As filed with the Securities and Exchange Commission on April 29, 1999
Investment Company Act file no. 811-4915
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 40 [X]
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DUFF & PHELPS UTILITIES INCOME INC.
(Exact name of registrant as specified in charter)
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55 East Monroe Street
Chicago, Illinois 60603
(Address of principal executive offices)
Registrant's telephone number: 312/368-5510
Nathan I. Partain John R. Sagan
Duff & Phelps Utilities Income Inc. Mayer, Brown & Platt
55 East Monroe Street 190 South LaSalle Street
Chicago, Illinois 60603 Chicago, Illinois 60603
(Names and addresses of agents for service)
It is proposed that this filing will become effective:
[X] when declared effective pursuant to Section 8(c).
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Outside Front Cover
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Not applicable.
Item 2. Cover Pages; Other Offering Information
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Not applicable.
Item 3. Fee Table and Synopsis
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1.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price)...................... N/A
Dividend Reinvestment and Cash Purchase Plan Fees................... (1)
Annual Expenses (as a percentage of net assets attributable to common shares)
Management Fees..................................................... .72%
Interest Payments on Borrowed Funds................................. .38%
Other Expenses...................................................... .36%
Total Annual Expenses.................................. 1.46%
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Example (2) 1 year 2 years 5 years 10 years
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You would pay the following expenses on
a $1,000 investment, assuming a 5% annual
return: $15 $30 $80 $175
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(1) Shareholders that reinvest dividends and/or capital gains
distributions will be charged only brokerage fees in the event
that shares are purchased in the open market. Investors investing
cash in addition to any cash dividends reinvested will be charged
$2.50 plus brokerage commissions. See Item 10.1(c).
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(2) This Example should not be considered a representation of future
expenses, and actual expenses may be greater or lesser than those
shown.
The purpose of the foregoing table is to assist an investor in
understanding the costs and expenses that an investor will bear directly or
indirectly, and the information contained therein is not necessarily
indicative of future performance. See Item 9.
2. Not applicable.
3. Not applicable.
Item 4. Financial Highlights
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Not applicable.
Item 5. Plan of Distribution
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Not applicable.
Item 6. Selling Shareholders
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Not applicable.
Item 7. Use of Proceeds
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Not applicable.
Item 8. General Description of the Registrant
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1. General
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(a) The Registrant, Duff & Phelps Utilities Income Inc. (the
"Fund"), is a corporation organized under the laws of the State
of Maryland on November 26, 1986.
(b) The Fund is a diversified closed-end investment company.
2. Investment Objectives and Policies
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Investment objectives
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The Fund's primary investment objectives are current income and
long-term growth of income. Capital appreciation is a secondary objective.
The Fund seeks to achieve its investment objectives by investing primarily
in a diversified portfolio of equity and fixed income securities of
companies in the public utilities industry. Under normal conditions, more
than 65% of the Fund's total assets will be invested in securities of
public utility companies engaged in the production, transmission or
distribution of electric energy, gas or telephone services. The Fund's
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investment objectives stated in the preceding sentence and its policy of
concentrating its investments in the utilities industry are fundamental
policies and may not be changed without the approval of the holders of a
"majority" (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) of the outstanding shares of the common stock and the
preferred stock voting together as one class.
Fundamental investment restrictions
-----------------------------------
The following are fundamental investment restrictions of the Fund
that may be changed only with approval of the holders of a "majority" of
the outstanding shares of the common stock and the preferred stock voting
together as one class, which means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares:
1. The Fund may not invest more than 25% of its total
assets (valued at the time of investment) in securities of
companies engaged principally in any one industry other than the
utilities industry, which includes companies engaged in the
production, transmission or distribution of electric energy or
gas or in telephone services, except that this restriction does
not apply to securities issued or guaranteed by the United States
Government or its agencies or instrumentalities.
2. The Fund may not:
(a) invest more than 5% of its total assets (valued
at the time of the investment) in the securities of any
one issuer, except that this restriction does not apply
to United States Government securities; or
(b) acquire more than 10% of the outstanding voting
securities of any one issuer (at the time of
acquisition);
except that up to 25% of the Fund's total assets (at the time of
investment) may be invested without regard to the limitations set
forth in this restriction.
3. The Fund may borrow money on a secured or unsecured
basis for any purpose of the Fund in an aggregate amount not
exceeding 15% of the value of the Fund's total assets at the time
of any such borrowing (exclusive of all obligations on amounts
held as collateral for securities loaned to other persons to the
extent that such obligations are secured by assets of at least
equivalent value).
4. The Fund may not pledge, mortgage or hypothecate its
assets, except to secure indebtedness permitted by restriction 3
above. (The deposit in escrow of securities in connection with
the writing of put and call options, collateralized loans of
securities and collateral arrangements with respect to margin
requirements for futures transactions and with respect to
segregation of securities in connection with forward contracts
are not deemed to be pledges or hypothecations for this purpose.)
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5. The Fund may make loans of securities to other persons
to the extent of not more than 33 1/3% of its total assets
(valued at the time of the making of loans), and may invest
without limitation in short-term obligations and publicly
distributed obligations.
6. The Fund may not underwrite the distribution of
securities of other issuers, although it may acquire securities
that, in the event of a resale, might be required to be
registered under the Securities Act of 1933, as amended, because
the Fund could be regarded as an underwriter as defined in that
act with respect to the resale.
7. The Fund may not purchase or sell real estate or any
interest therein, except that the Fund may invest in securities
secured by real estate or interests therein, such as mortgage
pass-throughs, pay-throughs, collateralized mortgage obligations,
and securities issued by companies (including partnerships and
real estate investment trusts) that invest in real estate or
interests therein.
8. The Fund may acquire securities of other investment
companies to the extent (at the acquisition) of (i) not more than
3% of the outstanding voting stock of any one investment company,
(ii) not more than 5% of the assets of the Fund in any one
investment company and (iii) not more than 10% of the assets of
the Fund in all investment companies (exclusive in each case of
securities received as a dividend or as a result of a merger,
consolidation or other plan of reorganization).
9. The Fund may not invest for the purpose of exercising
control over or management of any company.
10. The Fund may not purchase securities on margin, or
make short sales of securities, except the use of short-term
credit necessary for the clearance of purchases and sales of
portfolio securities, but it may make margin deposits in
connection with transactions in options, futures and options on
futures.
11. The Fund may not purchase or sell commodities or
commodity contracts, except that it may enter into (i) stock
index futures transactions, interest rate futures transactions
and options on such future transactions and (ii) forward
contracts on foreign currencies to the extent permitted by
applicable law.
12. The Fund may not issue any security senior to its
common stock, except that the Fund may borrow money subject to
investment restriction 3 and except as permitted by the Fund's
charter.
If a percentage restriction set forth above is adhered to at the
time a transaction is effected, later changes in percentages resulting from
changes in value or in the number of outstanding securities of an issuer
will not be considered a violation.
Other Significant Investment Policies
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Fixed Income Securities. The Fund purchases a fixed income security
only if, at time of purchase, it is (i) rated investment grade by at least two
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of the following three nationally recognized statistical rating
organizations: Duff & Phelps Credit Rating Co. ("DCR"), Moody's Investors
Service, Inc. ("Moody's"), and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"), or (ii) determined by the Adviser to
be of investment grade and not rated below investment grade by any of the
aforementioned rating services. A fixed income security rated investment
grade has a rating of BBB- or better by DCR, Baa3 or better by Moody's, or
BBB- or better by S&P. In making its determination that a fixed income
security is investment grade, the Adviser will use the standards used by a
nationally recognized statistical rating organization.
Leverage. The Fund is authorized to borrow money in amounts of up
to 15% of the value of its total assets at the time of such borrowings.
However, for so long as the Fund's preferred stock is rated by S&P, the
Fund will limit the aggregate amount of its borrowings to 10% of the value
of its total assets and will not incur any borrowings, unless advised by
S&P that such borrowings would not adversely affect S&P's then-current
rating of the preferred stock.
Lending of Portfolio Securities. In order to generate additional
income, the Fund may from time to time lend securities from its portfolio,
with a value not in excess of 33 1/3% of its total assets, to brokers,
dealers and financial institutions such as banks and trust companies for
which it will receive collateral in cash, United States Government
securities or an irrevocable letter of credit that will be maintained in an
amount equal to at least 100% of the current market value of the loaned
securities.
Rating Agency Guidelines. The Fund's preferred stock is currently
rated by Moody's, S&P and Fitch IBCA, Inc., nationally recognized
statistical rating organizations, which issue ratings for various
securities reflecting the perceived creditworthiness of those securities.
The Fund intends that, so long as shares of its preferred stock are
outstanding, the composition of its portfolio will reflect guidelines
established by the foregoing rating organizations in connection with the
Fund's receipt of the highest rating for its preferred stock from at least
two of such rating organizations.
Options and Futures Transactions. The Fund may seek to increase
its current return by writing covered options. In addition, through the
writing and purchase of options and the purchase and sale of futures
contracts and related options, the Fund may at times seek to hedge against
a decline in the value of securities owned by it or an increase in the
price of securities which it plans to purchase. However, for so long as
shares of the Fund's preferred stock are rated either by Moody's or S&P,
the Fund will not purchase or sell futures contracts or related options or
engage in other hedging transactions unless Moody's or S&P, as the case may
be, advises the Fund that such action or actions will not adversely affect
its then-current rating of the Fund's preferred stock.
Temporary Investments. For temporary defensive purposes, the Fund
may be invested primarily in money market securities. These securities
include securities issued or guaranteed by the United States Government and
its agencies and instrumentalities, commercial paper and certificates of
deposit.
Nonfundamental Restrictions. The Fund may not (i) invest in
securities subject to legal or contractual restrictions on resale, if, as a
result of such investment, more than 10% of the Fund's total assets would
be invested in such securities, or (ii) acquire 5% or more of the
outstanding voting securities of a public utility company.
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Each of the policies and restrictions described above may be
changed by the Board of Directors without the approval of the Fund's
shareholders. If a percentage restriction set forth above is adhered to at
the time a transaction is effected, later changes in percentages resulting
from changes in value or in the number of outstanding securities of an
issuer will not be considered a violation.
3. Risk Factors
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Leverage. As of December 31, 1998, the Fund has outstanding
indebtedness of $171,002,097 and five series of preferred stock
with an aggregate liquidation preference of $500 million. The
dividend rate on each series of preferred stock is reset every 49
days through a remarketing procedure. As of April 9, 1999, the
dividend rate on the five series of preferred stock averaged
3.74% and the interest rate on the Fund's outstanding
indebtedness averaged 4.94%. The Fund must experience an annual
return of 1.10% on its portfolio in order to cover annual
interest and dividend payments on the Fund's outstanding
indebtedness and preferred stock.
Leverage creates certain risks for holders of common stock,
including higher volatility of both the net asset value and
market value of the common stock. Fluctuations in dividend rates
on the preferred stock and interest rates on the Fund's
indebtedness will affect the dividend to holders of common stock.
Holders of the common stock receive all net income from the Fund
remaining after payment of dividends on the preferred stock and
interest on the Fund's indebtedness, and generally are entitled
to a pro rata share of net realized capital gains, if any.
Upon any liquidation of the Fund, the holders of shares of
preferred stock will be entitled to liquidating distributions
(equal to $100,000 per share of preferred stock plus any
accumulated and unpaid dividends thereon) and the holders of the
Fund's indebtedness will be entitled to receive repayment of
outstanding principal plus accumulated and unpaid interest
thereon before any distribution is made to holders of common
stock.
The leverage obtained through the issuance of the preferred stock
and from the Fund's presently outstanding indebtedness has
provided holders of common stock with a higher dividend than such
holders would have otherwise received. However, there can be no
assurance that the Fund will be able to continue to realize such
a higher net return on its investment portfolio. Changes in
certain factors could cause the relationship between the
dividends paid on the preferred stock and interest paid on the
Fund's indebtedness to increase relative to the dividend and
interest rates on the portfolio securities in which the Fund may
be invested. Under such conditions the benefit of leverage to
holders of common stock will be reduced and the Fund's leveraged
capital structure could result in a lower rate of return to
holders of common stock than if the Fund were not leveraged. The
Fund is required by the 1940 Act to maintain an asset coverage of
200% on outstanding preferred stock and 300% on outstanding
indebtedness. If the asset coverage declines below those levels
(as a result of market fluctuations or otherwise), the Fund may
be required to sell a portion of its investments at a time when
it may be disadvantageous to do so.
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The following table illustrates the effects of leverage on a
return to common stockholders. The figures appearing in the table
are hypothetical and actual returns may be greater or less than
those appearing in the table.
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Assumed return on portfolio -10.00% -5.00% 0.00% 5.00% 10.00%
(net of expenses)
Corresponding return to common -14.43% -7.88% -1.33% 5.23% 11.78%
stockholder
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Investments in Securities of Foreign Issuers. While the Fund is
prohibited from investing 15% or more of its assets in securities
of foreign issuers, the Fund may be exposed to certain risks as a
result of foreign investments. Investing in securities of foreign
issuers involves certain considerations not typically associated
with investing in securities of U.S. companies, including (a)
controls on foreign investment and limitations on repatriation of
invested capital and on the Fund's ability to exchange local
currencies for U.S. dollars, (b) greater price volatility,
substantially less liquidity and significantly smaller market
capitalization of securities markets, (c) currency devaluations
and other currency exchange rate fluctuations, (d) more
substantial government involvement in the economy, (e) higher
rates of inflation, (f) less government supervision and
regulation of the securities markets and participants in those
markets and (g) political uncertainty and other considerations.
The Fund will treat investments in countries with repatriation
restrictions as illiquid for purposes of any applicable
limitations under the 1940 Act; however, as a closed-end fund,
the Fund is not currently limited under that Act in the amount of
illiquid securities it may acquire. Because of the limited
forward market for the purchase of U.S. dollars in most foreign
countries and the limited circumstances in which the Fund expects
to hedge against declines in the value of foreign country
currencies generally, the Fund will be adversely affected by
devaluations of foreign country currencies against the U.S.
dollar to the extent the Fund is invested in securities
denominated in currencies experiencing a devaluation. The Fund's
fundamental investment policies permit the Fund to enter into
currency hedging transactions.
In addition, accounting, auditing and financial reporting
standards in foreign countries are different from U.S. standards.
As a result, certain material disclosures may not be made and
less information may be available to the Fund and other investors
than would be the case if the Fund's investments were restricted
to securities of U.S. issuers. Moreover, it may be more difficult
to obtain a judgment in a court outside the United States.
Interest and dividends paid on securities held by the Fund and
gains from the disposition of such securities may be subject to
withholding taxes imposed by foreign countries.
Anti-takeover Provisions. Certain provisions of the Fund's charter
may be regarded as "anti-takeover" provisions because they could have
the effect of limiting the ability of other entities or persons to
acquire control of the Fund. See Item 10.l(e).
Premium/Discount From Net Asset Value. Shares of closed-end
investment companies trade in the market above, at and below net
asset value. This characteristic of shares of closed-end
investment companies is a risk separate and distinct from the
risk that the Fund's net asset value will decline. Since
inception, the Fund's common stock has generally traded at a
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premium to net asset value. For example, in the two-year period
ended December 31, 1997, as of the close of business of the New
York Stock Exchange on the last day in each week on which the New
York Stock Exchange was open (the date the Fund calculates its
net asset value per share), the Fund's shares were trading at a
premium to net asset value 96% of the time. The Fund usually does
not calculate its net asset value per share on any other day and
does not know whether the Fund's shares were trading at a premium
to net asset value on such days. The Fund is not able to predict
whether its shares will trade above, below or at net asset value
in the future.
4. Other Policies
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None.
5. Share Price Data
----------------
The Fund's common stock has been listed on the New York Stock
Exchange since January 21, 1987 (trading symbol DNP). Since the
commencement of trading, the Fund's common stock has most frequently traded
at a premium to net asset value, but has periodically traded at a slight
discount. The following table shows the range of the market prices of the
Fund's common stock, net asset value of the Fund's shares corresponding to
such high and low prices and the premium to net asset value presented by
such high and low prices:
Market Premium
(Discount) to Net
Market Price Net Asset Value at Asset Value at
------------ ------------------ -----------------
Quarter Ended Market Market Market Market
High Low High Low High Low
---- --- ---- --- ---- ---
1999 March 31 $11.2500 $10.6250 $10.24 $ 9.70 9.86% 9.54%
1998 December 31 11.5000 10.6250 10.28 10.05 11.87% 5.72%
September 30 11.0625 10.0000 9.94 9.32 11.29% 7.30%
June 30 10.7500 9.8750 10.13 10.02 6.12% (1.45%)
March 31 10.7500 10.1250 9.79 9.91 9.81% 2.17%
1997 December 31 10.2500 9.1875 9.71 8.92 5.56% 3.00%
September 30 9.8125 8.6875 8.93 8.65 9.88% 0.43%
June 30 9.0000 8.6250 8.21 8.06 9.62% 7.01%
March 31 9.2500 8.5000 8.38 8.34 10.38% 1.92%
On April 9, 1999, the net asset value was $9.47, trading prices ranged
between $10.375 and $10.5625 (representing a premium to net asset value of
9.56% and 11.54%, respectively) and the closing price was $10.5625
(representing a premium to net asset value of 11.54%).
6. Business Development Companies
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Not applicable.
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Item 9. Management
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1. General
(a) Board of Directors
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The business and affairs of the Fund are managed
under the direction of the board of directors.
(b) Investment Adviser
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The Fund's investment adviser (the "Adviser") is
Duff & Phelps Investment Management Co., 55 East Monroe
Street, Chicago, Illinois 60603. The Adviser (together with
its predecessor) has been in the investment advisory
business for more than 60 years and, excluding the Fund,
currently has more than $12.2 billion in client accounts
under discretionary management. The Adviser also provides
non-discretionary investment advisory and portfolio
consulting services to corporate and public retirement funds
and endowment funds aggregating more than $7.2 billion. The
Adviser acts as adviser to two other closed-end investment
companies registered under the 1940 Act and as sub-adviser
to six open-end investment companies registered under the
1940 Act. The Adviser is a wholly-owned subsidiary of
Phoenix Investment Partners, Ltd. ("Phoenix Investment
Partners"), which is an indirect, majority-owned subsidiary
of Phoenix Home Life Mutual Insurance Company. Prior to May
11, 1998, Phoenix Investment Partners was known as Phoenix
Duff & Phelps Corporation. Phoenix Investment Partners,
through its subsidiaries, provides investment management,
investment research, financial consulting and investment
banking services.
The Adviser is responsible for the management of
the Fund's investment portfolio, subject to the overall
control of the board of directors of the Fund.
Under the terms of an investment advisory agreement
between the Fund and the Adviser (the "Advisory Agreement"),
the Adviser receives from the Fund a quarterly fee at an
annual rate of .60% of the average weekly net asset value of
the Fund up to $1.5 billion and .50% of average weekly net
assets in excess of $1.5 billion. The net assets for each
weekly period are determined by averaging the net assets at
the end of a week with the net assets at the end of the
prior week. For purposes of the foregoing calculation,
"average weekly net assets" is defined as the sum of (i) the
aggregate net asset value of the Fund's common stock, (ii)
the aggregate liquidation preference of the Fund's preferred
stock and (iii) the aggregate proceeds to the Fund of
commercial paper issued by the Fund.
Under the terms of a service agreement among the
Adviser, Phoenix Investment Partners, and the Fund (the
"Service Agreement"), Phoenix Investment Partners makes
available to the Adviser the services, on a part-time basis,
of its employees and various facilities to enable the
Adviser to perform certain of its obligations to the Fund.
However, the obligation of performance under the Advisory
Agreement is solely that of the Adviser, for which Phoenix
Investment Partners assumes no responsibility, except as
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described in the preceding sentence. The Adviser reimburses
Phoenix Investment Partners for any costs, direct or
indirect, fairly attributable to the services performed and
the facilities provided by Phoenix Investment Partners under
the Service Agreement. The Fund does not pay any fees
pursuant to the Service Agreement.
(c) Portfolio Management
--------------------
The Fund's portfolio is managed by T. Brooks Beittel
and Nathan I. Partain. See Item 18 for a description of the
position and business experience of Messrs. Beittel and Partain.
Mr. Beittel has been responsible for the management of the fixed
income investments in the Fund's portfolio since April 1994.
Mr. Partain has been responsible for the management of the
equity investments in the Fund's portfolio since January 1998.
(d) Administrator
-------------
The Fund's administrator (the "Administrator") is
J.J.B. Hilliard, W.L. Lyons, Inc., Hilliard Lyons Center,
Louisville, Kentucky 40202. The Administrator is a
wholly-owned subsidiary of PNC Bank Corp. Under the terms of
an administration agreement (the "Administration
Agreement"), the Administrator provides all management and
administrative services required in connection with the
operation of the Fund not required to be provided by the
Adviser pursuant to the Advisory Agreement, as well as the
necessary office facilities, equipment and personnel to
perform such services. For its services, the Administrator
receives from the Fund a quarterly fee at annual rates of
.25% of the Fund's average weekly net assets up to $100
million, .20% of the Fund's average weekly net assets from
$100 million to $1.0 billion and .10% of average weekly net
assets over $1.0 billion. For purposes of the foregoing
calculation, "average weekly net assets" is defined as the
sum of (i) the aggregate net asset value of the Fund's
common stock, (ii) the aggregate liquidation preference of
the Fund's preferred stock and (iii) the aggregate proceeds
to the Fund of commercial paper issued by the Fund.
(e) Custodian
---------
The Fund's custodian is The Bank of New York,
Church Street Station, Post Office Box 11258, New York, New
York 10286. The transfer agent and dividend disbursing agent
for the Fund's common stock is The Bank of New York, Church
Street Station, P.O. Box 11258, New York, New York 10286.
The transfer agent and dividend disbursing agent for the
Fund's preferred stock is IBJ Schroder Bank & Trust Company,
One State Street, New York, New York 10004.
(f) Expenses
--------
The Fund is responsible for all expenses not paid
by the Adviser or the Administrator, including brokerage fees.
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(g) Affiliated Brokerage
--------------------
The Fund has paid, and in the future may pay,
broker commissions to the Administrator. See Item 21.2.
2. Non-resident Managers.
----------------------
Not applicable.
3. Control Persons.
----------------
The Fund does not consider that any person
"controls" the Fund within the meaning of this item. For
information concerning the Fund's officers and directors,
see Item 18. No person is known by the Fund to own of record
or beneficially five percent or more of any class of the
Fund's outstanding equity securities.
Item 10. Capital Stock, Long-Term Debt, and Other Securities
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1. Capital Stock.
--------------
(a) Common Stock. Holders of common stock, $.001 par value,
of the Fund are entitled to dividends when and as declared
by the Board of Directors, to one vote per share in the
election of Directors (with no right of cumulation), and to
equal rights per share in the event of liquidation. They
have no preemptive rights. There are no redemption,
conversion or sinking fund provisions. The shares are not
liable to further calls or to assessment by the Fund.
(b) Preferred Stock. Holders of preferred stock, $.001 par
value, of the Fund are entitled to receive dividends before
the holders of the common stock and are entitled to receive
the liquidation value of their shares ($100,000 per share)
before any distributions are made to the holders of the
common stock, in the event the Fund is ever liquidated. Each
share of preferred stock is entitled to one vote per share.
The holders of the preferred stock have the right to elect
two directors of the Fund at all times and to elect a
majority of the directors if at any time dividends on the
preferred stock are unpaid for two years. In addition to any
approval by the holders of the shares of the Fund that might
otherwise be required, the approval of the holders of a
majority of the outstanding shares of the preferred stock,
voting separately as a class, will be required under the
1940 Act to adopt any plan of reorganization that would
adversely affect the holders of preferred stock and to
approve, among other things, changes in the Fund's sub-
classification as a closed-end investment company, changes
in its investment objectives or changes in its fundamental
investment restrictions.
Subject to certain restrictions, the Fund may, and under
certain circumstances is required to, redeem shares of its
preferred stock at a price of $100,000 per share, plus
accumulated but unpaid dividends. The shares of preferred
stock are not liable to further calls or to assessment by
the Fund. There are no preemptive rights or sinking fund or
conversion provisions. The Fund, may, however, upon the
occurrence of certain events, authorize the exchange of its
current preferred stock on a share-for-share basis for a
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separate series of authorized but unissued preferred stock
having different dividend privileges.
(c) Dividend Reinvestment Plan. Under the Fund's dividend
reinvestment plan shareholders may elect to have all
dividends and capital gains distributions paid on their
common stock automatically reinvested by The Bank of New
York, as agent for shareholders, in additional shares of
common stock of the Fund. Registered shareholders may
participate in the plan. The plan permits a nominee, other
than a depository, to participate on behalf of those
beneficial owners for whom it is holding shares who elect to
participate. However, some nominees may not permit a
beneficial owner to participate without transferring the
shares into the owner's name. Shareholders who do not elect
to participate in the plan will receive all distributions in
cash paid by check mailed directly to the shareholder (or,
if the shareholder's shares are held in street or other
nominee name, then to such shareholder's nominee) by The
Bank of New York as dividend disbursing agent. Registered
shareholders may also elect to have cash dividends deposited
directly into their bank accounts.
When a dividend or distribution is reinvested under the
plan, the number of shares of common stock equivalent to the
cash dividend or distribution is determined as follows:
(i) If shares of the common stock are trading
at net asset value or at a premium above net asset
value at the valuation date, the Fund issues new
shares of common stock at the greater of net asset
value or 95% of the then current market price.
(ii) If shares of the common stock are
trading at a discount from net asset value at the
valuation date, The Bank of New York receives the
dividend or distribution in cash and uses it to
purchase shares of common stock in the open market,
on the New York Stock Exchange or elsewhere, for
the participants' accounts. Shares are allocated to
participants' accounts at the average price per
share, plus commissions, paid by The Bank of New
York for all shares purchased by it. If, before The
Bank of New York has completed its purchases, the
market price exceeds the net asset value of a
share, the average purchase price per share paid by
The Bank of New York may exceed the net asset value
of the Fund's shares, resulting in the acquisition
of fewer shares than if the dividend or
distribution had been paid in shares issued by the
Fund.
The valuation date is the business day immediately preceding
the date of payment of the dividend or distribution. On that
date, the Administrator compares that day's net asset value
per share and the closing price per share on the New York
Stock Exchange and determines which of the two alternative
procedures described above will be followed.
The reinvestment shares are credited to the participant's
plan account in the Fund's stock records maintained by The
Bank of New York, including a fractional share to four
decimal places. The Bank of New York will send participants
written confirmation of all transactions in the
participant's plan account, including information
participants will need for tax records. Shares held in the
participant's plan account have full dividend and
-12-
<PAGE>
voting rights. Dividends and distributions paid on shares held
in the participant's plan account will also be reinvested.
The cost of administering the plan is borne by the Fund.
There is no brokerage commission on Shares issued directly
by the Fund. However, participants do pay a pro rata share
of brokerage commissions incurred on any open market
purchases of shares by The Bank of New York.
The automatic reinvestment of dividends and distributions
does not relieve participants of any income taxes that may
be payable (or required to be withheld) on dividends or
distributions.
If the closing market price of shares of the Fund's common
stock should be equal to or greater than their net asset
value on the valuation date, the participants in the plan
would receive shares priced at the higher of net asset value
or 95% of the market price. Consequently they would receive
more shares at a lower per share price than if they had used
the cash distribution to purchase Fund shares on the payment
date in the market at the market price plus commission.
If the market price should be less than net asset value on
the valuation date, the cash distribution for the plan
participants would be used by The Bank of New York to
purchase the shares to be received by the participants,
which would be at a discount from net asset value unless the
market price should rise during the purchase period so that
the average price and commission exceeded net asset value as
of the payment date. Also, since the Fund does not redeem
its shares, the price on resale may be less or more than the
net asset value.
Plan participants may purchase additional shares of common
stock through the plan by delivering to The Bank of New York
a check for at least $100, but not more than $5,000, in any
month. The Bank of New York will use such funds to purchase
shares in the open market or in private transactions. The
purchase price of such shares may be more than or less than
net asset value per share. The Fund will not issue new
shares or supply treasury shares for such voluntary
additional share investment. Purchases will be made
commencing with the time of the first distribution payment
following the second business day after receipt of the funds
for additional purchases, and may be aggregated with
purchases of shares for reinvestment of the distribution.
Shares will be allocated to the accounts of participants
purchasing additional shares at the average price per share,
plus a service charge of $2.50 imposed by The Bank of New
York and a pro rata share of any brokerage commission (or
equivalent purchase costs) paid by The Bank of New York in
connection with such purchases. Funds sent to the bank for
voluntary additional share reinvestment may be recalled by
the participant by written notice received by The Bank of
New York not later than two business days before the next
dividend payment date. If for any reason a regular monthly
dividend is not paid by the Fund, funds for voluntary
additional share investment will be returned to the
participant, unless the participant specifically directs
that such funds continue to be held by The Bank of New York
for subsequent investment. Participants will not receive
interest on voluntary additional funds held by The Bank of
New York pending investment.
-13-
<PAGE>
A shareholder may leave the plan at any time by written
notice to The Bank of New York. To be effective for any
given distribution, notice must be received by the Bank at
least seven business days before the record date for that
distribution. When a shareholder leaves the plan: (i) such
shareholder may request that The Bank of New York sell such
shareholder's shares held in such shareholder's plan account
and send such shareholder a check for the net proceeds
(including payment of the value of a fractional share,
valued at the closing price of the Fund's common stock on
the New York Stock Exchange on the date discontinuance is
effective) after deducting The Bank of New York's $5.00
charge and any brokerage commission (or equivalent sale
cost) or (ii) if no request is made, such shareholder will
receive a certificate for the number of full shares held in
such shareholder's plan account, along with a check for any
fractional share interest, valued at the closing price of
the Fund's common stock on the New York Stock Exchange on
the date discontinuance is effective. If and when it is
determined that the only balance remaining in a
shareholder's plan account is a fraction of a single share,
such shareholder's participation will be deemed to have
terminated, and The Bank of New York will send to such
shareholder a check for the value of such fractional share,
valued at the closing price of the Fund's common stock on
the New York Stock Exchange on the date discontinuance is
effective.
The Fund may change, suspend or terminate the plan at any
time upon mailing a notice to participants.
For more information regarding, and an authorization form
for, the dividend reinvestment plan, please contact The Bank
of New York at 1-800-432-8224.
(d) Capital Gains Distribution Reinvestment Plan. Unless
otherwise indicated by a holder of shares of common stock of
the Fund that does not participate in the Fund's dividend
reinvestment plan, all distributions in respect of capital
gains distributions on shares of common stock held by such
holder will be automatically invested by The Bank of New
York, as agent of the common shareholders participating in
the plan, in additional shares of common stock of the Fund.
Distributions in respect of capital gains distributions on
shares of common stock that participate in the Fund's
dividend reinvestment plan will be reinvested in accordance
with the terms of such plan.
In any year in which the Fund declares a capital gains
distribution, the Fund after the declaration of such
dividend and prior to its payment, will provide to each
registered holder of Fund common stock that does not
participate in the Fund's dividend reinvestment plan a cash
election card. A registered shareholder may elect to receive
cash in lieu of shares in respect of a capital gains
distribution by signing the cash election card in the
name(s) of the registered shareholder(s), and mailing the
card to The Bank of New York.
If a holder's shares of common stock, or some of them, are
registered in the name of a broker or other nominee, and the
holder wishes to receive a capital gains distribution in
cash in lieu of shares of common stock, such shareholder
must exercise that election through its nominee (including
any depositor of shares held in a securities depository).
-14-
<PAGE>
When a distribution is reinvested under the plan, the number
of reinvestment shares is determined as follows:
(i) If, at the time of valuation, the shares
are being traded in the securities markets at net
asset value or at a premium over net asset value,
the reinvestment shares are obtained by The Bank of
New York directly from the Fund, at a price equal
to the greater of net asset value or 95% of the
then current market price, without any brokerage
commissions (or equivalent purchase costs).
(ii) If, at the time of valuation, the shares
are being traded in the securities markets at a
discount from net asset value, The Bank of New York
receives the distribution in cash, and uses it to
purchase shares in the open market, including on
the New York Stock Exchange, or in private
purchases. Shares of common stock are allocated to
participants at the average price per share, plus
any brokerage commissions (or equivalent
transaction costs), paid by The Bank of New York
for all shares purchased by it in reinvestment of
the distribution(s) paid on a particular day.
The time of valuation is the close of trading on the New
York Stock Exchange on the most recent day preceding the
date of payment of the dividend or distribution on which
that exchange is open for trading. As of that time, J.J.B.
Hilliard, W.L. Lyons, Inc., the Fund's administrator,
compares the net asset value per share as of the time of the
close of trading on the New York Stock Exchange on that day
and the last reported sale price per share on the New York
Stock Exchange, and determines which of the alternative
procedures described above are to be followed.
If as of any day on which the last reported sale price of
the Fund's shares on the New York Stock Exchange is required
to be determined pursuant to this plan, no sales of the
shares are reported on that exchange, the mean of the bid
prices and of the asked prices on that exchange as of the
time of the close of trading on the exchange will be
substituted.
No certificates will be issued representing fractional
shares, nor will The Bank of New York purchase fractional
shares in the market. The Bank of New York will send to all
registered holders of common stock that do not participate
in the Fund's dividend reinvestment plan certificates for
all shares of common stock purchased or issued pursuant to
the capital gains distribution plan and cash in lieu of
fractional shares of common stock.
The Fund may change, suspend or terminate the plan at any
time upon mailing a notice to participants.
(e) Anti-takeover provisions of charter and bylaws. The
Fund's charter includes 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 and could have the effect of
depriving shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by
discouraging a third party from seeking to
-15-
<PAGE>
obtain control of the Fund. The Board of Directors is
divided into three classes, each having a term of three
years. At each annual meeting of shareholders, the term of
one class will expire. This provision could delay for up to
two years the replacement of a majority of the Board of
Directors. A Director may be removed from office only by
vote of the holders of at least 75% of the shares of
preferred stock or of common stock, as the case may be,
entitled to be voted on the matter.
The Fund's charter requires the favorable vote of the
holders of at least 75% of the shares of preferred stock and
common stock of the Fund entitled to be voted on the matter,
voting together as a single class, to approve, adopt or
authorize the following:
(i) a merger or consolidation of the Fund
with another corporation,
(ii) a sale of all or substantially all
of the Fund's assets (other than in the regular
course of the Fund's investment activities), or
(iii) a liquidation or dissolution of
the Fund, unless such action has been approved,
adopted or authorized by the affirmative vote of
two-thirds of the total number of directors fixed
in accordance with the bylaws, in which case the
affirmative vote of the holders of a majority of
the outstanding shares of preferred stock and
common stock entitled to be voted on the matter,
voting together as a single class, is required.
In addition, the holders of a majority of the outstanding
shares of the preferred stock, voting separately as a class,
would be required under the 1940 Act to adopt any plan of
reorganization that would adversely affect the holders of
the preferred stock.
Finally, conversion of the Fund to an open-end investment
company would require an amendment to the charter. Such an
amendment would require the favorable vote of the holders of
a majority of the shares of preferred stock and common stock
entitled to be voted on the matter voting separately by
class. At any time, the amendment would have to be declared
advisable by the Board of Directors prior to its submission
to shareholders. Shareholders of an open-end investment
company may require the company to redeem their shares of
common stock at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset
value, less such redemption charge, if any, as might be in
effect at the time of a redemption. In addition, conversion
to an open-end investment company would require redemption
of all outstanding shares of the preferred stock.
The Board of Directors has determined that the 75% voting
requirements described above, which are greater than the
minimum requirements under Maryland law or the 1940 Act, are
in the best interests of shareholders generally. Reference
should be made to the charter on file with the Securities
and Exchange Commission for the full text of these
provisions.
-16-
<PAGE>
2. Long-Term Debt.
---------------
Not applicable.
3. General
-------
Not applicable.
4. Taxes. The Fund intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as it
has in each year since the inception of its operations, so as to
be relieved of Federal income tax on net investment income and
net capital gains distributed to shareholders.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital gains
are taxable to shareholders as ordinary income. Shareholders may
be proportionately liable for taxes on income and gains of the
Fund but shareholders not subject to tax on their income will not
be required to pay tax on amounts distributed to them. The Fund
will inform shareholders of the amount and nature of the income
or gains. Dividends from ordinary income may be eligible for the
dividends-received deduction available to corporate shareholders.
Under its Charter, the Fund is required to designate dividends
paid on its preferred stock as qualifying for the
dividends-received deduction to the extent such dividends do not
exceed the Fund's qualifying income. In the event the Fund is
required to allocate all of its qualifying income to dividends on
the preferred stock, dividends payable on the common stock will
not be eligible for the dividends-received deduction. Any
distributions attributable to the Fund's net realized long-term
capital gains are taxable to shareholders as long-term capital
gains, regardless of the holding period of shares of the Fund.
The Fund intends to distribute substantially all its net
investment income and net realized capital gains in the year
earned or realized. A dividend reinvestment plan is available to
all holders of common stock of the Fund. Under the dividend
reinvestment plan, all cash distributions to participating
shareholders are reinvested in additional shares of common stock.
See Item 10.1(c).
5. Outstanding Securities
----------------------
(4)
(3) Amount Outstanding
Amount Held by at 3/31/99 Exclusive
(1) (2) the Fund or of Amount Shown
Title of Class Amount Authorized for its Account Under (3)
-------------- ----------------- --------------- --------------------
Common, $.001
par value 250,000,000 -0- 206,370,767
Preferred, $.001
par value 100,000,000 -0- 5,000
-17-
<PAGE>
6. Securities Ratings.
-------------------
Not applicable.
Item 11. Defaults and Arrears on Senior Securities
- -------- -----------------------------------------
Not applicable.
Item 12. Legal Proceedings
- -------- -----------------
There are no pending legal proceedings to which the Fund, any
subsidiary of the Fund, or the Adviser is a party.
Item 13. Table of Contents of the Statement of Additional Information
- -------- ------------------------------------------------------------
Not applicable.
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 14. Cover Page
- -------- ----------
Not applicable.
Item 15. Table of Contents
- -------- -----------------
Not applicable.
Item 16. General Information and History
- -------- -------------------------------
During the past five years, the Fund has not engaged in any
business other than that of an investment company and has not been the
subject of any bankruptcy, receivership or similar proceedings, or any
other material reorganization, readjustment or succession. The Fund's name
was changed from Duff & Phelps Selected Utilities Inc. on November 1, 1990.
Item 17. Investment Objective and Policies
- -------- ---------------------------------
1. See Item 8.2.
2. See Item 8.2.
3. See Item 8.2.
4. The Fund's portfolio turnover rate was 226.21% in 1996,
213.57% in 1997 and 251.19% in 1998. The increase in the portfolio turnover
rate between 1997 and 1998 was due to a number of
-18-
<PAGE>
factors: the Fund's proactive response to changes in the
telecommunications, gas and electric industries; the Fund's shift away from
investment in REITs in light of the downturn in that sector; the additional
funds available for investment due to the increased leverage of the Fund;
and changes in the Fund's international portfolio designed to benefit from
capital gain opportunities that were able to be offset by available loss
carryovers.
Item 18. Management
- -------- ----------
1.
Name, Address and Age Position(s) Held Principal Occupation(s)
- --------------------- With the Fund During Past 5 Years
------------ --------------------
Claire V. Hansen (1)(2) Director and Senior Advisor to the Board of
55 East Monroe Street Chairman Directors, Phoenix Investment
Chicago, Illinois 60603 Partners, Ltd. since November 1995;
Age: 73 Senior Advisor to the Board of
Directors, Duff & Phelps
Corporation, 1988-November 1995
(Chairman of the Board, 1987-1988;
Chairman of the Board and Chief
Executive Officer prior thereto);
Chairman of the Board, Duff
Research Inc. and Duff & Phelps
Investment Management Co.,
1985-1987
Wallace B. Behnke(3) Director Consulting engineer since July
323 Glen Eagle 1989; prior thereto, Vice Chairman,
Kiawah Island, Commonwealth Edison Company
South Carolina 29455 (public utility)
Age: 73
Harry J. Bruce(3) Director Private investor; former Chairman
1630 Sheridan Road and Chief Executive Officer,
Wilmette, Illinois 60091. Illinois Central Railroad Co.
Age: 67
Franklin A. Cole(2) Director Chairman, Croesus Corporation
54 West Hubbard Street (private management and investment
Chicago, Illinois 60610 company); former Chairman and Chief
Age: 72 Executive Officer, Amerifin
Corporation (formerly named Walter
E. Heller International
Corporation); director, Aon
Corporation and CNA Income Shares
Gordon B. Davidson Director Of Counsel, Wyatt, Tarrant & Combs
Citizens Plaza (law firm) since September 1995
Louisville, Kentucky 40202 (Chairman of the Executive
Age: 72 Committee prior thereto); retired
director, BellSouth Corp.; former
Chairman of the Board and director,
Trans Financial Advisers, Inc.
-19-
<PAGE>
Name, Address and Age Position(s) Held Principal Occupation(s)
- --------------------- With the Fund During Past 5 Years
---------------- -----------------------
Francis E. Jeffries (1)(2) Director Retired Chairman, Phoenix
6585 Nicholas Boulevard Investment Partners, Ltd. since
Naples, Florida 34108 December 1996 (Chairman, November
Age: 68 1995-December 1996); Chairman
and Chief Executive Officer, Duff
& Phelps Corporation, June 1993-
November 1995 (President and Chief
Executive Officer, January 1992-
June 1993); President and Chief
Executive Officer, Duff & Phelps
Illinois Inc. since 1987 (President
and Chief Operating Officer, 1984-
1987) and Chairman of the Board,
Duff & Phelps Investment Management
Co. (1988-1993); director, The
Empire District Electric Company,
Duff & Phelps Utilities Tax-Free
Income Inc. and Duff & Phelps
Utility and Corporate Bond Trust
Inc.; director/trustee, Phoenix
Funds
Nancy Lampton(4) Director Chairman and Chief Executive
3 Riverfront Plaza Officer, American Life and Accident
Louisville, Kentucky 40202 Insurance Company of Kentucky;
Age: 56 director, Baltimore Gas and
Electric Company
Calvin J. Pedersen (1) President, President and Chief Executive
55 East Monroe Street Chief Executive Officer of the Fund since March
Chicago, Illinois 60603 Officer and 1994; President, Phoenix Investment
Age: 57 Director Partners, Ltd. since November 1995;
President, Duff & Phelps
Corporation, 1993-November 1995
(Senior Vice President, 1986-1988
and Executive Vice President,
1989-1993); Executive Vice
President and Director, Duff &
Phelps Investment Management Co.
since 1989 (Senior Vice President,
1986-1988); President and Chief
Executive Officer, Duff & Phelps
Utilities Tax-Free Income Inc. and
Duff & Phelps Utility and Corporate
Bond Trust Inc.; director/trustee,
Phoenix group of funds
Beryl W. Sprinkel(3)(4) Director Consulting economist since January
20140 St. Andrews Drive 1989; Chairman of the Council of
Olympia Fields, Illinois 60461 Economic Advisers under President
Age: 75 Reagan (1985-1989); member of
President Reagan's cabinet (1987-
1989); Under Secretary of the
Treasury for Monetary Affairs
(1981-1985)
-20-
<PAGE>
Name, Address and Age Position(s) Held Principal Occupation(s)
- --------------------- With the Fund During Past 5 Years
---------------- -----------------------
T. Brooks Beittel Secretary, Secretary, Treasurer and Senior
55 East Monroe Street Treasurer and Vice President of the Fund since
Chicago, Illinois 60603 and Senior Vice January 1995; Senior Vice
Age: 49 President President, Duff & Phelps Invest-
ment Management Co. since 1993
(Vice President 1987-1993)
Nathan I. Partain Executive Vice Executive Vice President of the
55 East Monroe Street President, Fund since April 1998 (Senior Vice
Chicago, Illinois 60603 Chief Investment President January 1997-April 1998);
Age: 42 Officer and Chief Investment Officer of the
Assistant Fund since January 1998; Assistant
Secretary Secretary of the Fund since January
1997; Executive Vice President,
Duff & Phelps Investment Management
Co. since January 1997; Director
of Utility Research, Phoenix
Investment Partners, Ltd., 1989-
1996 (Director of Equity Research,
1993-1996 and Director of Fixed
Income Research, 1993); director,
Otter Tail Power Company
Michael Schatt Senior Vice Senior Vice President of the Fund
55 East Monroe Street President since April 1998 (Vice President
Chicago, Illinois 60603 January 1997-April 1998); Senior
Age: 52 Vice President, Duff & Phelps
Investment Management Co. since
January 1997; Managing Director,
Phoenix Investment Partners, Ltd.,
1994-1996; Self-employed
consultant, 1994; Director of Real
Estate Advisory Practice, Coopers
& Lybrand, 1990-1994
Joseph C. Curry, Jr. Vice Vice President of the Fund since
Hilliard Lyons Center President 1988; Senior Vice President, J.J.B.
Louisville, Kentucky 40202 Hilliard, W.L. Lyons, Inc. since
Age: 54 1994 (Vice President 1982-1994);
Vice President Hilliard Lyons Trust
Company; President, Hilliard-Lyons
Government Fund, Inc.; Treasurer
and Secretary, Hilliard Lyons
Growth Fund, Inc.
Dianna P. Wengler Assistant Assistant Secretary of the Fund
Hilliard Lyons Center Secretary since April 1988; Vice President,
Louisville, Kentucky 40202 J.J.B. Hilliard, W.L. Lyons, Inc.
Age: 38 since 1990; Vice President,
Hilliard-Lyons Government Fund,
Inc.; Assistant Secretary,
Hilliard Lyons Growth Fund, Inc.
-21-
<PAGE>
(1) Director who is an "interested person" of the Fund, as defined in
the 1940 Act.
(2) Member of Executive Committee of the Board of Directors, which
has authority, with certain exceptions, to exercise the powers of
the Board between Board meetings.
(3) Member of the Audit Committee of the Board of Directors.
(4) Director elected by holders of preferred stock.
2. Not applicable.
The Fund has not paid an amount in excess of $60,000 during 1998 to any
director, officer, any affiliated person of the Fund, any affiliated person
of an affiliate or principal underwriter of the Fund.
The following table shows the compensation paid by the Fund to
the Fund's current directors during 1998:
COMPENSATION TABLE (1)(2)
Aggregate
Compensation
from the
Name of Director Fund
- ---------------- -----------
Wallace B. Behnke........................................... $25,500
Harry J. Bruce.............................................. 24,500
Franklin A. Cole............................................ 28,500
Gordon B. Davidson.......................................... 28,774
Claire V. Hansen............................................ 0
Francis E. Jeffries (2)..................................... 28,500
Calvin J. Pedersen.......................................... 0
Nancy Lampton............................................... 24,500
Beryl W. Sprinkel........................................... 23,500
- --------------
(1) During 1998, each director not affiliated with the Adviser received
an annual fee of $17,500 (and an additional $3,000 if the director
served as chairman of a committee of the board of directors) plus
an attendance fee of $1,000 for each meeting of the board of
directors or of a committee of the board of directors attended in
person or by telephone. Directors and officers affiliated with the
Adviser or the Administrator receive no compensation from the
Fund for their services as such. In addition to the amounts shown
in the table above, all directors and officers who are not affiliated
with the Adviser or the Administrator are reimbursed for the expenses
incurred by them in connection with their attendance at a meeting of
the board of directors or a committee of the board of directors.
The Fund does not have a pension or retirement plan applicable to
directors or officers of the Fund.
(2) During 1998, Mr. Jeffries received aggregate compensation of
$75,000 for service as a director of the Fund and as a director
of two other investment companies in the same fund
-22-
<PAGE>
complex as the Fund. No other director received compensation for
service as a director of any other investment company in the same
fund complex as the Fund.
Item 19. Control Persons and Principal Holders of Securities
---------------------------------------------------
1. The Fund does not consider that any person "controls" the
Fund within the meaning of this item. For information
concerning the Fund's officers and directors, see Item 18.
2. No person is known by the Fund to own of record or
beneficially five percent or more of any class of the Fund's
outstanding equity securities.
3. As of December 31, 1998, the officers and directors of the
Fund owned in the aggregate 232,101 shares of Common Stock,
representing less than 1% of the Fund's outstanding Common
Stock.
Item 20. Investment Advisory and Other Services
- -------- --------------------------------------
1. The Adviser is a wholly-owned subsidiary of Phoenix Investment
Partners, which is an indirect, majority-owned subsidiary of
Phoenix Home Life Mutual Insurance Company. The Phoenix
Investment Partners organization has provided investment research
regarding public utility securities since its founding in 1932.
Phoenix Investment Partners is one of the nation's largest
independent investment research organizations, providing to
institutional investors equity and fixed-income investment
research. Through other subsidiaries it provides financial
consulting and investment banking services. See Item 18 for the
names and capacities of affiliated persons of the Fund who are
also affiliated persons of the Adviser.
For a discussion of the method of calculating the advisory fee
under the Advisory Agreement, see Item 9.1(b). The investment
advisory fees paid by the Fund totaled $14,713,237 in 1998,
$12,730,134 in 1997 and $12,254,315 in 1996.
2. See Item 9.1(b) for a discussion of the Service Agreement.
3. No fees, expenses or costs of the Fund were paid by persons
other than the Adviser or the Fund.
4. See Item 9.1 (d) for a discussion of the Administration
Agreement. The administrative fees paid by the Fund totaled
$3,692,647 in 1998, $2,997,616 in 1997 and $2,944,545 in 1996.
5. Not applicable.
6. See Item 9.1 (e).
7. The Fund's independent public accountant is Arthur Andersen LLP.
8. Not applicable.
-23-
<PAGE>
Item 21. Broker Allocation and Other Practices
- -------- -------------------------------------
1. The Adviser has discretion to select brokers and dealers to
execute portfolio transactions initiated by the Adviser. The Fund
paid brokerage commissions in the aggregate amount of $9,040,180,
$7,462,774 and $7,057,947 during 1998, 1997 and 1996,
respectively, not including the gross underwriting spread on
securities purchased in underwritten public offerings.
2. The Administrator received $5,750, $39,022 and $74,016 or
approximately 0.06%, 0.5% and 1.0% of total brokerage commissions
in 1998, 1997 and 1996, respectively, for effecting transactions
involving approximately 0.04%, 0.4% and 0.7% of the aggregate
dollar amount of transactions in which the Fund paid brokerage
commissions. Prior to ceasing operations in May, 1996, Duff &
Phelps Securities Co. received $51,750 or approximately 0.7% of
total brokerage commissions in 1996 for effecting transactions
involving approximately 0.6% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions. The
differences between the respective percentages of brokerage
commissions paid to the Administrator and Duff & Phelps
Securities Co. and the corresponding percentages of aggregate
dollar amount of transactions in which the Fund paid brokerage
commissions resulted from the fact that the Fund generally pays a
fixed commission per share of common stock, regardless of the
price paid for a particular share.
3. In selecting brokers or dealers to execute portfolio
transactions and in evaluating the best net price and execution
available, the Adviser is authorized to consider "brokerage and
research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934), statistical quotations,
specifically the quotations necessary to determine the Fund's net
asset value, and other information provided to the Fund and/or to
the Adviser (or their affiliates). The Adviser is also authorized
to cause the Fund to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a
portfolio transaction which is in excess of the amount of
commission another broker or dealer would have charged for
effecting that transaction. The Adviser must determine in good
faith, however, that such commission was reasonable in relation
to the value of the brokerage and research services provided,
viewed in terms of that particular transaction or in terms of all
the accounts over which the Adviser exercises investment
discretion. It is possible that certain of the services received
by the Adviser attributable to a particular transaction will
benefit one or more other accounts for which investment
discretion is exercised by the Adviser.
4. Neither the Fund nor the Adviser, during the last fiscal year,
pursuant to an agreement or understanding with a broker or
otherwise through an internal allocation procedure, directed the
Fund's brokerage transactions to a broker or brokers because of
research services.
5. The Fund has not acquired during its most recent fiscal year
securities of its regular brokers or dealers as defined in Rule
10b-1 under the 1940 Act, or their parents.
-24-
<PAGE>
Item 22. Tax Status
- -------- ----------
The Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as it has in each year
since the inception of its operations, so as to be relieved of Federal
income tax on net investment income and net capital gains distributed to
shareholders.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital gains are
taxable to shareholders as ordinary income. Dividends from ordinary income
may be eligible for the dividends-received deduction available to corporate
shareholders. Under its Charter, the Fund is required to designate
dividends paid on its preferred stock as qualifying for the
dividends-received deduction to the extent such dividends do not exceed the
Fund's qualifying income. In the event the Fund is required to allocate all
of its qualifying income to dividends on the preferred stock, dividends
payable on the common stock will not be eligible for the dividends-received
deduction. Any distributions attributable to the Fund's net realized
long-term capital gains are taxable to shareholders as long-term capital
gains, regardless of the holding period of shares of the Fund.
The Fund intends to distribute substantially all its net
investment income and net realized capital gains in the year earned or
realized. A dividend reinvestment plan is available to all holders of
common stock of the Fund. Under the dividend reinvestment plan, all cash
distributions to participating shareholders are reinvested in additional
shares of common stock. See Item 10.1(c).
As of December 31, 1998, the Fund had capital loss carryforwards
of $31,214,552 which expire beginning on December 31, 2003.
Item 23. Financial Statements
- -------- --------------------
The financial statements listed below are incorporated herein by
reference from the Fund's Annual Report to Shareholders for the year ended
December 31, 1998 as filed on Form N-30D with the Securities and Exchange
Commission on February 26, 1999 (no. 811-4915). All other portions of the
Annual Report to Shareholders are not incorporated herein by reference and
are not part of the Registration Statement. A copy of the Annual Report to
Shareholders may be obtained without charge by writing to the Fund at its
address at 55 East Monroe Street, Chicago, Illinois 60603 or by calling the
Fund toll-free at 800-680-4367.
- Report of independent public accountants
- Schedule of Investments at December 31, 1998
- Balance Sheet at December 31, 1998
- Statement of Operations for the year ended December 31, 1998
- Statement of Changes in Net Assets for the years ended
December 31, 1998 and 1997
- Statement of Cash Flows for the year ended December 31, 1998
-25-
<PAGE>
- Notes to Financial Statements
- Financial Highlights - Selected Per Share Data and Ratios
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
1. Financial Statements
In Part B:
Report of independent public accountants
Schedule of Investments at December 31, 1998
Balance Sheet at December 31, 1998
Statement of Operations for the year ended December 31, 1998
Statement of Changes in Net Assets for the years ended
December 31, 1998 and 1997
Statement of Cash Flows for the year ended December 31, 1998
Notes to Financial Statements
Financial Highlights - Selected Per Share Data and Ratios
In Part C:
None
2. Exhibits
a.1 Articles of Incorporation (Incorporated by reference from
post-effective amendment no. 38 to Registrant's
registration statement under the Investment Company Act of
1940 on Form N-2, no. 811-4915)
a.2 Amendment to Articles of Incorporation (Incorporated by
reference from post-effective amendment no. 38 to
Registrant's registration statement on Form N-2, no.
811-4915)
-26-
<PAGE>
a.3 Second Amendment to Articles of Incorporation (Incorporated
by reference from post-effective amendment no. 38 to
Registrant's registration statement on Form N-2, no.
811-4915)
a.4 Form of Articles Supplementary creating Remarketed
Preferred Stock, Series A, B, C, D and E (Incorporated by
reference from post-effective amendment no. 38 to
Registrant's registration statement on Form N-2, no.
811-4915)
a.5 Form of Articles Supplementary creating Remarketed
Preferred Stock, Series I (Incorporated by reference from
post-effective amendment no. 38 to Registrant's
registration statement on Form N-2, no. 811-4915)
a.6 Third Amendment to Articles of Incorporation (Incorporated
by reference from post-effective amendment no. 38 to
Registrant's registration statement on Form N-2, no.
811-4915)
a.7 Fourth Amendment to Articles of Incorporation (Incorporated
by reference from post-effective amendment no. 38 to
Registrant's registration statement on Form N-2, no.
811-4915)
a.8 Fifth Amendment to Articles of Incorporation (Incorporated
by reference from post-effective amendment no. 38 to
Registrant's registration statement on Form N-2, no.
811-4915)
b. Bylaws (as amended through July 29, 1998)
c. None
d.1 Specimen common stock certificate (Incorporated by
reference from Registrant's registration statement on
Form N-2, no. 33-10421)
d.2 Form of certificate of Remarketed Preferred Stock,
Series A (Incorporated by reference from pre-effective
amendment no. 2 to Registrant's registration statement on
Form N-2, no. 33-22933)
d.3 Form of certificate of Remarketed Preferred Stock,
Series B (Incorporated by reference from pre-effective
amendment no. 1 to Registrant's registration statement on
Form N-2, no. 33-24101)
d.4 Form of certificate of Remarketed Preferred Stock, Series C
(Incorporated by reference from pre-effective amendment
no. 1 to Registrant's registration statement on Form N-2,
no. 33-24100)
d.5 Form of certificate of Remarketed Preferred Stock, Series D
(Incorporated by reference from pre-effective amendment
no. 1 to Registrant's registration statement on Form N-2,
no. 33-24102)
-27-
<PAGE>
d.6 Form of certificate of Remarketed Preferred Stock,
Series E (Incorporated by reference from pre-effective
amendment no. 1 to Registrant's registration statement on
Form N-2, no. 33-24099)
d.7 Form of certificate of Remarketed Preferred Stock,
Series I (Incorporated by reference from pre-effective
amendment no. 2 to Registrant's registration statement on
Form N-2, no. 33-22933)
e. None
f. None
g.1 Investment Advisory Agreement (Incorporated by reference
from post-effective amendment no. 39 to Registrant's
registration statement under the Investment Company Act of
1940 on Form N-2, no. 811-4915)
g.2 Service Agreement (Incorporated by reference from
post-effective amendment no. 39 to Registrant's
registration statement under the Investment Company Act of
1940 on Form N-2, no. 811-4915)
g.3 Administration Agreement (Incorporated by reference from
post-effective amendment no. 39 to Registrant's
registration statement under the Investment Company Act of
1940 on Form N-2, no. 811-4915)
h. Not applicable
i. Not applicable
j. Custodian agreement (Incorporated by reference from
Registrant's registration statement on Form N-2,
no. 33-10421)
k.1 Loan agreement (Incorporated by reference from Registrant's
registration statement on Form N-2, no. 33-10421)
k.2 Amendment dated November 15, 1988 to Loan Agreement
(Incorporated by reference from post-effective amendment
no. 1 to Registrant's registration statement on Form N-2,
no. 33-20433)
k.3 Form of Remarketing Agreement (Incorporated by reference
from pre-effective amendment no. 3 to Registrant's
registration statement on Form N-2, no. 33-22933)
k.4 Form of Paying Agent Agreement (Incorporated by reference
from pre-effective amendment no. 3 to Registrant's
registration statement on Form N-2, no. 33-22933)
l. Not applicable
-28-
<PAGE>
m. Not applicable
n. Not applicable
o. Not applicable
p. Subscription Agreement for initial capital (Incorporated
by reference from Registrant's registration statement on
Form N-2, no. 33-10421)
q. Not applicable
r. Financial Data Schedule
Item 25. Marketing Arrangements
- -------- ----------------------
Not applicable.
Item 26. Other Expenses of Issuance and Distribution
- -------- -------------------------------------------
Not applicable.
Item 27. Persons Controlled by or Under Common Control
- -------- ---------------------------------------------
The Fund does not consider that it is controlled, directly or
indirectly, by any person. The information on Item 20 is incorporated by
reference.
Item 28. Number of Holders of Securities
- -------- -------------------------------
Number of
Record Holders
Title of Class March 31, 1999
-------------- --------------
Common Stock, $.001 par value 34,126
Preferred Stock, $.001 par value 1
Item 29. Indemnification
- -------- ---------------
Section 2-418 of the General Corporation Law of Maryland
authorizes the indemnification of directors and officers of Maryland
corporations under specified circumstances.
Article Ninth of the Articles of Incorporation (exhibit 1.1 to
the Registrant's registration statement no. 33-10421, which is incorporated
by reference) provides that the Registrant shall indemnify its directors
and officers under specified circumstances; the provision contains the
exclusion required by section 17(h) of the Investment Company Act of 1940.
-29-
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "1933 Act") 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 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
Registrant, its directors and officers, its Adviser and persons
affiliated with them are insured under a policy of insurance maintained by
Registrant and its Adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings and certain liabilities that might
be imposed as a result of such actions, suits or proceedings, to which they
are parties by reason of being or having been such directors or officers.
The policy expressly excludes coverage for any director or officer whose
personal dishonesty, fraudulent breach of trust, lack of good faith, or
intention to deceive or defraud has been finally adjudicated or may be
established or who willfully fails to act prudently.
Item 30. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Neither Duff & Phelps Investment Management Co., nor any of its
directors or executive officers, has at any time during the past two years
been engaged in any other business, profession, vocation or employment of a
substantial nature either for its or his own account or in the capacity of
director, officer, employee, partner or trustee, except as indicated in
this Registration Statement.
Item 31. Location of Accounts and Records
- -------- --------------------------------
All accounts, books and other documents required to be maintained
by Section 31 (a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are maintained at the offices of the Fund (55 East
Monroe Street, Chicago, Illinois 60603), the Adviser, the Administrator and
the Fund's custodian and transfer agents. See Items 9.1(b), 9.1(d) and
9.1(e) for the addresses of the Adviser, the Administrator and the Funds
custodian and transfer agents.
Item 32. Management Services
- -------- -------------------
Not applicable.
Item 33. Undertakings
- -------- ------------
Not applicable.
-30-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this amendment to its registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, and State of Illinois, on April 28,
1999.
DUFF & PHELPS UTILITIES INCOME INC.
By /s/ Nathan I. Partain
--------------------------
Nathan I. Partain
Executive Vice President,
Chief Investment Officer
and Assistant Secretary
-31-
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------- ----------- -----------
99.b Bylaws (as amended through July 29, 1998)
27.r Financial Data Schedule
-32-
Exhibit b
BYLAWS
(as amended July 29, 1998)
ARTICLE I
OFFICES
Section 1.01. Principal office. The principal office of
the corporation in the State of Maryland shall be located in the City of
Baltimore.
Section 1.02. Other offices. The corporation may also
have offices at such other places both within and without the State of
Maryland as the board of directors may from time to time determine or the
business of the corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 2.01. Place of meetings. All meetings of the
stockholders shall be held at such place in the United States as shall be
designated from time to time by the board of directors.
Section 2.02. Annual meeting. Beginning with the annual
meeting of stockholders to be held in 1990, the annual meeting of
stockholders shall be held on the third Wednesday of April or at such date
and time within the month of April of each year as shall be designated from
time to time by the board of directors and stated in the notice of the
meeting, at which they shall elect a board of directors and transact such
other business as may properly be brought before the meeting.
Section 2.03. Special meetings. Special meetings of
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the charter of the corporation, may be called at any time by
the chairman, the president or the board of directors. Special meetings of
stockholders shall be called by the secretary upon the written request of
stockholders entitled to cast at least 25 percent of all the votes entitled
to be cast at such meeting, provided that (a) such request shall state the
purpose or purposes of the meeting and the matters proposed to be acted on
at it; and (b) the stockholders requesting the meeting shall have paid to
the corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the secretary shall determine and specify to such
stockholders. Upon payment of these costs to the corporation, the secretary
shall notify each stockholder entitled to notice of the meeting. Unless
<PAGE>
requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at
any special meeting of stockholders held during the preceding twelve
months.
Section 2.04. Stockholders entitled to vote; number of
votes. If a record date has been fixed for the determination of
stockholders entitled to notice of or to vote at any meeting of
stockholders, each stockholder of the corporation shall be entitled to
vote, in person or by proxy, each share of stock (or fraction thereof)
registered in his name on the books of the corporation outstanding at the
close of business on such record date, with one vote (or fraction of a
vote) for each share (or fraction thereof) so outstanding.
Section 2.05. Notice of meetings. Written notice of each
meeting of stockholders stating the place, date and hour of the meeting
and, in the case of a special meeting or if otherwise required by law, the
purpose or purposes for which the meeting is called, shall be given not
less than 10 nor more than 90 days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 2.06. Quorum; adjournment. The holders of a
majority of the stock entitled to vote at a meeting of stockholders,
present in person or represented by proxy, shall constitute a quorum at the
meeting for the transaction of business except as otherwise provided by
statute or by the charter of the corporation. If, however, such quorum
shall not be present or represented at any meeting of stockholders, the
stockholders entitled to vote thereat present in person or represented by
proxy shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present or represented. At any adjourned meeting at which a quorum shall
be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjourned
meeting is more than 120 days after the original record date, or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder entitled
to vote at the meeting.
Section 2.07. Voting. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy and voting on the question
shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of any statute or the charter of
the corporation or these bylaws, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 2.08. Proxies. No proxy shall be valid more than
eleven months after its date, unless it provides for a longer period.
Section 2.09. Stock ledger. The secretary of the
corporation shall cause an original or duplicate stock ledger to be
maintained at the office of the corporation's transfer agent.
-2-
<PAGE>
ARTICLE III
DIRECTORS AND COMMITTEES
Section 3.01. Function and powers. The business and
affairs of the corporation shall be managed under the direction of its
board of directors. All powers of the corporation may be exercised by or
under the authority of the board of directors except as conferred on or
reserved to the stockholders by statute or the charter of the corporation
or these bylaws.
Section 3.02. Number. The board of directors shall
consist of 3 directors, which number may be increased or decreased by a
resolution of a majority of the entire board of directors, provided that
the number of directors shall not be less than 3 or more than 15.
Section 3.03. Vacancies. Any vacancy occurring in the
board of directors for any cause other than by reason of an increase in the
number of directors may be filled by a majority of the remaining members of
the board of directors, although such majority is less than a quorum;
provided, however, that no vacancy shall be so filled unless immediately
thereafter at least two-thirds of the directors then holding office shall
have been elected to such office by the stockholders, and provided further
that if at any time (other than prior to the first annual meeting of
stockholders) less than a majority of the directors holding office at that
time were elected by the stockholders, a meeting of the stockholders shall
be held promptly and in any event within 60 days for the purpose of
electing directors to fill any existing vacancy in the board of directors,
unless the Securities and Exchange Commission shall by order extend such
period under the authority granted by section 16(a) of the Investment
Company Act of 1940. A director elected to fill a vacancy shall be elected
to hold office until the next annual meeting of stockholders or until his
successor is elected and qualifies.
Section 3.04. Annual and regular meetings. The first
meeting of each newly elected board of directors shall be held immediately
after the adjournment of the annual meeting of stockholders, or at such
other time or place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by any director who is not present at
the meeting. The board of directors from time to time may provide for the
holding of regular meetings of the board and fix their time and place.
Section 3.05. Special meetings. Special meetings of the
board may be called by the chairman on three days' notice to each director,
either personally or by mail or by telegram. Special meetings shall be
called by the chairman or secretary in like manner and on like notice on
the written request of a majority of the directors or a majority of the
members of the executive committee.
Section 3.06. Quorum and voting. At all meetings of the
board the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except
as may be otherwise specifically provided by statute or the charter of
-3-
<PAGE>
the corporation or these bylaws. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 3.07. Telephone meetings. Members of the board of
directors or any committee thereof may participate in a meeting of such
board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at the meeting, except as may be
otherwise specifically provided by statute or the charter of the
corporation or these bylaws.
Section 3.08. Action without meeting. Unless otherwise
restricted by statute or the charter of the corporation or these bylaws,
any action required or permitted to be taken at any meeting of the board of
directors or of any committee thereof may be taken without a meeting if a
unanimous written consent which sets forth the action is signed by each
member of the board or committee, as the case may be, and filed with the
minutes of proceedings of the board or committee.
Section 3.09. Committees. The board of directors may, by
resolution passed by a majority of the entire board, designate an executive
committee and other committees, each committee to consist of two or more
directors of the corporation. In the absence of a member of a committee,
the members thereof present at any meeting, whether or not they constitute
a quorum, may appoint another member of the board of directors to act at
the meeting in the place of any such absent member.
Section 3.10. Executive committee. Unless otherwise
provided by resolution of the board of directors, the executive committee
shall have and may exercise all powers of the board of directors in the
management of the business and affairs of the corporation that may lawfully
be exercised by an executive committee, except the power to: (i) declare
dividends or distributions on stock; (ii) issue stock; (iii) recommend to
the stockholders any action which requires stockholder approval; (iv) amend
the bylaws; or (v) approve any merger or share exchange which does not
require stockholder approval.
Section 3.11. Other committees. To the extent provided by
resolution of the board of directors, other committees of the board shall
have and may exercise any of the powers that may lawfully be granted to the
executive committee.
Section 3.12. Minutes of committee meetings. Each
committee shall keep regular minutes of its meetings and report the same to
the board of directors when required.
Section 3.13. Expenses and compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting
of the board of directors and may be paid a fixed sum for attendance at
each meeting of the board of directors or a stated salary as director, or
both. No such payment shall preclude any director from serving the
-4-
<PAGE>
corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation
for attending committee meetings.
Section 3.14. Retirement of directors. Effective with the
elections of directors to be held at the annual meeting of stockholders in
1992, no person shall stand for election or reelection as a director of the
Fund if that person would be 75 years old or older at the date of the proxy
statement for the meeting of stockholders at which such election would take
place.
Section 3.15. Qualification of directors. Until November
1, 1998, at least 75% of the members of the board of directors shall not be
interested persons (as defined in section 2(a)(19) of the Investment
Company Act of 1940) of Duff & Phelps Investment Management Co., the
corporation's investment adviser.
ARTICLE IV
NOTICES
Section 4.01. Type of notice. Whenever, under the
provision of any statute or the charter of the corporation or these bylaws,
notice is required to be given to any director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address
as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail. Notice to directors may
also be given by telegram.
Section 4.02. Waiver of notice. Whenever the provisions
of any statute or the charter of the corporation or these bylaws require
notice of the time, place or purpose of a meeting of the board of directors
or a committee of the board, or of stockholders, each person who is
entitled to the notice waives notice if: (a) before or after the meeting he
signs a waiver of notice which is filed with the records of the meeting; or
(b) he is present at the meeting or, in the case of a stockholders'
meeting, is represented by proxy.
ARTICLE V
OFFICERS
Section 5.01. Offices. The officers of the corporation
shall be elected by the board of directors and shall be a chairman, a
president, one or more vice presidents, a secretary and a treasurer. The
board of directors may also appoint one or more assistant secretaries and
assistant treasurers. Any number of offices may be held by the same person,
unless the charter of the corporation or these bylaws otherwise provide,
except that no one may serve concurrently as both president and vice
president. A person who holds more than one office may not act in
-5-
<PAGE>
more than one capacity to execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified by more than one
officer.
Section 5.02. Annual election. The board of directors at
its first meeting after each annual meeting of stockholders shall elect a
chairman, a president, one or more vice presidents, a secretary and a
treasurer.
Section 5.03. Other officers and agents. The board of
directors may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to
time by the board.
Section 5.04. Remuneration. The salaries or other
remuneration, if any, of all officers of the corporation shall be fixed by the
board of directors.
Section 5.05. Term of office; removal; vacancies. The
officers of the corporation shall hold office until their respective
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors, when the board in its judgment finds
that the best interests of the corporation will be served by such action.
The removal of an officer or agent does not prejudice any of his contract
rights. Any vacancy occurring in any office of the corporation shall be
filled by the board of directors.
Section 5.06. The chairman. The chairman, who shall be
chosen from among the directors of the corporation, shall preside at all
meetings of the board of directors and stockholders. He shall perform such
other duties and have such other powers as the board of directors may from
time to time prescribe.
Section 5.07. The president and chief executive officer.
The president and chief executive officer shall be the chief executive
officer of the corporation, shall have general and active management of the
business of the corporation and shall see that all orders and resolutions
of the board of directors are carried into effect. In the absence of the
chairman or in the event of his inability or refusal to act, the president
shall preside at all meetings of the board of directors and stockholders.
The president may execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted
by law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to
some other officer or agent of the corporation.
Section 5.08. The vice presidents. In the absence of the
president or in the event of his inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the
president, and when so acting shall have all the powers of and be subject
-6-
<PAGE>
to all the restrictions upon the president. The vice presidents shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 5.09. The secretary. The secretary: (a) shall
attend all meetings of the board of directors and all meetings of
stockholders and record all the proceedings of the meetings in a book to be
kept for that purpose and shall perform like duties for the standing
committees when required; (b) shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the
board of directors, the chairman or the president, under whose supervision
the secretary shall be; and (c) shall have custody of the corporate seal of
the corporation and shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by his
signature.
Section 5.10. The assistant secretary. The assistant
secretary, or if there be more than one, the assistant secretaries in the
order determined by the board of directors (or if there be no such
determination, then in the order of their election), shall, in the absence
of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 5.11. The treasurer. The treasurer: (a) shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation; (b) shall deposit with the corporation's
custodian all moneys and other valuable effects in the name and to the
credit of the corporation; (c) shall direct the custodian to make such
disbursements of the funds of the corporation as may be ordered by the
board of directors, taking proper vouchers for such disbursements; and (d)
shall render to the president and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all his
transactions as treasurer and financial statements of the corporation.
Section 5.12. The assistant treasurer. The assistant
treasurer, or if there shall be more than one, the assistant treasurers in
the order determined by the board of directors (or if there be no such
determination, then in the order of their election), shall, in the absence
of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
CAPITAL STOCK
Section 6.01. Certificates of stock. Every holder of
stock in the corporation shall be entitled, upon request, to have a
certificate or certificates, signed by, or in the name of the corporation
by the chairman, the president or a vice president and the treasurer, an
-7-
<PAGE>
assistant treasurer, the secretary or an assistant secretary of the
corporation, certifying the number of full shares owned by him in the
corporation. No certificates shall be issued for fractional shares. Where a
certificate is countersigned by a transfer agent other than the corporation
or its employee, any other signature on the certificate may be facsimile.
In case any officer or transfer agent who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer or transfer agent before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer
or transfer agent at the date of issue.
Section 6.02. Lost certificates. The board of directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
The issuance of a new certificate under this section does not constitute an
overissue of the shares it represents.
Section 6.03. Transfers of stock. The shares of stock of
the corporation shall be transferable on the books of the corporation at
the request of the record holder thereof in person or by a duly authorized
attorney, upon presentation to the corporation or its transfer agent of a
duly executed assignment or authority to transfer, or power evidence of
succession, and, if the shares are represented by a certificate, a duly
endorsed certificate or certificates of stock surrendered for cancellation,
and with such proof of the authenticity of the signatures as the
corporation or its transfer agent may reasonably require. The transfer
shall be recorded on the books of the corporation, the old certificates, if
any, shall be cancelled, and the new record holder, upon request, shall be
entitled to a new certificate or certificates.
Section 6.04. Fixing of record date. The board of
directors may fix in advance a date as a record date for the determination
of the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend
or other distribution or allotment of any rights, or to exercise any rights
in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, provided that such record date shall
not be a date more than 90 days, and in the case of a meeting of
stockholders not less than 10 days, prior to the date on which the
particular action requiring such determination of stockholders is to be
taken. In such case only such stockholders as shall be stockholders of
record on the record date so fixed shall be entitled to such notice of, and
to vote at, such meeting or adjournment, or to give such consent, or to
receive payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take such
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other action, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after any such record date.
Section 6.05. Registered stockholders. The corporation
shall be entitled to treat the holder of record of shares as the holder in
fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by statute.
ARTICLE VII
CUSTODIAN
Section 7.01. Qualifications. The corporation shall at
all times employ, pursuant to a written contract, a bank or trust company
having an aggregate capital, surplus and undivided profits (as shown in its
last published report) of at least $2,000,000 as custodian to hold the
funds and securities of the corporation.
Section 7.02. Contract. Such contract shall be upon such
terms and conditions and may provide for such compensation as the board of
directors deems necessary or appropriate, provided such contract shall
further provide that the custodian shall deliver securities owned by the
corporation only upon sale of such securities for the account of the
corporation and receipt of payment therefor by the custodian or when such
securities may be called, redeemed, retired or otherwise become payable.
Such limitation shall not, however, prevent:
(a) the delivery of securities for
examination to the broker selling the same in accord with
the "street delivery" custom whereby such securities are
delivered to such broker in exchange for a delivery
receipt exchanged on the same day for an uncertified
check of such broker to be presented on the same day for
certification;
(b) the delivery of securities of an issuer
in exchange for or conversion into other securities alone
or cash and other securities pursuant to any plan of
merger, consolidation, reorganization, recapitalization
or readjustment of the securities of such issuer;
(c) the conversion by the custodian of
securities owned by the corporation pursuant to the
provisions of such securities into other securities;
(d) the surrender by the custodian of warrants,
rights or similar securities owned by the corporation in
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the exercise of such warrants, rights or similar securities,
or the surrender of interim receipts or temporary securities
for definitive securities;
(e) the delivery of securities as collateral
on borrowing effected by the corporation;
(f) the delivery of securities owned by the
corporation as a redemption in kind of securities issued
by the corporation.
The custodian shall deliver funds of the corporation only upon the purchase
of securities for the portfolio of the corporation and the delivery of such
securities to the custodian, but such limitation shall not prevent the
release of funds by the custodian for payment of interest, dividend
disbursements, taxes and management fees, for payments in connection with
the conversion, exchange or surrender of securities owned by the
corporation as set forth in sub-paragraphs (b), (c) and (d) above and for
operating expenses of the corporation.
Section 7.03. Termination of contract. The contract of
employment of the custodian shall be terminable by either party on 60 days'
written notice to the other party. Upon any termination, the board of
directors shall use its best efforts to obtain a successor custodian, but
lacking success in the appointment of a successor custodian, the question
of whether the corporation shall be liquidated or shall function without a
custodian shall be submitted to the stockholders before delivery of any
funds or securities of the corporation to any person other than a successor
custodian, including a temporary successor selected by the retiring
custodian. If a successor custodian is found, the retiring custodian shall
deliver funds and securities owned by the corporation directly to the
successor custodian.
Section 7.04. Agents of custodian. The provisions of any
other selection of these bylaws to the contrary notwithstanding, any
contract of employment of a custodian to hold the funds and securities of
the corporation may authorize the custodian, upon approval of the board of
directors, to appoint other banks or trust companies meeting the
requirements of this article, domestic and foreign (including domestic and
foreign branches), to perform all or a part of the duties of the custodian
under its contract with the corporation. In the case of foreign banks, no
authorization or appointment providing for the holding of funds or
securities of the corporation (other than in connection with the clearing
of transactions or exchanges of securities) shall become effective unless
permitted by an appropriate order, rule or written advice of the Securities
and Exchange Commission.
Section 7.05. Negotiable instruments. Except as otherwise
authorized by the board of directors, all checks and drafts for the payment
of money shall be signed in the name of the corporation by the custodian,
and all requisitions or orders for the payment of money by the custodian or
for the issue of checks and drafts therefor, all promissory notes, all
assignments of shares or securities standing in the name of the
corporation, and all requisitions or orders for the assignment of shares or
securities standing in the name of the custodian or its nominee, or for the
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execution of powers to transfer the same, shall be signed in the name of
the corporation by not less than two of its officers. Promissory notes,
checks or drafts payable to the corporation may be endorsed only to the
order of the custodian or its agent.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends.
(a) The board ofdirectors, from time to time as
they may deem advisable, may declare and pay dividends in cash or other property
of the corporation, out of any source available for dividends, to the
stockholders according to their respective rights and interests and in
accordance with the applicable provisions of the charter of the corporation.
(b) The board of directors may prescribe from
time to time that dividends declared are payable at the election of any of the
stockholders, either in cash or in shares of the corporation.
(c) The board of directors shall cause any
dividend payment to be accompanied by a written statement if paid wholly or
partly from any source other than:
(i) the corporation's accumulated
undistributed net income (determined in accordance with generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission then in effect) and not including profits or losses
realized upon the sale of securities or other properties; or
(ii) the corporation's net income so
determined for the current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation, and shall be in such form as the
Securities and Exchange Commission may prescribe.
Section 8.02. Fiscal year. The fiscal year of the
corporation shall end on December 31.
Section 8.03. Seal. The corporate seal shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Maryland".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or by placing the word "seal" adjacent to the signature
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of the authorized officer of the corporation. Any officer or director of
the corporation shall have authority to affix the corporate seal of the
corporation to any document requiring the same.
ARTICLE IX
AMENDMENTS
Section 9.01. General. Except as provided in section 9.02,
these bylaws may be altered, amended or repealed, and new bylaws may be adopted
solely by the board of directors, at any meeting of the board of directors.
Section 9.02. Amended by stockholders only. Sections 2.06
and 2.07 of article II, sections 3.04 and 3.15 of article III, article VII,
and sub-section 8.01(c) of article VIII of these bylaws may be altered,
amended or repealed only with the approval of the holders of a "majority of
the outstanding voting securities" of the corporation, as that term is
defined in section 2(a)(40) of the Investment Company Act of 1940.
ARTICLE X
CERTAIN PROVISIONS RELATING TO FITCH IBCA, INC.
Section 10.01. General Definitions. Capitalized terms
used in this Article X but not specifically defined herein shall have the
respective meanings assigned to them in the Articles Supplementary creating
Remarketed Preferred Stock Series A, Series B, Series C, Series D and
Series E, as amended (the "Articles Supplementary"), which definitions are
hereby incorporated by reference herein. The following terms shall have the
meanings set forth below for purposes of this Article X:
"Corporate Bonds" means debt securities issued by a
business entity.
"Discount Factor" means Discount Factor Supplied by
Fitch.
"Discount Factor Supplied by Fitch" means,
initially, for any asset held by the corporation, the
number set forth opposite such type of asset in the
following table (it being understood that any asset held
by the corporation and not listed in the following table
or in an amendment or supplement thereto shall have a
Discounted Value of zero):
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Discount
Factor (1)
----------
Type I Corporate Bonds with a remaining term to maturity of less than or
equal to 2 years......................................................1.16
Type I Corporate Bonds with a remaining term to maturity of more than
2 years, but less than or equal to 4 years............................1.26
Type I Corporate Bonds with a remaining term to maturity of more than
4 years, but less than 7 years........................................1.40
Type I Corporate Bonds with a remaining term to maturity of more than
7 years, but less than or equal to 12 years...........................1.44
Type I Corporate Bonds with a remaining term to maturity of more than
12 years, but less than or equal to 25 years..........................1.48
Type I Corporate Bonds with a remaining term to maturity of more than
25 years, but less than or equal to 30 years..........................1.52
Type I Corporate Bonds with a remaining term to maturity of more than
30 years, but less than or equal to 50 years..........................1.60
Type II Corporate Bonds with a remaining term to maturity of less than
or equal to 2 years...................................................1.25
Type II Corporate Bonds with a remaining term to maturity of more than
2 years, but less than or equal to 4 years............................1.26
Type II Corporate Bonds with a remaining term to maturity of more than
4 years, but less than or equal to 7 years............................1.43
Type II Corporate Bonds with a remaining term to maturity of more than
7 years, but less than or equal to 12 years...........................1.44
Type II Corporate Bonds with a remaining term to maturity of more than
12 years, but less than or equal to 25 years..........................1.51
Type II Corporate Bonds with a remaining term to maturity of more than
25 years, but less than or equal to 30 years..........................1.56
Type II Corporate Bonds with a remaining term to maturity of more than
30 years, but less than or equal to 50 years..........................1.65
Type III Corporate Bonds with a remaining term to maturity of more than
or equal to 2 years...................................................1.25
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Type III Corporate Bonds with a remaining term to maturity of more than
2 years, but less than or equal to 4 years............................1.29
Type III Corporate Bonds with a remaining term to maturity of more than
4 years, but less than or equal to 7 years............................1.46
Type III Corporate Bonds with a remaining term to maturity of more than
7 years, but less than or equal to 12 years...........................1.50
Type III Corporate Bonds with a remaining term to maturity of more than
12 years, but less than or equal to 25 years..........................1.55
Type III Corporate Bonds with a remaining term to maturity of more than
25 years, but less than or equal to 30 years..........................1.60
Type III Corporate Bonds with a remaining term to maturity of more than
30 years, but less than or equal to 50 years..........................1.70
Type IV Corporate Bonds with a remaining term to maturity of less than
or equal to 2 years...................................................1.27
Type IV Corporate Bonds with a remaining term to maturity of more than
2 years, but less than or equal to 4 years............................1.32
Type IV Corporate Bonds with a remaining term to maturity of more than
4 years, but less than or equal to 7 years............................1.52
Type IV Corporate Bonds with a remaining term to maturity of more than
7 years, but less than or equal to 12 years...........................1.57
Type IV Corporate Bonds with a remaining term to maturity of more than
12 years, but less than or equal to 25 years..........................1.63
Type IV Corporate Bonds with a remaining term to maturity of more than
25 years, but less than or equal to 30 years..........................1.69
Type IV Corporate Bonds with a remaining term to maturity of more than
30 years, but less than or equal to 50 years..........................1.80
Stocks
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Utility Stock............................................................2.00
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Utility Stocks (ADRs)....................................................2.50
Investment Grade REIT Stock..............................................2.15
Below Investment Grade or Unrated REIT Stock, capitalization greater
than $500,000,000.......................................... 2.50
Below Investment Grade or Unrated REIT Stock, capitalization less
than $500,000,000...........................................3.00
Preferred Stock rated AAA by Fitch.......................................1.66
Preferred Stock rated AA by Fitch........................................1.68
Preferred Stock rated A by Fitch.........................................1.71
Preferred Stock rated BBB by Fitch.......................................1.77
FNMA, FHLMC or GNMA Certificates
- -------------------------------------------------------------------------------
FNMA or FHLMC with 6.0% interest rate....................................1.70
FNMA or FHLMC with 7.0% interest rate....................................1.65
FNMA or FHLMC with 8.0% interest rate....................................1.59
FNMA or FHLMC with 9.0% interest rate....................................1.52
FNMA or FHLMC with 10.0% interest rate...................................1.40
GNMA with 6% interest rate...............................................1.80
GNMA with 7% interest rate...............................................1.70
GNMA with 8% interest rate...............................................1.64
GNMA with 9% interest rate...............................................1.57
GNMA with 10.0% interest.................................................1.45
U. S. Government Obligations having a remaining term to maturity of
up to one year .......................................................1.06
U. S. Government Obligations having a remaining term to maturity of
more than one year but not more than two years........................1.11
U. S. Government Obligations having a remaining term to maturity of
more than two years but not more than five years......................1.20
U. S. Government Obligations having a remaining term to maturity of
more than five years but not more than fifteen years..................1.45
U. S. Government Obligations having a remaining term to maturity of
more than fifteen years but not more than twenty-five years...........1.65
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U. S. Government Obligations having a remaining term to maturity of
more than twenty-five years but not more than forty years.............1.80
Cash held in segregated custody account at an F-1 + Institution..........1.00
Cash held in segregated custody account at an F-1 Institution.............1.00
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(1) In the case of Eligible Portfolio Property rated by Moody's or S&P, but
not rated by Fitch, the Discount Factor Supplied by Fitch shall be the
Discount Factor determined therefor in writing by Fitch. Absent such
written notification, the asset shall have a Discounted Value of zero.
Notwithstanding the foregoing, for so long as is required by Fitch to
maintain its then-current credit rating of the Original RP or Serial
RP, the Discount Factor Supplied by Fitch with respect to Eligible
Portfolio Property sold pursuant to a reverse repurchase agreement
with a remaining term to maturity of more than 25 days on the date of
determination of the Discounted Value of such Eligible Portfolio
Property shall be the current Discount Factor provided by Fitch to the
corporation in writing for the purpose of such determination.
"Discounted Value," with respect to any asset held by the
corporation as of any date, means the quotient of the Market
Value of such asset divided by the applicable Discount Factor
Supplied by Fitch, provided that in no event shall the Discounted
Value of any asset constituting Eligible Portfolio Property as of
any date exceed the unpaid principal balance or face amount of
such asset as of that date. With respect to the calculation of
the Discounted Value of any Utility Bond included in the
corporation's Eligible Portfolio Property, such calculation shall
be made using the criteria set forth in the definitions of
Utility Bonds and Market Value. With respect to the calculation
of the Discounted Value of any Utility Stock included in the
corporation's Eligible Portfolio Property such calculation shall
be made using the criteria set forth in the definitions of
Utility Stocks and Market Value. When calculating the aggregate
Discounted Value of the corporation's Eligible Portfolio Property
for comparison with the Fitch RP Basic Maintenance Amount, the
Discount Factors Supplied by Fitch shall be used. Notwithstanding
any other provision of the Articles Supplementary or these
bylaws, any Utility Bond that has a remaining maturity of more
than 30 years, and any asset as to which there is no Discount
Factor Supplied by Fitch either in the Articles Supplementary, in
an amendment or supplement thereof or in this Article X, shall
have a Discounted Value for purposes of determining the aggregate
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Discounted Value of the corporation's Eligible Portfolio Property
calculated using the Discount Factor Supplied by Fitch of zero.
"F-1+ Institution" means a financial
institution that has a debt rating of F-1+ by Fitch.
"Fitch" means Fitch IBCA, Inc.
"Fitch RP Basic Maintenance Amount" means,
initially, as of any date, the sum of (i) the aggregate
liquidation preference of the shares of RP outstanding and
shares of Other RP outstanding, (ii) to the extent not covered
in (i), the aggregate amount of accumulated but unpaid cash
dividends with respect to the shares of RP outstanding and
shares of Other RP outstanding, (iii) the aggregate principal
amount of, and an amount equal to accrued but unpaid interest on
any Notes outstanding, (iv) the aggregate Projected Dividend
Amount, and (v) an amount equal to the projected expenses of the
corporation (including, without limitation, fee and
indemnification obligations of the corporation incurred in
connection with any commercial paper program undertaken by the
corporation or with any credit facility related thereto) for the
next three month period. The Board of Directors shall have the
authority to adjust, modify, alter or change from time to time
the initial elements comprising the Fitch RP Basic Maintenance
Amount if the Board of Directors determines and Fitch advises
the corporation in writing that such adjustment, modification,
alteration or change will not adversely affect its then-current
rating on the RP.
"RP Basic Maintenance Amount" means the Fitch
RP Basic Maintenance Amount.
Section 10.02. Eligible Assets. The following assets,
specifically Preferred Stock, Type I Corporate Bonds, Type II Corporate
Bonds, Type III Corporate Bonds, and Type IV Corporate Bonds, having met
the requirements set forth in the definition of "Other Permitted
Securities" in the Articles Supplementary, shall be included as Other
Permitted Securities for purposes of determining maintenance of the Fitch
RP Basic Maintenance Amount.
"Below Investment Grade REIT Stock" means an
equity security issued by a REIT rated BB+ or lower by Fitch.
"Preferred Stock" means securities of an
issuer senior in preference to the common equity of the issuer.
"Type I Corporate Bonds" as of any date
means Corporate Bonds rated AAA by Fitch.
"Type II Corporate Bonds" as of any date
means Corporate Bonds rated AA- to AA+ by Fitch.
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"Type III Corporate Bonds" as of any date
means Corporate Bonds rated A- to A+ by Fitch.
"Type IV Corporate Bonds" as of any date
means Corporate Bonds rated BBB- to BBB+ by Fitch.
"Unrated REIT Stock" shall mean an equity
security issued by a REIT that is not rated by the Ratings
Agencies or by Fitch.
Section 10.03. RP Basic Maintenance Amount. (a) The
corporation shall maintain, on each Valuation Date, Eligible Portfolio
Property having an aggregate Discounted Value at least equal to the RP
Basic Maintenance Amount.
(b) On or before 5:00 p.m., New York City
time, on the third Business Day after each Valuation Date, the
corporation shall complete and deliver to the Remarketing Agent
and the Paying Agent an RP Basic Maintenance Report, which will
be deemed to have been delivered to the Remarketing Agent and the
Paying Agent if the Remarketing Agent and the Paying Agent
receive a copy or telecopy, telex or other electronic
transcription thereof and on the same day the corporation mails
to the Remarketing Agent and the Paying Agent for delivery on the
next Business Day the full RP Basic Maintenance Report. A failure
by the corporation to deliver an RP Basic Maintenance Report
under this paragraph 10.03(b) without the prior consent of the
Remarketing Agent and the Paying Agent shall be deemed to be
delivery of an RP Basic Maintenance Report indicating the
Discounted Value for all assets of the corporation is less than
the RP Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date
of delivery to the Remarketing Agent and the Paying Agent of an RP
Basic Maintenance Report in accordance with paragraph 10.03(b)
above relating to a Quarterly Valuation Date, the Independent
Accountant will confirm in writing to the Remarketing Agent and
the Paying Agent (A) the mathematical accuracy of the
calculations reflected in such Report, (B) that, in such Report,
the corporation determined in accordance with the Articles
Supplementary the assets of the corporation which constitute
Eligible Portfolio Property at such Quarterly Valuation Date, (C)
that, in such Report, the corporation determined in accordance
with the Articles Supplementary whether the corporation had, at
such Quarterly Valuation Date, Eligible Portfolio Property of an
aggregate Discounted Value at least equal to the RP Basic
Maintenance Amount, (D) with respect to the Fitch rating on
Utility Bonds and Senior Debt obligations, issuer name, issue
size and coupon rate listed in such Report, that information has
been traced and agrees with the information listed in the Fitch
IBCA Ratings Book (in the event such information does not agree
or such information is not listed in the Fitch IBCA Ratings Book,
the Independent Accountant will inquire of Fitch what such
information is and provide a listing in their letter of such
difference), and (E) with respect to the lower of two bid prices
(or alternative permissible factors used in calculating the
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Market Value) provided by the custodian of the corporation's
assets to the corporation for purposes of valuing securities in
the corporation's portfolio, the Independent Accountant has
traced the price used in such Report to the lower of the two bid
prices listed in the Report provided by such custodian and
verified that such information agrees (in the event such
information does not agree, the Independent Accountant will
provide a listing in its letter of such differences) (such
confirmation is herein called the "Accountant's Confirmation").
If any Accountant's Confirmation delivered pursuant to this
paragraph 10.03(c) shows that an error was made in the RP Basic
Maintenance Report for a Quarterly Valuation Date, or shows that
a lower aggregate Discounted Value for the aggregate of all
Eligible Portfolio Property of the corporation was determined by
the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and
shall be binding on the corporation, and the corporation shall
accordingly amend the RP Basic Maintenance Report to the
Remarketing Agent and Paying Agent promptly following receipt by
the Remarketing Agent and the Paying Agent of such Accountant's
Confirmation.
ARTICLE XI
CERTAIN PROVISIONS RELATING TO RATINGS ORGANIZATIONS
Section 11.01 General Definitions. Capitalized terms used
in this Article XI but not specifically defined herein shall have the
respective meanings assigned them in the Articles Supplementary, which
definitions are hereby incorporated by reference herein. The following
capitalized terms shall have the following meanings for purposes of this
Article XI, whether used in the singular or plural.
"REIT" means an entity qualifying as a real
estate investment trust under the United States Internal Revenue
Code of 1986, as amended.
"NYSE" means the New York Stock Exchange.
"AMEX" means the American Stock Exchange.
"ADR" means American Depository Receipts.
"National Securities Exchange" means the
NYSE, AMEX, Midwest Stock Exchange, Philadelphia Stock Exchange,
Boston Stock Exchange, NASDAQ System or any other national
securities exchange.
"Market Value" means, as to any S&P Eligible
REIT Share, S&P Eligible Utility ADR, S&P Eligible Preferred Stock
and S&P Eligible Corporate Bond, the value calculated by
reference to the highest closing price on a National Securities
Exchange on the date preceding any relevant date of
determination.
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"MTNP" means, initially, a medium term note
program.
"Yankee Bond" means, initially, a debt
security which is issued by a foreign government, province,
supranational agency or foreign corporation.
Section 11.02. S&P Eligible Asset Definitions. The
following assets, specifically S&P Eligible REIT Shares, S&P Eligible
Preferred Stock, S&P Eligible Corporate Bonds and S&P Eligible Utility
ADRs, having met the requirements set forth in the definition of "Other
Permitted Securities" in the Articles Supplementary, shall be included as
"Other Permitted Securities" for purposes of determining maintenance of the
"S&P RP Basic Maintenance Amount".
"S&P Eligible REIT Share" means, initially,
an equity security issued by a REIT. So long as the shares of RP
are rated AAA or higher by S&P, no equity security held by the
Corporation shall be deemed an S&P Eligible REIT Share unless (i)
such equity security has been listed or traded for more than 15
months on a National Securities Exchange and (ii) the aggregate
Market Value of all such equity securities outstanding is equal
to or exceeds $100,000,000. So long as the shares of RP are rated
AAA or higher by S&P, no equity security held by the Corporation
shall be deemed an S&P Eligible REIT Share to the extent (but
only to the proportionate extent) (i) the amount thereof held by
the Corporation exceeds the lesser of (x) 5% of the issued and
outstanding equity securities of the REIT issuing such S&P
Eligible REIT Shares and (y) the average weekly trading volume
for the past month preceding any relevant date of determination;
and (ii) the aggregate Market Value of the amount thereof held by
the Corporation exceeds 5% of the aggregate Market Value of the
issued and outstanding equity securities of the REIT issuing such
equity security.
"S&P Eligible Utility ADRs" means, initially,
ADRs issued by public utility companies, which ADRs have been
listed or traded for more than 15 months on a National Securities
Exchange. So long as the shares of the RP are rated AAA or higher
by S&P, no ADR held by the Corporation shall be deemed an S&P
Eligible Utility ADR unless the aggregate Market Value of all
such ADRs outstanding is equal to or exceeds $100,000,000. So
long as the shares of RP are rated AAA or higher by S&P, no ADR
held by the Corporation shall be deemed an S&P Eligible Utility
ADR to the extent (but only to the proportionate extent) (i) the
amount thereof held by the Corporation exceeds the lesser of (x)
5% of the issued and outstanding S&P Eligible Utility ADRs of the
public utility company issuing such S&P Eligible Utility ADRs and
(y) the average weekly trading volume for the past month
preceding any relevant date of determination; and (ii) the
aggregate Market Value of the amount thereof held by the
Corporation does not exceed 5% of the aggregate Market Value of
the issued and outstanding equity securities of the public
utility company issuing such equity security.
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"S&P Eligible Preferred Stock" means, initially,
preferred stock (i) rated BBB or higher by S&P or (ii) issued by
an entity having debt obligations outstanding with senior
unsecured or subordinated unsecured debt ratings of BBB or higher
by S&P; provided, however, that no share of Yankee Preferred
Stock (as such term is defined by S&P from time to time) will be
considered an S&P Eligible Preferred Stock unless such Yankee
Preferred Stock is (x) rated A or higher by S&P or (y) issued by
an entity having debt obligations outstanding with senior
unsecured or subordinated unsecured debt ratings of A or higher
by S&P. So long as the shares of RP are rated AAA or higher by
S&P, no preferred stock owned by the Corporation shall be deemed
an S&P Eligible Preferred Stock to the extent (but only to the
proportionate extent) (i) the aggregate of preferred stock owned
by the Corporation of an issuer having debt obligations
outstanding with a senior debt rating of A or higher by S&P
exceeds 5% of the aggregate Market Value of Eligible Portfolio
Property owned by the Corporation; (ii) the aggregate Market
Value of preferred stock owned by the Corporation of an issuer
having debt obligations outstanding with a senior debt rating of
BBB by S&P exceeds 2.5% of the aggregate Market Value of Eligible
Portfolio Property owned by the Corporation; and (iii) the
aggregate Market Value of preferred stock owned by the
Corporation in any one industry (as defined by S&P from time to
time) exceeds 20% of the aggregate Market Value of the securities
owned by the Corporation. In addition, so long as the shares of
RP are rated AAA or higher by S&P, no preferred stock held by the
Corporation shall be deemed an S&P Eligible Preferred Stock
unless such Preferred Stock meets the following conditions:
(i) shares of the issuer (or if the issuer
is a special purpose corporation, the parent
of the issuer) of such preferred stock are
traded on the NYSE or the AMEX;
(ii) except in the case of Yankee Preferred
Stock, such preferred stock is cumulative;
(iii) such preferred stock is nonconvertible;
(iv) such preferred stock has no attached
warrants;
(v) the aggregate Market Value of all
outstanding equity securities of the issues
of such preferred stock is at least
$500,000;
(vi) such preferred stock (x) has an initial
issue size of at least $50 million or (y) is
issued by an entity with preferred stock
outstanding with an aggregate Market Value
of at least $50 million;
(vii) the issuer of such preferred stock
pays cash dividends in U.S. denominated
dollars and has paid cash dividends
consistently over the previous three years
(unless the issuer of the preferred stock has
-21-
<PAGE>
no relevant history of issuing dividends, in
which case the issuer has received an A or
higher debt or preferred stock rating from
S&P);
(viii) the aggregate Market Value of all
equity securities outstanding of the issuer
of the preferred stock is equal to or
greater than $50 million;
(ix) the aggregate Market Value of such
preferred stock (calculated by reference to
the closing price on the Securities
Exchanges for such preferred stock on the
day preceding any relevant date of
determination) owned by the Corporation is
no less than $500,000 and no more than
$5,000,000, unless such preferred stock is
floating rate preferred stock where an
auction restricts the Corporation's
ownership of such floating rate preferred
stock;
(x) if such preferred stock is floating rate
preferred stock, (x) such floating rate
preferred stock has a dividend period of
less than or equal to 49 days, unless such
preferred stock is a new issue, in which
case, the first dividend period of such new
issue is up to 64 days; and (y) such
floating rate preferred stock has not been
subject to a failed auction;
(xi) if such preferred stock is adjustable
rate preferred stock, the aggregate Market
Value of all adjustable rate preferred stock
owned by the Corporation does not exceed 10%
of the Other Permitted Securities owned by
the Corporation.
"S&P Eligible Corporate Bonds" means,
initially, debt securities issued by a corporation having
a maturity of thirty years or less. So long as the shares
of RP are rated AAA or higher by S&P, no debt security
held by the Corporation shall be deemed an S&P Eligible
Corporate Bond unless (i) in the case of a debt security
rated CCC or lower by S&P, such debt security is a
subordinated debt security with an implied senior rating
by S&P of B- or higher and (ii) at least two dealers
registered with the National Association of Securities
Dealers offer bids on such debt security. In addition, so
long as the shares of RP are rated AAA or higher by S&P,
no debt security held by the Corporation shall be deemed
an S&P Eligible Corporate Bond unless the following
conditions are met:
(i) at least 80% of the aggregate Market
Value of debt securities owned by the
Corporation which are rated BBB or lower
have an original issue size of $100 million
or higher and the remaining 20% have an
original issue size no lower than $50
million;
-22-
<PAGE>
(ii) in the case of a debt security issued
under a MTNP such debt security is (x) rated
BBB or higher by S&P and has an original
issue size equal to the maximum number of
medium term notes authorized by the issuer
pursuant to such MTNP and (y) part of a
series of medium term notes which exceeds $5
million in aggregate Market Value;
(iii) in the case of a Yankee Bond, such
Yankee Bond is rated A or higher by S&P and
the aggregate of such Yankee Bonds owned by
the Corporation does not exceed 25% of the
aggregate Market Value of securities owned
by the Corporation;
(iv) financial statements are publicly
available for the issuer of such debt
securities and such debt securities are
registered under the Securities Act of 1933;
(v) the terms of such debt securities
provide for periodic interest payments in
cash over the life of the security;
(vi) such debt securities are not
convertible or exchangeable into capital of
the issuer at any time; provided that 10% of
such debt securities outstanding may be
subject to exchange or tender offer; and
(vii) in the case of Type IV S&P Eligible
Corporate Bonds, the aggregate Market Value
of such debt securities issued by companies
engaged principally in any one industry (as
defined by S&P) does not exceed 20% of the
aggregate Market Value of all securities
owned by the Corporation.
"Type I S&P Eligible Corporate Bonds" means,
initially, S&P Eligible Corporate Bonds rated AAA by S&P.
"Type II S&P Eligible Corporate Bonds"
means, initially, S&P Eligible Corporate Bonds rated AA
by S&P.
"Type III S&P Eligible Corporate Bonds"
means, initially, S&P Eligible Corporate Bonds rated A by
S&P.
"Type IV S&P Eligible Corporate Bonds"
means, initially, S&P Eligible Corporate Bonds rated BBB
by S&P.
Section 11.03. Discount Factors Supplied by S&P. The
following Discount Factors, having been supplied by S&P, shall be "Discount
Factors Supplied by S&P" as defined in the Articles Supplementary for
-23-
<PAGE>
purposes of calculating the "Discounted Value" of the assets for purposes
of determining maintenance of the S&P RP Basic Maintenance Amount".
S&P Eligible REIT Shares which have been outstanding for
more than eighteen (18) months 2.52
S&P Eligible REIT Shares which have been outstanding for
eighteen (18) or fewer months 3.25
S&P Eligible Utility ADRs which have been outstanding for
more than eighteen (18) months 2.52
S&P Eligible Utility ADRs which have been outstanding for
eighteen (18) or fewer months 3.25
Type I S&P Eligible Corporate Bonds 1.50
Type II S&P Eligible Corporate Bonds 1.55
Type III S&P Eligible Corporate Bonds 1.60
Type IV S&P Eligible Corporate Bonds 1.65
Type V S&P Eligible Corporate Bonds 1.70
Type VI S&P Eligible Corporate Bonds 1.80
Type VII S&P Eligible Corporate Bonds 1.90
Type VIII S&P Eligible Corporate Bonds 2.05
Type IX S&P Eligible Corporate Bonds 2.20
S&P Eligible Preferred Stock (Sinking Fund, Fixed Rate,
Perpetual or Floating Rate) 2.40
S&P Eligible Preferred Stock (Adjustable or Auction Rate) 4.00
Section 11.04. Moody's Eligible Asset Definitions. The
following assets, specifically Auction Rate Preferred Stock, Hybrid
Securities, Preferred Stock, Type I REIT Shares, Type I Utility ADRs,
Industrial Bonds and Utility Preferred Stock, having met the requirements
set forth in the definition of "Other Permitted Securities" in the Articles
Supplementary, shall be included as "Other Permitted Securities" for
purposes of determining maintenance of the "Moody's RP Basic Maintenance
Amount".
"Auction Rate Preferred Stock" means,
initially, preferred stock rated a3 or higher which is
issued by a company which has paid dividends during the
preceding three year period.
-24-
<PAGE>
"Convertible Preferred Stock" means,
initially, Utility Preferred Stock which is mandatorily
convertible into common equity of the company issuing
such securities.
"Hybrid Preferred Stock" means monthly
income Preferred Stock, quarterly income Preferred Stock
and other nonstandard Preferred Stock rated a3 or higher
which is issued by a company which has paid dividends
during the preceding three years.
"Industrial Bond" means, initially,
industrial revenue bonds and industrial development
bonds.
"Preferred Stock" means, initially,
preferred stock rated a3 or higher which is (i) not
convertible into common equity and (ii) issued by a
non-utility company which has paid dividends during the
preceding 3 years.
"Type I Industrial Bonds" as of any date
means Industrial Bonds rated Aaa by Moody's.
"Type II Industrial Bonds" as of any date
means Industrial Bonds rated Aa3 by Moody's.
"Type III Industrial Bonds" as of any date
means Industrial Bonds rated A3 by Moody's.
"Type IV Industrial Bonds" as of any date
means Industrial Bonds rated Baa3 by Moody's.
"Type I REIT Shares" means, initially,
equity securities issued by REITs having debt obligations
outstanding with senior unsecured or subordinated
unsecured debt ratings of Baa3 or higher from Moody's. So
long as the shares of RP are rated Baa3 or higher by
Moody's, no equity security held by the Corporation shall
be deemed a REIT Share unless (i) such equity security is
traded on the NYSE or the AMEX, (ii) the aggregate value
of all such equity securities outstanding (calculated
based upon the highest of the closing prices on the NYSE
or the AMEX as applicable, for such equity security on
the day preceding any relevant date of determination) is
equal to or exceeds $500,000,000 and (iii) the REIT which
issues such equity security has paid dividends for all
periods since it first qualified as a REIT. In addition,
so long as the shares of RP are rated Baa3 or higher by
Moody's, no equity security held by the Corporation shall
be deemed a Type I REIT Share to the extent (but only to
the proportionate extent) the amount thereof held by the
Corporation exceeds the lesser of (i) 5% of the issued
and outstanding equity securities of the REIT issuing
such equity security and (ii) the average weekly trading
volume thereof for the 26 week period immediately
preceding any relevant date of determination.
-25-
<PAGE>
"Type I Utility ADRs" means, initially,
ADRs, which are traded on the NYSE or the AMEX with
respect to equity securities issued by public utility
companies having U.S. dollar denominated debt obligations
outstanding with senior unsecured or subordinated
unsecured debt ratings of Baa3 or higher from Moody's. In
addition, so long as the shares of RP are rated Baa3 or
higher by Moody's, no equity security held by the
Corporation shall be deemed a Type I Utility ADR to the
extent (but only to the proportionate extent) the amount
thereof held by the Corporation exceeds the lesser of (i)
5% of the issued and outstanding equity securities of the
utility company issuing such equity security and (ii) the
average weekly trading volume thereof for the 26 week
period immediately preceding any relevant date of
determination.
"Utility Preferred Stock" means, initially,
preferred stock rated a3 or higher which is issued by a
public utility company which had paid dividends during
the preceding three years.
Section 11.05. Discount Factors Supplied by Moody's. The
following Discount Factors, having been supplied by Moody's, shall be
"Discount Factors Supplied by Moody's" as defined in the Articles
Supplementary for purposes of calculating the "Discounted Value" of the
assets for purposes of determining maintenance of the "Moody's RP Basic
Maintenance Amount".
Discount Factor(1)
------------------
Auction Rate Preferred Stock 3.50
Convertible Preferred Stock 2.00
Hybrid Preferred Stock 3.50
Preferred Stock 2.35
Type I Industrial Bonds having a remaining
term to maturity of one year or less: 1.20
Type I Industrial Bonds having a remaining
term to maturity of more than one year
but not more than two years: 1.27
Type I Industrial Bonds having a remaining
term to maturity of more than two years
but not more than three years: 1.32
Type I Industrial Bonds having a remaining
term to maturity of more than three
years but not more than four years: 1.38
Type I Industrial Bonds having a remaining
term to maturity of more than four
years but not more than five years: 1.44
-26-
<PAGE>
Type I Industrial Bonds having a remaining
term to maturity of more than five
years but not more than seven years: 1.53
Type I Industrial Bonds having a remaining
term to maturity of more than seven
years but not more than ten years: 1.61
Type I Industrial Bonds having a remaining
term to maturity of more than ten
years but not more than 15 years: 1.69
Type I Industrial Bonds having a remaining
term to maturity of more than 15
years but not more than 20 years: 1.76
Type I Industrial Bonds having a remaining
term to maturity of more than 20
years but less than 30 years: 1.79
Type II Industrial Bonds having a remaining
term to maturity of one year or less: 1.24
Type II Industrial Bonds having a remaining
term to maturity of more than one year
but not more than two years: 1.31
Type II Industrial Bonds having a remaining
term to maturity of more than two years
but not more than three years: 1.38
Type II Industrial Bonds having a remaining
term to maturity of more than three
years but not more than four years: 1.44
Type II Industrial Bonds having a remaining
term to maturity of more than four
years but not more than five years: 1.50
Type II Industrial Bonds having a remaining
term to maturity of more than five
years but not more than seven years: 1.60
Type II Industrial Bonds having a remaining
term to maturity of more than seven
years but not more than ten years: 1.70
Type II Industrial Bonds having a remaining
term to maturity of more than ten
years but not more than 15 years: 1.76
-27-
<PAGE>
Type II Industrial Bonds having a remaining term
to maturity of more than 15 years but
more than 20 years: 1.84
Type II Industrial Bonds having a remaining
term to maturity of more than 20 years
but not more than 30 years: 1.87
Type III Industrial Bonds having a remaining
term to maturity of one year or less: 1.29
Type III Industrial Bonds having a remaining
term to maturity of more than one year
but not more than two years: 1.38
Type III Industrial Bonds having a remaining
term to maturity of more than two
years but not more than three years: 1.44
Type III Industrial Bonds having a remaining
term to maturity of more than three
years but not more than four years: 1.51
Type III Industrial Bonds having a remaining
term to maturity of more than four
years but not more than five years: 1.57
Type III Industrial Bonds having a remaining
term to maturity of more than five
years but not more than seven years: 1.67
Type III Industrial Bonds having a remaining
term to maturity of more than seven
years but not more than ten years: 1.77
Type III Industrial Bonds having a remaining
term to maturity of more than ten
years but not more than 15 years: 1.84
Type III Industrial Bonds having a remaining
term to maturity of more than 15
years but not more than 20 years: 1.92
Type III Industrial Bonds having a remaining
term to maturity of more than 20
years but not more than 30 years: 1.95
Type IV Industrial Bonds having a remaining
term to maturity of one year or less: 1.36
-28-
<PAGE>
Type IV Industrial Bonds having a remaining
term to maturity of more than one year
but not more than two years: 1.44
Type IV Industrial Bonds having a remaining
term to maturity of more than two years
but not more than three years: 1.50
Type IV Industrial Bonds having a remaining
term to maturity of more than three years
but not more than four years: 1.57
Type IV Industrial Bonds having a remaining
term to maturity of more than four years
but not more than five years: 1.63
Type IV Industrial Bonds having a remaining
term to maturity of more than five
years but not more than seven years: 1.74
Type IV Industrial Bonds having a remaining
term to maturity of more than seven
years but not more than ten years: 1.83
Type IV Industrial Bonds having a remaining
term to maturity of more than ten
years but not more than 15 years: 1.92
Type IV Industrial Bonds having a remaining
term to maturity of more than 15
years but not more than 20 years: 2.02
Type IV Industrial Bonds having a remaining
term to maturity of more than 20
years but not more than 30 years: 2.03
Type I REIT Shares: 3.00
Type I Utility ADRs issued by an entity organized
under the laws of Argentina or any political
subdivision thereof: 5.00
Type I Utility ADRs issued by an entity
organized under the laws of Australia 2.00
or any political subdivision thereof:
Type I Utility ADRs issued by an entity
organized under the laws of Belgium
or any political subdivision thereof: 2.00
-29-
<PAGE>
Type I Utility ADRs issued by an entity
organized under the laws of Brazil
or any political subdivision thereof: 4.20
Type I Utility ADRs issued by an entity
organized under the laws of Canada
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Chile or
any political subdivision thereof: 3.00
Type I Utility ADRs issued by an entity
organized under the laws of Denmark
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of France or
any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Germany
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Greece
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Italy
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Mexico
or any political subdivision thereof: 4.00
Type I Utility ADRs issued by an entity
organized under the laws of Netherlands
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Peru or
any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Portugal
or any political subdivision thereof: 2.00
Type I Utility ADRs issued by an entity
organized under the laws of Spain
or any political subdivision thereof: 2.00
-30-
<PAGE>
Type I Utility ADRs issued by an entity
organized under the laws of the United Kingdom
or any political subdivision thereof: 2.00
Utility Preferred Stock 1.60
Section 11.06. Revised Definitions. The definitions of
"Utility Bonds" and "Utility Stocks" set forth in the Articles
Supplementary are hereby modified to delete the requirement that the
issuers of such securities be "state regulated".
Section 11.07. Initial Elements of Moody's RP Basic
Maintenance Amount. In lieu of the definition in Part I, Paragraph 1,
Definitions, of the Articles, the following definition of "Moody's RP Basic
Maintenance Amount," having been approved by Moody's, shall be used for
purposes of the Articles:
"Moody's RP Basic Maintenance Amount" means,
initially, as of any date, the sum of (i)
the aggregate liquidation preference of the
shares of RP outstanding and shares of Other
RP outstanding, (ii) to the extent not
covered in (i), the aggregate amount of
accumulated but unpaid cash dividends with
respect to the shares of RP outstanding and
shares of Other RP outstanding, (iii) any
Rights due and payable and any equivalent
rights to receive cash with respect to Other
RP which are due and payable, (iv) an amount
equal to the product of (x) three and (y)
the principal amount of the Corporation's
loan from the Aid Association for Lutherans
then outstanding, (v) an amount equal to the
sum of (x) the amount of accrued but unpaid
interest on the principal amount of the
Corporation's loan from the Aid Association
for Lutherans then outstanding and (y) an
amount equal to 70 days of additional
accrued interest on such loan at the
then-current interest rate borne by such
loan, (vi) the aggregate principal amount of
any other then outstanding indebtedness of
the Corporation for money borrowed, (vii) an
amount equal to the sum of (x) the aggregate
accrued but unpaid interest on the
indebtedness referred to in the foregoing
clause (vi) and (y) an amount equal to 70
days of additional accrued interest on such
indebtedness at the then-current interest
rate(s) borne by such indebtedness, (viii)
the aggregate Projected Dividend Amount,
(ix) redemption premium, if any, and (x) the
greater of $200,000 or an amount equal to
projected expenses of the Corporation
(including, without limitation, fee and
indemnification obligations of the
Corporation incurred in connection with any
commercial paper program undertaken by the
Corporation or with any credit facility
related thereto) for the next three month
period. The Board of Directors shall have
the authority to adjust, modify, alter or
change from time to time the initial
elements comprising the Moody's RP Basic
Maintenance Amount if the Board of Directors
-31-
<PAGE>
determines and Moody's advises the
Corporation in writing that such adjustment,
modification, alteration or change will not
adversely affect its then-current rating on
the RP.
-32-
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,388,096,437
<INVESTMENTS-AT-VALUE> 2,715,296,222
<RECEIVABLES> 32,062,869
<ASSETS-OTHER> 84,063,137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,831,422,228
<PAYABLE-FOR-SECURITIES> 7,074,905
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 192,655,853
<TOTAL-LIABILITIES> 199,730,758
<SENIOR-EQUITY> 500,000,000
<PAID-IN-CAPITAL-COMMON> 1,833,560,113
<SHARES-COMMON-STOCK> 205,714,255
<SHARES-COMMON-PRIOR> 202,936,881
<ACCUMULATED-NII-CURRENT> 2,167,997
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (31,442,139)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 327,199,785
<NET-ASSETS> 2,831,422,228
<DIVIDEND-INCOME> 151,015,099
<INTEREST-INCOME> 57,900,953
<OTHER-INCOME> 1,071,605
<EXPENSES-NET> 29,786,605
<NET-INVESTMENT-INCOME> 180,201,052
<REALIZED-GAINS-CURRENT> 104,910,892
<APPREC-INCREASE-CURRENT> (11,148,041)
<NET-CHANGE-FROM-OPS> 273,963,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 180,348,430
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2,777,374
<NET-CHANGE-IN-ASSETS> 121,656,778
<ACCUMULATED-NII-PRIOR> 2,315,375
<ACCUMULATED-GAINS-PRIOR> (136,353,031)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,713,237
<INTEREST-EXPENSE> 7,766,994
<GROSS-EXPENSE> 29,786,605
<AVERAGE-NET-ASSETS> 2,536,151,785
<PER-SHARE-NAV-BEGIN> 9.90
<PER-SHARE-NII> 0.88
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> 0.88
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<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 139,583,333
<AVG-DEBT-PER-SHARE> 0.68
</TABLE>
