<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
SECURITIES ACT REGISTRATION NO. 333-08433
INVESTMENT COMPANY ACT FILE NO. 811-4611
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 29 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
One Seaport Plaza New York, New York 10292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 214-3334
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
RICHARD P. STRICKLER
45 BROADWAY
NEW YORK, NEW YORK 10004
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
MARGARET A. BANCROFT FRANK P. BRUNO ALLAN S. MOSTOFF
DECHERT PRICE & RHOADS BROWN & WOOD DECHERT PRICE & RHOADS
477 MADISON AVENUE ONE WORLD TRADE CENTER 1500 K STREET, N.W.
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10048 WASHINGTON, DC 20005
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
Auction Market Preferred Stock, Series
H and Series I ($.01 par value)...... 5,000 shs $25,000 $125,000,000 $43,103.45(1)
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</TABLE>
(1) $51,724.14 previously paid with original filing of the registration
statement on July 19, 1996.
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<PAGE> 2
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
------------------------
CROSS REFERENCE SHEET
BETWEEN ITEMS OF REGISTRATION STATEMENT (FORM N-2) AND PROSPECTUS
PARTS A AND B
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
------------------------------------------------------- -----------------------------------------
<C> <S> <C>
1. Outside Front Cover.................................... Outside Front Cover
2. Inside Front and Outside Back Cover Page............... Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis................................. Prospectus Summary; Fund Expenses
4. Financial Highlights................................... Financial Highlights; Senior Securities
5. Plan of Distribution................................... The Offer; Distribution Arrangements;
Fund Expenses
6. Selling Shareholders................................... Not Applicable
7. Use of Proceeds........................................ Use of Proceeds
8. General Description of the Registrant.................. Cover Page of Prospectus; The Fund; Risk
Factors and Special Considerations;
Investment Objectives and Policies;
Investment Restrictions; Description of
Common Stock
9. Management............................................. Management of the Fund; Management
Agreement and Advisory Agreement; The
Administrative Services Agreement;
Consultant Agreement; Custodian,
Dividend Paying Agents, Transfer
Agents, Registrars and Auction Agent
10. Capital Stock, Long-Term Debt, and Other Securities.... Description of Common Stock; Capital
Stock; Certain Provisions of By-laws;
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan;
Taxation
11. Defaults and Arrears on Senior Securities.............. Applicable
12. Legal Proceedings...................................... Not Applicable
13. Table of Contents of the Statement of Additional
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> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 29, 1996
PROSPECTUS
$125,000,000
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
AUCTION MARKET PREFERRED STOCK ["AMPS"(R)]
2,500 SHARES, SERIES H -- LIQUIDATION PREFERENCE $25,000 PER SHARE
2,500 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 September , 1996 and
generally on each succeeding Thursday thereafter and (b) in the case of Series I
AMPS, commencing on September , 1996 and generally on each succeeding Friday
thereafter. The dividend rate on the shares of Series H AMPS for the Initial
Dividend Period ending on September , 1996 will be % per annum and the
dividend rate on the shares of Series I AMPS for the Initial Dividend Period
ending on September , 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.
<TABLE>
<S> <C> <C> <C>
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</TABLE>
<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC(1) SALES LOAD(2) FUND(1)(3)
<S> <C> <C> <C>
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Per Share................................... $25,000 $ $
- -----------------------------------------------------------------------------------------------------------
Total....................................... $125,000,000 $ $
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- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund, the Investment Manager and the Investment Adviser have agreed to
indemnify the Underwriters against certain liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(3) Before deduction of expenses, payable by the Fund, estimated at $322,724.
------------------------
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 September
, 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 September , 1996.
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.
<PAGE> 4
(Continued from previous page)
Each prospective purchaser should carefully review the detailed information
regarding the Auction Procedures which appears in this Prospectus, including the
Appendices, and should note that (i) an Order constitutes an irrevocable
commitment to hold, purchase or sell AMPS based upon the results of the related
Auction, (ii) the Auctions will be conducted through telephone communications,
(iii) settlement for purchases and sales will be on the Business Day following
the Auction and (iv) ownership of AMPS will be maintained in book-entry form by
or through the Securities Depository. Any of the Broker-Dealers may maintain a
secondary trading market in the AMPS outside of Auctions, however, they have no
obligation to do so and there can be no assurance that a secondary market for
the AMPS will develop or, if it does develop, that it will provide holders with
liquidity of investment. Shares of AMPS may be transferred only pursuant to a
Bid or a Sell Order placed in an Auction through a Broker-Dealer to the Auction
Agent or in the secondary market, if any.
The shares of AMPS are subject to mandatory and optional redemption under
certain circumstances as described herein. See "Description of
AMPS -- Redemption."
If the Fund fails to pay on any Dividend Payment Date for 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 other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Securities and Exchange Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Securities
and Exchange Commission upon the payment of certain fees prescribed by the
Securities and Exchange Commission.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and the Appendices
hereto. Capitalized terms not defined in this Summary are defined in the
Glossary and, in certain cases, elsewhere herein. Unless otherwise indicated,
all references to dollars are to U.S. dollars.
THE FUND
The First Australia Prime Income Fund, Inc. (the "Fund") is a
non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund commenced operations
in April 1986 and was the first publicly offered United States registered
investment company organized to invest primarily in Australian debt securities.
The shares of Common Stock, par value $.01 per share, of the Fund (the "Common
Stock") are traded on the American Stock Exchange under the symbol FAX. See "The
Fund" and "Capital Stock -- Common Stock."
THE OFFERING
The Fund is offering 2,500 shares of Series H Auction Market Preferred
Stock (the "Series H AMPS") and 2,500 shares of Series I Auction Market
Preferred Stock (the "Series I AMPS" and together with the Series H AMPS, the
"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, after the Initial Dividend Period,
each Dividend Period for the series offered hereby will have a length of seven
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. 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
3
<PAGE> 6
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 September , 1996 and generally on each
succeeding Thursday thereafter, and (b) in the case of Series I AMPS, commencing
on September , 1996 and generally on each succeeding Friday 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.
The dividend rate on the shares of Series H AMPS for the Initial Dividend
Period ending on September , 1996 will be % per annum and the dividend
rate on the shares of Series I AMPS for the Initial Dividend Period ending on
September , 1996 will be % per annum. For each respective Dividend Period
thereafter (normally a period of seven 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."
4
<PAGE> 7
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:
- Hold Order -- indicating its desire to hold shares of AMPS without regard
to the Applicable Rate for the next Dividend Period for such shares.
- Bid -- indicating its desire to hold shares of AMPS, provided that the
Applicable Rate for the next Dividend Period for such shares is not less
than the rate per annum specified in such Bid.
- Sell Order -- indicating its desire to sell shares of AMPS without regard
to the Applicable Rate for the next Dividend Period for such shares.
A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to shares of AMPS then held by such Beneficial Owner,
provided that the total number of shares of AMPS covered by such Orders does not
exceed the number of shares of AMPS held by such Beneficial Owner. If, however,
a Beneficial Owner offers through its Broker-Dealer to purchase additional
shares of AMPS in such Auction, such Broker-Dealer, for purposes of such offer
to purchase additional shares, will be treated as a Potential Beneficial Owner
as described below. Bids by Beneficial Owners through their Broker-Dealers with
rates per annum higher than the Maximum Applicable Rate will be treated as Sell
Orders. A Hold Order shall be deemed to have been submitted on behalf of a
Beneficial Owner if an Order with respect to shares of AMPS then held by such
Beneficial Owner is not submitted on behalf of such Beneficial Owner for any
reason, including the failure of a Broker-Dealer to submit such Beneficial
Owner's Order to the Auction Agent.
The Maximum Applicable Rate at any Auction will be the Applicable
Percentage of the 30-day "AA" Composite Commercial Paper Rate on the date of
such Auction determined as set forth below based on the lower of the credit
rating or ratings assigned to the AMPS by Moody's and S&P (the "Rating
Agencies"). See "Description of AMPS -- The Auction -- Orders by Existing
Holders and Potential Holders."
<TABLE>
<CAPTION>
CREDIT RATING
- ------------------------------------- APPLICABLE
S&P MOODY'S PERCENTAGE
- ------------- ---------------- ---------------------
<S> <C> <C>
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
</TABLE>
Potential Beneficial Owners of shares of AMPS may submit Bids through their
Broker-Dealers in which they offer to purchase shares of AMPS, provided that the
Applicable Rate for the next Dividend Period for such shares is not less than
the rate per annum specified in such Bid. A Bid by a Potential Beneficial Owner
with a rate per annum higher than the Maximum Applicable Rate will not be
considered.
Neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with any of the foregoing.
5
<PAGE> 8
A Broker-Dealer may also hold AMPS for its own account as a Beneficial
Owner. A Broker-Dealer may thus submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of both itself and
its customers. An Order placed with the Auction Agent by a Broker-Dealer as an
Existing Holder or a Potential Holder as or on behalf of a Beneficial Owner or a
Potential Beneficial Owner, as the case may be, will be treated in the same
manner as an Order placed with a Broker-Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to submit
to the Auction Agent an Order in respect of any AMPS held by it or its customers
who are Beneficial Owners will be treated in the same manner as a Beneficial
Owner's failure to submit to its Broker-Dealer an Order in respect of AMPS held
by it, as described above. Inasmuch as a Broker-Dealer participates in an
Auction as an Existing Holder or a Potential Holder only to represent the
interests of a Beneficial Owner or Potential Beneficial Owner, whether it be its
customers or itself, all discussion herein relating to the consequences of an
Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
If Sufficient Clearing Bids exist in an Auction (that is, in general, the
number of shares of AMPS subject to bids by Potential Holders is at least equal
to the number of shares of AMPS subject to Sell Orders by Existing Holders), the
Applicable Rate will be the lowest rate per annum specified in the Submitted
Bids which, taking into account such rate per annum and all lower rates per
annum by Existing Holders and Potential Holders, would result in Existing
Holders and Potential Holders owning all of the shares of AMPS available for
purchase in the Auction. If Sufficient Clearing Bids do not exist, such
Applicable Rate will be the Maximum Applicable Rate and, in such event, Existing
Holders that have submitted Sell Orders will not be able to sell in the Auction
all, and may not be able to sell any, shares of AMPS subject to such Sell
Orders. Thus, under some circumstances, Existing Holders and, thus, the
Beneficial Owners they represent, may not have liquidity of investment. If all
Existing Holders submit (or are deemed to have submitted) Hold Orders in an
Auction, the Applicable Rate will be 90% of the 30-day "AA" Composite Commercial
Paper Rate in effect on the date of the Auction.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder selling or holding, or a
Potential Holder purchasing, a number of shares of AMPS that is less than the
number of shares of AMPS specified in its Order. To the extent the allocation
has this result, a Broker-Dealer will be required to make appropriate pro rata
allocations among its customers and itself.
A Sell Order by an Existing Holder will constitute an irrevocable offer to
sell the shares of AMPS subject thereto, and a Bid placed by an Existing Holder
will also constitute an irrevocable offer to sell the shares of AMPS subject
thereto if the rate per annum specified in the Bid is higher than the Applicable
Rate determined in the Auction, in each case at a price per share equal to
$25,000. A Bid placed by a Potential Holder will constitute an irrevocable offer
to purchase the shares of AMPS subject thereto if the rate per annum specified
in such Bid is less than or equal to the Applicable Rate determined in the
Auction, at a price per share equal to $25,000. Settlement of purchases and
sales will be made on the next Business Day (also a Dividend Payment Date) after
the Auction Date through the Securities Depository. Purchasers will make payment
through their Agent Members in same-day funds settled through the New York
Clearing House to the Securities Depository against delivery by book entry to
their Agent Members. The Securities Depository will make payment to the sellers'
Agent Members in accordance with the Securities Depository's normal procedures,
which now provide for payment in same-day funds. See "Description of AMPS -- The
Auction."
ASSET MAINTENANCE
Under the Articles Supplementary of the Fund specifying the powers,
preferences and rights of the shares of AMPS (the "Articles Supplementary"), the
Fund must maintain (i) assets having in the aggregate a Discounted Value at
least equal to the AMPS Basic Maintenance Amount and (ii) a 1940 Act AMPS --
Asset Coverage Ratio at least equal to the 1940 Act AMPS Asset Coverage
Requirement, which currently requires the Fund to have assets with an aggregate
value at least equal to 200% of senior securities (including the AMPS and other
Preferred Stock). See "Description of AMPS -- Asset Maintenance."
6
<PAGE> 9
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 400%.
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."
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
7
<PAGE> 10
income their proportionate share of such taxes but may be entitled to a
deduction or credit for such share in computing their federal income tax.
Investors should refer to the discussion entitled "Taxation" for additional
details regarding the tax considerations relating to AMPS.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Investment in the Fund involves special considerations, including the fact
that the Fund invests primarily in Australian dollar denominated securities. As
a result, changes in the exchange rate of the Australian dollar relative to the
U.S. dollar, which could be material, will affect the U.S. dollar value of the
Fund's assets, its yield and the amount of securities required to be liquidated
in order to meet distribution requirements established by the Code or to redeem
the AMPS. Moreover, an increase in interest rates in Australia and New Zealand
could be expected to result in a decline in the value of the Fund's portfolio
securities. However, the AMPS Basic Maintenance Amount, which the Fund is
required to maintain by Moody's and S&P in connection with their rating of the
AMPS, mitigates against risks to holders of AMPS associated with investment in
foreign issues by requiring the Fund to redeem AMPS before the assets of the
Fund, as measured in U.S. dollars, would be insufficient to pay the AMPS
liquidation preference of $25,000 plus accumulated but unpaid dividends (whether
or not earned or declared). The Fund is classified as a "non-diversified"
investment company and, as a result, may be more susceptible than a more widely
diversified fund to any single economic, political or regulatory occurrence. The
Fund's Articles and By-laws include provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board of Directors. The issuance of
Preferred Stock could have the effect, although not presently intended, of
discouraging takeovers of the Fund. See "Special Considerations and Risk
Factors."
There are a number of specific factors investors in AMPS should consider:
- The credit ratings of the AMPS could be reduced while an investor holds
the AMPS;
- Neither Broker-Dealers nor the Fund are obligated to purchase shares of
AMPS in an Auction or otherwise, nor is the Fund required to redeem
shares of AMPS in the event of a failed Auction; and
- If, in an Auction for the AMPS, Sufficient Clearing Bids do not exist,
the Applicable Rate will be the Maximum Applicable Rate and, in such
event, Beneficial Owners that have submitted Sell Orders will not be able
to sell in the Auction all, or may not be able to sell any, shares of
AMPS subject to such Sell Orders. Thus, under certain circumstances,
Beneficial Owners may not have liquidity of investment.
The AMPS will not be registered on any stock exchange or on the National
Association of Securities Dealers Automated Quotation System. The Broker-Dealers
may maintain a secondary market in the shares of AMPS outside the Auction
mechanism. The Broker-Dealers, however, have no obligation to make a secondary
market in the shares of AMPS outside the Auction process, and there can be no
assurance that a secondary market for the AMPS will develop or, if it does
develop, that it will provide holders with liquidity of investment. If a
Broker-Dealer purchases shares of AMPS in the secondary market or in an Auction,
it may be in a position of owning shares of AMPS at the time Applicable Rates
with respect to the AMPS are determined and it may tender such shares in any
Auction.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the ten years
in the period ended October 31, 1995, 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>
PER SHARE OPERATING
PERFORMANCE:
SIX MONTHS
ENDED
APRIL 30, YEARS ENDED OCTOBER 31,
---------- -------------------------------------------------------------------------------
1996 1995** 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per common share,
beginning of period.............. $ 9.36 $ 8.82 $ 10.09 $ 9.61 $ 11.31 $ 10.02 $ 9.31
---------- ---------- ---------- ---------- -------- -------- --------
Net investment income............. .44 .93 1.01 1.19 1.29 1.40 1.49
Net realized and unrealized gain
(loss) on investments and foreign
currencies....................... .37 1.16 (1.03) .58 (1.42) 1.37 .73
---------- ---------- ---------- ---------- -------- -------- --------
Total from investment
operations..................... .81 2.09 (.02) 1.77 (.13) 2.77 2.22
---------- ---------- ---------- ---------- -------- -------- --------
Dividends from net investment
income to preferred
shareholders..................... (.06) (.17) (.12) (.11) (.14) (.24) (.30)
Dividends from net investment
income to common shareholders.... (.41) (.83) (.84) (1.08) (1.10) (1.24) (1.13)
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) -- (.08)
---------- ---------- ---------- ---------- -------- -------- --------
Total dividends and
distributions.................... (.52) (1.16) (1.14) (1.28) (1.54) (1.48) (1.51)
---------- ---------- ---------- ---------- -------- -------- --------
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 $ 11.31 $ 10.02
========== ========== ========== ========== ======== ======== ========
Market price per common share, end
of period........................ $ 8.56 $ 9.31 $ 9.56 $ 10.25 $ 10.00 $ 10.94 $ 8.94
TOTAL INVESTMENT RETURN BASED ON+:
Market value...................... (3.53)% 8.78% 3.32% 15.00% 4.11% 38.36% 14.95%
Net asset value................... 8.17% 18.54% (3.19)% 17.80% (3.22)% 27.62% 22.88%
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS/ SUPPLEMENTAL
DATA#:
Expenses.......................... 1.40%*++ 1.47%++ 1.41%++ 1.44%++ 1.43%++ 1.59%++ 1.54%++
Net investment income before
preferred stock dividends........ 9.51%* 10.83% 10.68% 12.13% 12.14% 13.42% 15.47%
Preferred stock dividends......... 1.41%* 1.87% 1.20% 1.13% 1.25% 2.31% 3.11%
Net investment income available to
common shareholders.............. 8.10%* 8.96% 9.48% 11.00% 10.89% 11.11% 12.36%
Portfolio turnover rate........... 11% 50% 34% 23% 17% 83% 80%
Net assets of common shareholders,
end of period (000 omitted)...... $1,501,713 $1,452,205 $1,088,631 $1,050,084 $977,933 $972,569 $861,379
Average net assets of common
shareholders (000 omitted)....... $1,456,375 $1,201,383 $1,174,394 $1,011,324 $938,072 $899,175 $826,862
Senior securities (preferred
stock) outstanding (000
omitted)......................... $ 475,000 $ 475,000 $ 400,000 $ 350,000 $300,000 $300,000 $300,000
Asset coverage of preferred stock
at period end.................... 416% 406% 372% 400% 426% 424% 387%
<CAPTION>
APRIL 24, 1986##
THROUGH
YEARS ENDED OCTOBER 31, OCTOBER 31,
PER SHARE OPERATING ---------------------------------- ----------------
PERFORMANCE: 1989 1988 1987 1986
-------- -------- -------- --------
<S> <<C> <C> <C> <C>
Net asset value per common share,
beginning of period.............. $ 10.81 $ 8.74 $ 8.26 $ 9.33+++
-------- -------- -------- --------
Net investment income............. 1.32 .97 1.02 .49
Net realized and unrealized gain
(loss) on investments and foreign
currencies....................... (1.22) 2.50 .52 (1.46)
-------- -------- -------- --------
Total from investment
operations..................... .10 3.47 1.54 (.97)
-------- -------- -------- --------
Dividends from net investment
income to preferred
shareholders..................... (.20) -- -- --
Dividends from net investment
income to common shareholders.... (1.08) (1.40) (1.06) (.08)
Distributions from net capital and
currency gains to preferred
shareholders..................... -- -- -- --
Distributions from net capital and
currency gains to common
shareholders..................... (.23) -- -- --
-------- -------- -------- --------
Total dividends and
distributions.................... (1.51) (1.40) (1.06) (.08)
-------- -------- -------- --------
Capital charge in respect to
issuance of shares............... (.09) -- -- (.02)
-------- -------- -------- --------
Net asset value per common share,
end of period.................... $ 9.31 $ 10.81 $ 8.74 $ 8.26
======== ======== ======== ========
Market price per common share, end
of period........................ $ 8.88 $ 9.56 $ 7.25 $ 8.38
TOTAL INVESTMENT RETURN BASED ON+:
Market value...................... 7.38% 54.42% (2.09)% (9.31)%
Net asset value................... (.44)% 44.84% 19.74% (10.65)%
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS/ SUPPLEMENTAL
DATA#:
Expenses.......................... 1.35%++ 1.04% 1.11% 1.09*
Net investment income before
preferred stock dividends........ 13.46% 9.51% 11.61% 11.75%*
Preferred stock dividends......... 2.07% -- -- --
Net investment income available to
common shareholders.............. 11.39% 9.51% 11.61% 11.75%*
Portfolio turnover rate........... 46% 60% 52% 13%
Net assets of common shareholders,
end of period (000 omitted)...... $800,166 $928,689 $751,129 $708,012
Average net assets of common
shareholders (000 omitted)....... $832,779 $875,609 $756,274 $703,339
Senior securities (preferred
stock) outstanding (000
omitted)......................... $300,000 -- -- --
Asset coverage of preferred stock
at period end.................... 367% -- -- --
</TABLE>
- ---------------
* Annualized.
+ Total investment return is calculated assuming a purchase of common stock
on the first day and a sale on the last day of each 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.
9
<PAGE> 12
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 accumulated 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.
AUCTION MARKET PREFERRED STOCK, SERIES A-G
<TABLE>
<CAPTION>
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
</TABLE>
At April 30, 1996 the asset coverage per share of Preferred Stock was
$104,037.53.
- ---------------
(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.
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%.
10
<PAGE> 13
The following table is designed to illustrate the effect on return to a
holder of the Fund's Common Stock of the leverage obtained by the issuance of
the 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 or diminished by fluctuations in
foreign currency. See "Risk Factors and Special Considerations -- Preferred
Stock."
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses)........ -10% -5% 0% 5% 10%
Corresponding Common Stock Return(1).............. -15.60% -8.97% -2.33% 4.30% 10.94%
</TABLE>
- ---------------
(1) In order to compute "Corresponding Common Stock Return," the "Assumed
Portfolio Return" is multiplied by the total value of Fund assets as of the
beginning of the fiscal year (November 1, 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."
11
<PAGE> 14
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 29, 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, AS ADJUSTED
1996 (1)(2)(3)
(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,
24,000 shares of AMPS issued and outstanding, at $25,000 per
share liquidation preference................................. 475,000,000 600,000,000
Common Stock, par value $.01 per share, authorized 200,000,000
shares, 155,647,805 shares issued and outstanding, as
adjusted, 194,559,756 shares issued and outstanding(1)....... 1,556,478 1,945,597
Paid-in capital in excess of par(1)(2)......................... 1,375,400,599 1,672,585,608
Undistributed net investment income............................ 10,972,622 10,972,622
Accumulated net realized losses on investments................. 5,607,568 5,607,568
Net unrealized depreciation on investments..................... (43,008,975) (43,008,975)
Accumulated net realized and unrealized foreign exchange
gains........................................................ 151,184,388 151,184,388
------------- -------------
Total net assets..................................... 1,976,712,680 2,399,286,808
============= =============
Net assets applicable to Common Stock(1)(2)(3)................. 1,501,712,680 1,799,286,808
============= =============
</TABLE>
- ---------------
(1) As adjusted, reflects the issuance of 38,911,951 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 $1,875,000 and offering costs of
approximately $322,724.
(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 5,000 shares offered hereby.
12
<PAGE> 15
THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act. The Fund commenced operations in April 1986 and
was the first publicly offered United States registered investment company
organized to invest primarily in Australian debt securities. Registration of the
Fund under the 1940 Act does not involve supervision of the Fund's investments
by the Securities and Exchange Commission (the "Commission"). The Fund's
investment objective is current income through investment primarily in
Australian debt securities. The Fund may also achieve incidental capital
appreciation.
It is expected that normally at least 65% of the Fund's total assets will
be invested in Australian dollar denominated debt securities of Australian
banks, federal and state governmental entities and companies. To achieve its
investment objective, the Fund may invest the remainder of its assets in debt
securities of comparable quality which are denominated in Australian or New
Zealand dollars of other issuers, whether or not domiciled in Australia or New
Zealand, and in U.S. Securities. During periods when, in the Investment
Manager's judgment, changes in the market for Australian and New Zealand debt
securities or other economic conditions warrant a temporarily defensive
investment policy, the Fund may temporarily reduce its position in such
securities and invest in U.S. Securities. The Fund may enter into repurchase
agreements with banks and broker-dealers pursuant to which the Fund may acquire
a security for a relatively short period (usually no more than one week) subject
to the obligations of the seller to repurchase and the Fund to resell such
security at a fixed time and price. See "Investment Objective and Policies;
Investment Restrictions."
The Fund's Investment Manager is EquitiLink International Management
Limited, an investment management company organized in Jersey, Channel Islands.
The Investment Manager manages, in accordance with the Fund's stated investment
objective, policies and limitations and subject to the supervision of the Fund's
Board of Directors, the Fund's investments and makes investment decisions on
behalf of the Fund, including the selection of, and placing of orders with,
brokers and dealers to execute portfolio transactions on behalf of the Fund and
the making of investments in U.S. dollar denominated securities. The Investment
Manager's affiliate, EquitiLink Australia Limited, an Australian corporation,
acts as the Fund's Investment Adviser, providing portfolio recommendations to
the Investment Manager with respect to Australian and New Zealand dollar
denominated securities. The Investment Manager and the Investment Adviser also
serve in these capacities for The First Australia Fund, Inc., a diversified
closed-end management investment company, whose shares are listed on the
American Stock Exchange, organized to invest primarily in Australian equity
securities which commenced operations in 1985 and First Australia Prime Income
Investment Company Limited, a closed-end investment company, whose shares are
listed on the Toronto Stock Exchange, organized to invest primarily in
Australian debt securities, which commenced operations in 1986. In addition, the
Investment Manager and Investment Adviser provide management and advisory
services to The First Commonwealth Fund, Inc., a non-diversified, closed-end
management investment company whose shares are traded on the New York Stock
Exchange, organized to invest in high-grade, fixed income securities denominated
in the currencies of Australia, Canada, New Zealand and the United Kingdom. The
Investment Adviser also manages eight Australian public unit trusts and two
other closed-end investment companies whose shares are listed on the Australian
Stock Exchange Limited, as well as two open-end funds marketed in Taiwan and
institutional and private advisory accounts. The Investment Manager and the
Investment Adviser are registered with the Commission under the Investment
Advisers Act of 1940. The Prudential Insurance Company of America, as
Consultant, consults with the Investment Manager and the Investment Adviser with
respect to economic factors and trends and currency movements affecting the
Fund. See "Management."
USE OF PROCEEDS
Subject to market conditions, the net proceeds of this offering (estimated
to be $122,802,276 after deducting estimated issuance costs, including sales
load of $1,875,000 and offering costs of approximately $322,724) will be
invested within 60 days of the receipt thereof in accordance with the policies
set forth under "Investment Objective and Policies; Investment Restrictions."
Pending such investment, such proceeds may be invested in U.S. Securities and
repurchase agreements.
13
<PAGE> 16
SPECIAL CONSIDERATIONS AND RISK FACTORS
It is expected that normally at least 65% of the Fund's total assets will
be invested in Australian dollar denominated debt securities of Australian
banks, federal and state governmental entities and companies. The Fund may
invest the remainder of its assets in debt securities of comparable quality
which are denominated in Australian or New Zealand dollars of other issuers and
in U.S. Securities. As a result, changes in the exchange rate of the Australian
and New Zealand dollar relative to the U.S. dollar, which could be material,
will affect the U.S. dollar value of the Fund's assets, its yield and the amount
of securities required to be liquidated in order to meet distribution
requirements established by the Code or to redeem the AMPS. Moreover, an
increase in interest rates in Australia or New Zealand could be expected to
result in a decline in the value of the Fund's portfolio securities. However,
the AMPS Basic Maintenance Amount, which the Fund is required to maintain by
Moody's and S&P in connection with their rating of the AMPS, mitigates against
risks to holders of AMPS associated with investment in foreign issues by
requiring the Fund to redeem the AMPS before the assets of the Fund, as measured
in U.S. dollars, would be insufficient to pay the AMPS liquidation preferences
of $25,000 plus accumulated but unpaid dividends (whether or not earned or
declared). See "Description of AMPS -- Asset Maintenance" and "Description of
AMPS -- Redemption." Finally, income received by the Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
country. See "Taxation -- Foreign Withholding Taxes."
As a non-diversified investment company, there is no investment restriction
on the percentage of the Fund's assets that may be invested at any time in the
securities of any issuer. Thus, subject to the diversification requirements
imposed by the Code applicable to the Fund, the Fund may be more susceptible
than a more widely diversified fund to any single economic, political or
regulatory occurrence. However, in addition to the diversification restrictions
imposed by the Code, the Fund's investment restrictions prevent it from
investing more than 25% of its total assets at the time of purchase in any one
industry except that the Fund may invest over 25% of its total assets in
securities issued or guaranteed, as to payment of principal and interest, by
Australian governments or governmental agencies. The Fund also intends to limit
its investments in the securities of any issuer, except for securities issued or
guaranteed as to payment of principal and interest by Australian or New Zealand
commonwealth or state governments or their instrumentalities, to 5% of its
assets at the time of purchase. See "Investment Objective and Policies;
Investment Restrictions -- Portfolio Structure" and "Investment Objective and
Policies; Investment Restrictions -- Investment Restrictions" and
"Taxation -- Tax Treatment of the Fund -- General."
The Fund's Articles and By-laws include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund, the Fund's freedom to engage in certain transactions, or the
ability of the Fund's Directors or shareholders to amend the Articles or to
effect changes in the Fund's management. The issuance of preferred stock could
have the effect, although not presently intended, of discouraging takeovers of
the Fund. See "Certain Provisions of Articles of Amendment and Restatement."
There are a number of specific factors investors in AMPS should consider.
- The credit ratings of the AMPS could be reduced while an investor
holds the AMPS.
- Neither Broker-Dealers nor the Fund are obligated to purchase shares
of AMPS in an Auction or otherwise, nor is the Fund required to redeem
shares of AMPS in the event of a failed Auction.
- If, in an Auction for the AMPS, Sufficient Clearing Bids do not exist,
the Applicable Rate will be the Maximum Applicable Rate and, in such
event, Beneficial Owners that have submitted Sell Orders will not be
able to sell in the Auction all, and may not be able to sell any,
shares of AMPS subject to such Sell Orders. Thus, under certain
circumstances, Beneficial Owners may not have liquidity of investment.
The AMPS will not be registered on any stock exchange or on the National
Association of Securities Dealers Automated Quotation System. The Broker-Dealers
may maintain a secondary market in the shares of AMPS outside the Auction
mechanism. The Broker-Dealers, however, have no obligation to make a secondary
market in the shares of AMPS outside the Auction process, and there can be no
assurance that a secondary market for the AMPS will develop or, if it does
develop, that it will provide holders with liquidity of
14
<PAGE> 17
investment. If a Broker-Dealer purchases shares of AMPS in the secondary market
or in an Auction, it may be in a position of owning shares of AMPS at the time
Applicable Rates with respect to the AMPS are determined and it may tender such
shares in any Auction.
PORTFOLIO COMPOSITION
The following sets forth certain information with respect to the
composition of the Fund's investment portfolio (excluding $101,808,255 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.................................. 22 576,042,243 34.9
Australian semi-government securities......... 16 348,104,580 21.1
Australian and New Zealand corporate bonds.... 17 210,953,330 12.7
Eurobonds..................................... 43 516,863,253 31.3
--
------------- -----
Total long-term investments......... 98 1,651,963,406 100.0
== ============= =====
</TABLE>
RATINGS OF SECURITIES HELD IN THE PORTFOLIO*
<TABLE>
<CAPTION>
% OF TOTAL
MARKET VALUE
OF LONG-TERM
PORTFOLIO
------------
<S> <C>
Aaa/AAA......................................................... 76
Aa/AA........................................................... 21
A/A............................................................. 3
---
Total Portfolio Rated................................. 100
===
</TABLE>
- ---------------
* Rated by Moody's or S&P or, in the judgment of the Fund's Investment Adviser,
are of equivalent quality. Where Moody's and S&P differ, the table represents
the higher rating.
For further information, reference should be made to "Financial
Statements."
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.
15
<PAGE> 18
PORTFOLIO STRUCTURE
It is expected that normally at least 65% of the Fund's total assets will
be invested in Australian dollar denominated debt securities of Australian
banks, federal and state governmental entities and companies. To achieve its
investment objective, the Fund may invest the remainder of its assets in debt
securities of comparable quality which are denominated in Australian or New
Zealand dollars of other issuers, whether or not domiciled in Australia or New
Zealand, and in U.S. Securities. The Fund will invest only in debt securities
for which there is an active secondary market and will not purchase securities
as to which there would be any legal restrictions on sale or disposition by the
Fund except that the Fund may invest up to 10% of its assets in privately placed
debt securities which (i) are Australian or New Zealand dollar denominated, (ii)
are not subject to legal or contractual restriction on their resale, (iii)
mature in four years or less, and (iv) are issued or guaranteed by banks or
companies whose debt securities are rated Aa or better by Moody's or AA or
better by S&P. The Fund will not invest in convertible debt securities. During
periods when, in the Investment Manager's judgment, changes in the market for
Australian and New Zealand debt securities or other economic conditions warrant
a temporary defensive investment policy, the Fund may temporarily reduce its
position in such securities and invest in U.S. Securities.
It is the Fund's policy to limit its investments, as to 65% of its total
assets, to issuers or debt securities at the time of investment rated AA or
better by S&P, or Aa or better by Moody's, or which, in the judgment of the
Investment Manager, are of equivalent quality. The remainder of the Fund's
investments will be rated A by those rating agencies or will in the Investment
Manager's judgment be of equivalent quality.
The Fund may enter into repurchase agreements with banks and broker-dealers
pursuant to which the Fund may acquire a security for a relatively short period
(usually no more than a week) subject to the obligations of the seller to
repurchase and the Fund to resell such security at a fixed time and price. The
Fund will enter into repurchase agreements only with parties who meet
creditworthiness standards approved by the Fund's Board of Directors, i.e.,
banks or broker-dealers which have been determined by the Fund's Investment
Manager to present no serious risk of becoming involved in bankruptcy
proceedings within the period contemplated by the repurchase transaction.
The Fund will not purchase or sell put or call options, enter into swaps or
futures contracts, or engage in any other type of derivative security
transaction.
As a non-diversified company, there is no investment restriction on the
percentage of the Fund's assets that may be invested at any time in the
securities of any issuer. However, the Fund intends to limit its investments in
the securities of any issuer, except for securities issued or guaranteed as to
payment of principal and interest by Australian or New Zealand commonwealth or
state governments or their instrumentalities, to 5% of its assets at the time of
purchase. The Fund may invest without limitation in securities of Australian
governments or governmental entities and may invest up to 25% of its assets at
the time of purchase in New Zealand government securities. The Fund intends to
invest in a variety of debt securities, with differing issuers, maturities and
interest rates, and to comply with the diversification and other requirements of
the Code applicable to regulated investment companies so that the Fund will not
be subject to U.S. federal income taxes on its net investment income. See
"Taxation -- United States." The average U.S. dollar weighted maturity of the
Fund's portfolio is not expected to exceed 10 years.
INVESTMENT RESTRICTIONS
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position.
3. (a) Issue senior securities, except (i) insofar as the Fund may be
deemed to have issued a senior security in connection with any
repurchase or securities lending agreement or any borrowing agreement
permitted by those investment restrictions and (ii) that the Fund may
issue one or
16
<PAGE> 19
more series of its preferred stock, if permitted by the Articles; or
(b) borrow money or pledge its assets, except that the Fund may
borrow on an unsecured basis from banks for temporary or emergency
purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed)
and will not make additional investments while any such borrowings
are outstanding.
4. Buy or sell commodities, commodity contracts, real estate or
interests in real estate (except that the Fund may purchase and sell
Australian mortgage-backed securities).
5. Make loans (except that the Fund may purchase debt securities whether
or not publicly traded or privately placed or may enter into
repurchase and securities lending agreements consistent with the
Fund's investment policies).
6. Make investments for the purpose of exercising control or management.
7. Act as an underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in the
Fund's investment portfolio).
8. Invest more than 25% of its total assets at the time of purchase in
any one industry (including banking) except that the Fund will invest
over 25% of its total assets in securities issued or guaranteed, as
to payment of principal and interest, by Australian governments or
governmental entities. U.S. government securities are excluded from
this restriction.
The Fund has no intention to file a voluntary application for relief under
federal bankruptcy law or any similar application under state law for so long as
the Fund is solvent, and given the investment restrictions of the Fund described
above, in particular, the limitations on the Fund's ability to incur
indebtedness, and the Fund's equity position, management of the Fund cannot
conceive of any circumstances under which the Fund would run any material risk
of becoming insolvent.
DESCRIPTION OF DEBT SECURITIES
The types of debt securities in which the Fund is permitted to invest
include those described below.
Australian Securities
Commercial Banks. The Fund is permitted to invest in bills of exchange,
certificates of deposit and promissory notes issued or guaranteed, as to payment
of principal and interest, by Australian commercial banks. Australian commercial
banks are generally comparable to U.S. banks and are subject to regulation by
Australian government authorities. The Investment Adviser does not believe that
there are any special risks associated with such bank securities. Bills of
exchange are negotiable instruments, issued to finance current transactions,
which generally mature within six months and which are accepted or endorsed by a
commercial bank and thus carry the bank's credit. Certificates of deposit are
negotiable instruments issued by commercial banks with maturities ranging from a
few days to several years. Promissory notes are negotiable instruments endorsed
and therefore guaranteed by a commercial bank or backed by a bank letter of
credit as to payment of principal and interest. Maturities generally range up to
180 days. Bank bills, certificates of deposit and promissory notes are usually
issued at a discount from face value and are traded by dealers in an active
public secondary market.
Governmental Entities. The Fund is permitted to invest in Federal
Commonwealth of Australia (the "Commonwealth") government bonds and treasury
notes and state government and semi-government bonds and notes. Commonwealth
government bonds and treasury notes represent the obligations of the
Commonwealth and are sold by the Reserve Bank of Australia (the central bank)
through public tenders. Bonds have maturities up to 30 years while notes are
issued in maturities of 13 and 26 weeks. The Commonwealth also guarantees as to
payment of principal and interest similar debt obligations issued by its
instrumentalities. State government and semi-government bonds and notes are
issued by various states and state instrumentalities and, in the case of state
instrumentalities, are guaranteed by the applicable state government. Maturities
range from less than one year to 15 years. Australian federal and state
government debt securities are frequently
17
<PAGE> 20
listed on the Australian Stock Exchange Limited but most trading is by dealers
in an active public secondary market.
Companies. The Fund is permitted to invest in publicly-traded notes and
debentures or bills of exchange issued or guaranteed as to payment of principal
and interest by Australian companies, whether or not guaranteed or backed by a
commercial bank. Such securities have maturities generally ranging from less
than one year to five years and are traded by dealers in an active public
secondary market.
Mortgage-Backed Securities. The Fund is permitted to invest in Australian
mortgage-backed securities, which represent part ownership by the Fund in a pool
of mortgage loans. These loans are made by private lenders and may have
guarantees from Australian federal and state governmental entities, companies
and agencies. These securities would have to satisfy the Fund's general credit
criteria to qualify for purchase. Characteristics of several of the major
mortgage-backed securities are summarized below:
FANMACs: FANMAC securities ("FANMAC Certificates") are securities
issued by a trustee against housing loans made through the New South Wales
Department of Housing and consist of a series of closed trusts or pools.
The mortgage manager is the First Australian National Mortgage Acceptance
Corporation Ltd. ("FANMAC"). FANMAC is owned 26% by the Government of the
State of New South Wales with the remainder owned by other institutions.
The Government of the State of New South Wales has provided the FANMAC
Trust with a guarantee as to availability of funds to meet payment. The
securities have been rated by Australian Ratings Pty. Ltd. ("Australian
Ratings") and S&P. FANMAC securities are subject to a call provision under
which borrowers (mortgagors) can repay early and the investors in a
particular pool can be repaid on a pro rata basis.
NMMC AUSSIE MACs and National Mortgage Market Bonds: National
Mortgage Market Corporation Ltd. ("NMMC") has issued both AUSSIE MACs,
which are medium term bearer securities, and National Mortgage Market
Bonds. NMMC is a private company which is 26% owned by the Government of
the State of Victoria and 74% by private institutions. Both AUSSIE MACs and
National Mortgage Market Bonds are rated by Australian Ratings.
MTCs: Mortgage Trust Certificates ("MTCs") are securities issued
against specific mortgages by a trustee and are similar to "pass through"
certificates. MTCs are issued on a continuous basis, insured by Australian
insurance companies against both mortgage default and an early call, and
rated by Australian Ratings.
MMSs and ANNIE MAEs: MMSs are mortgage-backed securities issued by
MGICA Securities Ltd., a wholly-owned subsidiary of AMP Society Ltd., an
Australian insurance company. ANNIE MAEs are securities issued by
Australian National Mortgage Pool Agency Ltd., an affiliate of Bank of
America. Both MMSs and ANNIE MAEs are issued against pools of mortgages and
are rated by Australian Ratings.
Other Debt Securities. Subject to its investment policy of investing
at least 65% of its assets in Australian dollar denominated debt securities
of Australian issuers, the Fund is permitted to invest in Australian and
New Zealand dollar denominated debt securities, similar in nature to those
described above, regardless of the domicile of the issuers. Thus, the Fund
is permitted to invest in publicly-traded debt securities of New Zealand
issuers and in publicly-traded debt securities denominated in Australian or
New Zealand dollars of issuers not domiciled in those countries. The latter
securities are usually issued in the Eurodollar market by multi-national
banks and companies which may have operations in Australia or New Zealand.
The Fund is also permitted to invest up to 10% of its assets in privately
placed debt securities which are Australian and New Zealand dollar denominated,
mature in four years or less and which are issued or guaranteed by banks or
companies whose debt securities are rated at the time of investment Aa or better
by Moody's or AA or better by S&P. The Fund may not purchase privately placed
securities which are subject to legal or contractual restrictions on their
resale. However, although such securities will be freely transferable, the
resale markets for privately placed securities are frequently limited, and the
Fund may either be required
18
<PAGE> 21
to dispose of such securities at a substantial discount from face value or to
hold such securities until maturity. The value of such securities for net asset
value purposes will be determined by the Fund's Board of Directors.
U.S. Securities
Government. The Fund is permitted to invest in U.S. government securities,
including obligations issued or guaranteed by U.S. government agencies or
instrumentalities, some of which are backed by the full faith and credit of the
U.S. Treasury (such as direct pass-through certificates of the Government
National Mortgage Association ("GNMA")), some of which are supported by the
right of the issuer to borrow from the U.S. government (such as obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of the
issuer itself. Government obligations do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from U.S. government obligations are generally
lower than the yields available from corporate interest bearing securities. Like
other interest bearing securities, however, the value of government obligations
changes as interest rates fluctuate.
Corporations and Banks. The Fund is permitted to invest for defensive and
other temporary purposes in U.S. corporate debt instruments rated Aa or better
by Moody's or AA or better by S&P and finance company and corporate commercial
paper and other short-term obligations, in each case rated Prime-1 or Prime-2 by
Moody's or A-2 or better by S&P. The Fund is also permitted to invest in
obligations of U.S. federal or state chartered banks and bank holding companies
rated at the time of investment Aa or better by Moody's or AA or better by S&P
(including certificates of deposit, bankers' acceptances and other short-term
debt obligations).
Repurchase Agreements
The Fund is permitted to invest in repurchase agreements with banks and
broker-dealers. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually no more than one
week) subject to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Investment Manager monitors the value of such securities
daily to determine that the value equals or exceeds the repurchase price. Under
the 1940 Act, repurchase agreements are considered to be loans made by the Fund
which are collateralized by the securities subject to repurchase. Repurchase
agreements may involve risks in the event of default or insolvency of the
seller, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. The Fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
Fund's Board of Directors, i.e., banks or broker-dealers which have been
determined by the Investment Manager to present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
RATING AGENCY GUIDELINES
The Fund intends that, so long as shares of AMPS are outstanding, the
composition of its portfolio will reflect guidelines established by the Rating
Agencies in connection with the Fund's receipt of a rating for such shares on
the Date of Original Issue of at least "aa" from Moody's and at least AA from
S&P. Moody's and S&P issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be
sufficiently varied and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force of law but have
been adopted by the Fund and will be reflected in the Articles Supplementary in
order at issuance to receive the above-described ratings for shares of AMPS,
which ratings are generally relied upon by institutional investors in purchasing
such securities. The guidelines provide a set of tests for portfolio composition
and asset coverage that supplement (and in some cases are more restrictive than)
the applicable requirements under the 1940 Act.
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the AMPS Basic Maintenance Amount. To the extent any particular
portfolio holding does not satisfy the applicable rating agency guidelines, as
the same may be modified by the Ratings Agencies from time to time, it will not
be
19
<PAGE> 22
included for purposes of calculating the Discounted Value of the Fund's
portfolio. Upon any failure to maintain such Discounted Value, the Fund will
seek to alter the composition of its portfolio to reattain the AMPS Basic
Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date, thereby
incurring additional transaction costs and possible losses and/or gains on
disposition of portfolio securities. To the extent any such failure is not cured
in a timely manner, shares of AMPS will be subject to redemption. See
"Description of AMPS -- Redemption -- Mandatory Redemption."
The Fund may, but is not required to, adopt any modifications to these
guidelines that may hereafter be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the shares of AMPS may, at any time, change or withdraw
any such rating. As set forth in the Articles Supplementary, the Board of
Directors may, without shareholder approval, modify certain terms of the
Articles Supplementary which have been adopted by the Fund pursuant to the
rating agency guidelines, provided the Board of Directors has obtained written
confirmation from the relevant rating agency that any such change would not
impair the rating then assigned by such agency to the AMPS.
As recently described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings on the AMPS are not recommendations to purchase, hold
or sell shares of AMPS, inasmuch as the ratings do not comment as to market
price or suitability for a particular investor. Nor do the rating agency
guidelines described above address the likelihood that a holder of shares of
AMPS will be able to sell such shares in an Auction. The ratings are based on
current information furnished to Moody's and S&P by the Fund and the Investment
Adviser, and information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information. The Common Stock has not been rated by a nationally
recognized statistical rating organization.
S&P AA Rating Guidelines. The Discounted Value of the Fund's Eligible
Portfolio Property is calculated on each Valuation Date. See "Description of
AMPS -- Asset Maintenance -- AMPS Basic Maintenance Amount." S&P Eligible
Portfolio Property currently consists of Australian Bank Bills, Australian
Corporate Bonds, Australian Currency, Australian Exchangeable Eurobonds,
Australian Eurobonds, Australian Government Securities, Australian
Semi-Government Securities, Cash, U.S. Government Obligations, Repurchase
Agreements, Short Term Money Market Instruments, FNMA Certificates, FHLMC
Certificates, FHLMC Multifamily Securities, GNMA Certificates and GNMA Graduated
Payment Securities.
Generally speaking, securities constituting S&P Eligible Portfolio Property
other than government securities, must be issued or guaranteed by an entity
which is rated at least AA by S&P. In some cases, the percentage of the S&P
Eligible Portfolio Property which can be held in a particular category or
property or in a particular industry or in securities issued by a single issuer
is limited, or a minimum principal amount of securities of the same class must
be outstanding in order to qualify as S&P Eligible Portfolio Property.
The Discounted Value for purposes of calculating compliance with the AMPS
Basic Maintenance Amount is obtained by dividing the market value of each
portfolio asset constituting S&P Eligible Portfolio Property by a stipulated
Discount Factor.
Each Discount Factor reflects S&P's assessment of the liquidation value of
a particular category of Eligible Portfolio Property. This assessment is based,
in turn, upon such factors as issue size and the remaining maturity of the
instrument. For example, U.S. cash is given a Discount Factor of 1.000.
Australian Currency is currently given a Discount Factor of 1.570, while
Australian Government Securities with a current outstanding issue size of at
least A$100 million but less than or equal to A$150 million having a remaining
maturity of more than 5 but not more than 10 years from the relevant Valuation
Date, is given a Discount Factor of 1.462 compared with a Discount Factor of
1.526 for Australian Government Securities of the same size with maturities in
excess of 10, but not more than 20 years from the relevant Valuation Date.
The Discounted Value of all Australian securities is further discounted by
applying the Discount Factor applicable to Australian Currency.
20
<PAGE> 23
Moody's AA Rating Guidelines. The Discounted Value of the Fund's Moody's
Eligible Portfolio Property is calculated on each Valuation Date. See
"Description of AMPS -- Asset Maintenance -- AMPS Basic Maintenance Amount."
Moody's Eligible Portfolio Property currently consists of Australian Bank Bills,
Australian Currency, Australian Exchangeable Eurobonds, Australian Eurobonds,
Australian Government Securities, Australian Semi-Government Securities, Cash,
U.S. Government Obligations, Repurchase Agreements, Short Term Money Market
Instruments, FNMA Certificates, FHLMC Certificates, FHLMC Multifamily
Securities, GNMA Certificates and GNMA Graduated Payment Securities.
Generally speaking, the Australian Securities must be rated Aa3 or Aaa by
Moody's and in some cases, the percentage of Moody's Eligible Portfolio Property
which can be held in a particular category is limited, or an initial minimum
issue size is required.
The Discounted Value for purposes of calculating compliance with the AMPS
Basic Maintenance Amount is obtained by dividing the market value of each
portfolio asset constituting Moody's Eligible Portfolio Property by a stipulated
Discount Factor. Each Discount Factor reflects Moody's assessment of the
liquidation value of a particular category of Eligible Portfolio Property. This
assessment is based, in turn, upon such factors as an issue size and the
remaining maturity of the investment.
For example, U.S. cash is given a Discount Factor of 1.000. Australian
Currency is given a Discount Factor of 1.350, while Australian Government
Securities with a current outstanding size of at least A$100 million but less
than or equal to A$150 million having a remaining maturity of more than 5 but
not more than 10 years from the relevant Valuation Date is given a Discount
Factor of 1.730, compared with a Discount Factor of 1.520 for Australian
Government Securities of the same maturities with a current outstanding issue
size greater than A$150 million.
As is the case with S&P, the Discounted Value of all Australian securities
is further discounted by applying the Discount Factor applicable to the
Australian Currency.
Neither Rating Agency has developed Discount Factors for all of the
securities which the Fund may hold pursuant to its investment objectives and,
therefore, certain portfolio assets are not considered Eligible Portfolio
Property by either Agency, including New Zealand currency and any New Zealand
security. Either Rating Agency may in the future add or delete categories to its
list of Eligible Portfolio Property, modify the requirements of eligibility or
modify existing Discount Factors. The addition of additional Eligible Portfolio
Property or a reduction in the magnitudes of Discount Factors could make it
easier for the Fund to meet the Rating Agency guidelines.
A description of all categories of Eligible Portfolio Property and the
Discount Factors stipulated by S&P and Moody's is set forth in the Articles
Supplementary.
DESCRIPTION OF AMPS
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the back of this Prospectus.
GENERAL
The AMPS 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, after the
Initial Dividend Period, each Dividend Period for the Series H AMPS and the
Series I AMPS, respectively, will be seven 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
21
<PAGE> 24
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.
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, after the Initial Dividend Period, a period of seven 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
22
<PAGE> 25
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 Inc., 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.
23
<PAGE> 26
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. For example, if a series of AMPS has a Dividend
Payment Date of each Thursday, Auctions for shares of such series of AMPS for
Dividend Periods after the Initial Dividend Period will normally be held every
Wednesday after the preceding Dividend Payment Date, and each subsequent
Dividend Period will normally begin on the following Thursday (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 Wednesday that normally would be an Auction Date
is not a Business Day then, such Auction Date will be the preceding Tuesday and
the first day of the related Dividend Period will continue to be the following
Thursday. 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 Wednesday and Thursday,
respectively.
Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders. On or prior to each Auction Date:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone
a:
(i) Hold Order indicating a number of outstanding shares, if any,
of AMPS that such Beneficial Owner desires to continue to hold without
regard to the Applicable Rate for the next Dividend Period for such
shares;
(ii) Bid indicating the number of outstanding shares, if any, of
AMPS that such Beneficial Owner desires to continue to hold, provided
that the Applicable Rate for the next Dividend Period for such shares is
not less than the rate per annum then specified by such Beneficial
Owner; and/or
(iii) Sell Order indicating the number of outstanding shares, if
any, of AMPS that such Beneficial Owner offers to sell without regard to
the Applicable Rate for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of shares of AMPS to determine whether such Potential Beneficial
Owners desire to submit Bids indicating the number of shares of AMPS which
they offer to purchase provided that the Applicable Rate for the next
Dividend Period for such shares is not less than the rates per annum
specified in such Bids.
The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity, whether or not for its own account, is
hereinafter referred to as a "Bidder" and collectively as "Bidders." Any Order
submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date shall be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to shares of AMPS then held by such Beneficial Owner, as well as Bids
for additional shares of AMPS. For information concerning the priority given to
different types of Orders placed by Beneficial Owners, see "Submission of Orders
by Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate at any Auction will be the rate obtained by
multiplying the 30-day "AA" Composite Commercial Paper Rate on the date of such
Auction by the Applicable Percentage determined as
24
<PAGE> 27
set forth below based on the lower of the credit rating or ratings assigned to
the AMPS by Moody's and S&P (or if Moody's or S&P or both shall not make such
rating available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in the event that
only one such rating be available, the percentage will be based on such rating).
<TABLE>
<CAPTION>
CREDIT RATING
- ------------------------------------------
S&P MOODY'S APPLICABLE PERCENTAGE
- ------------- --------------------- ---------------------
<S> <C> <C>
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
</TABLE>
The Fund 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.
25
<PAGE> 28
For the purposes of an Auction, shares of AMPS for which the Fund shall
have given notice of redemption and deposited moneys therefor with the Auction
Agent in trust, as set forth under "Description of AMPS Redemption," will not be
considered as outstanding and will not be included in such Auction. Pursuant to
the Articles Supplementary of the Fund, the Fund will be prohibited from
reissuing and its affiliates will be prohibited from transferring (other than to
the Fund) any shares of AMPS they may acquire. Neither the Fund nor any
affiliate of the Fund may submit an Order in any Auction, except that an
affiliate of the Fund that is a Broker-Dealer may submit an Order on behalf of a
Beneficial Owner or Potential Beneficial Owner.
Submission of Orders by Broker-Dealers to Auction Agent. Prior to 1:00
P.M., New York City time, on each Auction Date, or such other time on the
Auction Date as may be specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Fund) as the Existing
Holder or Potential Holder in respect of the shares of AMPS subject to such
Orders. Any Order submitted to a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
If the rate per annum specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent will round such rate per
annum up to the next highest one-thousandth (.001) of 1%.
If one or more Orders are submitted to the Auction Agent on behalf of an
Existing Holder and such Orders cover in the aggregate more than the number of
outstanding shares of AMPS held by such Existing Holder, such Order will be
considered valid in the following order of priority.
(i) any Hold Order submitted on behalf of such Existing Holder will be
considered valid up to and including the number of outstanding shares of
AMPS held by such Existing Holder, provided that if more than one Hold
Order is submitted on behalf of such Existing Holder and the number of
shares of AMPS subject to such Hold Orders exceeds the number of
outstanding shares of AMPS held by such Existing Holder, the number of
shares of AMPS subject to each of such Hold Orders will be reduced pro rata
so that such Hold Orders in the aggregate will cover exactly the number of
outstanding shares of AMPS held by such Existing Holder;
(ii) any Bids submitted on behalf of such Existing Holder will be
considered valid in the ascending order of their respective rates per annum
if more than one Bid is submitted on behalf of such Existing Holders, up to
and including the excess of the number of outstanding shares of AMPS held
by such Existing Holder over the number of outstanding shares of AMPS
subject to any Hold Order referred to in clause (i) above (and if more than
one Bid submitted on behalf of such Existing Holder specifies same rate per
annum and together they cover more than the remaining number of shares that
can be the subject of valid Bids after application of clause (i) above and
of the foregoing portion of this clause (ii) to any Bid or Bids specifying
a lower rate or rates per annum, the number of shares subject to each of
such Bids will be reduced pro rata so that such Bids, in the aggregate,
cover exactly such remaining number of outstanding shares); and the number
of outstanding shares, if any, subject to Bids not valid under this clause
(ii) shall be treated as the subject of a Bid by a Potential Holder; and
(iii) any Sell Order will be considered valid up to and including the
excess of the number of outstanding shares of AMPS held by such Existing
Holder over the sum of the shares of AMPS subject to Hold Orders referred
to in clause (i) above and valid Bids by such Existing Holder referred to
in clause (ii) above; provided that if more than one Sell Order is
submitted on behalf of any Existing Holder and the number of shares of AMPS
subject to such Sell Orders is greater than such excess, the number of
shares of AMPS subject to each of such Sell Orders will be reduced pro rata
so that such Sell Orders, in the aggregate, will cover exactly the number
of shares of AMPS equal to such excess.
If more than one Bid is submitted on behalf of any Potential Holder in any
Auction, each Bid submitted in such Auction will be considered a separate Bid
with the rate per annum and number of shares of AMPS specified.
26
<PAGE> 29
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate. Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealer (each such "hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer being hereinafter referred to as a
"Submitted Hold Order," "Submitted Bid Order" or "Submitted Sell Order," as the
case may be), and will determine the excess of the number of outstanding shares
of AMPS over the number of outstanding shares of AMPS subject to Submitted Hold
Orders (such excess being referred to as the "Available AMPS") and whether
Sufficient Clearing Bids have been made in such Auction, Sufficient Clearing
Bids will have been made if the number of outstanding shares of AMPS that are
the subject of Submitted Bids by Potential Holders with rates per annum not
higher than the Maximum Applicable Rate equals or exceeds the number of
outstanding shares that are the subject of Submitted Sell Orders (including the
number of shares subject to Bids by Existing Holders specifying rates per annum
higher than the Maximum Applicable Rate).
If Sufficient Clearing Bids have been made, the Auction Agent will
determine the lowest rate per annum specified in the Submitted Bids (the
"Winning Bid Rate") which would result in the number of shares subject to
Submitted Bids specifying such rate per annum or a lower rate per annum being at
least equal to the Available AMPS. If Sufficient Clearing Bids have been made,
the Winning Bid Rate will be the Applicable Rate for the next Dividend Period
for all shares of AMPS then outstanding.
If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders), the
Applicable Rate for the next Dividend Period for all shares of AMPS will be
equal to the Maximum Applicable Rate. If Sufficient Clearing Bids have not been
made, Existing Holders that have Submitted Sell Orders will not be able to sell
in the Auction all, and may not be able to sell any, shares of AMPS subject to
such Submitted Sell Order. See "Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares."
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations described under "Determination
of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and
subject to the discretion of the Auction Agent to round as described below,
Submitted Bids and Submitted Sell Orders will be accepted or rejected in the
order of priority set forth in the Auction Procedure with the result that
Existing Holders and Potential Holders of AMPS will sell, continue to hold
and/or purchase shares of AMPS as set forth below. Existing Holders that submit
or are deemed to have submitted Hold Orders will continue to hold the shares of
AMPS subject to such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Winning Bid Rate or a Submitted Sell Order will
sell the outstanding shares of AMPS subject to such Submitted Bid or
Submitted Sell Order;
(b) each Existing Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will continue to hold the
outstanding shares of AMPS subject to such Submitted Bid;
(c) each Potential Holder that placed a Submitted Bid specifying a
rate per annum lower than the Winning Bid Rate will purchase the number of
shares of AMPS subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will continue to hold the
outstanding shares of AMPS subject to such Submitted Bid, unless the number
of outstanding shares of AMPS subject to all Submitted Bids of Existing
Holders is greater than the excess of the Available AMPS over the number of
shares of AMPS accounted for in clauses (b) and (c) above, in which event
each Existing Holder with such a Submitted Bid will sell a number of
outstanding shares of AMPS determined on a pro rata basis based on the
number of outstanding shares of AMPS subject to all such Submitted Bids by
such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to the Winning Bid Rate will purchase any Available
AMPS not accounted for in clauses (b), (c) or (d) above on a pro rata basis
based on the shares of AMPS subject to all such Submitted Bids of Potential
Holders.
27
<PAGE> 30
If Sufficient Clearing Bids have not been made (unless this results because
all outstanding shares of AMPS are the subject of Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will continue
to hold the outstanding shares of AMPS subject to such Submitted Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to or lower than the Maximum Applicable Rate will
purchase the number of shares of AMPS subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
will sell a number of outstanding shares of AMPS determined on a pro rata
basis based on the outstanding shares of AMPS subject to all such Submitted
Bids and Submitted Sell Orders.
If as a result of the Auction Procedures described above any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of AMPS, the Auction
Agent will, in such manner as, in its sole discretion, it shall determine, round
up or down the number of shares of AMPS being sold or purchased on such Auction
Date so that each share sold or purchased by each Existing Holder or Potential
Holder will be a whole share of AMPS. If any Potential Holder would be entitled
or required to purchase less than a whole share of AMPS, the Auction Agent will,
in such manner as, in its sole discretion, it shall determine, allocate shares
of AMPS for purchase among Potential Holders so that only whole shares of AMPS
are purchased by any such Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS.
Notification of Results; Settlement. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction on behalf of a
Bidder whether such Bid or Sell Order was accepted or rejected in whole or in
part and of the Applicable Rate for the next Dividend Period for the related
shares of AMPS by telephone at approximately 3:00 P.M., New York City time, on
such Auction Date. Each such Broker-Dealer will then advise such Bidder whether
such Bid or Sell Order was accepted or rejected, will confirm purchases and
sales with each Bidder purchasing or selling shares of AMPS as a result of the
Auction and will advise each Bidder purchasing or selling shares of AMPS to give
instructions to its Agent Member of the Securities Depository to pay the
purchase price against delivery of such shares or to deliver such shares against
payment therefor as appropriate. If an Existing Holder selling shares of AMPS as
a result of an Auction shall fail to instruct its Agent Member to deliver such
shares, the Broker-Dealer that submitted such Existing Holder's Bid or Sell
Order will instruct such Agent Member to deliver such shares against payment
therefor. Each Broker-Dealer that submitted a Hold Order in an Auction on behalf
of an Existing Holder will also advise such Existing Holder of the Applicable
Rate for the next Dividend Period for the AMPS. The Auction Agent will record
each transfer of shares of AMPS on the record book of Existing Holders to be
maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
Business Day after each Auction Date, the transactions described above will be
executed through the Securities Depository and the accounts of the respective
Agent Members at the Securities Depository will be debited and credited as
necessary to effect the purchases and sales of shares of AMPS as determined in
such Auction. Purchasers will make payment through their Agent Members in
same-day funds to the Securities Depository against delivery through their Agent
Members; the Securities Depository will make payment in accordance with its
normal procedures, which now provide for payment in same-day funds. If the
procedures of the Securities Depository applicable to AMPS shall be changed to
provide for payment in next-day funds, then purchasers may be required to make
payment in next-day funds. If the certificates for shares of AMPS are not held
by the Securities Depository or its nominee, payment will be made in same-day
funds to the Auction Agent against delivery of such certificates.
If any Existing Holder selling shares of AMPS in an Auction fails to
deliver such shares, the Broker-Dealer of any person that was to have purchased
shares of AMPS in such Auction may deliver to such person
28
<PAGE> 31
a number of whole shares of AMPS that is less than the number of shares that
otherwise was to be purchased by such person. In such event, the number of
shares of AMPS to be so delivered will be determined by such Broker-Dealer.
Delivery of such lesser number of shares will constitute good delivery. Each
Broker-Dealer Agreement will also provide that neither the Fund nor the Auction
Agent will have responsibility or liability with respect to the failure of a
Potential Beneficial Owner, Beneficial Owner or their respective Agent Members
to deliver shares of AMPS or to pay for shares of AMPS purchased or sold
pursuant to an Auction or otherwise.
BROKER-DEALERS
The Fund will pay the Auction Agent a service fee of 1/4 of 1% per annum of
the aggregate liquidation preference of the AMPS, which fee will be apportioned
among the Broker-Dealers on the basis of the number of shares of AMPS placed by
such Broker-Dealers in the Auctions. For the purposes of the preceding sentence,
shares of AMPS will be placed by a Broker-Dealer if such shares were (i) the
subject of Hold Orders deemed to have been made by Beneficial Owners that were
acquired by such Beneficial Owners through such Broker-Dealer or (ii) the
subject of the following Orders submitted by such Broker-Dealer: (A) a Submitted
Bid of a Beneficial Owner that resulted in such Beneficial Owner continuing to
hold such shares as a result of the Auction, (B) a Submitted Bid of a Potential
Beneficial Owner that resulted in such Potential Beneficial Owner purchasing
such shares as a result of the Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders
in Auctions of the AMPS for its own account, unless the Fund notifies all
Broker-Dealers that they may no longer do so, provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders. If a Broker-Dealer submits an
Order for its own account in any Auction, it may have knowledge of Orders placed
through it in that Auction and therefore have an advantage over other Bidders;
such Broker-Dealer would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.
DIVIDENDS
General
The holders of shares of 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 September ,
1996 and (b) in the case of Series I AMPS, commencing on September , 1996.
Following the Initial Dividend Payment Date, dividends on the Series H AMPS will
be payable on each succeeding Thursday thereafter and dividends on the Series I
AMPS will be payable on each succeeding Friday 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
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<PAGE> 32
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.
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
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<PAGE> 33
preceding Auction Date. If, subsequent to the three-Business Day grace period
referred to in the preceding sentence, the Fund remedies such failure to pay
dividends or the redemption payments by depositing with the Auction Agent all
amounts required by the first sentence of this paragraph plus all accumulated
but unpaid dividends (whether or not earned or declared) the Dividend Payment
Date that is or immediately precedes the date of such remedy, then the
Applicable Rate in respect of each Dividend Period commencing after such remedy
will be determined in accordance with the Auction Procedures until such time as
there is another failure to pay either dividends or the redemption payments with
respect to shares of AMPS. In the event of any such remedy described in the
preceding sentence, the Fund will, not more than 30 nor less than five Business
Days prior to the next Auction Date, notify the Auction Agent, all Existing
Holders and the Securities Depository in writing of the date of the next
Auction.
Upon any failure to pay dividends on shares of Preferred Stock for two
years or more the holders of shares of Preferred Stock will acquire certain
additional voting rights. See "Description of AMPS -- Voting Rights." Although
series of Preferred Stock issued subsequent to the AMPS may have other rights
and remedies, under the Fund's Articles of Incorporation and Articles
Supplementary, such additional voting rights will be the exclusive remedy of the
holders of AMPS upon any failure to pay dividends on the AMPS. Such additional
voting rights are also the exclusive remedy of the holders of the other existing
series of Auction Market Preferred Stock upon any failure to pay dividends
thereon.
Restrictions on Dividends and Other Payments
Under the 1940 Act, the Fund may not declare dividends or make other
distributions on shares of Common Stock or purchase any such shares if, at the
time of the declaration, distribution or purchase, as applicable (and after
giving effect thereto), asset coverage (as defined in the 1940 Act) with respect
to the outstanding shares of Preferred Stock would be less than 200% (or such
other percentage as may in the future be required by law).
Moreover, the Articles Supplementary provide that so long as any shares of
AMPS are outstanding, the Fund will not declare, pay or set apart for payment
any dividend or other distribution (other than a dividend or distribution paid
in shares of, or options, warrants or rights to subscribe for or purchase,
Common Stock or other stock, if any, ranking junior to shares of Preferred Stock
as to dividends or upon liquidation) in respect of Common Stock or any other
stock of the Fund ranking junior to shares of a series of Preferred Stock as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of Common Stock or any other such
junior stock (except by conversion into or exchange for stock of the Fund
ranking junior to such series of Preferred Stock as to dividends and upon
liquidation) unless immediately after such transaction (A) the AMPS Basic
Maintenance Amount, the 1940 Act AMPS Assets Coverage Requirement and the
Minimum Liquidity Level (see "Asset Maintenance" and "Redemption") would be
achieved, (B) all accumulated and unpaid dividends on shares of such series of
Preferred Stock and shares of every other series of Preferred Stock due on or
prior to the date of the transactions have been paid in full (or declared and
sufficient Deposit Securities have been set apart for their payment) and (C) the
Fund has redeemed the full number of shares of each series of Preferred Stock
required to be redeemed by any provision for mandatory redemption contained in
the Articles Supplementary establishing such series of Preferred Stock. Prior to
the payment of any such dividend or other distribution, the Fund will provide
the Auction Agent and the Rating Agencies with a Portfolio Valuation Report
(which may be the regular weekly report) and a certificate demonstrating
compliance.
Under the Code, the Fund must, among other things, distribute at least 90%
of its investment company taxable income each year in order to maintain its
qualification for tax treatment as a regulated investment company. The foregoing
limitations on dividends, distributions and purchases may under certain
circumstances impair the Fund's ability to maintain such qualification. See
"Taxation -- United States."
ASSET MAINTENANCE
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Articles Supplementary. These requirements
are summarized below.
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<PAGE> 34
1940 Act AMPS Asset Coverage Requirement
The Fund will be required under the Articles Supplementary to maintain with
respect to shares of AMPS, as of the last Valuation Date of each month in which
any shares of AMPS are outstanding, asset coverage of at least 200% with respect
to senior securities which are stock, including the shares of Auction Market
Preferred Stock (or such other asset coverage as may in the future be specified
in or under the 1940 Act as the minimum assets coverage for senior securities
which are stock of a closed-end investment company as a condition of paying
dividends on its common stock) (the "1940 Act AMPS Asset Coverage Requirement").
The ratio of the Fund's net assets to its senior securities representing
indebtedness plus the liquidation value of its senior securities which are
stock, including the shares of Auction Market Preferred stock, is herein
referred to as the "1940 Act AMPS Asset Coverage Ratio." If the Fund fails to
maintain the 1940 Act AMPS Asset Coverage Requirement and such failure is not
cured as of the last Valuation Date occurring in the following month (the "1940
Act Cure Date"), the Fund will be required under certain circumstances to redeem
all or a portion the shares of AMPS. See "Redemption -- Mandatory Redemption."
If calculated as of 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Value of Fund assets less
liabilities not constituting
senior securities $2,399,286,808 = 3.9988 = 399.88%
- ----------------------------------- --------------
Senior securities representing $ 600,000,000
indebtedness plus liquidation value
of the shares of Auction Market
Preferred Stock
</TABLE>
AMPS Basic Maintenance Amount
The Fund will be required under the Articles Supplementary to maintain as
of each Valuation Date assets having in the aggregate a Discounted Value at
least equal to the AMPS Basic Maintenance Amount. If the Fund fails to meet such
requirement as of each Valuation Date and such failure is not cured on or before
the fifth Business Day after such Valuation Date (the "AMPS Basic Maintenance
Cure Date"), the Fund will be required under certain circumstances to redeem
certain of the shares of AMPS. See "Redemption Mandatory Redemption." A
"Valuation Date" means each Friday of each month (or, in the case of the first
Valuation Date, a date selected by the Fund not earlier than four Business Days
prior to, or later than, the Date of Original Issue); provided that if any such
Friday is not a Business Day, the Valuation Date will be the next preceding
Business Day.
The AMPS Basic Maintenance Amount as of any date is defined as the dollar
amount equal to the sum of (a) $25,000 times the number of shares of AMPS 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 Amount, the assets eligible for
inclusion in the calculation of
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<PAGE> 35
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 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
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<PAGE> 36
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 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
34
<PAGE> 37
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.
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
35
<PAGE> 38
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 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,
36
<PAGE> 39
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.
37
<PAGE> 40
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, 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.
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
38
<PAGE> 41
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; 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
39
<PAGE> 42
Manager. The Management Agreement will terminate automatically in the event of
its assignment (as defined in the 1940 Act). In addition, the Investment Manager
may terminate the Management Agreement on 90 days' written notice to the Fund.
TERMS OF THE ADVISORY AGREEMENT. The Advisory Agreement provides that the
Investment Adviser will make recommendations to the Investment Manager as to
specific portfolio securities which are denominated in Australian or New Zealand
dollars, to be purchased, retained or sold by the Fund and will provide or
obtain such research and statistical data as may be necessary in connection
therewith. The Advisory Agreement further provides that the Investment Adviser
shall give the Investment Manager and the Fund the benefit of the Investment
Adviser's best judgment and efforts in rendering services under the Advisory
Agreement.
The Advisory Agreement provides that neither the Investment Manager nor the
Investment Adviser shall be liable for any error of judgment or for any loss
suffered by the Fund in connection with matters to which the Advisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of damages shall
be limited as provided in the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Manager
or the Investment Adviser, as appropriate, in the performance of, or from
reckless disregard by such party of such party's obligations and duties under,
the Advisory Agreement.
Advisory Fee. The Advisory Agreement provides that the Investment Manager
will pay the Investment Adviser a fee computed at the annual rate of 0.25% of
the Fund's average weekly net assets applicable to Common and Preferred Stock up
to $1,200 million and 0.20% of such assets in excess of $1,200 million at the
end of each week and payable at the end of each calendar month.
Payment of Expenses. The Advisory Agreement obligates the Investment
Adviser to bear all expenses of its employees and overhead incurred in
connection with its duties under the Advisory Agreement and to pay all salaries
and fees of the Fund's Directors and Officers who are interested persons (as
defined in the 1940 Act) of the Investment Adviser but who are not interested
persons of the Investment Manager.
Duration and Termination. The Advisory Agreement provides that it will
continue in effect for 12 month periods, provided that each continuance is
specifically approved annually by (1) the vote of the majority of the Fund's
Disinterested Directors cast in person at a meeting called for the purpose of
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Advisory Agreement may be terminated with respect
to the Fund at any time by the Fund without the payment of any penalty, upon
vote of a majority of the Fund's Directors or a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the Investment
Manager and the Investment Adviser. The Advisory Agreement will terminate
automatically as to any party in the event of its assignment (as defined in the
1940 Act) by that party. In addition, the Investment Manager or the Investment
Adviser may terminate the Advisory Agreement as to such party on 90 days'
written notice to the Fund and the other party.
PORTFOLIO MANAGEMENT
The Fund's investment decisions are made in a collegial manner. Two
Investment Adviser Committees, the Asset Allocations Committee and the
Investment Strategy Committee, make broad decisions as to the allocation of
assets and investments, leaving decisions with respect to the selection of
particular securities to an employee of the Investment Adviser who then
recommends to the Investment Manager that certain securities be bought or sold.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement effective as of December 13, 1988,
(the "Administration Agreement"), Prudential Mutual Fund Management, Inc. (the
"Administrator"), an indirect wholly owned subsidiary of the Fund's Consultant,
provides office facilities and personnel adequate to perform the following
services for the Fund: oversee the determination and publication of the Fund's
net asset value in accordance with its policy as adopted from time to time by
the Board of Directors; oversee the maintenance of the books
40
<PAGE> 43
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.
41
<PAGE> 44
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>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Anthony E. Aaronson(+) Class I Director Director, The First Australia Fund,
116 South Anita Avenue Inc. (since 1985); Vice President,
Los Angeles, CA 90049 Fortune Fashions (1992-1993);
President, Fashion Fabric
Division, Forrest Fabrics
(textiles) (August 1991-1992);
Director, PKE Incorporated
(consulting company) (1988-1990);
Director, Textile Association of
Los Angeles (1990-1993); Director
O.T.C. Sales, Emday Fabric Co.
(textiles) (1986-91); Executive
Vice-President and
Secretary-Treasurer, J&J Textiles
Inc. (1982-1986).
Roger C. Maddock* Class I Director Director, The First Australia Fund,
Union House Inc, and The First Commonwealth
Union Street Fund, Inc. (since 1992); Chairman
St. Helier and Managing Director, EquitiLink
Jersey, Channel Islands International Management Limited
(since 1985); Partner, Jackson
Fox, Chartered Accountants (since
1981); Director, Worthy Trust
Company Limited (since 1993);
Director, Professional Con-
sultancy Services Limited (since
1983); Director, Hollywell Spring
Limited (since 1987); Director,
The EquitiLink Private Gold
Investment Fund Limited (since
1992); Director, CentraLink-
EquitiLink Investment Company Lim-
ited (since 1994).
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
John T. Sheehy(+) Class I Director Director, The First Australia Fund,
1 Southwest Columbia Inc. (since 1985), First Australia
12th Floor Prime Income Investment Company
Portland, OR 97258 Limited (since 1986) 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,
A.C., C.H. Inc. (since 1985), First Australia
55 Collins Street Prime Income Investment Company
Melbourne, Victoria 3000 Limited (since 1986) and The First
Australia Commonwealth Fund, Inc. (since
1992); partner, Nareen Pastoral
Company (agriculture); Fellow,
Center for International Affairs,
Harvard University, International
Council of Associates, Claremont
University; Chairman, CARE
Australia (since 1987); Presi-
dent, CARE International (since
1990); Member, Byrnes
International Advisory Board,
University of South Carolina
(1985-1990); ANZ International
Board of Advice; (1987-1993);
InterAction Council for Former
Heads of Government; CoChairman,
Commonwealth Eminent Persons Group
on Southern Africa (1985-1986);
Chairman, United Nations Committee
on African Commodity Problems
(1989-1990); Consultant, The
Prudential Insurance Company of
America; International Consultant
on Political, and Strategic
Affairs (since 1983);
Parliamentarian-Prime Minister of
Australia (1975-1983).
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Harry A. Jacobs, Jr.* Class II Director Director, The First Australia Fund,
One New York Plaza Inc. (since 1985); Chairman and
New York, NY 10292 Chief Executive Officer,
Prudential Mutual Fund Management,
Inc. (June September 1993); Senior
Director, Prudential Securities
Incorporated (since 1986);
previously, Chairman of the Board,
Prudential Securities Incorpo-
rated (1982-1985); Chairman of the
Board and Chief Executive Officer,
Bache Group, Inc. (1977-1982);
Director, Center for National
Policy; Trustee, The Trudeau
Institute (eleemosynary); Director
of 26 investment companies
affiliated with Prudential
Securities Incorporated.
Howard A. Knight Class II Director Director, The First Australia Fund,
300 Park Avenue Inc. (since 1993); Private
New York, NY 10022 Investor and Consultant; President
of Investment Banking, Equity
Transactions and Corporate
Strategy, Prudential Securities
Incorporated (1991-1994); former
Chairman and Chief Executive
Officer, Avalon Corporation
(1984-1990); Managing Director,
President and Chief Executive
Officer, Weeks Petroleum Limited
(1982-1984); General Counsel,
member of the Executive Committee
and Director, Farrell Lines
Incorporated (1976-1982); Partner,
Cummings & Lockwood (1969-1976).
Peter D. Sacks(+) Class II Director Director, The First Commonwealth
33 Yonge Street Fund, Inc. (since 1992); President
Suite 706 and Director, Toron Capital
Toronto, Ontario M5E 1G4 Markets, Inc. (currency, interest
Canada rate and commodity risk
management) (since 1988); Vice
President and Treasurer, Midland
Bank Canada (1987-1988); Vice
President and Treasurer, Chase
Manhattan Bank of Canada
(1985-1987).
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Brian M. Sherman* Class II Director; President and Director, The First
Level 3 President (since 1986) Australia Fund, Inc. (since 1985);
190 George Street Chairman (since 1995) and Joint
Sydney, N.S.W. 2000 Managing Director, (since 1986);
Australia First Australia Prime Income
Investment Company Limited;
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 Lim-
ited (an affiliate of Baring
Brothers & Co. Ltd.) (merchant
bank) (1972-1976).
Sir Roden Cutler(++) Class III Director Director (since 1985) and Chairman
V.C., A.K., K.C.M.G., of the Board (1986-1995), The
K.C.V.O., C.B.E., First Australia Fund, Inc., First
K.St.J. Australia Prime Income Investment
22 Ginahgulla Road Company Limited (since 1986) and
Bellevue Hill, N.S.W. 2023 The First Commonwealth Fund, Inc.
Australia (since 1992); Australia Director,
Rothmans Holding Ltd. (formerly
Rothmans Pall Mall) (tobacco)
(1981-1994); Chairman, State Bank
of New South Wales (1981-1986);
Governor of New South Wales,
Australia (1966-1981).
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
David Lindsay Elsum(++) Class III Director Director, The First Australia Fund,
9 May Grove Inc. (since 1985), First Australia
South Yarra, Victoria 3141 Prime Income Investment Company
Australia Limited (since 1986) and The First
Commonwealth Fund, Inc. (since
1992); President, State
Superannuation Fund of Victoria;
Director, MaxiLink Ltd.; Managing
Director, The MLC Limited
(insurance) (1984-1985); Managing
Director, Renison Goldfields
Consolidated Limited (mining)
(1983-1984); Member,
Administrative Appeals Tribunal;
Member, Corporations and Se-
curities Panel of the Australian
Securities Commission of
Australian States and Territories;
Chairman, Queen Victoria Market.
Laurence S. Freedman* Class III Director; Chairman (since 1995) Sole Vice
Level 3 Chairman (since 1995), President and Director, The First
190 George Street Sole Vice President Australia Fund, Inc. (since 1985);
Sydney, N.S.W. 2000 (since 1986) Joint Managing Director, First
Australia Australia Prime Income Investment
Company Limited (since 1986);
President and Director, The First
Commonwealth Fund, Inc. (since
1992); Founder and Joint Managing
Director, EquitiLink Limited
(since 1986); Joint Managing
Director, EquitiLink Australia
Limited (since 1981); Director,
EquitiLink International
Management Limited (since 1985);
Chairman and Joint Managing
Director, MaxiLink Limited (since
1987); Executive Director,
MaxiLink Securities Limited (since
1987); Chairman and Director,
First Resources Development Fund
Limited (since 1994); Director,
Ten Group Limited (since 1994);
Director, Telecasters North
Queensland Limited (since 1993);
Managing Director, Link
Enterprises (International) Pty.
Limited (investment management
company) (since 1980); Manager of
Investments, Bankers Trust
Australia Limited (1978-1980);
Investment Manager, Consolidated
Goldfields (Australia) Limited
(natural resources investments)
(1975-1978).
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Michael R. Horsburgh Class III Director Director, The First Australia Fund,
675 Third Avenue Inc. (since 1985); Director, The
22nd Floor First Commonwealth Fund, Inc.
New York, NY 10017 (since 1994); Director and
Managing Director, Carlson
Investment Management (U.S.), 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.
William J. Potter(++) Class III Director Director, The First Australia Fund,
156 W. 56th Street Inc. (since 1985), The First
17th Floor Commonwealth Fund, Inc. (since
New York, NY 10019 1992) and First Australia Prime
Income Investment Company Limited
(since 1986); Partner, Sphere
Capital Partners (corporate
consulting) (since 1989);
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,
Level 3 Treasurer (since 1987) Inc. (since 1987); Director and
190 George Street Treasurer, The First Commonwealth
Sydney, N.S.W. 2000 Fund, Inc. (since 1992);
Australia Treasurer, First Australia Prime
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
P.O. Box 85 law firm)
5300 Commerce Court West
Toronto, Ontario
Canada M5L1B9
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION AND
NAME AND ADDRESS FUND** OTHER AFFILIATIONS
- ------------------------------ ----------------------- ------------------------------------
<S> <C> <C>
Ouma Sananikone-Fletcher Assistant Vice Director (since 1995) and Investment
Level 3 President and Chief Director (since 1994) EquitiLink
190 George Street Investment Officer Australia Limited; Managing
Sydney, N.S.W. 2000 Director, Banque Nationale de
Australia Paris Group (1991-1994)
Roy M. Randall Secretary Partner, Freehill, Hollingdale &
19-29 Martin Place Page, Australian counsel to the
Sydney, N.S.W. 2000 Fund.
Australia
Eugene S. Stark Chief Financial Officer First Vice President (since 1990)
One Seaport Plaza and Assistant Treasurer and Vice President (1987-1989),
New York, NY 10292 Prudential Mutual Fund Management,
Inc.
Kenneth T. Kozlowski Assistant Treasurer Vice President, Prudential Mutual
One Seaport Plaza Fund Management, Inc. (since
New York, NY 10292 1992); Fund Accounting Manager,
Pruco Life Insurance Company (life
insurance division of The
Prudential Insurance Company)
(1990-1992); Assistant Treasurer,
The Prudential Series Fund, Inc.
(1990-1992).
Barry G. Sechos Assistant Treasurer Director (since 1994) and General
Level 3 Counsel (since 1993) EquitiLink
190 George Street Australia Limited; Senior
Sydney, N.S.W. 2000 Associate Lawyer, Allen, Allen &
Australia Hemsley (1986-1993).
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
</TABLE>
- ---------------
* Directors considered by the Fund and its counsel to be persons who are
"interested persons" (as defined in the 1940 Act) of the Fund or of the
Fund's Investment Manager or Investment Adviser. Mr. Jacobs is deemed to
be an interested person because of his affiliation with Prudential
Securities Incorporated, a broker-dealer registered under the Securities
Exchange Act of 1934, as amended. Messrs. Freedman, Maddock, Manor and
Sherman are deemed to be interested persons because of 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.
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
48
<PAGE> 51
to review the scope of the annual audit conducted by the Fund's independent
accountants and the evaluation by such accountants of the accounting procedures
followed by the Fund. The Board of Directors also has a standing Contract Review
Committee that reviews and makes recommendations to the Board with respect to
entering into, renewing or amending the Management Agreement, the Advisory
Agreement, the Consultant Agreement and the Administration Agreement. The Board
of Directors does not have a standing nominating committee.
RELATIONSHIP OF DIRECTORS OR NOMINEES WITH THE INVESTMENT ADVISER AND THE
INVESTMENT MANAGER
EquitiLink Australia Limited, the Investment Adviser, is a wholly-owned
subsidiary of EquitiLink Limited, a public company whose ordinary shares are
listed on the Australian Stock Exchange Limited.
Messrs. Freedman, Sherman and Manor, all Directors of the Fund, also serve
as directors of EquitiLink International Management Limited, the Investment
Manager. Mr. Maddock, a Director of the Fund, is also chairman and managing
director of the Investment Manager. In addition, Messrs. Freedman and Sherman
are the principal shareholders of the Investment Manager, of which Mr. Manor is
also a shareholder. Messrs. Freedman, Sherman and Manor also serve as,
respectively, joint managing director, joint managing director and chairman, and
executive director of the Investment Adviser. Messrs. Freedman and Sherman are
the principal shareholders of EquitiLink Limited, of which Messrs. Maddock and
Manor are also shareholders.
During the fiscal year ended October 31, 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.
49
<PAGE> 52
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+
- --------------------------------------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C>
DIRECTORS:
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 N/A N/A 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.......................... 0 N/A N/A 0(1)
</TABLE>
- ---------------
+ The number in parentheses indicates the total number of boards of investment
companies in the Fund Complex on which the Director serves.
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
50
<PAGE> 53
in the relevant debt securities market. Investments having a maturity of 60 days
or less are valued at amortized cost. Securities and assets for which market
quotations are not readily available are valued at fair value using methods
determined in good faith by or under the direction of the Board of Directors of
the Fund, including valuations that reference other securities which are
considered comparable in quality, interest rate and maturity.
The Australian and New Zealand values of the Fund's assets and liabilities
are translated into U.S. dollars at the closing selling rate of the U.S. dollar
against the Australian dollar and New Zealand dollar at the end of each calendar
week quoted by a money center bank or, if no such rate is quoted at such time,
at such other appropriate rate as may be determined by the Fund's Board of
Directors.
TAXATION
The following is intended to be a general summary of certain tax
consequences that may result to the Fund and its shareholders. It is not
intended as a complete discussion of all such tax consequences, nor does it
purport to deal with all categories of investors. Investors are therefore
advised to consult with their tax advisers before making an investment in the
Fund.
UNITED STATES
TAX TREATMENT OF THE FUND -- GENERAL
The Fund intends to qualify annually to be treated as a regulated
investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income Requirement"); (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
51
<PAGE> 54
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the twelve month period ending on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years. A distribution will be treated as having been
paid on December 31 if it is declared by the Fund in October, November or
December with a record date in such month and is paid by the Fund in January of
the following year. Accordingly, such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company.
ISSUANCE OF PREFERRED STOCK
The Internal Revenue Service has taken the position in a revenue ruling
that a regulated investment company which has two or more classes of shares
cannot effectively designate distributions made to each class in any year as
consisting of more than that class's proportionate share of particular types of
income including capital gain dividends and foreign source income. When both
Common Stock and Preferred Stock are outstanding, the Fund intends to designate
distributions made to each class as consisting of particular types of income, in
accordance with the class' 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
52
<PAGE> 55
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 regulated investment company to dispose of
assets held for less than three months.
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 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. A foreign shareholder may be subject to U.S. withholding tax on the
income resulting from the election described in this paragraph, but may not be
able to claim a credit or deduction against such U.S. tax for the foreign taxes
treated as having been paid by such shareholder. 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
53
<PAGE> 56
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 available for distribution and distributions by the Fund will
be treated as U.S. source income.
The foregoing is only a general description of the foreign tax credit and,
because application of the credit depends on the particular circumstances of
each shareholder, shareholders are advised to consult their own tax advisers.
Assuming that the Fund is eligible and does elect to pass foreign taxes
through to its shareholders, the Fund currently intends to designate common and
preferred shareholders' proportionate shares of foreign taxes in the same
proportion as the income subject to such taxes is distributed to each such
shareholder.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications or where the Internal Revenue Service has notified the Fund or a
shareholder that the shareholder is subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in the Fund
may be different from those described herein. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them 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).
54
<PAGE> 57
Australian interest withholding tax does not apply to interest on Eurodollar
obligations issued by non-residents of Australia where the interest is not an
expense incurred by that person in carrying on business in Australia at or
through a permanent establishment in Australia of that nonresident. See
"Taxation -- United States -- Foreign Withholding Taxes." Generally, the Fund
will not be subject to a stamp duty on its investments in government and
semi-government securities, promissory notes and bills of exchange.
NEW ZEALAND
Under current New Zealand law, the Fund will be regarded as a non-resident
of New Zealand and will be relieved of New Zealand taxes on business profits
under the Convention between the United States of America and New Zealand for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income (the "Convention"), if the Fund does not have a
permanent establishment in New Zealand, and assuming the Fund to be a resident
of the United States as that phrase is defined in the Convention, and that the
Fund's principal class of shares will be the subject of regular and substantial
trading on a recognized stock exchange (as so defined).
Pursuant to the Convention, the Fund will not be regarded as having a
permanent establishment in New Zealand if it has no fixed place of business,
place of management, branch or office in New Zealand and if there is no person
(other than a broker, general commission agent, or other agent of independent
status acting, in each case, in the ordinary course of its business) who acts on
behalf of the Fund and has and habitually exercises in New Zealand authority to
conclude contracts in the name of the Fund. The Fund does not intend to have a
fixed place of business, place of management, branch, or office in New Zealand
or to give any person (other than a broker, general commission agent, or other
agent of independent status acting, in each case, in the ordinary course of its
business) the authority to conclude contracts in the name of the Fund in New
Zealand, and accordingly none of the business profits or gains from the
alienation of debt securities except for interest (as provided below) of the
Fund should be subject to New Zealand taxes. Interest (as defined for New
Zealand tax law purposes) paid to the Fund by an "approved issuer" on debt
obligations that the "approved issuer" has issued and in respect of which a
prescribed "approved issuer levy" has been paid, will be subject to New Zealand
interest non-resident withholding tax at the rate of zero percent. The practical
effect is that non-resident withholding tax is not payable on such interest. All
other interest (as so defined) paid to the Fund will be subject to New Zealand
interest non-resident withholding tax at the rate of 10% on the gross amount of
all payments of interest (as so defined) deemed to be derived from New Zealand
under corporate debt instruments, money market securities and New Zealand
Government and local authority debt securities, except, in the latter two cases,
where interest is payable out of New Zealand and in the case of local authority
debt securities, the approval of the New Zealand Government has been given for
that interest payment on such debt securities to be exempted from New Zealand
income tax.
The issue to and transfer by the Fund of debt instruments will not be
subject to New Zealand stamp duty or Goods and Services Tax.
TAX TREATMENT OF PREFERRED STOCKHOLDERS
Dividend Distributions. Each series of Preferred Stock will constitute
stock of the Fund for federal income tax purposes and, accordingly, to the
extent of the Fund's current and accumulated earnings and profits, distributions
paid in cash to holders of the Fund's shares will be taxable as ordinary income
for federal income tax purposes unless designated by the Fund as capital gain
dividends. Dividends received by corporate shareholders will not be eligible for
the dividends-received deduction.
For federal income tax purposes, dividends paid by the Fund out of its
investment company taxable income will be taxable to a U.S. shareholder as
ordinary income. To the extent that the Fund designates distributions of net
capital gains as capital gain dividends, such distributions will be taxable to a
shareholder as long-term capital gain, regardless of how long the shareholder
has held the Fund's shares.
The Fund presently intends that, pursuant to the terms of any Preferred
Stock issued, the Fund will designate as capital gain dividends a proportionate
part of the dividends paid to holders of Preferred and Common Stock.
55
<PAGE> 58
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
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.
56
<PAGE> 59
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.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
(EXCLUSIVE
OF
AMOUNT HELD
AMOUNT HELD BY FUND
BY FUND OR OR FOR
AMOUNT FOR ITS ITS
TITLE OF CLASS AUTHORIZED ACCOUNT ACCOUNT)
- ---------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Common Stock........................................ 200,000,000 -0- 194,559,756
Preferred Stock..................................... 100,000,000 -0- 19,000
</TABLE>
CERTAIN PROVISIONS OF THE BY-LAWS AND
ARTICLES OF AMENDMENT AND RESTATEMENT
The Fund presently has provisions in its Articles and By-laws that could
have the effect of limiting (i) the ability of other entities or persons to
acquire control of the Fund, (ii) the Fund's freedom to engage in certain
transactions or (iii) the ability of the Fund's Directors or shareholders to
amend the Articles or effect changes in the Fund's management. The provisions of
the Articles and By-laws may be regarded as "anti-takeover" provisions. The
Fund's By-laws provide for a staggered election of those Directors who are
elected by the holders of Common Stock, with such Directors divided into three
classes, each having a term of three years. Accordingly, only those Directors in
one class may be changed in any one year and it would require two years to
change a majority of the Board of Directors. This system of electing Directors
may have the effect of maintaining the continuity of management and, thus, make
it more difficult for the Fund's shareholders to change the majority of
Directors.
Article Ninth of the Fund's Articles stipulates that a "fair price" be paid
for the Fund's shares in the event of a proposed merger or other business
combination which is not approved by either 75% of the Continuing Directors of
the Board of Directors or the holders of 75% of the outstanding shares of the
Fund voting both as a single class and separately as to each class (the "Fair
Price Provision"). The stipulated "fair price" is the higher of:
(i) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by an Interested Party
(as hereinafter defined) for any shares acquired by it (a) within the
two-year period immediately prior to the first public announcement of the
proposal of a business combination (the "Announcement Date"), or (b) in the
transaction in which an Interested Party first becomes the beneficial owner
of voting shares of the Fund (a "Threshold Transaction"), whichever is
higher; and
(ii) in the case of Common Stock, the net asset value per share of
such Common Stock on the Announcement Date or on the date of the Threshold
Transaction, whichever is higher, and in the case of any Preferred Stock,
the highest preferential amount per share to which the holders of shares of
such class of Preferred Stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Fund, regardless of whether the business combination to be
consummated constitutes such an event.
Article Ninth requires the same super majority vote to amend the Articles
to "open end" the Fund by making the Fund's Common Stock redeemable or to adopt
any shareholder proposal as to specific investment decisions with respect to the
Fund's assets. Shareholders of an open-end investment company may require the
company to redeem their shares in kind or in cash at any time (except in certain
circumstances authorized by the 1940 Act) at their net asset value less any
redemption charge. If shares are redeemed in kind, shareholders may incur
brokerage commissions. Conversion to open-end status would require the
redemption of all outstanding shares of Auction Market Preferred Stock.
57
<PAGE> 60
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.
58
<PAGE> 61
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 AMPS and Series I
AMPS if any are purchased. Under certain circumstances, the commitments of
non-defaulting Underwriters may be increased.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES SHARES
OF SERIES H OF SERIES I
UNDERWRITER AMPS AMPS
---------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................... 625 625
PaineWebber Incorporated............................ 625 625
Prudential Securities Incorporated.................. 625 625
Smith Barney Inc. .................................. 625 625
----- -----
Total.................................. 2,500 2,500
===== =====
</TABLE>
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 September
, 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.
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.
59
<PAGE> 62
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.
60
<PAGE> 63
- ----------------------------------------------------------
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$845,016,436)..... 896,131,428
--------------
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 64
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<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$464,115,800)..... 509,265,601
--------------
Corporate Bonds--14.0%
Asset Backed--0.2%
FANMAC Limited,
Mortgage Series 25,
635 10.33%, 6/15/02............. 525,881
Premier Trust 22,
2,835 11.40%, 12/15/01............ 2,315,596
--------------
2,841,477
--------------
Floating Rate Notes*--5.9%
Australia Post,
50,000 7.7092%, 3/25/99............ 39,373,573
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 65
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<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$58,971,943)............ 56,332,033
--------------
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 66
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<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.
64
<PAGE> 67
- ----------------------------------------------------------
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.
65
<PAGE> 68
- ----------------------------------------------------------
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.
66
<PAGE> 69
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
67
<PAGE> 70
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
68
<PAGE> 71
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.
69
<PAGE> 72
- --------------------------------------------------------------------------------
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).................................. $300,000
Asset coverage of preferred stock at period
end............................................ 424%
</TABLE>
- ---------------
* Calculated based upon weighted average shares outstanding during the
period.
** Annualized.
(D) Total investment return is calculated assuming a purchase of common
stock on the first day and a sale on the last day of each period
reported. Dividends and distributions are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions.
(D)(D) Includes expenses of both preferred and common stock.
# Ratios calculated on the basis of income, expenses and preferred share
dividends applicable to both the common and preferred shares relative to
the average net assets of common shareholders.
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data
for the Fund's common shares.
See Notes to Financial Statements.
70
<PAGE> 73
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<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.
71
<PAGE> 74
<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$317,707,891)....... 330,524,516
--------------
</TABLE>
See Notes to Financial Statements.
72
<PAGE> 75
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<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$39,247,333)...... 39,764,731
--------------
Eurobonds--0.9%
Services--0.1%
International Bank for
Reconstruction &
Development,
1,000 14.50%, 6/7/96.............. 788,238
Tasmanian Public Finance
Authority,
1,000 14.00%, 12/22/95............ 765,814
--------------
1,554,052
--------------
Supranational Global--0.8%
Swedish National Housing,
15,000 7.50%, 8/22/96.............. 11,384,461
--------------
</TABLE>
See Notes to Financial Statements.
73
<PAGE> 76
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<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.
74
<PAGE> 77
- ----------------------------------------------------------
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.
75
<PAGE> 78
- ----------------------------------------------------------
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.
76
<PAGE> 79
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
77
<PAGE> 80
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.
78
<PAGE> 81
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.
79
<PAGE> 82
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>
80
<PAGE> 83
- --------------------------------------------------------------------------------
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.
81
<PAGE> 84
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.
/s/ Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
December 11, 1995
82
<PAGE> 85
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 32 of
this Prospectus.
"AMPS Basic Maintenance Cure Date" has the meaning set forth on page 32 of
this Prospectus.
"Applicable Percentage" has the meaning set forth on page 4 of this
Prospectus.
"Applicable Rate" means the rate per annum at which dividends are payable
on 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 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.
83
<PAGE> 86
"Auction Procedures" means the procedures for conducting Auctions set forth
in Appendix B to this Prospectus.
"Australian Bank Bills" means bills of exchange (as defined in the Bills of
Exchange Act of the Commonwealth of Australia) issued, accepted or endorsed by
Australian banks with (x) in the case of S&P (i) a rating from S&P at least as
high as S&P's then-current rating for the AMPS or (ii) in the case of any Bank
Bill with a remaining term to maturity from the date of determination of 365
days or less, a rating from S&P at least as high as S&P's short-term rating
comparable to its then-current rating for the AMPS and (y) in the case of
Moody's (i) a long-term foreign currency debt rating from Moody's of at least
Aa3 or (ii) in the case of any Bank Bill with a remaining term to maturity from
the date of determination of 180 days or less, a rating from Moody's of Prime-1
or (iii) any other rating as Moody's shall approve in writing.
"Australian Corporate Bonds" means debt obligations of Australian
corporations (other than Australian Government Securities, Australian
Semi-Government Securities, Australian Bank Bills, Australian Eurobonds,
Australian Exchangeable Eurobonds and Australian Short-Term Securities)
provided, that such debt obligations shall not be deemed to be Eligible
Portfolio Property by S&P unless they have the following characteristics: (a)
the principal amount outstanding on the date of determination is at least equal
to A$50 million, (b) the security is publicly traded, (c) the security is
non-callable, or, if the security is callable, the basis for pricing is to the
call date, (d) the security is rated at least AA- by S&P, (e) the security has a
tender panel, (f) the maturity date of the security is not later than the 10th
anniversary of the Valuation Date of such security and (g) the security is
issued by one of the following issuers:
(i) Issuers with a public long-term S&P rating or whose parent has a
public long-term rating and there is an explicit guarantee backing the
subsidiary's debt service payments ("Guaranteed Australian Corporate
Bonds"). These issuers currently include:
FANMAC Premier Trust Co. No. 1-22 and any subsequent issues rated by
S&P -- Australian Ratings
Ford Credit Australia
National Australia Bank
State Bank of Victoria
Custom Credit Corporation Ltd.
(ii) Issuers, which shall be designated in writing from time to time
by S&P, without a public long-term S&P rating but whose parent has a
long-term S&P rating but has not explicitly guaranteed the subsidiary's
debt service payments ("Non-Guaranteed Corporate Bonds").
In addition, if the determination is being made for S&P, (a) not more than
10% of the aggregate Discounted Value of the Eligible Portfolio Property of the
Fund can consist of Australian Corporate Bonds issued by a single issuer, (b)
not more than 50% (if the issue is rated AAA by S&P) or 33.3% (if the issue is
rated AA or A by S&P) or 20% (if the issue is rated BBB by S&P) of the aggregate
Discounted Value of the Eligible Portfolio Property of the Fund can consist of
Australian Corporate Bonds from issues representing a single industry, (c) not
more than 5% of the then-outstanding principal amount of any one issue can be
included in Eligible Portfolio Property and (d) not more than 20% of the
outstanding aggregate principal amount of the Australian Corporate Bonds held by
the Fund and included in Eligible Portfolio Property shall be comprised of
securities with a then outstanding issue size of less than A$100 million.
"Australian Currency" means such coin or currency of Australia as at the
time shall be legal tender for payment of public and private debts, as well as
cash deposits with Offshore Banking Units of Banque Nationale de Paris.
"Australian Eurobonds" (including guaranteed and non-guaranteed Eurobonds)
means debt securities which are denominated in Australian Currency, and which
have the following characteristics: (a) the principal amount outstanding on the
date of determination is at least equal to A$50 million, (b) the security is
publicly traded, (c) the security is non-callable, or, if the security is
callable, the basis for pricing is to the call date,
84
<PAGE> 87
(d) the security is rated at least AA- by S&P, (e) the maturity date of the
security is not later than the 10th anniversary of the Valuation Date of such
security and (f) the security is issued by one of the following issuers:
(i) Issuers with a public long-term S&P rating or whose parent has a
public long-term S&P rating and there is an explicit guarantee backing the
subsidiary's debt service payments ("Australian Guaranteed Eurobonds").
These issuers currently include:
Australian Telecom
Finnish Export Credit Corp.
National Australia Bank
State Bank of New South Wales
State Electricity of Victoria
Swedish Export Credit Corp.
(ii) Issuers, which shall be designated in writing from time to time
by S&P, without a public long-term S&P rating but whose parent has a
long-term S&P rating but has not explicitly guaranteed the subsidiary's
debt service payments ("Australian Non-Guaranteed Eurobonds").
In addition, if the determination is being made for S&P, (a) not more than
10% of the aggregate Discounted Value of the Eligible Portfolio Property of the
Fund can consist of Australian Eurobonds from a single issuer, (b) not more than
50% (if the issue is rated AAA by S&P) or 33.3% (if the issue is rated AA or A
by S&P) or 20% (if the issue is rated BBB by S&P) of the aggregate Discounted
Value of the Eligible Portfolio Property of the Fund can consist of Australian
Eurobonds from issues representing a single industry, (c) not more than 5% of
the then outstanding principal amount of any one issue can be included in
Eligible Portfolio Property and (d) not more than 20% of the outstanding
aggregate principal amount of the Australian Eurobonds held by the Fund and
included in S&P Eligible Portfolio Property shall be comprised of securities
with an outstanding issue size of less than A$50 million.
"Australian Exchangeable Eurobonds" means securities which are denominated
in Australian Currency issued by the New South Wales Treasury Corporation or the
Queensland Treasury Corporation which confer upon the holder an option to
exchange such securities for, respectively, a like principal amount of New South
Wales Treasury Inscribed Stock or Queensland Treasury Corporation Inscribed
Stock of identical maturity and coupon.
"Australian Government Securities" means, in the case of S&P, all publicly
traded securities issued and guaranteed by the Government of the Commonwealth of
Australia with fixed maturities (i.e. no perpetuals) and in the case of Moody's,
any publicly traded security which is (i) either issued by the Government of the
Commonwealth of Australia and is rated Aaa by Moody's or is guaranteed by the
Government of the Commonwealth of Australia and is rated Aaa by Moody's, (ii) is
denominated and payable in Australian Currency or is convertible into a security
constituting Eligible Portfolio Property by Moody's and (iii) is not a variable
rate, indexed-linked, zero coupon or stripped security.
"Australian Ratings" means Australian Ratings Pty. Ltd. or its successors.
"Australian Semi-Government Securities" means publicly traded
semi-government securities with a fixed maturity (i.e., no perpetuals) issued by
the following entities which, except as indicated are explicitly guaranteed by
the Government of the Commonwealth of Australia or the respective Australian
State and which, in the case of S&P, include Australian Exchangeable Eurobonds
and in the case of Moody's are (i) either rated Aa by Moody's or are guaranteed
by either the Commonwealth of Australia and rated Aa or any semi-sovereign
Australian entity whose domestic currency long-term debt is rated Aa by Moody's,
(ii) are denominated and payable in Australian Currency or are convertible into
a security constituting Eligible Portfolio Property by Moody's and (iii) are not
a variable rate, indexed-linked, zero coupon or stripped security.
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1. Electricity Trust of South Australia, a body established under the
Electricity Trust of South Australia Act 1946 (South Australia).
2. Gas & Fuel Corporation of Victoria, a corporation established under the
Gas and Fuel Corporation Act of 1950 (Victoria).
3. Melbourne & Metropolitan Board of Works, a board constituted under
section 4 of the Melbourne & Metropolitan Board of Works Act 1958 (Victoria).
4. New South Wales Treasury Corporation, a corporation constituted under
section 4 of the Treasury Corporation Act 1983 (New South Wales), including its
Australian Convertible Eurobond issues, in the case of S&P.
5. A Territory authority being an authority within the meaning of that term
under section 43 of the Northern Territory (Self Government) Act (Commonwealth)
provided that the specific issue is guaranteed by the Treasurer of the
Commonwealth of Australia.
6. The State Electricity Commission of Qld, a commission constituted under
the Electricity Act of 1976 (Qld).
7. Queensland Treasury Corporation, a corporation established under the
Treasury Corporation Act 1988 (Qld), including its Australian Convertible
Eurobond issues, in the case of S&P.
8. South Australian Government Financing Authority, an authority
established under the Government Financing Authority Act 1982 (South Australia).
9. State Electricity Commission of Victoria, a commission established under
the State Electricity Commission Act of 1958 (Victoria).
10. State Energy Commission of Western Australia, a commission established
under the State Energy Commission Act 1979 (Western Australia).
11. The Australian Telecommunications Commission, a commission established
under section 4 of the Telecommunications Act 1975 (Commonwealth).
12. (with respect to S&P only) and without any guarantee by the
Commonwealth of Australia or the respective Australian State: Australian and
Overseas Telecommunications Corporation, Limited.
13. Victorian Public Authorities Finance Agency, an agency constituted
under section 3 of the Victorian Public Authorities Act 1984 (Victoria).
14. Australian Industry Development Corporation, a body established under
section 5 of the Australian Industries Development Corporation Act
(Commonwealth).
15. South Australian Finance Trust Limited, a body corporate proclaimed by
the Governor of South Australia to be a semi-government authority pursuant to
the Public Finance and Audit Act 1987 (South Australia).
16. The Western Australian Treasury Corporation.
17. Hydro-Electricity Commission of Tasmania.
18. Tasmanian Public Finance Corp.
19. Tasmanian Development Authority.
20. Australian Trade Commission.
21. (with respect to S&P only) FANMAC Premier Trust Co. (Nos. 1-22) and any
subsequent issues rated by S&P -- Australian Ratings.
22. (with respect to S&P only) Australian Wool Corporation.
23. Commonwealth Bank of Australia.
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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.
"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 24 of this Prospectus.
"Cash" means such coin or currency of the United States of America as at
the time shall be legal tender for payment of public and private debts.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Fund may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates and successors.
"Commission" means the U.S. Securities and Exchange Commission. "Common
Stock" means the common stock, par value $.01 per share, of the Fund.
"Cure Date" means the AMPS Basic Maintenance Cure Date or the 1940 Act Cure
Date, as the case may be.
"Consultant" means The Prudential Insurance Company of America.
"Date of Original Issue" means, with respect to any share of AMPS, the date
on which such share is initially issued by the Fund.
"Discounted Value" of any asset of the Fund means the market value thereof,
as determined by the Fund in accordance with guidelines established by the Board
of Directors from time to time, reduced by the
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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 18 of this
Prospectus.
"FHLMC" means the Federal Home Loan Mortgage Corporation created by Title
III of the Emergency Home Finance Act of 1970, and includes any successor
thereto.
"FHLMC Certificate" means a mortgage participation certificate in physical
or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences a
proportional undivided interest in, or participation interest in, specified
pools of fixed-, variable- or adjustable-rate, fully amortizing, level pay
mortgage loans with terms up to 30 years, secured by first liens on one- to
four-family residences.
"FHLMC Multifamily Security" means a "Plan B Multi-family Security" in
physical or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences a
proportional undivided interest in, or participation interest in, specified
pools of fixed-rate, fully amortizing, level pay mortgage loans with terms up to
30 years, secured by first-priority mortgages on multifamily residences
containing 5 or more units and which are designed primarily for residential use,
the inclusion of which in the Eligible Portfolio Property will not, in and of
itself, impair, or cause the AMPS to fail to retain, the rating assigned to such
AMPS by each of the Rating Agencies, as evidenced by a letter to such effect
from each of the Rating Agencies.
"FNMA" means the Federal National Mortgage Association, a United States
Government-sponsored private corporation established pursuant to Title VIII of
the Housing and Urban Development Act of 1968, and includes any successor
thereto.
"FNMA Certificate" means a mortgage pass-through certificate in physical or
book-entry form, the full and timely payment of principal of and interest on
which is guaranteed by FNMA, and which evidences a proportional undivided
interest in specified pools of fixed-, variable- or adjustable-rate, fully
amortizing, level pay mortgage loans with terms up to 30 years, secured by first
liens on one- to four-family residences.
"Fund" means The First Australia Prime Income Fund, Inc., a Maryland
corporation that is the issuer of the AMPS.
"GNMA" means the Government National Mortgage Association, and includes any
successor thereto.
"GNMA Certificates" mean a fully modified pass-through certificate in
physical or book-entry form, the full and timely payment of principal of and
interest on which is guaranteed by GNMA and which evidences a proportional
undivided interest in specified pools of fixed-, variable- or adjustable-rate,
fully amortizing, level pay mortgage loans with terms up to 30 years, secured by
first liens on one- to four-family residences.
"GNMA Graduated Payment Security" means a fully modified pass-through
certificate in physical or book-entry form, the full and timely payment of
principal of and interest on which is guaranteed by GNMA, which obligation is
backed by the full faith and credit of the United States, and which evidences a
proportional undivided interest in specified pools of graduated payment mortgage
loans with terms up to 30 years, with payments that increase annually at a
predetermined rate for up to the first five or ten years of the mortgage loan
and that are secured by first-priority mortgages on one- to four-unit
residences; provided that such loans shall be past the graduated payment period.
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<PAGE> 91
"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 4 of this
Prospectus.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Offshore Banking Units" means cash deposits denominated in the currency of
Australia deposited with an Australian branch of a foreign bank authorized to
operate as an offshore banking unit by the Government of Australia's Australian
Taxation Office which, in the case of Moody's, is (i) a branch carrying the same
credit rating as the parent bank, (ii) is a deposit rated as least P-1 under
circumstances in which the rating of the deposit is capped at the sovereign
rating ceiling of the parent bank's home country, as well as the bank deposit
rating ceiling of Australia, or (iii) is a deposit held by a branch whose parent
bank is rated at least Aa3/P-1 under circumstances in which the rating of the
parent bank is capped at the sovereign rating ceiling of the parent bank's home
country, as well as the bank deposit rating ceiling of Australia and which, to
date, are limited to cash deposits with an overseas banking unit of Banque
Nationale de Paris.
"Order" has the meaning specified in paragraph 8(b)(i) of the Auction
Procedures.
"Potential Beneficial Owner" means, 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.
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"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;
(b) commercial paper rated at the time of the Fund's investment
therein Prime-1 by Moody's and A-1+ by S&P and issued by institutions whose
long-term debt obligations are rated at least A-2 by Moody's; provided,
however, that in the case of Moody's such commercial paper must have a
maturity of 270 days or less.
"Submission Deadline" means 12:30 P.M., New York City time, on each Auction
Date, or such other time on such Auction Date as may be specified from time to
time by the Auction Agent as the time by which each Broker-Dealer must submit to
the Auction Agent in writing all Orders obtained by it for the Auction to be
conducted on such Auction Date.
"Submitted Bid" has the meaning specified in paragraph 8(d)(i) of the
Auction Procedures.
"Submitted Hold Order" has the meaning specified in paragraph 8(d)(i) of
the Auction Procedures.
"Submitted Order" has the meaning specified in paragraph 8(d)(i) of the
Auction Procedures.
"Submitted Sell Order" has the meaning specified in paragraph 8(d)(i) of
the Auction Procedures.
"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period for the AMPS.
"Substitute Commercial Paper Dealers" means such substitute commercial
paper dealer or dealers as the Fund may from time to time appoint or, in lieu of
any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall means a
nationally recognized securities rating agency and two nationally recognized
securities rating agencies respectively, selected by Merrill Lynch, Pierce,
Fenner & Smith Incorporated, or its respective affiliates and successors, after
consultation with Fund, to act as a substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
AMPS.
"Sufficient Clearing Bids" has the meaning specified in paragraph 8(d)(i)
of the Auction Procedures.
"U.S. Government Obligations" means direct obligations of the United
States, provided that such direct obligations are entitled to the full faith and
credit of the United States and that any such obligations, other than United
States Treasury Bills, provide for the periodic payment of interest and the full
payment of principal at maturity or call for redemption.
"U.S. Securities" has the meaning set forth on page 19 of this Prospectus.
"Valuation Date" has the meaning set forth on page 32 of this Prospectus.
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"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 32
of this Prospectus.
"1940 Act AMPS Asset Coverage Requirement" has the meaning set forth on
page 32 of this Prospectus.
"1940 Act Cure Date" has the meaning set forth on page 32 of this
Prospectus.
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APPENDIX A
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix A constitutes a
representation by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the forepart of this Prospectus or Appendix B hereto, as the case
may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone the
Broker-Dealers that participated in the Auction held on such Auction Date and
submitted an Order on behalf of any Beneficial Owner or Potential Beneficial
Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination of
the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a
Bid or a Sell Order on behalf of a Beneficial Owner, the number of shares,
if any, of AMPS to be sold by such Beneficial Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid
on behalf of a Potential Beneficial Owner, the number of shares, if any,of
AMPS to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of AMPS to be sold by all
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order exceeds the aggregate number of shares of AMPS to be purchased
by all Potential Beneficial Owner on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers
(and the name of the Agent Member, if any, of each such Buyer's
Broker-Dealer) acting for one or more purchasers of such excess number of
shares of AMPS and the number of such shares to be purchased from one or
more Beneficial Owners on whose behalf such Broker-Dealer acted by one or
more Potential Beneficial Owners on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the aggregate number of shares of AMPS to be purchased by all
Potential Beneficial Owners on whose behalf such Broker-Dealer submitted a
Bid exceeds the aggregate number of shares of AMPS to be sold by all
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of AMPS and
the number of such shares to be sold to one or more Potential Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Beneficial
Owners on whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction with respect to
the AMPS.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Beneficial Owner on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct such
Potential Beneficial Owner's Agent Member to pay to such Broker-Dealer (or
its Agent Member) through the Securities Depository the amount necessary to
purchase the number of shares of AMPS to be purchased pursuant to such Bid
against receipt of such shares and advise such Potential Beneficial Owner
of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer,
instruct each Beneficial Owner on whose behalf such Broker-Dealer submitted
a Sell Order that was accepted, in whole or in part, or a
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Bid that was accepted, in whole or in part, to instruct such Beneficial
Owner's Agent Member to deliver to such Broker-Dealer (or its Agent Member)
through the Securities Depository the number of shares of AMPS to be sold
pursuant to such Order against payment therefor and advise any such
Beneficial Owner that will continue to hold shares of AMPS of the
Applicable Rate for the next succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Hold Order of the Applicable Rate for the next succeeding
Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted an Order of the Auction Date for the next succeeding Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of
the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential
Beneficial Owner or an Beneficial Owner shall, in such manner and at such time
or times as in its sole discretion it may determine, allocate any funds received
by it pursuant to (b)(i) above and any shares of AMPS received by it pursuant to
(b)(ii) above among the Potential Beneficial Owners, if any, on whose behalf
such Broker-Dealer submitted Bids, the Beneficial Owners, if any, on whose
behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and
any Broker-Dealer or Broker-Dealers identified to it by the Auction Agent
pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case
may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to the Agent Member of the Beneficial Owner
delivering shares to such Broker-Dealer pursuant to (b)(ii) above the
amount necessary to purchase such shares against receipt of such shares,
and (B) deliver such shares through the Securities Depository to a Buyer's
Broker-Dealer (or its Agent Member) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the
shares to be purchased pursuant to (b)(i) above against receipt of such
shares, and (B) deliver such shares through the Securities Depository to
the Agent Member of the purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described
under (b)(i) or (ii) above, and the Securities Depository shall execute
such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(ii)
above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(iii)
above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of AMPS in an Auction fails to
deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to
the Potential Beneficial Owner on behalf of which it
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submitted a Bid that was accepted a number of whole shares of AMPS that is less
than the number of shares that otherwise was to be purchased by such Potential
Beneficial Owner. In such event, the number of shares of AMPS to be so delivered
shall be determined solely by such Broker-Dealer. Delivery of such lesser number
of shares shall constitute good delivery. Notwithstanding the foregoing terms of
this paragraph (f), any delivery or non-delivery of shares which shall represent
any departure from the results of an Auction, as determined by the Auction
Agent, shall be of no effect unless and until the Auction Agent shall have been
notified of such delivery or non-delivery in accordance with the provisions of
the Auction Agent Agreement and the Broker-Dealer Agreements.
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APPENDIX B
AUCTION PROCEDURES
The following procedures will be set forth in provisions of the Articles
Supplementary relating to the AMPS, and will be incorporated by reference in the
Auction Agent Agreement and each Broker-Dealer Agreement. The terms not defined
below are defined in the forepart of this Prospectus except that the term
"Corporation" means the Fund. Nothing contained in this Appendix B constitutes a
representation by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party.
8. Auction Procedures
(A) CERTAIN DEFINITIONS.
As used in this Paragraph 8, the following terms shall have the following
meanings, unless the context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being auctioned pursuant to
this Paragraph 8.
(ii) "Auction Date" shall mean the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" shall have the meaning specified in Paragraph
8(d)(i) below.
(iv) "Bid" shall have the meaning specified in Paragraph 8(b)(i)
below.
(v) "Bidder" shall have the meaning specified in Paragraph 8(b)(i)
below.
(vi) "Hold Order" shall have the meaning specified in Paragraph
8(b)(i) below.
(vii) "Maximum Applicable Rate" at any Auction will be the rate
obtained by multiplying the 30-day "AA" Composite Commercial Paper Rate on
the date of such Auction by the Applicable Percentage determined as set
forth below based on the lower of the credit rating or ratings assigned to
the AMPS by Moody's and S&P (or if Moody's or S&P or both shall not make
such rating available, the equivalent of either or both of such ratings by
a Substitute Rating Agency or two Substitute Rating Agencies or, in the
event that only one such rating shall be available, the percentage will be
based on such rating).
<TABLE>
<CAPTION>
CREDIT RATING
- ------------------------------------------
S&P MOODY'S APPLICABLE PERCENTAGE
- ------------- --------------------- ---------------------
<S> <C> <C>
AA- or Above "aa3" or Above 150%
A- to A+ "a3" to "a1" 160%
BBB- to BBB+ "baa3" to "baa1" 250%
Below BBB- Below "baa3" 275%
</TABLE>
The Fund shall take all reasonable action necessary to enable S&P and
Moody's to provide a rating for the AMPS. If either S&P or Moody's shall not
make such a rating available, or if neither S&P nor Moody's shall make such a
rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after consultation with the Fund, shall select a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.
(viii) "Order" shall have the meaning specified in Paragraph 8(b)(i)
below.
(ix) "Sell Order" shall have the meaning specified in Paragraph
8(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 P.M., New York City time,
on any Auction Date or such other time on any Auction Date as may be
specified by the Auction Agent from time to time as the
B-1
<PAGE> 98
time by which each Broker-Dealer must submit to the Auction Agent in
writing all Orders obtained by it for the Auction to be conducted on such
Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in Paragraph
8(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
Paragraph 8(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in Paragraph
8(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified in
Paragraph 8(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified in
Paragraph 8(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in
Paragraph 8(d)(i) below.
(B) ORDERS BY BENEFICIAL OWNERS, POTENTIAL BENEFICIAL OWNERS, EXISTING
OWNERS AND POTENTIAL HOLDERS.
(i) Unless otherwise permitted by the Fund, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of
shares subject to Orders submitted or deemed submitted to them by
Beneficial Owners and as Potential Holders in respect of shares subject to
Orders submitted to them by Potential Beneficial Owners. A Broker-Dealer
may also hold shares of AMPS in its own account as a Beneficial Owner. A
Broker-Dealer may thus submit Orders to the Auction Agent as a Beneficial
Owner or a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of both itself
and its customers. On or prior to the Submission Deadline on each Auction
Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for the next succeeding
Dividend Period;
(2) the number of outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified
by such Beneficial Owner; and/or
(3) the number of outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for the next succeeding
Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners,
including Persons that are not Beneficial Owners, on such list to
determine the number of outstanding shares, if any, of AMPS which each
such Potential Beneficial Owner offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communications by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, or the
communications by a Broker-Dealer on behalf of a Beneficial Owner or Potential
Beneficial Owner to the Auction Agent, of information referred to in clause (A)
or (B) of this Paragraph 8(b)(i) is hereinafter referred to as an "Order" and
each Beneficial Owner and each Potential Beneficial Owner placing an Order,
including a Broker-Dealer acting in such capacity for its own account and each
Broker-Dealer placing an Order on behalf of a Beneficial Owner or Potential
Beneficial Owner, is hereinafter referred to as a "Bidder"; an Order containing
the information referred to in clause (A)(1) of this Paragraph 8(b)(i) is
hereinafter referred to as a "Hold Order"; an Order containing the information
referred to in clause (A)(2) of this Paragraph 8(b)(i) or clause (C) of
Paragraph 8(b)(ii) is hereinafter referred to as a "Bid"; and an Order
B-2
<PAGE> 99
containing the information referred to in clause (A)(3) of this Paragraph
8(b)(i) is hereinafter referred to as a "Sell Order." Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii)(A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of outstanding shares of AMPS specified in such
Bid if the Applicable Rate determined on such Auction Date shall be
less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of AMPS
to be determined as set forth in Paragraph 8(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein; or
(3) a lesser number of outstanding shares of AMPS to be
determined as set forth in Paragraph 8(e)(ii)(C) if such specified
rate per annum shall be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of outstanding shares of AMPS specified in such
Sell order; or
(2) such number or a lesser number of outstanding shares of AMPS
to be determined as set forth in Paragraph 8(e)(ii)(C) if Sufficient
Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of outstanding shares of AMPS specified in such
Bid if the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding shares of AMPS
to be determined as set forth in Paragraph 8(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein.
(C) SUBMISSIONS OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund)
as an Existing Holder in respect of shares subject to Orders submitted or
deemed submitted to it by Beneficial Owners and as a Potential Holder in
respect of shares subject to Orders submitted to it by Potential Beneficial
Owners, and specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(B) the aggregate number of outstanding shares of AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of outstanding shares, if any, of AMPS subject to
any Hold Order placed by such Existing Holder;
(2) the number of outstanding shares, if any, of AMPS subject to
any Bid placed by such Existing Holder and the rate per annum
specified in such Bid; and
(3) the number of outstanding shares, if any, of AMPS subject to
any Sell Order placed by such Existing Holder; and
B-3
<PAGE> 100
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the outstanding shares of
AMPS held by an Existing Holder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order
to have been submitted on behalf of such Existing Holder covering the
number of outstanding shares of AMPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of outstanding shares of AMPS held by
such Existing Holder are submitted to the Auction Agent, such Orders shall
be considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of outstanding
shares of AMPS held by such Existing Holder; provided that if more than
one Hold Order is submitted on behalf of such Existing Holder and the
number of shares of AMPS subject to such Hold Orders exceeds the number
of outstanding shares of AMPS held by such Existing Holder, the number
of shares of AMPS subject to each of such Hold Orders shall be reduced
pro rata so that such Hold Orders, in the aggregate, cover exactly the
number of outstanding shares of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of outstanding
shares of AMPS held by such Existing Holder over the number of shares of
AMPS subject to any Hold Order referred to in Paragraph 8(c)(iv)(A)
above (and if more than one Bid submitted on behalf of such Existing
Holder specified the same rate per annum and together they cover more
than the remaining number of shares that can be the subject of valid
Bids after application of Paragraph 8(c)(iv)(A) above and of the
foregoing portion of this Paragraph 8(c)(iv)(B) any Bid or Bids
specifying a lower rate or rates per annum, the number of shares subject
to each of such Bids shall be reduced pro rata so that such Bids, in the
aggregate, cover exactly such remaining number of shares); and the
number of shares, if any, subject to Bids not valid under this Paragraph
8(c)(iv)(B) shall be treated as the subject of a Bid by a Potential
Holder; and
(C) any Sell order shall be considered valid up to and including
the excess of the number of outstanding shares of AMPS held by such
Existing Holder over the number of shares of AMPS subject to Hold Orders
referred to in Paragraph 8(c)(iv)(A) and Bids referred to in Paragraph
8(c)(iv)(B); provided that if more than one Sell Order is submitted on
behalf of any Existing Holder and the number of shares of AMPS subject
to such Sell Orders is greater than such excess, the number of shares of
AMPS subject to each Sell orders shall be reduced pro rata so that such
Sell Orders, in the aggregate, cover exactly the number of shares of
AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum
and number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(D) DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually as a
B-4
<PAGE> 101
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as
the case may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of outstanding shares of AMPS
over the number of Outstanding shares of AMPS that are the subject of
Submitted Holder Orders (such excess being hereinafter referred to as
the "Available AMPS" );
(B) from the Submitted Orders whether the number of outstanding
shares of AMPS that are the subject of Submitted Bids by Potential
Holders specifying one or more rates per annum equal to or lower than
the Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of outstanding shares of AMPS that are the
subject of Submitted Bids by Existing Holders specifying one or more
rates per annum higher than the Maximum Applicable Rate, and
(2) the number of outstanding shares of AMPS that are subject to
Submitted Sell orders;
If such excess or such equality exists (other than because the number of
outstanding shares of AMPS in clauses (1) and (2) above are each zero
because all of the outstanding shares of AMPS are the subject of
Submitted Hold Orders), then "Sufficient Clearing Bids" exist; and
(C) If Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other submitted Bids from Existing Holders
specifying lower rates per annum were rejected, thus entitling such
Existing Holders to continue to hold the shares of AMPS that are the
subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the shares of AMPS that are the subject
of such Submitted Bids, would result in the number of shares subject
to all Submitted Bids specifying the Winning Bid Rate or a lower rate
per annum being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Paragraph 8(d)(i), the Auction Agent shall advise the Fund of
the Maximum Applicable Rate and, based on such determinations, the
Applicable Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid
Rate;
(B) if Sufficient Clearing Bids do not exist (other than because
all of the outstanding shares of AMPS are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Maximum Applicable Rate; or
(C) if all of the outstanding shares of AMPS are the subject of
Submitted Hold Orders, that the Applicable Rate for the next succeeding
Dividend Period shall be equal to 90% of the 30-day "AA" Composite
Commercial Paper Rate on the date of the Auction.
B-5
<PAGE> 102
(E) ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS
AND ALLOCATION OF SHARES.
Based on the determinations made pursuant to Paragraph 8(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of Paragraph 8(e)(iii) and Paragraph 8(e)(iv), Submitted Bids
and Submitted Sell Orders shall be accepted or rejected in the following
order of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell the
outstanding shares of AMPS that are the subject of such Submitted Sell
Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the outstanding shares of AMPS that are the subject of such Submitted
Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
outstanding shares of AMPS that are the subject of such Submitted Bid,
unless the number of outstanding shares of AMPS subject to all such
Submitted Bids shall be greater than the number of outstanding shares of
AMPS ("Remaining Shares") equal to the excess of Available AMPS over the
number of outstanding shares of AMPS subject to Submitted Bids described
in Paragraph 8(e)(i)(B) and Paragraph 8(i)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be accepted, and each
such Existing Holder shall be required to sell outstanding shares of
AMPS, but only in an amount equal to the difference between (1) the
number of outstanding shares of AMPS then held by such Existing Holder
subject to such Submitted Bid and (2) the number of shares of AMPS
obtained by multiplying (x) the number of Remaining Shares by (y) a
fraction the numerator of which shall be the number of outstanding
shares of AMPS held by such Existing Holder subject to such Submitted
bid and the denominator of which shall be the sum of the numbers of
outstanding shares of AMPS subject to such Submitted Bids made by all
such Existing Holders that specified a rate per annum equal to the
Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the number of outstanding shares of AMPS
obtained by multiplying (x) the difference between the Available AMPS
and the number of outstanding shares of AMPS subject to Submitted Bids
described in Paragraph 8(e)(i)(B), Paragraph 8(e)(i)(C) and Paragraph
8(e)(i)(D) by (y) a fraction the numerator of which shall be the number
of outstanding shares of AMPS subject to such Submitted Bid and the
denominator of which shall be the sum of the number of outstanding
shares of AMPS subject to such Submitted Bids made by all such Potential
Holders that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the outstanding shares of AMPS are subject to Submitted Hold
Orders), subject to the provisions of Paragraph 8(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority
and all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be rejected, thus entitling such Existing Holder to continue to
hold the outstanding shares of AMPS that are the subject of such
Submitted Bid;
B-6
<PAGE> 103
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus requiring such Potential Holder to purchase the
outstanding shares of AMPS that are the subject of such Submitted Bid;
and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of AMPS obtained by multiplying (x) the
difference between the Available AMPS and the aggregate number of
outstanding shares of AMPS subject to Submitted Bids described in
Paragraph 8(e)(ii)(A) and Paragraph 8(e)(ii)(B) by (y) a fraction the
numerator of which shall be the number of outstanding shares of AMPS
held by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the number of
outstanding shares of AMPS subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in Paragraph 8(e)(i)
or Paragraph 8(e)(ii), any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a share of AMPS on any Auction Date, the Auction Agent shall,
in such manner as in its sole discretion it shall determine, round up or
down the number of shares of AMPS to be purchased or sold by an Existing
Holder or Potential Holder on such Auction Date so that each outstanding
shares of AMPS purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in Paragraph 8(e)(i),
any Potential Holder would be entitled or required to purchase less than a
whole share of AMPS on any Auction Date, the Auction Agent, in such manner
as in its sole discretion it shall determine, shall allocate shares of AMPS
for purchase among Potential Holders so that only whole shares of AMPS are
purchased on such Auction Date by any Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any shares of AMPS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of the outstanding shares of AMPS to be purchased and the aggregate
number of outstanding shares of AMPS to be sold by such Potential Holders
and Existing Holders and, to the extent that such aggregate number of
outstanding shares to be purchased and such aggregate number of outstanding
shares to be sold differ, the Auction Agent shall determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, outstanding shares of AMPS.
9. Miscellaneous
(a) To the extent permitted by applicable law, the Board of Directors may
interpret or adjust the provisions of the Articles Supplementary to resolve any
inconsistency or ambiguity, remedy any formal defect or make any other change or
modification which does not adversely affect the rights of Beneficial Owners of
shares of AMPS and if such inconsistency or ambiguity reflects an incorrect
provision thereof then the Board of Directors may authorize the filing of a
Certificate of Correction.
(b) A Beneficial Owner or an Existing Holder (A) may sell, transfer or
otherwise dispose of shares of AMPS only pursuant to a Bid or Sell Order in
accordance with the procedures described in Paragraph 8 or to or through a
Broker-Dealer, provided that in the case of all transfers other than pursuant to
Auctions such Existing Holder or Broker-Dealer (acting on its own behalf or on
behalf of a Beneficial Owner), if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of AMPS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial
B-7
<PAGE> 104
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-8
<PAGE> 105
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY
WHERE SUCH OFFER WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Financial Highlights.................. 9
Capitalization........................ 12
The Fund.............................. 13
Use of Proceeds....................... 13
Special Considerations and Risk
Factors............................. 14
Portfolio Composition................. 15
Investment Objective and Policies;
Investment Restrictions............. 15
Description of AMPS................... 21
Management............................ 38
Management of the Fund................ 42
Portfolio Transactions and
Brokerage........................... 50
Net Asset Value of Common Stock....... 50
Taxation.............................. 51
Capital Stock......................... 56
Certain Provisions of the By-Laws and
Articles of Amendment and
Restatement......................... 57
Custodian, Dividend Paying Agents,
Transfer Agents, Registrars and
Auction Agent....................... 58
Underwriting.......................... 59
Experts............................... 59
Legal Matters......................... 60
Financial Statements -- April 30,
1996................................ 61
Financial Statements -- October 31,
1995................................ 71
Glossary.............................. 83
Appendix A............................ A-1
Appendix B............................ B-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$125,000,000
THE FIRST AUSTRALIA
PRIME INCOME FUND, INC.
AUCTION MARKET PREFERRED STOCK
["AMPS"(R)]
2,500 SHARES OF SERIES H
2,500 SHARES OF SERIES I
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
SEPTEMBER , 1996
(R)Registered trademark of Merrill Lynch & Co., Inc.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 106
PART B
NOT APPLICABLE
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS:
<TABLE>
<C> <S>
AUDITED
(i) Portfolio of Investments as of October 31, 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
(unaudited) and fiscal year ended October 31, 1995 (audited)
(vi) Notes to the Financial Statements
(vii) Financial Highlights for the six months ended April 30, 1996 (unaudited) and for
each of the five fiscal years in the period ended October 31, 1995 (audited)
</TABLE>
EXHIBITS:
<TABLE>
<C> <C> <S>
(a)(1) -- Articles of Amendment and Restatement dated December 14, 1988. (Previously filed
as Exhibit (1)(a)(3) to Amendment No. 6 to Registrant's Registration Statement on
Form N-2, File No. 811-4611 (the "Original Registration Statement").)*
(a)(2) -- Article of Amendment dated May 29, 1991 (Previously filed as Exhibit (1)(a)(6) to
Amendment No. 12 to the Original Registration Statement.)*
(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.)*
</TABLE>
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<PAGE> 107
<TABLE>
<C> <C> <S>
(c) -- Inapplicable.
(d)(1) -- Specimen certificates representing shares of Series H AMPS and Series I AMPS.
(Previously filed as Exhibit (d)(1) to Amendment No. 28 to Original Registration
Statement.)*
(2) -- Form of Articles Supplementary Creating Auction Market Preferred Stock, Series H
and Auction Market Preferred Stock, Series I. (Previously filed as Exhibit (d)(2)
to Amendment No. 28 to Original Registration Statement.)*
(e) -- Dividend Reinvestment and Cash Purchase Plan. (Previously filed as Exhibit (e) to
Amendment No. 21 to Original Registration Statement.)*
(f) -- Inapplicable.
(g)(1) -- Management Agreement with EquitiLink International Management Limited ("EIML") and
EquitiLink Australia Limited ("EAL") dated February 1, 1990. (Previously filed as
Exhibit 6(a)(4) to Amendment No. 10 to Original Registration Statement.)*
(2) -- Advisory Agreement with EIML and EAL dated December 15, 1992. (Previously filed as
Exhibit (g)(1)(2) to Amendment No. 18 to Original Registration Statement).*
(3) -- Consultant Agreement among the Registrant, EIML, 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 AMPS 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.**
</TABLE>
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<PAGE> 108
<TABLE>
<C> <C> <S>
(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) -- 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.)*
(2) -- Financial Data Schedule for 6 months ended 4/30/96. (Previously filed as Exhibit
27 to Amendment No. 28 to Original Registration Statement.)*
(s) -- Powers of attorney (previously filed) and certified copy of Board resolutions.
(Previously filed as Exhibit (s) to Amendment No. 28 to Original Registration
Statement.)*
</TABLE>
- ---------------
* Incorporated by reference herein.
** Filed herewith.
ITEM 25. MARKETING ARRANGEMENTS
See Purchase Agreement to be filed as Exhibit (h)(1).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses to be incurred in
connection with the offering described in the Registration Statement:
<TABLE>
<S> <C>
Registration fees....................................................... $ 51,724.14
Printing................................................................ 46,000.00
Fees and expenses of qualification under state securities laws
(including fees of counsel)........................................... 15,000.00
Legal fees and expenses................................................. 95,000.00
Rating agency fees...................................................... 75,000.00
Auditing fees and expenses.............................................. 30,000.00
Miscellaneous........................................................... 10,000.00
-----------
Total................................................................... $322,724.14
===========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
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<PAGE> 109
ITEM 28. NUMBER OF HOLDERS OF SECURITIES (AS OF JUNE 30, 1996).
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
------------------------------------------------------- ------------------------
<S> <C>
Common Stock
($.01 par value per share) 22,388
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
($.01 par value per share) 1
</TABLE>
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland, the
State in which the Registrant was organized, empowers a corporation, subject to
certain limitations, to indemnify its directors against expenses (including
attorneys' fees, penalties, judgments, fines and settlements) actually and
reasonably incurred by them in connection with any suit or proceeding to which
they are a party unless it is established that (i) the director's act or
omission was material to the matter giving rise to the proceeding and (1) was
committed in bad faith, or (2) was the result of active and deliberate
dishonesty, or (ii) the director actually received improper personal benefit in
money, property or services, or (iii) with respect to a criminal action or
proceeding, the director had reasonable cause to believe that the action or
omission was unlawful. Article IX, of the Registrant's By-Laws (as amended
through January 20, 1991) provides:
Article IX. Indemnification. The Corporation shall indemnify (a) its
Directors and officers, whether serving the Corporation or at its request any
other entity, to the full extent required or permitted by (i) the General Laws
of the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law, and (ii)
the Investment Company Act of 1940, as amended, and (b) other employees and
agents to such extent as shall be authorized by the Board of Directors and be
permitted by law. The foregoing rights of indemnification shall not be exclusive
of any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
law.
Reference is made to Section 7 of the Purchase Agreement to be filed as
Exhibit (h) to this Registration Statement for provisions relating to
indemnification of the Underwriters.
Reference is made to Section 3 of the Management Agreement filed as Exhibit
(g)(1) to this Registration Statement and to Section 3 of the Advisory Agreement
filed as Exhibit (g)(2) herewith for provisions relating to limitation of
liability of the Investment Manager and Investment Adviser. Reference is made to
Section 3 of the same Advisory Agreement for provisions relating to limitation
of liability of the Investment Adviser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event
C-4
<PAGE> 110
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Information as to the directors and officers of the Investment Manager and
the Investment Adviser is included in their respective Forms ADV filed with the
Commission and is incorporated herein by reference thereto.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
<TABLE>
<S> <C> <C>
Prudential Mutual Fund EquitiLink International State Street Bank and
Management, Inc. Management Limited Trust Company
One Seaport Plaza Union House 225 Franklin Street
New York, New York 10292 Union Street Boston, MA 02110
For records pursuant to St. Helier, Jersey For all other records
Rule 31a-1(b)(4) For records pursuant to
Rule 31a-1(b)(5), (6), (9),
(10) and (11) and
Rule 31a-1(f)
</TABLE>
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(1) Registrant undertake to suspend offering of its shares until it amends
its prospectus if (a) subsequent to the effective date of its Registration
Statement, the net asset value declines more than 10 percent from its 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> 111
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 28th day of August,
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:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- --------------------------------------- ----------------
<S> <C> <C>
* President and Director August 28, 1996
- ----------------------------------- (Principal Executive Officer)
Brian M. Sherman
* Treasurer and Director (Principal August 28, 1996
- ----------------------------------- Financial
David Manor and Accounting Officer)
* Director August 28, 1996
- -----------------------------------
Anthony E. Aaronson
* Director August 28, 1996
- -----------------------------------
Sir Arthur Roden Cutler
* Director August 28, 1996
- -----------------------------------
David Elsum
* Director August 28, 1996
- -----------------------------------
Rt. Hon. Malcolm Fraser
* Director and Chairman of the Board August 28, 1996
- -----------------------------------
Laurence S. Freedman
* Director August 28, 1996
- -----------------------------------
Michael R. Horsburgh
* Director August 28, 1996
- -----------------------------------
Harry A. Jacobs Jr.
* Director August 28, 1996
- -----------------------------------
Howard A. Knight
</TABLE>
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<PAGE> 112
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- --------------------------------------- ----------------
<S> <C> <C>
* Director August 28, 1996
- -----------------------------------
Roger C. Maddock
* Director August 28, 1996
- -----------------------------------
William J. Potter
* Director August 28, 1996
- -----------------------------------
Peter D. Sacks
* Director August 28, 1996
- -----------------------------------
John T. Sheehy
* Director August 28, 1996
- -----------------------------------
Marvin Yontef
*By /s/ MARGARET A. BANCROFT
- -----------------------------------
Margaret A. Bancroft
as Attorney-in-Fact
</TABLE>
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<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------------ --------
<S> <C> <C>
(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) Consent of Independent Accountants
</TABLE>
C-8
<PAGE> 1
Exhibit (h)(1)
DRAFT OF 8/26/96
2,500 Shares, Series H
2,500 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
September , 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
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"), Prudential
Securities Incorporated ("Prudential") and Smith Barney Inc. ("Smith Barney")
(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
- ---------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
$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 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- 08433) 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
2
<PAGE> 3
the Underwriters for such use. If the Fund elects to rely on Rule 434 under the
Rules and Regulations, all references to the Prospectus shall be deemed to
include, without limitation, the form of prospectus and the term sheet, taken
together, provided to the Underwriters by the Fund in reliance on Rule 434 under
the 1933 Act (the "Rule 434 Prospectus"). If the Fund files a registration
statement to register a portion of the Shares and relies on Rule 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. 333-08433) 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> 4
(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> 5
(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> 6
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> 7
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> 8
(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> 9
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> 10
(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> 11
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 9:00 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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
instruments which have been specifically identified
to such counsel by the Fund as material to the
business or financial condition of the Fund, or under
the Charter or By-Laws of the Fund, or under the
Maryland Corporation Law; the statements set forth in
the Prospectus under the heading "Capital Stock",
insofar as such statements constitute a summary of
legal matters or documents referred to therein,
provide a fair summary of such legal matters or
documents.
(vi) This Agreement and the Pricing
Agreement each has been duly authorized, executed and
delivered by the Fund and each complies with all
applicable provisions of the 1940 Act (except that
counsel need express no opinion as to compliance with
Section 17(i) of the 1940 Act).
(vii) The Registration Statement is
effective under the 1933 Act and, to the best of
their know- ledge and information, no stop order
suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by the
Commission.
(viii) At the time the Registration
Statement became effective the Registration Statement
(other than the financial statements included
therein, as to which no opinion need be rendered)
complied as to form in all material respects with the
requirements of the 1933 Act and the 1940 Act and the
Rules and Regulations. The Rule 434 Prospectus
conforms to the requirements of Rule 434 in all
material respects.
(ix) To the best of their knowledge and
information, there are no legal or governmental
proceedings pending or threatened against the Fund,
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> 18
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> 19
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> 20
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> 21
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> 22
(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> 23
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> 24
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> 25
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> 26
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> 27
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,
EquitiLink Limited and the Adviser will indemnify and hold harmless each
Underwriter and each such controlling person to the extent provided in such
subsection (a).
(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.
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
27
<PAGE> 28
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, 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
28
<PAGE> 29
Exchange, or the Australian 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 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
29
<PAGE> 30
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 corporation. No purchaser of Shares from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
30
<PAGE> 31
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> 32
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> 33
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------------------------
Authorized Signatory
Investment Banking Group
33
<PAGE> 34
Schedule A
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Underwriters of Series H AMPS of Series I AMPS
- -------------------- ---------------- ----------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
PaineWebber Incorporated...................................
Prudential Securities Incorporated.........................
Smith Barney Inc...........................................
---------------- ----------------
TOTAL 2,500 2,500
================ ================
</TABLE>
34
<PAGE> 35
Exhibit A
2,500 Shares, Series H
2,500 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
September___, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
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 September___, 1996
(the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber Incorporated,
Prudential Securities Incorporated and Smith Barney Inc. (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> 36
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> 37
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
SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:___________________________________________________
Authorized Signatory
Investment Banking Group
A-3
<PAGE> 1
EXHIBIT (K) (4)
AUCTION AGENT AGREEMENT
BETWEEN
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
AND
THE CHASE MANHATTAN BANK
DATED AS OF SEPTEMBER ___, 1996
RELATING TO
AUCTION MARKET PREFERRED STOCK(R)
("AMPS"(R))
SERIES H AND SERIES I
OF
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
================================================================================
(R) REGISTERED TRADEMARK OF MERRILL LYNCH & CO., INC.
<PAGE> 2
THIS AUCTION AGENT AGREEMENT dated as of September ___, 1996 between
THE FIRST AUSTRALIA PRIME INCOME FUND, INC., a Maryland corporation (the
"Company"), and THE CHASE MANHATTAN BANK, a New York corporation.
The Company proposes to duly authorize and issue 2,500 shares of
Auction Market Preferred Stock (R) Series H, with a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) ("Series H AMPS") and 2,500 shares of
Auction Market Preferred Stock(R) Series I, with a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) ("Series I AMPS") pursuant to the Company's
Articles Supplementary (as defined below). The Series H AMPS and the Series I
AMPS are sometimes herein together referred to as the "AMPS." A separate Auction
(as defined below) will be conducted for each series of AMPS. The Company
desires that THE CHASE MANHATTAN BANK perform certain duties as auction agent in
connection with each auction of shares of AMPS and as the transfer agent,
registrar, paying agent and redemption agent with respect to the shares of AMPS
(the "Auction Agent") upon the terms and conditions of this Agreement, and
hereby appoints THE CHASE MANHATTAN BANK as said Auction Agent in accordance
with those terms and conditions.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Auction Agent agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the
Settlement Procedures (as defined below), the following terms shall have the
following meanings, unless the context otherwise requires:
(a) "Affiliate" shall mean any Person made known
to the Auction Agent to be controlled by, in control of or under common
control with, the Company.
(b) "Agent Member" shall mean such Person's
agent member of the Securities Depositary.
(c) "Articles Supplementary" shall mean the
Articles Supplementary of the Company, establishing the powers,
preferences and rights of the Series H AMPS and Series I AMPS filed on
September ___, 1996 in the Office of the State Department of
Assessments and Taxation of the State of Maryland, substantially in the
form attached hereto as Exhibit A.
(d) "Auction" shall have the meaning specified
in Section 2.1 hereof.
(e) "Auction Procedures" shall mean the Auction
Procedures that are set forth in paragraph 8 of the Articles
Supplementary.
- --------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 3
(f) "Authorized Officer" shall mean each Senior
Vice President, Vice President, Assistant Vice President, Trust Officer
and Assistant Treasurer of the Auction Agent assigned to its Corporate
Trust Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a
communication to the Company.
(g) "Beneficial Owner" shall mean a customer of
a Broker-Dealer who is listed on the records of that Broker-Dealer (or,
if applicable, the Auction Agent) as a holder of one or more shares of
AMPS or a Broker-Dealer that holds shares of AMPS for its own account.
(h) "Broker-Dealer Agreement" shall mean each
agreement between the Auction Agent and a Broker-Dealer substantially
in the form attached hereto as Exhibit B.
(i) "Business Day" shall have the meaning
specified in the Articles Supplementary. Within 10 days after the Date
of Original Issue, and on an annual basis thereafter, the Company will
provide a list of Australian holidays to the Auction Agent for the
forthcoming twelve-month period.
(j) "Company Officer" shall mean the Chairman
and Chief Executive Officer, the President, each Vice President
(whether or not designated by a number or word or words added before or
after the title "Vice President"), the Secretary, the Treasurer, each
Assistant Secretary and each Assistant Treasurer of the Company and
every other officer or employee of the Company designated as a "Company
Officer" for purposes hereof in a notice from the Company to the
Auction Agent.
(k) "Holder" shall be a holder of record of one
or more shares of the AMPS listed as such in the stock register
maintained by the Paying Agent pursuant to Section 4.6.
(l) "Settlement Procedures" shall mean the
Settlement Procedures attached as Exhibit B to the Broker-Dealer
Agreement.
1.3 Rules of Construction. Unless the context or use
indicates another or different meaning or intent, the following rules shall
apply to the construction of this Agreement:
(a) Words importing the singular number shall
include the plural number and vice versa.
(b) The captions and headings herein are solely
for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and
other words of similar import refer to this Agreement as a whole.
- 2 -
<PAGE> 4
(d) All references herein to a particular time
of day shall be to New York City time.
(e) Capitalized terms not defined herein shall
have the meaning ascribed to them in the Articles Supplementary.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.
(a) The Articles Supplementary provide that the
Applicable Rate on shares of the AMPS, for each Dividend Period
therefor after the Initial Dividend Period shall be the rate per annum
that the Auction Agent advises results from implementation of the
Auction Procedures. Pursuant to a resolution adopted by the Board of
Directors of the Company, the Company has appointed The Chase Manhattan
as Auction Agent for purposes of the Auction Procedures. The Auction
Agent hereby accepts such appointment and agrees that, on each Auction
Date, it shall follow the procedures set forth in this Section 2 and
the Auction Procedures for the purpose of determining the Applicable
Rate for the AMPS for the next Dividend Period therefor. Each periodic
operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the
Auction Procedures and the Settlement Procedures are incorporated
herein by reference in their entirety and shall be deemed to be a part
hereof to the same extent as if such provisions were fully set forth
herein.
2.2 Preparation for Each Auction; Maintenance of Registry
of Existing Holders.
(a) Pursuant to Section 2.5 hereof, the Company
shall not designate any Person to act as a Broker-Dealer without prior written
approval of the Auction Agent (which approval shall not be unreasonably
withheld). At the time of the closing of the initial issuance and sale of the
AMPS (the "Closing"), the Company shall provide the Auction Agent with a list of
the Broker-Dealers previously approved by the Auction Agent and shall cause to
be delivered to the Auction Agent for execution by the Auction Agent a
Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent
shall keep such list current and accurate, and shall indicate thereon, or on a
separate list, the identity of each Existing Holder, if any, whose most recent
Order was submitted by a Broker-Dealer on such list and resulted in such
Existing Holder continuing to hold or purchasing shares of AMPS. Not later than
seven days prior to any Auction Date for which any change in such list of
Broker-Dealers is to be effective, the Company shall notify the Auction Agent in
writing of such change and, if any such change is the addition of a
Broker-Dealer to such list, the Company shall cause to be delivered to the
Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement
signed by such Broker-Dealer. The Auction Agent shall have entered into a
Broker-Dealer Agreement with each Broker-Dealer prior to the participation of
any such Broker-Dealer in any Auction.
-3-
<PAGE> 5
(b) (i) In the event that the Auction Date for
any Auction shall be changed after the Auction Agent shall have given
the notice referred to in clause (vii) of Paragraph (a) of the
Settlement Procedures, the Auction Agent, by such means as the Auction
Agent deems practicable, shall give notice of such change to the
Broker-Dealers not later than the earlier of 9:15 A.M. on the new
Auction Date or 9:15 A.M. on the old Auction Date.
(ii) If, after the date of this Agreement, there
is any change in the prevailing rating of AMPS by either of the rating
agencies (or substitute or successor rating agencies) referred to in
the definition of the Maximum Applicable Rate, thereby resulting in any
change in the corresponding applicable percentage for the AMPS, as set
forth in said definition (the "Applicable Percentage"), the Company
shall notify the Auction Agent in writing of such change in the
Applicable Percentage prior to 9:00 A.M. on the Auction Date for AMPS
next succeeding such change. The Applicable Percentage for the AMPS on
the date of this Agreement is 150%. The Auction Agent shall be entitled
to rely on the last Applicable Percentage of which it has received
notice from the Company (or, in the absence of such notice, the
Applicable Percentage set forth in the preceding sentence) in
determining the Maximum Applicable Rate as set forth in Section
2.2(c)(i) hereof.
(c) (i) On each Auction Date, the Auction Agent
shall determine the 30-day "AA" Composite Commercial Paper Rate and the
Maximum Applicable Rate. If the 30 day "AA" Composite Commercial Paper
Rate is not quoted on an interest basis but is quoted on a discount
basis, the Auction Agent shall convert the quoted rate to an interest
rate, as set forth in Paragraph 1 of the Articles Supplementary; or, if
the rate obtained by the Auction Agent is not quoted on an interest or
discount basis, the Auction Agent shall convert the quoted rate to an
interest rate after consultation with the Company as to the method of
such conversion. Not later than 9:30 A.M. on each Auction Date for each
series of AMPS, the Auction Agent shall notify the Company and the
Broker-Dealers by telephone of the 30-day "AA" Composite Commercial
Paper Rate so determined and the Maximum Applicable Rate.
(ii) If the 30-day "AA" Composite Commercial
Paper Rate is to be based on rates supplied by Commercial Paper Dealers
and one or more of the Commercial Paper Dealers shall not provide a
quotation for the determination of the 30-day "AA" Composite Commercial
Paper Rate, the Auction Agent shall immediately notify the Company so
that the Company can determine whether to select a Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers to
provide the quotation or quotations not being supplied by any
Commercial Paper Dealer or Commercial Paper Dealers. The Company shall
promptly advise the Auction Agent of any such selection. If the Company
does not select any such Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers, then the rates shall be supplied
by the remaining Commercial Paper Dealer or Commercial Paper Dealers.
- 4 -
<PAGE> 6
(d) (i) The Auction Agent shall maintain a
current registry of the Existing Holders of the shares of AMPS for
purposes of each Auction. The Company shall provide or cause to be
provided to the Auction Agent on the date of closing of the initial
issuance and sale of the AMPS, a list of the initial Existing Holders
of the AMPS, and the Broker-Dealer of each such Existing Holder through
which such Existing Holder purchased such shares. The Auction Agent may
rely upon, as evidence of the identities of the Existing Holders, such
list, the results of each Auction and notices from any Existing Holder,
the Agent Member of any Existing Holder or the Broker-Dealer of any
Existing Holder with respect to such Existing Holder's transfer of any
shares of AMPS to another Person.
(ii) In the event of any partial redemption of
the AMPS, upon notice by the Company to the Auction Agent of such
partial redemption, the Auction Agent shall promptly request the
Securities Depository to notify the Auction Agent of the identities of
the Agent Members (and the respective numbers of shares) from the
accounts of which shares have been called for redemption and the person
or department at such Agent Member to contact regarding such redemption
and, at least two Business Days prior to the Auction preceding the date
of redemption with respect to shares of the AMPS being partially
redeemed, the Auction Agent shall request each Agent Member so
identified to disclose to the Auction Agent (upon selection by such
Agent Member of the Existing Holders whose shares are to be redeemed)
the number of shares of such series of AMPS of each such Existing
Holder, if any, to be redeemed by the Company; provided the Auction
Agent has been furnished with the name and telephone number of a person
or department at such Agent Member from which it is to request such
information. In the absence of receiving any such information with
respect to an Existing Holder, from such Existing Holder's Agent Member
or otherwise, the Auction Agent may continue to treat such Existing
Holder as the beneficial owner of the number of shares of the AMPS
shown in the Auction Agent's registry of Existing Holders.
(iii) The Auction Agent shall register a transfer
of the beneficial ownership of shares of the AMPS from a Existing
Holder to another Person only if (A) such transfer is pursuant to an
Auction or (B) if such transfer is made other than pursuant to an
Auction, the Auction Agent has been notified in writing in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreements,
by such Existing Holder, the Agent Member of such Existing Holder, or
the Broker- Dealer of such Existing Holder of such transfer. The
Auction Agent is not required to accept any notice of transfer
delivered for an Auction unless it is received by the Auction Agent by
3:00 P.M. on the Business Day next preceding the applicable Auction
Date. The Auction Agent shall rescind a transfer made on the registry
of the Existing Holders of any shares of AMPS if the Auction Agent has
been notified in writing in a notice substantially in the form of
Exhibit E to the Broker-Dealer Agreement by the Broker-Dealer of any
Person that (i) purchased any shares of AMPS and the seller failed to
deliver such shares or (ii) sold any shares of AMPS and the purchaser
failed to make payment to such Person upon delivery to the purchaser of
such shares.
-5-
<PAGE> 7
(e) The Auction Agent may request that the
Broker-Dealers, as set forth in Section 2.2(c) of the Broker-Dealer
Agreements, provide the Auction Agent with a list of the Existing
Holders of such Broker-Dealers and the aggregate principal amount of
shares of AMPS held by such Existing Holders. Except as provided in
Section 2.7 hereof, the Auction Agent shall keep confidential any such
information and shall not disclose any such information so provided to
any Person other than the relevant Broker-Dealer and the Company,
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so
would be unlawful.
2.3 Auction Schedule. The Auction Agent shall conduct Auctions in
accordance with the schedule set forth below. Such schedule may be changed by
the Auction Agent with the consent of the Company, which consent shall not be
unreasonably withheld or delayed. The Auction Agent shall give notice of any
such change to each Broker-Dealer. Such notice shall be received prior to the
first Auction Date on which any such change shall be effective.
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 a.m Auction Agent advises the Company and the
Broker-Dealers of 30-day "AA" Composite Commercial
Paper Rate and the Maximum Applicable Rate as set
forth in Section 2.2(c)(i) hereof.
9:30 a.m.-1:00 p.m. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Paragraph
8(c)(i) of the Articles Supplementary. Submission
deadline is 1:00 p.m.
Not earlier than Auction Agent makes determination
1:00 p.m. pursuant to Paragraph 8(d)(i) of the Articles
Supplementary.
By approximately Auction Agent advises Company of
3:00 p.m. results of Auction as provided in Paragraph 8(d)(ii)
of the Articles Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and shares
of AMPS allocated as provided in Paragraph 8(e) of
the Articles Supplementary. Auction Agent gives
notice of Auction results as set forth in Section 2.4
hereof.
</TABLE>
2.4 Notice of Auction Results. On each Auction Date, the Auction
Agent shall notify Broker-Dealers of the results of the Auction held on such
date by telephone as set forth in Paragraph (a) of the Settlement Procedures.
- 6 -
<PAGE> 8
2.5 Broker-Dealers.
(a) Not later than 12:00 noon on the Business Day
immediately preceding each Dividend Payment Date, the Company shall
deposit with the Auction Agent a service charge to be paid to the
Broker-Dealers in an amount in immediately available or next day funds
equal to the product of (i) a fraction, the numerator of which is the
number of days in the Dividend Period beginning on such Dividend
Payment Date and the denominator of which is 360, (ii) 1/4 of 1%, (iii)
$25,000, and (iv) the aggregate number of outstanding shares of AMPS
for which the Auction is conducted. The Auction Agent shall apply such
monies as set forth in Section 2.5 of the Broker-Dealer Agreements and
shall thereafter remit to the Company any remaining funds paid to the
Auction Agent pursuant to this Section 2.5(a).
(b) The Company shall not designate any Person to act as
a Broker- Dealer without the prior written approval of the Auction
Agent, which written approval shall not be unreasonably withheld. The
Company may designate an affiliate to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Company.
(d) Subject to Section 2.5(b) hereof, the Auction Agent
shall from time to time enter into such Broker-Dealer Agreements as the
Company shall request.
(e) The Auction Agent shall maintain a list of
Broker-Dealers.
2.6 Ownership of Shares of AMPS and Submission of Bids by Company
and Affiliates. Neither the Company nor any Affiliate of the Company may submit
any Sell Order or Bid, directly or indirectly, in any Auction, except that an
Affiliate of the Company that is a Broker-Dealer may submit a Sell Order or Bid
on behalf of a Beneficial Owner or Potential Beneficial Owner. The Company shall
notify the Auction Agent if the Company or, to the best of the Company's
knowledge, any Affiliate of the Company becomes a Beneficial Owner of any shares
of AMPS. Any shares of AMPS (i) redeemed by the Company shall not be reissued or
(ii) purchased or otherwise acquired by its Affiliates shall not be transferred
(other than to the Company). The Auction Agent shall have no duty or liability
with respect to enforcement of this Section 2.6.
2.7 Access to and Maintenance of Auction Records. The Auction
Agent shall afford to the Company, its agents, independent public accountants
and counsel, access at reasonable times during normal business hours to review
and make extracts or copies (at the Company's sole cost and expense) of all
books, records, documents and other information concerning the conduct and
results of Auctions, provided that any such agent, accountant, or counsel shall
furnish the Auction Agent with a letter from a Company Officer requesting that
the Auction Agent afford such person access. The Auction Agent shall maintain
records relating to any Auction for a period of two years after such Auction
(unless requested by the Company to maintain such records for such longer period
not in excess of six years, then for such longer period), and such records
shall, in reasonable detail, accurately and fairly reflect the actions taken by
the Auction Agent hereunder. The Company agrees to keep any information
regarding the customers of any Broker-Dealer received from the Auction Agent in
connection with this Agreement or any Auction confidential and shall not
disclose such
- 7 -
<PAGE> 9
information or permit the disclosure of such information without the prior
written consent of the applicable Broker-Dealer to anyone except such agent,
accountant or counsel engaged to audit or review the results of Auctions as
permitted by this Section 2.7. Any such agent, accountant or counsel, before
having access to such information, shall agree to keep such information
confidential and not to disclose such information or permit disclosure of such
information without the prior written consent of the applicable Broker-Dealer.
The Auction Agent shall have no duty or liability with respect to enforcement of
the agreements set forth in the two preceding sentences. Upon the decision of
the Auction Agent to no longer hold such records, the Auction Agent shall
promptly return to the Company all such records referred to in this Section 2.7.
3. The Auction Agent as Paying Agent.
3.1 Paying Agent. The Board of Directors of the Company
has adopted a resolution pursuant to which The Chase Manhattan Bank has been
appointed as transfer agent, registrar, dividend disbursing agent and redemption
agent for the Company in connection with any shares of AMPS (the "Paying
Agent"). The Paying Agent hereby accepts such appointment and agrees to act in
accordance with its standard procedures and the provisions of the Articles
Supplementary which are specified herein as Paying Agent with respect to the
shares of AMPS and as set forth in this Section 3.
3.2 The Company's Notices to Paying Agent. Whenever any
shares of AMPS are to be redeemed, the Company shall promptly so notify the
Paying Agent in writing not fewer than five and not more than ten days prior to
the date the Notice of Redemption is required to be mailed pursuant to the
Articles Supplementary. Such notice by the Company shall contain the information
required to be stated in the Notice of Redemption. The Paying Agent shall have
no responsibility to confirm or verify the accuracy of any such notice.
3.3 Company to Provide Deposit Securities for Dividends
and Redemptions.
(a) Not later than 12:00 noon on the Business
Day immediately preceding each Dividend Payment Date, the Company shall
deposit with the Paying Agent Deposit Securities constituting
immediately available funds in an amount equal to the declared
dividends to be paid to Holders on such Dividend Payment Date and shall
give the Paying Agent irrevocable instructions to apply such funds to
the payment of such dividends on such Dividend Payment Date.
(b) If the Company shall give a Notice of
Redemption then, by 12:00 noon of the Business Day immediately
preceding the date fixed for redemption, the Company shall deposit in
trust with the Paying Agent Deposit Securities constituting immediately
available funds in an amount sufficient to redeem such shares of AMPS
called for redemption and shall give the Paying Agent irrevocable
instructions and authority to pay the redemption price to the Holders
of shares of AMPS called for redemption.
(c) The Company may direct the Paying Agent, in
writing or orally with such direction promptly confirmed in writing,
with respect to the investment of any Deposit Securities deposited
pursuant to paragraphs (a) or (b) of this Section 3.3 in short-term
- 8 -
<PAGE> 10
investments specified by the Company which mature on or before the
opening of business on such Dividend Payment Date or the date fixed for
redemption, as the case may be, provided that the proceeds of such
overnight investments will be available at the opening of business on
the Dividend Payment Date or the date fixed for redemption, as the case
may be. The investments made pursuant to the foregoing sentence are
solely for the account and at the risk of the Company, and the Paying
Agent shall not be liable or responsible for any loss, in whole or in
part, resulting from such investments. Upon the request of the Company
the Paying Agent shall promptly transmit any interest received on such
investments to the Company.
3.4 Disbursing Dividend and Redemption Price. After
receipt of the immediately available funds and instructions from the Company
described in Sections 3.3(a) and (b) above, the Paying Agent shall pay to the
Holders entitled thereto (i) on each corresponding Dividend Payment Date,
dividends on the AMPS, and (ii) on any date fixed for redemption, the redemption
price of any shares of AMPS called for redemption. The amount of dividends for
any Dividend Period to be paid by the Paying Agent to Holders will be determined
by the Company as set forth in Paragraph 3 of the Articles Supplementary. The
redemption price to be paid by the Paying Agent to the Holders of any shares of
AMPS called for redemption will be determined as set forth in Paragraph 5 of the
Articles Supplementary. The Company shall notify the Paying Agent in writing of
a decision to redeem any shares of AMPS on or prior to the date specified in
Section 3.2 above, and such notice by the Company to the Paying Agent shall
contain the information required to be stated in the Notice of Redemption
required to be mailed by the Company to such Holders. The Paying Agent shall
have no duty to determine the redemption price and may rely on the amount
thereof set forth in the Notice of Redemption.
3.5 Company's Failure to Provide Dividends. In the event
that the Company fails to deposit, on or prior to the third Business Day
following a Dividend Payment Date or date fixed for redemption, any funds
required to be deposited by Section 3 (c) (iii) of the Articles Supplementary,
the Applicable Rate for the Dividend Period for the series to which such
Dividend Payment Date or such redemption date relates shall be equal to 275% of
the 30-day "AA" Composite Commercial Paper Rate in effect on the second Business
Day preceding the first day of such Dividend Period. The Auction Agent shall
obtain such rate and shall promptly notify the Broker-Dealers of the same.
3.6 Company's Certificates to Auction Agent. The Company
shall deliver to the Auction Agent Portfolio Valuation Reports and Accountant's
Confirmations, in each case, as provided in paragraphs 7 (b) and 7 (f) of the
Articles Supplementary. The Auction Agent's sole duty with respect to these
certificates shall be to receive them periodically and to maintain them in
accordance with Section 2.7 hereof.
4. The Paying Agent as Transfer Agent and Registrar.
4.1 Original Issue of Stock Certificates. On the Date of
Original Issue, one certificate for all shares of the AMPS, shall be issued by
the Company and registered in the name of Cede & Co., as nominee of the
Securities Depository, and countersigned by the Paying Agent.
- 9 -
<PAGE> 11
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of AMPS shall be registered
solely in the name of the Securities Depository or its nominee. If the
Securities Depository shall give notice of its intention to resign as such, and
if the Company shall not have selected a substitute Securities Depository
acceptable to the Paying Agent prior to such resignation, then upon such
resignation, the shares of AMPS may, at the Company's request, be registered for
transfer or exchange, and new certificates thereupon shall be issued in the name
of the designated transferee or transferees, upon surrender of the old
certificates in form deemed by the Paying Agent properly endorsed for transfer
with (a) all necessary endorsers' signatures guaranteed in such manner and form
as the Paying Agent may require by a guarantor reasonably believed by the Paying
Agent to be responsible, (b) such assurances as the Paying Agent shall deem
necessary or appropriate to evidence the genuineness and effectiveness of each
necessary endorsement and (c) satisfactory evidence of compliance with all
applicable laws relating to the collection of taxes or funds necessary for the
payment of such taxes. If the certificates for shares of AMPS are not held by
the Securities Depositary or its nominee, payments upon transfer of shares in an
Auction shall be made in same day funds to the Auction Agent against delivery of
certificates therefor.
4.3 Removal of Legend. Any request for removal of a
legend indicating a restriction on transfer from certificates evidencing shares
of AMPS, shall be accompanied by an opinion of counsel stating that such legend
may be removed and such shares transferred free of the restriction described in
such legend, said opinion to be delivered under cover of a letter from a Company
Officer authorizing the Paying Agent to remove the legend on the basis of said
opinion.
4.4 Lost Stock Certificates. The Paying Agent shall issue
and register replacement certificates for certificates represented to have been
lost, stolen or destroyed, upon the fulfillment of such requirements as shall be
deemed appropriate by the Company and the Paying Agent, subject at all times to
provisions of law, the By-Laws of the Company governing such matters and
resolutions adopted by the Company with respect to lost securities. The Paying
Agent may issue new certificates in exchange for and upon the cancellation of
mutilated certificates. Any request by the Company to the Paying Agent to issue
a replacement or new certificate pursuant to this Section 4.4 shall be deemed to
be a representation and warranty by the Company to the Paying Agent that such
issuance will comply with such provisions of applicable law and the By-Laws and
resolutions of the Company.
4.5 Disposition of Cancelled Certificates; Record
Retention. The Paying Agent shall retain stock certificates which have been
cancelled in transfer or in exchange and accompanying documentation in
accordance with applicable rules and regulations of the Securities and Exchange
Commission for two calendar years from the date of such cancellation. The Paying
Agent shall afford to the Company, its agents and counsel access at reasonable
times during normal business hours to review and make extracts or copies (at the
Company's sole cost and expense) of such certificates and accompanying
documentation. Upon the expiration of this two-year period, the Paying Agent
shall deliver to the Company the cancelled certificates and accompanying
documentation. The Company shall, at its expense, retain such records for a
minimum additional period of four calendar years from the date of delivery of
the records to the Company and shall make such records available during this
period at any time, or from time to time, for reasonable periodic, special, or
other examinations by representatives of the Securities and Exchange Commission
and the
- 10 -
<PAGE> 12
Board of Governors of the Federal Reserve System. The Company shall also
undertake to furnish to the Securities and Exchange Commission and to the Board
of Governors of the Federal Reserve System, upon demand, at either the principal
office or at any regional office, complete, correct and current hard copies of
any and all such records. Thereafter such records shall not be destroyed by the
Company without the approval of the Paying Agent, which shall not be
unreasonably withheld, but will be safely stored for possible future reference.
4.6 Stock Register. The Paying Agent shall maintain the
stock register which shall contain a list of the Holders, the number of shares
held by each Holder and the address of each Holder. The Paying Agent shall
record in the stock register any change of address of a Holder upon notice by
such Holder. In case of any request or demand for the inspection of the stock
register or any other books of the Company in the possession of the Paying
Agent, the Paying Agent will notify the Company and secure instructions as to
permitting or refusing such inspection. The Paying Agent reserves the right,
however, to exhibit the stock register or other records to any person in case it
is advised by its counsel that its failure to do so would (i) be unlawful or
(ii) expose it to liability, unless the Company shall have offered
indemnification satisfactory to the Paying Agent.
4.7 Return of Deposit Securities. Any cash in excess of
the aggregate redemption price of shares of AMPS called for redemption and any
remaining Deposit Securities deposited with the Auction Agent by the Company for
any reason under this Agreement, including for the payment of dividends or the
redemption of shares of AMPS, that remain with the Auction Agent shall be
returned to the Company promptly after the date fixed for such dividend payments
or redemptions. Any assets so deposited remaining unclaimed after 12 months
shall, to the extent permitted by law, be repaid to the Company upon the written
request of the Company.
5. Representations and Warranties.
(a) The Company represents and warrants to the
Auction Agent that:
(i) the Company is a duly incorporated
and validly existing corporation in good standing under the
laws of the State of Maryland and has full power to execute
and deliver this Agreement and to authorize, create and issue
the shares of AMPS;
(ii) the Company is registered with the
Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as a closed-end
non-diversified management investment company;
(iii) this Agreement has been duly and
validly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with
its terms, subject as to such enforceability to bankruptcy,
insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and
to general equity principles;
- 11 -
<PAGE> 13
(iv) the form of the certificates
evidencing the shares of AMPS complies with all applicable
laws of the State of Maryland;
(v) the shares of AMPS have been duly
and validly authorized by the Company and, upon completion of
the initial sale of the shares of AMPS and receipt of payment
therefor, will be validly issued, fully paid and
nonassessable;
(vi) the offering of the shares of AMPS
has been registered under the Securities Act of 1933, as
amended (the "1933 Act"), and no consent, approval,
authorization or order of any court or governmental authority
or agency is required in connection with the execution and
delivery of this Agreement or the issuance of the shares of
AMPS except such as has been obtained under the 1940 Act, the
1933 Act or as may be required by applicable state securities
laws;
(vii) the execution and delivery of this
Agreement and the issuance and delivery of the shares AMPS do
not and will not conflict with, violate, or result in a breach
of, the terms, conditions or provisions of, or constitute a
default under, the Articles of Incorporation or the By-Laws of
the Company, or to the best knowledge of the Company of any
law or regulation applicable to the Company, any order or
decree of any court or public authority having jurisdiction
over the Company, or any mortgage, indenture, contract,
agreement or undertaking to which the Company is a party or by
which it is bound; and
(viii) no taxes are payable upon or in
respect of the execution of this Agreement or the issuance of
the shares of AMPS.
(b) The Auction Agent represents and warrants to the
Company that the Auction Agent is duly organized and is validly
existing as a corporation in good standing under the laws of the State
of New York and has the corporate power to enter into and perform its
obligations under this Agreement.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent
for the Company hereunder and owes no fiduciary duties to any other
Person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into
this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on
its part, the Auction Agent shall not be liable for any action taken,
suffered or omitted or for any error of judgment made by it in the
performance of its duties under this Agreement. The Auction Agent shall
not be liable for any error of judgment made in good faith unless the
Auction Agent shall have been
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<PAGE> 14
negligent in ascertaining (or failing to ascertain) the pertinent facts
necessary to make such judgment.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be
protected in acting or refraining from acting upon any communication
authorized hereby including any written instruction, notice, request,
direction, consent, report, certificate, share certificate or other
instrument, paper or document reasonably believed by it to be genuine.
The Auction Agent shall not be liable for acting upon any telephone
communication authorized hereby which the Auction Agent believes in
good faith to have been given by the proper parties. The Auction Agent
may record telephone communications with the Company or with the
Broker-Dealers or both.
(b) The Auction Agent may consult with counsel
of its choice, and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Auction Agent shall not be required to
advance, expend or risk its own funds or otherwise incur or become
exposed to financial liability in the performance of its duties
hereunder.
(d) The Auction Agent may perform its duties and
exercise its rights hereunder either directly or by or through agents
or attorneys.
6.3 Auction Agent's Disclaimer. The Auction Agent makes
no representation as to the validity or adequacy of this Agreement, the
Broker-Dealer Agreements or the AMPS.
6.4 Compensation, Expenses and Indemnification.
(a) The Company shall pay the Auction Agent from
time to time reasonable compensation for all services rendered by it
under this Agreement and the Broker-Dealer Agreements.
(b) The Company shall reimburse the Auction
Agent upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Auction Agent in accordance with any
provision of this Agreement and the Broker-Dealer Agreements (including
the reasonable compensation, expenses and disbursements of its agents
and counsel), except any expense, disbursement and advances
attributable to its negligence or bad faith.
(c) The Company shall indemnify the Auction
Agent for and hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or
in connection with its agency under this Agreement and the
Broker-Dealer Agreements, including the costs and expenses of defending
itself against any claim or liability in connection with its exercise
or performance of any of its duties hereunder and thereunder, except
such as may result from its negligence or bad faith.
- 13 -
<PAGE> 15
7. Miscellaneous.
7.1 Term of Agreement.
(a) This Agreement shall remain in effect until
no shares of AMPS remain outstanding, unless it shall be terminated as
provided in this Section 7.1. The Company may terminate this Agreement
at any time by so notifying the Auction Agent, provided that the
Company has entered into an agreement in substantially the form of this
Agreement with a successor auction agent. The Auction Agent may
terminate this Agreement upon prior notice to the Company on the date
specified in such notice, which shall be no earlier than the Business
Day after the later of the second Dividend Payment Date for the AMPS
after delivery of such notice or the date on which the Company enters
into an agreement with a successor auction agent, whichever comes
first. If the Auction Agent resigns, the Company shall use its best
efforts to enter into an agreement with a successor auction agent
containing substantially the same terms and conditions as this
Agreement.
(b) Except as otherwise provided in this
Paragraph 7.1(b), the respective rights and duties of the Company and
the Auction Agent under this Agreement shall cease upon termination of
this Agreement. The Company's representations, warranties, covenants
and obligations to the Auction Agent under Sections 5 and 6.4 hereof
shall survive the termination hereof. Upon termination of this
Agreement, the Auction Agent shall (i) at the Company's request,
promptly deliver to the Company copies of all books and records
maintained by it in connection with its duties hereunder, and (ii) at
the request of the Company, promptly transfer to the Company or any
successor auction agent any funds deposited by the Company with the
Auction Agent pursuant to this Agreement which have not previously been
distributed by the Auction Agent in accordance with this Agreement.
7.2 Communications. Except for (i) communications
authorized to be made by telephone pursuant to this Agreement or the Auction
Procedures and (ii) communications in connection with Auctions (other than those
expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given to such party addressed to it at its
address, or telecopy number set forth below:
If to the Company, The First Australia Prime
addressed: Income Fund, Inc.
Level 3
190 George Street
Sydney NSW 2000
Australia
Attention: David Manor
Telephone No.: 011-61-2-258-8644
Telecopier No.: 011-61-2-251-1098
or: 011-61-2-233-4073
- 14 -
<PAGE> 16
If to the Auction Agent, The Chase Manhattan Bank
addressed: 450 W. 33rd St.
15th Floor
New York, New York 10001
Attention: Corporate Trust Group
Telephone No.: (212) 946-3498
Telecopier No.: (212) 946-7652
7.3 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred between the parties relating to the
subject matter hereof except for agreements relating to the compensation of the
Auction Agent.
7.4 Benefits. Nothing herein, expressed or implied, shall
give to any Person, other than the Company, the Auction Agent and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or
construed to be modified, amended, rescinded, cancelled or waived, in
whole or in part, except by a written instrument signed by a duly
authorized representative of the party to be charged. The Company shall
notify the Auction Agent of any change in the Articles Supplementary
prior to the effective date of any such change.
(b) Failure of either party hereto to exercise
any right or remedy hereunder in the event of a breach hereof by the
other party shall not constitute a waiver of any such right or remedy
with respect to any subsequent breach.
7.6 Successor and Assigns. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the respective
successors and permitted assigns of each of the Company and the Auction Agent.
This Agreement may not be assigned by either party hereto absent the prior
written consent of the other party, which consent shall not be unreasonably
withheld.
7.7 Severability. If any clause, provision or section
hereof shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any of the remaining clauses, provisions or sections
hereof.
7.8 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
7.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
- 15 -
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
By:
--------------------------------
Title: Attorney-in-Fact for
Brian M. Sherman,
President
THE CHASE MANHATTAN BANK, as Auction Agent
By:
--------------------------------
Title:
- 16 -
<PAGE> 1
Exhibit (k)(5)
===============================================================================
BROKER-DEALER AGREEMENT
between
THE CHASE MANHATTAN BANK
and
[BROKER-DEALER]
Dated as of August __, 1996
Relating to
AUCTION MARKET PREFERRED STOCK(R)
("AMPS")
Series H and Series I
of
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
===============================================================================
(R) Registered trademark of Merrill Lynch Co., Inc.
<PAGE> 2
BROKER-DEALER AGREEMENT dated as of September __, 1996 between THE
CHASE MANHATTAN BANK, a New York corporation (the "Auction Agent") (not in its
individual capacity but solely as agent of The First Australia Prime Income
Fund, Inc., a Maryland corporation (the "Company"), pursuant to authority
granted to it in the Auction Agent Agreement dated as of September __, 1996,
between the Company and the Auction Agent (the "Auction Agent Agreement") and
[BROKER-DEALER] (together with its successors and assigns hereinafter referred
to as "BD").
The Company has duly authorized and issued 2,500 shares of Auction
Market Preferred Stock(R), Series H, with a liquidation preference of $25,000
per share plus accumulated but unpaid dividends (whether or not earned or
declared) (the "Series H AMPS") and 2,500 shares of Auction Market Preferred
Stock(R), Series I, with a liquidation preference of $25,000 per share plus
accumulated but unpaid dividends (whether or not earned or declared) (the
"Series I AMPS"), each pursuant to the Company's Articles Supplementary (as
defined below). The Series H AMPS and the Series I AMPS are sometimes herein
together referred to as the "AMPS".
The Company's Articles Supplementary provide that the dividend rate on
the AMPS for each Dividend Period therefor after the Initial Dividend Period
shall be the Applicable Rate therefor, which in each case, in general, shall be
the rate per annum the Auction Agent appointed by the Company advises results
from implementation of the Auction Procedures (as defined below). Pursuant to
resolutions adopted by the Board of Directors of the Company, the Company has
appointed THE CHASE MANHATTAN BANK as auction agent for purposes of the Auction
Procedures, and pursuant to Section 2.5(d) of the Auction Agent Agreement, the
Company has requested and directed the Auction Agent to execute and deliver this
Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction
1.1 Terms Defined by Reference to the Articles
Supplementary and the Auction Agent Agreement. Capitalized terms not defined
herein shall have the respective meanings specified in the Articles
Supplementary of the Company and in the Auction Agent Agreement.
--------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 3
1.2 Terms Defined Herein. As used herein and in the
Settlement Procedures (as defined below), the following terms shall have the
following meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles
Supplementary, as amended from time to time, of the Company,
establishing the powers, preferences and rights of the Series
H AMPS and the Series I AMPS, filed on August __, 1996 in the
office of the State Department of Assessments and Taxation of
the State of Maryland.
(b) "Auction" shall have the meaning specified in
Section 2.1 hereof.
(c) "Auction Procedures" shall mean the Auction
procedures that are set forth in Paragraph 8 of the Articles
Supplementary.
(d) "Authorized Officer" shall mean each Senior Vice
President, Vice President, Assistant Vice President, Trust
Officer and Assistant Treasurer of the Auction Agent assigned
to its Corporate Trust Group and every other officer or
employee of the Auction Agent designated as an "Authorized
Officer" for purposes of this Agreement in a communication to
BD.
(e) "BD Officer" shall mean each officer or employee
of BD designated as a "BD Officer" for purposes of this
Agreement in a communication to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this
Agreement and any substantially similar agreement between the
Auction Agent and a Broker-Dealer.
(g) "Business Day" shall have the meaning specified
in the Articles Supplementary.
(h) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit A.
1.3 Rules of Construction. Unless the context or use
indicates another or different meaning or intent, the following rules shall
apply to the construction of this Agreement:
(a) Words importing the singular number shall include
the plural number and vice versa.
(b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of
this Agreement nor shall they affect its meaning, construction
or effect.
2
<PAGE> 4
(c) The words "hereof," "herein," "hereto," and other
words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day
shall be to New York City time.
2. The Auction.
2.1 Purpose: Incorporation by Reference of Auction
Procedures and Settlement Procedures.
(a) On each Auction Date, the provisions of the
Auction Procedures will be followed by the Auction Agent for
the purpose of determining the Applicable Rate for each series
of AMPS. Each periodic operation of such procedures is
hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction
Procedures and the Settlement Procedures are incorporated
herein by reference in their entirety and shall be deemed to
be a part of this Agreement to the same extent as if such
provisions were fully set forth herein.
(c) BD agrees to act as, and assumes the obligations
of and limitations and restrictions placed upon, a
Broker-Dealer under this Agreement. BD understands that other
Persons meeting the requirements specified in the definition
of "Broker-Dealer" contained in Paragraph 8(a)(ix) of the
Articles Supplementary may participate as Broker-Dealers in
Auctions. BD agrees to handle customer orders in accordance
with its respective duties under applicable securities laws
and rules.
(d) BD and other Broker-Dealers may participate in
Auctions for their own accounts. However, the Company may by
notice to BD an all other Broker-Dealers prohibit all
Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit
Hold Orders and Sell Orders.
2.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for
each series of AMPS, the Auction Agent shall advise BD and the
Company by telephone of the 30-day "AA" Composite Commercial
Paper Rate and the Maximum Applicable Rate in effect on such
Auction Date.
(b) In the event that the Auction Date for any
Auction shall be changed after the Auction Agent has given the
notice referred to in clause (vii) of paragraph (a) of
3
<PAGE> 5
the Settlement Procedures, the Auction Agent, by such means as
the Auction Agent deems practicable, shall give notice of such
change to BD not later than the earlier of 9:15 A.M. on the
new Auction Date or 9:15 A.M. on the old Auction Date.
Thereafter, BD shall promptly notify customers of BD that BD
believes are Beneficial Owners of shares of Series H AMPS or
Series I AMPS, as the case may be, of such change in the
Auction Date.
(c) On the date of this agreement, and from time to
time upon request of the Auction Agent, BD will provide the
Auction Agent with a list of the respective customers BD
believes are Existing Holders and the number of shares of
Series H AMPS or Series I AMPS, as the case may be, held by
such Existing Holders. BD shall comply with any such request,
and the Auction Agent shall keep confidential any such
information, including information received as to the identity
of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the
respective Broker-Dealer and the Company, unless otherwise
required by law.
2.3 Auction Schedule; Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct
Auctions for each series of AMPS in accordance with the
schedule set forth below. Such schedule may be changed at any
time by the Auction Agent with the consent of the Company,
which consent shall not be unreasonably withheld or delayed.
The Auction Agent shall give notice of any such change to BD.
Such notice shall be received prior to the first Auction Date
on which any such change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the
Company and Broker-Dealer, of
30-day "AA" Composite
Commercial Paper Rate and the
Maximum Applicable Rate as set
forth in Section 2.2(a)
hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles
information communicated to it
by Broker-Dealers as provided
in Paragraph 8(c)(i) of the
Articles Supplementary.
Submission Deadline by 1:00
P.M.
4
<PAGE> 6
Not earlier than Auction Agent makes
1:00 P.M. determinations pursuant to
Paragraph 8(d)(i) of the
Articles Supplementary.
By approximately Auction Agent advises Company
3:00 P.M. of the rates determined
pursuant to the Auction, as
provided in Paragraph 8(d)(ii)
of the Articles Supplementary.
Submitted Bids and Submitted Sell
Orders are accepted and rejected
in whole or in part and shares of
AMPS are allocated as provided in
Paragraph 8(e) of the Articles
Supplementary.
Auction Agent gives notice of
Auction results as set forth in
Section 2.4(a) hereof.
(b) BD agrees to maintain a list of Potential
Beneficial Owners and to contact the Potential Beneficial
Owners on such list on or prior to each Auction Date for the
purposes set forth in Paragraph 8(b)(i)(8) of the Articles
Supplementary.
(c) BD shall submit Orders to the Auction Agent in
writing in substantially the form attached hereto as Exhibit
B. BD shall submit separate Orders to the Auction Agent for
each Potential Beneficial Owner or Beneficial Owner on whose
behalf BD is submitting an Order and shall not net or
aggregate the Orders of Potential Beneficial Owners or
Beneficial Owners on whose behalf BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a
written notice, substantially in the form attached hereto as
Exhibit C, of transfers of shares of Series H AMPS or Series I
AMPS, made through BD by a Beneficial Owner to another person
other than pursuant to an Auction, and (ii) a written notice,
substantially in the form attached hereto as Exhibit D, of the
failure of shares of AMPS to be transferred to or by any
Person that purchased or sold shares of AMPS through BD
pursuant to an Auction. The Auction Agent is not required to
accept any notice delivered pursuant to the terms of the
foregoing sentence with respect to an Auction unless it is
received by the Auction Agent by 3:00 P.M. on the Business Day
next preceding the applicable Auction Date.
5
<PAGE> 7
2.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall
notify BD by telephone as set forth in paragraph (a) of the
Settlement Procedures. On the Business Day next succeeding
such Auction Date, the Auction Agent shall notify BD in
writing of the disposition of all Orders submitted by BD in
the Auction held on such Auction Date.
(b) BD shall notify each Beneficial Owner or
Potential Beneficial Owner on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement
Procedures and take such other action as is required of BD
pursuant to the Settlement Procedures.
If any Beneficial Owner selling shares of AMPS in an Auction fails to
deliver such shares, the BD of any Person that was to have purchased shares of
AMPS in such Auction may deliver to such Person a number of whole shares of such
series of AMPS, that is less than the number of shares that otherwise was to be
purchased by such Person. In such event, the number of shares of AMPS to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 2.3(e)(ii) hereof. Notwithstanding the foregoing terms of
this Section 2.4(b), any delivery or nondelivery of shares of AMPS which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the terms
of Section 2.3(e) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.4(b).
2.5 Service Charge to Be Paid to BD. On each Dividend Payment Date for
either series of AMPS, the Auction Agent shall pay a service charge to BD, from
monies received from the Company, in same day or next day funds equal to the
product of (i) a fraction the numerator of which is the number of days in the
Dividend Period beginning on such Dividend Payment Date and the denominator of
which is 360, (ii) 1/4 of 1%, (iii) $25,000 and (iv) the sum of (A) the
aggregate number of shares of the applicable series of AMPS placed by BD in the
applicable Auction that were (x) the subject of a Submitted Bid of a Beneficial
Owner submitted by BD and continued to be held as a result of such submission
and (y) the subject of a Submitted Bid of a Potential Beneficial Owner submitted
by BD and were purchased as a result of such submission plus (B) the aggregate
number of shares of AMPS of such series subject to valid Hold Orders (determined
in accordance with Paragraph 8 of the Articles Supplementary) submitted to the
Auction Agent by BD plus (C) the
6
<PAGE> 8
number of shares of AMPS of such series deemed to be subject to Hold Orders by
BD on behalf of Beneficial Owners pursuant to Paragraph 8 of the Article
Supplementary that were acquired by such Beneficial Owners through BD.
For purposes of subclause (iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of AMPS of any series through BD transfers
those shares to another Person other than pursuant to an Auction, then the
Broker-Dealer for the shares so transferred shall continue to be the BD,
provided, however, that if the transfer was effected by, or if the transferee
is, a Broker-Dealer other than BD, then such Broker-Dealer shall be the
Broker-Dealer for such shares.
2.6 Settlement.
(a) If any Potential Beneficial Owner on whose behalf
BD has submitted an Order fails to deliver funds with respect
to any Auction, BD shall promptly deliver such funds to the
party entitled to receive such funds. If any Beneficial Owner
on whose behalf BD has submitted an Order fails to instruct
its Agent Member to deliver shares of AMPS against payment
therefor, BD shall instruct such Agent Member to deliver such
shares against payment therefor. The delivery of funds by BD
for the purchase of shares of AMPS by a Potential Beneficial
Owner, as provided above, shall not relieve such Potential
Beneficial Owner of any liability to BD for payment for such
shares. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.6.
(b) Neither the Auction Agent nor the Company shall
have any responsibility or liability with respect to the
failure of BD, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of AMPS
or to pay for shares of AMPS sold or purchased pursuant to the
Auction Procedures or otherwise.
3. The Auction Agent.
3.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for
the Company hereunder and owes no fiduciary duties to any
person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in
this Agreement, and no implied covenants or obligations shall
be read into this Agreement against the Auction Agent.
7
<PAGE> 9
(c) In the absence of bad faith or negligence on its
part, the Auction Agent shall not be liable for any action
taken, suffered, or omitted or for any error of judgment made
by it in the performance of its duties under this Agreement.
The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall
have been negligent in ascertaining (or failing to ascertain)
the pertinent facts.
3.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected
in acting or refraining from acting upon any communication
authorized by this Agreement and upon any written instruction,
notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be
liable for acting upon any telephone communication authorized
by this Agreement which the Auction Agent believes in good
faith to have been given by the Company or by a Broker-Dealer.
The Auction Agent may record telephone communications with the
Broker-Dealers.
(b) The Auction Agent may consult with counsel of its
own choice, and the advice of such counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in reliance thereon.
(c) The Auction Agent shall not be required to
advance, expend or risk its own fund or otherwise incur or
become exposed to financial liability in the performance of
its duties hereunder.
(d) The Auction Agent may perform its duties and
exercise its rights hereunder either directly or by or through
agents or attorney.
3.3 Auction Agent's Disclaimer. The Auction Agent makes
no representation as to the validity or adequacy of this Agreement or AMPS of
any series.
4. Miscellaneous.
4.1 Termination. Any party may terminate this Agreement
at any time upon five days prior notice to the other party.
4.2 Agent Member. At the date hereof, BD is a participant
of the Securities Depository.
8
<PAGE> 10
4.3 Communications. Except for (i) communications
authorized to be made by telephone pursuant to this Agreement or the Auction
Procedures and (ii) communications in connection with the Auctions (other than
those expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given to such party, addressed to it, at its
address or telecopier number set forth below:
If to BD [Broker-Dealer]
addressed: [Address]
Attention:
Telecopier No.:
Telephone No.:
If to the Auction The Chase Manhattan Bank
Agent, addressed: 450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trust Group
Telecopier No.: (212) 946-8161
Telephone No.: (212) 946-7652
or such other address, telephone or telecopier number as such party may
hereafter specify for such purpose by notice to the other party. Each such
notice, request or communication shall be effective when delivered at the
address specified herein. Communications shall be given on behalf of BD by a BD
Officer and on behalf of the Auction Agent by an Authorized Officer. BD may
record telephone communications with the Auction Agent.
4.4 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are no other representations, endorsements, proxies, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof.
4.5 Benefits. Nothing in this Agreement, express or
implied, shall give to any person, other than the Company, the Auction Agent and
BD and their respective successors and assigns, any benefit of any legal or
equitable right, remedy or claim under this Agreement.
4.6 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed
to be modified, amended, rescinded, cancelled or waived in
whole or in part, except by a written instrument
9
<PAGE> 11
signed by a duly authorized representative of the party to
be charged.
(b) Failure of either party to this Agreement to
exercise any right or remedy hereunder in the event of a
breach of this Agreement by the other party shall not
constitute a waiver of any such right or remedy with respect
to any subsequent breach.
4.7 Successors and Assigns. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the respective
successors and permitted assigns of each of BD and the Auction Agent. This
Agreement may not be assigned by either party hereto absent the prior written
consent of the other party; provided, however, that this Agreement may be
assigned by the Auction Agent to a successor Auction Agent selected by the
Company without the consent of BD.
4.8 Severability. If any clause, provision or section of
this Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.
4.9 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
5. Governing law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
10
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
THE CHASE MANHATTAN BANK
By:
---------------------------------------
Name:
Title:
[BROKER-DEALER]
By:
---------------------------------------
Name:
Title:
11
<PAGE> 13
EXHIBIT A
SETTLEMENT PROCEDURES
See Appendix A to the Prospectus
A-1
<PAGE> 14
EXHIBIT B
(Submit only one Order on this Order form)
ORDER FORM
To: The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Corporate Trust Group
Auction Desk
---------------
Date of Auction
Re: THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
AUCTION MARKET PREFERRED STOCK(R),
SERIES [H] [I] ("AMPS")
The undersigned Broker-Dealer submits the following Order on behalf of
the Bidder listed below:
Name of Bidder:
---------------------------------------------------
Bidder places the Order listed below covering the number of shares
indicated (complete only one blank):
shares now held by Bidder, and the Order is a (check one)
- --------------------
/ / Hold order; or
/ / Hold at a rate of %; or
------
/ / Sell order; or
shares not now held by Bidder (a Potential
---------
Holder), and the Order is a Bid at a rate of
%
---------------
Notes:
(1) If submitting more than one Order for one Bidder, use additional Order
forms.
(2) If one or more Orders covering in the aggregate more than the number of
outstanding shares of AMPS held by any Broker Dealer on behalf of a Beneficial
Owner are submitted, such Order
B-1
<PAGE> 15
shall be considered valid in the order of priority set forth in the Auction
Procedures.
(3) A Hold Order may be placed only by a Broker Dealer on behalf of a
Beneficial Owner covering a number of shares of AMPS not greater than the number
of shares currently held by such Broker Dealer on behalf of such Beneficial
Owner.
(4) Broker Dealers on behalf of Potential Beneficial Owners may make only
Bids, each of which must specify a rate. If more than one Bid is submitted on
behalf of any Potential Beneficial Owner, each Bid submitted shall be a separate
Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%).
Name of Broker-Dealer:
------------------------------
By :
------------------------------
B-2
<PAGE> 16
EXHIBIT C
(To be used only for transfers made other than pursuant to an
Auction).
TRANSFER FORM
Re: The First Australia Prime Income Fund, Inc.
Auction Market Preferred Stock(R),
Series [H] [I] ("AMPS")
We are (check one):
/ / the Broker-Dealer for the Beneficial Owner named below; or
/ / the Agent Member for such Beneficial Owner
We hereby notify you that such Beneficial Owner has transferred
shares of [Series H] [Series I] AMPS to
--------
----------------------------
----------------------------
(Name of Beneficial Owner)
----------------------------
(Name of Broker-Dealer)
----------------------------
(Name of Agent Member)
By:
------------------------
Name:
Title:
C-1
<PAGE> 17
EXHIBIT D
(To be used only for failures to deliver
AMPS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for (the
---------------------
"Purchaser"), which purchased shares of Series
[H] [I] AMPS of The First Australia Prime Income Fund,
Inc. in the Auction held on from
the seller of such shares.
II. We are a Broker-Dealer for (the
------------------
"Seller"), which sold shares of Series [H] [I]
------
AMPS of The First Australia Prime Income Fund, Inc. in
the Auction held on to
-------------------------------
the Purchaser of such shares.
We hereby notify you that (check one) --
the Seller failed to deliver such shares to the
---------
purchaser
the Purchaser failed to make payment to the Seller
---------
upon delivery of such shares
the following Broker-Dealer failed to deliver to
---------
us such shares:
the following Broker-Dealer failed to make payment
---------
to us upon delivery of such shares:
Name:
---------------------------
(Name of Broker-Dealer)
By:
-----------------------------
Printed Name:
Title:
D-1
<PAGE> 1
Exhibit (k)(6)
Book-Entry-Only Auction-Rate/Money Market Preferred/and
Remarketed Preferred Securities
Letter of Representations
[To be Completed by Issuer and Trust Company]
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
THE CHASE MANHATTAN BANK
September ___, 1996
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: The First Australia Prime Income Fund, Inc. --
2500 Shares of Auction Market Preferred Stock
["AMPS"], Series H
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue (the "Securities"). Trust Company
will act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated August _____, 1996 (the "Document").
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
PaineWebber Incorporated, Prudential Securities Incorporated and Smith Barney
-1-
<PAGE> 2
Inc. are distributing the Securities through The Depository Trust Company
("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on September _____, 1996,
there shall be deposited with DTC one Security certificate registered in the
name of DTC's nominee, Cede & Co., which represents the total number of
Securities issued. Said certificate shall remain in DTC's custody as provided in
the Document. If, however, the aggregate principal amount of the Securities
exceeds $150 million, one certificate will be issued with respect to each $150
million of principal amount and an additional certificate will be issued with
respect to any remaining principal amount. Each $150 million Securities
certificate shall bear the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration
of transfer, exchange, or payment, and any certificate issued
is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as
is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with, to the extent Maryland Law so permits the Issuer to provide, no
provision for revocation of consents or votes by subsequent holders) and shall,
to the extent possible, send notice of such record date to DTC not less than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's
-2-
<PAGE> 3
Reorganization Department at (212) 709-6896 or (212) 709-6897, and receipt of
such notices shall be confirmed by telephoning (212) 709-6870. Notices to DTC
pursuant to this Paragraph by mail or by any other means shall be sent to DTC's
Reorganization Department as indicated in Paragraph 4.
3. In the event of a full or partial redemption of the
outstanding Securities, Issuer or Trust Company shall send a notice to DTC
specifying: (a) the number of Securities to be redeemed; and (b) the date such
notice is to be mailed to Security holders or published (the "Publication
Date"). Such notice shall be sent to DTC by a secure means (e.g., legible
telecopy, registered or certified mail, overnight delivery) in a timely manner
designed to assure that such notice is in DTC's possession no later than the
close of business on the business day before or, if possible, two business days
before the Publication Date. Issuer or Trust Company shall forward such notice
either in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be not less
than 30 days nor more than 60 days prior to the redemption date. Notices to DTC
pursuant to this Paragraph by telecopy shall be sent to DTC's Call Notification
Department at (516) 227-4039 or (516) 227-4190. If the party sending the notice
does not receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice
by Issuer or Trust Company to Security holders specifying the terms of the
tender and the Publication Date of such notice shall be sent to DTC by a secure
means in the manner set forth in the preceding Paragraph. Notices to DTC
pursuant to this Paragraph and notices of other corporate actions (including
mandatory tenders, exchanges, and capital changes) by telecopy shall be sent to
DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094, and
receipt of such notices shall be confirmed by telephoning (212) 709-6884.
Notices to DTC pursuant to the above by mail or by any other means shall be sent
to:
-3-
<PAGE> 4
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
5. All notices and payment advices sent to DTC shall contain the
CUSIP number of the Securities.
6. The Document indicates that the dividend rate for the
Securities may vary from time to time. Absent other existing arrangements with
DTC, Issuer or Trust Company shall give DTC notice of each such change in the
dividend rate, on the same day that the new rate is determined, by telephoning
the Supervisor of DTC's Dividend Announcement Section at (212) 709-1270, or by
telecopy sent to (212) 709-1723. Such verbal or telecopy notice shall be
followed by prompt written confirmation sent by a secure means in the manner set
forth in Paragraph 3 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
7. The Document indicates that each purchaser of Securities must
sign a purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full amount
of all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities, even if the credits of Securities to the DTC accounts
of any DTC Participant ("Participant") result from transfers or failures to
transfer in violation of the provisions of the purchaser's letter. Issuer and
Trust Company acknowledge that DTC shall treat any Participant having Securities
credited to its DTC accounts as entitled to the full benefits of ownership of
such Securities. Without limiting the generality of the preceding sentence,
Issuer and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 11 and 12, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the
-4-
<PAGE> 5
accounts of Participants described in the preceding two sentences shall not
affect the right of Issuer, participants in auctions relating to the Securities,
purchasers, sellers, or holders of Securities against any Participant.) DTC
shall not have any responsibility to ascertain whether any transfer of
Securities is made in accordance with the provisions of the purchaser's letter.
8. Transactions in the Securities shall be eligible for same-day
funds settlement in DTC's Same-Day Funds Settlement ("SDFS") system.
A. Dividend payments shall be received by Cede & Co., as
nominee of DTC, or its registered assigns in same-day
funds on each payment date (or the equivalent in
accordance with existing arrangements between Issuer
or Trust Company and DTC). Such payments shall be
made payable to the order of Cede & Co. Absent any
other existing arrangements, such payments shall be
addressed as follows:
Manager; Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, New York 10004-2695
B. Redemption payments shall be made in same-day funds
by Trust Company in the manner set forth in the SDFS
Paying Agent Operating Procedures, a copy of which
previously has been furnished to Trust Company.
9. DTC may direct Issuer or Trust Company to use any other number
or address as the number or address to which notices, payments of dividends, or
redemption proceeds may be sent.
10. In the event of a redemption necessitating a reduction in the
number of Securities outstanding, DTC, in its discretion: (a) may request Issuer
or Trust Company to issue and authenticate a new Security certificate; or (b)
may make an appropriate notation on the Security certificate indicating the date
and amount of such reduction in the number of Securities outstanding, except in
the case of final redemption, in which case the certificate will be presented to
Issuer or Trust Company prior to payment, if required.
-5-
<PAGE> 6
11. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.
12. DTC may discontinue providing its services as securities
depository with respect to the Securities as any time by giving reasonable
notice to Issuer or Trust Company (at which time DTC will confirm with Issuer or
Trust Company the aggregate principal amount of Securities outstanding). Under
such circumstances, at DTC's request Issuer and Trust Company shall cooperate
fully with DTC by taking appropriate action to make available one or more
separate certificates evidencing Securities to any DTC Participant having
Securities credited to its DTC accounts.
13. Issuer hereby authorizes DTC to provide to Trust Company
security position listings of Participants with respect to the Securities from
time to time at the request of Trust Company. Issuer also authorizes DTC, in the
event of a partial redemption of Securities, to provide Trust Company, upon
request, with the names of those Participants whose positions in Securities have
been selected for redemption by DTC. DTC will use its best efforts to notify
Trust Company of those Participants whose positions in Securities have been
selected for redemption by DTC. Issuer authorizes and instructs Trust Company to
provide DTC with such signatures, examples of signatures, and authorizations to
act as may be deemed necessary or appropriate by DTC to permit DTC to discharge
its obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 4.
This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act.
14. Issuer: (a) understands that DTC has no obligation to, and
will not, communicate to its Participants or to any person having an interest in
the Securities any information contained in the Security Certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of
-6-
<PAGE> 7
the Security certificate(s) by virtue of submission of submission of such
certificate(s) to DTC.
15. Nothing herein shall be deemed to require Trust Company to
advance funds on behalf of Issuer.
Very truly yours,
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
By:
----------------------------------------
Rose M. Burke
Attorney-in-Fact for
Brian M. Sherman, President
THE CHASE MANHATTAN BANK
By:
----------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
----------------------------------
Notes:
A. If there is a Trust Company (as defined in this Letter of
Representations) Trust Company as well as Issuer must sign
this Letter. If there is no Trust Company, in signing this
Letter, Issuer itself undertakes to perform all of the
obligations set forth herein.
B. Schedule A contains statements that DTC believes accurately
describe DTC, the method of effecting book-entry transfers of
securities distributed through DTC, and certain related
matters.
-7-
<PAGE> 8
cc: Underwriter
Underwriter's Counsel
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
Brown & Wood
-8-
<PAGE> 9
SCHEDULE A
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC--bracketed material may be
applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act
as securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One fully-registered Security certificate will
be issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any) issue exceeds $150 million, one certificate
will be issued with respect to each $150 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants"). The
Rules applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
3. Purchases of Securities under the DTC system must be made by
or through Direct Participants, which will receive a
-9-
<PAGE> 10
credit for the Securities on DTC's records. The ownership interest of each
actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded
on the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Securities, except in the event that use of the
book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited
by Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Securities with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Securities: DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
5. Conveyance of notices and other communications by DTC to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
[6. Redemption notices shall be sent to Cede & Co. If less than
all of the Securities within an issue are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each Direct Participant in such
issue to be redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect
to Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede
& Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
-10-
<PAGE> 11
8. Principal and interest payments on the Securities will be made
to DTC. DTC's practice is to credit Direct Participants' accounts on payable
date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on payable date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Agent, or the
Issuer, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal and interest to DTC is the
responsibility of the Issuer or the Agent, disbursement of such payments to
Direct Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to the
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to the [Tender/Remarketing] Agent. The requirement
for physical delivery of Securities in connection with a demand for purchase or
a mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records.]
10. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to the Issuer or the Agent. Under such circumstances, in the event that a
successor securities depository is not obtained, Security certificates are
required to be printed and delivered.
11. The Issuer may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In that
event, Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the Issuer believes to be
reliable, but the Issuer takes no responsibility for the accuracy thereof.
-11-
<PAGE> 1
DECHERT PRICE & RHOADS
477 Madison Avenue
New York, New York 10022-5891
Exhibit (l)(1)
August 28, 1996
The First Australia Prime Income Fund, Inc.
Level 3
190 George Street
Sydney, N.S.W. 2000
Australia
Re: The First Australia Prime Income Fund, Inc.
Securities Act Registration No. 333-08433
Investment Company Act File No. 811-4611
Ladies and Gentlemen:
We have acted as counsel for The First Australia Prime Income Fund,
Inc. (the "Fund") in connection with the above-captioned registration statement
(the "Registration Statement"). In our capacity as counsel, we have examined the
Fund's articles of incorporation and its by-laws, each as amended to date, and
are familiar with the Fund's corporate proceedings in connection with the
authorization of the issuance by the Fund of 2,500 shares of the Auction Market
Preferred Stock, Series H, par value $.01 per share and 2,500 shares of the
Auction Market Preferred Stock, Series I, par value $.01 per share (the "AMPS")
as contemplated by the Registration Statement. We are also familiar with the
form of articles supplementary relating to the AMPS (the "Articles
Supplementary") that have been filed as an exhibit to the Registration
Statement. In rendering this opinion, we have also made such examination of law
and of fact reasonably available to us as we have deemed necessary in connection
with the opinion hereafter set forth, and we have relied, with respect to
matters of Maryland law, on the opinion of Venable, Baetjer and Howard, LLP, a
copy of which is attached hereto.
Based upon such examination, we are of the opinion that when the price
to the underwriters of the AMPS has been
<PAGE> 2
The First Australia Prime Income Fund, Inc.
August 28, 1996
Page 2
determined by the Board of Directors' Pricing Committee pursuant to authority
delegated to it by the Board of Directors and the Articles Supplementary have
been (i) approved by the Board of Directors and completed pursuant to action by
the Board of Directors' Pricing Committee in accordance with authority delegated
to it by the Board of Directors and (ii) filed with the Maryland State
Department of Assessments and Taxation, the shares of AMPS will have been duly
authorized and, when, thereafter, sold, issued and paid for in the manner
contemplated by the Registration Statement, will have been validly and legally
issued, fully paid, and non-assessable.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters." In giving such consent, we do not hereby admit that we are within the
category of persons whose consent is required by Section 7 of the Securities Act
of 1933, as amended, and the rules and regulations thereunder.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
<PAGE> 1
EXHIBIT l(2)
Venable, Baetjer and Howard LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201-2978
(410) 244-7400, Fax (410) 244-7742
August 28, 1996
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022-5891
Re: The First Australia Prime Income Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for The First Australia Prime
Income Fund, Inc., a Maryland corporation (the "Fund"), in connection with the
issuance of 2,500 shares of its Auction Market Preferred Stock, Series H
("Series H AMPS") and 2,500 shares of its Auction Market Preferred Stock, Series
I ("Series I AMPS"), par value $.01 per share (collectively the "AMPS").
As Maryland counsel for the Fund, we are familiar with its Charter and
Bylaws. We have examined the prospectus included in its Registration Statement
on Form N-2 for the AMPS (Securities Act Registration No. 333-08433, Investment
Company Act File No. 811-4611 (the "Registration Statement")), substantially in
the form in which it is to become effective (the "Prospectus"). We are also
familiar with the form of Articles Supplementary relating to the AMPS (the
"Articles Supplementary") that have been filed as an exhibit to the Registration
Statement. We have further examined and relied
<PAGE> 2
Dechert Price & Rhoads
August 28, 1996
Page 2
upon a certificate of the Maryland State Department of Assessments and Taxation
("SDAT") to the effect that the Fund is duly incorporated and existing under
the laws of the State of Maryland and is in good standing and duly authorized
to transact business in the State of Maryland.
We have also examined and relied upon such corporate records of the
Fund and other documents and certificates with respect to factual matters as we
have deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies. We have further
assumed that the issuance of 2,500 shares of Series H AMPS and 2,500 shares of
Series I AMPS by the Fund will not cause the Fund to fail the AMPS Basic
Maintenance Amount or the 1940 Act AMPS Asset Coverage Requirement pertinent to
the Fund's outstanding AMPS, Series A-G, as those two terms are defined in the
Articles Supplementary creating AMPS Series A-G.
Based on such examination, we are of the opinion and so advise you that
when the price to the Underwriters of the AMPS has been determined by the
Pricing
<PAGE> 3
Dechert Price & Rhoads
August 28, 1996
Page 3
Committee pursuant to authority delegated to it by the Board of Directors and
the Articles Supplementary have been (i) approved and completed pursuant to
action by the Board of Directors' Pricing Committee in accordance with
authority delegated to it by the Board of Directors and (ii) filed with SDAT,
and when the Company has been advised by the Rating Agencies that the issuance
of the AMPS will not adversely affect the rating of all prior series of AMPS
issued by the Company, the shares of AMPS to be offered for sale pursuant to
the Prospectus will have been duly authorized and, when thereafter, sold, issued
and paid for as contemplated by the Prospectus, will have been validly and
legally issued and will be fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the
authorization and issuance of stock, but it does not extend to the securities
or "Blue Sky" laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to
the Fund that is to be filed as an exhibit to the Registration Statement. We
consent to the reference to us under the caption "Legal Matters" in the
Prospectus and to the filing of
<PAGE> 4
Dechert Price & Rhoads
August 28, 1996
Page 4
this opinion as an exhibit to the Registration Statement. We do not thereby
admit that we are "experts" within the meaning of the Securities Act of 1933
and the rules and regulations thereunder.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
------------------------------------
Venable, Baetjer and Howard, LLP
<PAGE> 1
Exhibit (n)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
registration statement on Form N-2 of our report dated December 11, 1995,
relating to the financial statements and financial highlights of The First
Australia Prime Income Fund, Inc., which appears in such Prospectus. We also
consent to the references to us under the headings "Financial Highlights" and
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 27, 1996
