dividends (whether
or not earned or declared). The Fund is classified as a "non-diversified"
investment company and, as a result, may be more susceptible than a more widely
diversified fund to any single economic, political or regulatory occurrence. The
Fund's Articles and By-laws include provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board of Directors. The issuance of
Preferred Stock could have the effect, although not presently intended, of
discouraging takeovers of the Fund. See "Special Considerations and Risk
Factors."
There are a number of specific factors investors in AMPS should consider:
o The credit ratings of the AMPS could be reduced while an investor
holds the AMPS;
o 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
o 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The following information 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: 1996 1995** 1994 1993 1992
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value per common
share, beginning of
period................... $9.36 $8.82 $10.09 $9.61 $11.31
----- ----- ------ ----- ------
Net investment income...... .44 .93 1.01 1.19 1.29
Net realized and unrealized
gain (loss) on investments
and foreign currencies.... .37 1.16 (1.03) .58 (1.42)
----- ----- ------ ----- ------
Total from investment
operations........... .81 2.09 (.02) 1.77 (.13)
----- ----- ------ ----- ------
Dividends from net investment
income to preferred
shareholders.............. (.06) (.17) (.12) (.11) (.14)
Dividends from net investment
income to common
shareholders.............. (.41) (.83) (.84) (1.08) (1.10)
Distributions from net
capital and currency
gains to preferred
shareholders.............. (.02) (.01) (.01) (.01) (.01)
Distributions from net
capital and currency gains
to common shareholders... (.03) (.15) (.17) (.08) (.29)
----- ----- ------ ----- ------
Total dividends and
distributions....... (.52) (1.16) (1.14) (1.28) (1.54)
----- ----- ------ ----- ------
Capital charge in respect
to issuance of shares.... - (.39) (.11) (.01) (.03)
----- ----- ------ ----- ------
Net asset value per common
share, end of period.... $9.65 $9.36 $8.82 $10.09 $9.61
===== ===== ===== ====== =====
Market price per common
share, end of period .... $8.56 $9.31 $9.56 $10.25 $10.00
TOTAL INVESTMENT
RETURN BASED ON:
Market value............... (3.53)% 8.78% 3.32% 15.00% 4.11%
Net asset value............ 8.17% 18.54% (3.19%) 17.80% (3.22%)
RATIOS TO AVERAGE NET
ASSETS OF COMMON
SHAREHOLDERS/
SUPPLEMENTAL DATA#:
Expenses................... 1.40%*++ 1.47%++ 1.41%++ 1.44%++ 1.43%*++
Net investment income
before preferred stock
dividends................ 9.51%* 10.83% 10.68% 12.13% 12.14%
Preferred stock dividends.. 1.41%* 1.87% 1.20% 1.13% 1.25%
Net investment income
available to common
shareholders............. 8.10%* 8.96% 9.48% 11.00% 10.89%
Portfolio turnover rate.... 11% 50% 34% 23% 17%
Net assets of common
shareholders end of
period (000 omitted).... $1,501,713 $1,452,205 $1,088,631 $1,050,084 $977,933
Average net assets
of common share-
holders (000 omitted)... $1,456,375 $1,201,383 $1,174,394 $1,011,324 $938,072
Senior securities
(preferred stock) out-
standing (000 omitted).. $475,000 $475,000 $400,000 $350,000 $300,000
Asset coverage of preferred
stock at period end........ 416% 406% 372% 400% 426%
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
April
24,
1986##
through
Years Ended October 31, October
PER SHARE OPERATING --------------------------------------------------- 31,
PERFORMANCE: 1991 1990 1989 1988 1987 1986
------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value per common
share, beginning of
period................... $10.02 $ 9.31 $10.81 $8.74 $8.26 $ 9.33++
------ ------ ------ ----- ----- ------
Net investment income...... 1.40 1.49 1.32 .97 1.02 .49
Net realized and unrealized
gain (loss) on investments
and foreign currencies.... 1.37 .73 (1.22) 2.50 .52 (1.46)
------ ------ ------ ----- ----- ------
Total from investment
operations........... 2.77 2.22 .10 3.47 1.54 (.97)
------ ------ ------ ----- ----- ------
Dividends from net investment
income to preferred
shareholders.............. (.24) (.30) (.20) -- -- --
Dividends from net investment
income to common
shareholders.............. (1.24) (1.13) (1.08) (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... -- (.08) (.23) -- -- --
------ ------ ------ ----- ----- ------
Total dividends and
distributions....... (1.48) (1.51) (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.... $11.31 $10.02 $9.31 $10.81 $8.74 $8.26
====== ====== ===== ====== ===== =====
Market price per common
share, end of period .... $10.94 $8.94 $8.88 $9.56 $7.25 $8.38
TOTAL INVESTMENT
RETURN BASED ON:
Market value............... 38.36% 14.95% 7.38% 54.42% (2.09%) (9.31%)
Net asset value............ 27.62% 22.88% (.44%) 44.84% 19.74% (10.65%)
RATIOS TO AVERAGE NET
ASSETS OF COMMON
SHAREHOLDERS/
SUPPLEMENTAL DATA#:
Expenses................... 1.59%++ 1.54%++ 1.35%+ 1.04% 1.11% 1.09%*
Net investment income
before preferred stock
dividends................ 13.42% 15.47% 13.46% 9.51% 11.61% 11.75%*
Preferred stock dividends.. 2.31% 3.11% 2.07% -- -- --
Net investment income
available to common
shareholders............. 11.11% 12.36% 11.39% 9.51% 11.61% 11.75%*
Portfolio turnover rate.... 83% 80% 46% 60% 52% 13%
Net assets of common
shareholders end of
period (000 omitted).... $972,569 $861,379 $800,166 $928,689 $751,129 $708,012
Average net assets
of common share-
holders (000 omitted)... $899,175 $826,862 $832,779 $875,609 $756,274 $703,339
Senior securities
(preferred stock) out-
standing (000 omitted).. $300,000 $300,000 $300,000 -- -- --
Asset coverage of preferred
stock at period end......... 424% 387% 367% -- -- --
<FN>
- ----------
* 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.
++ 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.
** Calculated based upon weighted average shares outstanding during the year.
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, 1996 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.
</FN>
</TABLE>
11A
<PAGE>
Senior Securities
The Fund currently has outstanding an aggregate of 19,000 shares of AMPS.
The outstanding AMPS have been issued in seven series, Series A through G, the
first four of which were issued in 1989, with the fifth, sixth and seventh
series being issued, respectively, in 1992, 1993 and 1995. The shares of AMPS
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 of $25,000 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 the
Liquidation Preference. The following tables set forth certain information
relating to the Preferred Stock.
12
<PAGE>
<TABLE>
<CAPTION>
Auction Market Preferred Stock, Series A-G
Total Amount Asset Coverage Liquidation
of Preferred Per $25,000 Preference
Stock Share of Per $25,000
At 10/31 Outstanding (1) Preferred Stock (2) Share(3)(4)
-------- --------------- ------------------- -----------
<S> <C> <C> <C>
1986 -- -- --
1987 -- -- --
1988 -- -- --
1989 $300,000,000 $ 91,747.25 $25,000
1990 $300,000,000 $ 96,883.75 $25,000
1991 $300,000,000 $106,141.00 $25,000
1992 $300,000,000 $106,520.50 $25,000
1993 $350,000,000 $100,006.00 $25,000
1994 $400,000,000 $ 93,039.50 $25,000
1995 $475,000,000 $101,431.75 $25,000
April 30, 1996 $475,000,000 $104,037.53 $25,000
<FN>
- -------------------
(1) Based on the number of shares of AMPS outstanding multiplied by the
Liquidation Preference per share.
(2) Asset coverage per share of AMPS is derived by subtracting the aggregate
Liquidation Preference of all of the series of AMPS outstanding
($300,000,000 through 1992, $350,000,000 in 1993, $400,000,000 in 1994 and
$475,000,000 in 1995) from the total assets of the Fund less (i) all
liabilities and indebtedness not represented by the AMPS and (ii) any
accrued but unpaid dividends on the AMPS as at the end of the fiscal
periods indicated. This sum is then divided by the number of shares of AMPS
outstanding.
(3) Plus accrued and unpaid dividends, if any.
(4) The liquidation preference as of October 31, 1995 was $100,000 per share of
AMPS, Series A-F, and $25,000 per share of AMPS, Series G. Effective April
25, 1996, by means of stock splits, the liquidation preference of AMPS,
Series A-F was reduced to $25,000 per share and an additional aggregate
12,000 shares of AMPS, Series A-F was issued.
</FN>
</TABLE>
The dividend rates on the outstanding AMPS are established through an
auction process. The dividend rates on the series A-D shares are set every 28
days and the dividend rates on the Series E, F and G shares are set every 7
days. Generally, the dividend rate has represented a premium over the 30 day
commercial paper rate. At June 30, 1996, the annual dividend rates on Series A
through G were, respectively, 5.300%, 5.183%, 5.199%, 5.400%, 5.350%, 5.300% and
5.300%. 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 1.31%.
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 AMPS, 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 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 may be enhanced
13
<PAGE>
or diminished by fluctuations in foreign currency. See "Risk Factors and
Special Considerations - Preferred Stock."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses)..... - 10% -5% 0% 5% 10%
Corresponding Common Stock Return(1)........... - 15.69% - 9.06% - 2.42% 4.21% 10.85%
<FN>
(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,
1995) to obtain an assumed return to the Fund. This rate is then reduced by the value of AMPS
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 attributable to common stockholders as of the beginning of the fiscal year to
determine "Corresponding Common Stock Return."
</FN>
</TABLE>
14
<PAGE>
CAPITALIZATION
(Unaudited)
The following table sets forth the capitalization of the Fund as of April
30, 1996 and as adjusted (a) to reflect the issuance of 38,911,951 shares of
Common Stock in connection with a rights offering completed on May 31, 1996 at a
price of $8.03 per share, and (b) to give effect to the issuance of the shares
of Series H AMPS and Series I AMPS offered hereby.
Net assets applicable to Preferred and Common Stock:
<TABLE>
<CAPTION>
April 30,
1996 As Adjusted
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Preferred Stock, par value $.01 per share, authorized 100,000,000 shares, 19,000
shares of AMPS issued and outstanding at $25,000 per share liquidation
preference, as adjusted for issuance of Series H AMPS and Series I AMPS,
25,000 shares of AMPS issued and outstanding, at $25,000
per share liquidation preference............................................. 475,000,000 625,000,000
Common Stock, par value $.01 per share, authorized 200,000,000
shares, shares issued and outstanding, as
adjusted, shares issued and outstanding(1).......................
Paid-in capital in excess of par(1)(2).........................................
Undistributed net investment income............................................
Accumulated net realized losses on investments.................................
Net unrealized depreciation on investments.....................................
Accumulated net realized and unrealized foreign exchange gains................
Total net assets..........................................................
Net assets applicable to Common Stock(1)(2)(3).................................
<FN>
- ----------
(1) As adjusted, reflects the issuance of 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 loads of $ and offering costs of
approximately $ .
(3) After deduction, from total net assets, of the liquidation preference of
the AMPS of $25,000 per share with respect to the 19,000 shares currently
outstanding and, with respect to the net assets as adjusted, $25,000 per
share with respect to the 6,000 shares offered hereby.
</FN>
</TABLE>
15
<PAGE>
THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act. The Fund commenced operations in April 1986 and
was the first publicly offered United States registered investment company
organized to invest primarily in Australian debt securities. Registration of the
Fund under the 1940 Act does not involve supervision of the Fund's investments
by the Securities and Exchange Commission (the "Commission"). The Fund's
investment objective is current income through investment primarily in
Australian debt securities. The Fund may also achieve incidental capital
appreciation.
It is expected that normally at least 65% of the Fund's total assets will
be invested in Australian dollar denominated debt securities of Australian
banks, federal and state governmental entities and companies. To achieve its
investment objective, the Fund may invest the remainder of its assets in debt
securities of comparable quality which are denominated in Australian or New
Zealand dollars of other issuers, whether or not domiciled in Australia or New
Zealand, and in U.S. Securities. During periods when, in the Investment
Manager's judgment, changes in the market for Australian and New Zealand debt
securities or other economic conditions warrant a temporarily defensive
investment policy, the Fund may temporarily reduce its position in such
securities and invest in U.S. Securities. The Fund may enter into repurchase
agreements with banks and broker-dealers pursuant to which the Fund may acquire
a security for a relatively short period (usually no more than one week) subject
to the obligations of the seller to repurchase and the Fund to resell such
security at a fixed time and price. See "Investment Objective and Policies;
Investment Restrictions."
The Fund's Investment Manager is EquitiLink International Management
Limited, an investment management company organized in Jersey, Channel Islands.
The Investment Manager manages, in accordance with the Fund's stated investment
objective, policies and limitations and subject to the supervision of the Fund's
Board of Directors, the Fund's investments and makes investment decisions on
behalf of the Fund, including the selection of, and placing of orders with,
brokers and dealers to execute portfolio transactions on behalf of the Fund and
the making of investments in U.S. dollar denominated securities. The Investment
Manager's affiliate, EquitiLink Australia Limited, an Australian corporation,
acts as the Fund's Investment Adviser, providing portfolio recommendations to
the Investment Manager with respect to Australian and New Zealand dollar
denominated securities. The Investment Manager and the Investment Adviser also
serve in these capacities for The First Australia Fund, Inc., a diversified
closed-end management investment company, whose shares are listed on the
American Stock Exchange, organized to invest primarily in Australian equity
securities which commenced operations in 1985 and First Australia Prime Income
Investment Company Limited, a closed-end investment company, whose shares are
listed on the Toronto Stock Exchange, organized to invest primarily in
Australian debt securities, which commenced operations in 1986. In addition, the
Investment Manager and Investment Adviser provide management and advisory
services to The First Commonwealth Fund, Inc., a non-diversified, closed-end
management investment company whose shares are traded on the New York Stock
Exchange, organized to invest in high-grade, fixed income securities denominated
in the currencies of Australia, Canada, New Zealand and the United Kingdom. The
Investment Adviser also manages eight Australian public unit trusts and two
other closed-end investment companies whose shares are listed on the Australian
Stock Exchange Limited, as well as two open-end funds marketed in Taiwan and
institutional and private advisory accounts. The Investment Manager and the
Investment Adviser are registered with the Commission under the Investment
Advisers Act of 1940. The Prudential Insurance Company of America, as
Consultant, consults with the Investment Manager and the Investment Adviser with
respect to economic factors and trends and currency movements affecting the
Fund. See "Management."
16
<PAGE>
USE OF PROCEEDS
Subject to market conditions, the net proceeds of this offering (estimated
to be $ after deducting estimated issuance costs, including sales load of $ and
offering costs of approximately $ ) will be invested within 60 days of the
receipt thereof in accordance with the policies set forth under "Investment
Objective and Policies; Investment Restrictions." Pending such investment, such
proceeds may be invested in U.S. Securities and repurchase agreements.
17
<PAGE>
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.
o The credit ratings of the AMPS could be reduced while an investor
holds the AMPS.
o 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.
18
<PAGE>
o If, in an Auction for the AMPS, Sufficient Clearing Bids do not exist,
the Applicable Rate will be the Maximum Applicable Rate and, in such
event, Beneficial Owners that have submitted Sell Orders will not be
able to sell in the Auction all, and may not be able to sell any,
shares of AMPS subject to such Sell Orders. Thus, under certain
circumstances, Beneficial Owners may not have liquidity of investment.
The AMPS will not be registered on any stock exchange or on the National
Association of Securities Dealers Automated Quotation System. The Broker-Dealers
may maintain a secondary market in the shares of AMPS outside the Auction
mechanism. The Broker-Dealers, however, have no obligation to make a secondary
market in the shares of AMPS outside the Auction process, and there can be no
assurance that a secondary market for the AMPS will develop or, if it does
develop, that it will provide holders with liquidity of investment. If a
Broker-Dealer purchases shares of AMPS in the secondary market or in an Auction,
it may be in a position of owning shares of AMPS at the time Applicable Rates
with respect to the AMPS are determined and it may tender such shares in any
Auction.
PORTFOLIO COMPOSITION
The following sets forth certain information with respect to the
composition of the Fund's investment portfolio (excluding $ held in U.S. and
Australian dollar denominated short-term investments) as of April 30, 1996,
based on the then applicable exchange rate of U.S. $.7875 to A$1.00 and U.S.
$.6865 to NZ $1.00.
The Portfolio
<TABLE>
<CAPTION>
% of Total
Market Value Market Value
Number in of Long-Term
of Issues U.S. Dollars Portfolio
--------- ------------ ---------
<S> <C> <C> <C>
Australian and New Zealand government securities............
Australian semi-government securities.......................
Australian and New Zealand corporate bonds..................
Eurobonds...................................................
Total long-term investments............................
</TABLE>
Ratings of Securities Held in the Portfolio
% of Total
Market Value
of Long-Term
Portfolio
---------
Moody's and/or S&P Ratings*
Aaa/AAA by Moody's or S&P......................................
Aa/AA by Moody's or S&P........................................
A/A by Moody's or S&P..........................................
Total Portfolio Rated by Moody's and/or S&P...............
- ----------
* Reflects the lower of the Moody's or S&P rating
For further information, reference should be made to "Financial
Statements."
19
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES; INVESTMENT RESTRICTIONS
Investment Objective 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.
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
20
<PAGE>
payment of principal and interest by Australian or New Zealand commonwealth or
state governments or their instrumentalities, to 5% of its assets at the time of
purchase. The Fund may invest without limitation in securities of Australian
governments or governmental entities and may invest up to 25% of its assets at
the time of purchase in New Zealand government securities. The Fund intends to
invest in a variety of debt securities, with differing issuers, maturities and
interest rates, and to comply with the diversification and other requirements of
the Code applicable to regulated investment companies so that the Fund will not
be subject to U.S. federal income taxes on its net investment income. See
"Taxation - - United States." The average U.S. dollar weighted maturity of the
Fund's portfolio is not expected to exceed 10 years.
Investment Restrictions
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position.
3. (a) Issue senior securities, except (i) insofar as the Fund may be
deemed to have issued a senior security in connection with any
repurchase or securities lending agreement or any borrowing agreement
permitted by those investment restrictions and (ii) that the Fund may
issue one or more series of its preferred stock, if permitted by the
Articles; or (b) borrow money or pledge its assets, except that the
Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed)
and will not make additional investments while any such borrowings are
outstanding.
4. Buy or sell commodities, commodity contracts, real estate or interests
in real estate (except that the Fund may purchase and sell Australian
mortgage-backed securities).
5. Make loans (except that the Fund may purchase debt securities whether
or not publicly traded or privately placed or may enter into repurchase
and securities lending agreements consistent with the Fund's investment
policies).
6. Make investments for the purpose of exercising control or management.
7. Act as an underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in the
Fund's investment portfolio).
8. Invest more than 25% of its total assets at the time of purchase in
any one industry (including banking) except that the Fund will invest
over 25% of its total assets in securities issued or guaranteed, as to
payment of principal and interest, by Australian governments or
governmental entities. U.S. government securities are excluded from
this restriction.
The Fund has no intention to file a voluntary application for relief under
federal bankruptcy law or any similar application under state law for so long as
the Fund is solvent, and given the investment restrictions of the Fund described
above, in particular, the limitations on the Fund's ability to incur
indebtedness, and the Fund's equity position, management of the Fund cannot
conceive of any circumstances under which the Fund would run any material risk
of becoming insolvent.
21
<PAGE>
Description of Debt Securities
The types of debt securities in which the Fund is permitted to invest
include those described below.
Australian Securities
Commercial Banks. The Fund is permitted to invest in bills of exchange,
certificates of deposit and promissory notes issued or guaranteed, as to payment
of principal and interest, by Australian commercial banks. Australian commercial
banks are generally comparable to U.S. banks and are subject to regulation by
Australian government authorities. The Investment Adviser does not believe that
there are any special risks associated with such bank securities. Bills of
exchange are negotiable instruments, issued to finance current transactions,
which generally mature within six months and which are accepted or endorsed by a
commercial bank and thus carry the bank's credit. Certificates of deposit are
negotiable instruments issued by commercial banks with maturities ranging from a
few days to several years. Promissory notes are negotiable instruments endorsed
and therefore guaranteed by a commercial bank or backed by a bank letter of
credit as to payment of principal and interest. Maturities generally range up to
180 days. Bank bills, certificates of deposit and promissory notes are usually
issued at a discount from face value and are traded by dealers in an active
public secondary market.
Governmental Entities. The Fund is permitted to invest in Federal
Commonwealth of Australia (the "Commonwealth") government bonds and treasury
notes and state government and semi- government bonds and notes. Commonwealth
government bonds and treasury notes represent the obligations of the
Commonwealth and are sold by the Reserve Bank of Australia (the central bank)
through public tenders. Bonds have maturities up to 30 years while notes are
issued in maturities of 13 and 26 weeks. The Commonwealth also guarantees as to
payment of principal and interest similar debt obligations issued by its
instrumentalities. State government and semi-government bonds and notes are
issued by various states and state instrumentalities and, in the case of state
instrumentalities, are guaranteed by the applicable state government. Maturities
range from less than one year to 15 years. Australian federal and state
government debt securities are frequently listed on the Australian Stock
Exchange Limited but most trading is by dealers in an active public secondary
market.
Companies. The Fund is permitted to invest in publicly-traded notes and
debentures or bills of exchange issued or guaranteed as to payment of principal
and interest by Australian companies, whether or not guaranteed or backed by a
commercial bank. Such securities have maturities generally ranging from less
than one year to five years and are traded by dealers in an active public
secondary market.
Mortgage-Backed Securities. The Fund is permitted to invest in Australian
mortgage-backed securities, which represent part ownership by the Fund in a pool
of mortgage loans. These loans are made by private lenders and may have
guarantees from Australian federal and state governmental entities, companies
and agencies. These securities would have to satisfy the Fund's general credit
criteria to qualify for purchase. Characteristics of several of the major
mortgage-backed securities are summarized below:
FANMACs: FANMAC securities ("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.
22
<PAGE>
("Australian Ratings") and S&P. FANMAC securities are subject to a call
provision under which borrowers (mortgagors) can repay early and the
investors in a particular pool can be repaid on a pro rata basis.
NMMC AUSSIE MACs and National Mortgage Market Bonds: National Mortgage
Market Corporation Ltd. ("NMMC") has issued both AUSSIE MACs, which are
medium term bearer securities, and National Mortgage Market Bonds. NMMC is
a private company which is 26% owned by the Government of the State of
Victoria and 74% by private institutions. Both AUSSIE MACs and National
Mortgage Market Bonds are rated by Australian Ratings.
MTCs: Mortgage Trust Certificates ("MTCs") are securities issued
against specific mortgages by a trustee and are similar to "pass through"
certificates. MTCs are issued on a continuous basis, insured by Australian
insurance companies against both mortgage default and an early call, and
rated by Australian Ratings.
MMSs and ANNIE MAEs: MMSs are mortgage-backed securities issued by
MGICA Securities Ltd., a wholly-owned subsidiary of AMP Society Ltd., an
Australian insurance company. ANNIE MAEs are securities issued by
Australian National Mortgage Pool Agency Ltd., an affiliate of Bank of
America. Both MMSs and ANNIE MAEs are issued against pools of mortgages and
are rated by Australian Ratings.
Other Debt Securities. Subject to its investment policy of investing at
least 65% of its assets in Australian dollar denominated debt securities of
Australian issuers, the Fund is permitted to invest in Australian and New
Zealand dollar denominated debt securities, similar in nature to those
described above, regardless of the domicile of the issuers. Thus, the Fund
is permitted to invest in publicly-traded debt securities of New Zealand
issuers and in publicly-traded debt securities denominated in Australian or
New Zealand dollars of issuers not domiciled in those countries. The latter
securities are usually issued in the Eurodollar market by multi-national
banks and companies which may have operations in Australia or New Zealand.
The Fund is also permitted to invest up to 10% of its assets in privately
placed debt securities which are Australian and New Zealand dollar denominated,
mature in four years or less and which are issued or guaranteed by banks or
companies whose debt securities are rated at the time of investment Aa or better
by Moody's or AA or better by S&P. The Fund may not purchase privately placed
securities which are subject to legal or contractual restrictions on their
resale. However, although such securities will be freely transferable, the
resale markets for privately placed securities are frequently limited, and the
Fund may either be required to dispose of such securities at a substantial
discount from face value or to hold such securities until maturity. The value of
such securities for net asset value purposes will be determined by the Fund's
Board of Directors.
U.S. Securities
Government. The Fund is permitted to invest in U.S. government securities,
including obligations issued or guaranteed by U.S. government agencies or
instrumentalities, some of which are backed by the full faith and credit of the
U.S. Treasury (such as direct pass-through certificates of the Government
National Mortgage Association ("GNMA")), some of which are supported by the
right of the issuer to borrow from the U.S. government (such as obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of the
issuer itself. Government obligations do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from U.S. government obligations are generally
lower than the yields
23
<PAGE>
available from corporate interest bearing securities. Like other interest
bearing securities, however, the value of government obligations changes as
interest rates fluctuate.
Corporations and Banks. The Fund is permitted to invest for defensive and
other temporary purposes in U.S. corporate debt instruments rated Aa or better
by Moody's or AA or better by S&P and finance company and corporate commercial
paper and other short-term obligations, in each case rated Prime-1 or Prime-2 by
Moody's or A-2 or better by S&P. The Fund is also permitted to invest in
obligations of U.S. federal or state chartered banks and bank holding companies
rated at the time of investment Aa or better by Moody's or AA or better by S&P
(including certificates of deposit, bankers' acceptances and other short-term
debt obligations).
Repurchase Agreements
The Fund is permitted to invest in repurchase agreements with banks and
broker-dealers. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually no more than one
week) subject to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Investment Manager monitors the value of such securities
daily to determine that the value equals or exceeds the repurchase price. Under
the 1940 Act, repurchase agreements are considered to be loans made by the Fund
which are collateralized by the securities subject to repurchase. Repurchase
agreements may involve risks in the event of default or insolvency of the
seller, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. The Fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
Fund's Board of Directors, i.e., banks or broker-dealers which have been
determined by the Investment Manager to present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
Rating Agency Guidelines
The Fund intends that, so long as shares of AMPS are outstanding, the
composition of its portfolio will reflect guidelines established by the Rating
Agencies in connection with the Fund's receipt of a rating for such shares on
the Date of Original Issue of at least "aa" from Moody's and at least AA from
S&P. Moody's and S&P issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be
sufficiently varied and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force of law but have
been adopted by the Fund and will be reflected in the Articles Supplementary in
order at issuance to receive the above-described ratings for shares of AMPS,
which ratings are generally relied upon by institutional investors in purchasing
such securities. The guidelines provide a set of tests for portfolio composition
and asset coverage that supplement (and in some cases are more restrictive than)
the applicable requirements under the 1940 Act.
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the AMPS Basic Maintenance Amount. To the extent any particular
portfolio holding does not satisfy the applicable rating agency guidelines, as
the same may be modified by the Ratings Agencies from time to time, it will not
be included for purposes of calculating the Discounted Value of the Fund's
portfolio. Upon any failure to maintain such Discounted Value, the Fund will
seek to alter the composition of its portfolio to reattain the AMPS Basic
Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date, thereby
incurring additional transaction costs and possible losses and/or gains on
disposition of portfolio securities. To the extent any such failure is not cured
in a timely manner, shares of AMPS will be subject to redemption. See
"Description of AMPS -- Redemption -- Mandatory Redemption."
24
<PAGE>
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.
25
<PAGE>
The Discounted Value of all Australian securities is further discounted by
applying the Discount Factor applicable to Australian Currency.
Moody's AA Rating Guidelines. The Discounted Value of the Fund's Moody's
Eligible Portfolio Property is calculated on each Valuation Date. See
"Description of AMPS -- Asset Maintenance -- AMPS Basic Maintenance Amount."
Moody's Eligible Portfolio Property currently consists of Australian Bank Bills,
Australian Currency, Australian Exchangeable Eurobonds, Australian Government
Securities, Australian Semi-Government Securities, Cash, U.S. Government
Obligations, Repurchase Agreements, Short Term Money Market Instruments, FNMA
Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA
Certificates and GNMA Graduated Payment Securities.
Generally speaking, the Australian Securities must be rated Aa3 or Aaa by
Moody's and in some cases, the percentage of Moody's Eligible Portfolio Property
which can be held in a particular category is limited, or an initial minimum
issue size is required.
The Discounted Value for purposes of calculating compliance with the AMPS
Basic Maintenance Amount is obtained by dividing the market value of each
portfolio asset constituting Moody's Eligible Portfolio Property by a stipulated
Discount Factor. Each Discount Factor reflects Moody's assessment of the
liquidation value of a particular category of Eligible Portfolio Property. This
assessment is based, in turn, upon such factors as an issue size and the
remaining maturity of the investment.
For example, U.S. cash is given a Discount Factor of 1.000. Australian
Currency is given a Discount Factor of 1.350, while Australian Government
Securities with a current outstanding size of at least A$100 million but less
than or equal to A$150 million having a remaining maturity of more than 5 but
not more than 10 years from the relevant Valuation Date is given a Discount
Factor of 1.730, compared with a Discount Factor of 1.520 for Australian
Government Securities of the same maturities with a current outstanding issue
size greater than A$150 million.
As is the case with S&P, the Discounted Value of all Australian securities
is further discounted by applying the Discount Factor applicable to the
Australian Currency.
Neither Rating Agency has developed Discount Factors for all of the
securities which the Fund may hold pursuant to its investment objectives and,
therefore, certain portfolio assets are not considered Eligible Portfolio
Property by either Agency, including New Zealand currency and any New Zealand
security. Either Rating Agency may in the future add or delete categories to its
list of Eligible Portfolio Property, modify the requirements of eligibility or
modify existing Discount Factors. The addition of additional Eligible Portfolio
Property or a reduction in the magnitudes of Discount Factors could make it
easier for the Fund to meet the Rating Agency guidelines.
A description of all categories of Eligible Portfolio Property and the
Discount Factors stipulated by S&P and Moody's is set forth in the Articles
Supplementary.
DESCRIPTION OF AMPS
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the back of this Prospectus.
26
<PAGE>
General
The AMPS of each series 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 each such Series. In general, each Dividend
Period for the Series H AMPS and the Series I AMPS, respectively, will be 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 a series 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 of each series 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 of either series will be entitled to receive a certificate representing
such shares. See Appendix B (Auction Procedures). As a result, the nominee of
the Securities Depository is expected to be the sole holder of record of the
shares of AMPS. Accordingly, each purchaser of AMPS must rely on (i) the
procedures of the Securities Depository and, if such purchaser is not a member
of the Securities Depository, such purchaser's Agent Member, to receive
dividends, distributions and notices and to exercise voting rights (if and when
applicable) and (ii) the records of the Securities Depository and, if such
purchaser is not a member of the Securities Depository, of such purchaser's
Agent Member, to evidence its beneficial ownership of shares of AMPS.
When issued and sold, the shares of AMPS will have a liquidation preference
of $25,000 per share plus accumulated but unpaid dividends (whether or not
earned or declared) and will be fully paid and non-assessable. The shares of
AMPS will not be convertible into shares of Common Stock or other capital stock
of the Fund and the holders thereof will have no preemptive rights. The shares
of AMPS will not be subject to any sinking fund but will be subject to
redemption at the option of the Fund on any Dividend Payment Date with respect
thereto and, under certain circumstances, will be subject to mandatory
redemption by the Fund at the redemption price stated herein. See "Description
of AMPS -- Redemption."
In addition to serving as the Auction Agent in connection with the Auction
Procedures described below, The Chase Manhattan Bank, N.A. 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 of any
series, 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.
27
<PAGE>
The Auction
General
Holders of the shares of AMPS of each series 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 (generally
a period of days in the case of the Series H AMPS and the Series I AMPS),
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 each
series of 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 of such series. The Auction Procedures are
attached as Appendix B to this Prospectus. Each periodic operation of such
procedures with respect to each series of 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 of any series offered hereby or the
redemption price of shares of AMPS of such series 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 The Chase Manhattan Bank, N.A. (together with
any successor bank or trust company or other entity entering into a similar
agreement with the Fund, the "Auction Agent"), which provides, among other
things, that the Auction Agent will follow the Auction Procedures for the
purpose of determining the Applicable Rates for the AMPS. The Fund will pay the
Auction Agent compensation for its services under the Auction Agent Agreement.
The Auction Agent will act as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted, or for any
error of judgment made, by it in the performance of its duties under the Auction
Agent Agreement, and will not be liable for any error of judgment made in good
faith unless the Auction Agent shall have been negligent in ascertaining the
pertinent facts. Pursuant to the Auction Agent Agreement, the Fund is required
to indemnify the Auction Agent for certain losses and liabilities incurred by
the Auction Agent without negligence or bad faith on its part in connection with
the performance of its duties under such agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to
the Fund, which termination may be no earlier than the Business Day after the
second Dividend Payment Date for the AMPS, following delivery of such notice. If
the Auction Agent resigns, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agent Agreement. The Fund may terminate the
Auction Agent Agreement, provided that prior to such termination the Fund shall
have entered into such an agreement with respect thereto with a successor
Auction Agent.
Broker-Dealer Agreements. The Auctions require the participation of one or
more broker-dealers. The Auction Agent will enter into agreements with Merrill
Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber Incorporated, Prudential
Securities Incorporated and Smith Barney,
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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
of each series. One registered certificate for all of the shares of each series
of AMPS initially will be registered in the name of Cede & Co., as nominee of
the Securities Depository. Each 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. Separate Auctions will be conducted for each series of AMPS. As used
in the following description of the Auction Procedures, unless the context
otherwise requires, "AMPS" means the series of AMPS subject to the related
Auction, and "Beneficial Owners," "Potential Beneficial Owners," "Existing
Holders" and "Potential Holders" means Beneficial Owners, Potential Beneficial
Owners, Existing Holders and Potential Holders of such series, respectively.
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. Auctions to determine the Applicable Rate for each series of
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 the Dividend Period established for such series of
AMPS (the date of each Auction being referred to herein as an "Auction Date").
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in The
City of New York are authorized or obligated by law to close; provided, that for
purposes of determining Valuation Dates and Cure Dates, "Business Day" means a
day on which the New York Stock Exchange and the Australian Stock Exchange
Limited are open for trading and which is not a Saturday, Sunday or other day on
which banks in The City of New York or in Sydney, Australia are authorized or
obligated by law to close. Auctions for shares of AMPS for Dividend Periods
after the Initial Dividend Period will normally be held every Tuesday after the
preceding Dividend Payment Date, and each subsequent Dividend Period will
normally begin on the following Wednesday (also a Dividend Payment Date). The
Auction Date and the first day of the related Dividend Period (both of which
must be Business Days) need not be consecutive calendar days. For example, in
most cases, if the Tuesday that normally would be an Auction Date is not a
Business Day then, such Auction Date will be the preceding Monday and the first
day of the related Dividend Period will continue to be the following Wednesday.
See "Description of AMPS Dividends" for information concerning the circumstances
under which the Auction Date or the first day of a Dividend Period, or both, may
be moved to a date other than such Tuesday and Wednesday, respectively.
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Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders. On or prior to each Auction Date:
(a) each Beneficial Owner may submit to its Broker-Dealer by
telephone a:
(i) Hold Order indicating a number of outstanding shares, if
any, of AMPS that such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for the next
Dividend Period for such shares;
(ii) Bid indicating the number of outstanding shares, if any, of
AMPS that such Beneficial Owner desires to continue to hold,
provided that the Applicable Rate for the next Dividend
Period for such shares is not less than the rate per annum
then specified by such Beneficial Owner; and/or
(iii) Sell Order indicating the number of outstanding
shares, if any, of AMPS that such Beneficial Owner
offers to sell without regard to the Applicable Rate
for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of shares of AMPS to determine whether such Potential
Beneficial Owners desire to submit Bids indicating the number of
shares of AMPS which they offer to purchase provided that the
Applicable Rate for the next Dividend Period for such shares is
not less than the rates per annum specified in such Bids.
The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a Broker-
Dealer acting in such capacity, whether or not for its own account, is
hereinafter referred to as a "Bidder" and collectively as "Bidders." Any Order
submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date shall be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to shares of AMPS then held by such Beneficial Owner, as well as Bids
for additional shares of AMPS. For information concerning the priority given to
different types of Orders placed by Beneficial Owners, see "Submission of Orders
by Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate at any Auction will be the rate obtained by
multiplying the 30-day "AA" Composite Commercial Paper Rate on the date of such
Auction by the Applicable Percentage determined as set forth below based on the
lower of the credit rating or ratings assigned to the AMPS by Moody's and S&P
(or if Moody's or S&P or both shall not make such rating available, the
equivalent of either or both of such ratings by a Substitute Rating Agency or
two Substitute Rating Agencies or, in the event that only one such rating be
available, the percentage will be based on such rating).
Credit Rating
----------------------------------------
S&P Moody's Applicable Percentage
--- ------- ---------------------
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
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<PAGE>
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
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<PAGE>
reissuing and its affiliates will be prohibited from transferring (other than to
the Fund) any shares of AMPS they may acquire. Neither the Fund nor any
affiliate of the Fund may submit an Order in any Auction, except that an
affiliate of the Fund that is a Broker-Dealer may submit an Order on behalf of a
Beneficial Owner or Potential Beneficial Owner.
Submission of Orders by Broker-Dealers to Auction Agent. Prior to 1:00
P.M., New York City time, on each Auction Date, or such other time on the
Auction Date as may be specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Fund) as the Existing
Holder or Potential Holder in respect of the shares of AMPS subject to such
Orders. Any Order submitted to a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
If the rate per annum specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent will round such rate per
annum up to the next highest one-thousandth (.001) of 1%.
If one or more Orders are submitted to the Auction Agent on behalf of an
Existing Holder and such Orders cover in the aggregate more than the number of
outstanding shares of AMPS held by such Existing Holder, such Order will be
considered valid in the following order of priority.
(i) any Hold Order submitted on behalf of such Existing Holder will be
considered valid up to and including the number of outstanding shares of
AMPS held by such Existing Holder, provided that if more than one Hold
Order is submitted on behalf of such Existing Holder and the number of
shares of AMPS subject to such Hold Orders exceeds the number of
outstanding shares of AMPS held by such Existing Holder, the number of
shares of AMPS subject to each of such Hold Orders will be reduced pro rata
so that such Hold Orders in the aggregate will cover exactly the number of
outstanding shares of AMPS held by such Existing Holder;
(ii) any Bids submitted on behalf of such Existing Holder will be
considered valid in the ascending order of their respective rates per annum
if more than one Bid is submitted on behalf of such Existing Holders, up to
and including the excess of the number of outstanding shares of AMPS held
by such Existing Holder over the number of outstanding shares of AMPS
subject to any Hold Order referred to in clause (i) above (and if more than
one Bid submitted on behalf of such Existing Holder specifies 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.
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If more than one Bid is submitted on behalf of any Potential Holder in any
Auction, each Bid submitted in such Auction will be considered a separate Bid
with the rate per annum and number of shares of AMPS specified.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate. Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealer (each such "hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer being hereinafter referred to as a
"Submitted Hold Order," "Submitted Bid Order" or "Submitted Sell Order," as the
case may be), and will determine the excess of the number of outstanding shares
of AMPS over the number of outstanding shares of AMPS subject to Submitted Hold
Orders (such excess being referred to as the "Available AMPS") and whether
Sufficient Clearing Bids have been made in such Auction, Sufficient Clearing
Bids will have been made if the number of outstanding shares of AMPS that are
the subject of Submitted Bids by Potential Holders with rates per annum not
higher than the Maximum Applicable Rate equals or exceeds the number of
outstanding shares that are the subject of Submitted Sell Orders (including the
number of shares subject to Bids by Existing Holders specifying rates per annum
higher than the Maximum Applicable Rate).
If Sufficient Clearing Bids have been made, the Auction Agent will
determine the lowest rate per annum specified in the Submitted Bids (the
"Winning Bid Rate") which would result in the number of shares subject to
Submitted Bids specifying such rate per annum or a lower rate per annum being at
least equal to the Available AMPS. If Sufficient Clearing Bids have been made,
the Winning Bid Rate will be the Applicable Rate for the next Dividend Period
for all shares of AMPS then outstanding.
If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders), the
Applicable Rate for the next Dividend Period for all shares of AMPS will be
equal to the Maximum Applicable Rate. If Sufficient Clearing Bids have not been
made, Existing Holders that have Submitted Sell Orders will not be able to sell
in the Auction all, and may not be able to sell any, shares of AMPS subject to
such Submitted Sell Order. See "Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares."
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations described under "Determination
of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and
subject to the discretion of the Auction Agent to round as described below,
Submitted Bids and Submitted Sell Orders will be accepted or rejected in the
order of priority set forth in the Auction Procedure with the result that
Existing Holders and Potential Holders of AMPS will sell, continue to hold
and/or purchase shares of AMPS as set forth below. Existing Holders that submit
or are deemed to have submitted Hold Orders will continue to hold the shares of
AMPS subject to such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Winning Bid Rate or a Submitted Sell Order will
sell the outstanding shares of AMPS subject to such Submitted Bid or
Submitted Sell Order;
(b) each Existing Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will continue to hold the
outstanding shares of AMPS subject to such Submitted Bid;
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<PAGE>
(c) each Potential Holder that placed a Submitted Bid specifying a
rate per annum lower than the Winning Bid Rate will purchase the number of
shares of AMPS subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will continue to hold the
outstanding shares of AMPS subject to such Submitted Bid, unless the number
of outstanding shares of AMPS subject to all Submitted Bids of Existing
Holders is greater than the excess of the Available AMPS over the number of
shares of AMPS accounted for in clauses (b) and (c) above, in which event
each Existing Holder with such a Submitted Bid will sell a number of
outstanding shares of AMPS determined on a pro rata basis based on the
number of outstanding shares of AMPS subject to all such Submitted Bids by
such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to the Winning Bid Rate will purchase any Available
AMPS not accounted for in clauses (b), (c) or (d) above on a pro rata basis
based on the shares of AMPS subject to all such Submitted Bids of Potential
Holders.
If Sufficient Clearing Bids have not been made (unless this results because
all outstanding shares of AMPS are the subject of Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will continue
to hold the outstanding shares of AMPS subject to such Submitted Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to or lower than the Maximum Applicable Rate will
purchase the number of shares of AMPS subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
will sell a number of outstanding shares of AMPS determined on a pro rata
basis based on the outstanding shares of AMPS subject to all such Submitted
Bids and Submitted Sell Orders.
If as a result of the Auction Procedures described above any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of AMPS, the Auction
Agent will, in such manner as, in its sole discretion, it shall determine, round
up or down the number of shares of AMPS being sold or purchased on such Auction
Date so that each share sold or purchased by each Existing Holder or Potential
Holder will be a whole share of AMPS. If any Potential Holder would be entitled
or required to purchase less than a whole share of AMPS, the Auction Agent will,
in such manner as, in its sole discretion, it shall determine, allocate shares
of AMPS for purchase among Potential Holders so that only whole shares of AMPS
are purchased by any such Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS.
Notification of Results; Settlement. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction on behalf of a
Bidder whether such Bid or Sell Order was accepted or rejected in whole or in
part and of the Applicable Rate for the next Dividend Period for the related
shares of AMPS by telephone at approximately 3:00 P.M., New York City time, on
such Auction Date. Each such Broker-Dealer will then advise such Bidder whether
such Bid or Sell Order was accepted or rejected, will confirm purchases and
sales with each Bidder purchasing or selling shares of AMPS as a result of the
Auction and will advise each Bidder purchasing or selling shares of
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<PAGE>
AMPS to give instructions to its Agent Member of the Securities Depository to
pay the purchase price against delivery of such shares or to deliver such shares
against payment therefor as appropriate. If an Existing Holder selling shares of
AMPS as a result of an Auction shall fail to instruct its Agent Member to
deliver such shares, the Broker-Dealer that submitted such Existing Holder's Bid
or Sell Order will instruct such Agent Member to deliver such shares against
payment therefor. Each Broker- Dealer that submitted a Hold Order in an Auction
on behalf of an Existing Holder will also advise such Existing Holder of the
Applicable Rate for the next Dividend Period for the AMPS. The Auction Agent
will record each transfer of shares of AMPS on the record book of Existing
Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
Business Day after each Auction Date, the transactions described above will be
executed through the Securities Depository and the accounts of the respective
Agent Members at the Securities Depository will be debited and credited as
necessary to effect the purchases and sales of shares of AMPS as determined in
such Auction. Purchasers will make payment through their Agent Members in
same-day funds to the Securities Depository against delivery through their Agent
Members; the Securities Depository will make payment in accordance with its
normal procedures, which now provide for payment in same-day funds. If the
procedures of the Securities Depository applicable to AMPS shall be changed to
provide for payment in next-day funds, then purchasers may be required to make
payment in next-day funds. If the certificates for shares of AMPS are not held
by the Securities Depository or its nominee, payment will be made in same-day
funds to the Auction Agent against delivery of such certificates.
If any Existing Holder selling shares of AMPS in an Auction fails to
deliver such shares, the Broker-Dealer of any person that was to have purchased
shares of AMPS in such Auction may deliver to such person a number of whole
shares of AMPS that is less than the number of shares that otherwise was to be
purchased by such person. In such event, the number of shares of AMPS to be so
delivered will be determined by such Broker-Dealer. Delivery of such lesser
number of shares will constitute good delivery. Each Broker-Dealer Agreement
will also provide that neither the Fund nor the Auction Agent will have
responsibility or liability with respect to the failure of a Potential
Beneficial Owner, Beneficial Owner or their respective Agent Members to deliver
shares of AMPS or to pay for shares of AMPS purchased or sold pursuant to an
Auction or otherwise.
Broker-Dealers
The Fund will pay the Auction Agent a service fee of 1/4 of 1% per annum of
the aggregate liquidation preference of the AMPS, which fee will be apportioned
among the Broker-Dealers on the basis of the number of shares of AMPS placed by
such Broker-Dealers in the Auctions. For the purposes of the preceding sentence,
shares of AMPS will be placed by a Broker-Dealer if such shares were (i) the
subject of Hold Orders deemed to have been made by Beneficial Owners that were
acquired by such Beneficial Owners through such Broker-Dealer or (ii) the
subject of the following Orders submitted by such Broker-Dealer: (A) a Submitted
Bid of a Beneficial Owner that resulted in such Beneficial Owner continuing to
hold such shares as a result of the Auction, (B) a Submitted Bid of a Potential
Beneficial Owner that resulted in such Potential Beneficial Owner purchasing
such shares as a result of the Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders
in Auctions of the AMPS for its own account, unless the Fund notifies all
Broker-Dealers that they may no longer do so, provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders. If a Broker- Dealer submits an
Order for its own account in any Auction, it may have knowledge of Orders placed
through it in that Auction and therefore have an advantage over other Bidders;
such Broker-Dealer would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.
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Dividends
General
The holders of shares of each series 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 (a) in the case of Series H AMPS, commencing on , 1996 and (b)
in the case of Series I AMPS, commencing on , 1996. Following the Initial
Dividend Payment Date, dividends on the Series H AMPS will be payable on each
succeeding thereafter and dividends on the Series I AMPS will be payable on each
succeeding thereafter (each 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
weekday because of the exceptions discussed above, the next succeeding Dividend
Payment Date, subject to such exceptions, will occur on the next following
originally scheduled weekday. 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 same-day funds. The Agent Member of a Beneficial Owner will be responsible
for holding or disbursing such payments on the applicable Dividend Payment Date
to the beneficial holders which held such shares on the Auction Date immediately
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the nominee of the Securities Depository. Any dividend
payment made on shares of AMPS shall first be credited against the earliest
declared but unpaid dividends accumulated with respect to the AMPS.
Holders of shares of AMPS will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends
except as described under "Determination of Dividend Rate." No interest will be
payable in respect of any dividend payment or payments on the shares of AMPS
which may be in arrears.
In case the stated dividends on the shares of AMPS, or shares of any other
class or series of stock of the Fund ranking on a parity with the AMPS as to
dividends, are not paid in full, the AMPS and such other shares of stock of the
Fund ranking on a parity with the AMPS as to dividends will share ratably in the
payment of dividends, including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full.
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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 rates on the shares of Series H AMPS and Series I AMPS offered
hereby 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 rates per annum set forth on the cover
page hereof. The Applicable Rate on the shares of each series 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.
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Upon any failure to pay dividends on shares of Preferred Stock for two
years or more the holders of shares of Preferred Stock will acquire certain
additional voting rights. See "Description of AMPS -- Voting Rights." Although
series of Preferred Stock issued subsequent to the AMPS may have other rights
and remedies, under the Fund's Articles of Incorporation and Articles
Supplementary, such additional voting rights will be the exclusive remedy of the
holders of AMPS upon any failure to pay dividends on the AMPS. Such additional
voting rights are also the exclusive remedy of the holders of the other existing
series of Auction Market Preferred Stock upon any failure to pay dividends
thereon.
Restrictions on Dividends and Other Payments
Under the 1940 Act, the Fund may not declare dividends or make other
distributions on shares of Common Stock or purchase any such shares if, at the
time of the declaration, distribution or purchase, as applicable (and after
giving effect thereto), asset coverage (as defined in the 1940 Act) with respect
to the outstanding shares of Preferred Stock would be less than 200% (or such
other percentage as may in the future be required by law).
Moreover, the Articles Supplementary provide that so long as any shares of
AMPS are outstanding, the Fund will not declare, pay or set apart for payment
any dividend or other distribution (other than a dividend or distribution paid
in shares of, or options, warrants or rights to subscribe for or purchase,
Common Stock or other stock, if any, ranking junior to shares of Preferred Stock
as to dividends or upon liquidation) in respect of Common Stock or any other
stock of the Fund ranking junior to shares of a series of Preferred Stock as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of Common Stock or any other such
junior stock (except by conversion into or exchange for stock of the Fund
ranking junior to such series of Preferred Stock as to dividends and upon
liquidation) unless immediately after such transaction (A) the AMPS Basic
Maintenance Amount, the 1940 Act AMPS Assets Coverage Requirement and the
Minimum Liquidity Level (see "Asset Maintenance" and "Redemption") would be
achieved, (B) all accumulated and unpaid dividends on shares of such series of
Preferred Stock and shares of every other series of Preferred Stock due on or
prior to the date of the transactions have been paid in full (or declared and
sufficient Deposit Securities have been set apart for their payment) and (C) the
Fund has redeemed the full number of shares of each series of Preferred Stock
required to be redeemed by any provision for mandatory redemption contained in
the Articles Supplementary establishing such series of Preferred Stock. Prior to
the payment of any such dividend or other distribution, the Fund will provide
the Auction Agent and the Rating Agencies with a Portfolio Valuation Report
(which may be the regular weekly report) and a certificate demonstrating
compliance.
Under the Code, the Fund must, among other things, distribute at least 90%
of its investment company taxable income each year in order to maintain its
qualification for tax treatment as a regulated investment company. The foregoing
limitations on dividends, distributions and purchases may under certain
circumstances impair the Fund's ability to maintain such qualification. See
"Taxation -- United States."
Asset Maintenance
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Articles Supplementary. These requirements
are summarized below.
1940 Act AMPS Asset Coverage Requirement
The Fund will be required under the Articles Supplementary to maintain with
respect to shares of AMPS, as of the last Valuation Date of each month in which
any shares of AMPS are outstanding,
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asset coverage of at least 200% with respect to senior securities which are
stock, including the shares of Auction Market Preferred Stock (or such other
asset coverage as may in the future be specified in or under the 1940 Act as the
minimum assets coverage for senior securities which are stock of a closed-end
investment company as a condition of paying dividends on its common stock) (the
"1940 Act AMPS Asset Coverage Requirement"). The ratio of the Fund's net assets
to its senior securities representing indebtedness plus the liquidation value of
its senior securities which are stock, including the shares of Auction Market
Preferred stock, is herein referred to as the "1940 Act AMPS Asset Coverage
Ratio." If the Fund fails to maintain the 1940 Act AMPS Asset Coverage
Requirement and such failure is not cured as of the last Valuation Date
occurring in the following month (the "1940 Act Cure Date"), the Fund will be
required under certain circumstances to redeem all or a portion the shares of
AMPS. See "Redemption -- Mandatory Redemption."
If calculated as of April 30, 1996, after giving effect to the issuance of
shares of common stock in connection with a rights offering completed on May 31,
1996 and this offering and the receipt of the net proceeds therefrom, the 1940
Act AMPS Asset Coverage Ratio would have been as follows:
Value of Fund assets less liabilities
not constituting senior securities
$ = = %
--------------
Senior securities representing $625,000,000
indebtedness plus liquidation
value of the shares of
Auction Market Preferred Stock
AMPS Basic Maintenance Amount
The Fund will be required under the Articles Supplementary to maintain as
of each Valuation Date assets having in the aggregate a Discounted Value at
least equal to the AMPS Basic Maintenance Amount. If the Fund fails to meet such
requirement as of each Valuation Date and such failure is not cured on or before
the fifth Business Day after such Valuation Date (the "AMPS Basic Maintenance
Cure Date"), the Fund will be required under certain circumstances to redeem
certain of the shares of AMPS. See "Redemption Mandatory Redemption." A
"Valuation Date" means each Friday of each month (or, in the case of the first
Valuation Date, a date selected by the Fund not earlier than four Business Days
prior to, or later than, the Date of Original Issue); provided that if any such
Friday is not a Business Day, the Valuation Date will be the next preceding
Business Day.
The AMPS Basic Maintenance Amount as of any date is defined as the dollar
amount equal to the sum of (a) $25,000 times the number of shares of AMPS of
each series 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
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<PAGE>
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 each series of AMPS, (ii) each Quarterly
Valuation Date thereafter, (iii) any Valuation Date on which the Fund shall fail
to meet the AMPS Basic Maintenance Amount, (iv) any Valuation Date on which it
cures its failure to satisfy the AMPS Basic Maintenance Amount, (v) any
Valuation Date on which it fails to exceed the AMPS Basic Maintenance Amount by
25% or more, or (vi) any Valuation Date as may be specified by S&P, the Fund
shall complete and deliver to Moody's and S&P and the Auction Agent, in cases of
clauses (i) and (ii) and to the relevant Rating Agency, in the case of clauses
(iii)-(vi), a report with respect to the calculation of the AMPS Basic
Maintenance Amount and the value of its portfolio holdings as of the relevant
Valuation Date (a "Portfolio Valuation Report"). In addition, on or before 5:00
p.m., New York City time, on the first Business Day after a date on which shares
of Common Stock are repurchased by the Fund, the Fund will also complete and
deliver to the Auction Agent, S&P and Moody's a Portfolio Valuation Report as of
the close of business on the date the Common Stock was repurchased.
Within seven Business Days after the required date of delivery of the
initial Portfolio Valuation Report or any Portfolio Valuation Report delivered
with respect to a Quarterly Valuation Date, the Fund shall deliver to the
Auction Agent, S&P and Moody's a report prepared by the Fund's independent
accountants reviewing the accuracy of the calculations made by the Fund relating
to such Portfolio Valuation Report (as well as any other Portfolio Valuation
Report randomly selected by its independent accountants that was prepared during
the quarter). If any such report prepared by the Fund's independent accountants
shows that an error was made in the most recent AMPS Basic Maintenance Report,
the calculation or determination made by the independent accountants shall be
final and conclusive and shall be binding on the Fund.
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 of any series, 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
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<PAGE>
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, 1993 and
1995, respectively. Although the Fund will have the option to redeem the AMPS
and the shares of other outstanding series of Auction Market Preferred Stock on
any dividend payment date for such shares, it may determine not to redeem them
even during periods when there is a temporary negative spread, i.e., when the
dividend rate on the AMPS and on such other series exceeds the yield on the
Fund's portfolio. Any decisions with respect to redemption will be taken by the
Board based upon recommendations by the Investment Manager. The Investment
Manger has advised the Board that it would not anticipate recommending
redemption except to the extent that the Investment Manager believes the
existence of AMPS and the shares of other outstanding series of Auction Market
Preferred Stock is having or is likely to have a materially adverse effect on
the net investment income of the Fund. Even in such event, the Investment
Manager may not recommend redemption if, in its judgment, it would be necessary
to liquidate portfolio securities, in order to make redemption payments, in a
manner that would disrupt the Fund's long-term investment program, result in the
realization of foreign currency gains or losses that would materially increase
or decrease the amount of net investment income distributable to holders of the
Common Stock or jeopardize the Fund's status as a regulated investment company
under the Code. Nonetheless, if the value of the Australian dollar and, to a
lesser extent, the value of the New Zealand dollar decline against the value of
the U.S. dollar or if changes in interest rates in the United States, Australia
and New Zealand make it unattractive, in the opinion of the Investment Manager
and the Board of Directors, after consideration of the above-mentioned and other
relevant factors, to continue to have the AMPS and the shares of other
outstanding series of Auction Market Preferred Stock outstanding, the Board may
elect to redeem all or a portion of any series 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 series of AMPS 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
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<PAGE>
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 of any series 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 of such series 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 AMPS of such series, 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 any
series of AMPS are to be redeemed, the number of shares to be redeemed and the
basis upon which the shares to be redeemed are to be selected and (H) the CUSIP
number or numbers of the shares to be redeemed. No defect in the notice of
redemption or in the mailing or publication thereof will affect the validity of
the redemption proceedings, except as required by applicable law.
In the event that less than all of the outstanding shares of any series 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.
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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 all series 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 liquidation payment on the AMPS and liquidation payments on any
other series of Preferred Stock, then such assets will be distributed among the
holders of the shares of AMPS and the holders of shares of such other series of
Preferred Stock ratably in accordance with the respective preferential amounts
which would be payable on all of such stock if all such liquidating amounts
payable were paid in full. A consolidation or merger of the Fund with or into
any other corporation or corporations or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of the
assets of the Fund shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund.
Voting Rights
Except as otherwise indicated in this Prospectus and except as otherwise
required by applicable law, holders of shares of AMPS 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, including shares of AMPS, 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
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<PAGE>
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.
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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 Level 3, 190 George 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 56% 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.
45
<PAGE>
Pursuant to Rule 0-2 promulgated under the Investment Advisers Act of 1940,
the Manager and the Adviser have designated the Securities and Exchange
Commission as an agent upon whom may be served any process, pleadings or other
papers in any civil suit or action brought in any appropriate court in any place
subject to the jurisdiction of the United States where the cause of action
arises out of any activity occurring in connection with the conduct of the
business of the Manager or Adviser and is founded directly or indirectly upon
the provisions of the Securities Act of 1933, the Securities Exchange Act of
1934, the Trust Indenture Act of 1939, the 1940 Act, the Investment Advisers Act
of 1940 or any rule or regulation under any of such acts.
Terms of the Management Agreement. The Management Agreement provides that
the Investment Manager will manage, in accordance with the Fund's stated
investment objective, policies and limitations and subject to the supervision of
the Fund's Board of Directors, the Fund's investments and make investment
decisions on behalf of the Fund including the selection of, and placing of
orders with, brokers and dealers to execute portfolio transactions on behalf of
the Fund. The Management Agreement further provides that the Investment Manager
shall not be liable for any error of judgment or for any loss suffered by the
Fund in connection with matters to which the Management Agreement relates,
except a loss resulting from a breach of fiduciary duty with respect to receipt
of compensation for services (in which case any award of damages shall be
limited as provided in the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of, or
from reckless disregard by the Investment Manager of, it duties and obligations
under the Management Agreement.
The Management Agreement provides that the Investment Manager may, at its
expense, employ, consult or associate with itself, such person or persons as it
believes necessary to assist it in carrying out its obligations thereunder,
provided however, that if any such person would be an "investment adviser" as
defined under the 1940 Act, that (a) the Fund is a party to any contract with
such a person and (b) the contract is approved by the Fund's Directors,
Disinterested Directors, and shareholders, as required by the 1940 Act.
Management Fee. The Management Agreement provides that, as compensation for
its services to the Fund, the Fund will pay the Investment Manager a fee
computed at the annual rate of 0.65% of the Fund's average weekly net assets
applicable to Common and Preferred Stock up to $200 million, 0.60% of such
assets between $200 million and $500 million, 0.55% of such assets between $500
million and $900 million, and 0.50% of such assets in excess of $900 million
computed upon net assets applicable to Common and Preferred stock at the end of
each week and payable at the end of each calendar month. Effective June 1, 1996
the Investment Manager reduced its fee to 0.45% of such assets in excess of
$1,750 million.
For the fiscal years ended October 31, 1995, 1994 and 1993, the Fund paid
or accrued on behalf of the Investment Manager aggregate management fees of
$9,165,046, $8,681,243 and $7,618,656, respectively. During the same periods,
the Investment Manager informed the Fund that it paid aggregate advisory fees of
$3,952,767, $3,668,127 and $3,403,309, respectively, to the Investment Adviser
and aggregate consultant fees of $701,026, $662,270 and $581,303, 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;
46
<PAGE>
taxes and governmental fees, brokerage commissions and other expenses incurred
in acquiring or disposing of the Fund's portfolio securities; expenses of
preparing stock certificates; expenses in connection with the issuance,
offering, distribution, sale or underwriting of securities issued by the Fund;
expenses of registering and qualifying the Fund's shares for sale with the
Securities and Exchange Commission and in various states and foreign
jurisdictions, auditing, accounting, insurance and legal costs; custodian,
dividend disbursing and transfer agent expenses of obtaining and maintaining
stock exchange listings of the Fund's shares; and the expenses of shareholders'
meetings and of the preparation and distribution of proxies and reports to
shareholders.
Duration and Termination. The Management Agreement provides that it will
continue in effect for 12 month periods, provided that each continuance is
specifically approved annually by (1) the vote of the majority of the Fund's
Disinterested Directors cast in person at a meeting called for the purpose of
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Management Agreement may be terminated at any
time by the Fund without the payment of any penalty, upon vote of a majority of
the Fund's Directors or a majority of the outstanding voting securities of the
Fund on 60 days' written notice to the Investment Manager. The Management
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act). In addition, the Investment Manager may terminate the
Management Agreement on 90 days' written notice to the Fund.
Terms of the Advisory Agreement. The Advisory Agreement provides that the
Investment Adviser will make recommendations to the Investment Manager as to
specific portfolio securities which are denominated in Australian or New Zealand
dollars, to be purchased, retained or sold by the Fund and will provide or
obtain such research and statistical data as may be necessary in connection
therewith. The Advisory Agreement further provides that the Investment Adviser
shall give the Investment Manager and the Fund the benefit of the Investment
Adviser's best judgment and efforts in rendering services under the Advisory
Agreement.
The Advisory Agreement provides that neither the Investment Manager nor the
Investment Adviser shall be liable for any error of judgment or for any loss
suffered by the Fund in connection with matters to which the Advisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of damages shall
be limited as provided in the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Manager
or the Investment Adviser, as appropriate, in the performance of, or from
reckless disregard by such party of such party's obligations and duties under,
the Advisory Agreement.
Advisory Fee. The Advisory Agreement provides that the Investment Manager
will pay the Investment Adviser a fee computed at the annual rate of 0.25% of
the Fund's average weekly net assets applicable to Common and Preferred Stock up
to $1,200 million and 0.20% of such assets in excess of $1,200 million at the
end of each week and payable at the end of each calendar month.
Payment of Expenses. The Advisory Agreement obligates the Investment
Adviser to bear all expenses of its employees and overhead incurred in
connection with its duties under the Advisory Agreement and to pay all salaries
and fees of the Fund's Directors and Officers who are interested persons (as
defined in the 1940 Act) of the Investment Adviser but who are not interested
persons of the Investment Manager.
Duration and Termination. The Advisory Agreement provides that it will
continue in effect for 12 month periods, provided that each continuance is
specifically approved annually by (1) the vote of the majority of the Fund's
Disinterested Directors cast in person at a meeting called for the purpose of
47
<PAGE>
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Advisory Agreement may be terminated with respect
to the Fund at any time by the Fund without the payment of any penalty,upon vote
of a majority of the Fund's Directors or a majority of the outstanding voting
securities of the Fund on 60 days' written notice to the Investment Manager and
the Investment Adviser. The Advisory Agreement will terminate automatically as
to any party in the event of its assignment (as defined in the 1940 Act) by that
party. In addition, the Investment Manager or the Investment Adviser may
terminate the Advisory Agreement as to such party on 90 days' written notice to
the Fund and the other party.
Portfolio Management
The Fund's investment decisions are made in a collegial manner. Two
Investment Adviser Committees, the Asset Allocations Committee and the
Investment Strategy Committee, make broad decisions as to the allocation of
assets and investments, leaving decisions with respect to the selection of
particular securities to an employee of the Investment Adviser who then
recommends to the Investment Manager that certain securities be bought or sold.
Administration Agreement
Pursuant to an Administration Agreement effective as of December 13, 1988,
(the "Administration Agreement"), Prudential Mutual Fund Management, Inc. (the
"Administrator"), an indirect wholly owned subsidiary of the Fund's Consultant,
provides office facilities and personnel adequate to perform the following
services for the Fund: oversee the determination and publication of the Fund's
net asset value in accordance with its policy as adopted from time to time by
the Board of Directors; oversee the maintenance of the books and records of the
Fund required under Rule 31a-1(b)(4) under the 1940 Act; prepare the Fund's U.S.
federal, state and local income tax returns; prepare financial information for
the Fund's proxy statements and quarterly and annual reports to shareholders;
prepare any asset maintenance or other reports related to preferred stock;
prepare the Fund's periodic financial reports to the Securities and Exchange
Commission; and respond to or refer to the Fund's officers or transfer agent
shareholder inquiries relating to the Fund.
Through May 31, 1996, the Fund paid 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. Effective June 1, 1996, the Administrator agreed to reduce its fee to
0.07% of such assets in excess of $1,750 million. For the fiscal years ended
October 31, 1995, 1994 and 1993, the Fund paid the Administrator fees of
$2,120,097, $2,023,337 and $1,814,528, respectively. The Administrator's offices
are located at One Seaport Plaza, New York, New York 10292.
Consultant Agreement
Pursuant to a Consultant Agreement dated December 14, 1995, between the
Fund, the First Australia Fund, Inc., EquitiLink International Management
Limited and The Prudential Insurance Company of America, 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 $250,000, payable in four equal quarterly installments.
48
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The names and addresses of the Directors and officers of the Fund are set
forth below, together with their positions and their principal occupations
during the past five years and, in the case of the Directors, their positions
with certain other organizations and companies. Directors who are "interested
persons" of the Fund, as defined by the 1940 Act, are indicated by an asterisk.
While the Fund is a Maryland corporation, certain of its Directors and
officers (Messrs. 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.
<TABLE>
<CAPTION>
Principal Occupation and
Name and Address Position with the Fund** Other Affiliations
---------------- ------------------------ ------------------------
<S> <C> <C>
Anthony E. Aaronson(+) Class I Director Director, The First Australia Fund,Inc.
116 South Anita Avenue Los (since 1985); Vice President, Fortune
Angeles, CA 90049 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).
Roger C. Maddock* Class I Director Director, The First Australia Fund, Inc,
Union House and The First Commonwealth Fund, Inc.
Union Street (since 1992); Chairman and Managing
St. Helier Director, EquitiLink International
Jersey, Channel Islands Management Limited (since 1985); Partner,
Jackson Fox, Chartered Accountants (since
1981); Director, Worthy Trust Company
Limited (since 1993); Director,
Professional Consultancy Services Limited
(since 1983); Director, Hollywell Spring
Limited (since 1987); Director,The
EquitiLink Private Gold Investment Fund
Limited (since 1992); Director,
CentraLink-EquitiLink Investment Company
Limited (since 1994).
49
<PAGE>
Principal Occupation and
Name and Address Position with the Fund** Other Affiliations
---------------- ------------------------ ------------------------
John T. Sheehy(+) Class I Director Director, The First Australia Fund, Inc.
1 Southwest Columbia (since 1985), First Australia Prime Income
12th Floor Investment Company Limited (since 1986)
Portland, OR 97258 and The First Commonwealth Fund, Inc.
(since 1992); Managing Director, Black &
Company (broker-dealer and investment
bankers); Director, Greater Pacific Food
Holdings, Inc. (food industry investment
company) (since 1993); Partner, Sphere
Capital Partners (corporate consulting)
(since 1987);Director, Sphere Capital
Advisors (investment adviser); Director,
Sandy Corporation (corporate consulting,
communication and training) (since 1986);
Associate Director, Bear Stearns & Co. Inc.
(1985-1987); previously, Limited Partner,
Bear Stearns & Co. Inc.
Rt. Hon. Malcolm Fraser(++) Class II Director Director, The First Australia Fund, Inc.
A.C., C.H. (since 1985), First Australia Prime Income
55 Collins Street Investment Company Limited (since 1986)
Melbourne, Victoria 3000 and The First Commonwealth Fund, Inc.
Australia (since 1992); partner, Nareen Pastoral
Company (agriculture); Fellow, Center for
International Affairs, Harvard University,
International Council of Associates,
Claremont University; Chairman, CARE
Australia (since 1987); President, CARE
International (since 1990); Member, Byrnes
International Advisory Board, University
of South Carolina (1985-1990); ANZ
International Board of Advice;
(1987-1993); InterAction Council for
Former Heads of Government;
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, Inc.
One New York Plaza (since 1985); Chairman and Chief Executive
New York, NY 10292 Officer, Prudential Mutual Fund
Management, Inc. (June September 1993);
Senior Director, Prudential Securities
Incorporated (since 1986); previously,
Chairman of the Board, Prudential
Securities Incorporated (1982-1985);
Chairman of the Board and Chief Executive
Officer, Bache Group, Inc. (1977-1982);
Director, Center for National Policy;
Trustee, The Trudeau Institute
(eleemosynary); Director of 26 investment
companies affiliated with Prudential
Securities Incorporated.
50
<PAGE>
Principal Occupation and
Name and Address Position with the Fund** Other Affiliations
---------------- ------------------------ ------------------------
Howard A. Knight Class II Director Director, The First Australia Fund, Inc.
300 Park Avenue (since 1993); Private Investor and
New York, NY 10022 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 Fund,
33 Yonge Street Inc. (since 1992); President and Director,
Suite 706 Toron Capital Markets, Inc. (currency,
Toronto, Ontario M5E 1G4 interest rate and commodity risk
Canada 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 Australia
Level 3 President (since 1986) Fund, Inc. (since 1985); Joint Managing
190 George Street Director, First Australia Prime Income
Sydney, N.S.W. 2000 Investment Company Limited (since 1986);
Australia Director and sole Vice President (since
1992) and Chairman (since 1995), The First
Commonwealth Fund, Inc.; 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); Director, Sydney Organizing
Committee for The Olympic Games; Fund and
Portfolio Manager, Westpac Banking
Corporation (1976-1981); Manager-
Investments, Outwich Limited (an affiliate
of Baring Brothers & Co. Ltd.) (merchant
bank) (1972-1976).
Sir Roden Cutler (++), V.C., Class III Director Director (since 1985) and Chairman of the
A.K., K.C.M.G., Board (1986-1995), The First Australia
K.C.V.O., C.B.E., Fund, Inc., First Australia Prime Income
K.St.J. Investment Company Limited (since 1986)
22 Ginahgulla Road and The First Commonwealth Fund, Inc.
Bellevue Hill, (since 1992); Australia Director, Rothmans
N.S.W. 2023 Holding Ltd. (formerly Rothmans Pall
Australia Mall) (tobacco) (1981-1994); Chairman,
State Bank of New South Wales (1981-
1986); Governor of New South Wales,
Australia (1966-1981).
51
<PAGE>
Principal Occupation and
Name and Address Position with the Fund** Other Affiliations
---------------- ------------------------ ------------------------
David Lindsay Elsum (++) Class III Director Director, The First Australia Fund, Inc.
9 May Grove (since 1985), First Australia Prime Income
South Yarra, Victoria 3141 Investment Company Limited (since 1986)
Australia and The First Commonwealth Fund, Inc.
(since 1992); President, State
Superannuation Fund of Victoria; Director,
MaxiLink Ltd.; Managing Director, The MLC
Limited (insurance) (1984-1985); Managing
Director, Renison Goldfields Consolidated
Limited (mining) (1983-1984); Member,
Administrative Appeals Tribunal; Member,
Corporations and Securities Panel of the
Australian Securities Commission of
Australian States and Territories;
Chairman, Queen Victoria Market.
Laurence S. Freedman* Class III Director; Chairman (since 1995), Sole Vice President
Level 3 Chairman (since 1995); and Director, The First Australia Fund, Inc.
190 George Street Sole Vice President (since (since 1985); Joint Managing Director, First
Sydney, N.S.W. 2000 1986) Australia Prime Income Investment
Australia 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, Inc.
675 Third Avenue (since 1985); Director, The First
22nd Floor Commonwealth Fund, Inc. (since 1994);
New York, NY 10017 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.
52
<PAGE>
Principal Occupation and
Name and Address Position with the Fund** Other Affiliations
---------------- ------------------------ ------------------------
William J. Potter (++) Class III Director Director, The First Australia Fund, Inc.
156 W. 56th Street (since 1985), The First Commonwealth
17th Floor Fund, Inc. (since 1992) and First Australia
New York, NY 10019 Prime Income Investment Company Limited
(since 1986); Partner, Sphere Capital
Partners (corporate consulting) (since
1989); President, Ridgewood Partners, Ltd.
(investment banking) (since 1989);
Managing Director, Prudential-Bache
Securities Inc. (1984-1989); Director,
National Foreign Trade Association;
Director, Alexandria Bancorp Limited;
Director, Battery Technologies, Inc.;
Director, Compuflex Inc.; Director,
International 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, Inc.
Level 3 Treasurer (since 1987) (since 1987); Director and Treasurer, The
190 George Street First Commonwealth Fund, Inc. (since
Sydney, N.S.W. 2000 1992); Treasurer, First Australia Prime
Australia Income Investment Company Limited (since
1987); Executive Director, EquitiLink
Australia Limited and EquitiLink Limited
(since 1986); Director, EquitiLink
International (since 1987) and EquitiLink
U.S.A., Inc. (since 1990); and Director,
Telecasters Australia Limited (since
1995).
Marvin Yontef* Preferred Director Partner, Stikeman, Elliott (Canadian law
P.O. Box 85 firm)
5300 Commerce Court West
Toronto, Ontario
Canada M5L1B9
Ouma Sananikone-Fletcher Assistant Vice President Director (since 1995) and Investment
Level 3 and Chief Investment Director (since 1994) EquitiLink Australia
190 George Street Officer Limited; Managing Director, Banque
Sydney, N.S.W. 2000 Nationale de Paris Group (1991-1994)
Australia
Roy M. Randall Secretary Partner, Freehill, Hollingdale & Page,
19-29 Martin Place Australian counsel to the Fund.
Sydney, N.S.W. 2000
Australia
Eugene S. Stark Chief Financial Officer First Vice President (since 1990) and Vice
One Seaport Plaza and Assistant Treasurer President (1987-1989), Prudential Mutual
New York, NY 10292 Fund Management, Inc.
Kenneth T. Kozlowski Assistant Treasurer Vice President, Prudential Mutual Fund
One Seaport Plaza Management, Inc. (since 1992); Fund
New York, NY 10292 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).
53
<PAGE>
Principal Occupation and
Name and Address Position with the Fund** Other Affiliations
---------------- ------------------------ ------------------------
Barry G. Sechos Assistant Treasurer Director (since 1994) and General Counsel
Level 3 (since 1993) EquitiLink Australia Limited;
190 George Street Senior Associate Lawyer, Allen, Allen 9
Sydney, N.S.W. 2000 Hemsley (1986-1993).
Australia
Margaret A. Bancroft Assistant Secretary Partner, Dechert Price & Rhoads,
477 Madison Avenue U.S. counsel to the Fund.
New York, NY 10022
Allan S. Mostoff Assistant Secretary Partner, Dechert Price & Rhoads,
1500 K Street, N.W. U.S. counsel to the Fund.
Washington, D.C. 20005
- ----------
<FN>
* 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 their 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, 1999 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.
</FN>
</TABLE>
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.
54
<PAGE>
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, 1995, 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 $930,000.
Mr. Maddock is a director and a principal shareholder of Professional
Consultancy Services Limited.
Compensation of Directors and Certain Officers
The following table sets forth certain information regarding compensation
of Directors by the Fund and by the Fund and by the fund complex of which the
Fund is a part (the "Fund Complex") for the fiscal year ended October 31, 1995.
(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, 1995
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Annual From Registrant
Compensation Accrued Benefits and Fund
From As Part of Upon Complex Paid
Name of Person, Position Registrant Fund Expenses Retirement to Directors+
- ------------------------ ---------- ------------- ---------- -------------
Directors:
<S> <C> <C> <C> <C>
Anthony E. Aaronson.................. $13,750 N/A N/A $21,250 (2)
John A. Calvert-Jones................ 13,750 N/A N/A 21,250 (2)
Sir Roden Cutler..................... 13,750 N/A N/A 29,250 (3)
David Linday Elsum................... 13,750 * * 29,250 (3)
Rt. Hon. Malcolm Fraser.............. 13,750 N/A N/A 29,250 (3)
Laurence S. Freedman................. 0 N/A N/A 0 (3)
Michael R. Horsburgh................. 13,750 N/A N/A 29,250 (3)
Harry A. Jacobs, Jr.................. 0 N/A N/A 0 (2)
Howard A. Knight..................... 13,750 N/A N/A 21,250 (2)
Roger C. Maddock..................... 0 N/A N/A 0 (3)
William J. Potter.................... 13,750 N/A N/A 29,250 (3)
Peter D. Sacks....................... 13,750 N/A N/A 21,250 (2)
John T. Sheehy....................... 13,750 N/A N/A 29,250 (3)
Brian M. Sherman..................... 0 N/A N/A 0 (3)
Preferred Directors:
David Manor.......................... 0 N/A N/A 0 (2)
Marvin Yontef........................ 13,750 N/A N/A 13,750 (1)
55
<PAGE>
- ----------
<FN>
+ The number in parentheses indicates the total number of boards of
investment companies in the Fund Complex on which the Director serves.
</FN>
</TABLE>
Share Ownership
As of January 31, 1996, 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
The Fund's transactions in portfolio securities are effected with dealers
acting on a principal basis for their own accounts. During the fiscal years
ended October 31, 1993, 1994 and 1995, 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.
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<PAGE>
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income Requirement"); (b) derive in each
taxable year less than 30% of its gross income from the sale or other
disposition of certain assets (namely (i) stock or securities, (ii) options,
futures 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
57
<PAGE>
out its earnings and profits accumulated in that year in order to qualify again
as a regulated investment company.
Issuance of Preferred Stock
The Internal Revenue Service has taken the position in a revenue ruling
that a regulated investment company which has two or more classes of shares
cannot effectively designate distributions made to each class in any year as
consisting of more than that class's proportionate share of particular types of
income including capital gain dividends and foreign source income. When both
Common Stock and Preferred Stock are outstanding, the Fund intends to designate
distributions made to each class as consisting of particular types of income, in
accordance with the class' 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 receivables or
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
58
<PAGE>
attributable to fluctuations in the value of the currency between the date of
acquisition of the security and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
The Fund uses the Australian dollar as its functional currency in
accounting for its investments in Australia and New Zealand. As a result, the
Fund is not required to take into account gains or losses attributable to
fluctuations in the value of this functional currency, which otherwise would be
treated as Section 988 gains or losses, described above. However, remittances
from Australia to the United States will result in recognition of ordinary gains
or losses attributable to fluctuations in the value of the Australian dollar.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. For example,
the Fund's interest income derived from Australian sources currently is subject
to a 10% Australian withholding tax. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible and intends to elect to "pass-through"
to the Fund's shareholders the amount of foreign taxes paid by the Fund.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his proportionate
share of the foreign taxes paid by the Fund, and will be entitled either to
deduct (as an itemized deduction) his pro rata share of foreign taxes in
computing his taxable income or to use it as a foreign tax credit against his
U.S. federal income tax liability, subject to limitations. No deduction for
foreign taxes may be claimed by an individual shareholder who does not itemize
deductions. The deduction for foreign taxes is not allowable in computing
alternative minimum taxable income of non-corporate shareholders. 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.
59
<PAGE>
Assuming that the Fund is eligible and does elect to pass foreign taxes
through to its shareholders, the Fund currently intends to designate common and
preferred shareholders' proportionate shares of foreign taxes in the same
proportion as the income subject to such taxes is distributed to each such
shareholder.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications or where the Internal Revenue Service has notified the Fund or a
shareholder that the shareholder is subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability.
Foreign Shareholders
The tax consequences to a foreign shareholder of an investment in the Fund
may be different from those described herein. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
Foreign Taxes
The following discussions are based upon the advice of Freehill,
Hollingdale & Page, Australian counsel for the Fund, and Chapman Tripp Sheffield
Young, New Zealand counsel for the Fund, and are general and unexhaustive
summaries of Australian and New Zealand tax considerations which may be
applicable to the Fund under current law.
Australia
Pursuant to the United States Australia Double Tax Agreement, the Fund will
not be regarded as having a permanent establishment in Australia if it has no
fixed place of business or place of management in Australia and if there is no
person (other than a broker or other agent of independent status) in Australia
who has authority to conclude contracts on behalf of the Fund and habitually
exercises that authority. The Fund does not intend to have a fixed place of
business or place of management in Australia or to give any person (other than a
broker or other agent of independent status) in Australia the authority to
conclude contracts on behalf of the Fund; and accordingly, under current
Australian law, the Fund will be regarded as a non-resident of Australia and
none of the Fund's profits arising from the disposal of its assets should be
subject to Australian taxes. The Fund will be subject to an interest withholding
tax at the rate of 10% on all interest payments (including discounts on money
market securities) under corporate debt instruments, money market securities and
Australian Commonwealth Government and State Government securities (unless a
certificate of exemption from the interest withholding tax is obtained by the
issuer in respect of a particular issue). Australian interest withholding tax
does not apply to interest on Eurodollar obligations issued by non-residents of
Australia where the interest is not an expense incurred by that person in
carrying on business in Australia at or through a permanent establishment in
Australia of that nonresident. See "Taxation -- United States --
60
<PAGE>
Foreign Withholding Taxes." Generally, the Fund will not be subject to a stamp
duty on its investments in government and semi-government securities, promissory
notes and bills of exchange.
New Zealand
Under current New Zealand law, the Fund will be regarded as a non-resident
of New Zealand and will be relieved of New Zealand taxes on business profits
under the Convention between the United States of America and New Zealand for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income (the "Convention"), if the Fund does not have a
permanent establishment in New Zealand, and assuming the Fund to be a resident
of the United States as that phrase is defined in the Convention, and that the
Fund's principal class of shares will be the subject of regular and substantial
trading on a recognized stock exchange (as so defined).
Pursuant to the Convention, the Fund will not be regarded as having a
permanent establishment in New Zealand if it has no fixed place of business,
place of management, branch or office in New Zealand and if there is no person
(other than a broker, general commission agent, or other agent of independent
status acting, in each case, in the ordinary course of its business) who acts on
behalf of the Fund and has and habitually exercises in New Zealand authority to
conclude contracts in the name of the Fund. The Fund does not intend to have a
fixed place of business, place of management, branch, or office in New Zealand
or to give any person (other than a broker, general commission agent, or other
agent of independent status acting, in each case, in the ordinary course of its
business) the authority to conclude contracts in the name of the Fund in New
Zealand, and accordingly none of the business profits or gains from the
alienation of debt securities except for interest (as provided below) of the
Fund should be subject to New Zealand taxes. Interest (as defined for New
Zealand tax law purposes) paid to the Fund by an "approved issuer" on debt
obligations that the "approved issuer" has issued and in respect of which a
prescribed "approved issuer levy" has been paid, will be subject to New Zealand
interest non-resident withholding tax at the rate of zero percent. All other
interest (as so defined) paid to the Fund will be subject to New Zealand
interest non-resident withholding tax at the rate of 10% on the gross amount of
all payments of interest (as so defined) deemed to be derived from New Zealand
under corporate debt instruments, money market securities and New Zealand
Government and local authority debt securities, except, in the latter two cases,
where interest is payable out of New Zealand and in the case of local authority
debt securities, the approval of the New Zealand Government has been given for
that interest payment on such debt securities to be exempted from New Zealand
income tax.
The issue to and transfer by the Fund of debt instruments will not be
subject to New Zealand stamp duty or Goods and Services Tax.
Tax Treatment of Preferred Stockholders
Dividend Distributions. Each series of Preferred Stock will constitute
stock of the Fund for federal income tax purposes and, accordingly, to the
extent of the Fund's current and accumulated earnings and profits, distributions
paid in cash to holders of the Fund's shares will be taxable as ordinary income
for federal income tax purposes unless designated by the Fund as capital gain
dividends. Dividends received by corporate shareholders will not be eligible for
the dividends-received deduction.
For federal income tax purposes, dividends paid by the Fund out of its
investment company taxable income will be taxable to a U.S. shareholder as
ordinary income. To the extent that the Fund designates distributions of net
capital gains as capital gain dividends, such distributions will be taxable
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<PAGE>
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 $25,000 per share with respect to shares of AMPS, plus accumulated but unpaid
dividends (whether or not earned or declared), on the outstanding shares of
AMPS. Holders of shares of Common Stock are entitled to one vote per share and
do not have cumulative voting rights.
Preferred Stock
The Fund's Articles of Incorporation authorize the issuance of up to
100,000,000 shares of Preferred Stock, 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 19,000 shares of AMPS in seven series, designated as
Series A, Series B, Series C, Series D, Series E, Series F and Series G, with an
aggregate liquidation preference of $475,000,000, 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
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<PAGE>
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,
including shares of AMPS, 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 June
30, 1996.
Amount
Outstanding
(Exclusive of
Amount Held Amount Held
By Fund or By Fund
Amount For Its or For
Title of Class Authorized Account Its Account)
- -------------- ---------- ------- ------------
Common Stock................. 200,000,000 -0-
Preferred Stock.............. 100,000,000 -0- 19,000
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 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
63
<PAGE>
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. The Chase Manhattan Bank, N.A. acts as
Auction Agent for the AMPS and also acts as transfer agent, registrar, dividend
disbursing agent and redemption agent for the AMPS.
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.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber
Incorporated, Prudential Securities Incorporated and Smith Barney Inc. (the
"Underwriters") have 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 the respective numbers
of shares of Series H AMPS and shares of Series I AMPS set forth below opposite
their respective names. 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 Series H and Series I AMPS
if any are purchased. Under certain circumstances, the commitments of
non-defaulting Underwriters may be increased.
Number of Shares Number of Shares
Underwriter of Series H AMPS of Series I AMPS
----------- ---------------- ----------------
Merrill Lynch, Pierce, Fenner &
Smith Incorporated..................
PaineWebber Incorporated..............
Prudential Securities Incorporated....
Smith Barney.......................... ----- -----
3,000 3,000
===== =====
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 not 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 , 1996.
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.
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EXPERTS
The financial statements, insofar as they relate to the periods through
October 31, 1995, 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 LLP, New
York, New York. Dechert Price & Rhoads and Brown & Wood LLP will rely as to
matters of Maryland law on the opinion of Venable, Baetjer and Howard LLP,
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.
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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 H and Series I, of
the Fund, liquidation preference $25,000 per share, plus accumulated but unpaid
dividends (whether or not earned or declared).
"AMPS Basic Maintenance Amount" has the meaning set forth on page of
this Prospectus.
"AMPS Basic Maintenance Cure Date" has the meaning set forth on page
of this Prospectus.
"Applicable Percentage" has the meaning set forth on page of this
Prospectus.
"Applicable Rate" means the rate per annum at which dividends are payable
on a series of 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 a
series of AMPS.
"Auction Agent" means The Chase Manhattan Bank, N.A. 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
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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, with respect to each series of AMPS, the first
Business Day next preceding the first day of a Dividend Period for such AMPS.
"Auction Market Preferred Stock" has the meaning set forth on the cover
page of this Prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth
in Appendix B to this Prospectus.
"Australian Bank Bills" means bills of exchange (as defined in the Bills of
Exchange Act of the Commonwealth of Australia) issued, accepted or endorsed by
Australian banks with (x) in the case of S&P (i) a rating from S&P at least as
high as S&P's then-current rating for the AMPS or (ii) in the case of any Bank
Bill with a remaining term to maturity from the date of determination of 365
days or less, a rating from S&P at least as high as S&P's short-term rating
comparable to its then-current rating for the AMPS and (y) in the case of
Moody's (i) a long-term foreign currency debt rating from Moody's of at least
Aa3 or (ii) in the case of any Bank Bill with a remaining term to maturity from
the date of determination of 180 days or less, a rating from Moody's of Prime-1
or (iii) any other rating as Moody's shall approve in writing.
"Australian Corporate Bonds" means debt obligations of Australian
corporations (other than Australian Government Securities, Australian
Semi-Government Securities, Australian Bank Bills, Australian Eurobonds,
Australian Exchangeable Eurobonds and Australian Short-Term Securities)
provided, that such debt obligations shall not be deemed to be Eligible
Portfolio Property by S&P unless they have the following characteristics: (a)
the principal amount outstanding on the date of determination is at least equal
to A$50 million, (b) the security is publicly traded, (c) the security is
non-callable, or, if the security is callable, the basis for pricing is to the
call date, (d) the security is rated at least AA- by S&P, (e) the security has a
tender panel, (f) the maturity date of the security is not later than the 10th
anniversary of the Valuation Date of such security and (g) the security is
issued by one of the following issuers:
(i) Issuers with a public long-term S&P rating or whose parent has a
public long-term rating and there is an explicit guarantee backing the
subsidiary's debt service payments ("Guaranteed Australian Corporate
Bonds"). These issuers currently include:
FANMAC Premier Trust Co. No. 1-22 and any subsequent issues rated by
S&P -- Australian Ratings
Ford Credit Australia
National Australia Bank
State Bank of Victoria
Custom Credit Corporation Ltd.
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(ii) Issuers, which shall be designated in writing from time to time
by S&P, without a public long-term S&P rating but whose parent has a
long-term S&P rating but has not explicitly guaranteed the subsidiary's
debt service payments ("Non-Guaranteed Corporate Bonds").
In addition, if the determination is being made for S&P, (a) not more than
10% of the aggregate Discounted Value of the Eligible Portfolio Property of the
Fund can consist of Australian Corporate Bonds issued by a single issuer, (b)
not more than 50% (if the issue is rated AAA by S&P) or 33.3% (if the issue is
rated AA or A by S&P) or 20% (if the issue is rated BBB by S&P) of the aggregate
Discounted Value of the Eligible Portfolio Property of the Fund can consist of
Australian Corporate Bonds from issues representing a single industry, (c) not
more than 5% of the then-outstanding principal amount of any one issue can be
included in Eligible Portfolio Property and (d) not more than 20% of the
outstanding aggregate principal amount of the Australian Corporate Bonds held by
the Fund and included in Eligible Portfolio Property shall be comprised of
securities with a then outstanding issue size of less than A$100 million.
"Australian Currency" means such coin or currency of Australia as at the
time shall be legal tender for payment of public and private debts, as well as
cash deposits with Offshore Banking Units of Banque Nationale de Paris.
"Australian Eurobonds" (including guaranteed and non-guaranteed Eurobonds)
means debt securities which are denominated in Australian Currency, and which
have the following characteristics: (a) the principal amount outstanding on the
date of determination is at least equal to A$50 million, (b) the security is
publicly traded, (c) the security is non-callable, or, if the security is
callable, the basis for pricing is to the call date, (d) the security is rated
at least AA- by S&P, (e) the maturity date of the security is not later than the
10th anniversary of the Valuation Date of such security and (f) the security is
issued by one of the following issuers:
(i) Issuers with a public long-term S&P rating or whose parent has a
public long-term S&P rating and there is an explicit guarantee backing the
subsidiary's debt service payments ("Australian Guaranteed Eurobonds").
These issuers currently include:
Australian Telecom
Finnish Export Credit Corp.
National Australia Bank
State Bank of New South Wales
State Electricity of Victoria
Swedish Export Credit Corp.
(ii) Issuers, which shall be designated in writing from time to time
by S&P, without a public long-term S&P rating but whose parent has a
long-term S&P rating but has not explicitly guaranteed the subsidiary's
debt service payments ("Australian Non-Guaranteed Eurobonds").
In addition, if the determination is being made for S&P, (a) not more than
10% of the aggregate Discounted Value of the Eligible Portfolio Property of the
Fund can consist of Australian Eurobonds from a single issuer, (b) not more than
50% (if the issue is rated AAA by S&P) or 33.3% (if the issue is rated AA or A
by S&P) or 20% (if the issue is rated BBB by S&P) of the aggregate Discounted
Value of the Eligible Portfolio Property of the Fund can consist of Australian
Eurobonds from issues
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<PAGE>
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).
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).
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7. Queensland Treasury Corporation, a corporation established under the
Treasury Corporation Act 1988 (Qld), including its Australian Convertible
Eurobond issues, in the case of S&P.
8. South Australian Government Financing Authority, an authority
established under the Government Financing Authority Act 1982 (South Australia).
9. State Electricity Commission of Victoria, a commission established
under the State Electricity Commission Act of 1958 (Victoria).
10. State Energy Commission of Western Australia, a commission established
under the State Energy Commission Act 1979 (Western Australia).
11. The Australian Telecommunications Commission, a commission established
under section 4 of the Telecommunications Act 1975 (Commonwealth).
12. (with respect to S&P only) and without any guarantee by the
Commonwealth of Australia or the respective Australian State: Australian and
Overseas Telecommunications Corporation, Limited.
13. Victorian Public Authorities Finance Agency, an agency constituted
under section 3 of the Victorian Public Authorities Act 1984 (Victoria).
14. Australian Industry Development Corporation, a body established under
section 5 of the Australian Industries Development Corporation Act
(Commonwealth).
15. South Australian Finance Trust Limited, a body corporate proclaimed by
the Governor of South Australia to be a semi-government authority pursuant to
the Public Finance and Audit Act 1987 (South Australia).
16. The Western Australian Treasury Corporation.
17. Hydro-Electricity Commission of Tasmania.
18. Tasmanian Public Finance Corp.
19. Tasmanian Development Authority.
20. Australian Trade Commission.
21. (with respect to S&P only) FANMAC Premier Trust Co. (Nos. 1-22) and
any subsequent issues rated by S&P -- Australian Ratings.
22. (with respect to S&P only) Australian Wool Corporation.
23. Commonwealth Bank of Australia.
24. State Bank of New South Wales.
25. In the case of S&P, Australian Exchangeable Eurobonds.
26. Securities issued by the Australian State Government of Victoria
through the Treasury Corporation of Victoria.
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"Australian Short Term Securities" means promissory notes and other short
term commercial paper issued by Australian institutions which, for purposes of
S&P, are rated A-1+ by S&P or have a long-term rating from S&P at least as high
as their then-current comparable rating of AMPS and, for purposes of Moody's,
are rated Prime-1 by Moody's or have a long-term foreign currency debt rating
from Moody's of at least Aa3 and a maturity of less than 270 days in the case of
commercial paper.
"Authorized Newspaper" means The Wall Street Journal, or if not published
on such date, The New York Times, of if neither of such papers is published on
such date, a newspaper, printed in the English language, of general circulation
in the Borough of Manhattan, The City of New York, that carries financial news
and is customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
"Available AMPS" has the meaning specified in paragraph 8(d)(i) of the
Auction Procedures.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of AMPS or a Broker-Dealer that holds AMPS for its own account.
"Bid" has the meaning specified in paragraph 8(b)(i) of the Auction
Procedures.
"Bidder" has the meaning specified in paragraph 8(b)(i) of the Auction
Procedures.
"Board of Directors" or "Board" means the Board of Directors of the Fund
or, unless otherwise required by the context, any duly authorized and empowered
committee thereof.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Fund and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into between the
Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees
to follow the Auction Procedures.
"Business Day" has the meaning set forth on page of this Prospectus.
"Cash" means such coin or currency of the United States of America as at
the time shall be legal tender for payment of public and private debts.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Fund may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates and successors.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per share, of the
Fund.
"Cure Date" means the AMPS Basic Maintenance Cure Date or the 1940 Act Cure
Date, as the case may be.
"Consultant" means The Prudential Insurance Company of America.
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"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 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, with respect to each series of AMPS, 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 such
AMPS.
"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of shares of AMPS
in the records of the Auction Agent.
"FANMAC Certificates" has the meaning set forth on page of this
Prospectus.
"FHLMC" means the Federal Home Loan Mortgage Corporation created by Title
III of the Emergency Home Finance Act of 1970, and includes any successor
thereto.
"FHLMC Certificate" means a mortgage participation certificate in physical
or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences a
proportional undivided interest in, or participation interest in, specified
pools of fixed-, variable- or adjustable-rate, fully amortizing, level pay
mortgage loans with terms up to 30 years, secured by first liens on one- to
four-family residences.
"FHLMC Multifamily Security" means a "Plan B Multi-family Security" in
physical or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences a
proportional undivided interest in, or participation interest in, specified
pools of fixed-rate, fully amortizing, level pay mortgage loans with terms up to
30 years, secured by first-priority mortgages on multifamily residences
containing 5 or more units and which are designed primarily for residential use,
the inclusion of which in the Eligible Portfolio Property will not, in and of
itself, impair, or cause the AMPS to fail to retain, the rating assigned to such
AMPS by each of the Rating Agencies, as evidenced by a letter to such effect
from each of the Rating Agencies.
"FNMA" means the Federal National Mortgage Association, a United States
Government- sponsored private corporation established pursuant to Title VIII of
the Housing and Urban Development Act of 1968, and includes any successor
thereto.
"FNMA Certificate" means a mortgage pass-through certificate in physical or
book-entry form, the full and timely payment of principal of and interest on
which is guaranteed by FNMA, and which evidences a proportional undivided
interest in specified pools of fixed-, variable- or adjustable-rate, fully
amortizing, level pay mortgage loans with terms up to 30 years, secured by first
liens on one- to four-family residences.
"Fund" means The First Australia Prime Income Fund, Inc., a Maryland
corporation that is the issuer of the AMPS.
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"GNMA" means the Government National Mortgage Association, and includes any
successor thereto.
"GNMA Certificates" mean a fully modified pass-through certificate in
physical or book-entry form, the full and timely payment of principal of and
interest on which is guaranteed by GNMA and which evidences a proportional
undivided interest in specified pools of fixed-, variable- or adjustable-rate,
fully amortizing, level pay mortgage loans with terms up to 30 years, secured by
first liens on one- to four-family residences.
"GNMA Graduated Payment Security" means a fully modified pass-through
certificate in physical or book-entry form, the full and timely payment of
principal of and interest on which is guaranteed by GNMA, which obligation is
backed by the full faith and credit of the United States, and which evidences a
proportional undivided interest in specified pools of graduated payment mortgage
loans with terms up to 30 years, with payments that increase annually at a
predetermined rate for up to the first five or ten years of the mortgage loan
and that are secured by first-priority mortgages on one- to four- unit
residences; provided that such loans shall be past the graduated payment period.
"GNMA Multifamily Security" means a fully modified certificate in physical
or book-entry form, the full and timely payment of principal of and interest on
which is guaranteed by GNMA, which obligation is backed by the full faith and
credit of the United States, and which evidences a proportional undivided
interest in specified pools of fixed-rate mortgages, level pay loans with terms
up to 30 years secured by first-priority mortgages on multifamily residences,
the inclusion of which in Eligible Portfolio Property will not, in and of
itself, impair or cause the AMPS to fail to retain the rating assigned to such
AMPS by each of the Rating Agencies as evidenced by a letter to such effect from
each of the Rating Agencies.
"Hold Order" has the meaning specified in paragraph 8(b)(i) of the Auction
Procedures.
"Initial Dividend Payment Date" means, with respect to each series of AMPS,
the date set forth herein upon which dividends on shares of the AMPS will first
be payable.
"Initial Dividend Period" means, with respect to each series of AMPS, the
period from and including the Date of Original Issue to but excluding the
Initial Dividend Payment Date for such AMPS.
"Investment Adviser" means EquitiLink Australia Limited.
"Investment Manager" means EquitiLink International Management Limited.
"Maximum Applicable Rate" has the meaning set forth on page of this
Prospectus.
"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
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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, with respect to each series of AMPS, 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, with respect to each series of AMPS, any
Broker-Dealer or any such person as may be permitted by the Fund, including any
Existing Holder who may be interested in acquiring shares of AMPS (or, in the
case of an Existing Holder, additional shares of AMPS).
"Preferred Stock" means shares of any series of preferred stock of the
Fund, par value $.01 per share, including shares of AMPS.
"Rating Agencies" means Moody's and S&P, or any successors thereto.
"Repurchase Agreements" means, repurchase obligations with respect to a
U.S. Government Obligation, FNMA Certificate, FHLMC Certificate or GNMA
Certificate under which the Fund buys such securities from counterparties who
agree to buy back such securities within one Business Day from the date such
repurchase obligations were entered into where the counterparty is either (i) a
depository institution the deposits of which (x) are insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation, (y) the commercial paper or other unsecured short-term debt
obligations of which are rated Prime-1 by Moody's and A-1+ by S&P, and (z) the
long-term debt obligations of which are rated at least A-2 by Moody's; or (ii) a
broker-dealer registered as such with the Securities and Exchange Commission
under the Securities and Exchange Act of 1934, as amended, (x) the commercial
paper or other unsecured short-term debt obligations of which are rated Prime-1
by Moody's and A-1+ by S&P and (z) the long-term debt obligations of which are
rated at least A-2 by Moody's.
"S&P" means Standard & Poor's Ratings Group 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;
75
<PAGE>
(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 of this Prospectus.
"Valuation Date" has the meaning set forth on page of this Prospectus.
"Winning Bid Rate" means, in the event Sufficient Clearing Bids has been
made, the lowest specified rate in the Submitted Bids which would result in the
number of shares subject to Submitted Bids specifying such rate or a lower being
at least equal to the Available AMPS.
"1940 Act" means the Investment Company Act of 1940, as amended from time
to time.
"1940 Act AMPS Asset Coverage Ratio" has the meaning set forth on page of
this Prospectus.
76
<PAGE>
"1940 Act AMPS Asset Coverage Requirement" has the meaning set forth on
page of this Prospectus.
"1940 Act Cure Date" has the meaning set forth on page of this
Prospectus.
77*
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--110.0%
AUSTRALIA--107.6%
Government and Semi-government--59.7%
Commonwealth of Australia--36.6%
Australian Capital
Territory,
A$ 10,000 12.00%, 11/15/01............ $ 8,901,803
Commonwealth of Australia,
15,000 12.50%, 1/15/98............. 12,643,279
5,000 13.00%, 4/15/98............. 4,232,420
5,000 7.00%, 8/15/98.............. 3,852,587
25,000 6.25%, 3/15/99.............. 18,736,908
15,000 14.00%, 4/15/99............. 13,318,923
35,000 12.00%, 7/15/99............. 30,433,105
50,000 7.00%, 4/15/00.............. 37,706,906
114,900 13.00%, 7/15/00............. 105,233,163
5,000 13.00%, 12/15/00............ 4,476,022
30,000 12.00%, 11/15/01............ 27,273,565
20,000 10.00%, 10/15/02............ 16,878,967
15,000 9.50%, 8/15/03.............. 12,388,968
125,000 7.50%, 7/15/05.............. 91,389,086
25,000 6.75%, 11/15/06............. 17,072,013
40,000 10.00%, 10/15/07............ 34,336,247
Commonwealth Bank of
Australia,
75,000 12.00%, 7/15/99............. 64,947,437
Northern Territory
Authority,
40,000 12.50%, 7/15/01............. 35,698,874
Telecom,
10,000 12.00%, 9/1/98.............. 8,506,575
--------------
548,026,848
--------------
New South Wales--1.7%
New South Wales Treasury Corporation,
7,000 12.00%, 12/1/01............. 6,325,026
20,000 12.60%, 5/1/06.............. 19,453,973
--------------
25,778,999
--------------
Queensland--4.5%
Queensland Treasury
Corporation,
A$ 10,000 8.00%, 7/14/99.............. $ 7,802,055
10,000 8.00%, 8/14/01.............. 7,683,227
20,000 8.00%, 5/14/03.............. 15,105,914
40,000 12.00%, 6/15/05............. 37,048,902
--------------
67,640,098
--------------
South Australia--5.9%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05............. 4,859,123
South Australian Financing
Authority,
30,000 12.50%, 3/15/98............. 25,390,031
70,000 10.00%, 1/15/03............. 58,390,661
--------------
88,639,815
--------------
Tasmania--4.7%
Tasmanian Public Finance Corporation,
13,000 12.50%, 1/15/01............. 11,749,035
75,000 9.00%, 11/15/04............. 59,038,330
--------------
70,787,365
--------------
Victoria--3.7%
Treasury Corporation of
Victoria,
36,000 12.50%, 10/15/03............ 34,011,623
25,500 10.25%, 11/15/06............ 21,755,020
--------------
55,766,643
--------------
Western Australia--2.6%
Western Australia Treasury Corporation,
10,000 12.50%, 4/1/98.............. 8,478,148
23,000 9.00%, 4/15/99.............. 18,438,034
15,000 10.00%, 7/15/05............. 12,575,478
--------------
39,491,660
--------------
Total Australian government
and semi-government bonds
(cost US$845,016,436)..... 896,131,428
--------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Eurobonds--33.9%
Banking and Finance--6.3%
Bank Austria AG,
A$ 10,000 10.875%, 11/17/04........... $ 8,565,478
Banque National de Paris,
14,000 9.00%, 8/13/02.............. 11,067,265
Commerzbank Overseas
Finance,
10,000 10.25%, 4/28/00............. 8,269,076
Commonwealth Bank of
Australia,
5,000 9.00%, 8/15/05.............. 3,977,912
Eksport Finance & Insurance,
19,000 11.00%, 12/29/04............ 16,619,277
Eksport Finans,
4,000 7.00%, 6/28/00.............. 2,974,228
Finnish Eksport Credit,
2,925 9.25%, 12/30/99............. 2,331,938
GG Securities,
5,000 9.25%, 3/24/03.............. 3,943,657
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98.............. 3,912,355
5,000 6.75%, 2/25/99.............. 3,754,544
Rural & Industries Bank of
Western Australia,
5,000 8.75%, 9/9/99............... 3,947,319
State Bank of New South
Wales,
5,500 12.25%, 2/26/01............. 4,894,909
5,000 10.75%, 3/12/02............. 4,248,051
10,000 9.25%, 2/18/03.............. 8,017,718
State Bank of South
Australia,
10,000 9.50%, 10/15/02............. 8,076,148
--------------
94,599,875
--------------
Diversified Industrials--1.1%
Australian National Railway,
4,000 9.50%, 2/25/99.............. 3,217,923
Federal Airports
Corporation,
17,000 7.00%, 2/16/04.............. 11,633,173
Shell Australia,
1,786 10.00%, 12/19/97............ 1,437,098
--------------
16,288,194
--------------
Semi-Government and Local
Government--17.1%
New South Wales Treasury Corporation,
10,000 7.50%, 2/1/98............... 7,800,826
8,000 11.50%, 7/1/99.............. 6,850,933
20,000 12.00%, 12/1/01............. 18,075,597
10,000 7.00%, 4/1/04............... 7,086,180
30,000 6.50%, 5/1/06............... 19,781,951
34,000 12.60%, 5/1/06.............. 32,743,507
Semi-Government and Local
Government--(cont'd)
Province Alpes Cotes D'Azur,
A$ 12,000 8.25%, 9/15/99.............. $ 9,290,376
Province of Quebec,
16,000 9.50%, 10/2/02.............. 12,639,105
Queensland Treasury
Corporation,
35,000 8.00%, 5/14/97.............. 27,587,133
30,000 8.00%, 7/14/99.............. 23,400,425
45,000 8.00%, 8/14/01.............. 34,557,406
3,000 12.00%, 8/15/01............. 2,700,756
25,000 8.00%, 5/14/03.............. 18,868,021
15,000 10.50%, 5/15/03............. 12,749,114
20,000 6.50%, 6/14/05.............. 13,365,304
State Electricity Commission of Victoria,
3,000 11.00%, 4/9/02.............. 2,576,518
7,000 9.25%, 9/18/03.............. 5,593,716
Treasury Corporation of
Victoria,
2,000 11.00%, 3/12/02............. 1,715,836
--------------
257,382,704
--------------
Supranational Global--9.4%
Credit Locale de France,
10,000 7.50%, 9/15/97.............. 7,920,884
10,000 10.25%, 4/12/05............. 8,382,156
Eurofima,
58,170 9.875%, 1/17/07............. 48,469,503
European Bank of
Reconstruction &
Development,
55,000 9.00%, 10/15/02............. 44,059,335
European Investment Bank,
38,000 10.25%, 10/1/01............. 32,162,950
--------------
140,994,828
--------------
Total Australian eurobonds
(cost US$464,115,800)..... 509,265,601
--------------
Corporate Bonds--14.0%
Asset Backed--0.2%
FANMAC Limited,
Mortgage Series 25,
635 10.33%, 6/15/02............. 525,881
Premier Trust 22,
2,835 11.40%, 12/15/01............ 2,315,596
--------------
2,841,477
--------------
Floating Rate Notes*--5.9%
Australia Post,
50,000 7.7092%, 3/25/99............ 39,373,573
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Floating Rate Notes--(cont'd)
Ford Credit Australia
Limited,
A$ 5,000 8.00%, 4/27/98.............. $ 3,952,752
GIO Australia Holdings
Limited,
14,500 7.99%, 11/16/98............. 11,417,423
MEPC PLC,
15,000 7.98%, 9/1/97............... 11,818,450
Mortgage Power Company,
15,000 8.4683%, 6/12/06............ 11,875,148
Securitized Australia Mortgage Trust,
13,359 7.8324%, 11/15/25........... 10,490,390
--------------
88,927,736
--------------
Services--7.9%
Australian & Overseas
Telecommunication
Corporation,
55,350 12.50%, 11/15/00............ 50,029,444
20,000 11.50%, 10/15/02............ 17,709,583
2,000 7.80%, 7/17/03.............. 1,447,799
31,000 12.00%, 5/15/06............. 29,065,887
2,000 8.75%, 1/15/20.............. 1,497,976
Federal Airports
Corporation,
5,000 10.50%, 7/15/99............. 4,105,678
10,000 8.25%, 6/2/03............... 7,505,930
IBM Australia,
9,000 7.48%, 9/7/97............... 7,019,631
Macquarie Bank Limited,
1,000 9.75%, 8/1/00............... 802,189
--------------
119,184,117
--------------
Total Australian corporate
bonds
(cost US$202,953,475)..... 210,953,330
--------------
Total Australian long-term
investments
(cost US$1,512,085,711)... 1,616,350,359
--------------
NEW ZEALAND--2.4%
Eurobonds--0.5%
Telecom New Zealand Finance,
NZ$ 1,500 9.25%, 7/1/02............... 1,050,391
Transport Power Finance
Limited,
10,000 8.00%, 3/15/02.............. 6,547,261
--------------
Total New Zealand eurobonds
(cost US$7,756,955)....... 7,597,652
--------------
Government Bonds--1.9%
New Zealand Government
Bonds,
NZ$ 5,000 10.00%, 7/15/97............. $ 3,468,213
20,000 10.00%, 3/15/02............. 14,548,126
15,000 8.00%, 11/15/06............. 9,999,056
--------------
Total New Zealand government
bonds (cost
US$28,065,179)............ 28,015,395
--------------
Total New Zealand long-term
investments (cost
US$35,822,134)............ 35,613,047
--------------
Total long-term investments
(cost US$1,547,907,845)... 1,651,963,406
--------------
SHORT-TERM INVESTMENTS--6.8%
AUSTRALIA--3.8%
Government and Semi-government--3.1%
Commonwealth of Australia--0.1%
Telecom,
A$ 1,000 12.50%, 10/1/96............. 802,780
--------------
New South Wales--3.0%
New South Wales Treasury
Corporation,
55,400 12.50%, 4/1/97.............. 45,407,147
--------------
Total Australian government
and semi-government bonds
(cost US$49,009,364)...... 46,209,927
--------------
Eurobonds--0.4%
Banking and Finance--0.1%
BMW Australia Finance,
1,700 10.25%, 3/17/97............. 1,361,392
International Bank for
Reconstruction &
Development,
1,000 14.50%, 6/7/96.............. 790,559
--------------
2,151,951
--------------
Diversified Industrials--0.3%
Shell Australia,
5,000 10.125%, 4/1/97............. 4,000,984
--------------
Total Australian eurobonds
(cost US$6,126,503)....... 6,152,935
--------------
Corporate Bonds--0.3%
Services
Securities Asset Funding
Entity,
5,000 12.10%, 7/10/96
(cost US$3,836,076)....... 3,969,171
--------------
Total Australian short-term
investments (cost
US$58,971,943)............ 56,332,033
--------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
NEW ZEALAND--1.4%
Corporate Bonds--1.4%
Services
Bankers Trust,
NZ$ 15,000 Zero Coupon, 7/31/96........ $ 10,109,207
National Bank of New
Zealand,
17,000 8.45%, 5/1/96............... 11,671,015
--------------
Total New Zealand short-term
investments
(cost US$21,410,409)...... 21,780,222
--------------
United States--1.6%
US$ 23,696 Repurchase Agreement, State
Street Bank & Trust
Company, 5.15% dated
4/30/96, due 5/1/96 in the
amount of $23,699,398
(cost $23,696,000;
collateralized by
$24,565,000 United States
Treasury Bill, due
8/22/96; value including
accrued interest -
US$24,172,943)............ 23,696,000
--------------
Total short-term investments
(cost US$104,078,352)..... 101,808,255
--------------
Total Investments--116.8%
(cost US$1,651,986,197;
Note 3)................... 1,753,771,661
Other assets in excess of
liabilities--14.8%........ 222,941,019
Liquidation value of
preferred
stock--(31.6%)............ (475,000,000)
--------------
Net Assets Applicable to
Common
Shareholders--100%........ $1,501,712,680
--------------
--------------
</TABLE>
- ---------------
* The interest rate reflected is the rate in effect at April 30, 1996.
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
April 30, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$1,651,986,197)..................... $1,753,771,661
Foreign currency, at value (cost
$191,530,814)....................... 192,636,563
Cash.................................. 480,087
Interest receivable................... 46,358,035
Other assets.......................... 123,719
--------------
Total assets...................... 1,993,370,065
--------------
Liabilities
Dividends payable-common stock........ 10,895,346
Withholding taxes payable............. 2,873,964
Dividends payable-preferred stock..... 1,042,729
Accrued expenses and other
liabilities......................... 843,389
Investment management fee payable..... 836,374
Administration fee payable............ 165,583
--------------
Total liabilities................. 16,657,385
--------------
Total Net Assets...................... $1,976,712,680
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
155,647,805 shares)............. $ 1,556,478
Paid-in capital in excess of par.. 1,375,400,599
Preferred stock ($.01 par value per
share and $25,000 liquidation value
per share applicable to 19,000
shares; Note 4)................... 475,000,000
--------------
1,851,957,077
Undistributed net investment
income.............................. 10,972,622
Accumulated net realized gains on
investments....................... 5,607,568
Net unrealized depreciation on
investments......................... (43,008,975)
Accumulated net realized and
unrealized foreign exchange
gains............................. 151,184,388
--------------
Total net assets.................... $1,976,712,680
--------------
--------------
Net assets applicable to common
shareholders...................... $1,501,712,680
--------------
--------------
Net asset value per common share:
($1,501,712,680 / 155,647,805 shares
of common stock issued and
outstanding)........................ $9.65
--------------
--------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
10
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Six Months Ended April 30, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of
foreign
withholding taxes of $5,793,545)... $ 79,025,044
------------
Expenses
Investment management fee............ 5,217,577
Custodian's fees and expenses........ 1,380,000
Administration fee................... 1,186,666
Auction agent's fees and expenses.... 685,000
Shareholder communications........... 410,000
Transfer agent's fees and expenses... 325,000
Directors' fees and expenses......... 252,000
Independent accountant's fees and
expenses............................. 106,000
Legal fees and expenses.............. 86,000
Insurance expense.................... 52,000
Miscellaneous........................ 48,120
------------
Total operating expenses............. 9,748,363
------------
Net investment income before excise
tax.................................. 69,276,681
Excise tax........................... (424,473)
------------
Net investment income.................. 68,852,208
------------
Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currencies
Net realized gain on investment
transactions......................... 5,937,419
Net change in unrealized depreciation
on investments....................... (21,178,425)
------------
Net loss on investments................ (15,241,006)
------------
Net increase in total net assets
resulting from operations before net
foreign exchange gains............... 53,611,202
Net realized and unrealized foreign
exchange gains....................... 72,348,231
------------
Net Increase In Total Net Assets
Resulting From Operations.............. $125,959,433
------------
------------
</TABLE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Six Months Ended April 30, 1996
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
(Including Foreign Currency)
Cash flows provided from operating
activities
Interest received (net of foreign
withholding taxes)................. $ 83,371,660
Expenses paid........................ (10,765,779)
Purchases of short-term portfolio
investments, net..................... (24,343,409)
Purchases of long-term portfolio
investments.......................... (185,857,522)
Proceeds from sales of long-term
portfolio
investments........................ 336,367,391
Other................................ (49,129)
-------------
Net cash provided from operating
activities......................... 198,723,212
-------------
Cash flows used for financing
activities
Dividends and distributions paid to
preferred shareholders............. (13,279,155)
Dividends and distributions paid to
common
shareholders (net of $5,241,635
paid in the issuance of shares).... (63,937,459)
-------------
Net cash used for financing
activities......................... (77,216,614)
-------------
Effect of changes in exchange rate..... 20,484,765
-------------
Net increase in cash................... 141,991,363
Cash at beginning of period.......... 51,125,287
-------------
Cash at end of period................ $ 193,116,650
-------------
-------------
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........................... $ 125,959,433
-------------
Decrease in investments.............. 137,285,322
Decrease in interest receivable...... 4,820,591
Net increase in other assets......... (49,129)
Decrease in accrued expenses and
other liabilities.................. (1,066,918)
Decrease in payable for investments
purchased............................ (11,118,862)
Net realized gain on investment
transactions......................... (5,937,419)
Net change in unrealized depreciation
on investments..................... 21,178,425
Net realized and unrealized foreign
exchange gains..................... (72,348,231)
-------------
Total adjustments.................. 72,763,779
-------------
Net cash provided from operating
activities............................. $ 198,723,212
-------------
-------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
11
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) April 30, October 31,
in Total Net Assets 1996 1995
-------------- --------------
<S> <C> <C>
Operations
Net investment income... $ 68,852,208 $ 130,160,245
Net realized gain on
investment
transactions.......... 5,937,419 18,189,710
Net change in unrealized
appreciation/depreciation
on investments........ (21,178,425) 89,317,008
-------------- --------------
Net increase in total
net assets resulting
from operations before
net foreign exchange
gains................. 53,611,202 237,666,963
Net realized and
unrealized foreign
exchange gains........ 72,348,231 54,519,666
-------------- --------------
Net increase in total net
assets resulting from
operations.............. 125,959,433 292,186,629
-------------- --------------
Dividends to shareholders
from net investment
income
Common shares........... (63,458,104) (114,007,842)
Preferred shares........ (10,203,770) (22,484,591)
-------------- --------------
(73,661,874) (136,492,433)
-------------- --------------
Distributions to
shareholders
from net realized
capital gains
Common shares........... (4,985,403) (20,904,930)
Preferred shares........ (3,046,221) (2,142,800)
-------------- --------------
(8,031,624) (23,047,730)
-------------- --------------
Fund share transactions
Net proceeds from
issuance of preferred
shares................ -- 73,620,000
Net proceeds from rights
offering of Fund
shares................ -- 224,618,810
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions and in
connection with
dividends paid in
stock................. 5,241,635 7,688,453
-------------- --------------
5,241,635 305,927,263
-------------- --------------
Total increase............ 49,507,570 438,573,729
Total Net Assets
Beginning of period....... 1,927,205,110 1,488,631,381
-------------- --------------
End of period............. $1,976,712,680 $1,927,205,110
-------------- --------------
-------------- --------------
</TABLE>
- ----------------------------------------------------------
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 and 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 summary of
Policies 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
See Notes to Financial Statements.
12
<PAGE>
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 gains of $72,348,231 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of interest, discount and foreign withholding
taxes recorded on the Fund's books and the US dollar equivalent amounts actually
received or paid and changes in unrealized foreign exchange gains and losses in
the value of portfolio securities and other assets and liabilities arising as a
result of changes in the exchange rate. Accumulated net realized and unrealized
foreign exchange gains shown in the composition of net assets at April 30, 1996
represent foreign exchange gains for book purposes that may not yet have been
recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
The exchange rate at April 30, 1996 was US$.7875 to A$1.00 for the Australian
dollar and US$.6865 to NZ$1.00 for the New Zealand dollar.
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. Expenses are recorded on
the accrual basis which may require the use of certain estimates by management.
Dividends and Distributions: It is the Fund's current policy to pay dividends
from net investment income monthly. 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 Australian dollars into United States dollars
or transactions in New Zealand dollars 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
13
<PAGE>
regulated investment companies and to distribute all of its taxable income to
shareholders. Provision has been made for United States excise taxes incurred
during the fiscal period. 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 30,1996, the Fund increased undistributed
net investment income by $3,717,119, increased accumulated net realized gains on
investments by $2,484,606, and decreased accumulated net realized foreign
exchange gains by $6,201,725. Net investment income, net realized gains and net
assets were not affected by this change.
Note 2. Agreements The Fund has agreements
with EquitiLink International Management Limited
(the ``Investment Manager''), EquitiLink Australia Limited (the ``Investment
Adviser''), The Prudential Insurance Company of America (the ``Consultant''),
and Prudential Mutual Fund Management, Inc. (the ``Administrator''). The
Investment Manager and the Investment Adviser are affiliated companies; the
Administrator is an indirect wholly-owned subsidiary of the Consultant.
The Investment Manager makes investment decisions on behalf of the Fund on
the basis of recommendations and information furnished to it by the Investment
Adviser and the Consultant, including the selection of and the placement of
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly total net assets of common and preferred shareholders up to $200
million, 0.60% of such assets between $200 million and $500 million, 0.55% of
such assets between $500 million and $900 million and 0.50% of such assets in
excess of $900 million. Effective June 1, 1996, the Investment Manager will
receive a fee at the following annual rate: 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, 0.50% of such assets between $900 million
and $1,750 million and 0.45% of such assets in excess of $1,750 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. Effective June 1, 1996, the Administrator will receive 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, 0.10% of such assets between $900
million and $1,750 million and 0.07% of such assets in excess of $1,750 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 $2,231,376 to the Investment Adviser and $193,794 to the Consultant during
the fiscal period ended April 30, 1996.
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the fiscal period
ended April 30, 1996 aggregated $185,857,522 and $348,644,759, respectively.
The United States federal income tax basis of the Fund's investments at April
30, 1996 was $1,798,683,128 and accordingly, net unrealized depreciation for
United States federal income tax purposes was $44,911,467 (gross unrealized
appreciation--$20,193,674; gross unrealized depreciation--$65,105,141).
Note 4. Capital There are 200 million shares
of common stock authorized. Of the 155,647,805
common shares outstanding at April 30, 1996 the Investment Manager owned 42,606
shares.
In connection with a rights offering, shareholders of record on May 1, 1996
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 expiration date (May
23, 1996) or the average market value on that date and the four business days
preceding the expiration date. On May 29, 1996 the Fund issued 38,911,951 shares
of common stock at $8.03 per
14
<PAGE>
share. Rights offering costs estimated at $1,364,332 ($.01 per share) and
brokerage and dealer-manager commissions of $11,326,783 ($.07 per share) were
charged to paid-in capital of common shareholders resulting in net proceeds to
the Fund of $299,771,852. The net asset value per share of the Fund's common
shareholders was reduced by approximately $.39 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 $3,104,000 of the aforementioned commissions with respect to its
participation in the rights offering.
The Fund issued 568,703 shares during the fiscal period ended April 30, 1996
in connection with the reinvestment of dividends and distributions paid to
shareholders in the dividend reinvestment plan.
During the fiscal year ended October 31, 1995 the Fund issued 30,723,350
shares of common stock (net proceeds $224,618,810) in connection with a rights
offering of the Fund's shares. The Fund also issued 177,377 shares 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 Preferred Stock have rights as determined by the Board of Directors. The
19,000 shares of Auction Market Preferred Stock (``Preferred Stock'')
outstanding consist of seven series as follows: Series A--3,000 shares, Series
B--3,000 shares, Series C--2,000 shares, Series D--4,000 shares, Series E--2,000
shares, Series F--2,000 shares and Series G--3,000 shares. On July 27, 1995 the
Fund issued $75,000,000 in liquidation value of Series G preferred shares.
Preferred share offering costs of $255,000 and underwriting discounts of
$1,125,000 were charged to paid-in capital of common shareholders resulting in
net proceeds to the Fund of $73,620,000. Prudential Securities Incorporated
advised the Fund that it received approximately $562,500 in underwriting fees in
connection with the Series G preferred share offering. Effective April 25, 1996
Series A through Series F Preferred Stock was split (4:1) resulting in a
liquidation value of $25,000 per share plus any accumulated but unpaid
dividends. Series G Preferred Stock was originally issued with a liquidation
value of $25,000 per share plus any accumulated but unpaid dividends.
Dividends on each series of Preferred Stock 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 through G based on the
results of an auction. Dividend rates ranged from 4.75% to 6.00% during the
fiscal period ended April 30, 1996. 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 liquidation value plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
liquidation value 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 20, 1996 the Board of
Directors of the Fund declared a distribution from
undistributed net investment income of $.07 per common share payable on June 14,
1996 to common shareholders of record on May 29, 1996.
Subsequent to April 30, 1996, dividends and distributions declared and paid
on Preferred Stock totalled approximately $3,324,500 for the seven outstanding
preferred share series in the aggregate through June 13, 1996.
15
<PAGE>
- --------------------------------------------------------------------------------
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: 1996 1995* 1994 1993 1992
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of
period......................................... $ 9.36 $ 8.82 $ 10.09 $ 9.61 $ 11.31
---------- ---------- ---------- ---------- --------
Net investment income............................ .44 .93 1.01 1.19 1.29
Net realized and unrealized gain (loss) on
investments and foreign currencies............. .37 1.16 (1.03) .58 (1.42)
---------- ---------- ---------- ---------- --------
Total from investment operations............... .81 2.09 (.02) 1.77 (.13)
---------- ---------- ---------- ---------- --------
Dividends from net investment income to preferred
shareholders................................... (.06) (.17) (.12) (.11) (.14)
Dividends from net investment income to common
shareholders................................... (.41) (.83) (.84) (1.08) (1.10)
Distributions from net capital and currency gains
to preferred shareholders...................... (.02) (.01) (.01) (.01) (.01)
Distributions from net capital and currency gains
to common shareholders......................... (.03) (.15) (.17) (.08) (.29)
---------- ---------- ---------- ---------- --------
Total dividends and distributions.............. (.52) (1.16) (1.14) (1.28) (1.54)
---------- ---------- ---------- ---------- --------
Capital charge in respect to issuance of
shares......................................... -- (.39) (.11) (.01) (.03)
---------- ---------- ---------- ---------- --------
Net asset value per common share, end of
period......................................... $ 9.65 $ 9.36 $ 8.82 $ 10.09 $ 9.61
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
Market price per common share, end of period..... $ 8.56 $ 9.31 $ 9.56 $ 10.25 $ 10.00
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
TOTAL INVESTMENT RETURN BASED ON(D):
Market value..................................... (3.53)% 8.78% 3.32% 15.00% 4.11%
Net asset value.................................. 8.17% 18.54% (3.19)% 17.80% (3.22)%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses(D)(D)................................... 1.40%** 1.47% 1.41% 1.44% 1.43%
Net investment income before preferred stock
dividends...................................... 9.51%** 10.83% 10.68% 12.13% 12.14%
Preferred stock dividends........................ 1.41%** 1.87% 1.20% 1.13% 1.25%
Net investment income available to common
shareholders................................... 8.10%** 8.96% 9.48% 11.00% 10.89%
Portfolio turnover rate.......................... 11% 50% 34% 23% 17%
Net assets of common shareholders, end of period
(000 omitted).................................. $1,501,713 $1,452,205 $1,088,631 $1,050,084 $977,933
Average net assets of common shareholders (000
omitted)....................................... $1,456,375 $1,201,383 $1,174,394 $1,011,324 $938,072
Senior securities (preferred stock) outstanding
(000 omitted).................................. $ 475,000 $ 475,000 $ 400,000 $ 350,000 $300,000
Asset coverage of preferred stock at period
end............................................ 416% 406% 372% 400% 426%
<CAPTION>
PER SHARE OPERATING PERFORMANCE: 1991
--------
<S> <C>
Net asset value per common share, beginning of
period......................................... $ 10.02
--------
Net investment income............................ 1.40
Net realized and unrealized gain (loss) on
investments and foreign currencies............. 1.37
--------
Total from investment operations............... 2.77
--------
Dividends from net investment income to preferred
shareholders................................... (.24)
Dividends from net investment income to common
shareholders................................... (1.24)
Distributions from net capital and currency gains
to preferred shareholders...................... --
Distributions from net capital and currency gains
to common shareholders......................... --
--------
Total dividends and distributions.............. (1.48)
--------
Capital charge in respect to issuance of
shares......................................... --
--------
Net asset value per common share, end of
period......................................... $ 11.31
--------
--------
Market price per common share, end of period..... $ 10.94
--------
--------
TOTAL INVESTMENT RETURN BASED ON(D):
Market value..................................... 38.36%
Net asset value.................................. 27.62%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses(D)(D)................................... 1.59%
Net investment income before preferred stock
dividends...................................... 13.42%
Preferred stock dividends........................ 2.31%
Net investment income available to common
shareholders................................... 11.11%
Portfolio turnover rate.......................... 83%
Net assets of common shareholders, end of period
(000 omitted).................................. $972,569
Average net assets of common shareholders (000
omitted)....................................... $899,175
Senior securities (preferred stock) outstanding
(000 omitted).................................. $300,000
Asset coverage of preferred stock at period
end............................................ 424%
</TABLE>
- ---------------
* Calculated based upon weighted average shares outstanding during the
period.
** Annualized.
(D) Total investment return is calculated assuming a purchase of common
stock on the first day and a sale on the last day of each period
reported. Dividends and distributions are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(D)(D) Includes expenses of both preferred and common stock.
# Ratios calculated on the basis of income, expenses and preferred share
dividends applicable to both the common and preferred shares relative to
the average net assets of common shareholders.
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data
for the Fund's common shares.
See Notes to Financial Statements.
16
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--121.0%
AUSTRALIA--118.5%
Government and Semi-government--80.5%
Commonwealth of Australia--36.9%
Australian Capital
Territory,
A$ 10,000 12.00%, 11/15/01............ $ 8,662,289
Commonwealth of Australia,
4,000 13.50%, 5/15/97............. 3,293,341
35,000 12.50%, 1/15/98............. 29,104,579
5,000 13.00%, 4/15/98............. 4,229,046
25,000 6.25%, 3/15/99.............. 18,065,139
15,000 14.00%, 4/15/99............. 13,419,215
35,000 12.00%, 7/15/99............. 29,959,868
50,000 7.00%, 4/15/00.............. 36,417,860
114,900 13.00%, 7/15/00............. 103,568,310
5,000 13.00%, 12/15/00............ 4,534,696
40,000 12.00%, 11/15/01............ 35,438,866
26,000 9.50%, 8/15/03.............. 20,790,347
125,000 7.50%, 7/15/05.............. 87,822,673
20,000 6.75%, 11/15/06............. 13,061,724
30,000 10.00%, 10/15/07............ 24,839,738
25,000 8.75%, 8/15/08.............. 18,750,428
Commonwealth Bank of
Australia,
75,000 12.00%, 7/15/99............. 63,994,302
Telecom,
14,000 12.00%, 9/1/98.............. 11,703,289
Treasury Adjustable Bond,
10,000 8.00%, 10/18/00 F.R.N....... 7,613,910
--------------
535,269,620
--------------
New South Wales--11.0%
New South Wales Treasury
Corporation,
55,400 12.50%, 4/1/97.............. 44,776,549
10,000 7.50%, 2/1/98............... 7,550,209
8,000 11.50%, 7/1/99.............. 6,736,893
27,000 12.00%, 12/1/01............. 23,858,377
10,000 7.00%, 4/1/04............... 6,826,105
30,000 6.50%, 5/1/06............... 18,877,443
54,000 12.60%, 5/1/06.............. 50,406,540
--------------
159,032,116
--------------
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Northern Territory--2.4%
Northern Territory
Authority,
A$ 40,000 12.50%, 7/15/01............. $ 35,161,023
--------------
Queensland--7.2%
Queensland Treasury
Corporation,
35,000 8.00%, 5/14/97.............. 26,694,487
10,000 8.00%, 7/14/99.............. 7,576,251
10,000 8.00%, 8/14/01.............. 7,433,754
20,000 8.00%, 5/14/03.............. 14,587,077
20,000 6.50%, 6/14/05.............. 12,768,771
40,000 12.00%, 6/15/05............. 35,826,872
--------------
104,887,212
--------------
South Australia--6.2%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05............. 4,701,159
South Australian Financing
Authority,
30,000 12.50%, 3/15/98............. 25,054,283
70,000 10.00%, 1/15/03............. 56,646,632
3,000 17.20%, 6/30/08............. 3,562,199
--------------
89,964,273
--------------
Tasmania--6.0%
Tasmanian Public Finance
Corporation,
13,000 12.50%, 1/15/01............. 11,520,599
94,000 9.00%, 11/15/04............. 71,299,931
5,000 11.00%, 4/15/06............. 4,219,117
--------------
87,039,647
--------------
Victoria--5.0%
Treasury Corporation of
Victoria,
30,000 12.50%, 7/15/00............. 26,468,910
36,000 12.50%, 10/15/03............ 33,080,089
15,500 10.25%, 11/15/06............ 12,757,804
--------------
72,306,803
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Western Australia--5.8%
Western Australia Treasury
Corporation,
A$ 10,000 12.50%, 4/1/98.............. $ 8,366,872
18,000 9.00%, 4/15/99.............. 14,066,159
34,000 12.00%, 8/1/01.............. 29,896,182
40,000 10.00%, 7/15/05............. 32,484,232
--------------
84,813,445
--------------
Total Australian government
and semi-government bonds
(cost US$1,125,144,156)..... 1,168,474,139
--------------
Eurobonds--22.8%
Diversified Industrials--1.1%
Australian National Railway,
4,000 9.50%, 2/25/99.............. 3,137,621
BMW Australia Finance,
1,700 10.25%, 3/17/97............. 1,322,999
Eksport Finance & Insurance,
8,000 11.00%, 12/29/04............ 6,776,942
Eksport Finans,
4,000 7.00%, 6/28/00.............. 2,825,651
Finnish Eksport Credit,
2,925 9.25%, 12/30/99............. 2,269,239
--------------
16,332,452
--------------
Natural Resources--0.4%
Mobil Australia Corp.,
1,000 12.00%, 4/18/97............. 798,677
Shell Australia,
5,000 10.125%, 4/1/97............. 3,890,947
1,786 10.00%, 12/19/97............ 1,401,641
--------------
6,091,265
--------------
Semi-Government--6.7%
Queensland Treasury
Corporation,
30,000 8.00%, 7/14/99.............. 22,653,890
45,000 8.00%, 8/14/01.............. 33,352,607
3,000 12.00%, 8/15/01............. 2,633,265
25,000 8.00%, 5/14/03.............. 18,147,876
15,000 10.50%, 5/15/03............. 12,336,904
South Australia Financing
Authority,
1,500 12.00%, 6/12/01............. 1,297,894
State Electricity Commission
of
Victoria,
1,000 12.25%, 5/30/01............. 872,490
3,000 11.00%, 4/9/02.............. 2,503,717
Tasmanian Public Finance
Authority,
2,000 10.75%, 11/20/01............ 1,646,533
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Treasury Corporation of
Victoria,
A$ 2,000 11.00%, 3/12/02............. $ 1,667,942
--------------
97,113,118
--------------
Services--5.6%
Banque National de Paris,
14,000 9.00%, 8/13/02.............. 10,665,120
Commerzbank Overseas
Finance,
10,000 10.25%, 4/28/00............. 8,054,564
Commonwealth Bank of
Australia,
2,000 8.75%, 9/14/00.............. 1,538,592
Credit Lyonnais Australia,
5,000 8.625%, 12/29/97............ 3,801,801
GG Securities,
5,000 9.25%, 3/24/03.............. 3,830,084
McDonald's Australia,
1,000 10.50%, 11/5/98............. 800,534
Province Aples Cotes D'Azur,
12,000 8.25%, 9/15/99.............. 9,013,014
Province of Quebec,
16,000 9.50%, 10/2/02.............. 12,204,776
Rural & Industries Bank of
Western Australia,
5,000 8.75%, 9/9/99............... 3,843,436
2,000 7.75%, 6/9/03............... 1,418,026
State Bank of New South
Wales,
1,000 14.25%, 9/28/99............. 893,458
5,500 12.25%, 2/26/01............. 4,795,182
5,000 10.75%, 3/12/02............. 4,142,353
10,000 9.25%, 2/18/03.............. 7,744,311
State Bank of South
Australia,
10,000 9.50%, 10/15/02............. 7,812,631
--------------
80,557,882
--------------
Supranational Global--9.0%
Credit Locale de France,
10,000 7.50%, 9/15/97.............. 7,550,285
10,000 10.25%, 4/12/05............. 8,133,763
Eurofima,
56,170 9.875%, 1/17/07............. 45,137,790
European Bank of
Reconstruction &
Development,
50,000 9.00%, 10/15/02............. 38,462,884
European Investment Bank,
38,000 10.25%, 10/1/01............. 31,145,077
--------------
130,429,799
--------------
Total Australian eurobonds
(cost US$317,707,891)....... 330,524,516
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Corporate Bonds--15.2%
Asset-Backed--2.0%
FANMAC Limited,
Mortgage Series 25,
A$ 699 10.33%, 6/15/02............. $ 559,951
Premier Trust 22,
3,160 11.40%, 12/15/01............ 2,594,214
Mortgage Power Company,
15,000 8.4692%, 6/12/06 F.R.N...... 11,411,051
Securitized Australia
Mortgage Trust,
15,000 7.8324%, 11/15/25 F.R.N..... 11,378,756
Super Members Home Loan
Program,
5,000 7.8308%, 12/15/21 F.R.N..... 3,803,227
--------------
29,747,199
--------------
Services--13.2%
Australia Post,
20,000 7.62%, 3/25/99 F.R.N........ 15,214,735
Australian & Overseas
Telecommunication
Corporation,
55,350 12.50%, 11/15/00............ 48,915,148
40,000 11.50%, 10/15/02............ 34,192,375
2,000 7.80%, 7/17/03.............. 1,394,390
41,000 12.00%, 5/15/06............. 37,008,894
2,000 8.75%, 1/15/20.............. 1,389,856
10,000 10.50%, 1/15/20............. 7,986,017
2,000 12.50%, 1/15/20............. 1,941,951
Federal Airports
Corporation,
5,000 10.50%, 7/15/99............. 4,030,516
10,000 8.25%, 6/2/03............... 7,204,525
17,000 7.00%, 2/16/04.............. 11,151,755
Ford Credit Australia
Limited,
3,000 8.00%, 4/27/98 F.R.N........ 2,282,324
Gio Australia Holdings
Limited
14,500 7.99%, 11/16/98 F.R.N....... 11,031,345
Macquarie Bank Limited,
1,000 9.75%, 8/1/00............... 776,615
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98.............. 3,782,191
5,000 6.75%, 2/25/99.............. 3,621,340
--------------
191,923,977
--------------
Total Australian corporate
bonds
(cost US$207,869,936)..... 221,671,176
--------------
Total Australian long-term
investments
(cost US$1,650,721,983)... 1,720,669,831
--------------
NEW ZEALAND--2.5%
Government Bonds--2.0%
New Zealand Government
Bonds,
NZ$ 5,000 10.00%, 7/15/97............. 3,432,929
20,000 10.00%, 3/15/02............. 15,058,234
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Government Bonds (cont'd.)
New Zealand Government
Bonds,
NZ$ 15,000 8.00%, 11/15/06............. $ 10,479,918
--------------
Total New Zealand government
bonds
(cost US$28,065,179)...... 28,971,081
--------------
Eurobonds--0.5%
Telecom New Zealand Finance,
1,500 9.25%, 7/1/02............... 1,078,283
Transport Power Finance
Limited,
10,000 8.00%, 3/15/02.............. 6,765,284
--------------
Total New Zealand eurobonds
(cost US$7,756,955)......... 7,843,567
--------------
Total New Zealand long-term
investments
(cost US$35,822,134)...... 36,814,648
--------------
Total long-term investments
(cost US$1,686,544,117)..... 1,757,484,479
--------------
SHORT-TERM INVESTMENTS--6.7%
Australia--4.5%
Government and Semi-government--2.8%
Commonwealth of Australia--0.6%
Telecom,
A$ 10,000 13.00%, 2/1/96.............. 7,704,978
1,000 12.50%, 10/1/96............. 792,340
--------------
8,497,318
--------------
New South Wales--2.2%
New South Wales Treasury
Corporation,
10,500 8.50%, 3/1/96............... 8,004,352
State Bank of New South
Wales,
30,000 13.00%, 3/15/96............. 23,263,061
--------------
31,267,413
--------------
Total Australian government
and semi-government bonds
(cost US$39,247,333)...... 39,764,731
--------------
Eurobonds--0.9%
Services--0.1%
International Bank for
Reconstruction &
Development,
1,000 14.50%, 6/7/96.............. 788,238
Tasmanian Public Finance
Authority,
1,000 14.00%, 12/22/95............ 765,814
--------------
1,554,052
--------------
Supranational Global--0.8%
Swedish National Housing,
15,000 7.50%, 8/22/96.............. 11,384,461
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Total Australian eurobonds
(cost US$12,390,832)...... $ 12,938,513
--------------
Corporate Bonds--0.8%
Services
Macquarie Bank Limited,
A$ 10,000 14.20%, 1/3/96.............. 7,689,001
Securities Asset Funding
Entity,
5,000 12.10%, 7/10/96............. 3,912,820
ANZ Banking Group,
1,000 8.50%, 3/15/96.............. 763,117
--------------
Total Australian corporate
bonds
(cost US$13,269,956)...... 12,364,938
--------------
Total Australian short-term
investments
(cost US$64,908,121).... 65,068,182
--------------
NEW ZEALAND--0.8%
Corporate Bonds
National Bank of New
Zealand,
NZ$ 17,200 7.9179%, 1/30/96
(cost US$11,118,862)...... 11,118,862
--------------
United States--1.4%
US$ 20,763 Repurchase Agreement, State
Street Bank and Trust
Company, 5.78% 10/31/95,
due 11/1/95 in the amount
of $20,766,334 (cost
$20,763,000;
collateralized by
$20,640,000 United States
Treasury Note, 6.00%, due
12/31/97; value including
accrued interest
US$21,202,272)............ 20,763,000
--------------
Total short-term investments
(cost US$96,789,983)...... 96,950,044
--------------
Total Investments--127.7%
(cost US$1,783,334,100;
Note 3)................... 1,854,434,523
Other assets in excess of
other
liabilities--5.0%......... 72,770,587
Liquidation value of
preferred
stock--(32.7%)............ (475,000,000)
--------------
Net Assets Applicable to
Common
Shareholders--100%........ $1,452,205,110
--------------
--------------
</TABLE>
- ---------------
F.R.N.-Floating Rate Note. The interest rate reflected is the rate in effect at
October 31, 1995.
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$1,783,334,100)..................... $1,854,434,523
Foreign currency, at value (cost
$50,373,077)........................ 50,683,528
Cash.................................. 89,340
Interest receivable................... 51,178,626
Other assets.......................... 74,590
--------------
Total assets...................... 1,956,460,607
--------------
Liabilities
Dividends payable-common stock........ 11,630,933
Payable for investments purchased..... 11,118,862
Withholding taxes payable............. 3,347,939
Accrued expenses and other
liabilities......................... 1,449,510
Dividends payable-preferred stock..... 719,474
Investment management fee payable..... 825,393
Administration fee payable............ 163,386
--------------
Total liabilities................. 29,255,497
--------------
Total Net Assets...................... $1,927,205,110
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
155,079,102 shares)............. $ 1,550,791
Paid-in capital in excess of
par............................. 1,370,164,651
Preferred stock ($.01 par value per
share and $100,000 liquidation
value per share applicable to
4,000 shares and $25,000 liquidation
value per share applicable to 3,000
shares; Note 4)................... 475,000,000
--------------
1,846,715,442
Undistributed net investment
income.............................. 12,065,169
Accumulated net realized gains on
investments....................... 5,217,167
Net unrealized depreciation on
investments......................... (21,830,550)
Accumulated net realized and
unrealized foreign exchange
gains............................. 85,037,882
--------------
Total net assets.................... $1,927,205,110
--------------
--------------
Net assets applicable to common
shareholders...................... $1,452,205,110
--------------
--------------
Net asset value per common share:
($1,452,205,110 / 155,079,102 shares
of common stock issued and
outstanding)........................ $9.36
--------------
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Year Ended October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of
foreign
withholding taxes of
$11,591,620)....................... $147,796,119
------------
Expenses
Investment management fee............ 9,165,046
Custodian's fees and expenses........ 2,251,000
Administration fee................... 2,120,097
Auction agent's fees and expenses.... 1,230,000
Shareholder communications........... 810,000
Transfer agent's fees and expenses... 608,000
Directors' fees and expenses......... 460,000
Legal fees and expenses.............. 360,000
Independent accountant's fees and
expenses............................. 212,000
Insurance expense.................... 112,000
Miscellaneous........................ 55,483
------------
Total operating expenses............. 17,383,626
------------
Net investment income before excise
tax.................................. 130,412,493
Excise tax........................... (252,248)
------------
Net investment income.................. 130,160,245
------------
Realized and Unrealized
Gain on Investments
and Foreign Currencies
Net realized gain on investment
transactions......................... 18,189,710
Net change in unrealized depreciation
on investments....................... 89,317,008
------------
Net gain on investments................ 107,506,718
------------
Net increase in total net assets from
operations before net foreign
exchange gains....................... 237,666,963
Net realized and unrealized foreign
exchange gains....................... 54,519,666
------------
Net Increase In Total Net Assets
Resulting From Operations.............. $292,186,629
------------
------------
</TABLE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Year Ended October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
(Including Foreign Currency)
Cash flows used for operating
activities
Interest received (net of foreign
withholding taxes)................. $ 140,412,986
Expenses paid........................ (16,867,851)
Sales of short-term portfolio
investments, net..................... 5,931,000
Purchases of long-term portfolio
investments.......................... (992,102,160)
Proceeds from sales of long-term
portfolio investments.............. 759,387,006
Other................................ 28,665
-------------
Net cash used for operating
activities....................... (103,210,354)
-------------
Cash flows provided from financing
activities
Net proceeds from issuance of
preferred shares................... 73,620,000
Net proceeds from rights offering.... 224,618,810
Dividends and distributions paid to
preferred shareholders............. (24,547,016)
Dividends and distributions paid to
common shareholders (net of
$7,688,453 paid in the issuance
of shares)......................... (124,854,077)
-------------
Net cash provided from financing
activities....................... 148,837,717
-------------
Effect of changes in exchange rate..... 852,330
-------------
Net increase in cash................... 46,479,693
Cash at beginning of year............ 4,645,594
-------------
Cash at end of year.................. $ 51,125,287
-------------
-------------
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............ $ 292,186,629
-------------
Increase in investments.............. (237,903,017)
Increase in interest receivable...... (7,704,488)
Net decrease in other assets......... 28,665
Increase in accrued expenses and
other liabilities.................. 1,089,379
Increase in payable for investments
purchased.......................... 11,118,862
Net realized gain on investment
transactions....................... (18,189,710)
Net change in unrealized depreciation
on investments..................... (89,317,008)
Net realized and unrealized foreign
exchange gains..................... (54,519,666)
-------------
Total adjustments.................. (395,396,983)
-------------
Net cash used for operating
activities........................... $(103,210,354)
-------------
-------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
- ----------------------------------------------------------
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 1995 1994
<S> <C> <C>
-------------- --------------
Operations
Net investment income... $ 130,160,245 $ 125,416,048
Net realized gain on
investment
transactions.......... 18,189,710 29,213,379
Net change in unrealized
appreciation
(depreciation) on
investments........... 89,317,008 (310,171,836)
-------------- --------------
Net increase (decrease)
in total net assets
resulting from
operations before net
foreign exchange
gains................. 237,666,963 (155,542,409)
Net realized and
unrealized foreign
exchange gains........ 54,519,666 156,775,702
-------------- --------------
Net increase in total net
assets resulting from
operations.............. 292,186,629 1,233,293
-------------- --------------
Dividends to shareholders
from net investment
income
Common shares........... (114,007,842) (102,870,871)
Preferred shares........ (22,484,591) (14,114,110)
-------------- --------------
(136,492,433) (116,984,981)
-------------- --------------
Distributions to
shareholders
from net realized
capital gains
Common shares........... (20,904,930) (21,110,324)
Preferred shares........ (2,142,800) (1,577,675)
-------------- --------------
(23,047,730) (22,687,999)
-------------- --------------
Fund share transactions
Net proceeds from
issuance of preferred
shares................ 73,620,000 48,885,000
Net proceeds from rights
offering of Fund
shares................ 224,618,810 156,956,449
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
-------------- --------------
305,927,263 226,986,803
-------------- --------------
Total increase............ 438,573,729 88,547,116
Total Net Assets
Beginning of year......... 1,488,631,381 1,400,084,265
-------------- --------------
End of year............... $1,927,205,110 $1,488,631,381
-------------- --------------
-------------- --------------
</TABLE>
- ----------------------------------------------------------
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 and 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 summary of
Policies 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
See Notes to Financial Statements.
<PAGE>
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 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 $54,519,666 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of interest, discount and foreign withholding
taxes recorded on the Fund's books and the US dollar equivalent amounts actually
received or paid and changes in unrealized foreign exchange gains and losses in
the value of portfolio securities and other assets and liabilities arising as a
result of changes in the exchange rate. Accumulated net realized and unrealized
foreign exchange gains shown in the composition of net assets at October 31,
1995 represent foreign exchange gains for book purposes that have not yet been
recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
The exchange rate at October 31, 1995 was US$.7608 to A$1.00 for the
Australian dollar and US$.6595 to NZ$1.00 for the New Zealand dollar.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Interest income is recorded on an accrual basis. Discounts on short-term
securities are accreted over the life of the security.
Dividends and Distributions: It is the Fund's current policy to pay dividends
from net investment income monthly. 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 Australian dollars into United States dollars
or transactions in New Zealand dollars 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. Provision has been made for United States
excise taxes incurred during the fiscal year. 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
<PAGE>
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 year ended October 31, 1995, the Fund increased undistributed
net investment income by $10,559,903, decreased accumulated net realized gains
on investments by $2,500,322, decreased accumulated net realized foreign
exchange gains by $7,807,333 and decreased paid-in capital in excess of par by
$252,248. Net investment income, net realized gains and net assets were not
affected by this change.
Note 2. Agreements The Fund has agreements
with EquitiLink International Management Limited
(the ``Investment Manager''), EquitiLink Australia Limited (the ``Investment
Adviser''), The Prudential Insurance Company of America (the ``Consultant''),
and Prudential Mutual Fund Management, Inc. (the ``Administrator''). The
Investment Manager and the Investment Adviser are affiliated companies; the
Administrator is an indirect wholly-owned subsidiary of the Consultant.
The Investment Manager makes investment decisions on behalf of the Fund on
the basis of recommendations and information furnished to it by the Investment
Adviser and the Consultant, including the selection of and the placement of
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly total net assets of common and preferred shareholders up to $200
million, 0.60% of such assets between $200 million and $500 million, 0.55% of
such assets between $500 million and $900 million and 0.50% of such assets in
excess of $900 million. The administration agreement provides the Administrator
with a fee at the annual rate of 0.15% of the Fund's average weekly total net
assets of common and preferred shareholders up to $900 million and 0.10% of such
assets in excess of $900 million. The Investment Manager pays fees to the
Investment Adviser and the Consultant for their services rendered. The
Investment Manager informed the Fund that it paid $3,952,767 to the Investment
Adviser and $701,026 to the Consultant during the fiscal year ended October 31,
1995.
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the fiscal year ended
October 31, 1995 aggregated $992,102,160 and $759,387,006, respectively.
The United States federal income tax basis of the Fund's investments at
October 31, 1995 was $1,878,746,238 and accordingly, net unrealized depreciation
for United States federal income tax purposes was $24,311,715 (gross unrealized
appreciation--$30,095,810; gross unrealized depreciation--$54,407,525).
Note 4. Capital There are 200 million shares
of common stock authorized. Of the 155,079,102
common shares outstanding at October 31, 1995, the Investment Manager owned
41,153 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 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. Rights offering costs of $1,305,345
($.01 per share) and brokerage and dealer-manager commissions of $8,802,239
($.06 per share) were charged to paid-in capital of common shareholders
resulting in net proceeds to the Fund of $224,618,810. 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 also issued 177,377 shares during the fiscal year ended October 31,
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.
During the fiscal year ended October 31, 1994 the Fund issued 17,311,869
shares of common stock (net proceeds $156,956,449) in connection with a rights
offering of the Fund's shares. 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.
<PAGE>
There are 100 million shares of $.01 par value of preferred stock authorized
with an aggregate liquidation preference of up to $500 million. The preferred
shares have rights as determined by the Board of Directors. The 7,000 shares of
Auction Market Preferred Stock (``Preferred Stock'') outstanding consist of
seven series as follows: Series A--750 shares, Series B--750 shares, Series
C--500 shares, Series D--1,000 shares, Series E--500 shares, Series F--500
shares and Series G--3,000 shares. Series F preferred shares wrere issued on
December 20, 1993, (net proceeds $48,885,000). On July 27, 1995 the Fund issued
$75,000,000 in liquidation value of Series G preferred shares. Preferred share
offering costs of $255,000 and underwriting discounts of $1,125,000 were charged
to paid-in capital of common shareholders resulting in net proceeds to the Fund
of $73,620,000. Prudential Securities Incorporated advised the Fund that it
received approximately $562,500 in underwriting fees in connection with the
Series G preferred share offering. The Series A through F Preferred Stock has a
liquidation value of $100,000 per share plus any accumulated but unpaid
dividends and the Series G Preferred Stock has a liquidation value of $25,000
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 through G based on the
results of an auction. Dividend rates ranged from 4.80% to 6.625% during the
fiscal year ended October 31, 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 liquidation value plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
liquidation value 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 13, 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 December 15, 1995 to
common shareholders of record on November 30, 1995. On December 12, 1995 the
Board of Directors of the Fund declared a distribution of $.075 per common share
comprised of $.032 per share from capital gains and $.043 per share from net
investment income payable on January 12, 1996 to shareholders of record on
December 29, 1995.
Subsequent to October 31, 1995, dividends and distributions declared and paid
on preferred shares totalled approximately $3,191,500 for the seven outstanding
preferred share series in the aggregate through December 12, 1995.
<PAGE>
Note 6.
Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
Net realized and Net increase
unrealized (decrease) Dividends
gains (losses) on in net assets and
Net investment investments and resulting from distributions
income foreign currencies operations Common
Per Per Per
Quarterly Total common common common shares
period income Amount share Amount share Amount share Amount
- ----------- ----------- ---------------------- ----------------------- ----------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 .22 35,683,598 .26 66,218,828 .48 37,148,664
2/1/95 to
4/30/95 34,066,973 29,863,113 .21 (16,000,067) (.12 ) 13,863,046 .09 27,980,044
5/1/95 to
7/31/95 38,962,050 34,485,255 .25 44,665,313 .32 79,150,568 .57 34,892,032
8/1/95 to
10/31/95 40,133,748 35,276,647 .25 97,677,540 .70 132,954,187 .95 34,892,032
<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>
11/1/93 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 5,561,027 .05 9 9/16 8
2/1/95 to
4/30/95 .225 6,112,523 .05 8 7/8 7 1/2
5/1/95 to
7/31/95 .225 6,021,369 .04 9 7 13/16
8/1/95 to
10/31/95 .225 6,932,472 .04 9 7/16 8 3/4
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1995* 1994 1993 1992 1991
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of
year............................................... $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02
---------- ---------- ---------- -------- --------
Net investment income................................ .93 1.01 1.19 1.29 1.40
Net realized and unrealized gain (loss) on
investments and foreign currencies................. 1.16 (1.03) .58 (1.42) 1.37
---------- ---------- ---------- -------- --------
Total from investment operations................... 2.09 (.02) 1.77 (.13) 2.77
---------- ---------- ---------- -------- --------
Dividends from net investment income to preferred
shareholders....................................... (.17) (.12) (.11) (.14) (.24)
Dividends from net investment income to common
shareholders....................................... (.83) (.84) (1.08) (1.10) (1.24)
Distributions from net capital and currency gains to
preferred shareholders............................. (.01) (.01) (.01) (.01) --
Distributions from net capital and currency gains to
common shareholders................................ (.15) (.17) (.08) (.29) --
---------- ---------- ---------- -------- --------
Total dividends and distributions.................. (1.16) (1.14) (1.28) (1.54) (1.48)
---------- ---------- ---------- -------- --------
Capital charge in respect to issuance of shares...... (.39) (.11) (.01) (.03) --
---------- ---------- ---------- -------- --------
Net asset value per common share, end of year........ $ 9.36 $ 8.82 $ 10.09 $ 9.61 $ 11.31
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Market price per common share, end of year........... $ 9.31 $ 9.56 $ 10.25 $ 10.00 $ 10.94
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
TOTAL INVESTMENT RETURN BASED ON(D):
Market value......................................... 8.78% 3.32% 15.00% 4.11% 38.36%
Net asset value...................................... 18.54% (3.19)% 17.80% (3.22)% 27.62%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses(D)(D)....................................... 1.47% 1.41% 1.44% 1.43% 1.59%
Net investment income before preferred stock
dividends.......................................... 10.83% 10.68% 12.13% 12.14% 13.42%
Preferred stock dividends............................ 1.87% 1.20% 1.13% 1.25% 2.31%
Net investment income available to common
shareholders....................................... 8.96% 9.48% 11.00% 10.89% 11.11%
Portfolio turnover rate.............................. 50% 34% 23% 17% 83%
Net assets of common shareholders, end of period (000
omitted)........................................... $1,452,205 $1,088,631 $1,050,084 $977,933 $972,569
Average net assets of common shareholders (000
omitted)........................................... $1,201,383 $1,174,394 $1,011,324 $938,072 $899,175
Senior securities (preferred stock) outstanding (000
omitted)........................................... $ 475,000 $ 400,000 $ 350,000 $300,000 $300,000
Asset coverage of preferred stock at year end........ 406% 372% 400% 426% 424%
</TABLE>
- ---------------
* Calculated based upon weighted average shares outstanding during the
year.
(D) 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.
(D)(D) Includes expenses of both preferred and common stock.
# Ratios calculated on the basis of income, expenses and preferred share
dividends applicable to both the common and preferred shares relative
to the average net assets of common shareholders.
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the years
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data
for the Fund's common shares.
See Notes to Financial Statements.
<PAGE>
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, 1995, 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, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
____________________
1177 Avenue of the Americas
New York, New York
December 11, 1995
<PAGE>
APPENDIX A
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix A constitutes a
representation by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the forepart of this Prospectus or Appendix B hereto, as the case
may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone the
Broker-Dealers that participated in the Auction held on such Auction Date and
submitted an Order on behalf of any Beneficial Owner or Potential Beneficial
Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination
of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a
Bid or a Sell Order on behalf of a Beneficial Owner, the number of shares,
if any, of AMPS to be sold by such Beneficial Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid
on behalf of a Potential Beneficial Owner, the number of shares, if any,of
AMPS to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of AMPS to be sold by all
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order exceeds the aggregate number of shares of AMPS to be purchased
by all Potential Beneficial Owner on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers
(and the name of the Agent Member, if any, of each such Buyer's
Broker-Dealer) acting for one or more purchasers of such excess number of
shares of AMPS and the number of such shares to be purchased from one or
more Beneficial Owners on whose behalf such Broker-Dealer acted by one or
more Potential Beneficial Owners on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the aggregate number of shares of AMPS to be purchased by all
Potential Beneficial Owners on whose behalf such Broker-Dealer submitted a
Bid exceeds the aggregate number of shares of AMPS to be sold by all
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of AMPS and
the number of such shares to be sold to one or more Potential Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Beneficial
Owners on whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction with respect to
the AMPS.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner shall:
A-1
<PAGE>
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Beneficial Owner on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct such
Potential Beneficial Owner's Agent Member to pay to such Broker- Dealer (or
its Agent Member) through the Securities Depository the amount necessary to
purchase the number of shares of AMPS to be purchased pursuant to such Bid
against receipt of such shares and advise such Potential Beneficial Owner
of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer,
instruct each Beneficial Owner on whose behalf such Broker-Dealer submitted
a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent
Member to deliver to such Broker-Dealer (or its Agent Member) through the
Securities Depository the number of shares of AMPS to be sold pursuant to
such Order against payment therefor and advise any such Beneficial Owner
that will continue to hold shares of AMPS of the Applicable Rate for the
next succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Hold Order of the Applicable Rate for the next succeeding
Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted an Order of the Auction Date for the next succeeding Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of
the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential
Beneficial Owner or an Beneficial Owner shall, in such manner and at such time
or times as in its sole discretion it may determine, allocate any funds received
by it pursuant to (b)(i) above and any shares of AMPS received by it pursuant to
(b)(ii) above among the Potential Beneficial Owners, if any, on whose behalf
such Broker-Dealer submitted Bids, the Beneficial Owners, if any, on whose
behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and
any Broker-Dealer or Broker-Dealers identified to it by the Auction Agent
pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case
may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to the Agent Member of the Beneficial Owner
delivering shares to such Broker-Dealer pursuant to (b)(ii) above the
amount necessary to purchase such shares against receipt of such shares,
and (B) deliver such shares through the Securities Depository to a Buyer's
Broker-Dealer (or its Agent Member) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to a Seller's Broker- Dealer (or its Agent
Member) identified pursuant to (a)(vi) above the amount necessary to
purchase the shares to be purchased pursuant to (b)(i) above against
receipt of such shares, and (B) deliver such shares through the Securities
Depository to the Agent Member of the purchaser thereof against payment
therefor.
A-2
<PAGE>
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described
under (b)(i) or (ii) above, and the Securities Depository shall execute
such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(ii)
above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(iii)
above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of AMPS in an Auction fails to
deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to
the Potential Beneficial Owner on behalf of which it submitted a Bid that was
accepted a number of whole shares of AMPS that is less than the number of shares
that otherwise was to be purchased by such Potential Beneficial Owner. In such
event, the number of shares of AMPS to be so delivered shall be determined
solely by such Broker- Dealer. Delivery of such lesser number of shares shall
constitute good delivery. Notwithstanding the foregoing terms of this paragraph
(f), any delivery or non-delivery of shares which shall represent any departure
from the results of an Auction, as determined by the Auction Agent, shall be of
no effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the provisions of the Auction Agent
Agreement and the Broker-Dealer Agreements.
A-3
<PAGE>
APPENDIX B
AUCTION PROCEDURES
The following procedures will be set forth in provisions of the Articles
Supplementary relating to the AMPS, and will be incorporated by reference in the
Auction Agent Agreement and each Broker- Dealer Agreement. The terms not defined
below are defined in the forepart of this Prospectus except that the term
"Corporation" means the Fund. Nothing contained in this Appendix B constitutes a
representation by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party.
8. Auction Procedures
(a) Certain Definitions.
As used in this Paragraph 8, the following terms shall have the following
meanings, unless the context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being auctioned pursuant to
this Paragraph 8.
(ii) "Auction Date" shall mean the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" shall have the meaning specified in Paragraph
8(d)(i) below.
(iv) "Bid" shall have the meaning specified in Paragraph 8(b)(i)
below.
(v) "Bidder" shall have the meaning specified in Paragraph 8(b)(i)
below.
(vi) "Hold Order" shall have the meaning specified in Paragraph
8(b)(i) below.
(vii) "Maximum Applicable Rate" at any Auction will be the rate
obtained by multiplying the 30-day "AA" Composite Commercial Paper Rate on
the date of such Auction by the Applicable Percentage determined as set
forth below based on the lower of the credit rating or ratings assigned to
the AMPS by Moody's and S&P (or if Moody's or S&P or both shall not make
such rating available, the equivalent of either or both of such ratings by
a Substitute Rating Agency or two Substitute Rating Agencies or, in the
event that only one such rating shall be available, the percentage will be
based on such rating).
Credit Rating
--------------------------------------
S&P Moody's Applicable Percentage
--- ------------------ ---------------------
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
The Fund shall take all reasonable action necessary to enable S&P and
Moody's to provide a rating for the AMPS. If either S&P or Moody's shall not
make such a rating available, or if neither S&P nor Moody's shall make such a
rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after consultation with the Fund, shall select a
nationally
B-1
<PAGE>
recognized statistical rating organization or two nationally recognized
statistical rating organizations to act as a Substitute Rating Agency or
Substitute Rating Agencies, as the case may be.
(viii) "Order" shall have the meaning specified in Paragraph 8(b)(i)
below.
(ix) "Sell Order" shall have the meaning specified in Paragraph
8(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 P.M., New York City time, on
any Auction Date or such other time on any Auction Date as may be specified
by the Auction Agent from time to time as the time by which each
Broker-Dealer must submit to the Auction Agent in writing all Orders
obtained by it for the Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in Paragraph
8(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
Paragraph 8(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in Paragraph
8(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified in
Paragraph 8(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified in
Paragraph 8(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in Paragraph
8(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Owners and Potential Holders.
(i) Unless otherwise permitted by the Fund, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of
shares subject to Orders submitted or deemed submitted to them by
Beneficial Owners and as Potential Holders in respect of shares subject to
Orders submitted to them by Potential Beneficial Owners. A Broker-Dealer
may also hold shares of AMPS in its own account as a Beneficial Owner. A
Broker-Dealer may thus submit Orders to the Auction Agent as a Beneficial
Owner or a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of both itself
and its customers. On or prior to the Submission Deadline on each Auction
Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(2) the number of outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per
annum specified by such Beneficial Owner; and/or
B-2
<PAGE>
(3) the number of outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner offers to
sell without regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of
conducting a competitive Auction, shall contact Potential Beneficial
Owners, including Persons that are not Beneficial Owners, on such list
to determine the number of outstanding shares, if any, of AMPS which
each such Potential Beneficial Owner offers to purchase, provided that
the Applicable Rate for the next succeeding Dividend Period shall not
be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communications by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, or the
communications by a Broker-Dealer on behalf of a Beneficial Owner or Potential
Beneficial Owner to the Auction Agent, of information referred to in clause (A)
or (B) of this Paragraph 8(b)(i) is hereinafter referred to as an "Order" and
each Beneficial Owner and each Potential Beneficial Owner placing an Order,
including a Broker-Dealer acting in such capacity for its own account and each
Broker-Dealer placing an Order on behalf of a Beneficial Owner or Potential
Beneficial Owner, is hereinafter referred to as a "Bidder"; an Order containing
the information referred to in clause (A)(1) of this Paragraph 8(b)(i) is
hereinafter referred to as a "Hold Order"; an Order containing the information
referred to in clause (A)(2) of this Paragraph 8(b)(i) or clause (C) of
Paragraph 8(b)(ii) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this Paragraph
8(b)(i) is hereinafter referred to as a "Sell Order." Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of outstanding shares of AMPS specified in
such Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of
AMPS to be determined as set forth in Paragraph 8(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein; or
(3) a lesser number of outstanding shares of AMPS to be
determined as set forth in Paragraph 8(e)(ii)(C) if such
specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of outstanding shares of AMPS specified in
such Sell order; or
(2) such number or a lesser number of outstanding shares of
AMPS to be determined as set forth in Paragraph 8(e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
B-3
<PAGE>
(1) the number of outstanding shares of AMPS specified in
such Bid if the Applicable Rate determined on such Auction Date
shall be higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of
AMPS to be determined as set forth in Paragraph 8(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein.
(c) Submissions of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund)
as an Existing Holder in respect of shares subject to Orders submitted or
deemed submitted to it by Beneficial Owners and as a Potential Holder in
respect of shares subject to Orders submitted to it by Potential Beneficial
Owners, and specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(B) the aggregate number of outstanding shares of AMPS that are
the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
(2) the number of outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the outstanding shares of
AMPS held by an Existing Holder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order
to have been submitted on behalf of such Existing Holder covering the
number of outstanding shares of AMPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of outstanding shares of AMPS held by
such Existing Holder are submitted to the Auction Agent, such Orders shall
be considered valid as follows and in the following order of priority:
B-4
<PAGE>
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of
outstanding shares of AMPS held by such Existing Holder; provided that
if more than one Hold Order is submitted on behalf of such Existing
Holder and the number of shares of AMPS subject to such Hold Orders
exceeds the number of outstanding shares of AMPS held by such Existing
Holder, the number of shares of AMPS subject to each of such Hold
Orders shall be reduced pro rata so that such Hold Orders, in the
aggregate, cover exactly the number of outstanding shares of AMPS held
by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of outstanding
shares of AMPS held by such Existing Holder over the number of shares
of AMPS subject to any Hold Order referred to in Paragraph 8(c)(iv)(A)
above (and if more than one Bid submitted on behalf of such Existing
Holder specified the same rate per annum and together they cover more
than the remaining number of shares that can be the subject of valid
Bids after application of Paragraph 8(c)(iv)(A) above and of the
foregoing portion of this Paragraph 8(c)(iv)(B) any Bid or Bids
specifying a lower rate or rates per annum, the number of shares
subject to each of such Bids shall be reduced pro rata so that such
Bids, in the aggregate, cover exactly such remaining number of
shares); and the number of shares, if any, subject to Bids not valid
under this Paragraph 8(c)(iv)(B) shall be treated as the subject of a
Bid by a Potential Holder; and
(C) any Sell order shall be considered valid up to and including
the excess of the number of outstanding shares of AMPS held by such
Existing Holder over the number of shares of AMPS subject to Hold
Orders referred to in Paragraph 8(c)(iv)(A) and Bids referred to in
Paragraph 8(c)(iv)(B); provided that if more than one Sell Order is
submitted on behalf of any Existing Holder and the number of shares of
AMPS subject to such Sell Orders is greater than such excess, the
number of shares of AMPS subject to each Sell orders shall be reduced
pro rata so that such Sell Orders, in the aggregate, cover exactly the
number of shares of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum
and number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually as a "Submitted
Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may
be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of outstanding shares of AMPS
over the number of Outstanding shares of AMPS that are the subject of
Submitted Holder Orders (such excess being hereinafter referred to as
the "Available AMPS" );
B-5
<PAGE>
(B) from the Submitted Orders whether the number of outstanding
shares of AMPS that are the subject of Submitted Bids by Potential
Holders specifying one or more rates per annum equal to or lower than
the Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of outstanding shares of AMPS that are the
subject of Submitted Bids by Existing Holders specifying one or
more rates per annum higher than the Maximum Applicable Rate, and
(2) the number of outstanding shares of AMPS that are
subject to Submitted Sell orders;
If such excess or such equality exists (other than because the number
of outstanding shares of AMPS in clauses (1) and (2) above are each
zero because all of the outstanding shares of AMPS are the subject of
Submitted Hold Orders), then "Sufficient Clearing Bids" exist; and
(C) If Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other submitted Bids from Existing
Holders specifying lower rates per annum were rejected, thus
entitling such Existing Holders to continue to hold the shares of
AMPS that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential
Holders specifying lower rates per annum were accepted, thus
entitling the Potential Holders to purchase the shares of AMPS
that are the subject of such Submitted Bids, would result in the
number of shares subject to all Submitted Bids specifying the
Winning Bid Rate or a lower rate per annum being at least equal
to the Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Paragraph 8(d)(i), the Auction Agent shall advise the Fund of
the Maximum Applicable Rate and, based on such determinations, the
Applicable Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning
Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because
all of the outstanding shares of AMPS are the subject of Submitted
Hold Orders), that the Applicable Rate for the next succeeding
Dividend Period shall be equal to the Maximum Applicable Rate; or
(C) if all of the outstanding shares of AMPS are the subject of
Submitted Hold Orders, that the Applicable Rate for the next
succeeding Dividend Period shall be equal to 90% of the 30-day "AA"
Composite Commercial Paper Rate on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares.
Based on the determinations made pursuant to Paragraph 8(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:
B-6
<PAGE>
(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
B-7
<PAGE>
Existing Holder to continue to hold the outstanding shares of AMPS
that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus requiring such Potential Holder to
purchase the outstanding shares of AMPS that are the subject of such
Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall
be accepted and the Submitted Sell Orders of each Existing Holder
shall be accepted, in both cases only in an amount equal to the
difference between (1) the number of outstanding shares of AMPS then
held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of AMPS obtained by
multiplying (x) the difference between the Available AMPS and the
aggregate number of outstanding shares of AMPS subject to Submitted
Bids described in Paragraph 8(e)(ii)(A) and Paragraph 8(e)(ii)(B) by
(y) a fraction the numerator of which shall be the number of
outstanding shares of AMPS held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of outstanding shares of AMPS subject to all
such Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in Paragraph 8(e)(i)
or Paragraph 8(e)(ii), any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a share of AMPS on any Auction Date, the Auction Agent shall,
in such manner as in its sole discretion it shall determine, round up or
down the number of shares of AMPS to be purchased or sold by an Existing
Holder or Potential Holder on such Auction Date so that each outstanding
shares of AMPS purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in Paragraph 8(e)(i),
any Potential Holder would be entitled or required to purchase less than a
whole share of AMPS on any Auction Date, the Auction Agent, in such manner
as in its sole discretion it shall determine, shall allocate shares of AMPS
for purchase among Potential Holders so that only whole shares of AMPS are
purchased on such Auction Date by any Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any shares of AMPS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of the outstanding shares of AMPS to be purchased and the aggregate
number of outstanding shares of AMPS to be sold by such Potential Holders
and Existing Holders and, to the extent that such aggregate number of
outstanding shares to be purchased and such aggregate number of outstanding
shares to be sold differ, the Auction Agent shall determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, outstanding shares of AMPS.
9. Miscellaneous
(a) To the extent permitted by applicable law, the Board of Directors may
interpret or adjust the provisions of the Articles Supplementary to resolve any
inconsistency or ambiguity, remedy any formal defect or make any other change or
modification which does not adversely affect the rights of
B-8
<PAGE>
Beneficial Owners of shares of AMPS and if such inconsistency or ambiguity
reflects an incorrect provision thereof then the Board of Directors may
authorize the filing of a Certificate of Correction.
(b) A Beneficial Owner or an Existing Holder (A) may sell, transfer or
otherwise dispose of shares of AMPS only pursuant to a Bid or Sell Order in
accordance with the procedures described in Paragraph 8 or to or through a
Broker-Dealer, provided that in the case of all transfers other than pursuant to
Auctions such Existing Holder or Broker-Dealer (acting on its own behalf or on
behalf of a Beneficial Owner), if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of AMPS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Fund nor any Affiliate shall submit an Order in any
Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer or
otherwise dispose of shares of AMPS to any Person other than the Fund. All of
the outstanding shares of AMPS shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If there
is no Securities Depository, at the Fund's option and upon its receipt of such
documents as it deems appropriate, any shares of AMPS may be registered in the
Stock Register in the name of the Beneficial Owner thereof and such Beneficial
Owner thereupon will be entitled to receive certificates therefor and required
to deliver certificates therefor upon transfer or exchange thereof.
(c) The Corporation will exercise its best efforts to maintain an Auction
Agent pursuant to an agreement containing terms not materially less favorable to
the Corporation than the terms of the Auction Agent Agreement first entered into
by the Corporation pursuant to the resolutions adopted by the Board of Directors
on December 13, 1988.
(d) The Corporation will use its best efforts to maintain a rating of the
AMPS from each of the Rating Agencies.
(e) All notices or communications, unless otherwise specified in the
By-laws of the Corporation or the Articles Supplementary, will be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice will be deemed given on the earlier of the date received
or the date seven days after which such notice is mailed.
(f) So long as any shares of AMPS are outstanding, the Corporation will not
engage in "short sales" or "hedging" or enter into "futures contracts" or
"option contracts" (other than Forward Contracts) with respect to the Eligible
Portfolio Property.
B-9
<PAGE>
========================================== ==================================
No dealer, salesperson or other
individual has been authorized to give
any information or to make any
representations not contained in this $150,000,000
Prospectus and, if given or made, such
information or representation must not
be relied upon as having been The First Australia
authorized. This Prospectus does not Prime Income Fund,
constitute an offering of any Inc.
securities other than the registered
securities to which it relates or an
offer to any person in any State or Auction Market Preferred Stock
jurisdiction of the United States or
any country where such offer would be
unlawful.
--------------- ["AMPS"(R)]
TABLE OF CONTENTS 3,000 Shares of Series H
3,000 Shares of Series I
Page
----
Available Information............. ---------------
Prospectus Summary................
Financial Highlights.............. PROSPECTUS
Capitalization....................
The Fund.......................... ---------------
Use of Proceeds...................
Special Considerations and Risk...
Factors......................... Merrill Lynch & Co.
Portfolio Composition.............
Investment Objective and Policies;
Investment Restrictions......... PaineWebber Incorporated
Description of AMPS...............
Management........................
Management of the Fund............ Prudential Securities
Portfolio Transactions and........ Incorporated
Brokerage.......................
Net Asset Value of Common Stock...
Taxation.......................... Smith Barney Inc.
Capital Stock.....................
Certain Provisions of the By-Laws
and Articles of Amendment and
Restatement.....................
Custodian, Dividend Paying Agents,
Transfer Agents, Registrars and
Auction Agent...................
Underwriting......................
Experts........................... _____________, 1996
Legal Matters.....................
Financial Statements -- April 30,
1995............................
Financial Statements -- October
31, 1994........................
Glossary..........................
Appendix A........................ A-1 (R) Registered trademark of
Appendix B........................ B-1 Merrill Lynch & Co., Inc.
========================================== ==================================
<PAGE>
PART B
NOT APPLICABLE
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements:
Audited
(i) Portfolio of Investments as of October 31, 1995
(ii) Statement of Assets and Liabilities as of October 31, 1995
(iii) Statement of Operations for the fiscal year ended October 31, 1995
(iv) Statement of Cash Flows for the fiscal year ended October 31, 1995
(v) Statement of Changes in Net Assets for the fiscal years ended
October 31, 1995 and October 31, 1994
(vi) Notes to the Financial Statements
(vii) Financial Highlights for each of the five fiscal years ended
October 31, 1995
(viii) Report of Independent Accountants
Unaudited
(i) Portfolio of Investments as of April 30, 1996
(ii) Statement of Assets and Liabilities as of April 30, 1996
(iii) Statement of Operations for the six months ended April 30, 1996
(iv) Statement of Cash Flows for the six months ended April 30, 1996
(v) Statement of Changes in Net Assets for the six months ended April 30,
1996 and fiscal year ended October 31, 1995
(vi) Notes to the Financial Statements
(vii) Financial Highlights for the six months ended April 30, 1996 and for
each of the five fiscal years in the period ended October 31, 1995
Exhibits:
(a)(1) -- Articles of Amendment and Restatement dated December 14, 1988.
(Previously filed as Exhibit (1)(a)(3) to Amendment No. 6 to
Registrant's Registration Statement on Form N-2, File No.
811-4611 (the "Original Registration Statement").)*
(a)(2) -- Article of Amendment dated May 29, 1991 (Previously filed as
Exhibit (1)(a)(6) to Amendment No. 12 to the Original
Registration Statement.)*
(a)(3) -- Article of Amendment dated April 25, 1996 (Previously filed as
Exhibit (2)(a)(3) to Amendment No. 27 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 certificates representing shares of Series H AMPS and
Series I AMPS.**
(2) -- Form of Articles Supplementary Creating Auction Market
Preferred Stock, Series H and Auction Market Preferred Stock,
Series I.**
(e) -- Dividend Reinvestment and Cash Purchase Plan. (Previously
filed as Exhibit (e) to Amendment No. 21 to Original
Registration Statement.)*
(f) -- Inapplicable.
(g)(1) -- Management Agreement with EquitiLink International Management
Limited ("EIML") and EquitiLink Australia Limited ("EAL") dated
February 1, 1990. (Previously filed as Exhibit 6(a)(4) to
Amendment No. 10 to Original Registration Statement.)*
C-1
<PAGE>
(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, The First
Australia Fund, Inc., and The Prudential Insurance Company of
America dated December 14, 1995. (Previously filed as Exhibit
(g)(3) to Amendment No. 27 to Original Registration
Statement.)*
(h)(1) -- Form of Purchase Agreement covering the sale of shares of
Series H and Series I 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 LLP.***
(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 10/31/95. (Previously
filed as Exhibit (t) to Amendment No. 26 to Original
Registration Statement.)*
(s) -- Powers of attorney (previously filed) and certified copy of
Board resolutions.**
27 -- Financial Data Schedule for 6 months ended 4/30/96.**
- ----------
* Incorporated by reference herein.
** Filed herewith.
*** To be filed by Amendment.
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:
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<PAGE>
Registration fees................................................ $51,724.14
Printing.........................................................
Fees and expenses of qualification under state securities laws
(including fees of counsel)....................................
Legal fees and expenses..........................................
Rating agency fees...............................................
Auditing fees and expenses.......................................
Miscellaneous....................................................
----------
Total............................................................ $
=
- ----------
* To be filed by amendment.
Item 27. Persons Controlled by or Under Common Control with Registrant.
None.
Item 28. Number of Holders of Securities (as of June 30, 1996).
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock
($.01 par value per share)
Auction Market Preferred Stock, Series A
($.01 par value per share) 1
Auction Market Preferred Stock, Series B
($.01 par value per share) 1
Auction Market Preferred Stock, Series C
($.01 par value per share) 1
Auction Market Preferred Stock, Series D
($.01 par value per share) 1
Auction Market Preferred Stock, Series E
($.01 par value per share) 1
Auction Market Preferred Stock, Series F
($.01 par value per share) 1
Auction Market Preferred Stock, Series G 1
($.01 par value per share)
Item 29. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland, the
State in which the Registrant was organized, empowers a corporation, subject to
certain limitations, to indemnify its directors against expenses (including
attorneys' fees, penalties, judgments, fines and settlements) actually and
reasonably incurred by them in connection with any suit or proceeding to which
they are a party unless it is established that (i) the director's act or
omission was material to the matter giving rise to the proceeding and (1) was
committed in bad faith, or (2) was the result of active and deliberate
dishonesty, or (ii) the director actually received improper personal benefit in
money, property or services, or (iii) with respect to a criminal action or
proceeding, the director had reasonable cause to believe that the action or
omission was unlawful. Article IX, of the Registrant's By-Laws (as amended
through January 20, 1991) provides:
Article IX. Indemnification. The Corporation shall indemnify (a) its
Directors and officers, whether serving the Corporation or at its request any
other entity, to the full extent required or permitted by (i) the General Laws
of the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law, and (ii)
the
C-3
<PAGE>
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.
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)
Item 32. Management Services.
Not applicable.
C-4
<PAGE>
Item 33. Undertakings.
(1) Registrant undertake to suspend offering of its shares until it amends
its prospectus if (a) subsequent to the effective date of its Registration
Statement, the net asset value declines more than 10 percent from its net asset
value as of the effective date of the Registration Statement or(b) the net asset
value increases to an amount greater than its net proceeds as stated in the
prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) (a) The Registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to
be part of this registration statement as of the time it was declared effective.
(b) The Registrant hereby undertakes that for the purposes of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York on this 19th day of July,
1996.
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
*
------------------------------------------
Brian M. Sherman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Name Title Date
---- ----- ----
* President and Director July 19, 1996
- ------------------------------ (Principal Executive Officer)
Brian M. Sherman
Treasurer and Director (Principal July 19, 1996
* Financial and Accounting Officer)
- ------------------------------
David Manor
* Director July 19, 1996
- ------------------------------
Anthony E. Aaronson
* Director July 19, 1996
- ------------------------------
Sir Arthur Roden Cutler
* Director July 19, 1996
- ------------------------------
David Elsum
* Director July 19, 1996
- ------------------------------
Rt. Hon. Malcolm Fraser
* Director and Chairman July 19, 1996
- ------------------------------ of the Board
Laurence S. Freedman
* Director July 19, 1996
- ------------------------------
Michael R. Horsburgh
* Director July 19, 1996
- ------------------------------
Harry A. Jacobs Jr.
* Director July 19, 1996
- ------------------------------
Howard A. Knight
* Director July 19, 1996
- ------------------------------
Roger C. Maddock
* Director July 19, 1996
- ------------------------------
William J. Potter
* Director July 19, 1996
- ------------------------------
Peter D. Sacks
* Director July 19, 1996
- ------------------------------
John T. Sheehy
* Director July 19, 1996
- ------------------------------
Marvin Yontef
C-6
<PAGE>
*By /s/ MARGARET A. BANCROFT
-----------------------------
Margaret A. Bancroft
as Attorney-in-Fact
C-7
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
- ----------- ----------- --------
+(d)(1) Specimen certificates representing shares of
Series H AMPS and Series I AMPS
+(d)(2) Form of Article Supplementary creating Auction
Market Preferred Stock,Series H and
Auction Market Preferred Stock, Series I
+(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 LLP
++(n) Opinion and Consent of Independent Accountants
+(s) Powers of Attorney and Certified copy of Board resolution
+27 Financial Data Schedule for six months ended 4/30/96
- ------------
+ Filed herewith.
++ To be filed by Amendment.
C-8
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Harry Jacobs Director 7/18/96
- ---------------------------
Harry Jacobs
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ David Elsum Director 3/7/96
- ---------------------------
David Elsum
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Howard Knight Director 5/7/96
- ---------------------------
Howard Knight
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Laurence Freedman Director 7/18/96
- ---------------------------
Laurence Freedman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Brian Sherman Director 7/18/96
- ---------------------------
Brian Sherman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ David Manor Director 7/18/96
- ---------------------------
David Manor
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Michael Horsburgh Director 7/8/96
- ---------------------------
Michael Horsburgh
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Marvin Yonteff Director 7/2/96
- ---------------------------
Marvin Yonteff
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ John Sheehy Director 7/3/96
- ---------------------------
John Sheehy
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Anthony Aaronson Director 7/5/96
- ---------------------------
Anthony Aaronson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ William Potter Director 7/13/96
- ---------------------------
William Potter
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Roger Maddock Director 7/18/96
- ---------------------------
Roger Maddock
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
public offering by The First Australia Prime Income Fund, Inc. ("the Fund") of
additional shares of the Fund's Auction Market Preferred Stock, that the
undersigned constitutes and appoints Margaret A. Bancroft, Allan S. Mostoff,
William Goodwin, Rose M. Burke and David Katz and each of them, as his true and
lawful attorney-in-fact and agent with full power and of substitution and
resubstitution for such attorney-in-fact and in such attorney-in-fact's name,
place and stead, to sign any and all registration statements applicable to the
public offering of such shares by the Fund, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person in his capacity as a
Director or Officer of the Fund, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Peter Sacks Director 7/18/96
- ---------------------------
Peter Sacks
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Margaret A. Bancroft, Allan S. Mostoff, William Goodwin, Rose M. Burke
and David L. Katz and each of them, as his true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution for such
attorney-in-fact in such attorney-in-fact's name, place and stead, to execute
any and all agreements, certificates and other documents requisite, necessary or
appropriate in order to effectuate the offer and sale of shares of the Auction
Market Preferred Stock of The First Australia Prime Income Fund, Inc. (the
"Fund"), pursuant to a Registration Statement filed with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person in his capacity as an Officer of the Fund, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/David Manor
- ------------------------- Officer 7/18/96
David Manor
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Margaret A. Bancroft, Allan S. Mostoff, William Goodwin, Rose M. Burke
and David L. Katz and each of them, as his true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution for such
attorney-in-fact in such attorney-in-fact's name, place and stead, to execute
any and all agreements, certificates and other documents requisite, necessary or
appropriate in order to effectuate the offer and sale of shares of the Auction
Market Preferred Stock of The First Australia Prime Income Fund, Inc. (the
"Fund"), pursuant to a Registration Statement filed with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person in his capacity as an Officer of the Fund, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/Brian Sherman
- ------------------------- Officer 7/18/96
Brian Sherman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Margaret A. Bancroft, Allan S. Mostoff, William Goodwin, Rose M. Burke
and David L. Katz and each of them, as his true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution for such
attorney-in-fact in such attorney-in-fact's name, place and stead, to execute
any and all agreements, certificates and other documents requisite, necessary or
appropriate in order to effectuate the offer and sale of shares of the Auction
Market Preferred Stock of The First Australia Prime Income Fund, Inc. (the
"Fund"), pursuant to a Registration Statement filed with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person in his capacity as an Officer of the Fund, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Laurence Freedman
- ------------------------- Officer 7/18/96
Laurence Freedman
<PAGE>
Exhibit (s)
The First Australia Prime Income Fund, Inc.
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:
1. The Board of Directors of the Fund at an in-person meeting held
on June 12, 1996 adopted the following resolution:
RESOLVED, that each officer of the Fund now or hereafter
elected be, and each of them hereby is, authorized in the name and
on behalf of the Fund, 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 4,000 shares each of the Series H and Series I
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.
By:/s/ Margaret A. Bancroft
--------------------------------
Margaret A. Bancroft
Assistant Secretary
<PAGE>
Auction Market Preferred
Stock, Series H
Number SHARES
1 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 318653805
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 H, 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.
Dated: ________________, 1996
Countersigned and Registered:
-----------------------------
CHEMICAL BANK President
Transfer Agent
-----------------------------
Assistant Secretary
Authorized Signature
<PAGE>
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:
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 and not as under Uniform Gifts to
tenants in common Minors Act ________
(State)
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.
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.
<PAGE>
Auction Market Preferred
Stock, Series I
Number SHARES
1 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 318653805
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 H, 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.
Dated: ________________, 1996
Countersigned and Registered:
-----------------------------
CHEMICAL BANK President
Transfer Agent
-----------------------------
Assistant Secretary
Authorized Signature
<PAGE>
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:
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 and not as under Uniform Gifts to
tenants in common Minors Act ________
(State)
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.
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.
<PAGE>
Exhibit (d)(2)
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Articles Supplementary creating two 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 has
authorized the issuance of two series of up to 4,000 shares each of its
authorized preferred stock, par value $.01 per share, liquidation preference
$25,000 per share, designated respectively: Auction Market Preferred Stock,
Series H and Auction Market Preferred Stock, Series I.
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
H and Auction Market Preferred Stock, Series I.
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 H: A series of 4,000 shares of preferred stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Auction
Market Preferred Stock Series H." Each share of Auction Market Preferred Stock,
Series H shall be issued on the Date of Original Issue (as herein defined); have
an Initial Dividend Payment Date (as herein defined) of , 1996; 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 H
shall constitute a separate series of preferred stock of the Corporation, and
each share of Auction Market Preferred Stock, Series H shall be identical.
<PAGE>
Series I: A series of 4,000 shares of preferred stock, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Auction
Market Preferred Stock Series I." Each share of Auction Market Preferred Stock,
Series I shall be issued on the Date of Original Issue (as herein defined); have
an Initial Dividend Payment Date (as herein defined) of , 1996; 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 I
shall constitute a separate series of preferred stock of the Corporation, and
each share of Auction Market Preferred Stock, Series I shall be identical.
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.
2
<PAGE>
"Affiliate" 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 either the Auction Market Preferred Stock, Series H or
the Auction Market Preferred Stock, Series I, and where appropriate, any other
series of the Corporation's Auction Market Preferred Stock.
"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.
3
<PAGE>
"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.
"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:
4
<PAGE>
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 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:
5
<PAGE>
(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 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
6
<PAGE>
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, 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 the specific issue is guaranteed by the
Treasurer of the Commonwealth of Australia.
7
<PAGE>
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>
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. 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>
"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 thereof which shall be deemed to have caused the Corporation to exceed
such limitation):
10
<PAGE>
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)
Aaa/AAA........... $100 10.0% 50.0%
Aa/AA............. 100 10.0 33.3
- --------------------
(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.
"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
11
<PAGE>
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):
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
12
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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 -
13
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
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
14
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
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 -
15
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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 -
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
16
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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 -
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
17
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
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
18
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
19
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
20
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
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
- --------
* 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.
21
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
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
22
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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)
- --------
** included in Australian Semi-Government categories
23
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
24
<PAGE>
Moody's S&P
Discount Discount
Type of Eligible Portfolio Property Factor Factor(2)
- ----------------------------------- -------- --------
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
____________
(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 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
25
<PAGE>
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 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
26
<PAGE>
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%). 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
27
<PAGE>
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.
"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.
"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
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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;
(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,
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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;
(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;
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(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) 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.
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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 ss. 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)
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
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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 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
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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).
Applicable
Credit Rating
-----------------------------------------
S&P Moody's Percentage
--- ------- ----------
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%
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 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.
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"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 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
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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 other series of the Corporations' auction
market preferred stock other than the Series H and Series I 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.
"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.
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"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 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
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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
"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.
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"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 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.
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<PAGE>
"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 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 , 1996
(the day after the Date of Original Issue), with respect to the Auction Market
Preferred Stock, Series H and on , 1996 (the day after the Date of Original
Issue), with respect to the Auction Market Preferred Stock, Series I
(hereinafter, with respect to a series of AMPS such date is referred to as the
"Initial Dividend Payment Date"); and on each day thereafter which is the last
day of each succeeding 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
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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 H shall be % per annum for the Initial Dividend Period and for the
Auction Market Preferred Stock, Series I 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 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
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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 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
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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.
(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 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
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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 judgment
of the Board of Directors, would be adverse to the Corporation or its
stockholders.
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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) 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
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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 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
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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 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.
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(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 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.
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(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 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
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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 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,
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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.
(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
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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 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
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Requirement. The calculation of the 1940 Act AMPS Asset Coverage Ratio shall be
included in each Portfolio Valuation Report.
(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 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
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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; 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.
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(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 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:
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(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).
Applicable
Credit Ratings Percentage
---------------------------------------- ----------
S&P Moody's
--- -------
AA-- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
The 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.
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(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 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:
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(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) 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:
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(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 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);
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(B) the aggregate number of outstanding shares of AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of outstanding shares, if any, of AMPS subject to
any Hold Order placed by such Existing Holder;
(2) the number of outstanding shares, if any, of AMPS subject to
any Bid placed by such Existing Holder and the rate per annum specified
in such Bid; and
(3) the number of outstanding shares, if any, of AMPS subject to
any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per annum
specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth(.001) of 1%.
(iii) If an Order or Orders covering all of the outstanding shares of AMPS
held by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order to have been
submitted on behalf of such Existing Holder covering the number of outstanding
shares of AMPS held by such Existing Holder and not subject to Orders submitted
to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of outstanding shares of AMPS held by such
Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of outstanding shares
of AMPS held by such Existing Holder; provided that if more than one Hold
Order is submitted on behalf of such Existing Holder and the number of
shares of AMPS subject to such Hold Orders exceeds the number of
outstanding shares of AMPS held by such Existing Holder, the number of
shares of AMPS subject to each of such Hold Orders shall be reduced pro
rata so that such Hold Orders, in the aggregate, cover exactly the number
of outstanding shares of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if
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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.
(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");
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(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 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;
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(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:
(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,
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and each such Existing Holder shall be required to sell outstanding shares
of AMPS, but only in an amount equal to the difference between (1) the
number of outstanding shares of AMPS then held by such Existing Holder
subject to such Submitted Bid and (2) the number of shares of AMPS
obtained by multiplying (x) the number of Remaining Shares by (y) a
fraction the numerator of which shall be the number of outstanding shares
of AMPS held by such Existing Holder subject to such Submitted bid and the
denominator of which shall be the sum of the numbers of outstanding shares
of AMPS subject to such Submitted Bids made by all such Existing Holders
that specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted but
only in an amount equal to the number of outstanding shares of AMPS
obtained by multiplying (x) the difference between the Available AMPS and
the number of outstanding shares of AMPS subject to Submitted Bids
described in Paragraph 8(e)(i)(B), Paragraph 8(e)(i)(C) and Paragraph
8(e)(i)(D) by (y) a fraction the numerator of which shall be the number of
outstanding shares of AMPS subject to such Submitted Bid and the
denominator of which shall be the sum of the number of outstanding shares
of AMPS subject to such Submitted Bids made by all such Potential Holders
that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the outstanding shares of AMPS are subject to Submitted Hold Orders),
subject to the provisions of Paragraph 8(e)(iii), Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall
be rejected, thus entitling such Existing Holder to continue to hold the
outstanding shares of AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus requiring such Potential Holder to purchase the
outstanding shares of AMPS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference between
(1) the number of outstanding shares of AMPS then held by such Existing
Holder subject to such Submitted Bid or Submitted Sell Order and (2) the
number of shares of AMPS obtained by multiplying (x) the difference
between the Available AMPS and the aggregate
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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.
65
<PAGE>
(b) A Beneficial Owner or an Existing Holder (A) may sell, transfer or
otherwise dispose of shares of AMPS only pursuant to a Bid or Sell Order in
accordance with the procedures described in Paragraph 8 or to or through a
Broker-Dealer, provided that in the case of all transfers other than pursuant to
Auctions such Existing Holder or Broker- Dealer (acting on its own behalf or on
behalf of a Beneficial Owner), if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of AMPS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the 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.
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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 ____________, 1996, 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.
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
By:_____________________________
Brian M. Sherman, President
ATTEST:
___________________
Assistant Secretary
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Exhibit (h)(1)
3,000 Shares, Series H
3,000 Shares, Series I
The First Australia Prime Income Fund, Inc.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK ["AMPS"(R)]
(Liquidation Preference $25,000 Per Share)
PURCHASE AGREEMENT
______________, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PAINEWEBBER 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"), PaineWebber Incorporated ("PaineWebber") 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 the respective number of shares of Auction
Market Preferred Stock, Series H, par value $.01 per share, liquidation
preference $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not
- ---------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
earned or declared) (the "Series H AMPS") and Auction Market Preferred Stock,
Series I, 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) (the "Series I AMPS" and, together with the Series H AMPS, the
"Shares"), of the Fund set forth in Schedule A 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. 333- _______) 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
2
<PAGE>
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
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. 333-_________) 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.
3
<PAGE>
(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.
(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, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, or management 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 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) (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.
4
<PAGE>
(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.
(vii) The authorized, issued and outstanding capital stock of the Fund
at June 30, 1996 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
5
<PAGE>
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.
(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 referred
to in the Registration Statement (the "Management Agreement"),
the Advisory Agreement referred to in the Registration
Statement (the "Advisory Agreement"), the Consultant Agreement
6
<PAGE>
referred to in the Registration Statement (the "Consultant Agreement"),
the Administration Agreement referred to in the Registration Statement
(the "Administration Agreement") and the Custodian Agreement referred to
in the Registration Statement (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 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).
(xv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been
any downgrading in the ratings of the Preferred Shares or any action
threatening such a downgrading or placing the Fund under special
surveillance by any "nationally recognized rating agency" (as defined in
Rule 436(g) under the 1933 Act); nor does the Fund have any knowledge of
any facts or circumstances that are likely to cause such downgrading,
threatened downgrading or the placing of the Fund under such surveillance.
(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.
7
<PAGE>
(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) Each of this Agreement and the Management 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 or under the Management Agreement 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
it 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
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.
(vii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has been no material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or otherwise) or management of the Manager, or in the earnings,
business affairs or business prospects of the Manager, whether or not
arising in the ordinary course of business.
(viii) 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 Manager, which might result in any material adverse change
in the condition, financial or otherwise, business affairs or
8
<PAGE>
business prospects of the Manager, or might materially and adversely
affect the properties or assets of the Manager; and there are no material
contracts or documents of the Manager which are required to be disclosed
in the Registration Statement by the 1933 Act, the 1940 Act or by the
Rules and Regulations which have not been so disclosed therein.
(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) Each of this Agreement and the Advisory 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 or under the Advisory Agreement 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 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 it 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.
9
<PAGE>
(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.
(vii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has been no material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or otherwise) or management of the Adviser, or in the earnings,
business affairs or business prospects of the Adviser, whether or not
arising in the ordinary course of business.
(viii) 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 Adviser, which might result in any material adverse
change in the condition, financial or otherwise, business affairs or
business prospects of the Adviser, or might materially and adversely
affect the properties or assets of the Adviser; and there are no material
contracts or documents of the Adviser which are required to be disclosed
in the Registration Statement by the 1933 Act, the 1940 Act or by the
Rules and Regulations which have not been so disclosed therein.
(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
10
<PAGE>
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 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
11
<PAGE>
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 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
12
<PAGE>
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.
(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
Registration Statement or 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, filing with the Commission 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 Registration Statement or 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
13
<PAGE>
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.
(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
14
<PAGE>
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 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
15
<PAGE>
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.
(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
16
<PAGE>
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 knowledge 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, the Manager or the Adviser that 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
17
<PAGE>
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 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 ByLaws 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 Administration Agreement, the
Consultant 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
18
<PAGE>
as to form in all material respects with the requirements of
the 1940 Act and the rules and regulations thereunder; 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.
(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) Each of this Agreement and the Management 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
neither the execution and delivery of this Agreement or the
Management Agreement nor the performance by the Manager of its
19
<PAGE>
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 the Manager's Memorandum and
Articles of Association or, to the best of such counsel's
knowledge and information, 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, having jurisdiction over the Manager or its properties
or operations; there is no stock exchange or securities
association in Jersey 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.
(iv) The Fund will not be subject to taxation under the
laws of Jersey, Channel Islands by virtue of its relationship
with the Manager.
(v) To the best of such counsel's knowledge and
information, there are no legal or governmental proceedings
pending or threatened against the Fund, the Manager or the
Adviser that are required to be disclosed in the Registration
Statement, other than those disclosed therein.
(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) Each of this Agreement and the Advisory Agreement has
been duly authorized, executed and delivered by the Adviser;
each of this agreement
20
<PAGE>
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
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 the Adviser's Memorandum and
Articles of Association or, to the best of such counsel's
knowledge and information, 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
(subject to it being duly stamped in accordance with the Stamp
Duties Act of New South Wales) 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 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.
21
<PAGE>
(vi) This Agreement has been duly authorized, executed and
delivered by EquitiLink Limited and constitutes a valid and
binding obligation of EquitiLink Limited.
(vii) To the best of such counsel's knowledge and
information, there are no legal or governmental proceedings
pending or threatened against the Fund, the Manager or the
Adviser that are required to be disclosed in the Registration
Statement, other than those disclosed therein.
(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 LLP, 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
LLP 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 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
22
<PAGE>
Price & Rhoads and Brown & Wood LLP may rely, as to matters of
Maryland law, on the opinion of Venable, Baetjer and Howard, LLP,
dated Closing Time, provided that Dechert Price & Rhoads and Brown &
Wood LLP 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 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
23
<PAGE>
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 LLP 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, 1996 and for the period from November 1, 1995 through
April 30, 1996 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 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
24
<PAGE>
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 LLP 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.
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
25
<PAGE>
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 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
26
<PAGE>
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.
(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.
27
<PAGE>
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
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,
28
<PAGE>
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
Pacific 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 or New Zealand 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 or more of
the Underwriters shall fail or refuse at Closing Time to purchase the Shares
which it or they are 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 one or more of the
non-defaulting Underwriters, 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:
(a) if the number of Defaulted Shares does not exceed 10% of the Shares,
the non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Shares exceeds 10% of the Shares, this
Agreement shall terminate without liability on the part of any 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
29
<PAGE>
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 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: William Ullman, Director; notices to the Fund shall be directed to
the Fund, Attention: Laurence Freedman, c/o 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 Level 3, 190 George Street, Sydney, New South
Wales, Australia, Attention: Laurence Freedman; and notices to EquitiLink
Limited shall be sent to EquitiLink Limited at Level 3, 190 George Street,
Sydney, New South Wales, Australia, Attention:
Laurence Freedman.
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
30
<PAGE>
corporation. No purchaser of Shares from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
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.
31
<PAGE>
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:
32
<PAGE>
Confirmed and Accepted, as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:__________________________________
Authorized Signatory
Investment Banking Group
33
<PAGE>
Schedule A
Number of Number of
Name of Underwriters Shares Shares
- -------------------- of Series H of Series I
AMPS AMPS
----------- -----------
Merrill Lynch, Pierce, Fenner &
Smith Incorporated.................
PaineWebber Incorporated...........
Prudential Securities
Incorporated........................ ____________ ___________
TOTAL 3,000 3,000
============ ===========
34
<PAGE>
Exhibit A
3,000 Shares, Series H
3,000 Shares, Series I
The First Australia Prime Income Fund, Inc.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK ["AMPS"(R)]
(Liquidation Preference $25,000 Per Share)
PRICING AGREEMENT
___________ __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PAINEWEBBER 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 ___________, 1996 (the
"Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber Incorporated and
Prudential Securities Incorporated (the "Underwriters"), acting severally and
not jointly, of the respective number of shares, as set forth in Schedule A to
the Purchase Agreement, of Auction Market Preferred Stock, Series H, 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) (the
"Series H AMPS") and Auction Market Preferred Stock, Series I, 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) (the
"Series I AMPS" and, together with the Series H AMPS, the "Shares") of The First
Australia Prime Income Fund, Inc.
(the "Fund").
- -------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
A-1
<PAGE>
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 $______, plus accumulated dividends, if any,
from the date of original issue, being an amount equal to the initial
public offering price set forth above less $_____ per share.
3. The dividend rate for the shares of Series H AMPS for the initial
dividend period ending _________ __, 1996 will be _____% and the dividend
rate for the shares of Series I AMPS for the initial dividend period
ending ___________ __, 1996 will be ______%.
A-2
<PAGE>
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
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:___________________________________
Authorized Signatory
Investment Banking Group
A-3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790500
<NAME> THE FIRST AUSTRALIA PRIME INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 1,651,986,197
<INVESTMENTS-AT-VALUE> 1,753,771,661
<RECEIVABLES> 46,358,035
<ASSETS-OTHER> 193,240,369
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<OTHER-ITEMS-LIABILITIES> 16,657,385
<TOTAL-LIABILITIES> 16,657,385
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<PAID-IN-CAPITAL-COMMON> 1,851,957,077
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<OVERDISTRIBUTION-GAINS> 151,184,388
<ACCUM-APPREC-OR-DEPREC> (43,008,975)
<NET-ASSETS> 1,976,712,680
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,025,044
<OTHER-INCOME> 0
<EXPENSES-NET> 9,748,363
<NET-INVESTMENT-INCOME> 68,852,208
<REALIZED-GAINS-CURRENT> 5,937,419
<APPREC-INCREASE-CURRENT> (21,178,425)
<NET-CHANGE-FROM-OPS> 53,611,202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (73,661,874)
<DISTRIBUTIONS-OF-GAINS> (8,031,624)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 5,241,635
<NET-CHANGE-IN-ASSETS> 49,507,570
<ACCUMULATED-NII-PRIOR> 12,065,169
<ACCUMULATED-GAINS-PRIOR> 5,217,167
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,217,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,748,363
<AVERAGE-NET-ASSETS> 1,456,375,000
<PER-SHARE-NAV-BEGIN> 9.36
<PER-SHARE-NII> 0.81
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> (0.05)
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<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
