<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
SECURITIES ACT FILE NO. 333-10851
INVESTMENT COMPANY ACT FILE NO. 811-05012
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- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ PRE-EFFECTIVE AMENDMENT NO. 1
/ / POST-EFFECTIVE AMENDMENT NO.
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 10
-----------------
BEA INCOME FUND, INC.
(Exact name of registrant as specified in its charter)
---------------------
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(212) 832-2626
(Registrant's telephone number, including area code)
---------------------
DANIEL H. SIGG
CHIEF EXECUTIVE OFFICER
BEA INCOME FUND, INC.
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(Name and address of agent for service)
---------------------
WITH COPIES TO:
<TABLE>
<S> <C>
DANIEL SCHLOENDORN, ESQ. THOMAS A. DECAPO, ESQ.
WILLKIE FARR & GALLAGHER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE CITICORP CENTER ONE BEACON STREET
153 EAST 53RD STREET BOSTON, MASSACHUSETTS 02108
NEW YORK, NEW YORK 10022
</TABLE>
---------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
---------------------
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box. /X/
It is proposed that this filing will become effective (check appropriate
box)
/ / when declared effective pursuant to Section 8(c)
If appropriate, check the following box:
/ / This amendment designates a new effective date for a previously filed
registration statement.
/ / This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is .
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE FEE (2)
<S> <C> <C> <C> <C>
Shares of Common Stock, par value $.001
per share................................ 10,160,570 $8.31 $84,434,336.70 $29,115.29
</TABLE>
(1) As calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended. Based on the average of the high and low sales prices reported on
the New York Stock Exchange on August 21, 1996.
(2) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
BEA INCOME FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- --------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
PART A -- Information Required in a Prospectus
1. Outside Front Cover................................ Front Cover Page
2. Inside Front and Outside Back Cover Page........... Front Cover Page
3. Fee Table and Synopsis............................. Prospectus Summary; Fee Table
4. Financial Highlights............................... Financial Highlights
5. Plan of Distribution............................... Front Cover Page; Prospectus Summary; The Offer;
Distribution Arrangements
6. Selling Shareholders............................... Not Applicable
7. Use of Proceeds.................................... Use of Proceeds
8. General Description of the Registrant.............. Front Cover Page; Prospectus Summary; The Fund;
Investment Objective and Policies; Risk Factors
and Special Considerations; Common Stock; Net
Asset Value
9. Management......................................... Management of the Fund; Portfolio Transactions;
Custodian and Transfer and Dividend-Paying Agent
and Registrar
10. Capital Stock, Long-Term Debt and Other
Securities........................................ The Offer; Common Stock; Dividends and
Distributions; Dividend Reinvestment and Cash
Purchase Plan; Net Asset Value; Taxation
11. Defaults and Arrears on Senior Securities.......... Not Applicable
12. Legal Proceedings.................................. Not Applicable
13. Table of Contents of the Statement of Additional
Information....................................... Table of Contents of the Statement of Additional
Information
PART B -- Information required in a Statement of Additional Information
14. Cover Page......................................... Front Cover Page
15. Table of Contents.................................. Front Cover Page
16. General Information and History.................... General Information
17. Investment Objective and Policies.................. Investment Objective and Policies; Investment
Restrictions
18. Management......................................... Management of the Fund
19. Control Persons and Principal Holders of
Securities........................................ Common Stock
20. Investment Advisory and Other Services............. Management of the Fund
21. Brokerage Allocation and Other Practices........... Portfolio Transactions
22. Tax Status......................................... Taxation
23. Financial Statements............................... Financial Statements
PART C -- Information required to be included in Part C is set forth under the appropriate item, so numbered, in
Part C to this Registration Statement.
</TABLE>
<PAGE>
PROSPECTUS
BEA INCOME FUND, INC.
8,128,456 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
-----------
BEA Income Fund, Inc. (the "Fund") is issuing to its shareholders of record
("Record Date Shareholders") as of the close of business on September 27, 1996
(the "Record Date") non-transferable rights ("Rights") entitling the holders
thereof to subscribe for an aggregate of 8,128,456 shares ("Shares") of the
Fund's common stock ( the "Offer"). Each Record Date Shareholder is being issued
one Right for each whole share of the Fund's common stock ("Common Stock") owned
on the Record Date. The Rights entitle the Record Date Shareholder to acquire at
the Subscription Price (as hereinafter defined) one Share for every three Rights
held (one for three). Shareholders who fully exercise their Rights will be
entitled to subscribe for additional shares of Common Stock pursuant to an
Over-Subscription Privilege, as described herein. The Fund may increase at its
discretion the number of shares of Common Stock subject to subscription by up to
25% of the Shares, or 2,032,114 Shares, for an aggregate total of 10,160,570
Shares. Fractional Shares will not be issued upon the exercise of Rights.
Accordingly, Shares may be purchased only pursuant to the exercise of Rights in
integral multiples of three. The Rights are non-transferable and will not be
admitted for trading on the New York Stock Exchange or any other exchange. See
"The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE
95% OF THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE
OF THE FUND'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON THE DATE OF THE
EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON THE FOUR PRECEDING BUSINESS
DAYS THEREOF AND (ii) THE NET ASSET VALUE PER SHARE AS OF THE CLOSE OF BUSINESS
ON THE PRICING DATE.
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on August 22, 1996. Shares of the Common Stock trade on that
exchange under the symbol "FBF." The last reported net asset value per share of
Common Stock at the close of business on August 22, 1996 and September 24, 1996
was $8.50 and $8.54, respectively, and the last reported sales price of a share
of the Fund's Common Stock on that exchange on those dates was $8.25 and $8 3/8,
respectively.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 22, 1996
(THE "EXPIRATION DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN.
Upon the completion of the Offer, Record Date Shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
would otherwise be the case if the Offer had not been made. In addition, because
the Subscription Price per Share will be less than the current net asset value
per share, the Offer will result in dilution of net asset value per share for
all shareholders. If the Subscription Price per Share were to be substantially
less than the current net asset value per share, such dilution would be
substantial. Shareholders will have no right to rescind their subscriptions
after receipt of their payment for Shares by the Subscription Agent. See "Risk
Factors and Special Considerations--Certain Effects of the Offer."
If you have questions or need further information about the Offer, please
call Shareholder Communications Corporation, the Fund's information agent for
the Offer (the "Information Agent"), at (800) 733-8481, extension 349.
(CONTINUED ON THE FOLLOWING PAGE)
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
SUBSCRIPTION ESTIMATED PROCEEDS TO
PRICE (1) SALES LOAD (2) THE FUND (3)(4)
<S> <C> <C> <C>
Per Share................................. $7.96 $0.30 $7.66
Total Maximum (5)......................... $64,702,510 $2,438,537 $62,263,973
</TABLE>
(FOOTNOTES ON THE FOLLOWING PAGE)
SMITH BARNEY INC.
The date of this Prospectus is September 27, 1996
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
The Fund is a closed-end, diversified management investment company that
seeks current income consistent with the preservation of capital by investing
primarily in fixed-income securities. Under normal circumstances, the Fund will
invest at least 75% of its total assets in fixed-income securities, such as
bonds, debentures and preferred stocks. All or substantially all of the Fund's
assets may be invested in securities rated below investment grade and in unrated
securities of comparable quality. Securities of this type are subject to greater
risk of loss of principal or nonpayment of interest than higher-rated securities
and are predominantly speculative. There can be no assurance that the Fund's
investment objective will be achieved. See "Investment Objective and Policies."
BEA Associates serves as the Fund's investment adviser. The address of the Fund
is One Citicorp Center, 57th Floor, 153 East 53rd Street, New York, New York
10022, and the Fund's telephone number is (212) 832-2626.
Investment in lower-rated securities involves certain risks and special
considerations not typically associated with investment in higher-rated
securities and should be considered speculative. See "Risk Factors and Special
Considerations."
This Prospectus sets forth information about the Fund that a prospective
investor ought to know before investing and should be retained for future
reference. A Statement of Additional Information dated September 27, 1996 (the
"SAI") containing additional information about the Fund has been filed with the
Securities and Exchange Commission (the "Commission") and is incorporated by
reference in its entirety into this Prospectus. A copy of the SAI, the table of
contents of which appears on page 31 of this Prospectus, may be obtained without
charge by contacting the Information Agent at (800) 733-8481, extension 349.
--------------
(FOOTNOTES FROM THE PREVIOUS PAGE)
(1) Estimated on the basis of 95% of the market price per share on September 24,
1996. See "The Offer-- Subscription Price."
(2) In connection with the Offer, Smith Barney Inc. (the "Dealer Manager") and
other broker-dealers soliciting the exercise of Rights will receive
soliciting fees equal to 2.50% of the Subscription Price per Share for each
Share issued upon exercise of the Rights and the Over-Subscription
Privilege. The Fund has also agreed to pay the Dealer Manager a fee for
financial advisory services and marketing assistance in connection with the
Offer equal to 1.25% of the Subscription Price per Share for Shares issued
upon exercise of the Rights and the Over-Subscription Privilege and has
agreed to indemnify the Dealer Manager against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
(3) Before deduction of offering expenses incurred by the Fund, estimated at
$550,000, including an aggregate of up to $100,000 to be paid to the Dealer
Manager as partial reimbursement for its expenses.
(4) Funds received by check prior to the final due date of this Offer will be
deposited into a segregated interest bearing account (which interest will be
paid to the Fund regardless of whether shares are issued or not by the Fund)
pending proration and distribution of Shares.
(5) Assumes all Rights are exercised at the Estimated Subscription Price.
Pursuant to the Over-Subscription Privilege, the Fund may at its discretion
increase the number of Shares subject to subscription by up to 25% of the
Shares offered hereby. If the Fund increases the number of Shares subject to
subscription by 25%, the aggregate maximum Estimated Subscription Price,
Estimated Sales Load and Estimated Proceeds to the Fund will be $80,878,137,
$3,048,171 and $77,829,966, respectively.
--------------
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE STATEMENT OF
ADDITIONAL INFORMATION ("SAI").
PURPOSE OF THE OFFER
The Board of Directors of BEA Income Fund, Inc. (the "Fund") has determined
that it would be in the best interest of the Fund and its shareholders to
increase the assets of the Fund available for investment, thereby allowing
better positioning of the Fund to more fully take advantage of available
investment opportunities consistent with the Fund's investment objective of
realizing current income. In reaching its decision, the Board of Directors was
advised by BEA Associates that the availability of new funds would provide the
Fund with additional investment flexibility as well as increase the Fund's
ability to take advantage of what BEA Associates believes to be timely
opportunities in the high yield bond market as a result of interest rate
stability and a strong economy.
The Board of Directors also considered that a well-subscribed rights
offering may reduce the Fund's expense ratio, which may be of long-term benefit
to shareholders. In addition, the Board of Directors considered that such a
rights offering could result in an improvement in the liquidity of the trading
market for shares of the Fund's common stock ("Common Stock") on the New York
Stock Exchange, where the shares are listed and traded. The Board of Directors
also considered the proposed terms of the Offer (as defined below), including
the expenses of the Offer, and its dilutive effect, including the effect on non-
exercising shareholders of the Fund. After careful consideration, the Fund's
Board of Directors unanimously voted to approve the Offer.
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the Offer. Any such future rights offering will be made
in accordance with the Investment Company Act of 1940, as amended (the "1940
Act").
TERMS OF THE OFFER
The Fund is issuing to its shareholders of record ("Record Date
Shareholders") as of the close of business on September 27, 1996 (the "Record
Date") non-transferable rights ("Rights") to subscribe for an aggregate of
8,128,456 shares ("Shares") of the Fund's Common Stock, par value $0.001 per
share (the "Offer"). Each Record Date Shareholder is being issued one Right for
each whole share of Common Stock owned on the Record Date. The Rights entitle
the Record Date Shareholder to acquire at the Subscription Price (as hereinafter
defined) one Share for every three Rights held (one for three). Rights may be
exercised at any time during the offering period (the "Subscription Period"),
which commences on September 27, 1996 and ends at 5:00 p.m., New York City time,
on October 22, 1996 (the "Expiration Date"), unless extended by the Fund until
5:00 p.m., New York City time, on a date no later than October 25, 1996. The
right to acquire one Share for every three Rights held during the Subscription
Period at the Subscription Price is hereinafter referred to as the "Primary
Subscription."
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder is entitled to subscribe for Shares which were not otherwise
subscribed for by others on Primary Subscription (the "Over-Subscription
Privilege"). If sufficient Shares are not available to honor all requests for
over-subscriptions, the Fund may, at its discretion, issue shares of Common
Stock up to an additional 25% of the Shares available pursuant to the Offer (up
to 2,032,114 Shares) in order to satisfy such over-subscription requests. Shares
requested pursuant to the Over-Subscription Privilege may be subject to
allotment, which is more fully discussed under "The Offer--Over-Subscription
Privilege."
SUBSCRIPTION PRICE
The subscription price per Share (the "Subscription Price") will be 95% of
the lower of (i) the average of the last reported sales price of a share of the
Fund's Common Stock on the New York Stock Exchange on the Expiration Date (the
"Pricing Date") and on the four preceding business days thereof and (ii) the net
asset value per share as of the close of business on the Pricing Date. See "The
Offer--Subscription Price."
3
<PAGE>
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted for trading on the New York Stock Exchange
or any other exchange. However, the Shares to be issued pursuant to the Rights
will be admitted for trading on the New York Stock Exchange.
METHOD OF EXERCISE OF RIGHTS
Rights will be evidenced by subscription certificates ("Subscription
Certificates") that will be mailed to Record Date Shareholders, or if shares are
held by Cede & Co. ("Cede"), the nominee for The Depository Trust Company, or
any other depository or nominee, to Cede or such other depository or nominee.
Rights may be exercised by completing and signing a Subscription Certificate and
delivering it, together with payment, either by means of a notice of guaranteed
delivery or a check, to The Chase Manhattan Bank (the "Subscription Agent").
Shareholders who exercise their Rights will have no right to rescind their
subscription after the Subscription Agent has received payment. See "The
Offer--Subscription Agent" and "The Offer--Method of Exercise of Rights."
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholder's accounts until instructions are received to
exercise the Rights. If no instructions are received prior to the Expiration
Date, such Rights will expire.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- --------------------------------------------------------------- -------------------------------------------------
<S> <C>
Record Date.................................................... September 27, 1996
Subscription Period............................................ September 27, 1996 to October 22, 1996*
Payment for Shares or Notice of Guaranteed Delivery Due........ October 22, 1996*
Expiration and Pricing Date.................................... October 22, 1996*
Payment for Guarantees of Delivery Due......................... October 25, 1996*
Confirmation to Participants................................... November 1, 1996*
Final Payment for Shares....................................... November 15, 1996*
</TABLE>
- ---------
* Unless the Offer is extended to a date not later than October 25, 1996.
INFORMATION AGENT
The Information Agent for the Offer (the "Information Agent") is:
[LOGO]
Toll Free: (800) 733-8481, Extension 349.
Shareholders calling from outside the United States may call collect (212)
805-7000.
DISTRIBUTION ARRANGEMENTS
Smith Barney Inc. (the "Dealer Manager") will act as the dealer manager for
the Offer. The Fund has agreed to pay the Dealer Manager a fee for its financial
advisory services and marketing assistance equal to 1.25% of the Subscription
Price per Share for Shares issued upon exercise of the Rights and the Over-
Subscription Privilege, and to pay broker-dealers, including the Dealer Manager,
fees for their soliciting efforts equal to 2.50% of the Subscription Price per
Share for each Share issued upon exercise of the Rights and the
Over-Subscription Privilege. See "Distribution Arrangements."
4
<PAGE>
INFORMATION REGARDING THE FUND
The Fund has been engaged in business as a closed-end, diversified
management investment company since March 23, 1987. The Fund's investment
objective is current income consistent with the preservation capital. The Fund
seeks to achieve this objective primarily through investment in fixed-income
securities, such as bonds, debentures and preferred stocks. Under normal
circumstances, at least 75% of the Fund's total assets will be invested in
fixed-income securities. The Fund's investments in fixed-income securities are
not subject to any rating quality limitation and, accordingly, a substantial
portion or all of the Fund's portfolio may be invested in securities that are
rated below investment grade by a nationally recognized rating service or
unrated and of comparable quality in the opinion of BEA Associates. Lower-rated
securities generally provide yields superior to those of more highly rated
securities, but involve greater risks and are speculative in nature ("high yield
securities"). See "Risk Factors and Special Considerations-- Lower-Rated
Securities." The Fund may also invest up to 25% of its assets in money market
instruments such as certificates of deposit, commercial paper, bankers'
acceptances and repurchase agreements. There can be no assurance that the Fund's
investment objective will be achieved. See "Investment Objective and Policies."
BEA Associates anticipates that investment of the net proceeds of the Offer, in
accordance with the Fund's investment objective and policies, will take
approximately up to one month from their receipt by the Fund, depending on
market conditions and the availability of appropriate securities. See "Use of
Proceeds." The Common Stock is listed and traded on the New York Stock Exchange
under the symbol "FBF." As of June 30, 1996, the net assets of the Fund were
approximately $208 million.
INVESTMENT ADVISER AND ADMINISTRATORS
BEA Associates, a U.S. investment counseling firm ("BEA Associates"), serves
as the Fund's investment adviser. BEA Associates emphasizes a global investment
strategy and, as of June 30, 1996, acted as adviser for assets in excess of
$28.7 billion, including as of that date approximately $10.9 billion of assets
invested in fixed-income securities and money market instruments.
Chase Global Funds Services Company serves as the Fund's administrator (the
"Administrator"). See "Management of the Fund."
ADVISORY, ADMINISTRATIVE AND CONSULTING FEES
The aggregate annual fees payable by the Fund for investment advice equal
0.50% of the Fund's average weekly net assets. See "Management of the Fund."
For administrative services, the Fund pays the Administrator a fee at an
annual rate of 0.15% of the first $100 million of the Fund's average weekly net
assets, 0.10% of the Fund's next $300 million of average weekly net assets and
0.05% of the Fund's average weekly net assets in excess of $400 million.
Since the Fund's investment adviser's and administrator's fees are based on
the net assets of the Fund, the Fund's investment adviser and administrator will
benefit from an increase in the Fund's assets resulting from the Offer. In
addition, one director who is an "interested person" (as such term is defined
under the 1940 Act) of the Fund because of his position as a director and
officer of BEA Associates could benefit indirectly from the Offer because of
such director's affiliation. See "The Offer--Certain Impact on Fees."
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes certain matters that should be considered, among
others, in connection with an exercise of Rights and an additional investment in
the Fund.
CERTAIN EFFECTS OF THE OFFER. Upon the completion of the Offer,
shareholders who do not fully exercise their Rights will own a smaller
proportional interest in the Fund than would be the case if the Offer had not
been made. In addition, an immediate dilution of the net asset value per share
will be experienced by all shareholders as a result of the Offer because the
Subscription Price will be less than the then current net asset value per share,
the Fund will bear the expenses of the Offer and the number of shares
outstanding after the Offer will have increased proportionately more than the
increase in the size of the Fund's net assets. Although it is not possible to
state precisely the amount of such a decrease in net asset value, because it is
not
5
<PAGE>
known at this time how many Shares will be subscribed for or what the
Subscription Price will be, such dilution might be substantial. The dilution in
net asset value will disproportionately affect shareholders who do not exercise
their rights. See "Risk Factors and Special Considerations."
RISKS ASSOCIATED WITH INVESTMENTS IN FIXED-INCOME SECURITIES. Bond prices
generally vary inversely in relation to changes in the level of interest rates,
as well as in response to other market factors and changes in the
creditworthiness of the issuers of the securities. The value of a portfolio of
fixed-income securities will generally be expected to rise when interest rates
decline and to decline when interest rates rise. In addition, the market value
of certain securities in which the Fund may invest, such as mortgage-backed
securities, zero coupon securities, securities that are purchased at a discount
to their par value and stripped income securities tend to be more volatile in
response to changes in interest rates than that of traditional fixed-income
securities. Longer-term securities in which the Fund may invest generally offer
a higher current yield than is offered by shorter-term securities, but also
generally involve greater volatility of price and risk of capital than
shorter-term securities. See "Risk Factors and Special Considerations."
LOWER-RATED SECURITIES. At any time, all or substantially all of the Fund's
portfolio may be invested in medium-grade or below investment grade fixed-income
securities as determined by a nationally recognized rating service and in
unrated securities of comparable quality. Investment in lower-rated securities
typically involves risks not associated with higher-rated securities, including,
among others, overall greater risk that timely and ultimate payment of interest
and principal will not occur, potentially greater sensitivity to general
economic conditions, greater market price volatility and potential illiquidity.
In addition, ratings are potential and subjective and not absolute standards of
quality. See "Risk Factors and Special Considerations."
NON PUBLICLY-TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act but that can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
Securities Act ("Rule 144A Securities"). Non publicly-traded securities,
including Rule 144A Securities, may involve a high degree of business and
financial risk and may result in substantial losses. These securities may be
less liquid than publicly-traded securities, and the Fund may take longer to
liquidate these positions than would be the case for publicly-traded securities.
Further, companies whose securities are not publicly-traded may not be subject
to the disclosure and other investor protection requirements that would be
applicable if their securities were publicly-traded. A Fund's investment in
illiquid securities is subject to the risk that, should the Fund desire to sell
any of these securities when a ready buyer is not available at a price that is
deemed to be representative of their value, the value of the Fund's net assets
could be adversely affected. See "Risk Factors and Special Considerations."
RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. The Fund may invest a
substantial portion of its total assets in mortgage-backed securities. The value
of mortgaged-backed securities is subject to change due to shifts in the
market's perception of issuers, and regulatory or tax changes may adversely
affect the mortgage securities market as a whole. Foreclosures and prepayments,
which occur when unscheduled or early payments are made on the underlying
mortgages, may shorten the effective maturities on these securities. The Fund's
yield may be affected by reinvestment of prepayments at higher or lower rates
than the original investment. Prepayments tend to increase due to refinancing of
mortgages as interest rates decline. In addition, like other debt securities,
the values of mortgage-backed securities will generally fluctuate in response to
changes in interest rates. See "Risk Factors and Special Considerations."
SHORT SALES. The Fund's investment policies may include short selling.
Short sales can, in certain circumstances, substantially increase the impact of
adverse price movements on the Fund's portfolio. The Fund, however, is
restricted from engaging in uncovered short selling. See "Investment Objective
and Policies--Short Sales" below and "Investment Restrictions" in the SAI.
RISKS OF TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS AND OPTIONS
THEREON. The Fund may, for bona fide hedging purposes, purchase and sell
interest rate futures contracts and options thereon that are traded on U.S.
futures exchanges. There are several risks in connection with the use of
interest rate futures contracts as a hedge for transactions and anticipated
transactions, including the risk of unlimited loss and significant distortions
between the prices of futures contracts and those of the securities being
hedged. Although the Fund intends to purchase or sell interest rate futures
contracts only on exchanges or boards of
6
<PAGE>
trade where there appears to be an active market for such contracts, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. The Fund is not required to
hedge interest rate risk. In addition, there are special risks relating to
options on interest rate futures contracts. The ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. The Fund will only purchase or write options on futures
contracts which, in the opinion of BEA Associates, are traded in sufficiently
developed markets such that the risks of illiquidity in connection with such
options are not greater than the risks of illiquidity in connection with
transactions in the underlying interest rate futures contracts. See "Risk
Factors and Special Considerations."
RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS. The Fund may invest in
repurchase agreements collateralized by U.S. Government securities, certificates
of deposit and certain bankers' acceptances for the purpose of realizing
additional income. The use of repurchase agreements involves certain risks not
associated with direct investment in securities. For example, if the seller of
securities under an agreement defaults on its obligation to repurchase the
underlying securities at the agreed upon repurchase price at a time when the
value of these securities has declined, the Fund may incur a loss upon their
disposition. If such a defaulting seller were to become insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws,
disposition of the underlying securities could involve certain costs or delays
pending court action. Also, it is not certain whether the Fund would be
entitled, as against a claim of the seller or its receiver, trustee in
bankruptcy or creditors, to retain the underlying securities. While BEA
Associates acknowledges these risks, the Fund expects that they can be
controlled by limiting the institutions with which the Fund will enter into
repurchase agreements to the Federal Reserve Bank, Reporting Government
Securities Dealers and member banks of the Federal Reserve System and by
carefully monitoring the creditworthiness of such institutions, other than the
Federal Reserve Bank, by BEA Associates. See "Risk Factors and Special
Considerations."
MARKET VALUE AND NET ASSET VALUE. Shares of closed-end investment companies
frequently trade at a discount to net asset value. This characteristic of shares
of a closed-end fund is a risk separate and distinct from the risk that the
Fund's net asset value may decrease. The Fund cannot predict whether its shares
will trade at, below or above net asset value. In addition, changes in market
yields will affect the Fund's net asset value as prices of fixed-income
securities generally increase when interest rates decline and decrease when
interest rates rise. Since the commencement of the Fund's operations, the Fund's
shares have generally traded in the market at a discount to net asset value. See
"Net Asset Value" and "Common Stock."
7
<PAGE>
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price per Share)(1)............. 3.75%
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees................................................................. .50%
Other Expenses(2)............................................................... .31%
TOTAL ANNUAL EXPENSES(2)............................................................ .81%
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
- -------------------------------------------------- ----- ----- ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming a 5% annual
return(3)..................................... $45 $62 $81 $134
</TABLE>
- ---------
(1) The Dealer Manager and the other broker-dealers soliciting the exercise of
Rights will receive soliciting fees equal to 2.50% of the Subscription Price
per Share for each Share issued upon exercise of the Rights and the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the Subscription Price per Share for Shares
issued upon exercise of the Rights and the Over-Subscription Privilege.
These fees will be borne by the Fund and indirectly by all of the Fund's
shareholders, including those shareholders who do not exercise their Rights.
(2) Based upon estimated amounts for the current fiscal year and on the net
assets of the Fund after giving effect to the anticipated net proceeds of
the Offer including proceeds from the issuance of up to 25% of the Shares
pursuant to the Over-Subscription Privilege. Does not include expenses of
the Fund incurred in connection with the Offer, estimated at $550,000. Total
annual expenses for the fiscal year ended December 31, 1995 were .92% as a
percentage of average net assets.
(3) The example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.
THE PURPOSE OF THE FOREGOING TABLE AND EXAMPLE IS TO ASSIST RIGHTS HOLDERS
IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND
BEARS, DIRECTLY OR INDIRECTLY, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATE OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY
BE GREATER OR LESS THAN THOSE SHOWN. For more complete descriptions of certain
of the Fund's costs and expenses, see "Management of the Fund" below and in the
SAI.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of Common
Stock outstanding throughout each period presented. The per share operating
performance and ratios for each of the periods, other than the six-month period
ended June 30, 1996, have been derived from financial statements audited by
Price Waterhouse LLP, the Fund's independent accountants, as stated in their
report which is incorporated by reference into the SAI. The following
information should be read in conjunction with the Financial Statements and
Notes thereto, which are incorporated by reference into the SAI.
PER SHARE OPERATING PERFORMANCE
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/96(1) 12/31/95(2) 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 8.63 $ 8.05 $ 9.00 $ 8.42 $ 8.28
Offering Costs.................................... -- -- -- -- --
Net Investment Income............................. 0.40 0.86 0.83 0.91 0.89
Net Realized and Unrealized Gains or Losses on
Investments...................................... 0.02 0.48 (1.06) 0.57 0.08
----------- ----------- ----------- ----------- -----------
Total from Investment Activities.................. 0.42 1.34 (0.23) 1.48 0.97
----------- ----------- ----------- ----------- -----------
Distributions:
From Net Investment Income........................ (0.54) (0.76) (0.72) (0.90) (0.83)
----------- ----------- ----------- ----------- -----------
From Realized Gain.............................. -- -- -- -- --
From Capital Surplus............................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distribution............................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period.................... $ 8.51 $ 8.63 $ 8.05 $ 9.00 $ 8.42
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Per Share Market Value, End of Period............. $ 7.88 $ 7.88 $ 7.00 $ 8.50 $ 8.38
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total Investment Return
Net Asset Value(4).............................. 5.06%(6) 17.41% (2.67)% 18.47% 11.95%
Market Value.................................... 6.83%(6) 24.34% (9.48)% 12.46% 12.09%
<CAPTION>
PERIOD FROM
3/23/87(3)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 7.25 $ 8.32 $ 8.58 $ 8.71 $ 9.30
Offering Costs.................................... -- -- -- -- (0.01)
Net Investment Income............................. 0.89 0.87 0.92 0.87 0.59
Net Realized and Unrealized Gains or Losses on
Investments...................................... 1.04 (1.04) (0.28) (0.10) (0.51)
----------- ----------- ----------- ----------- ------------
Total from Investment Activities.................. 1.93 (0.17) 0.64 0.77 0.08
----------- ----------- ----------- ----------- ------------
Distributions:
From Net Investment Income........................ (0.90) (0.90) (0.90) (0.90) (0.59)
----------- ----------- ----------- ----------- ------------
From Realized Gain.............................. -- -- -- -- (0.01)
From Capital Surplus............................ -- -- -- -- (0.06)
----------- ----------- ----------- ----------- ------------
Total Distribution............................ -- -- -- -- (0.66)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net Asset Value, End of Period.................... $ 8.28 $ 7.25 $ 8.32 $ 8.58 $ 8.71
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Per Share Market Value, End of Period............. $ 8.38 $ 6.38 $ 7.88 $ 7.88 $ 8.325
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Total Investment Return
Net Asset Value(4).............................. 27.71% (2.06)% 7.69% 9.14% 1.01%
Market Value.................................... 50.81% (6.12)% 13.58% 7.80% (10.91)%
</TABLE>
RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/96(1) 12/31/95(2) 12/31/94 12/31/93 12/31/92 12/31/91
------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period (thousands).......... $207,551 $210,441 $196,379 $219,355 $203,846 $199,857
Ratio of Expenses to Average Net Assets........ 0.98%(5) 0.92% 0.83% 0.88% 0.86% 0.87%
Ratio of Net Investment Income to
Average Net Assets............................ 9.44%(5) 10.22% 9.75% 10.34% 10.38% 11.12%
Portfolio Turnover........................... 44.1%(6) 44.1% 70.6% 117.5% 115.2% 53.3%
<CAPTION>
PERIOD FROM
3/23/87(3)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
12/31/90 12/31/89 12/31/88 12/31/87
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net Assets, End of Period (thousands).......... $175,390 $201,297 $207,293 $209,060
Ratio of Expenses to Average Net Assets........ 0.89% 0.92% 0.91% 0.77%(5)
Ratio of Net Investment Income to
Average Net Assets............................ 11.26% 10.67% 9.96% 9.40%(5)
Portfolio Turnover........................... 61.4% 95.8% 113.5% 42.0%
</TABLE>
- ------------
<TABLE>
<S> <C>
(1) Unaudited.
(2) BEA Associates replaced CS First Boston Investment Management Corporation ("CSIM") as the Fund's investment adviser
effective June 13, 1995.
(3) Commencement of investment operations.
(4) Total investment return based on per share net asset value reflects the effects of change in net asset value on the
performance of the Fund during each period, and assumes dividends and capital gains distributions, if any, were
reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on
market value due to differences between the market value of the stock and the net asset value of the Fund.
(5) Annualized.
(6) Not Annualized.
</TABLE>
9
<PAGE>
THE OFFER
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the
best interest of the Fund and its shareholders to increase the assets of the
Fund available for investment, thereby allowing better positioning of the Fund
to more fully take advantage of available investment opportunities consistent
with the Fund's investment objective of realizing current income. In reaching
its decision, the Board of Directors was advised by BEA Associates that the
availability of new funds would provide the Fund with additional investment
flexibility as well as increase the Fund's ability to take advantage of what BEA
Associates believes to be timely opportunities in the high yield bond market as
a result of interest rate stability and a strong economy.
The Board of Directors also considered that a well-subscribed rights
offering may reduce the Fund's expense ratio, which may be of long-term benefit
to shareholders. In addition, the Board of Directors considered that such a
rights offering could result in an improvement in the liquidity of the trading
market for shares of the Fund's Common Stock on the New York Stock Exchange,
where the shares are listed and traded. The Board of Directors also considered
the proposed terms of the Offer, including the expenses of the Offer, and its
dilutive effect, including the effect on non-exercising shareholders of the
Fund. After careful consideration, the Fund's Board of Directors unanimously
voted to approve the Offer.
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the Offer. Any such future rights offering will be made
in accordance with the 1940 Act.
TERMS OF THE OFFER
The Fund is issuing to Record Date Shareholders Rights to subscribe for
Shares pursuant to the exercise of such Rights. Each Record Date Shareholder is
being issued one Right for each whole share of Common Stock owned on the Record
Date. The Rights entitle the Record Date Shareholder to acquire at the
Subscription Price one Share for every three Rights held (one for three).
Fractional Shares will not be issued upon the exercise of Rights. Accordingly,
Shares may be purchased only pursuant to the exercise of Rights in integral
multiples of three. Rights may be exercised at any time during the Subscription
Period, which commences on September 27, 1996 and ends at 5:00 p.m., New York
City time, on October 22, 1996, unless extended by the Fund until 5:00 p.m., New
York City time, to a date not later than October 25, 1996. A Record Date
Shareholder's right to acquire one Share for every three Rights held during the
Subscription Period at the Subscription Price is hereinafter referred to as the
"Primary Subscription." The Rights are evidenced by Subscription Certificates,
which will be mailed to Record Date Shareholders, except as discussed below
under "Foreign Restrictions."
Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder will be entitled to subscribe for additional Shares pursuant to the
Over-Subscription Privilege. Shares requested pursuant to the Over-Subscription
Privilege are subject to allotment and may be subject to increase in the event
the Fund increases the number of shares available pursuant to the
Over-Subscription Privilege, which is more fully discussed below under
"Over-Subscription Privilege." For purposes of determining the maximum number of
Shares a Record Date Shareholder may acquire pursuant to the Offer, shareholders
whose shares are held of record by Cede, the nominee for The Depository Trust
Company, or by any other depository or nominee will be deemed to be the holders
of the Rights that are issued to Cede or such other depository or nominee on
their behalf.
As fractional Shares will not be issued, Record Date Shareholders who
receive or have remaining fewer than three Rights will be unable to purchase
Shares upon the exercise of such Rights and will not be entitled to receive any
cash in lieu thereof. Such shareholders, however, may subscribe for Shares
pursuant to the Over-Subscription Privilege provided such shareholders have
fully exercised the Rights issued to them. Shareholders will have no right to
rescind their subscriptions after receipt of their payment for Shares by the
Subscription Agent.
10
<PAGE>
OVER-SUBSCRIPTION PRIVILEGE
To the extent Record Date Shareholders do not exercise all of the Rights
issued to them, the underlying Shares represented by such Rights will be offered
by means of the Over-Subscription Privilege to Record Date Shareholders who have
exercised all the Rights issued to them pursuant to the Primary Subscription and
who desire to acquire additional Shares. Only Record Date Shareholders who
exercise all such Rights may indicate on the Subscription Certificate the number
of additional Shares desired pursuant to the Over-Subscription Privilege. If
sufficient Shares remain as a result of unexercised Rights, all
over-subscriptions may be honored in full. If sufficient Shares are not
available to honor all requests for over-subscriptions, the Fund may, at its
discretion, issue shares of Common Stock up to an additional 25% of the Shares
available pursuant to the Offer (up to 2,032,114 Shares) in order to satisfy
such over-subscription requests. Regardless of whether the Fund issues such
additional Shares, to the extent Shares are not available to honor all over-
subscriptions, the available Shares will be allocated among those who
over-subscribe based on the number of Rights originally issued to them by the
Fund, so that the number of Shares issued to Record Date Shareholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the number of shares owned by them in the Fund on the Record Date.
The allocation process may involve a series of allocations in order to assure
that the total number of Shares available for over-subscriptions is distributed
on a pro rata basis.
The Fund will not sell any Shares that are not subscribed for pursuant to
the Primary Subscription or the Over-Subscription Privilege.
SUBSCRIPTION PRICE
The Subscription Price for each Share to be issued pursuant to the Rights
will be 95% of the lower of (i) the average of the last reported sales price of
a share of the Fund's Common Stock on the New York Stock Exchange on the Pricing
Date and on the four preceding business days thereof and (ii) the net asset
value per share as of the close of business on the Pricing Date. For example, if
the average of the last reported sales price on the New York Stock Exchange on
the Pricing Date and on the four preceding business days thereof of a share of
the Fund's Common Stock is $8.42, and the net asset value as of the close of
business on the Pricing Date is $8.54, the Subscription Price will be $8.00 (95%
of $8.42). If, however, the average of the last reported sales price of a share
on that exchange on the Pricing Date and on the four preceding business days
thereof is $8.40, and the net asset value as of the close of business on the
Pricing Date is $8.32, the Subscription Price will be $7.90 (95% of $8.32). See
"Common Stock."
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on August 22, 1996. The last reported net asset value per share
of Common Stock at the close of business on August 22, 1996 and September 24,
1996 was $8.50 and $8.54, respectively, and the last reported sales price of a
share of the Fund's Common Stock on the New York Stock Exchange on those dates
was $8.25 and $8 3/8, respectively.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted for trading on the New York Stock Exchange
or any other exchange. However, the Shares to be issued pursuant to the Rights
will be admitted for trading on the New York Stock Exchange.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on October 22, 1996,
unless extended by the Fund until 5:00 p.m., New York City time, to a date not
later than October 25, 1996. Rights will expire on the Expiration Date and
thereafter may not be exercised. Since the Expiration Date and the Pricing Date
will be the same date, Record Date Shareholders who decide to acquire Shares
during the Primary Subscription or pursuant to the Over-Subscription Privilege
will not know, when they make such decision, the purchase price for such Shares.
Any extension of the Offer will be followed as promptly as practical by an
announcement thereof. Without limiting the manner in which the Fund may choose
to make such announcement, the Fund will not, unless otherwise required by law,
have any obligation to publish, advertise or otherwise communicate any such
announcement other than by making a release to the Dow Jones News Service or
such other means of announcement as the Fund deems appropriate.
11
<PAGE>
SUBSCRIPTION AGENT
The Subscription Agent is The Chase Manhattan Bank ("Chase Manhattan"), 770
Broadway, New York, New York, which will receive, for its administrative,
processing, invoicing and other services as subscription agent, a fee estimated
to be $15,000, plus reimbursement for its out-of-pocket expenses related to the
Offer. The Subscription Agent is also the Fund's Transfer Agent, Dividend-Paying
Agent and Registrar with respect to the Common Stock. An affiliate of the
Subscription Agent also acts as the Fund's administrator. SIGNED SUBSCRIPTION
CERTIFICATES TOGETHER WITH PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE MUST BE
SENT TO CHASE MANHATTAN by one of the methods described below. The Fund will
accept only Subscription Certificates actually received on a timely basis at the
address listed below:
<TABLE>
<S> <C>
(1) BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER:
The Chase Manhattan Bank
Retail Processing
770 Broadway
7th Floor
New York, New York 10003
(2) BY FACSIMILE (TELECOPY):
FOR NOTICE OF GUARANTEED DELIVERY ONLY
(212) 979-0658 with the original Subscription Certificate to be sent
by method (1) above. Confirm facsimile by telephone at (212)
388-5764.
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE DOES NOT CONSTITUTE
GOOD DELIVERY.
METHOD OF EXERCISE OF RIGHTS
Rights will be evidenced by Subscription Certificates that will be mailed to
Record Date Shareholders, or if shares are held by Cede or any other depository
or nominee, to Cede or such other depository or nominee except as discussed
under "Foreign Restrictions" below. Rights may be exercised by completing and
signing the Subscription Certificate and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate, together
with payment for the Shares as described below under "Payment for Shares," to
the Subscription Agent. Rights may also be exercised by contacting your broker,
banker or trust company, which can arrange, on your behalf, to guarantee
delivery of payment and of a properly completed and executed Subscription
Certificate (a "Notice of Guaranteed Delivery"), as set forth below under
"Payment for Shares." A fee may be charged for this service. Fractional Shares
will not be issued, and shareholders who receive, or who have remaining, fewer
than three Rights will not be able to purchase any Shares upon the exercise of
such Rights. Such shareholders may, however, subscribe for Shares pursuant to
the Over-Subscription Privilege provided such shareholders have fully exercised
the Rights issued to them. Completed Subscription Certificates or Notices of
Guaranteed Delivery must be received by the Subscription Agent prior to 5:00
p.m., New York City time, on the Expiration Date at the office of the
Subscription Agent at the address set forth above.
SHAREHOLDERS WHO ARE RECORD OWNERS. Shareholders who are record owners can
choose between either option set forth under "Payment for Shares" below. If time
is of the essence, option (2) will permit delivery of the completed Subscription
Certificate and payment after the Expiration Date.
INVESTORS WHOSE SHARES ARE HELD BY A NOMINEE. Shareholders whose shares are
held by a nominee, such as a broker or trustee, must contact that nominee to
exercise their Rights. In that case, the nominee will complete the Subscription
Certificate on behalf of the investor and arrange for proper payment by one of
the methods set forth under "Payment for Shares" below.
NOMINEES. Nominees who hold shares for the account of others should notify
the beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with
12
<PAGE>
respect to the Rights. If the beneficial owner so instructs, the nominee should
complete the Subscription Certificate and submit it to the Subscription Agent
with the proper payment described under "Payment for Shares" below.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia). The Rights to which those Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise the Rights. If no
instructions are received prior to the Expiration Date, such Rights will expire.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number listed below:
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
TOLL FREE: (800) 733-8481, EXTENSION 349
Shareholders calling from outside the United States may call collect (212)
805-7000. Shareholders may also contact their brokers or nominees for
information with respect to the Offer.
The Information Agent will receive a fee estimated to be $10,000 plus
reimbursement for its out-of-pocket expenses related to the Offer.
PAYMENT FOR SHARES
Shareholders who acquire Shares during the Primary Subscription or pursuant
to the Over-Subscription Privilege may choose between the following methods of
payment:
(1) A shareholder can send the completed Subscription Certificate
together with payment for the Shares acquired during the Primary
Subscription and for additional Shares subscribed for pursuant to the
Over-Subscription Privilege to the Subscription Agent, calculating the total
payment on the basis of an estimated Subscription Price of $7.96 per Share
(the "Estimated Subscription Price"). To be accepted, such payment, together
with the properly executed and completed Subscription Certificate, must be
received by the Subscription Agent at one of the Subscription Agent's
offices at the addresses set forth above prior to 5:00 p.m., New York City
time, on the Expiration Date. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN
UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE
UNITED STATES OF AMERICA, MUST BE PAYABLE TO BEA INCOME FUND, INC. AND MUST
ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION
CERTIFICATE TO BE ACCEPTED.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent, if, prior to 5:00 p.m., New York City time, on the Expiration Date,
the Subscription Agent has received a Notice of Guaranteed Delivery by
facsimile (telecopy) or otherwise from a bank, trust company, or New York
Stock Exchange member guaranteeing delivery to the Subscription Agent of (i)
payment of the full Subscription Price for the Shares subscribed for during
the Primary Subscription and any additional Shares subscribed for pursuant
to the Over-Subscription Privilege, and (ii) a properly completed and
executed Subscription Certificate. The Subscription Agent will not honor a
Notice of Guaranteed Delivery if a properly completed and executed
Subscription Certificate, together with payment, is not received by the
Subscription Agent by the close of business on the third business day after
the Expiration Date.
Within five business days following the Pricing Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each Record
Date Shareholder (or, if the shareholder's shares are held by
13
<PAGE>
Cede or any other depository or nominee, to Cede or such depository or nominee),
showing (i) the number of Shares acquired pursuant to the Primary Subscription,
(ii) the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege, (iii) the per Share and total purchase price for the Shares, and (iv)
any additional amount payable by such shareholder to the Fund or any excess to
be refunded by the Fund to such shareholder, in each case based on the
Subscription Price as determined on the Pricing Date. No other evidence of title
will be sent to shareholders unless delivery of a stock certificate has been
requested at the time of exercise of the Rights. See "Delivery of Stock
Certificates" below. Any additional payment required from a shareholder must be
received by the Subscription Agent within ten business days after the
Confirmation Date. Any excess payment to be refunded by the Fund to a
shareholder will be mailed by the Subscription Agent to such shareholder within
a reasonable time after the Expiration Date. No interest shall be paid by the
Fund on any such excess payment. All payments by a shareholder must be in U.S.
Dollars by money order or check drawn on a bank located in the United States of
America and payable to BEA INCOME FUND, INC.
The Subscription Agent will deposit all checks received by it prior to the
final due date into a segregated interest bearing account (which interest will
accrue to the benefit of the Fund regardless of whether shares are issued or not
by the Fund) pending distribution of the Shares.
Whichever of the two payment methods described above is used, issuance and
delivery of evidence of title for the Shares purchased are subject to collection
of checks and actual payment pursuant to any Notice of Guaranteed Delivery.
SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT
OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.
If a shareholder who acquires Shares pursuant to the Primary Subscription or
the Over-Subscription Privilege does not make payment of any additional amounts
due, the Fund reserves the right to take any or all of the following actions:
(i) sell such subscribed and unpaid-for Shares to other shareholders, (ii) apply
any payment actually received by it toward the purchase of the greatest whole
number of Shares which could be acquired by such holder upon exercise of the
Primary Subscription and/or Over-Subscription Privilege, and/or (iii) exercise
any and all other rights or remedies to which it may be entitled, including,
without limitation, set-offs against payments actually received by it with
respect to such subscribed Shares and/or to enforce the relevant guaranty of
payment.
The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Fund will be at the election and risk of the Rights
holders, but if sent by mail it is recommended that such certificates and
payment be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the Fund and clearance of payment prior to 5:00 p.m., Eastern time, on the
Expiration Date. Because uncertified personal checks may take at least five
business days to clear, subscribing shareholders are strongly urged to pay, or
arrange for payment, by means of certified or cashier's check or money order.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
EVIDENCE OF TITLE
Stock certificates for Shares acquired during the Primary Subscription and
pursuant to the Over-Subscription Privilege will be issued only upon request
made at the time of exercise of the Rights. Stock certificates requested to be
delivered will be mailed promptly after the Confirmation Date and after payment
for the Shares subscribed for has cleared. Participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired
during the Primary Subscription or pursuant
14
<PAGE>
to the Over-Subscription Privilege credited to their accounts in the Plan. Stock
certificates will not be issued for Shares credited to Plan accounts.
Shareholders whose shares of Common Stock are held of record by Cede or by any
other depository or nominee on their behalf or their broker-dealers' behalf will
have any Shares acquired during the Primary Subscription or pursuant to the
Over-Subscription Privilege credited to the account of Cede or such other
depository or nominee.
FEDERAL INCOME TAX CONSEQUENCES
For United States federal income tax purposes, neither the receipt nor the
exercise of the Rights by Record Date Shareholders will result in taxable income
to holders of Common Stock, and no loss will be realized if the Rights expire
without exercise. A shareholder's holding period for a Share acquired upon
exercise of a Right begins with the date of exercise. A shareholder's basis for
determining gain or loss upon the sale of a Share acquired upon the exercise of
a Right will be equal to the sum of the Subscription Price per Share, any
servicing fee charged to the shareholder by the shareholder's broker, bank or
trust company and the shareholder's basis, if any, in the Rights exercised (as
discussed below). A shareholder's gain or loss recognized upon a sale of a Share
acquired upon the exercise of a Right will be a capital gain or loss (assuming
the Share is held as a capital asset at the time of sale) and will be a
long-term capital gain or loss if the Share has been held at the time of sale
for more than one year.
If the fair market value of the Rights on the date of distribution is less
than 15% of the fair market value of the shares of Common Stock with respect to
which they are issued, on that date the basis of a Right will be zero unless a
Record Date Shareholder elects to allocate his basis in those shares of the Fund
which he originally owned between such shares and the Rights issued in the
Offer. This allocation is based upon the relative fair market value of such
shares and the Rights as of the date of distribution of the Rights. Thus, if
such an election is made, the shareholder's basis in the shares originally owned
will be reduced by an amount equal to the basis allocated to the Rights. This
election must be made in a statement attached to the shareholder's federal
income tax return for the year in which the Offer occurs. If the fair market
value of the Rights on the date of distribution is equal to or greater than 15%
of the fair market value of the shares of Common Stock with regard to which they
are issued, a Record Date Shareholder will allocate his basis in those shares of
the Fund which he originally owned between such shares and the Rights issued in
the Offer based upon their relative fair market values on the date of
distribution. However, if a shareholder does not exercise the Rights, no loss
will be recognized and no portion of the shareholder's basis in the shares will
be allocated to the unexercised Rights. If a shareholder exercises the Rights,
the basis of any Shares acquired through exercise of the Rights will be
increased by the basis allocated to such Rights. Accordingly, shareholders
should consider the advisability of making the election described above if the
shareholder intends to exercise the Rights.
The foregoing is a general summary of the material United States federal
income tax consequences of the receipt and exercise of Rights by a Record Date
Shareholder. The discussion is based upon applicable provisions of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
regulations and other authorities currently in effect, and does not cover state,
local or foreign taxes. The Code and regulations are subject to change by
legislative or administrative action. Shareholders should consult their tax
advisors regarding specific questions as to federal, state, local or foreign
taxes. See "Taxation" in the SAI.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Shareholders that hold their shares through employee benefit plans that are
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including corporate savings and 401(k) plans, Keogh Plans of
self-employed individuals and Individual Retirement Accounts (collectively,
"Benefit Plans")) should be aware of the complexity of the rules and regulations
governing Benefit Plans and the penalties for noncompliance, and should consult
their counsel and tax advisors regarding the consequences under ERISA and the
Code of their exercise of the Rights.
CERTAIN EFFECTS OF THE OFFER
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would be
the case if the Offer had not been made. In addition, because the Subscription
Price per Share will be less than the then current net asset value per share of
the
15
<PAGE>
Fund's Common Stock, the Offer will result in a dilution of net asset value per
share for all shareholders, which will disproportionately affect shareholders
who do not exercise their Rights. Although it is not possible to state precisely
the amount of such decrease in net asset value because it is not known at the
date of this Prospectus how many Shares will be subscribed for, or what the
Subscription Price will be, such dilution might be substantial. For example,
assuming all Rights are exercised at the Estimated Subscription Price, including
up to an additional 25% of the Shares which may be issued to satisfy
over-subscriptions, the Fund's current net asset value of $8.54 per share would
be reduced by approximately $.28 or 3.28%, taking into account the expenses of
the Offer.
It is expected that no dividends or other distributions will be payable with
respect to the Shares offered hereby until November 20, 1996.
CERTAIN IMPACT ON FEES
The Fund's investment adviser and administrator will benefit from the Offer
because the investment advisory and administration fees are based on the net
assets of the Fund. See "Management of the Fund." It is not possible to state
precisely the amount of additional compensation the Fund's investment adviser or
administrator will receive as a result of the Offer because it is not known how
many Shares will be subscribed for and because the proceeds of the Offer will be
invested in additional portfolio securities which will fluctuate in value.
However, assuming all Rights are exercised at the Estimated Subscription Price,
including up to an additional 25% of the Shares which may be issued to satisfy
over-subscriptions, the annual compensation to be received by the Fund's
investment adviser and administrator would be increased by approximately
$386,400 and $77,280, respectively. One of the Fund's directors who voted to
authorize the Offer is an "interested person" of the Fund within the meaning of
the 1940 Act because of his position as a director and an officer of BEA
Associates. This director could benefit indirectly from the Offer because of his
affiliation. The other three directors are not "interested persons" of the Fund.
See "Management of the Fund" in the SAI.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- --------------------------------------------------------------- -------------------------------------------------
<S> <C>
Record Date.................................................... September 27, 1996
Subscription Period............................................ September 27, 1996 to October 22, 1996*
Payment for Shares or Notices of Guaranteed Delivery Due....... October 22, 1996*
Expiration and Pricing Date.................................... October 22, 1996*
Payment for Guarantees of Delivery Due......................... October 25, 1996*
Confirmation to Participants................................... November 1, 1996*
Final Payment for Shares....................................... November 15, 1996*
</TABLE>
- ---------
* Unless the Offer is extended to a date not later than October 25, 1996.
THE FUND
The Fund, incorporated in Maryland on February 10, 1987, is a diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's Common Stock is traded on the New York Stock Exchange under the symbol
"FBF."
The Fund commenced operations on March 23, 1987 after an initial public
offering of 24,000,000 shares of the Common Stock, the net proceeds to the Fund
of which were approximately $222,902,000.
The Fund's investment objective is current income consistent with the
preservation of capital. The Fund seeks to achieve its objective by investing
primarily in fixed-income securities, such as bonds, debentures and preferred
stocks. Under normal circumstances, the Fund will invest at least 75% of its
total assets in fixed-income securities. The Fund may also invest up to 25% of
its assets in money market instruments, such as certificates of deposit,
commercial paper, bankers' acceptances and repurchase agreements. The Fund may
hold securities deemed to be Temporary Investments (as defined below).
16
<PAGE>
At June 30, 1996, the Fund's portfolio of investments was composed as
follows (as a percentage of net assets): corporate obligations (78.5%);
government and agency securities (8.4%); collateralized securities (3.7%); asset
backed obligations (3.3%); common stocks (1.8%); preferred stocks (0.8%);
warrants (0.3%); rights (0.0%) and units (2.1%). At the same date, 67.2% of the
Fund's net assets were invested in high yield fixed-income securities.
The table below sets forth the percentages of the Fund's assets invested
during the fiscal year ended December 31, 1995 in the various Standard & Poor's
Rating Group ("S&P") and Moody's Investors Service, Inc. ("Moody's") rating
categories and in unrated securities determined by BEA Associates to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all securities held by the Fund during the 1995 fiscal year,
computed on a monthly basis. For information regarding the various ratings of
Moody's and S&P, see the Appendix to this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
--------------------------------------------------------
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING AS A PERCENTAGE OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE TOTAL
- -------------------------------------------------------------- ------------------- ---------------------- -----------
<S> <C> <C> <C>
AAA/Aaa....................................................... 4.13% 4.13%
AA/Aa......................................................... -- -- --
A/A........................................................... 8.33% 8.33%
BBB/Baa....................................................... 9.20% 9.20%
BB/Ba......................................................... 5.50% 5.50%
B/B........................................................... 55.30% 2.21% 57.51%
CCC/Caa....................................................... 6.72% 1.17% 7.89%
CC/Ca......................................................... 0.21% -- 0.21%
C/C........................................................... -- -- --
D............................................................. 0.00% 0.78% 0.78%
Subtotal................................................ 89.39% 4.16% 93.55%
U.S. Government, Equities and Other........................... 6.45% n/a 6.45%
Total................................................... 95.84% 4.16% 100.00%
</TABLE>
- ---------
n/a: not applicable
The percentage of the Fund's assets invested in securities of various grades
may from time to time vary substantially from those set forth above. Under
current market conditions, BEA Associates anticipates that a substantial portion
of the net proceeds of the offer will be invested in securities rated B or lower
by S&P or Moody's (or unrated but deemed of comparable quality by BEA
Associates), which would cause the percentage of the Fund's portfolio invested
in securities rated B or lower (or unrated but deemed of comparable quality by
BEA Associates) to increase from its current level. See "Risk Factors and
Special Considerations--Lower Rated Securities."
At June 30, 1996 the Fund's assets were invested in the following industries
and financial instruments:
<TABLE>
<CAPTION>
% OF FUND'S NET
INDUSTRY ASSETS
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Communications 21.32%
Services 11.51%
Industrial Goods & Materials 10.99%
Manufacturing 10.92%
Finance 10.03%
U.S. Gvts. (including Mortgage-Backed Securities) 8.42%
CMOs & Asset Backed Securities 6.99%
Consumer Products 6.10%
Retail Trade 5.67%
Transportation 2.64%
Rights, Warrants & Units 2.49%
Oil, Gas & Electric 1.81%
------
Total Investments 98.89%
Net Other Assets 1.11%
------
Net Assets 100.00%
</TABLE>
17
<PAGE>
The Fund's ten largest holdings at June 30, 1996 (as a percentage of net
assets) were:
<TABLE>
<CAPTION>
% OF FUND'S
POSITION NET ASSETS
--------------------------------------------------------------------------- --------------
<S> <C> <C>
1) Drexel, Burnham & Lambert Trust
Remic-PAC Series S, Class 2, 9.00%, 8/01/18 3.12%
2) U.S. Treasury Note
5.375%, 5/31/98 2.92%
3) Federal National Mortgage Association
Remic-PAC Series 1989-23, Class D, 10.20%, 9/25/18 1.98%
4) American Express Co. Eurobond
Zero Coupon, 12/12/00 1.79%
5) Ferrovie dello Stato Notes
9.125%, 7/6/09 1.64%
6) Meditrust Convertible Debentures
7.50%, 3/01/01 1.45%
7) Goldman Sachs Group L.P. MTN
6.20%, 2/15/01 1.40%
8) U.S. Treasury Note
7.25%, 5/15/04 1.30%
9) Household Affinity Credit Card Master Trust I
Series 1993-S, Class B, 4.95%, 3/15/99 1.20%
10) Merrill Lynch Home Equity Acceptance Trust
Series 1994-A, Class A-2, 6.25%, 7/17/22 0.99%
</TABLE>
USE OF PROCEEDS
Assuming all Shares offered pursuant to the Primary Subscription are sold at
the Estimated Subscription Price, the net proceeds of the Offer are estimated to
be $61,713,973, after payment of the Dealer Manager's fees, the soliciting fees
and the estimated offering expenses. These expenses will be borne by the Fund
and will reduce the net asset value of the Common Stock. If the Fund increases
the number of Shares subject to the Offer by 25%, or 2,032,114 Shares, in order
to satisfy over-subscription requests, the additional net proceeds will be
approximately $15,565,993. The Fund expects that, subject to market conditions,
substantially all of the net proceeds of the Offer will be invested in
accordance with the Fund's investment objective and policies approximately
within one month from the date of their receipt by the Fund. Pending such
investment, the proceeds will be invested in certain short-term debt
instruments, as described under "Investment Objective and Policies--Temporary
Investments."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following special considerations associated
with an exercise of Rights and an additional investment in the Fund.
CERTAIN EFFECTS OF THE OFFER
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would be
the case if the Offer had not been made. In addition, an immediate dilution of
the net asset value per share will be experienced by all shareholders as a
result of the Offer because the Subscription Price will be less than the then
current net asset value per share, the Fund will bear the expenses of the Offer
and the number of shares outstanding after the Offer will have increased
proportionately more than the increase in the size of the Fund's net assets.
Although it is not possible to state precisely the amount of such a decrease in
value, because it is not known at this time how many Shares will be subscribed
for or what the Subscription Price will be, such dilution might be substantial.
For example, if the Subscription Price per Share is $8.11, representing a price
that is 95% of an assumed net asset value per share of $8.54, assuming that all
Rights are exercised, including an additional 25% of the Shares which may be
issued to satisfy over-subscription requests, the Fund's net asset value per
share would be reduced by
18
<PAGE>
approximately $.23 per share. If, on the other hand, the Subscription Price
represents a price that is less than 95% of the Fund's then net asset value,
which would be the case if the Subscription Price is set at a time when the
market price per share is lower than the net asset value per share, the dilution
would be greater. For example, if the Subscription Price per Share is $7.96,
representing a price which is only 93% of the net asset value per share,
assuming that all Rights are exercised, including an additional 25% of the
Shares which may be issued to satisfy over-subscription requests, the Fund's net
asset value per share would be reduced by approximately $.28 per share. The
foregoing examples assumed Subscription Prices of $8.11 and $7.96 per Share,
respectively. The actual Subscription Price may be greater or less than such
assumed Subscription Price. This dilution of net asset value per share will
disproportionately affect shareholders who do not exercise their Rights.
RISKS ASSOCIATED WITH INVESTMENTS IN FIXED-INCOME SECURITIES
Bond prices generally vary inversely in relation to changes in the level of
interest rates, as well as in response to other market factors and changes in
the creditworthiness of the issuers of the securities. The value of a portfolio
of fixed-income securities can generally be expected to rise when interest rates
decline and to decline when interest rates rise. Longer-term securities in which
the Fund may invest generally offer a higher current yield than is offered by
shorter-term securities, but also generally involve greater volatility of price
and risk of capital than shorter-term securities. Securities in which the Fund
invests include zero coupon bonds and other securities that do not produce
current income which may reduce the Fund's ability to generate current income in
accordance with its investment objective. In addition, the market value of
certain securities in which the Fund may invest, such as mortgage-backed
securities, zero coupon securities, securities that are purchased at a discount
to their par value and stripped income securities tend to be more volatile in
response to changes in interest rates than that of traditional fixed-income
securities.
LOWER-RATED SECURITIES
At any time, a substantial portion of the Fund's assets may be invested in
medium-grade or below investment grade fixed-income securities as determined by
a nationally recognized rating service and in unrated securities deemed of
comparable quality by BEA Associates. Investment in lower-rated securities
typically involves risks not associated with higher-rated securities, including,
among others, overall greater risk that timely and ultimate payment of interest
and principal will not occur, potentially greater sensitivity to general
economic conditions, greater market price volatility and potential illiquidity.
In addition, ratings are relative and subjective and not absolute standards of
quality. Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition.
Securities rated in the lowest investment grade (Baa or BBB) have
speculative characteristics and securities rated below investment grade have
speculative elements and a greater vulnerability to default than higher-rated
securities. Lower-rated and comparable unrated securities (commonly referred to
as "junk bonds") (i) will likely have some quality and protective
characteristics that, in the judgment of the rating service, are outweighed by
large uncertainties or major-risk exposures to adverse economic conditions and
(ii) are predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. The risk of loss due to default by such
issuers is significantly greater because medium- and lower-rated securities and
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. These risks are significantly
increased for securities having the lowest below investment grade ratings and,
as a result, such securities are generally considered to have extremely poor
prospects of ever attaining any real investment standing. In addition, the Fund
may purchase securities that are in default or not current in the payment of
interest or principal. No assurance can be given that the securities purchased
by the Fund will continue to earn yields comparable to those earned
historically, nor can any assurance be given that issuers whose obligations the
Fund acquires will make payments on such obligations as they become due.
19
<PAGE>
Lower-rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher-rated securities.
Economic downturns or increases in interest rates may result in higher rates of
default for lower-rated securities than for higher-rated securities. The prices
of lower-rated securities have been found to be less sensitive to interest rate
changes than those of higher-rated securities, but to be more sensitive to
adverse economic downturns or individual corporate developments.
The market value of securities in lower-rated categories is more volatile
than that of higher-quality securities. The markets in which lower-rated
securities are traded are more limited than those in which higher-rated
securities are traded. Adverse publicity and investors' perceptions, whether or
not based on fundamental analyses, may decrease the values and liquidity of
lower-rated securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of lower-rated securities may be more complex than
for issuers of higher-rated securities, and the ability of the Fund to achieve
its investment objective may, to the extent of investment in lower-rated
securities, be more dependent upon such creditworthiness analysis than would be
the case if the Fund were investing in higher-rated securities.
The more limited size of the markets in which lower-rated securities are
traded may result in reducing the Fund's ability to dispose of certain of its
investments. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Fund's ability to dispose of particular issues and
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund assets and calculating its net asset value.
In addition, certain of the Fund's investments in high yield securities may
be subject to special tax considerations. Interest on high yield securities
structured as zero coupon or paid-in-kind securities must be reported as income
by the Fund, although no cash is received until such securities' maturity or
payment date. Under the Code, the Fund is required to distribute all its
investment income. In order to maintain its status as a regulated investment
company, the Fund could therefore be required to dispose of portfolio securities
or leverage its portfolio to generate cash for distribution. There is no
assurance that any such disposition could be made at favorable market
conditions.
For a complete description of rating systems of Moody's and S&P, see the
Appendix to this Prospectus.
NON PUBLICLY-TRADED SECURITIES; RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the
Securities Act but that can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
Nonpublicly-traded securities, including Rule 144A Securities, may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly-traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly-traded securities. Further, companies whose securities are not
publicly-traded may not be subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly-traded. The Fund's investment in illiquid securities is subject to the
risk that, should the Fund desire to sell any of these securities when a ready
buyer is not available at a price that is deemed to be representative of their
value, the value of the Fund's net assets could be adversely affected.
RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES
The Fund may invest a substantial portion of its total assets in
mortgage-backed securities. The value of mortgaged-backed securities is subject
to change due to shifts in the market's perception of issuers, and regulatory or
tax changes may adversely affect the mortgage securities market as a whole.
Foreclosures and prepayments, which occur when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities on these
securities. Like other debt securities, the values of mortgage-backed securities
will generally fluctuate in response to changes in interest rates. No assurance
can be given as to the liquidity of the market for mortgage-backed securities.
The yield characteristics of mortgage-backed securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently and that principal
20
<PAGE>
may be prepaid at any time because the underlying mortgage loans generally may
be prepaid at any time. As a result, if the Fund purchases a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if the Fund
purchases the securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Certain types of derivative mortgage-backed securities are designed to be highly
sensitive to changes in prepayment and interest rates and can subject the
holders thereof to extreme reduction of yield and possibly loss of principal.
Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographical, social and other factors. Generally, however, prepayments on fixed
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during periods
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates. Adjustable rate mortgages are subject to prepayment risk in a
manner similar to fixed rate mortgages although to a lesser degree.
SHORT SALES
The Fund's investment policies may include short selling. Short sales can,
under certain circumstances, substantially increase the impact of adverse price
movements on the Fund's portfolio. The Fund, however, is restricted from
engaging in uncovered short selling. See "Investment Objective and
Policies--Short Sales" below and "Investment Restrictions" in the SAI.
RISKS OF TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS
The Fund may, for bona fide hedging purposes, purchase and sell interest
rate futures contracts and options thereon that are traded on U.S. futures
exchanges. There are several risks in connection with the use of interest rate
futures contracts as a hedge for transactions and anticipated transactions,
including the potential risk of unlimited loss. Due to the imperfect correlation
between movements in the prices of interest rate futures contracts and movements
in the prices of the underlying securities, the price of a futures contract may
move more than or less than the price of the securities being hedged. In
addition, there is the risk that movements in the prices of interest rate
futures contracts will not correlate with interest rate movements. The Fund is
not required to hedge interest rate risk.
In addition to the possibility that there may be an imperfect correlation
between movements in prices of interest rate futures contracts and portfolio
securities being hedged, the market prices of futures contracts
may be affected by various other factors which may result in significant price
distortions. If participants in the interest rate futures market elect to close
out their contracts through offsetting transactions rather than meet margin
deposit requirements, distortions in the normal relationship between the debt
securities and futures markets could result. Price distortions could also result
if investors in futures contracts opt to make or take delivery of underlying
securities rather than engage in closing transactions due to the resultant
reduction in the liquidity of the interest rate futures market. In addition, due
to the fact that, from the point of view of speculators, the deposit
requirements in the interest rate futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
interest rate futures market could cause temporary price distortions. Due to the
possibility of price distortions in the interest rate futures market and because
of the imperfect correlation between movements in the prices of securities and
movements in the prices of interest rate futures contracts, a correct forecast
of interest rate trends by BEA Associates may still not result in a successful
hedging transaction. If BEA Associates' predictions of movements in the
direction of overall interest rate markets are inaccurate, the adverse
consequences to the Fund may place the Fund in a worse position than if hedging
strategies were not employed.
Positions in interest futures contracts may be closed out only on an
exchange or board of trade which provides a market for such interest rate
futures contracts. Although the Fund intends to purchase or sell interest rate
futures contracts only on exchanges or boards of trade where there appears to be
an active market for such contracts, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract or at
any particular time. In the event a liquid market does not exist, it may not be
possible to close an interest rate futures position at an advantageous price,
and in the event of adverse
21
<PAGE>
price movements, the Fund would continue to be required to make daily cash
payments of maintenance margin. In addition, limitations imposed by an exchange
or board of trade on which interest futures contracts are traded may compel or
prevent the Fund from closing out a contract which may result in reduced gain or
increased loss to the Fund. The absence of a liquid market in futures contracts
might cause the Fund to make or take delivery of the underlying securities at a
time when it may be disadvantageous to do so.
RISKS OF TRANSACTIONS IN OPTIONS ON INTEREST RATE FUTURES CONTRACTS
In addition to the risks which apply to all options transactions and the
risks that apply to futures contracts, there are several special risks relating
to options on interest rate futures contracts. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
secondary market. The Fund will only purchase or write options on futures
contracts which, in the opinion of BEA Associates, are traded on sufficiently
developed markets such that the risks of illiquidity in connection with such
options are not greater than the risks of illiquidity in connection with
transactions in the underlying interest rate futures contracts.
Compared to the purchase or sale of interest rate futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss to
the Fund when the purchase or sale of an interest rate futures contract would
not result in a loss, such as when there is no movement in the prices of the
underlying securities.
Because of an income-tax related limitation on the amount of certain types
of short-term gain that the Fund can recognize in any year, there is a risk that
the Fund may need to defer closing out certain futures contracts and options
thereon in order to continue to qualify for beneficial tax treatment. See
"Taxation."
RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit and certain bankers' acceptances
for the purpose of realizing additional income. The use of repurchase agreements
involves certain risks not associated with direct investment in securities. For
example, if the seller of securities under an agreement defaults on its
obligation to repurchase the underlying securities at the agreed upon repurchase
price at a time when the value of these securities has declined, the Fund may
incur a loss upon their disposition. If such a defaulting seller were to become
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, disposition of the underlying securities could involve
certain costs or delays pending court action. Finally, it is not certain whether
the Fund would be entitled, as against a claim of the seller or its receiver,
trustee in bankruptcy or creditors, to retain the underlying securities. While
BEA Associates acknowledges these risks, it is expected that they can be
controlled by limiting the institutions with which the Fund will enter into
repurchase agreements to the Federal Reserve Bank, Reporting Government
Securities Dealers and member banks of the Federal Reserve System and by
carefully monitoring the creditworthiness of such institutions, other than the
Federal Reserve Bank, by BEA Associates.
MARKET VALUE AND NET ASSET VALUE
Shares of closed-end investment companies frequently trade at a discount to
net asset value. This characteristic of shares of a closed-end fund is a risk
separate and distinct from the risk that the Fund's net asset value will
decrease. In addition, changes in market yields will affect the Fund's net asset
value as prices of fixed-income securities generally increase when interest
rates decline and decrease when interest rates rise. The Fund cannot predict
whether its shares will trade at, below or above net asset value. Since the
commencement of the Fund's operations, the Fund's shares have generally traded
in the market at a discount to net asset value. See "Net Asset Value" and
"Common Stock." The risk of purchasing shares of a closed-end fund that might
trade at a discount is more pronounced for investors who wish to sell their
shares in a relatively short period of time because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance. The Fund's shares are not subject to redemption. Investors desiring
liquidity may, subject to applicable securities laws, trade their shares in the
Fund on any exchange where such shares are then listed at the then
22
<PAGE>
current market value, which may differ from the then current net asset value.
If, at any time, the average discount from net asset value at which shares of
the Fund's Common Stock have traded for any fiscal quarter is substantial in the
determination of the Board of Directors, the Board of Directors will consider,
at its next regularly scheduled quarterly meeting, taking actions designed to
eliminate the discount, including periodic repurchases of shares. See "Common
Stock."
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Fund's investment objective is current income consistent with the
preservation of capital. The Fund seeks to achieve this objective by investing
primarily in fixed-income securities, such as bonds, debentures and preferred
stock. The Fund's investment portfolio will not be managed for capital
appreciation. The Fund's investment objective is a fundamental policy and cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. As used herein, a "majority of the Fund's
outstanding voting securities" means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares. No assurance can be
given that the Fund's investment objective will be achieved. For a more detailed
discussion of the Fund's investment objective and policies, see "Investment
Objective and Policies" in the SAI.
INVESTMENT POLICIES
Under normal circumstances, the Fund will invest at least 75% of its total
assets in fixed-income securities. In January 1992, the Board of Directors
removed the requirement that two-thirds of the Fund's fixed-income securities be
comprised of investment grade securities. Accordingly, the Fund's investments in
fixed-income securities are no longer subject to any rating quality limitation
and a substantial portion or all of the Fund's portfolio may consist of
securities that are rated below investment grade by a nationally recognized
rating service or that are unrated and of comparable quality in the opinion of
BEA Associates. Lower-rated securities generally provide yields superior to
those of more highly rated securities, but involve greater risks and are
speculative in nature. See "Risk Factors and Special Considerations--Lower-Rated
Securities." The market value of lower-rated securities may be more volatile
than the market value of higher-rated securities and generally tends to reflect
the market's perception of the creditworthiness of the issuer and short-term
market developments to a greater extent than more highly rated securities, which
reflect primarily fluctuations in general levels of interest rates. For a
description of the corporate bond ratings of Moody's and S&P, see the Appendix
to the Prospectus.
Depending on market conditions, the Fund may also invest a substantial
portion of its assets in mortgage-backed securities. Mortgage-backed securities
are collateralized by mortgages or interests in mortgages and may be issued by
government or non-government entities. Mortgage-backed securities issued by
government entities typically provide a monthly payment consisting of interest
and principal payments, and additional payments will be made out of unscheduled
prepayments of principal. Non-government issued mortgage-backed securities may
offer higher yields than those issued by government entities, but may be subject
to greater price fluctuations.
Subject to the limitations described under "Other Investment Techniques"
below, the Fund may also invest up to 25% of its total assets in money market
instruments such as certificates of deposit, commercial paper, bankers'
acceptances and repurchase agreements; the Fund, however, currently does not
intend to invest more than 5% in such assets. The Fund may also, for bona fide
hedging purposes, invest in interest rate futures and related options. It is
expected that the average weighted maturity of the Fund investment portfolio
will be 5 to 10 years.
The Fund's policy is to diversify its investments among various securities
and industries only to the extent such diversification appears to enhance the
opportunity to achieve its investment objective. Under the 1940 Act and the
Code, the Fund is also subject to certain portfolio diversification
requirements. The Fund may not invest in a security if after such investment 25%
or more of its total assets, at market value, would be invested in any one
industry.
23
<PAGE>
OTHER INVESTMENT TECHNIQUES
The Fund may enter into repurchase agreements, lend portfolio securities,
purchase securities on a when-issued basis and invest in interest rate futures
and related options.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements
collateralized by U.S. Government securities, certificates of deposit and
certain bankers' acceptances for the purpose of realizing additional income.
Repurchase agreements are transactions by which the Fund purchases a security
and simultaneously commits to resell that security to the seller (a bank or
securities dealer) at an agreed upon price on an agreed upon date (usually
within seven days of purchase). Use of repurchase agreements can permit the Fund
to keep its assets at work while retaining short-term flexibility in pursuit of
investments of a longer-term nature. BEA Associates will continually monitor the
value of the underlying securities to ensure that their value always equals or
exceeds the repurchase price.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to banks,
brokers, dealers and other financial institutions who need to borrow securities
in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations. By
lending its portfolio securities, the Fund attempts to increase its income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities lent that might occur during the term of the loan would
be for the account of the Fund. The Fund may lend its portfolio securities so
long as the terms and the structure of such loans are not inconsistent with the
1940 Act or the rules and regulations or interpretations of the Securities and
Exchange Commission (the "Commission") thereunder. The Fund will not lend
portfolio securities if, as a result, the aggregate of such loans exceeds
33 1/3% of the value of the Fund's total assets. Loan arrangements made by the
Fund will comply with all other applicable regulatory requirements, including
the rules of the New York Stock Exchange. All relevant facts and circumstances,
including the creditworthiness of the borrower, will be considered by BEA
Associates in making decisions with respect to the lending of securities,
subject to review by the Fund's Board of Directors. The creditworthiness of such
bank, broker, dealer or other financial institution will be monitored by BEA
Associates during the time any securities are loaned. In addition, voting rights
may pass with the loaned securities but if a material event were to occur
affecting an investment on a loan, the loan must be called and the securities
voted by the Fund.
SHORT SALE. The Fund may engage in short sales (the sale of securities that
it does not own), but only when it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short ("short sales against the box"), and only if not more than
5% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time.
INTEREST RATE FUTURES AND RELATED OPTIONS. The Fund may purchase and sell
interest rate futures contracts and options thereon that are traded on U.S.
futures exchanges. When the Fund attempts to hedge its portfolio by selling an
interest rate futures contract, purchasing a put option thereon, or writing a
call option thereon, it will own an amount of U.S. Government securities
corresponding to the open futures or option position. The Fund only intends to
engage in futures contracts or options for bona fide hedging purposes. In
instances where the Fund purchases futures, the Fund will segregate with its
custodian an amount of cash, U.S. Government securities or other high-grade,
liquid debt securities equal to the market value of the interest rate futures
contracts and thereby insure that the use of interest rate futures contracts is
unleveraged.
In accordance with the current rules of the Commodity Futures Trading
Commission (the "CFTC"), the Fund will not enter into any interest rate futures
contract or option thereon if, immediately thereafter, the aggregate initial
margin for all existing futures contracts and options thereon not entered into
for bona fide hedging purposes and for premiums paid for such options would
exceed 5% of the Fund's total assets. The Fund will not enter into any such
contract or option thereon, if, as a result thereof, more than 50% of the Fund's
total assets would be hedged.
In contrast to the purchase or sale of a security, the full purchase price
of the futures contract is not paid or received by the Fund upon its purchase or
sale. Instead, the Fund will deposit in a segregated custodial account as
initial margin an amount of cash or U.S. Treasury bills equal to approximately
5% of the value of
24
<PAGE>
the contract. At any time prior to expiration of the futures contract, the Fund
may elect to terminate the position by taking an opposite position. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain. No
assurance can be given that the Fund will be able to take an opposite position.
The selection of futures and options strategies requires skills different
from those needed to select portfolio securities; however, BEA Associates does
have experience in the use of futures and options.
DIRECT PLACEMENT. As noted under "Investment Restrictions" in the SAI, the
Fund may invest up to 10% of its assets in securities that are not readily
marketable. The portion of the Fund's portfolio that may be invested in such
securities (other than in repurchase agreements) may be purchased in placements
from the securities' issuer or in the secondary market for such directly placed
securities ("Direct Placement Securities"). The purchase of Direct Placement
Securities will depend on the relative attractiveness of those securities as
compared to securities which have been publicly offered.
TEMPORARY INVESTMENTS
The Fund may, for temporary defensive purposes, invest its assets in money
market instruments and interest rate futures and related options without regard
to any percentage limitation on total assets invested or hedged, as the case may
be. The Fund may also, for temporary defensive purposes, invest in short-term
(less than twelve months to maturity) debt securities rated at least A by
Moody's or S&P. Subject to its limitation on investments in money market
instruments, the Fund may also invest in short-term debt securities rated at
least Baa by Moody's or BBB by S&P to commit overnight cash balances.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors, and the day to day operations of the Fund are
conducted through or under the direction of the officers of the Fund. For
certain information regarding the directors and officers of the Fund, see
"Management of the Fund--Directors and Officers" in the SAI.
BEA ASSOCIATES
BEA Associates serves as the Fund's investment adviser pursuant to an
Advisory Agreement with the Fund (the "Advisory Agreement") which became
effective on June 13, 1995. Prior to that date, CS First Boston Investment
Management Corporation ("CSIM") provided investment advisory services to the
Fund.
BEA Associates is a general partnership organized under the laws of the
State of New York and, together, with its predecessor firms, has been engaged in
the investment advisory business for over 50 years. BEA Associates is located at
One Citicorp Center, 57th Floor, 153 East 53rd Street, New York, New York 10022.
Credit Suisse Capital Corporation ("CS Capital") is an 80% partner and CS
Advisors Corp., a New York corporation and a wholly owned subsidiary of CS
Capital, is a 20% partner in BEA Associates. CS Capital is a wholly owned
subsidiary of Credit Suisse Investment Corporation, which is a wholly owned
subsidiary of Credit Suisse, the second largest Swiss bank, which in turn is a
subsidiary of CS Holding, a Swiss corporation. BEA Associates is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended.
BEA Associates is a diversified asset manager, handling global equity,
balanced, fixed income and derivative securities accounts for private
individuals, as well as corporate pension and profit-sharing plans, state
pension funds, union funds, endowments and other charitable institutions. As of
June 30, 1996, BEA Associates managed in excess of $28.7 billion of assets.
BEA Associates has sole investment discretion for the Fund with respect to
the Fund's portfolio under the supervision of the Fund's Board of Directors and
in accordance with the Fund's stated policies. BEA Associates will select
investments for the Fund and will place purchase and sale orders on behalf of
the Fund. For its services, BEA Associates is paid a quarterly fee computed at
an annual rate of 0.50% of the Fund's average weekly net assets.
25
<PAGE>
PORTFOLIO MANAGEMENT
Robert Moore, who has been an Executive Director and the Chief Operating
Officer of BEA Associates since 1995, is primarily responsible for management of
the Fund's assets. Mr. Moore has served the Fund in such capacity since June
1995. Mr. Moore joined BEA Associates in 1987. He is President and Chief
Investment Officer of the Fund and is also President and Chief Investment
Officer of BEA Strategic Income Fund, Inc.
ADMINISTRATOR
Chase Global Funds Services Company, a Delaware corporation, serves as the
Fund's administrator pursuant to an agreement with the Fund (the "Administration
Agreement"). The Administrator's principal offices are located at 73 Tremont
Street, Boston, Massachusetts. Under the Administration Agreement, the Fund pays
the Administrator a monthly fee that is computed weekly at an annual rate of
0.15% of the Fund's first $100 million of average weekly net assets, 0.10% of
the Fund's next $300 million of average weekly net assets and 0.05% of the
Fund's average weekly net assets in excess of $400 million.
The Administrator provides office facilities and personnel adequate to
perform services for the Fund, including without limitation the following:
oversight of the determination and publication of the Fund's net asset value in
accordance with the Fund's policy as adopted from time to time by the Board of
Directors; oversee the maintenance of the books and records of the Fund as
required under the 1940 Act; assist in preparation and filing of the Fund's U.S.
federal, state and local income tax returns; preparation of financial
information for the Fund's proxy statements and semiannual and annual reports to
shareholders; and preparation of certain of the Fund's reports to the Securities
and Exchange Commission.
ESTIMATED EXPENSES
BEA Associates and the Administrator are each obligated to pay expenses
associated with providing the services contemplated by the agreements to which
they are parties, including compensation of and office space for their
respective officers and employees connected with investment and economic
research, trading and investment management and administration of the Fund, as
well as the fees of all directors of the Fund who are affiliated with those
companies or any of their affiliates. The Fund pays all other expenses incurred
in the operation of the Fund including, among other things, expenses for legal
and independent accountants' services, costs of printing proxies, stock
certificates and shareholder reports, charges of the custodians, any
sub-custodians and the transfer and dividend-paying agent, expenses in
connection with the Plan, Securities and Exchange Commission fees, fees and
expenses of unaffiliated directors, accounting and pricing costs, membership
fees in trade associations, fidelity bond coverage for the Fund's officers and
employees, directors' and officers' errors and omissions insurance coverage,
interest, brokerage costs and stock exchange fees, taxes, stock exchange listing
fees and expenses, expenses of qualifying the Fund's shares for sale in various
states, litigation and other extraordinary or non-recurring expenses and other
expenses properly payable by the Fund.
PORTFOLIO TRANSACTIONS
The Fund may utilize CS First Boston Corporation and other affiliates of
Credit Suisse in connection with the purchase or sale of securities in
accordance with rules or exemptive orders adopted by the Securities and Exchange
Commission when BEA Associates believes that the charge for the transaction does
not exceed usual and customary levels. For a more detailed discussion of the
Fund's brokerage allocation practice, see the SAI under "Portfolio
Transactions."
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN
The Fund's policy is to make distributions of net investment income to
shareholders monthly on or about the fifteenth day of each month and to make
distributions at least annually of any net capital gains in excess of applicable
capital losses, including capital loss carryforwards.
26
<PAGE>
All dividends and distributions, net of any applicable U.S. withholding tax,
are automatically reinvested in additional shares of the Fund unless a
shareholder has instructed Chase Manhattan, as the Plan Agent (the "Plan
Agent"), otherwise in writing. A shareholder whose shares are held by a broker
or nominee that does not provide a dividend reinvestment program may be required
to have his shares registered in his own name to participate in the Plan. The
receipt of dividends and distributions in shares under the Plan will not relieve
participants of any income tax (including withholding tax) that may be payable
on such dividends or distributions.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declares an income dividend or a
capital gains distribution payable either in Common Stock or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive Common Stock. Whenever the market
price per share on the valuation date equals or exceeds net asset value per
share at the time shares are valued for the purpose of determining the number of
shares equivalent to the cash dividend or distribution, the Fund will issue new
shares to participants valued at net asset value or, if the net asset value is
less than 95% of the market price on that date, then valued at 95% of the market
price. If net asset value per share as determined at the time of purchase
exceeds the market price per share on that date, or if the Fund should declare a
dividend or other distribution payable only in cash, the Plan Agent, as agent
for the participants, will buy shares of Common Stock on the open market, on the
New York Stock Exchange or elsewhere, for the participants' accounts. The
valuation date generally is the dividend or distribution payment date or, if
that date is not a New York Stock Exchange trading day, the next preceding
trading day. If the Fund should declare an income dividend or capital gains
distribution payable only in cash, the Plan Agent will, as agent for the
participants, buy Fund shares in the open market, on the New York Stock Exchange
or elsewhere, for the participants' accounts on, or shortly after, the payment
date.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment in
the Fund's Common Stock through purchases on the open market.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either shares or cash. However, each participant
will be charged by the Plan Agent a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with voluntary cash payments made by the participant or the reinvestment of
dividends or capital gains distributions payable only in cash. All
correspondence concerning the Plan should be directed to The Chase Manhattan
Bank, Dividend Reinvestment Department--Retail Processing, 770 Broadway, 7th
Floor, New York, New York 10003-9598 or by telephone at 1-800-428-8890. For a
more complete description of the Plan, see "Dividend Reinvestment and Cash
Purchase Plan" in the SAI.
TAXATION
The Fund has qualified and intends to continue to qualify and elect to be
treated as a regulated investment company for each taxable year under the Code.
The Fund pays monthly dividends of net investment income and makes distributions
at least annually of any net realized long-term and short-term capital gains in
excess of applicable capital losses, including capital loss carryforwards. The
Board of Directors of the Fund will determine annually whether to distribute any
net realized long-term capital gains in excess of net realized short-term
capital losses (including any capital loss carryovers). The Fund currently
expects to distribute any excess annually to its shareholders. However, if the
Fund retains for investment an amount equal to its net realized long-term
capital gains in excess of its net realized short-term capital losses and
capital loss carryovers, it will be subject to a corporate tax (currently at a
rate of 35%) on the amount retained. In that event, the Fund expects to
designate such retained amounts as undistributed capital gains in
27
<PAGE>
a notice to its shareholders who (a) will be required to include in income for
United States federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the Fund on the undistributed
amount against their United States federal income tax liabilities, if any, and
to claim refunds to the extent their credits exceed their liabilities, if any,
and (c) will be entitled to increase their tax basis, for United States federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income.
Shareholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will also receive, if appropriate, various written notices after the close of
the Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by the Fund to its shareholders during the
preceding taxable year. For a more detailed discussion of tax matters affecting
the Fund and its shareholders, see "Taxation" in the SAI.
NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange on the last business day of each week, by dividing the value of
the Fund's net assets (the value of its assets less its liabilities, exclusive
of capital stock and surplus) by the total number of shares of Common Stock
outstanding. Net asset value includes interest on fixed-income securities which
is accrued daily. Securities which are traded over-the-counter and on a stock
exchange will be valued according to the broadest and most representative
market, and it is expected that for bonds and other fixed-income securities this
ordinarily will be the over-the-counter market. Notwithstanding the above, bonds
and other fixed-income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Securities not priced in this manner are valued
at the most recent current quoted bid price, or when stock exchange valuations
are used, at the latest quoted sale price on the date of valuation. Short-term
debt securities which mature in less than 60 days are valued at amortized cost
if their term to maturity from date of purchase by the Fund was less than 60
days, or by amortizing their value on the 61st day if their term to maturity on
the date acquired by the Fund was more than 60 days, unless this is determined
by the Board of Directors not to represent fair value. The value of other assets
and securities for which no current quotations are readily available are
determined in good faith at fair value using methods approved by the Directors.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock, $.001 par value per share. All shares of Common Stock have equal rights
as to dividends and voting privileges and, when issued, will be fully paid and
nonassessable. There are no conversion, preemptive or other subscription rights.
In the event of liquidation, each share of Common Stock is entitled to its
proportion of the Fund's assets after debts and expenses. Shareholders are
entitled to one vote per share and do not have cumulative voting rights.
Set forth below is information with respect to the Common Stock as of August
31, 1996:
<TABLE>
<CAPTION>
AMOUNT HELD BY FUND
AMOUNT AUTHORIZED FOR ITS OWN ACCOUNT AMOUNT OUTSTANDING
- --------------------- -------------------- -------------------
<S> <C> <C>
100,000,000 Shares 0 Shares 24,385,367
</TABLE>
The number of shares outstanding as of August 31, 1996, adjusted to give
effect to the issuance of all the Shares pursuant to the Offer, including up to
25% of the Shares available for issuance pursuant to the Over-Subscription
Privilege, would be 34,545,937.
The Fund's shares are listed and traded on the New York Stock Exchange. The
average weekly trading volume of the Common Stock on the New York Stock Exchange
during the year ended December 31, 1995 was 124,877 shares. The following table
sets forth for the quarters indicated the high and low sales prices on
28
<PAGE>
the New York Stock Exchange per share of Common Stock and the net asset value
and the premium or discount from net asset value at which the Common Stock was
trading, expressed as a percentage of net asset value, at each of the high and
low sales prices provided.
<TABLE>
<CAPTION>
DISCOUNT AS % OF NAV(2)
MARKET PRICE(1) NET ASSET VALUE
-------------------- -------------------- ------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ---------------------------------------------------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994...................................... $ 8.50 $ 7.75 $ 9.08 $ 8.91 6.39% 13.02%
June 30, 1994....................................... 8.00 7.38 8.67 8.48 7.73 13.03
September 30, 1994.................................. 7.75 7.00 8.36 8.17 7.30 14.32
December 31, 1994................................... 7.25 6.75 8.11 8.11 10.60 16.77
March 31, 1995...................................... 7.63 7.00 8.24 7.95 7.46 11.95
June 30, 1995....................................... 7.75 7.25 8.54 8.36 9.25 13.28
September 30, 1995.................................. 7.75 7.50 8.55 8.59 9.36 12.69
December 31, 1995................................... 8.00 7.50 8.63 8.58 7.30 12.59
March 31, 1996...................................... 8.50 7.88 8.60 8.49 1.16 7.24
June 30, 1996....................................... 8.25 7.75 8.51 8.53 3.06 9.14
September 30, 1996*................................. 8.63 8.00 8.54 8.42 (1.05) 4.99
</TABLE>
- ---------
(1) As reported by the New York Stock Exchange.
(2) Based on the Fund's computations.
* Through September 20, 1996.
The Fund's By-laws provide that if, for any fiscal quarter, the average
discount from net asset value at which shares of the Fund's Common Stock have
traded is substantial in the determination of the Board of Directors, the Board
of Directors of the Fund will consider, at its next regularly scheduled
quarterly meeting, taking actions designed to eliminate the discount, including
periodic repurchases of shares or amendments to the Fund's Articles of
Incorporation to convert the Fund to an open-end investment company. Any such
amendment would require a favorable vote of a majority of the shares entitled to
vote on the matter and 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 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.
The Fund's Board of Directors has approved a share repurchase program
authorizing the Fund from time to time to make open-market purchases of shares
of the Fund on the New York Stock Exchange up to 10% of the number of shares of
the Fund that were outstanding as of December 11, 1990. There were no
repurchases of shares during the year ended December 31, 1995.
CUSTODIAN AND TRANSFER AND DIVIDEND-PAYING AGENT AND REGISTRAR
The Chase Manhattan Bank, 770 Broadway, New York, New York 10003, acts as
the custodian for the Fund's assets. The Chase Manhattan Bank, 73 Tremont
Street, Boston, Massachusetts 02108, also acts as the Fund's accounting agent,
dividend-paying agent, transfer agent and registrar.
29
<PAGE>
DISTRIBUTION ARRANGEMENTS
Smith Barney Inc., located at 388 Greenwich Street, New York, New York
10013, will act as Dealer Manager for the Offer. Under the terms and subject to
the conditions contained in a Dealer Manager Agreement, the Dealer Manager will
provide financial advisory services and marketing assistance in connection with
the Offer and will solicit the exercise of Rights by Record Date Shareholders.
The Offer is not contingent upon any number of Rights being exercised. The Fund
has agreed to pay the Dealer Manager a fee for financial advisory and marketing
services equal to 1.25% of the Subscription Price per Share for shares issued
upon exercise of the Rights and the Over-Subscription Privilege and to pay
broker-dealers, including the Dealer Manager, fees for their soliciting efforts
("Soliciting Fees") of 2.50% of the Subscription Price per Share for each Share
issued upon exercise of the Rights and the Over-Subscription Privilege.
Soliciting Fees will be paid to the broker-dealer designated on the applicable
portion of the Subscription Certificates, or if no broker-dealer is so
designated, to the Dealer Manager.
The Fund has also agreed to reimburse the Dealer Manager up to $100,000 for
its reasonable expenses incurred in connection with the Offer.
The Fund and BEA Associates have agreed to indemnify the Dealer Manager or
to contribute for losses arising out of certain liabilities including
liabilities under the Securities Act. The Dealer Manager Agreement also provides
that the Dealer Manager will not be subject to any liability to the Fund in
rendering the services contemplated by the Agreement except in instances
involving the bad faith, willful misfeasance, or gross negligence of the Dealer
Manager or the reckless disregard by the Dealer Manager of its obligations and
duties under the Agreement.
The Fund has agreed, subject to certain exceptions, not to offer or sell, or
enter into any agreement to sell, any equity or equity related securities of the
Fund or securities convertible into such securities for a period of 180 days
after the date of the Dealer Manager Agreement without the prior consent of the
Dealer Manager.
LEGAL MATTERS
With respect to matters of United States law, the validity of the shares
offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, New
York, New York. Certain legal matters will be passed on for the Dealer Manager
by Skadden, Arps, Slate, Meagher & Flom, Boston, Massachusetts. Counsel for the
Fund and the Dealer Manager may rely, as to matters of Maryland law, on Venable,
Baetjer and Howard, LLP, Baltimore, Maryland.
EXPERTS
The financial statements of the Fund as of December 31, 1995 have been
incorporated by reference into the SAI in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing. Price Waterhouse LLP is located at 1177
Avenue of the Americas, New York, New York 10036.
FURTHER INFORMATION
Further information concerning these securities and their issuer may be
found in the Registration Statement of which this Prospectus constitutes a part
on file with the Securities and Exchange Commission. The Commission maintains a
World Wide Web site on the Internet at http://www.sec.gov. that contains the
Prospectus, material incorporated by reference and other information regarding
registrants, such as the Fund, that file electronically with the Commission.
30
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TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
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<S> <C>
General Information........................................................................................ 2
Investment Objectives and Policies......................................................................... 2
Investment Restrictions.................................................................................... 6
Management of the Fund..................................................................................... 8
Portfolio Transactions..................................................................................... 11
Dividend Reinvestment and Cash Purchase Plan............................................................... 12
Taxation................................................................................................... 14
Net Asset Value............................................................................................ 18
Common Stock............................................................................................... 18
Financial Statements....................................................................................... 18
</TABLE>
31
<PAGE>
APPENDIX
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
</TABLE>
Moody's applies numerical modifiers (1, 2, and 3) with respect to the bonds
rated "Aa" through "B." The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
<TABLE>
<S> <C>
Ba Bonds that are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds that are rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca Bonds that are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
</TABLE>
STANDARD & POOR'S RATINGS GROUP
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong.
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from AAA issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
</TABLE>
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the lowest degree of speculation, and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions. Debt rated D is in payment default.
<TABLE>
<S> <C>
BB Debt rated 'BB' has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The 'BB' rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The 'CCC' rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-'
rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt that is
assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which is
assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
</TABLE>
In July 1994, Standard & Poor's initiated an "r" symbol to its ratings. The
"r" symbol is attached to derivative, hybrid and certain other obligations that
Standard & Poor's believes may experience high variability in expected returns
due to non-credit risks created by the terms of the obligation.
A-2
<PAGE>
MODIFIERS
Standard & Poor's may apply plus (+) or minus (-) modifiers with respect to
bonds rated "AA" through "CCC." These modifiers show the bond's relative
standing within the major rating categories.
A-3
<PAGE>
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, THE FUND'S INVESTMENT ADVISER OR THE DEALER
MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
AS SET FORTH IN THE PROSPECTUS OR IN THE AFFAIRS OF THE FUND SINCE THE DATE
HEREOF. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED
BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................... 3
Fee Table........................................ 8
Financial Highlights............................. 9
The Offer........................................ 10
The Fund......................................... 16
Use of Proceeds.................................. 18
Risk Factors and Special Considerations.......... 18
Investment Objective and Policies................ 23
Management of the Fund........................... 25
Portfolio Transactions........................... 26
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan............. 26
Taxation......................................... 27
Net Asset Value.................................. 28
Common Stock..................................... 28
Custodian and Transfer and Dividend-Paying Agent
and Registrar................................... 29
Distribution Arrangements........................ 30
Legal Matters.................................... 30
Experts.......................................... 30
Further Information.............................. 30
Table of Contents of Statement of Additional
Information..................................... 31
Appendix......................................... A-1
</TABLE>
BEA INCOME FUND, INC.
8,278,456 SHARES OF
COMMON STOCK ISSUABLE UPON
EXERCISE OF RIGHTS TO SUBSCRIBE
TO SUCH SHARES
---------
PROSPECTUS
SEPTEMBER 26, 1996
---------
SMITH BARNEY INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BEA INCOME FUND, INC.
------------
STATEMENT OF ADDITIONAL INFORMATION
BEA Income Fund, Inc. (the "Fund") is a diversified, closed-end management
investment company seeking current income consistent with the preservation of
capital. The Fund seeks to achieve this objective primarily through investment
in fixed-income securities, such as bonds, debentures and preferred stocks.
Under normal circumstances, at least 75% of the Fund's total assets will be
invested in fixed-income securities.
This Statement of Additional Information ("SAI") is not a prospectus, but
should be read in conjunction with the Prospectus for the Fund dated September
27, 1996 (the "Prospectus"). This SAI does not include all information that a
prospective investor should consider before purchasing shares of the Fund, and
investors should obtain and read the Prospectus prior to purchasing shares. A
copy of the Prospectus may be obtained without charge, by calling (800)
733-8481, extension 349, and from ouside the United States, by calling (212)
805-7000. This SAI incorporates by reference the entire prospectus.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
GENERAL INFORMATION........................................................................................ 2
INVESTMENT OBJECTIVE AND POLICIES.......................................................................... 2
INVESTMENT RESTRICTIONS.................................................................................... 6
MANAGEMENT OF THE FUND..................................................................................... 8
PORTFOLIO TRANSACTIONS..................................................................................... 11
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN............................................................... 12
TAXATION................................................................................................... 14
NET ASSET VALUE............................................................................................ 18
COMMON STOCK............................................................................................... 18
FINANCIAL STATEMENTS....................................................................................... 18
</TABLE>
-------------------
The Prospectus and this SAI omit certain of the information contained in the
registration statement filed with the Securities and Exchange Commission,
Washington, D.C. The registration statement may be obtained from the Securities
and Exchange Commission upon payment of the fee prescribed, or inspected at the
Securities and Exchange Commission's office at no charge.
-------------------
This Statement of Additional Information is dated
September 27, 1996.
<PAGE>
GENERAL INFORMATION
The Fund changed its name from First Boston Income Fund, Inc. to CS First
Boston Income Fund, Inc. in June 1994 and to BEA Income Fund, Inc. in June 1995.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is current income consistent with the
preservation of capital. The Fund seeks to achieve this objective by investing
primarily in fixed-income securities, such as bonds, debentures and preferred
stocks. The Fund's investment portfolio will not be managed for capital
appreciation. The Fund's investment objective and the investment limitations
described below under the caption "Investment Restrictions" are fundamental and
may not be changed without the approval of a majority of the Fund's outstanding
voting securities, as such term is defined in the Investment Company Act of 1940
(the "Act"). All other policies and percentage limitations of the Fund as
described below may be modified by the Board of Directors if, in the reasonable
exercise of the Board's business judgment, modification is determined to be
necessary or appropriate to carry out the Fund's investment objective.
INVESTMENT POLICIES
Under normal circumstances, the Fund will invest at least 75% of its total
assets in fixed-income securities, such as bonds, debentures and preferred
stocks. In January 1992, the Board of Directors removed the requirement that
two-thirds of the Fund's fixed-income securities be comprised of investment
grade securities. Accordingly, the Fund's investments in fixed-income securities
are no longer subject to any rating quality limitation and may consist of
securities that are rated below investment grade by a nationally recognized
rating service or that are unrated and of comparable quality in the opinion of
BEA Associates. Lower rated securities generally provide yields superior to
those of more highly rated securities, but involve greater risks and are
speculative in nature. See "Risk Factors and Special Considerations--Lower-Rated
Securities" in the Prospectus. The market value of lower-rated securities may be
more volatile than the market value of higher-rated securities and generally
tends to reflect the market's perception of the creditworthiness of the issuer
and short-term market developments to a greater extent than more highly rated
securities, which reflect primarily fluctuations in general levels of interest
rates. For a description of the corporate bond ratings of Moody's Investors
Service, Inc. ("Moodys") and Standard & Poor's Ratings Group ("S&P"), see the
Appendix to the Prospectus.
Depending on market conditions, the Fund may also invest a substantial
portion of its assets in mortgage-backed securities. Mortgage-backed securities
are collateralized by mortgages or interests in mortgages and may be issued by
government or non-government entities. Mortgage-backed securities issued by
government entities typically provide a monthly payment consisting of interest
and principal payments, and additional payments will be made out of unscheduled
prepayments of principal. Non-government issued mortgage backed securities may
offer higher yields than those issued by government entities, but may be subject
to greater price fluctuations.
The Fund intends that its portfolio, under normal market conditions, will
consist principally of fixed-income securities. Subject to the limitations
described under "Other Investment Techniques" below, the Fund may also invest up
to 25% of its total assets in money market instruments such as certificates of
deposit, commercial paper, bankers' acceptances and repurchase agreements; the
Fund, however, currently does not intend to invest more than 5% in such assets.
The Fund may also, for bona fide hedging purposes, invest in interest rate
futures and related options. It is expected that the average weighted maturity
of the Fund's investment portfolio will be 5 to 10 years.
The Fund's policy is to diversify its investments among various securities
and industries only to the extent such diversification appears to enhance the
opportunity to achieve its investment objective. Under the 1940 Act and the
Internal Revenue Code (the "Code"), the Fund is also subject to certain asset
diversification requirements. The Fund may not invest in a security if after
such investment 25% or more of its total assets, at market value, would be
invested in any one industry.
2
<PAGE>
Under the 1940 Act, the Fund is restricted in its ability to purchase any
security of which BEA Associates or any of its affiliate is a principal
underwriter during the public offering of such security.
OTHER INVESTMENT TECHNIQUES
The Fund may enter into repurchase agreements, lend portfolio securities,
purchase securities on a when-issued basis and invest in interest rate futures
and related options.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements
collateralized by U.S. Government securities, certificates of deposit and
certain bankers' acceptances for the purpose of realizing additional income.
Repurchase agreements are transactions by which the Fund purchases a security
and simultaneously commits to resell that security to the seller (a bank or
securities dealer) at an agreed upon price on an agreed upon date (usually
within seven days of purchase). The resale price reflects the purchase price
plus an agreed-upon market rate of interest which is unrelated to the coupon
rate or date of maturity of the purchased security. In these transactions, the
seller is required to deliver additional securities to the Fund, if necessary,
so that the current total market value of the securities subject to the
repurchase agreement will be at all times in excess of the agreed upon
repurchase price including any accrued interest earned on the repurchase
agreement. Securities subject to such repurchase agreements will be held by the
Fund's custodian bank until repurchased. Use of repurchase agreements can permit
the Fund to keep its assets at work while retaining short-term flexibility in
pursuit of investments of a longer-term nature. BEA Associates will continually
monitor the value of the underlying securities to ensure that their value always
equals or exceeds the repurchase price.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to banks,
brokers, dealers and other financial institutions who need to borrow securities
in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations. By
lending its portfolio securities, the Fund attempts to increase its income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities lent that might occur during the term of the loan would
be for the account of the Fund. The Fund may lend its portfolio securities so
long as the terms and the structure of such loans are not inconsistent with the
1940 Act or the rules and regulations or interpretations of the Securities and
Exchange Commission (the "Commission") thereunder, which currently require that
(a) the borrower pledge and maintain with the Fund collateral consisting of
cash, a letter of credit issued by a domestic U.S. bank, or securities issued or
guaranteed by the United States Government or its agencies having a value at all
times not less than 102% of the value of the securities lent, (b) the borrower
adds to such collateral whenever the price of the securities lent rises (i.e.,
the borrower "marks to the market" on a daily basis), (c) the loan be made
subject to termination by the Fund at any time and (d) the Fund receives
reasonable interest on the loan (which may include the Fund's investing any cash
collateral in interest-bearing short-term investments), any distribution on the
securities lent and any increase in their market value. The Fund will not lend
portfolio securities if, as a result, the aggregate of such loans exceeds 33
1/3% of the value of the Fund's total assets. Loan arrangements made by the Fund
will comply with all other applicable regulatory requirements, including the
rules of the New York Stock Exchange, which rules presently require the
borrower, after notice, to redeliver the securities within the normal settlement
time of three business days. All relevant facts and circumstances, including the
creditworthiness of the borrower, will be considered by BEA Associates in making
decisions with respect to the lending of securities, subject to review by the
Fund's Board of Directors. The creditworthiness of such bank, broker, dealer or
other financial institution will be monitored by the Adviser during the time any
securities are loaned. In addition, voting rights may pass with the loaned
securities but if a material event were to occur affecting an investment on a
loan, the loan must be called and the securities voted by the Fund.
SHORT SALE. The Fund may engage in short sales (the sale of securities that
it does not own), but only when it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short ("short sales against the box"), and only if not more than
5% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time.
3
<PAGE>
INTEREST RATE FUTURES AND RELATED OPTIONS. The Fund may purchase and sell
interest rate futures contracts and options thereon that are traded on U.S.
futures exchanges. Futures contracts are commodities contracts that obligate the
buyer to take and the seller to make delivery at a future date of a specified
quantity of the underlying financial instrument. However, some interest rate
futures contracts provide for settlement in cash rather than by delivery of the
securities underlying the contract. Each futures contract is traded on a
commodity exchange that has been designated a "contract market" by the Commodity
Futures Trading Commission (the "CFTC"). A call option for a futures contract is
a short term contract (having a duration of nine months or less) pursuant to
which a purchaser, in return for a premium paid, has the right to buy the
futures contract underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying futures contract against payment of the exercise price. A put option
for a futures contract is a similar contract which gives the purchaser, in
return for a premium, the right to sell the underlying futures contract at a
specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying futures contract,
upon exercise, at the exercise price. The Fund only intends to engage in futures
contracts or options for bona fide hedging purposes. In instances where the Fund
purchases futures, the Fund will segregate with its custodian an amount of cash,
U.S. Government securities or other high-grade, liquid debt securities equal to
the market value of the interest rate futures contracts and thereby insure that
the use of interest rate futures contracts is unleveraged.
In accordance with current CFTC rules, the Fund will not enter into any
interest rate futures contract or option thereon if, immediately thereafter, the
aggregate initial margin for all existing futures contracts and options thereon
and for premiums paid for such options not entered into for bona fide hedging
purposes would exceed 5% of the Fund's total assets. The Fund will not enter
into any such contract or option thereon, if, as a result thereof, more than 50%
of the Fund's total assets would be hedged.
In contrast to the purchase or sale of a security, the full purchase price
of the futures contract is not paid or received by the Fund upon its purchase or
sale. Instead, the Fund will deposit in a segregated custodial account as an
initial margin an amount of cash or U.S. Treasury bills equal to approximately
5% of the value of the contract. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments to and from the broker,
called variation margin, will be made on a daily basis as the price of the
underlying security fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as "mark to the market."
For example, when the Fund has purchased an interest rate futures contract and
the price of the futures contract has risen, that position will have increased
in value and the Fund will receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased an
interest rate futures contract and the price of the futures contract has
declined, the position would be less valuable and the Fund would be required to
make a variation margin payment to the broker. At any time prior to expiration
of the futures contract, the Fund may elect to terminate the position by taking
an opposite position. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain. No assurance can be given that the Fund will be able to
take an opposite position.
Interest rate futures contracts are currently available on several types of
fixed-income securities, including U.S. Treasury Bonds, U.S. Treasury Notes and
GNMA securities on The Chicago Board of Trade, and on U.S. Treasury Bills on the
International Monetary Market Division of The Chicago Mercantile Exchange. The
Fund may enter into interest rate futures contracts consistent with the Fund's
investment objectives and in compliance with applicable regulations of the CFTC.
The purpose of selling an interest rate futures contract is to protect the
Fund's portfolio from fluctuations in asset value resulting from interest rate
changes. Selling a futures contract has an effect similar to selling a portion
of the Fund's portfolio securities. If interest rates were to increase, the
value of the
4
<PAGE>
securities in the portfolio would decline, but the gains on the Fund's futures
strategy would increase, thereby keeping the net asset value of the Fund from
declining as much as it otherwise might have. In this way, selling futures
contracts acts as a hedge against the effects of rising interest rates. However,
a decline in interest rates resulting in an increase in the value of portfolio
securities tends to be offset by losses resulting from the Funds' futures
strategy.
Similarly, when interest rates are expected to decline, futures contracts
may be purchased to hedge against anticipated subsequent purchases of portfolio
securities at higher prices. By buying futures, the Fund could effectively hedge
against an increase in the price of the securities it intends to purchase at a
later date in order to permit the purchase to be effected in an orderly manner.
At that time, the futures contracts could be liquidated at a profit if rates had
in fact declined as expected, and the Fund's cash position could be used to
purchase securities.
Although most interest rate futures contracts call for making or taking
delivery of the underlying securities, these obligations are typically canceled
or closed out before the scheduled settlement date. The closing is accomplished
by purchasing (or selling) an identical futures contract to offset a short (or
long) position. Such an offsetting transaction cancels the contractual
obligations established by the original futures transaction. Other financial
futures contracts call for cash settlements rather than delivery of securities.
If the price of an offsetting futures transaction varies from the price of
the original futures transaction, the Fund will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
unrealized loss or gain on the hedged securities transaction, but may not always
or completely do so.
The selection of futures and option strategies requires skills different
than those needed to select portfolio securities; however, BEA Associates does
have experience in the use of futures and options.
DIRECT PLACEMENT. As noted under "Investment Restrictions," the Fund may
invest up to 10% of its assets in securities that are not readily marketable.
The portion of the Fund's portfolio that may be invested in such securities
(other than in repurchase agreements) may be purchased in placements from the
securities' issuer or in the secondary market for such directly placed
securities ("Direct Placement Securities"). The purchase of Direct Placement
Securities will depend on the relative attractiveness of those securities as
compared to securities which have been publicly offered.
Direct Placement Securities have frequently resulted in higher yields and
restrictive covenants providing greater protection for the purchaser, such as
longer call or refunding protection, than typically would be available with
publicly offered securities of the same type. An issuer is often willing to
create more attractive features in its securities issued privately, because it
has avoided the expense and delay involved in a public offering of its
securities. For various reasons, an issuer may prefer or be required as a
practical matter to obtain private financing. At certain times adverse
conditions in the public securities markets may preclude a public offering of an
issuer's securities.
On the other hand, Direct Placement Securities are subject to statutory or
contractual restrictions and delays on resale. They are, therefore, often
referred to as "restricted securities." Restricted securities may generally be
resold only in a privately negotiated transaction with a limited number of
purchasers or in a public offering registered under the Securities Act of 1933.
Such securities are therefore unlike securities which are traded in the open
market and which can be expected to be sold immediately if the market is
adequate.
TEMPORARY INVESTMENTS
The Fund may, for temporary defensive purposes, invest its assets in money
market instruments and interest rate futures and related options without regard
to any percentage limitation on total assets invested or hedged, as the case may
be. The Fund may also, for temporary defensive purposes, invest in short-term
(less than twelve months to maturity) debt securities rated at least A by
Moody's or S&P. Subject to its limitation on investments in money market
instruments, the Fund will also invest in short-term debt securities rated at
least Baa by Moody's or BBB by S&P to commit overnight cash balances.
5
<PAGE>
PORTFOLIO TURNOVER
The Fund has no restrictions on portfolio turnover, but it is not the Fund's
policy to engage in transactions with the objective of seeking profits from
short-term trading. It is anticipated that the Fund's annual portfolio turnover
will not exceed 100%. For information regarding the Fund's portfolio turnover
rate, see "Financial Highlights" in the Prospectus. This rate is calculated by
dividing the lesser of sales or purchases of portfolio securities for any given
year by the average monthly value of the Fund's portfolio securities for such
year. For purposes of this calculation, portfolio securities exclude purchase
and sales of debt securities having a maturity at the date of purchase of one
year or less. The rate of portfolio turnover will not be a limiting factor when
BEA Associates deems it appropriate to purchase or sell securities for the Fund.
Portfolio turnover, however, directly affects the amount of transaction costs
that will be borne by the Fund. In addition, the sale of securities held by the
Fund for not more than one year will give rise to short-term capital gain or
loss for U.S. federal income tax purposes. The U.S. federal income tax
requirement that the Fund derive less than 30% of its gross income from the sale
or other disposition of stock or securities held less than three months may
limit the Fund's ability to dispose of its securities. See "Taxation--United
States Federal Income Taxes."
INVESTMENT RESTRICTIONS
The Fund is subject to the following restrictions which may not be changed
without the approval of at least a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. The Fund will not (1) invest more than
5% of the value of its total assets in the securities of any one issuer,
excluding obligations of the U.S. Government or any agency or instrumentality
thereof and except that up to 25% of the value of its total assets may be
invested without regard to this limitation; (2) own more than 10% of the
outstanding voting stock or other securities (other than securities of the U.S.
Government or any agency or instrumentality thereof), or both, of any one
issuer; (3) purchase shares of other investment companies except as part of a
plan of reorganization, merger, consolidation or an offer of exchange; (4)
borrow money except as a temporary measure for extraordinary or emergency
purposes, and in no event in excess of 10% of the lower of the market value or
cost of its total assets, except that for the purpose of this restriction,
short-term credits necessary for settlement of securities transactions are not
considered borrowings (the Fund will not purchase any securities at any time
while such borrowings exceed 5% of total assets); (5) purchase securities on
margin; (6) sell securities short unless at all times when a short position is
open it owns an equal amount of such securities or securities convertible into
or exchangeable, with payment of any further consideration, for securities of
the same issue as, and equal in amount, to the securities sold short, and unless
not more than 5% of the Fund's net assets (taken at current value) are held as
collateral for such sales at any one time; (7) invest in the aggregate more than
5% of the value of its total assets in securities denominated in a currency
other than the United States dollar; (8) invest for the purpose of exercising
control over management of any company; (9) make loans, except (i) by purchasing
bonds, debentures or similar obligations (including repurchase agreements,
subject to the limitation described in (11) below), which are either publicly
distributed or customarily purchased by institutional investors, and (ii) by
lending its securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the 1940 Act or the
rules and regulations or interpretations of the Commission thereunder; (10)
underwrite the securities of other issuers, except to the extent that in
connection with the disposition of portfolio securities the Fund may be deemed
to be an underwriter; (11) invest more than 10% of its total assets in
securities subject to legal or contractual restrictions on resale or in
securities which are not readily marketable, including repurchase agreements
having maturities of more than 7 days and Direct Placement Securities (as
defined under Investment Objective and Policies--Other Investment Techniques);
(12) except as described under "Investment Objective and Policies", purchase
real estate, commodities or commodity contracts, although the Fund may purchase
or sell securities of companies which deal in real estate or interests therein;
(13) except as described under "Investment Objective and Policies", invest in or
write put, call, straddle or spread options; (14) invest directly in interests
in oil, gas or other mineral exploration development programs; or (15) invest in
non-dividend paying equity securities if after such investment, total non-
6
<PAGE>
dividend paying equity securities would comprise more than 10% of the Fund's
total assets. The deposit of initial and variation margin in connection with
interest rate futures contracts and related options shall not be deemed to be in
violation of any of the foregoing investment restrictions.
If a percentage restriction on investment or use of assets set forth above
is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
Under the 1940 Act, the Fund may neither invest more than 5% of its total
assets in the securities of any one investment fund, nor acquire more than 3% of
the outstanding voting securities of any such fund. In addition, the Fund may
not invest more than 10% of its total assets in securities issued by all
investment funds. As a shareholder in any investment company, the Fund will bear
its ratable share of that investment company's expenses, and would remain
subject to payment of the Fund's advisory, sub-advisory and administrative fees
with respect to assets so invested. See "Taxation--United States Federal Income
Taxes."
7
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The names of the directors and principal officers of the Fund are set forth
below, together with their positions and their principal occupations during the
past five years.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH THE FUND
- --------------------------------------- -----------------------------------------------------
<S> <C>
Daniel H. Sigg (40) ................... Director, Chairman of the Board and Chief Executive
One Citicorp Center Officer
153 East 53rd Street
New York, New York 10022
Prof. Enrique R. Arzac (54) ........... Director
Columbia University
Graduate School of Business
New York, New York 10027
Lawrence J. Fox (53) .................. Director
110 PNB Building
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19107
James S. Pasman, Jr. (65) ............. Director
29 The Trillium
Pittsburgh, Pennsylvania 15238
Robert Moore (39) ..................... President and Chief Investment Officer
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Richard J. Lindquist (35) ............. Vice President
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Paul P. Stamler (35) .................. Treasurer
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Michael A. Pignataro (36) ............. Secretary
One Citicorp Center
153 East 53rd Street
New York, New York 10022
</TABLE>
- ---------
* Mr. Sigg is an "interested person" of the Fund within the meaning of the 1940
Act by virtue of his position as a director and officer of BEA Associates.
Daniel H. Sigg is a member of the Executive Committee, Chief Financial
Officer, and an Executive Director of BEA Associates (since May 1995). From
February 1992 to April 1995, Mr. Sigg was a member of the Executive Committee
and a Managing Director of BEA Associates. He was Vice President of Marketing of
BEA Associates from January 1991 to January 1992. Mr. Sigg has been President of
Credit Suisse Advisors Corporation since December 1995 and President of Credit
Suisse Capital Corporation since December 1994. He was Director and Vice
President of Credit Suisse Capital Corporation from December 1990 to November
1994. From 1987 to December 1990, Mr. Sigg was Vice President and Head of
International Equity Sales and Trading at Swiss American Securities. Mr. Sigg is
also a Director and Senior Vice President of The Brazilian Equity Fund, Inc.,
The Latin America Investment Fund, Inc., The Latin America Equity Fund, Inc.,
The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund, Inc., The
8
<PAGE>
Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and
The Emerging Markets Infrastructure Fund, Inc. and is Chairman of the Board,
Chief Executive Officer and a Director of BEA Strategic Income Fund, Inc.
Prof. Enrique R. Arzac is Professor of Finance and Director of the Financial
Management Program at the Graduate School of Business of Columbia University
(since 1971). He is also a Director of The Adam Express Company and Petroleum
and Resources Corp. Dr. Arzac is also a director of The Brazilian Equity Fund,
Inc., The Latin America Investment Fund, Inc., The Latin America Equity Fund,
Inc., The Portugal Fund, Inc., The Chile Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc., The Emerging Markets
Infrastructure Fund, Inc. and BEA Strategic Income Fund, Inc.
Lawrence J. Fox is Managing Partner and Chairman of Professional
Responsibility Committee of the law firm of Drinker Biddle & Reath (since
January 1992). He has been a partner of Drinker Biddle & Reath since 1976. He is
a director of BEA Strategic Income Fund, Inc.
James S. Pasman, Jr. was the President and Chief Operating Officer of
National InterGroup, Inc. from April 1989 to March 1991. He is a director of BEA
Strategic Income Fund, Inc., of ADT, Ltd. and a trustee of BT Insurance Funds
Trust.
Robert Moore is a member of the Executive Committee, Executive Director and
Chief Operating Officer of BEA Associates (since December 1995). From February
1992 to December 1995, Mr. Moore was a Managing Director and Portfolio Manager
of BEA Associates, and from December 1990 to January 1992 he was Vice President
and Portfolio Manager of BEA Associates.
Richard J. Lindquist is a Managing Director of BEA Associates (since April
1995) and a Vice President of BEA Strategic Income Fund, Inc. From March 1993 to
March 1995, he was Chief Compliance Officer of CS First Boston Investment
Management Corporation ("CSIM"). He was director of CSIM from April 1992 to
February 1993 and Vice President of CSIM from July 1989 to March 1992.
Paul P. Stamler is a Vice President of BEA Associates (since June 1993) and
the Treasurer of BEA Strategic Income Fund, Inc. From April 1992 to May 1993,
Mr. Stamler was self-employed as a certified public accountant. From June 1988
to March 1992, Mr. Stamler was Vice President of Bear, Stearns & Co. Inc. Mr.
Stamler is also a Senior Vice President of The Brazilian Equity Fund, Inc., The
Latin America Investment Fund, Inc., The Latin America Equity Fund, Inc., The
Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund, Inc., The
Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and
The Emerging Markets Infrastructure Fund, Inc. and Treasurer of BEA Strategic
Income Fund, Inc.
Michael A. Pignataro has been Vice President of BEA Associates since
December 1995. He was Assistant Vice President and Chief Administrative Officer
for Investment Companies of BEA Associates from September 1989 to December 1995.
Mr. Pignataro is also the Chief Financial Officer and Secretary of The Brazilian
Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America
Equity Fund, Inc., The Portugal Fund, Inc., The Chile Fund, Inc., The Emerging
Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and The
Emerging Markets Infrastructure Fund, Inc. and Chief Financial Officer and
Assistant Secretary of The Indonesia Fund, Inc. and Secretary of BEA Strategic
Income Fund, Inc.
The Fund pays each of its directors who is not a director, officer or
employee of BEA Associates or any affiliate thereof an annual fee of $10,000
plus $500 for each Board of Directors meeting attended. In addition, the Fund
will reimburse those directors for travel and out-of-pocket expenses incurred in
connection with Board of Directors meetings. The aggregate remuneration paid to
all such unaffiliated directors by the Fund during the fiscal year ended
December 31, 1995 was $39,358.
9
<PAGE>
The following table shows certain compensation information for the directors
of the Fund for the fiscal year ended December 31, 1995. None of the Fund's
executive officers or directors who are also officers or directors of BEA
Associates received any compensation from the Fund for such period. The Fund has
no bonus, profit sharing, pension or retirement plans.
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
AGGREGATE RETIREMENT BENEFITS ANNUAL BENEFITS FROM FUND AND
COMPENSATION ACCRUED AS PART OF UPON FUND COMPLEX
NAME OF DIRECTOR FROM FUND FUND EXPENSES RETIREMENT PAID TO DIRECTORS
- ------------------------------------ ------------- ------------------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Enrique R. Arzac *.................. $ 13,000 0 0 $ 26,000
Lawrence J. Fox..................... $ 13,000 0 0 $ 26,000
James S. Pasman, Jr................. $ 13,000 0 0 $ 26,000
<CAPTION>
TOTAL NUMBER OF
BOARDS OF BEA
ASSOCIATES
ADVISED
INVESTMENT
COMPANIES
NAME OF DIRECTOR SERVED
- ------------------------------------ ---------------------
<S> <C>
Enrique R. Arzac *.................. 10
Lawrence J. Fox..................... 2
James S. Pasman, Jr................. 2
</TABLE>
- ---------
* On February 13, 1996, Prof. Arzac was elected as a director of eight other
BEA Associates-advised investment companies. Because the election took place
after the 1995 fiscal year-end, Prof. Arzac did not receive any compensation
with respect to these BEA-advised investment companies for the year ended
December 31, 1995.
The Articles of Incorporation and Bylaws of the Fund provide that the Fund
will indemnify directors, officers, of the Fund against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their positions with the Fund to the fullest extent permitted by law. In
addition, the Fund's Articles of Incorporation provide that the Fund's directors
and officers will not be liable to the shareholders for money damages, except in
limited instances. However, nothing in the Articles of Incorporation or the
Bylaws of the Fund protects or indemnifies a director, officer, employee or
agent against any liability to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office.
ADVISORY ARRANGEMENTS
BEA Associates acts as the Fund's investment adviser pursuant to an Advisory
Agreement with the Fund (the "Advisory Agreement") which became effective on
June 13, 1995. Prior to this date, CSIM provided investment advisory services to
the Fund under substantially the same terms, conditions and fees.
The Advisory Agreement provides that BEA Associates shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Advisory Agreement relates, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BEA Associates in the performance of its duties or from reckless
disregard of its obligations and duties under the Advisory Agreement.
For the fiscal period from June 13, 1995 (effective date of the Advisory
Agreement) through December 31, 1995, BEA Associates was paid $568,039 for
advisory services rendered to the Fund. For the fiscal period from January 1,
1995 through June 12, 1995 and the fiscal years ended December 31, 1994 and
December 31, 1993, CSIM was paid for advisory services rendered to the Fund
$458,394, $1,032,360 and $1,066,979, respectively.
ADMINISTRATIVE ARRANGEMENT
Chase Global Funds Services Company (the "Administrator") serves as the
Fund's administrator pursuant to an agreement with the Fund (the "Administration
Agreement").
DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES
The Advisory Agreement became effective on June 13, 1995. Unless earlier
terminated as described below, the Advisory Agreement remains in effect if
approved annually (a) by the Board of Directors of the Fund or by the holders of
a majority of the Fund's outstanding voting securities (as defined in the 1940
Act) and (b) by a majority of the directors who are not parties to the Advisory
Agreement or "interested persons"
10
<PAGE>
(as defined in the 1940 Act) of any such party. The Advisory Agreement
terminates on its assignment by any party and may be terminated without penalty
on 60 days' written notice at the option of the Board of Directors of the Fund
or by the vote of the majority of the holders of the Fund's shares, or upon 90
days' written notice, by BEA Associates.
The Administration Agreement is terminable upon 60 days' notice by either
party.
The services of BEA Associates and the Administrator are not deemed to be
exclusive, and nothing in the relevant service agreements will prevent any of
them or their affiliates from providing similar services to other investment
companies and other clients (whether or not such clients' investment objectives
and policies are similar to those of the Fund) or from engaging in other
activities.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by BEA
Associates, subject to the overall review of the Fund's Board of Directors.
Portfolio securities transactions for the Fund are placed on behalf of the Fund
by persons authorized by BEA Associates. BEA Associates manages other investment
companies and accounts (the "BEA Accounts") that invest in fixed-income
securities. Although investment decisions for the Fund are made independently
from those of the other BEA Accounts, investments of the type the Fund may make
may also be made on behalf of the BEA Accounts. When the Fund and one or more of
the BEA Accounts is prepared to invest in, or desires to dispose of, the same
security, available investments or opportunities for each will be allocated in a
manner believed by BEA Associates to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or disposed of by the Fund. The Fund may utilize
CS First Boston Corporation and other affiliates of Credit Suisse in connection
with the purchase or sale of securities in accordance with rules or exemptive
orders adopted by the Securities and Exchange Commission when BEA Associates
believes that the charge for the transaction does not exceed usual and customary
levels.
Transactions on U.S. and some foreign stock exchanges involve the payment of
negotiated brokerage commissions, which may vary among different brokers. The
cost of securities purchased from underwriters includes an underwriter's
commission or concession, and the prices at which securities are purchased from
and sold to dealers in the over-the-counter markets include a dealer's mark-up
or mark-down, which normally is not disclosed. Fixed-income securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security will
likely include a profit to the dealer.
In selecting brokers or dealers to execute portfolio transactions on behalf
of the Fund, BEA Associates will seek the best overall terms available. In
addition, unless otherwise directed by the Board of Directors of the Fund, the
Advisory Agreement authorizes BEA Associates, in selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) and cause the
Fund to pay a broker-dealer which furnishes such services a higher commission
than that which might be charged by another broker-dealer for effecting the same
transaction, provided that such commission is deemed reasonable in terms of
either that particular transaction or the overall responsibilities of BEA
Associates to the Fund. The fees payable under the Advisory Agreement are not
reduced as a result of BEA Associates' receiving such brokerage and research
services.
It is currently the Fund's policy that BEA Associates may at times pay
higher commissions than might otherwise be obtainable in recognition of
brokerage services felt necessary for the achievement of best available price
and most favorable execution of certain securities transactions. BEA Associates
will only pay such higher commissions if it believes this to be in the best
interest of the Fund. Some brokers or dealers who may receive such higher
commissions in recognition of brokerage services related to execution of
securities transactions are also providers of research information to BEA
Associates and/or the Fund. Subject to the primary objective set forth above,
BEA Associates has informed the Fund that it may pay higher commission rates
specifically for the purpose of obtaining research services. The Fund will not
pay to any affiliates of BEA Associates a higher commission rate specifically
for the purpose of obtaining research services.
11
<PAGE>
The Fund paid no affiliated brokerage commissions in any of the fiscal years
ended December 31, 1995, December 31, 1994 and December 31, 1993.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder will be deemed to have elected, unless The Chase
Manhattan Bank ("Chase Manhattan") as the Plan Agent (the "Plan Agent"), is
otherwise instructed by the shareholder in writing, to have all distributions,
net of any applicable U.S. withholding tax, automatically reinvested in
additional shares of the Fund. Shareholders who do not participate in the Plan
will receive all dividends and distributions in cash, net of any applicable U.S.
withholding tax, paid in dollars by check mailed directly to the shareholder by
the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have
dividends and distributions automatically reinvested should notify Chase
Manhattan, as the Plan Agent for BEA Income Fund, Inc., Dividend Reinvestment
Department - Retail Processing, 770 Broadway, 7th Floor, New York, New York
10003-9598 or by telephone at 1-800-428-8890. Dividends and distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(i.e., in "street name") will be reinvested under the Plan unless such service
is not provided by the broker or nominee or the shareholder elects to receive
dividends and distributions in cash. A shareholder whose shares are held by a
broker or nominee that does not provide a dividend reinvestment program may be
required to have his shares registered in his own name to participate in the
Plan. Investors who own shares of the Fund's Common Stock registered in street
name should contact the broker or nominee for details concerning participation
in the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declares an income dividend or a
capital gains distribution payable either in the Fund's common stock or in cash,
as shareholders may have elected, nonparticipants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares of the Fund
valued at the lower of market price or net asset value as determined at the time
of purchase (generally on the payable date of the dividend) as set forth below.
Whenever market price is equal to or exceeds net asset value at the time shares
are valued for the purpose of determining the number of shares equivalent to the
cash dividend or distribution, participants will be issued shares of the Fund at
a price equal to net asset value but not less than 95% of the then current
market price of the Fund shares. The Fund will not issue shares under the Plan
below net asset value. If net asset value determined as at the time of purchase
exceeds the market price of Fund shares at such time, or if the Fund should
declare a dividend or other distribution payable only in cash (i.e., if the
Board of Directors should preclude reinvestment at net asset value), the Agent
will, as agent for the participants, endeavor to buy Fund shares in the open
market, on the New York Stock Exchange or elsewhere, on behalf of all
participants, and will allocate to each shareholder its pro rata portion based
on the average price paid (including brokerage commissions) for all shares
purchased. Shares acquired on behalf of participants in the open market will be
purchased at the prevailing market price. If, before the Agent has completed its
purchases, the market price exceeds the net asset value of a Fund share, the
average per share purchase price paid by the Agent 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. For all
purposes of the Plan, (a) the market price of the Common Stock on a dividend
payment date shall be the last sale price on the New York Stock Exchange on that
date, or, if there is no such sale, then the mean between the closing bid and
asked quotations for such stock, and (b) net asset value per share of the Common
Stock on a particular date shall be as determined by or on behalf of the Fund.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment in
the Fund's Common Stock. Cash contributions are used to purchase shares of
Common Stock in the open market regardless of whether such shares are selling
above, at or below the net asset value of the Fund. As a result, shareholders
may be purchasing shares at a
12
<PAGE>
market price that reflects a premium to the Fund's net asset value. Voluntary
cash payments received after five business days before the dividend payment date
will be invested by the Plan Agent on the next succeeding dividend payment date.
Dividend payment dates are expected to be the 15th (or next business day) of
each month. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48 hours
before the next succeeding dividend payment. A participant's tax basis in his
shares acquired through this optional investment right will equal his cash
payments to the Plan, including any cash payments used to pay brokerage
commissions allocable to his acquired shares.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in the
Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. The Plan Agent's fees for
the handling of reinvestment of such dividends and capital gains distributions
will be paid by the Fund. There will be no brokerage charges with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
or capital gains distributions. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus obtainable. Brokerage commissions will vary based on, among
other things, the broker selected to effect a particular purchase and the number
of participants on whose behalf such purchase is being made. The Fund cannot
predict, therefore, whether the cost to a participant who makes a voluntary cash
payment will be less than if a participant were to make an open market purchase
of the Fund's Common Stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends or distributions.
The Fund reserves the right to terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
notice of the termination sent to the members of the Plan at least 30 days
before the record date for such dividend or distributions. The Plan also may be
amended by the Fund or the Plan Agent, but (except when necessary or appropriate
to comply with applicable law, rules or policies of a regulatory authority) only
by at least 30 days' written notice to members of the Plan. All correspondence
concerning the Plan should be directed to The Chase Manhattan Bank, Dividend
Reinvestment Department - Retail Processing, 770 Broadway, 7th Floor, New York,
New York 10003-9598.
TAXATION
The following is a summary of the material United States federal income tax
considerations, regarding the purchase, ownership and disposition of shares in
the Fund. Each prospective shareholder is urged to consult his own tax adviser
with respect to the specific federal, state, local and foreign tax consequences
of investing in the Fund. The summary is based on the laws in effect on the date
of this SAI, which are subject to change.
UNITED STATES FEDERAL INCOME TAXES
THE FUND AND ITS INVESTMENTS. The Fund has qualified and intends to
continue to qualify and elect to be treated as a regulated investment company
for each taxable year under the Code. To so qualify, the Fund
13
<PAGE>
must, among other things: (a) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of (i) stock or
securities held for less than three months, (ii) options, futures or forward
contracts (other than options, futures or forward contracts on foreign
currencies) held for less than three months and (iii) foreign currencies (or
options, futures or forward contracts on such foreign currencies) held for less
than three months but only if such currencies (or options, futures or forward
contracts) are not directly related to the Fund's principal business of
investing in stock or securities (or options or futures with respect to stock or
securities); and (c) diversify its holdings so that, at the end of each quarter
of the Fund's taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, securities of other regulated investment
companies, United States government securities and other securities, with such
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its assets
is invested in the securities (other than United States government securities or
securities of other regulated investment companies) of any one issuer or any two
or more issuers that the Fund controls and are determined to be engaged in the
same or similar trades or businesses or related trades or businesses. The Fund
expects that all of its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.
Although legislation that would repeal the 30% limitation on a regulated
investment company's ability to make short-term investments has been proposed in
Congress, it is unclear when, if ever, such legislation will be enacted or the
form of such legislation if enacted.
As a regulated investment company, the Fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of the sum of its investment
company taxable income (i.e., 90% of its taxable income minus the excess, if
any, of its net realized long-term capital gains over its net realized
short-term capital losses (including any capital loss carryovers), plus or minus
certain other adjustments as specified in section 852 of the Code) and its net
tax-exempt income for the taxable year is distributed, but will be subject to
tax at regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, the Fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any year that it fails to
qualify as a regulated investment company or fails to meet this distribution
requirement. Any dividend declared by the Fund in October, November or December
of any calendar year and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
during January of the following calendar year.
The Fund pays dividends of net investment income monthly and makes
distributions at least annually of any net realized long-term and short-term
capital gains in excess of applicable capital losses, including capital loss
carryforwards. The Board of Directors of the Fund will determine annually
whether to distribute any net realized long-term capital gains in excess of net
realized short-term capital losses (including any capital loss carryovers). The
Fund currently expects to distribute any excess annually to its shareholders.
However, if the Fund retains for investment an amount equal to all or a portion
of its net realized long-term capital gains in excess of its net realized
short-term capital losses and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the amount retained. In that
event, the Fund expects to designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will be required to
include in income for United States federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35% tax paid by the Fund
on the undistributed amount against their United States federal income tax
14
<PAGE>
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent the
Fund does not distribute by the end of any calendar year at least 98% of its net
investment income for that year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any income or gain retained
by the Fund that is subject to corporate income tax will be considered to have
been distributed by year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be increased or decreased
to reflect any underdistribution or overdistribution, as the case may be, from
the previous year. The Fund anticipates that it will pay such dividends and will
make such distributions as are necessary in order to avoid the application of
this tax.
If, in any taxable year, the Fund fails to qualify as a regulated investment
company under the Code, the Fund would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company. In addition, if the Fund failed to qualify as a regulated investment
company for a period greater than one taxable year, the Fund may be required to
recognize any net built-in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.
The Fund's transactions in options and futures contracts will be subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (i.e., may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require the Fund to mark-to-market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out) and (b) may cause
the Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any option,
futures contract or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.
DIVIDENDS AND DISTRIBUTIONS. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net long-term capital gains, if any, that the Fund designates
as capital gains dividends are taxable as long-term capital gains, whether paid
in cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by the Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital, to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder holds his shares of
the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for United States federal income
tax purposes as receiving a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.
15
<PAGE>
Investors considering buying shares just prior to a dividend or capital gain
distribution should be aware that, although the price of shares just purchased
at that time may reflect the amount of the forthcoming distribution, such
dividend or distribution may nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
SALES OF SHARES. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in the Fund under
the Plan, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for United States federal income tax purposes as a long-
term capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share.
BACKUP WITHHOLDING. The Fund may be required to withhold, for United States
federal income tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders are or may be
exempt from backup withholding. Backup withholding is not an additional tax and
any amount withheld may be credited against a shareholder's United States
federal income tax liabilities. Additional tax withholding requirements which
apply with respect to foreign investors are discussed below.
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a foreign investor (such as a nonresident alien individual, a foreign
trust or estate, a foreign corporation or a foreign partnership) depends, in
part, on whether the shareholder's income from the Fund is "effectively
connected" with a United States trade or business carried on by the shareholder.
If the foreign investor is not a resident alien and the income from the Fund
is not effectively connected with a United States trade or business carried on
by the foreign investor, distributions of net investment income and net realized
short-term capital gains will be subject to a 30% (or lower treaty rate) United
States withholding tax. Distributions to a non-resident alien of net realized
long-term capital gains, amounts retained by the Fund which are designated as
undistributed capital gains, and gains realized upon the sale of shares of the
Fund generally will not be subject to United States tax unless the foreign
investor who is a nonresident alien individual is physically present in the
United States for more than 182 days during the taxable year and, in the case of
gain realized upon the sale of Fund shares, unless (a) such gain is attributable
to an office or fixed place of business in the United States or (b) such
nonresident alien individual has a tax home in the United States and such gain
is not attributable to an office or fixed place of business located outside the
United States. However, a determination by the Fund not to distribute long-term
capital gains will cause the Fund to incur a U.S. federal tax liability with
respect to retained long-term capital gains, thereby reducing the amount of cash
held by the Fund that is available for investment, and the foreign investor may
not be able to claim a credit or deduction with respect to such taxes.
In general, if a foreign investor is a resident alien or if dividends or
distributions from the Fund are effectively connected with a United States trade
or business carried on by the foreign investor, then
16
<PAGE>
dividends of net investment income, distributions of net short-term and
long-term capital gains, amounts retained by the Fund that are designated as
undistributed capital gains and any gains realized upon the sale of shares of
the Fund will be subject to United States income tax at the rates applicable to
United States citizens or domestic corporations. If the income from the Fund is
effectively connected with a United States trade or business carried on by a
foreign investor that is a corporation, then such foreign investor may also be
subject to the 30% (or lower treaty rate) branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described in this
section. Shareholders may be required to provide appropriate documentation to
establish their entitlement to the benefits of such a treaty. Foreign investors
are advised to consult their own tax advisers with respect to (a) whether their
income from the Fund is or is not effectively connected with a United States
trade or business carried on by them, (b) whether they may claim the benefits of
an applicable tax treaty, and (c) any other tax consequences to them of an
investment in the Fund.
NOTICES. Shareholders will be notified annually by the Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions made by the Fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate, various written notices after
the close of the Fund's taxable year regarding the United States federal income
tax status of certain dividends, distributions and deemed distributions that
were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
OTHER TAXATION. Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN THE FUND.
NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange on the last business day of each week, by dividing the value of
the Fund's net assets (the value of its assets less its liabilities, exclusive
of capital stock and surplus) by the total number of shares of Common Stock
outstanding. Net asset value includes interest on fixed-income securities which
is accrued daily. Securities which are traded over-the-counter and on a stock
exchange will be valued according to the broadest and most representative
market, and it is expected that for bonds and other fixed income securities this
ordinarily will be the over-the-counter market. Notwithstanding the above, bonds
and other fixed-income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Securities not priced in this manner are valued
at the most recent current quoted bid price, or when stock exchange valuations
are used, at the latest quoted sale price on the date of valuation. Short-term
debt securities which mature in less than 60 days are valued at amortized cost
if their term to maturity from date of purchase by the Fund was less than 60
days, or by amortizing their value on the 61st day if their term to maturity on
the date acquired by the Fund was more than 60 days, unless this is determined
by the Board of Directors not to represent fair value. The value of other assets
and securities for which no current quotations are readily available are
determined in good faith at fair value using methods determined by the
Directors.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock. The Fund has no present intention of offering additional shares other
than pursuant to the Offer, except that additional shares may be issued under
the Plan. See "Dividend Reinvestment and Cash Purchase Plan." Other offerings of
shares, if made, will require approval of the Fund's Board of Directors. Any
additional offering will be
17
<PAGE>
subject to the requirement of the 1940 Act that shares not be sold at a price
below the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of the holders of a majority of the Fund's outstanding voting
securities, as such term is defined under the 1940 Act.
BENEFICIAL OWNER
There are no persons known to the Fund who may be deemed beneficial owners
of 5% or more of the shares of the Fund's Common Stock because they possessed or
shared voting or investment power with respect to shares of the Fund's Common
Stock. The officers and directors of the Fund, in the aggregate, own less than
1% of the outstanding shares of the Fund's Common Stock.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December 31, 1995 and its
unaudited Semi-Annual Report for the fiscal period ended June 30, 1996 (the
"Reports"), which either accompany this SAI or have previously been provided to
the person to whom this Prospectus is being sent, are incorporated herein by
reference with respect to all information other than the information set forth
in the Letter to Shareholders included therein. The Fund will furnish, without
charge, a copy of its Reports upon request to Shareholder Relations at BEA
Associates, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
(800) 293-1232.
18
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<C> <C> <C> <S>
(1) Financial Statements
(i)* -- Schedule of Investments as of December 31, 1995
(ii)* -- Statement of Assets and Liabilities as of December 31, 1995
(iii)* -- Statement of Operations for the fiscal year ended December 31, 1995
(iv)* -- Statement of Changes in Net Assets for the fiscal year ended December 31,
1995
(v)* -- Selected Per Share Data and Ratios for the fiscal year ended December 31,
1995
(vi)* -- Notes to Financial Statements for the fiscal year ended December 31, 1995
(vii)* -- Report of Independent Accountants
(viii)* -- Schedule of Investments as of June 30, 1996
(ix)* -- Statement of Assets and Liabilities as of June 30, 1996
(x)* -- Statement of Operations for the fiscal year ended June 30, 1996
(xi)* -- Statement of Changes in Net Assets for the fiscal year ended June 30, 1996
(xii)* -- Selected Per Share Data and Ratios for the fiscal year ended June 30, 1996
(xiii)* -- Notes to Financial Statements for the fiscal year ended June 30, 1996
</TABLE>
- ---------
* Incorporated by reference to filing made with the Commission.
<TABLE>
<C> <C> <C> <S>
(2) Exhibits
(a)* -- Articles of Incorporation of the Fund
(b) -- By-Laws of the Fund
(c) -- Not applicable
(d)(1) -- Specimen certificate for Common Stock, par value $.001 per share
(2) -- Form of Subscription Certificate
(3) -- Form of Notice of Guaranteed Delivery
(4) -- Form of DTC Participant Over-Subscription Certificate
(5) -- Form of Nominee Holder Over-Subscription Certificate
(6) -- Form of Beneficial Listing Certification
(7) -- Subscription Agent Agreement
(e) -- Dividend Reinvestment and Cash Purchase Plan
(f) -- Not applicable
(g)* -- Investment Advisory Agreement between the Fund and BEA Associates ("BEA")
(h)(1) -- Form of Dealer Manager Agreement between the Fund, BEA and
Smith Barney Inc.
(2) -- Form of Soliciting Dealer Agreement
(i) -- Not applicable
(j)* -- Mutual Fund Custody Agreement between the Fund and The Chase Manhattan
Bank
(k)(1) -- Shareholder Transfer Agency Agreement between the Fund and The Chase
Manhattan Bank
(2) -- Mutual Funds Service Agreement between the Fund and Chase Global Funds
Services Company
(3) -- Credit Agreement among the Fund, the First National Bank of Boston and
certain other funds
(l)(1) -- Opinion and consent of Willkie Farr & Gallagher
(2) -- Opinion and consent of Venable, Baetjer and Howard, LLP
(m) -- Not applicable
(n) -- Consent of Price Waterhouse LLP
(o) -- Not applicable
(p) -- Purchase Agreement between the Fund and CS First Boston
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <C> <C> <S>
(q) -- Not applicable
(r) -- Financial Data Schedule
</TABLE>
- ---------
* Previously filed.
ITEM 25. MARKETING ARRANGEMENTS
Not applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the Offer described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees.............................................. $ 29,115.29
New York Stock Exchange listing fee............................ 38,500.00
Printing (other than stock certificates)....................... 100,000.00
Engraving and printing stock certificates...................... 12,000.00
Fees and expenses of qualification under state securities laws
(including fees of counsel)................................... 20,000.00
Accounting fees and expenses................................... 15,000.00
Legal fees and expenses........................................ 100,000.00
Dealer Manager's expenses...................................... 100,000.00
Information Agent's fees and expenses.......................... 28,000.00
Subscription Agent's fees and expenses......................... 33,000.00
NASD fees...................................................... 9,000.00
Postage........................................................ 50,000.00
Miscellaneous.................................................. $ 15,384.71
------------
Total...................................................... $ 550,000.00
------------
------------
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Common Stock, par value $.001 per share: 4,630 record holders as of August
7, 1996.
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VIII of the Fund's Articles of Incorporation, Article VII of the Fund's
Bylaws and the Dealer Manager Agreement to be filed as Exhibit (h)(1) provide
for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission (the "SEC") such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the Fund
of expenses incurred or paid by a director, officer or controlling person of the
Fund in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Registrant is fulfilling the requirement of this Item 30 to provide a list
of the officers and directors of its investment adviser, together with
information as to any other business, profession, vocation or employment
C-2
<PAGE>
of a substantial nature engaged in by that entity or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by BEA Associates (SEC File No. 801-37170).
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
BEA Income Fund, Inc.
c/o BEA Associates
One Citicorp Center, 57th Floor
153 East 53rd Street
New York, New York 10022
(Registrant's Articles of Incorporation and By-Laws)
BEA Associates
One Citicorp Center, 57th Floor
153 East 53rd Street
New York, New York 10022
(with respect to its services as investment adviser)
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108
(with respect to its services as Administrator)
The Chase Manhattan Bank
770 Broadway
10th Floor
New York, New York 10003
(with respect to its services as Custodian for the Fund's assets)
The Chase Manhattan Bank
770 Broadway
7th Floor
New York, New York 10003
(with respect to its services as dividend-paying agency, transfer agent
and registrar)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) Registrant undertakes to suspend offering its shares until it amends its
prospectus contained herein if (1) subsequent to the effective date of its
Registration Statement, the net asset value per share declines more than 10
percent from its net asset value per share as of the effective date of this
Registration Statement, or (2) the net asset value per share increases to an
amount greater than its net proceeds as stated in the prospectus contained
herein.
(b) Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; or
C-3
<PAGE>
(ii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) that, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) Registrant hereby undertakes to send by, first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 27th day of
September, 1996.
BEA INCOME FUND, INC.
By: /s/ DANIEL H. SIGG
-----------------------------------
Daniel H. Sigg
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
*
------------------------------------------- Chairman of the Board and Chief September 27, 1996
Daniel H. Sigg Executive Officer
/s/ PAUL P. STAMLER
------------------------------------------- Treasurer , 1996
Paul P. Stamler
*
------------------------------------------- Director , 1996
Enrique R. Arzac
*
------------------------------------------- Director , 1996
James S. Pasman, Jr.
------------------------------------------- Director
Lawrence J. Fox
* /s/ PAUL P. STAMLER
-------------------------------------------
Paul P. Stamler as
Attorney-In-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
SYSTEM
---------------
<C> <C> <S> <C>
(a)* -- Articles of Incorporation of the Fund......................................................
(b) -- By-Laws of the Fund........................................................................
(d)(1) -- Specimen certificate for Common Stock, par value $.001 per share...........................
(2) -- Form of Subscription Certificate...........................................................
(3) -- Form of Notice of Guaranteed Delivery......................................................
(4) -- Form of DTC Participant Over-Subscription Certificate......................................
(5) -- Form of Nominee Holder Over-Subscription Certificate.......................................
(6) -- Form of Beneficial Listing Certification...................................................
(7) -- Subscription Agent Agreement...............................................................
(e) -- Dividend Reinvestment and Cash Purchase Plan...............................................
(g)* -- Investment Advisory Agreement between the Fund and BEA Associates ("BEA")..................
(h)(1) -- Form of Dealer Manager Agreement between the Fund, BEA and
Smith Barney Inc..........................................................................
(2) -- Form of Soliciting Dealer Agreement........................................................
(j)* -- Mutual Fund Custody Agreement between the Fund and The Chase Manhattan Bank................
(k)(1) -- Shareholder Transfer Agency Agreement between the Fund and The Chase Manhattan Bank........
(2) -- Mutual Funds Service Agreement between the Fund and Chase Global Funds Services Company....
(3)* -- Credit Agreement among the Fund, the First National Bank of Boston and certain other
funds.....................................................................................
(l)(1) -- Opinion and consent of Willkie Farr & Gallagher............................................
(2) -- Opinion and consent of Venable, Baetjer and Howard, LLP....................................
(n) -- Consent of Price Waterhouse LLP............................................................
(p) -- Purchase Agreement between the Fund and CS First Boston....................................
(r) -- Financial Data Schedule....................................................................
</TABLE>
- ---------
* Previously filed.
<PAGE>
BEA INCOME FUND, INC.
A MARYLAND CORPORATION
BY-LAWS
<PAGE>
TABLE OF CONTENTS
Page
Article I. STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Place of Meeting. . . . . . . . . . . . . . . .1
Section 2. Annual Meetings . . . . . . . . . . . . . . . .1
Section 3. Special or Extraordinary Meetings . . . . . . .1
Section 4. Notice of Meetings of Stockholders. . . . . . .2
Section 5. Record Dates. . . . . . . . . . . . . . . . . .3
Section 6. Quorum, Adjournment of Meetings . . . . . . . .3
Section 7. Voting and Inspectors . . . . . . . . . . . . .4
Section 8. Conduct of Stockholders' Meetings . . . . . . .4
Section 9. Concerning Validity of Proxies, Ballots, etc .5
Section 10. Action without Meeting . . . . . . . . . . . .5
Article II. BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . .5
Section 1. Number and Tenure of Office . . . . . . . . . .5
Section 2. Vacancies . . . . . . . . . . . . . . . . . . .6
Section 3. Increase or Decrease in Number of Directors . .6
Section 4. Place of Meeting. . . . . . . . . . . . . . . .6
Section 5. Regular Meetings. . . . . . . . . . . . . . . .7
Section 6. Special Meetings; Waiver of Notice. . . . . . .7
Section 7. Quorum. . . . . . . . . . . . . . . . . . . . .7
Section 8. Executive Committee . . . . . . . . . . . . . .8
Section 9. Other Committees. . . . . . . . . . . . . . . .8
Section 10. Telephone Meetings . . . . . . . . . . . . . .9
Section 11. Action Without a Meeting . . . . . . . . . . .9
Section 12. Compensation of Directors. . . . . . . . . . .9
Article III. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. Executive Officers. . . . . . . . . . . . . . 10
Section 2. Term of Office. . . . . . . . . . . . . . . . 10
Section 3. Powers and Duties . . . . . . . . . . . . . . 11
Section 4. Surety Bonds. . . . . . . . . . . . . . . . . 11
Article IV. CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. Certificates for Shares . . . . . . . . . . . 12
Section 2. Transfer of Shares. . . . . . . . . . . . . . 12
Section 3. Stock Ledgers . . . . . . . . . . . . . . . . 12
Section 4. Transfer Agents and Registrars. . . . . . . . 12
Section 5. Lost, Stolen or Destroyed Certificates. . . . 13
Section 6. Discount from Net Asset Value . . . . . . . . 13
<PAGE>
Article V. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . 14
Article VI. FISCAL YEAR AND ACCOUNTANT. . . . . . . . . . . . . . . . . 14
Section 1. Fiscal Year . . . . . . . . . . . . . . . . . 14
Section 2. Accountant. . . . . . . . . . . . . . . . . . 14
Article VII. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 14
Article VIII. CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Designation of Custodian, Subcustodians . . . 15
Section 2. Termination of Custodian. . . . . . . . . . . 15
Article IX. AMENDMENT OF BY-LAWS. . . . . . . . . . . . . . . . . . . . 16
(ii)
<PAGE>
BEA INCOME FUND, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I.
STOCKHOLDERS
Section 1. PLACE OF MEETING. All meetings of the stockholders
shall be held at the principal office of the Corporation in the State of
Maryland or at such other place within the United States as may from time to
time be designated by the Board of Directors and stated in the notice of such
meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the
stockholders of the Corporation shall be held during the month of May of each
year on such date and at such hour as may from time to time be designated by the
Board of Directors and stated in the notice of such meeting, for the purpose of
electing directors for the ensuing year and for the transaction of such other
business as may properly be brought before the meeting.
Section 3. SPECIAL OR EXTRAORDINARY MEETINGS. Special or
extraordinary meetings of the stockholders for any purpose or purposes may be
called by the Chairman of the Board, the President or a majority of the Board of
Directors, and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than 25% of the common stock
issued and outstanding and entitled to vote thereat. Such request shall state
the purpose or purposes of the proposed meeting. The Secretary shall inform
such stockholders of the reasonably estimated costs of preparing and mailing
such notice
<PAGE>
of meeting and upon payment to the Corporation of such costs, the Secretary
shall give notice stating the purpose or purposes of the meeting as required
in this Article and by-law to all stockholders entitled to notice of such
meeting. No special meeting need be called upon the request of the holders
of shares entitled to cast less than a majority of all votes entitled to be
cast at such meeting to consider any matter which is substantially the same
as a matter voted upon at any special meeting of stockholders held during the
preceding twelve months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than
ten days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the general
nature of the business proposed to be transacted at any special or extraordinary
meeting), shall be given to each stockholder entitled to vote thereat by leaving
the same with such stockholder or at such stockholder's residence or usual place
of business or by mailing it, postage prepaid, and addressed to such stockholder
at such stockholders' address as it appears upon the books of the Corporation.
If mailed, notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
-2-
<PAGE>
Section 5. RECORD DATES. The Board of Directors may fix, in
advance, a date not exceeding ninety days preceding the date of any meeting of
stockholders, any dividend payment date or any date for the allotment of rights,
as a record date for the determination of the stockholders entitled to notice of
and to vote at such meeting or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be. In the case of a meeting of stockholders, such date shall
not be less than ten days prior to the date fixed for such meeting.
Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in
person or by proxy of the holders of record of one-third of the shares of the
common stock of the Corporation issued and outstanding and entitled to vote
thereat shall constitute a quorum at all meetings of the stockholders except as
otherwise provided in the Articles of Incorporation. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
holders of a majority of the stock present in person or by proxy shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
-3-
<PAGE>
Section 7. VOTING AND INSPECTORS. At all meetings,
stockholders of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
such stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meetings, except for the election of the
directors which shall be by a plurality of votes cast except as otherwise
provided by statute or by the Articles of Incorporation or by these By-Laws.
At any election of Directors, the Chairman of the meeting may, and
upon the request of the holders of ten percent (10%) of the stock entitled to
vote at such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of
the stockholders shall be presided over by the Chairman of the Board, or if he
is not present, by the President, or if he is not present, by a Vice-President,
or if none of them
-4-
<PAGE>
is present, by a Chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as a Secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor the Assistant Secretary is present, then the meeting
shall elect its Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At
every meeting of the stockholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the Secretary of
the meeting, who shall decide all questions touching the qualification of
voters, the validity of the proxies and the acceptance or rejection of votes,
unless inspectors of election shall have been appointed by the Chairman of the
meeting, in which event such inspectors of election shall decide all such
questions.
Section 10. ACTION WITHOUT MEETING. Any action to be taken by
stockholders may be taken without a meeting if (1) all stockholders entitled to
vote on the matter consent to the action in writing, (2) all stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (3) said consents and waivers are filed with
the records of the meetings of stockholders. Such consent shall be treated for
all purposes as a vote at the meeting.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs
of the Corporation shall be conducted and managed by
-5-
<PAGE>
a Board of Directors of not less than three nor more than fourteen Directors,
as may be determined from time to time by vote of a majority of the Directors
then in office. Directors need not be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of
Directors through death, resignation or other cause, other than an increase in
the number of Directors, a majority of the remaining Directors, although a
majority is less than a quorum, by an affirmative vote, may elect a successor to
hold office until the next annual meeting of stockholders or until his successor
is chosen and qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The
Board of Directors, by the vote of a majority of the entire Board, may increase
the number of Directors and may elect Directors to fill the vacancies created by
any such increase in the number of Directors until the next annual meeting or
until their successors are duly chosen and qualified. The Board of Directors,
by the vote of a majority of the entire Board, may likewise decrease the number
of Directors to a number not less than three.
Section 4. PLACE OF MEETING. The Directors may hold their
meetings, have one or more offices, and keep the books of the Corporation,
outside the State of Maryland, at any office or offices of the Corporation or at
any other place as they may from time to time by resolution determine, or in the
case of meetings, as they may from time to time by resolution determine or as
shall
-6-
<PAGE>
be specified or fixed in the respective notices or waivers of notice
thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the Directors may
from time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 6. SPECIAL MEETINGS; WAIVER OF NOTICE. Special
meetings of the Board of Directors may be held from time to time upon call of
the Chairman of the Board, the President, the Secretary or two or more of the
Directors, by oral or telegraphic or written notice duly served on or sent or
mailed to each Director not less than one day before such meeting. No notice
need be given to any Director who attends in person or to any Director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Such notice or waiver of notice
need not state the purpose or purposes of such meeting.
Section 7. QUORUM. One-third of the Directors then in office
shall constitute a quorum for the transaction of business, provided that a
quorum shall in no case be less than two Directors. If at any meeting of the
Board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the
-7-
<PAGE>
Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation or by these By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by
the affirmative vote of a majority of the whole Board, appoint from the
Directors an Executive Committee to consist of such number of Directors (not
less than three) as the Board may from time to time determine. The Chairman of
the Committee shall be elected by the Board of Directors. The Board of
Directors by such affirmative vote shall have power at any time to change the
members of such Committee and may fill vacancies in the Committee by election
from the Directors. When the Board of Directors is not in session, to the
extent permitted by law the Executive Committee shall have and may exercise any
or all of the powers of the Board of Directors in the management of the business
and affairs of the Corporation. The Executive Committee may fix its own rules
of procedure, and may meet when and as provided by such rules or by resolution
of the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. During the absence of a member of the
Executive Committee, the remaining members may appoint a member of the Board of
Directors to act in his place.
Section 9. OTHER COMMITTEES. The Board of Directors, by the
affirmative vote of a majority of the whole Board, may appoint from the
Directors other committees which shall in each case consist of such number of
Directors (not less than two) and shall have and may exercise such powers as the
Board may determine in the resolution appointing them. A majority of all
-8-
<PAGE>
the members of any such committee may determine its action and fix the time
and place of its meetings, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to change the
members and powers of any such committee, to fill vacancies and to discharge
any such committee.
Section 10. TELEPHONE MEETINGS. Members of the Board of
Directors or a committee of the Board of Directors may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means constitutes presence in person at the
meeting.
Section 11. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or of such committee, as the case may be, and
such written consent is filed with the minutes of the proceedings of the Board
or such committee.
Section 12. COMPENSATION OF DIRECTORS. No Director shall
receive any stated salary or fees from the Corporation for his services as if
such Director is, otherwise than by reason of being such Director, an interested
person (as such term is defined by the Investment Company Act of 1940, as
amended) of the Corporation or of its investment manager or principal
underwriter. Except as provided in the preceding sentence,
-9-
<PAGE>
Directors shall be entitled to receive such compensation from the Corporation
for their services as may from time to time be voted by the Board of
Directors.
ARTICLE III.
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual meeting of the stockholders. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include a
President (who shall be a Director), one or more Vice-Presidents (the number
thereof to be determined by the Board of Directors), a Secretary and a
Treasurer. The Board of Directors or the Executive Committee may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. TERM OF OFFICE. The term of office of all officers
shall be one year and until their respective successors are chosen and
qualified. Any officer may be removed from office at any time with or without
cause by the vote of a majority of
-10-
<PAGE>
the whole Board of Directors. Any officer may resign his office at any time
by delivering a written resignation to the Board of Directors, the President,
the Secretary, or any Assistant Secretary, unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 3. POWERS AND DUTIES. The officers of the Corporation
shall have such powers and duties as generally pertain to their respective
offices, as well as such powers and duties as may from time to time be conferred
by the Board of Directors or the Executive Committee.
Section 4. SURETY BONDS. The Board of Directors may require
any officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, fund or securities that may
come into his hands.
-11-
<PAGE>
ARTICLE IV.
CAPITAL STOCK
Section 1. CERTIFICATES FOR SHARES. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by him in such form as the Board may
from time to time prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall
be transferable on the books of the Corporation by the holder thereof in person
or by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
offices of the Corporation or, if the Corporation employs a Transfer Agent, at
the offices of the Transfer Agent of the Corporation.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the Corporation, and it may
appoint the same person as both transfer
-12-
<PAGE>
agent and registrar. Upon any such appointment being made all certificates
representing shares of capital stock thereafter issued shall be countersigned
by one of such transfer agents or by one of such registrars of transfers or
by both and shall not be valid unless so countersigned. If the same person
shall be both transfer agent and registrar, only on countersignature by such
person shall be required.
Section 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board
of Directors or the Executive Committee may determine the conditions upon which
a new certificate of stock of the Corporation or any class may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in its discretion, require the owner of such certificate or such
owner's legal representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, to indemnify it and each such
Transfer Agent against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.
Section 6. DISCOUNT FROM NET ASSET VALUE. If, for a fiscal
quarter during or after the fifth year following the first effective date of
the Company's Registration Statement on Form N-2, the average discount from
net asset value at which shares of the Company's Common Stock have traded is
in the determination of the Board of Directors, substantial, the Board of
Directors of the Company will consider, at its next regularly scheduled
quarterly meeting, taking actions designed to eliminate the discount,
including periodic repurchases of shares or amendments
-13-
<PAGE>
to the Company's Articles of Incorporation to convert the Company to an
open-end investment company.
ARTICLE V.
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal,
in such form and bearing such inscriptions as it may determine.
ARTICLE VI.
FISCAL YEAR AND ACCOUNTANT
Section 1. FISCAL YEAR. The fiscal year of the Corporation,
unless otherwise ordered by the Board of Directors, shall begin on the first day
of January and shall end on the last day of December in each year.
Section 2. ACCOUNTANT. The Corporation shall employ an
independent public accountant or a firm of independent public accountants as its
Accountants to examine the accounts of the Corporation and to sign and certify
financial statements filed by the Corporation. The employment of the Accountant
shall be conditioned upon the right of the Corporation to terminate the
employment forthwith without any penalty by vote of a majority of the
outstanding voting securities at any stockholders' meeting called for that
purpose.
ARTICLE VII.
INDEMNIFICATION
The Corporation shall indemnify its directors and officers against
judgments, fines,
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<PAGE>
settlements and expenses to the fullest extent authorized and in the manner
permitted, by applicable federal and state law and the Articles of
Incorporation of the Corporation.
ARTICLE VIII.
CUSTODIAN
Section 1. DESIGNATION OF CUSTODIAN, SUBCUSTODIANS. The
Corporation shall have as custodian or custodians one or more trust companies or
banks of good standing, each having a capital, surplus and undivided profits
aggregating not less than fifty million dollars ($50,000,000), and, to the
extent required by the Investment Company Act of 1940, as amended, the funds and
securities held by the Corporation shall be kept in the custody of one or more
such custodians, provided such custodian or custodians can be found ready and
willing to act, and further provided that the Corporation may use as
subcustodians, for the purpose of holding any foreign securities and related
funds of the Corporation, such foreign banks as the Board of Directors may
approve and as shall be permitted by law.
Section 2. TERMINATION OF CUSTODIAN. The Corporation shall
upon the resignation or inability to serve of its custodian or upon change of
the custodian:
(i) in case of such resignation or inability to serve, use
its best efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the
Corporation be delivered directly to the successor custodian; and
(iii) in the event that no successor custodian can be found,
submit to the stockholders before permitting delivery
-15-
<PAGE>
of the cash and securities owned by the Corporation otherwise than
to a successor custodian, the question whether or not this
Corporation shall be liquidated or shall function without a custodian.
ARTICLE IX.
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the
By-Laws by action of the Board of Directors may be altered or repealed by
stockholders.
September 24, 1996
-16-
<PAGE>
[NUMBER ]
[FB 0705]
COMMON STOCK COMMON STOCK
[LOGO] SHARES
INCORPORATED UNDER THE LAWS [SEE REVERSE SIDE
OF THE STATE OF MARYLAND FOR CERTAIN
DEFINITIONS]
[CUSIP 054916 10 1]
BEA INCOME FUND, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 PER SHARE OF
THE COMMON STOCK OF BEA INCOME FUND, INC., TRANSFERABLE ON THE BOOKS OF SAID
CORPORATION IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED.
THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT
AND REGISTERED BY THE REGISTRAR.
IN WITNESS WHEREOF, BEA INCOME FUND, INC. HAS CAUSED ITS CORPORATE SEAL TO
BE HERETO AFFIXED AND THIS CERTIFICATE TO BE EXECUTED IN ITS NAME AND BEHALF BY
ITS DULY AUTHORIZED OFFICERS.
DATED:
COUNTERSIGNED AND REGISTERED:
THE CHASE MANHATTAN BANK, N.A.
TRANSFER AGENT
AND REGISTRAR
[BY]
AUTHORIZED OFFICER SECRETARY CHAIRMAN
[ CORPORATE ]
[ SEAL ]
[CERTIFICATE OF STOCK]
<PAGE>
BEA INCOME FUND, INC.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
_______________
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- __________ Custodian ____________
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants in common Under Uniform Gifts to Minors
Act ________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________, hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ shares
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
_______________________________________________________________________ Attorney
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ____________________________
- ---------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OF ENLARGEMENT OR ANY CHANGE WHATEVER.
OR
SIGNATURE(S) GUARANTEED
BY _____________________________________________________________________
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 99.d(2)
FORM OF SUBSCRIPTION CERTIFICATE
THIS OFFER EXPIRES AT 5:00 P.M. NEW YORK CITY TIME ON OCTOBER 22, 1996*
BEA INCOME FUND, INC.
SUBSCRIPTION RIGHTS FOR COMMON STOCK
SUBSCRIPTION CERTIFICATE
Dear Shareholder:
As the registered owner of this Subscription Certificate, you are entitled
to exercise the Rights issued to you as of September 27, 1996, the Record Date
for the Fund's rights offering, to subscribe for the number of shares of Common
Stock of BEA Income Fund, Inc. shown on this Certificate pursuant to the Primary
Subscription upon the terms and conditions and at the Subscription Price for
each share of Common Stock as specified in the Fund's Prospectus dated September
27, 1996 (the "Prospectus"). The terms and conditions of the rights offering
(the "Offer") set forth in the Prospectus are incorporated herein by reference.
In accordance with the Over-Subscription Privilege described in the Prospectus,
Record Date shareholders are entitled to subscribe for additional shares if
shares remaining after exercise of Rights pursuant to Primary Subscription are
available and such holder's Primary Subscription Rights have been fully
exercised. If there are not sufficient shares remaining to satisfy all over-
subscriptions, the available shares will be allocated among Record Date
shareholders who oversubscribe generally in proportion to the number of shares
you own on the Record Date. As described in the Prospectus, the Fund may in its
discretion issue up to an additional 25% of the shares available pursuant to the
Offer subject to the Offer to satisfy over-subscriptions.
SAMPLE CALCULATION
- --------------------------------------------------------------------------------
FULL PRIMARY SUBSCRIPTION ENTITLEMENT
(one share for every three Rights)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
No. of whole shares 100 DIVIDED BY 3 = 33 new shares
owned on the Record ------------------------- ---------------
Date (equals no. of Rights (ignore
issued) fractions)
</TABLE>
- --------------------------------------------------------------------------------
METHOD OF EXERCISE OF RIGHTS
IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST EITHER (i) COMPLETE THE SECTIONS
ON THE BACK OF THIS SUBSCRIPTION CERTIFICATE AND RETURN IT TOGETHER WITH
PAYMENT, OR (ii) PRESENT A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY TO
THE SUBSCRIPTION AGENT, THE CHASE MANHATTAN BANK, BEFORE 5:00 P.M. ON THE
EXPIRATION DATE.*
BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER:
The Chase Manhattan Bank
Retail Processing
770 Broadway
7th Floor
New York, New York 10003
Full payment of the Estimated Subscription Price of $7.96 per share for all
shares subscribed for pursuant to both the Primary Subscription and
Over-Subscription Privilege must accompany this Subscription Certificate and
must be made payable in United States dollars by money order or check drawn on a
bank located in the United States payable to BEA INCOME FUND, INC.
Alternatively, if a Notice of Guaranteed Delivery is used, a properly completed
Subscription Certificate, together with payment in full, as described above,
must be received by the Subscription Agent by no later than the close of
business on the third business day after the Expiration Date. See pages 13 and
14 of the Prospectus.
Within ten business days following the Pricing Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each Record
Date Shareholder (or, if the shareholder's shares are held by Cede or any other
depository or nominee, to Cede or such depository or nominee), showing (i) the
number of Shares acquired pursuant to the Primary Subscription, (ii) the number
of Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii)
the per Share and total purchase price for the Shares, and (iv) any additional
amount payable by such shareholder to the Fund or any excess to be refunded by
the Fund to such shareholder. No other evidence of title will be sent to
shareholders unless delivery of a stock certificate is requested pursuant to
this certificate. (See Item D on reverse) Shares subscribed for pursuant to the
Primary Subscription and Over-Subscription Privilege will be evidenced by
book-entry registration only. Any refund in connection with your subscription
will be delivered as soon as practicable after the Expiration Date.
THIS SUBSCRIPTION RIGHT IS NON-TRANSFERABLE
BEA INCOME FUND, INC.
[SIG]
By:
-------------------------------------------
Daniel H. Sigg
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
- ----------------------------------------
* Unless the Offer is extended.
<PAGE>
Subscription Certificate #:
--------------------------------
Number of Primary Subscription Rights:
--------------------------------
Number of Shares Available for Primary Subscription:
--------------------------------
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY
SECTION 1: DETAILS OF SUBSCRIPTION:
IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT:
<TABLE>
<S> <C> <C> <C>
A: I apply for ALL of my entitlement of
new
shares pursuant to the Primary
Subscription X $7.96 * = $
(no. of new shares) (Estimated (amount required
Subscription to be paid)
Price)
B: I apply for new shares pursuant to the
Over-Subscription Privilege+ X $7.96 * = $
(no. of additional shares) (Estimated (amount required
Subscription to be paid)
Price)
AMOUNT ENCLOSED $
(make check payable to BEA Income Fund, Inc.)
</TABLE>
+ YOU CAN ONLY OVER-SUBSCRIBE IF YOU HAVE FULLY EXERCISED YOUR PRIMARY
SUBSCRIPTION RIGHTS.
IF YOU DO NOT WISH TO APPLY FOR YOUR FULL ENTITLEMENT:
C: I apply for
- -------------------------------- X $7.96* = $___________________________________
(no. of new shares) (AMOUNT ENCLOSED)
D: I wish to receive stock certificates for the shares I have applied
for. / /
(Please check)
SECTION 2: TO SUBSCRIBE:
I acknowledge that I have received the Prospectus for the Offer, and I
hereby irrevocably subscribe for the number of new shares indicated above on the
terms and conditions set forth in the Prospectus. I UNDERSTAND AND AGREE THAT I
WILL BE OBLIGATED TO PAY ANY ADDITIONAL AMOUNT TO THE FUND IF THE SUBSCRIPTION
PRICE AS DETERMINED ON THE PRICING DATE IS IN EXCESS OF 95% THE $7.96 ESTIMATED
SUBSCRIPTION PRICE PER SHARE.
I hereby agree that if I fail to pay in full for the shares for which I have
subscribed, the Fund may exercise any of the remedies provided for in the
Prospectus.
Signature of Subscriber(s)______________________________________________________
____________________________________________________________
Please give your telephone # ( ) _____________________________________________
If you wish to have your confirmation and refund check (if any) delivered to
an address other than that listed on this Certificate you must have your
signature guaranteed by a member of the New York Stock Exchange or a bank or
trust company. Please provide the delivery address below and note if it is a
permanent change.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 3: DESIGNATION OF BROKER-DEALER:
The following broker-dealer is hereby designated as having been instrumental
in the exercise of the Subscription Rights:
FIRM: __________________________________________________________________________
REPRESENTATIVE NAME: ___________________________________________________________
REPRESENTATIVE NUMBER: _________________________________________________________
* NOTE: $7.96 per share is an estimated price only. The final Subscription Price
will be determined on October 22, 1996, the Pricing Date, (which is also the
Expiration Date), and could be higher or lower depending on changes in the net
asset value and share price of the Common Stock.
2
<PAGE>
EXHIBIT 99.d (3)
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON
STOCK OF THE BEA INCOME FUND, INC.
SUBSCRIBED FOR PURSUANT TO THE PRIMARY SUBSCRIPTION
AND THE OVER-SUBSCRIPTION PRIVILEGE
BEA INCOME FUND, INC. RIGHTS OFFERING
As set forth in the Fund's Prospectus dated September 27, 1996 (the
"Prospectus") under "The Offer-Payment for Shares," this form or one
substantially equivalent hereto may be used as a means of effecting subscription
and payment for all shares of BEA Income Fund, Inc. Common Stock subscribed for
by exercise of Rights pursuant to the Primary Subscription and the
Over-Subscription Privilege. Such form may be delivered by hand or sent by
facsimile transmission, overnight courier or mail to the Subscription Agent and
must be received prior to 5:00 p.m. New York City time on October 22, 1996 (the
"Expiration Date")*. The terms and conditions of the Offer set forth in the
Prospectus are incorporated by reference herein. Capitalized terms not defined
here have the meanings attributed to them in the Prospectus.
THE SUBSCRIPTION AGENT IS:
THE CHASE MANHATTAN BANK
BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER:
The Chase Manhattan Bank
Retail Processing
770 Broadway
7th Floor
New York, New York 10003
BY FACSIMILE (TELECOPY):
1-212-979-0658, with the original Subscription Certificate
to be sent by one of the three methods above.
Confirm facsimile by telephone at 1-212-388-5764.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH
ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of shares
subscribed for under both the Primary Subscription and the Over-Subscription
Privilege to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery guaranteeing delivery of (i) payment in full for all subscribed shares
and (ii) a properly completed and executed Subscription Certificate to the
Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.* The Subscription Certificate and full payment must then be delivered by
the close of business on the third business day after the Expiration Date* to
the Subscription Agent. Failure to do so will result in a forfeiture of the
Rights.
(CONTINUED ON OTHER SIDE)
- -----------------------------
* Unless extended by the Fund.
<PAGE>
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company guarantees delivery of payment to the Subscription Agent by the
close of business (5:00 p.m., New York City time) on the third business day
after the Expiration Date (October 25, 1996, unless extended) of (i) a properly
completed and executed Subscription Certificate and (ii) payment of the full
Subscription Price for shares subscribed for on Primary Subscription and
pursuant to the Over-Subscription Privilege, if applicable, as subscription for
such shares is indicated herein or in the Subscription Certificate.
Number of Primary Subscription Shares
for Which You are Guaranteeing
Delivery of Rights and Payment:
- ---------------------------------------------------
Number of Over-Subscription
Shares for Which You are
Guaranteeing Delivery of Payment:
- ---------------------------------------------------
Number of Rights to be Delivered:
- ---------------------------------------------------
Total Subscription Price
Payment to be delivered:
- ---------------------------------------------------
Method of Delivery of Rights (circle one) A. Through The Depository Trust
Company ("DTC")*
B. Direct to the Subscription Agent
Please note that if you are guaranteeing for Over-Subscription shares, and
are a DTC participant, you must also execute and forward to The Chase Manhattan
Bank a Nominee Holder Over-Subscription Certification.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Name of Firm Authorized Signature
- --------------------------------------------- ---------------------------------------------
Address Title
- --------------------------------------------- ---------------------------------------------
Zip Code Name (Please Type or Print)
- ---------------------------------------------
Name of Registered Holder (If Applicable)
- --------------------------------------------- ---------------------------------------------
Telephone Number Date
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE
SUBSCRIPTION AGENT WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH
NEEDS TO BE COMMUNICATED BY YOU TO DTC.
2
<PAGE>
EXHIBIT 99.d (4)
BEA INCOME FUND, INC.
RIGHTS OFFERING
DTC PARTICIPANT OVER-SUBSCRIPTION CERTIFICATE
THIS FORM IS TO BE USED ONLY BY THE DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE PRIMARY SUBSCRIPTION WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF
OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE
SUBSCRIPTION CERTIFICATE.
------------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED SEPTEMBER 27, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE INFORMATION AGENT AND THE SUBSCRIPTION AGENT.
------------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH
A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BY 5:00 P.M., NEW YORK CITY
TIME, ON OCTOBER 22, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED.
------------------------
1. The undersigned hereby certifies to the Fund and the Subscription Agent
that it is a participant in The Depository Trust Company ("DTC") and that it has
either (i) exercised the Primary Subscription in respect of Rights and delivered
such exercised Rights to the Subscription Agent by means of transfer to the DTC
account of the Subscription Agent or (ii) delivered to the Subscription Agent a
Notice of Guaranteed Delivery in respect of the exercise of Rights pursuant to
the Primary Subscription (the "Primary Subscription Rights") and will deliver
the Rights called for in such Notice of Guaranteed Delivery to the Subscription
Agent by means of transfer to such DTC account of the Subscription Agent. The
undersigned hereby certifies to the Fund and the Subscription Agent that it
owned shares of Common Stock on the Record Date.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to the
Fund and the Subscription Agent that such Over-Subscription Privilege is being
exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.
3. The undersigned understands that (i) payment of the Estimated
Subscription Price of $7.96 per share for each share of Common Stock subscribed
for pursuant to the Over-Subscription Privilege must be received by the
Subscription Agent before 5:00 p.m., New York City time, on the Expiration Date
(unless extended) or (ii) if a Notice of Guaranteed Delivery is used as referred
to above, payment in full must be made by the close of business on the third
business day after the Expiration Date. $7.96 is an estimated price only. The
Subscription Price to be determined on October 22, 1996, the Pricing Date
(unless extended), could be higher or lower depending on the movement in net
asset value and share price of the Fund's Common Stock. Payment of any
additional amounts must be made by November 15, 1996 (unless the Offer is
extended). The undersigned represents that such payment, in the aggregate amount
of $ either
(check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above
or
/ / is being delivered to the Subscription Agent herewith
or
/ / has been delivered separately to the Subscription Agent;
(CONTINUED ON OTHER SIDE)
<PAGE>
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete the following information):
/ / uncertified check
/ / certified check
/ / bank draft
...............................................................................
Primary Subscription Confirmation Number
...............................................................................
DTC Participant Number
...............................................................................
Name of DTC Participant
Registration into which shares of Common Stock, interest and/or refund checks
should be issued:
Name: .................................................................
.................................................................
Address: .......................................................................
.................................................................
.................................................................
Certified TIN: .................................................................
By:.............................................................................
Name:
Title:
Contact Name: ..................................................................
Phone Number: ..................................................................
Date: ...................................................................., 1996
PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION OF
RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF OVER-
SUBSCRIPTION SHARES REQUESTED BY EACH OWNER.
2
<PAGE>
EXHIBIT 99.d(5)
BEA INCOME FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION CERTIFICATION
PLEASE COMPLETE ALL APPLICABLE INFORMATION
BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER
To: The Chase Manhattan Bank
Retail Processing
770 Broadway
7th Floor
New York, New York 10003
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
PRIMARY SUBSCRIPTION WAS EXERCISED IN FULL AND DELIVERED THROUGH THE FACILITIES
OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST
BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED SEPTEMBER 27, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE INFORMATION AGENT AND THE SUBSCRIPTION AGENT.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH
A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BY 5:00 P.M., NEW YORK CITY
TIME, ON OCTOBER 22, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE FUND.
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it has
either (i) exercised the Primary Subscription in respect of Rights and delivered
such exercised Rights to the Subscription Agent by means of transfer to the
Depository Account of the Fund or (ii) delivered to the Subscription Agent a
Notice of Guaranteed Delivery in respect of the exercise of the Primary
Subscription Privilege and will deliver the Rights called for in such Notice of
Guaranteed Delivery to the Subscription Agent by means of transfer to such
Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to the
Subscription Agent that such Over-Subscription Privilege is being exercised for
the account or accounts of persons (which may include the undersigned) on whose
behalf all Primary Subscription Rights have been exercised.*
3. The undersigned understands that payment of the Estimated Subscription
Price of $7.96 per share for each share of Common Stock subscribed for pursuant
to the Over-Subscription Privilege must be received by the Subscription Agent
before 5:00 p.m., New York City time, on the Expiration Date, unless a Notice of
Guaranteed Delivery is used, in which case, payment in full must be received by
the Subscription Agent not later than the close of business on the third
business day after the Expiration Date and represents that such payment, in the
aggregate amount of $ either
<PAGE>
(check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above
or
/ / is being delivered to the Subscription Agent herewith
or
/ / has been delivered separately to the Subscription Agent; and, in the case
of funds not delivered pursuant to a Notice of Guaranteed Delivery, is or
was delivered in the manner set forth below (check appropriate box and
complete the following information):
/ / uncertified check
/ / certified check
/ / bank draft
- ------------------------------------------ ----------------------------------
Primary Subscription Confirmation Number Name of Nominee Holder
- ------------------------------------------ ----------------------------------
Depository Participant Number Address
Contact Name: ____________________________ __________________________________
City State Zip Code
Phone Number: ____________________________ By: ______________________________
Name: __________________________
Dated: , 1996 Title: _________________________
* PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION
OF RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF OVER-
SUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH OWNER.
2
<PAGE>
EXHIBIT 99.d (6)
BENEFICIAL OWNER LISTING CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of Common Stock, $0.001 par value ("Common Stock"), of BEA
INCOME FUND, Inc. (the "Fund") pursuant to the Rights Offering (the "Offer")
described and provided for in the Fund's Prospectus dated September 27, 1996
(the "Prospectus"), hereby certifies to the Fund and to The Chase Manhattan
Bank, as Subscription Agent for such Offer, that for each numbered line filled
in below, the undersigned has exercised, on behalf of the beneficial owner
thereof (which may be the undersigned), the number of Rights specified on such
line pursuant to the Primary Subscription (as defined in the Prospectus) and
such beneficial owner wishes to subscribe for the purchase of additional shares
of Common Stock pursuant to the Over-Subscription Privilege (as defined in the
Prospectus), in the amount set forth in the third column of such line.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF RIGHTS EXERCISED REQUESTED PURSUANT TO THE
NUMBER OF RECORD DATE SHARES OWNED PURSUANT TO PRIMARY SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE
<S> <C> <C>
1) ----------------------------------- -------------------------------------- --------------------------------------
2) ----------------------------------- -------------------------------------- --------------------------------------
3) ----------------------------------- -------------------------------------- --------------------------------------
4) ----------------------------------- -------------------------------------- --------------------------------------
5) ----------------------------------- -------------------------------------- --------------------------------------
6) ----------------------------------- -------------------------------------- --------------------------------------
7) ----------------------------------- -------------------------------------- --------------------------------------
8) ----------------------------------- -------------------------------------- --------------------------------------
9) ----------------------------------- -------------------------------------- --------------------------------------
10) ---------------------------------- -------------------------------------- --------------------------------------
</TABLE>
______________________________________
Name of Nominee Holder
By: __________________________________
Name: _____________________________
Title: ____________________________
Dated: _________________________, 1996
Provide the following information, if
applicable:
______________________________________ Name of Broker: ________________________
Depository Trust Corporation ("DTC")
Participant Number
______________________________________ Address: _______________________________
DTC Primary Subscription
Confirmation Number(s)
<PAGE>
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of
September 27, 1996 between BEA Income Fund, Inc. (the "Fund") and The Chase
Manhattan Bank, as subscription agent (the "Agent"). All terms not defined
herein shall have the meaning given in the prospectus (the "Prospectus")
included in the (Registration Statement on Form N-2 (File No. 333-10851;
811-05012) filed by the Fund with the Securities and Exchange Commission on
August 26, 1996, as amended by any amendment filed with respect thereto (the
"Registration Statement").
WHEREAS, the Fund proposes to make subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Fund (the "Subscription Certificates") to shareholders of record (the
"Shareholders") of its Common Stock, par value $.001 per share ("Common Stock"),
as of a record date specified by the Fund (the "Record Date"), pursuant to which
each Shareholder will have certain rights (the "Rights") to subscribe for shares
of Common Stock, as described in and upon such terms as are set forth in the
Prospectus, a final copy of which has been or, upon availability will promptly
be, delivered to the Agent; and
WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of the
Fund, and the Agent is willing to so act, in connection with the distribution of
the Subscription Certificates and the issuance and exercise of the Rights to
subscribe therein set forth, all upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The fund hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights and the Over-Subscription Privilege (as
hereinafter defined) in accordance with the terms set forth in this Agreement
and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and non-
transferable. The Agent shall, in its capacity as Transfer Agent of the Fund,
maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of
determining the rights of holders of Subscription Certificates). Each
Subscription Certificate shall, subject to the provisions thereof, entitle the
Shareholder in whose name it is recorded to the following:
<PAGE>
(1) With respect to Record Date Shareholders only, the right to
acquire during the Subscription Period, as defined in the Prospectus, at the
Subscription Price, as defined in the Prospectus, a number of shares of Common
Stock equal to one share of Common Stock for every three Rights (the "Primary
Subscription Right"); and
(2) With respect to Record Date Shareholders only, the right to
subscribe for additional shares of Common Stock, subject to the availability of
such shares and to the allotment of such shares as may be available among Record
Date Shareholders who exercise Over-Subscription Rights on the basis specified
in the Prospectus; provided, however, that such Record Date Shareholder has
exercised all Primary Subscription Rights issued to him or her (the "Over-
Subscription Privilege").
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Fund Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Fund's Common Stock calculated on the basis of one
Right for each share of Common Stock recorded on the books in the name of each
such Shareholder as of the Record Date. Each Subscription Certificate shall be
dated as of the Record Date. Upon the written advice, signed as aforesaid, as
to the effective date of the Registration Statement, the Agent shall, within
two business days of the Agent's receipt of the blank Subscription
Certificates, place in the U.S. mail the Subscription Certificates, together
with a copy of the Prospectus, instruction letter and any other document as
the Fund deems necessary or appropriate, to all Shareholders with record
addresses in the United States (including its territories and possessions and
the District of Columbia). Delivery shall be by first class mail (without
registration or insurance), except for those Shareholders having a registered
address outside the United States, which delivery method shall be as
specified in paragraph (c) below. No Subscription Certificate shall be valid
for any purpose unless so executed.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Fund deems necessary or
appropriate, within two business days of their receipt by the Agent from the
Fund, if any, but not Subscription Certificates (the form for which complete
except for Shareholders' names and shareholdings, shall be supplied to the
Agent by the Fund) to Record Date Shareholders whose record addresses are
outside the United States (including its territories and possessions and the
District of Columbia ) ("Foreign Record Date Shareholders") by air mail
(without insurance or registration) provided that delivery shall be made by
first class mail (without insurance or registration ) to Shareholders having
APO or FPO addresses. The Rights to which such Subscription Certificates
relate will be held by the Agent for such Foreign Record
- 2 -
<PAGE>
Date Shareholders' accounts until instructions are received to exercise, sell
or transfer the Rights.
4. EXERCISE.
(a) Record Date Shareholders may acquire shares of Common Stock on Primary
Subscription and pursuant to the Over-Subscription Privilege by delivery to the
Agent as specified in the Prospectus of (i) the Subscription Certificate with
respect thereto, duly executed by such Shareholder in accordance with and as
provided by the terms and conditions of the Subscription Certificate, together
with (ii) the estimated purchase price of $7.96 for each share of Common Stock
subscribed for by exercise of such Rights and the Over-Subscription Privilege,
in U.S. dollars by money order or check drawn on a bank in the United States, in
each case payable to the order of the Fund.
(b) Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 P.M. New
York time on such date as the Fund shall designate to the Agent in writing (the
"Expiration Date"). For the purpose of determining the time of the exercise of
any Rights, delivery of any material to the Agent shall be deemed to occur when
such materials are received at the address of the Agent of the Agent
specified in the Prospectus.
(c) Notwithstanding the provisions of Section 4 (a) and 4 (b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00 P.M.
New York time on the Expiration Date, if prior to such time the Agent receives a
Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank,
a trust company or a New York Stock Exchange member guaranteeing delivery of (i)
payment of the full Subscription Price for the shares of Common Stock subscribed
for on Primary Subscription and any additional shares of Common Stock subscribed
for pursuant to the Over-Subscription Privilege, and (ii) a properly completed
and executed Subscription Certificate, then such exercise of Primary
Subscription Rights and Over-Subscription Rights shall be regarded as timely,
subject, however, to receipt by the Agent of the duly executed Subscription
Certificate and full payment for the Common Stock within three business days
after the Expiration Date.
(d) Within five business days following the Expiration Date (the
"Confirmation Date"), the Agent shall send a confirmation to each Record Date
Shareholder (or, if shares of Common Stock on the Record Date are held by Cede &
Co. Inc. or any other depository or nominee, to Cede & Co. Inc. or such other
depository or nominee), showing (i) the number of shares of common stock
acquired pursuant to the Primary Subscription Right, (ii) the number of shares
of common stock, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per share and total purchase price for the shares of common stock
subscribed for, and (iv) any additional amount payable by such Shareholder to
the Fund or any excess to be refunded by the Fund to such Shareholder ("Excess
Payment"), in each case based on the Subscription Price as determined on the
Expiration Date. Any excess
- 3 -
<PAGE>
payment to be refunded by the Fund to a Record Date Shareholder shall be mailed
by the Agent to the Shareholder within a reasonable period after the
Expiration Date.
5. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered
by specific instructions herein shall be submitted to an appropriate officer of
the Fund and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing officer
and the date thereof.
6. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to
Record Date Shareholders, there remain unexercised Rights, then the Agent shall
allot the shares issuable upon exercise of such unexercised Rights (the
"Remaining Shares") to Shareholders who have exercised all the Rights initially
issued to them and who wish to acquire more than the number of shares for which
the Rights issued to them are exercisable. Shares subscribed for pursuant to
the Over-Subscription Privilege will be allocated in the amounts of such over-
subscriptions. If the number of shares for which the Over-Subscription
Privilege has been exercised is greater than the Remaining Shares, the Agent
shall allocate the Remaining Shares to the Shareholders exercising Over-
Subscription Privilege based on the number of Rights originally issued to them
by the Fund so that the number of shares issued to Record Date Shareholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the number of shares of Common Stock owned by them on the Record
Date. The percentage of Remaining Shares each over-subscribing Record Date
Shareholder may acquire will be rounded up or down to result in delivery of
whole shares of Common Stock. The Agent shall advise the Fund immediately upon
the completion of the allocation set forth above as to the total number of
shares subscribed and distributable.
7. ISSUANCE OF SHARES BY BOOK-ENTRY REGISTRATION. Ownership of shares
purchased pursuant to exercise of Primary Subscription Rights and of the
Over-Subscription Privilege shall be evidenced by registration on the
transfer ledger of the Agent as Transfer Agent (i) as to shares purchased
pursuant to exercise of Primary Subscription Rights as soon as practicable
after the corresponding Rights have been validly exercised and full payment
for such shares has been received and cleared and (ii) as to shares purchasesd
pursuant to the exercise of the Over-Subscription-Privilege as soon as
practicable after all locations have been effected and full payment for such
shares has been received and cleared. Shareholders may request a certificate or
certificates evidencing such shares in accordance with the Transfer Agent's
customary procedures relating to dividend reinvestment.
8. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Shareholders in respect of the
exercise of Rights shall be held by the Agent, on behalf of the Fund, in a
segregated, interest-bearing escrow account (the "Escrow Account"). Pending
disbursement in the manner described in Section 8(b) below above, funds held in
the Escrow Account shall be invested by the Agent at the direction of the Fund.
- 4 -
<PAGE>
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights (including interest earned thereon if such proceeds are
delivered after the beginning of the calendar month immediately following the
month during which the offering expires) to the Fund or pursuant to its
directions as promptly as practicable, but in no event later than fifteen
business days after the Expiration Date. Proceeds held in respect of Excess
Payments (including interest earned thereon) shall belong to the Fund after
any refunds to Shareholders as set forth in Section 4(d) above.
9. REPORTS.
(a) Daily, during the period commencing on September 27, 1996, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 5:30 p.m., New York time), confirmed by letter, to an Officer
designated to the Agent by the Fund, data regarding Rights exercised, the
total number of shares of Common Stock subscribed for, and payments received
therefor, bringing forward the figures from the previous day's report in each
case so as to show the cumulative totals and any such other information as
may be mutually determined by the Fund and the Agent.
10. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Fund and the Agent as the Agent may in its discretion impose (which
shall, in the case of a mutilated Subscription Certificate include the surrender
and cancellation thereof), issue a new Subscription Certificate of like
denomination in substitution for the Subscription Certificate so lost, stolen,
mutilated or destroyed.
11. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated September 27, 1996 and set forth hereto as Exhibit A. The Fund
further agrees that it will reimburse the Agent for its reasonable and
documented out-of-pocket expenses incurred in the performance of its duties as
such.
12. RIGHT AND LIABILITIES OF AGENT; INSTRUCTIONS AND INDEMNIFICATION. The
Agent undertakes the duties and obligations imposed by this Agreement upon
the following terms and conditions:
The Agent shall not be responsible for the form, sufficiency, validity
or accuracy of the Subscription Certificates (except that the Agent shall
be responsible for the accuracy of the names of Shareholders of record and
their respective shareholdings on the Record Date), the Prospectus, or any
other communication, instruction or other document prepared by the Fund or
pursuant to its direction and shall have no duties or responsibilities other
than those expressly set forth herein. The Agent shall have no duty to
enforce any obligation of any person to make any payment required under a
Subscription Agreement, or to direct or eause any payment to be made, or to
enforce any obligation of any person to perform any other act. The Agent
shall be under no liability to the Fund or to any other person or party by
reason of any failure on the part of any drawer, maker, guarantor, endorser or
other signatory of any document or any other person to perform such person's
obligations under any such document.
(a) The Agent and its sub-agents and sub-contractors shall be entitled
to rely upon any instructions or directions furnished to it by an appropriate
officer of the Fund, whether in conformity with the provisions of this
Agreement or constituting a modification hereof or a supplement hereto and
shall have no liability or responsibility for any loss or depreciation arising,
therefrom. Without limiting the generality of the foregoing or any other
provision of this Agreement, the Agent, in connection with its duties
hereunder, shall not be under any duty or obligation to inquire into the
validity or invalidity or authority or lack thereof of any instruction or
direction from an officer of the Fund which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss
- 5 -
<PAGE>
of data occurring by reason of circumstances beyond the Agent's control.
Anything in this agreement to the contrary notwithstanding, in no event shall
the Agent be liable for special, indirect, or consequential
damages of any kind whatsoever whether or not the Agent has been advised as to
the possibility of such damage and regardless of the form of action in which
any such claims for damages may be made.
(b) The Fund will indemnify the Agent and its sub-agents, subcontractors
and nominees against, and hold it harmless from, all liability and expense
including reasonable attorneys' fees and disbursements which sub-agents
subcontactors and arise out of or in connection with the services described in
this Agreement or the instructions or directions furnished to the Agent
relating to this Agreement by an appropriate officer of the Fund, except for
any liability or expense which shall arise out of the negligence, bad faith or
willful misconduct of the Agent or such nominees.
13. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or
concurrence of the Shareholders in whose names Subscription Certificates are
registered, by supplemental agreement or otherwise, concur with the Fund in
making any changes or corrections in a Subscription Certificate that it shall
have been advised by counsel (who may be counsel for the Fund) is appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error therein or herein contained, and
which shall not be inconsistent with the provision of the Subscription
Certificate except insofar as any such change may confer additional rights upon
the Shareholders.
14. ASSIGNMENT, DELEGATION.
(a) Except as hereunder provided, neither this Agreement nor any rights
or obligations hereunder may be assigned or delegated by either party without
the written consent of the other party. The Agent may subcontract for the
performance hereof with any subsidiary or other affiliate of the Agent, and
may, with the Fund's consent, subcontract for the performance hereof with
third parties other than a subsidiary or affiliate of the Agent; provided,
however, that the Agent shall be as fully responsible to the Fund for the
acts or omissions of any subcontractor as it is for its own acts and
omissions, and shall be responsible for its choice of subcontractors.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim or to impose upon any other person any
duty, liability or obligation.
15. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the law of the State of New York.
16. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the invalidity,
unlawfulness or unenforceability of any term or provision thereof shall not
affect the validity, legality or enforceability of this Agreement or of any term
or provision hereof.
17. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
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<PAGE>
18. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
19. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto shall
constitute a legal, valid and binding execution hereof by such party.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
21. ADDITIONAL PROVISIONS. Except as specifically modified by this Agreement,
the Agent's rights and responsibilities set forth in the Agreement for Stock
Transfer Services between the Fund and the Agent are hereby ratified and
confirmed and continue in effect.
THE CHASE MANHATTAN BANK BEA INCOME FUND, INC.
/s/ LIONEL COTTINO /s/ MICHAEL A. PIGNATARO
- ---------------------------------- -----------------------------------
SIGNATURE SIGNATURE
2d Vice-President Secretary
- ---------------------------------- -----------------------------------
TITLE TITLE
- 7 -
<PAGE>
Exhibit A
$15,000 plus all disbursements
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
Pursuant to the BEA Income Fund, Inc.'s (the "Fund") Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have
elected, unless the Fund's transfer agent as the Plan Agent (the "Plan
Agent"), is otherwise instructed by the shareholder in writing, to have all
dividends and distributions, net of any applicable U.S. withholding tax,
automatically reinvested in additional shares of the Fund. Shareholders who
do not participate in the Plan will receive all dividends and distributions
in cash, net of any applicable U.S. withholding tax, paid in dollars by check
mailed directly to the shareholder by the Plan Agent, as dividend-paying
agent. Shareholders who do not wish to have dividends and distributions
automatically reinvested should notify the Plan Agent for the Fund, at the
address set forth below. Dividends and distributions with respect to shares
registered in the name of a broker-dealer or other nominee (i.e., in "street
name") will be reinvested under the Plan unless such service is not provided
by the broker or nominee or the shareholder elects to receive dividends and
distributions in cash. A shareholder whose shares are held by a broker or
nominee that does not provide a dividend reinvestment program may be required
to have his shares registered in his own name to participate in the Plan.
Investors who own shares of the Fund's common stock registered in street name
should contact the broker or nominee for details concerning participation in
the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject
to taxes payable by the Fund at the time amounts are remitted. Such taxes,
if any, will be borne by the Fund and allocated to all shareholders in
proportion to their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declares an income dividend or a
capital gains distribution payable either in the Fund's common stock or in
cash, as shareholders may have elected, nonparticipants in the Plan will
receive cash and participants in the Plan will receive the equivalent in
shares of the Fund valued at the lower of market price or net asset value as
determined at the time of purchase (generally on the payable date of the
dividend) as set forth below. Whenever market price is equal to or exceeds
net asset value at the time shares are valued for the purpose of determining
the number of shares equivalent to the cash dividend or distribution,
participants will be issued shares of the Fund at a price equal to net asset
value but not less than 95% of the then current market price of the Fund
shares. The Fund will not issue shares under the Plan below net asset value.
If net asset value determined as at the time of purchase exceeds the market
price of Fund shares at such time, or if the Fund should declare a dividend
or other distribution payable only in cash (i.e., if the Board of Directors
should preclude reinvestment at net asset value), the Agent will, as agent
for the participants, endeavor to buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, on behalf of all participants, and will
<PAGE>
allocate to you your pro rata portion based on the average price paid
(including brokerage commissions) for all shares purchased. Shares acquired
on behalf of participants in the open market will be purchased at the
prevailing market price. Fractions of a share allocated to you will be
computed to four decimal places. If, before the Agent has completed its
purchases, the market price exceeds the net asset value of a Fund share, the
average per share purchase price paid by the Agent 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.
For all purposes of the Plan: (a) the market price of the Fund's common stock
on a dividend payment date shall be the last sale price on the New York Stock
Exchange on that date, or, if there is no such sale, then the mean between
the closing bid and asked quotations for such stock, and (b) net asset value
per share of the Fund's commons stock on a particular date shall be as
determined by or on behalf of the Fund.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment
in the Fund's common stock. Shareholders should be aware that cash
contributions will be used to purchase shares of the Fund in the open market
regardless of whether such shares are selling above, at or below the net
asset value of the Fund. As a result, shareholders may be purchasing shares
at a market price that reflects a premium to the Fund's net asset value.
Cash contributions should be in the form of a check or money order and made
payable in U.S. dollars and directed to The Chase Manhattan Bank, Dividend
Reinvestment Department-Retail, 770 Broadway, New York, NY 10003-9598.
Deliveries to any other address do not constitute valid delivery.
A detachable form for use in making voluntary cash payments will be attached
to each Dividend Reinvestment Plan statement you receive. The same amount of
money need not be sent each month and there is no obligation to make an
optional cash payment each month.
Payments received by the Agent will be used to purchase stock under Plan.
Prior to such purchase of stock by the Agent, no interest will be paid on
such funds sent to the Agent. Therefore, voluntary cash payments should be
sent to reach the Agent shortly (but at least five business days) before the
dividend payment date. Voluntary cash payments received after the five
business day deadline will be invested by the Agent on the next succeeding
dividend payment date. Dividend payment dates are expected to be the 15th
(or next business day) of each month.
You may obtain a refund of any voluntary cash payment if a request for such a
refund is received in writing by the Agent not less than 48 hours before the
next succeeding dividend payment.
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<PAGE>
There is no charge to participants for reinvesting dividends or capital gains
distributions. The Agent's fees for the handling of reinvestment of
dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in shares
or in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Agent's open market purchases in
connection with the reinvestment of dividends, capital gains distributions,
or voluntary cash payments.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions because the Agent will be purchasing stock for
all participants in blocks and pro rating the lower commissions thus
attainable.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may
be payable on such dividends and distributions.
While the Fund presently intends to continue the Plan indefinitely,
experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the change sent to all shareholders of the Fund
at least 30 days before the record date for such dividend or distribution
The Plan also may be amended or terminated by the Agent by at least 30 days'
written notice to all shareholders of the Fund.
Any notices, questions or other correspondence regarding the Plan should be
addressed to The Chase Manhattan Bank, Customer Service Department, 770
Broadway, New York, NY 10003-9598. Be sure to include a reference to BEA
Income Fund, Inc. Or you may call (800) 428-8890.
- 3 -
<PAGE>
BEA INCOME FUND, INC.
8,128,456 Shares of Common Stock
Issuable Upon Exercise of Non-Transferable Rights
to Subscribe for Such Shares of Common Stock
DEALER MANAGER AGREEMENT
New York, New York
September 27, 1996
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Each of BEA Income Fund, Inc., a Maryland corporation (the "Company"),
and BEA Associates, a New York general partnership (the "Investment Adviser"),
confirms its agreement with and appointment of Smith Barney Inc. to act as
dealer manager (the "Dealer Manager") in connection with the issuance by the
Company to the holders of record at the close of business on September 27, 1996,
or such other date as is established as the record date for such purpose (each a
"Holder" and collectively the "Holders"), of 24,385,367 non-transferable rights
entitling such Holders to subscribe for 8,128,456 shares (each a "Share" and
collectively the "Shares") of common stock, par value $0.001 per share (the
"Common Stock"), of the Company (the "Offer"). Pursuant to the terms of the
Offer, the Company is issuing each Holder one non-transferable right (each a
"Right" and collectively the "Rights") for each share of Common Stock held by
such Holder on the record date (the "Record Date") set forth in the Prospectus
(as defined herein). Such Rights entitle Holders to acquire during the
subscription period (the "Subscription Period") set forth in the Prospectus, at
the price (the "Subscription Price") set forth in such Prospectus, one Share for
each three Rights exercised on the terms and conditions set forth in such
Prospectus. No fractional shares will be issued. Any Holder who
<PAGE>
fully exercises all Rights initially issued to such Holder will be entitled to
subscribe for, subject to allotment, additional Shares (the "Over-Subscription
Privilege"). Pursuant to the Over-Subscription Privilege, the Company may, at
its discretion, increase the number of Shares subject to subscription by up to
25%, or 2,032,114 Shares, for an aggregate total of 10,160,570 Shares.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (File Nos. 333-10851 and
811-5012) and a related preliminary prospectus and preliminary statement of
additional information for the registration of the Shares under the Securities
Act of 1933, as amended (the "Securities Act"), the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the rules and regulations
of the Commission under the Securities Act and the Investment Company Act (the
"Rules and Regulations"), and has filed such amendments to such registration
statement on Form N-2, if any, and such amended preliminary prospectuses and
preliminary statements of additional information as may have been required to
the date hereof. If the registration statement has not become effective, a
further amendment to such registration statement, including forms of a final
prospectus and final statement of additional information necessary to permit
such registration statement to become effective will promptly be filed by the
Company with the Commission. If the registration statement has become effective
and any prospectus or statement of additional information constituting a part
thereof omits certain information at the time of effectiveness pursuant to Rule
430A of the Rules and Regulations, a final prospectus and final statement of
additional information containing such omitted information will promptly be
filed by the Company with the Commission in accordance with Rule 497(h) of the
Rules and Regulations. The term "Registration Statement" means the registration
statement, as amended (if applicable), at the time it becomes or became
effective, including financial statements and all exhibits and all documents, if
any, incorporated therein by reference, and any information deemed to be
included by Rule 430A. The term "Prospectus" means the final prospectus and
final statement of additional information in the forms filed with the Commission
pursuant to Rule 497(c), (h) or (j) of the Rules and Regulations, as the case
may be, as from time
2
<PAGE>
to time amended or supplemented pursuant to the Securities Act. The Prospectus
and letters to beneficial owners of the shares of Common Stock of the Company,
forms used to exercise rights, any letters from the Company to securities
dealers, commercial banks and other nominees and any newspaper announcements,
press releases and other offering materials and information that the Company may
use or approve or authorize in writing for use in connection with the Offer are
collectively referred to hereinafter as the "Offering Materials".
1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) The Company represents and warrants to, and agrees with, the
Dealer Manager as of the date hereof (such date being hereinafter referred to as
the "Representation Date") that:
(i) The Company meets the requirements for use of Form N-2 under the
Securities Act and the Investment Company Act and the Rules and
Regulations. At the time the Registration Statement becomes effective, the
Registration Statement will contain all statements required to be stated
therein in accordance with and will comply in all material respects with
the requirements of the Securities Act, the Investment Company Act and the
Rules and Regulations and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. From
the time the Registration Statement becomes effective through the latest
date that a prospectus is required to be delivered under the Securities
Act, the Prospectus and the other Offering Materials will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the representations and warranties in
this subsection shall not apply to statements in or omissions from the
Registration Statement, Prospectus or other Offering Materials made in
reliance upon and in conformity with information furnished to the Company
in writing by the Dealer Manager ex-
3
<PAGE>
pressly for use in the Registration Statement, Prospectus or other Offering
Materials.
(ii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland,
has full power and authority (corporate and other) to conduct its business
as described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign corporation in each jurisdiction
wherein it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure to be so
qualified would not result in a material adverse effect upon the business,
properties, financial position or results of operations of the Company (a
"Material Adverse Effect"). The Company has no subsidiaries.
(iii) The Company is registered with the Commission under the
Investment Company Act as a closed-end, diversified management investment
company; no order of suspension or revocation of such registration has been
issued or proceedings therefor initiated or threatened by the Commission;
all required action has been taken under the Securities Act and the
Investment Company Act to make the public offering and consummate the
issuance of the Rights and the issuance and sale of the Shares by the
Company upon exercise of the Rights, and the provisions of the Company's
charter and by-laws comply as to form in all material respects with the
requirements of the Investment Company Act.
(iv) Price Waterhouse LLP, the accountants who certified the
financial statements of the Company set forth or incorporated by reference
in the Registration Statement and the Prospectus, are independent public
accountants as required by the Securities Act, the Investment Company Act
and the Rules and Regulations.
(v) The financial statements of the Company set forth or incorporated
by reference in the Registration Statement and the Prospectus present
fairly in all material respects the financial condition of the Company as
of the dates or for the periods
4
<PAGE>
indicated in conformity with generally accepted accounting principles
applied on a consistent basis; and the information set forth in the
Prospectus under the headings "Fee Table" and "Financial Highlights"
presents fairly in all material respects the information stated therein.
(vi) The Company has an authorized capitalization as set forth in the
Prospectus; the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-assessable and
conform in all material respects to the description thereof in the
Prospectus under the heading "Common Stock"; the Rights have been duly
authorized by all requisite action on the part of the Company for issuance
pursuant to the Offer; the Shares have been or, with respect to the Shares
to be issued pursuant to the Oversubscription Privilege, will be duly
authorized by all requisite action on the part of the Company for issuance
and sale pursuant to the terms of the Offer and, when issued and delivered
by the Company pursuant to the terms of the Offer against payment of the
consideration set forth in the Prospectus, will be validly issued, fully
paid and non-assessable; the Shares and the Rights conform in all material
respects to all statements relating thereto contained in the Registration
Statement, the Prospectus and the other Offering Materials; and the
issuance of each of the Rights and the Shares is not subject to any
preemptive rights.
(vii) Except as set forth in the Prospectus, subsequent to the
respective date(s) as of which information is given in the Registration
Statement and the Prospectus, (A) the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, other than in the ordinary course of business, that are
material to the Company, (B) there has not been any material change in the
capital stock or long-term debt of the Company, or any material adverse
change, or any development involving a prospective material adverse change,
in the condition (financial or other), business, prospects, net worth or
results of operations of the Company and (C) there has been no dividends or
distributions paid or, except with
5
<PAGE>
respect to a dividend to shareholders of record as of October 7, 1996
declared on September __, 1996, declared in respect of the Company's
capital stock.
(viii) There is no pending or, to the knowledge of the Company,
threatened or contemplated action, suit or proceeding affecting the Company
or to which the Company is a party before or by any court or governmental
agency, authority or body or any arbitrator, whether foreign or domestic.
(ix) There are no contracts or other documents of the Company
required to be described in the Registration Statement or the Prospectus,
or to be filed or incorporated by reference as exhibits which are not
described or filed or incorporated by reference therein as permitted by the
Securities Act, the Investment Company Act or the Rules and Regulations.
(x) Each of this agreement (the "Agreement"), the Subscription Agency
Agreement (the "Subscription Agency Agreement") dated as of September 27,
1996 between the Company and The Chase Manhattan Bank (the "Subscription
Agent"), the Information Agent Agreement (the "Information Agent
Agreement") dated as of August 27, 1996 between the Company and
Shareholders Communication Corporation (the "Information Agent"), the
Advisory Agreement (the "Advisory Agreement") dated as of June 13, 1995
between the Company and the Investment Adviser, the Mutual Funds Service
Agreement (the "Administration Agreement") dated as of September 25, 1996
between the Company and Chase Global Funds Services Company, the Mutual
Fund Custody Agreement (the "Custodian Agreement") dated as of May 1, 1993
between the Company and The Chase Manhattan Bank, the Shareholder Transfer
Agency Services Agreement (the "Transfer Agent Agreement") dated as of
April 30, 1993, between the Company and The Chase Manhattan Bank and the
Second Amended and Restated Credit Agreement (the "Credit Agreement") dated
as of April 1, 1996 among the Company and others and The First National
Bank of Boston (the Subscription Agency Agreement, Information Agent
Agreement, the Advisory Agreement, the Administration Agreement, the
Custodian Agreement, the Transfer Agent Agreement and the Credit Agreement
are collectively referred to herein as the
6
<PAGE>
"Company Agreements") has been duly authorized, executed and delivered by
the Company; each of this Agreement and the Company Agreements complies
with all applicable provisions of the Investment Company Act; and, assuming
due authorization, execution and delivery by the other parties thereto,
each of this agreement and the Company Agreements constitutes a legal,
valid, binding and enforceable obligation of the Company, subject to the
qualification that the enforceability of the Company's obligations
hereunder and thereunder may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights, and to general principles of
equity (regardless of whether enforceability is considered in a proceeding
in equity or at law) and subject to the qualification that the right to
indemnity hereunder and thereunder may be limited by federal or state laws.
(xi) Neither the issuance of the Rights, nor the issuance and sale of
the Shares, nor the performance and consummation by the Company of any
other of the transactions contemplated in this Agreement and the Company
Agreements nor the consummation of the transactions contemplated in the
Registration Statement will result in a breach or violation of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any properties or assets of the Company
under the charter or by-laws of the Company, or the terms and provisions of
any agreement, indenture, mortgage, lease or other instrument to which the
Company is a party or by which it may be bound or to which any of the
property or assets of the Company is subject, nor will such action result
in any violation of any order, law, rule or regulation of any court or
governmental agency or body, whether foreign or domestic, having
jurisdiction over the Company or any of its properties.
(xii) No consent, approval, authorization, notification or order of,
or any filing with, any court or governmental agency or body, whether
foreign or domestic, is required for the consummation by the Company of the
transactions contemplated by this Agreement, the Company Agreements or the
Regis-
7
<PAGE>
tration Statement, except such as have been obtained, or if the
registration statement filed with respect to the Shares is not effective
under the Securities Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement) under the
Securities Act, Investment Company Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and state securities laws.
(xiii) The Company owns or possesses all material governmental
licenses, permits, consents, orders, approvals or other authorizations,
whether foreign or domestic, to enable the Company to continue to carry on
its business and to invest in securities as contemplated in the Prospectus.
(xiv) The Common Stock has been duly listed on the New York Stock
Exchange and prior to their issuance the Shares will have been duly
approved for listing, subject to official notice of issuance, on the New
York Stock Exchange.
(xv) The Company (A) has not taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
issuance of the Rights or the sale or resale of the Shares, (B) has not
since the filing of the Registration Statement sold, bid for or purchased,
or paid anyone any compensation for soliciting purchases of, shares of
Common Stock of the Company and (C) will not, until the later of the
expiration of the Rights or the completion of the distribution (within the
meaning of Rule 10b-6 under the Exchange Act) of the Shares, sell, bid for
or purchase, pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except
for the solicitation of the exercise of Rights and the Over Subscription
Privilege pursuant to this Agreement); PROVIDED THAT any action authorized
by and taken pursuant to the Company's dividend reinvestment and cash
purchase plan will not be deemed to be within the terms of this Section
1(a)(xv).
8
<PAGE>
(xvi) The Company intends to direct the investment of the proceeds of
the offering described in the Registration Statement and the Prospectus in
such a manner as to continue to comply, with the requirements of Subchapter
M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the
Code"), and has at all times since its inception qualified and intends to
continue to qualify as a regulated investment company under Subchapter M of
the Code.
(xvii) There are no material restrictions, limitations or regulations
with respect to the ability of the Company to invest its assets as
described in the Prospectus other than as described therein.
(b) The Investment Adviser represents and warrants to, and agrees
with, the Dealer Manager as of the date hereof that:
(i) The Investment Adviser has been duly organized and is validly
existing as a general partnership under the laws of the State of New York,
has full power and authority to own its properties and conduct its business
as described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign entity in each jurisdiction wherein
it owns or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so qualified
does not involve a material adverse risk to the business, properties,
financial position or results of operations of the Investment Adviser or
the ability of the Investment Adviser to perform its obligations under the
Advisory Agreement (an "Adviser Material Adverse Effect").
(ii) The Investment Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and regulations under such Acts,
from acting as an investment adviser for the Company as contemplated in the
Prospectus and the Advisory Agreement.
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(iii) Each of this Agreement, the Advisory Agreement and any other
Company Agreement to which the Investment Adviser is a party has been duly
authorized, executed and delivered by the Investment Adviser and complies
with all applicable provisions of the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and the Investment Company Act, and the rules
and regulations under such Acts, and is, assuming due authorization,
execution and delivery by the other parties thereto, a legal, valid,
binding and enforceable obligation of the Investment Adviser, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights,
and to general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(iv) Neither the performance by the Investment Adviser of its
obligations under this Agreement, the Advisory Agreement or any other
Company Agreement to which the Investment Adviser is a party nor the
consummation of the transactions contemplated therein or in the
Registration Statement nor the fulfillment of the terms thereof will result
in a breach or violation of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Investment Adviser under the partnership
agreement of the Investment Adviser, or the terms and provisions of any
material agreement, indenture, mortgage, lease or other instrument to which
the Investment Adviser is a party or by which it may be bound or to which
any of the property or assets of the Investment Adviser is subject, nor
will such action result in any violation of any order, law, rule or
regulation of any court or governmental agency or body, whether foreign or
domestic, having jurisdiction over the Investment Adviser or any of its
properties.
(v) There is no pending or, to the knowledge of the Investment
Adviser, threatened action, suit or proceeding to which the Investment
Adviser is a party before or by any court or governmental agency, authority
or body or any arbitrator, whether foreign
10
<PAGE>
or domestic, which reasonably might result in a Material Adverse Effect or
might materially and adversely affect the ability of the Investment Adviser
to perform its obligations under the Advisory Agreement.
(vi) No consent, approval, authorization, notification or order of,
or any filing with, any court or governmental agency or body, whether
foreign or domestic, is required for the consummation by the Investment
Adviser of the transactions contemplated by this Agreement.
(vii) The Investment Adviser owns or possesses all material
governmental licenses, permits, consents, orders, approvals or other
authorizations, whether foreign or domestic, to enable the Investment
Adviser to perform its obligations under the Advisory Agreement.
(viii) The Investment Adviser (a) has not taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the issuance of the Rights or the sale or resale of the
Shares, (b) has not since the filing of the Registration Statement sold,
bid for or purchased, or paid anyone any compensation for soliciting
purchases of, shares of Common Stock of the Company and (c) will not, until
the later of the expiration of the Rights or the completion of the
distribution (within the meaning of Rule 10b-6 under the Exchange Act) of
the Shares, sell, bid for or purchase, pay or agree to pay any person any
compensation for soliciting another to purchase any other securities of the
Company (except for the solicitation of the exercise of Rights and the Over
Subscription Privilege pursuant to this Agreement); PROVIDED THAT any
action authorized by and taken pursuant to the Company's dividend
reinvestment and cash purchase plan will not be deemed to be within the
terms of this Section 1(b)(viii).
(ix) The information regarding the Investment Adviser in the
Registration Statement and the Pro-
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spectus complies with the requirements of Form N-2 and does not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) Any certificate required by this Agreement that is signed by any
officer of the Company or the Investment Adviser and delivered to the Dealer
Manager or counsel for the Dealer Manager shall be deemed a representation and
warranty by the Company or the Investment Adviser, as the case may be, to the
Dealer Manager, as to the matters covered thereby.
2. AGREEMENT TO ACT AS DEALER MANAGER.
(a) On the basis of the representations and warranties contained
herein, and subject to the terms and conditions of the Offer:
(i) The Company appoints the Dealer Manager as the exclusive dealer
manager in connection with the Offer and the Dealer Manager accepts that
appointment. The Company also authorizes the Dealer Manager to form and
manage a group of securities dealers (each, a "Soliciting Dealer" and,
collectively, the "Soliciting Group") to solicit the exercise of Rights
pursuant to a Soliciting Dealer Agreement, in the form attached hereto as
Exhibit A. The Dealer Manager represents and warrants that it is a broker-
dealer registered under the Exchange Act.
(ii) The Dealer Manager agrees to solicit, in accordance with the
Securities Act, the Investment Company Act and the Exchange Act and the
Rules and Regulations thereunder and its customary practice, the exercise
of the Rights, subject to the terms and conditions of this Agreement, the
Subscription Agent Agreement and the procedures described in the
Registration Statement; and (B) form and manage the Soliciting Group to
solicit, in accordance with the Securities Act, the Investment Company Act
and the Exchange Act and the Rules and Regulations thereunder and its
customary practice the exercise of the Rights, subject to the terms and
conditions of this
12
<PAGE>
Agreement, the Subscription Agent Agreement and the procedures described in
the Registration Statement. No securities dealer shall be considered a
Soliciting Dealer until it shall have entered into a Soliciting Dealer
Agreement with the Dealer Manager in the form of Exhibit A hereto.
(iii) The Company agrees to furnish, or cause to be furnished, to the
Dealer Manager, lists, or copies of those lists, showing the names and
addresses of, and number of shares of Common Stock held by, Holders as of
the Record Date, and the Dealer Manager agrees to use such information only
in connection with the Offer.
(b) The Dealer Manager agrees to provide to the Company, in addition
to the services described in paragraph (a) of this Section 2, financial advisory
and marketing services in connection with the Offer. No advisory fee, other
than the fees provided for in Section 3 of this Agreement and the reimbursement
of the Dealer Manager's out-of-pocket expenses as described in Section 5 of this
Agreement, will be payable by the Company to the Dealer Manager in connection
with the financial advisory and marketing services provided by the Dealer
Manager pursuant to this Section 2(b).
(c) The Company and the Dealer Manager agree that the Dealer Manager
is an independent contractor with respect to the solicitation of the exercise of
Rights and the Over Subscription Privilege and the performance of financial
advisory and marketing services for the Company contemplated by this Agreement
and the Dealer Manager represents and warrants that it is acting on its own
behalf in entering into this Agreement and performing its obligations hereunder.
(d) In rendering the services contemplated by this Agreement, the
Dealer Manager will not be subject to any liability to the Company, the
Investment Adviser, any of their affiliates or any other person, for any act or
omission on the part of any soliciting broker or dealer or any other person, and
the Dealer Manager will not be liable for acts or omissions in performing its
obligations under this Agreement, except as otherwise set forth in Section 7
hereto and except for any losses, claims, damages, liabilities and expenses that
are finally judi-
13
<PAGE>
cially determined to have resulted primarily from the bad faith, willful
misconduct or gross negligence of the Dealer Manager or by reason of the
reckless disregard of the obligations and duties of the Dealer Manager under
this Agreement.
3. DEALER MANAGER AND SOLICITATION FEES. In full payment for the
financial advisory and marketing services rendered and to be rendered hereunder
by the Dealer Manager, the Company agrees to pay the Dealer Manager a fee (the
"Dealer Manager Fee"), equal to 1.25% of the aggregate Subscription Price for
the Shares issued pursuant to the exercise of Rights and the Over Subscription
Privilege. The Company also agrees to pay Soliciting Dealers and the Dealer
Manager, in full payment for their soliciting efforts, fees (the "Solicitation
Fees") (such Solicitation Fees paid to the Dealer Manager are in addition to the
Dealer Manager Fee) equal to 2.50% of the Subscription Price per Share for each
Share issued pursuant to the exercise of Rights and the Over Subscription
Privilege. The Company agrees to pay the Solicitation Fees to the broker-dealer
designated on the applicable portion of the form used by the Holder to exercise
Rights and the Over Subscription Privilege, and if no broker-dealer is so
designated or a broker-dealer is otherwise not entitled to receive compensation
pursuant to the terms of the Soliciting Dealer Agreement, then to pay the Dealer
Manager the Solicitation Fee for such exercise of Rights and the Over
Subscription Privilege. Payment to the Dealer Manager by the Company will be in
the form of a wire transfer of same day funds to an account or accounts
identified by the Dealer Manager. Such payment will be made on each date on
which the Company issues Shares. Payment to a Soliciting Dealer will be made by
the Company directly to such Soliciting Dealer by check to an address identified
by such Soliciting Dealer. Such payments shall be made in next day funds on or
before November 20, 1996.
4. OTHER AGREEMENTS.
(a) The Company covenants with the Dealer Manager as follows:
(i) The Company will use its best efforts to cause the Registration
Statement to become effective under the Securities Act, and will advise the
Dealer
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<PAGE>
Manager promptly as to the time at which the Registration Statement and any
amendments thereto (including any post-effective amendment) becomes so
effective.
(ii) The Company will notify the Dealer Manager immediately, and
confirm the notice in writing, (A) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective
amendment), (B) of the receipt of any comments from the Commission, (C) of
any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, (D) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (E) of the suspension of
the qualification of the Shares or the Rights for offering or sale in any
jurisdiction or (F) of the occurrence of any event that necessitates the
making of any change in the Registration Statement or the Prospectus in
order to make any statement therein or omission therefrom not misleading.
The Company will make every reasonable effort to prevent the issuance of
any stop order described in subsection (D) hereunder and, if any such stop
order is issued, to obtain the lifting thereof at the earliest possible
moment.
(iii) The Company will give the Dealer Manager notice of its
intention to file any amendment to the Registration Statement (including
any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for
use by the Dealer Manager in connection with the Offer, which differs from
the prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 497(c) or Rule 497(h) of the Rules
and Regulations), whether pursuant to the Investment Company Act, the
Securities Act, or otherwise, and will furnish the Dealer Manager with
copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
any such amendment or
15
<PAGE>
supplement to which the Dealer Manager or counsel for the Dealer Manager
shall reasonably object.
(iv) The Company will, without charge, deliver to the Dealer Manager,
as soon as practicable, the number of copies of the Registration Statement
as originally filed and of each amendment thereto as it may reasonably
request, in each case with the exhibits filed therewith.
(v) The Company will, without charge, furnish to the Dealer Manager,
from time to time during the period when the Prospectus is required to be
delivered under the Securities Act, such number of copies of the Prospectus
(as amended or supplemented) as the Dealer Manager may reasonably request
for the purposes contemplated by the Securities Act or the Rules and
Regulations thereunder.
(vi) If any event shall occur as a result of which it is necessary,
in the judgment of the Company or the reasonable opinion of counsel for the
Dealer Manager, to amend or supplement the Registration Statement or the
Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered to a Holder, the
Company will forthwith amend or supplement the Prospectus by preparing and
filing with the Commission (and furnishing to the Dealer Manager a
reasonable number of copies of) an amendment or amendments of the
Registration Statement or an amendment or amendments of or a supplement or
supplements to, the Prospectus (in form and substance satisfactory to
counsel for the Dealer Manager), at the Company's expense, which will amend
or supplement the Registration Statement or the Prospectus so that the
Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a Holder, not
misleading; provided, however, that if the Company does not promptly amend
or supplement the Registration Statement or the Prospectus in form and
substance satisfactory to counsel for the Dealer Manager, then the Dealer
Manager may terminate this
16
<PAGE>
Agreement pursuant to Section 9(a)(vi) and the Company shall, at the
Company's expense, amend or supplement the Registration Statement or the
Prospectus to state the Dealer Manager has terminated this Agreement with
respect to the Offer.
(vii) The Company will endeavor, in cooperation with the Dealer
Manager and its counsel, to assist such counsel to qualify the Rights and
the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Dealer
Manager may designate and maintain such qualifications in effect for the
duration of the Offer; PROVIDED, HOWEVER, that the Company will not be
obligated to qualify in any jurisdiction in which the Company would be
required to (x) file any general consent to service of process, (y) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
in which it is not now so qualified or (z) be subject to taxation in such
jurisdiction. The Company will file such statements and reports as may be
required by the laws of each jurisdiction in which the Rights and the
Shares have been qualified as above provided.
(viii) The Company will make generally available to its security
holders as soon as practicable, but no later than 60 days after the close
of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the Rules and Regulations of the
Securities Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the "effective"
date (as defined in said Rule 158) of the Registration Statement.
(ix) For a period of 180 days from the date of this Agreement, the
Company will not, without the prior consent of the Dealer Manager, offer or
sell, or enter into any agreement to sell, any equity or equity-related
securities of the Company or securities convertible into such securities,
other than the Rights and the Shares or Common Stock issued pursuant to
reinvestment of dividends or distributions in accordance with the dividend
investment plan, pursuant to the cash purchase plan or pursuant
17
<PAGE>
to any distribution of dividends or capital gains payable in Common Stock
declared by the Company or pursuant to a Common Stock split declared by the
Company.
(x) The Company will apply the net proceeds from the Offer as set
forth under "Use of Proceeds" in the Prospectus.
(xi) The Company will use its best efforts to cause the Shares to be
duly authorized for listing by the New York Stock Exchange prior to the
time the Shares are issued.
(xii) The Company will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the
Code.
(xiii) The Company will advise or cause the Subscription Agent to
advise the Dealer Manager and each Soliciting Dealer from day to day during
the period of, and promptly after the termination of, the Offer, as to the
names and addresses of all Holders exercising Rights, the total number of
Rights exercised and the number of Shares, including Shares requested
pursuant to the Over Subscription Privilege, related thereto by each Holder
during the immediately preceding day, indicating the total number of Rights
verified to be in proper form for exercise, rejected for exercise and being
processed and, for the Dealer Manager and each Soliciting Dealer, the
number of Rights exercised and the number of Shares, including Shares
requested pursuant to the Over Subscription Privilege, related thereto on
subscription certificates indicating the Dealer Manager or such Soliciting
Dealer, as the case may be, as the broker-dealer with respect thereto, and
as to such other information as the Dealer Manager may reasonably request;
and will notify the Dealer Manager and each Soliciting Dealer, not later
than 5:00 P.M., New York City time, on the first business day following the
expiration date of the Offer set forth in the Prospectus (the "Expiration
Date"), of the total number of Rights exercised and the number of Shares,
including Shares requested pursuant to the Over Subscription Privilege,
related thereto, the total number of Rights
18
<PAGE>
verified to be in proper form for exercise, rejected for exercise and being
processed and, for the Dealer Manager and each Soliciting Dealer, the
number of Rights exercised and the number of Shares, including Shares
requested pursuant to the Over Subscription Privilege, related thereto on
subscription certificates indicating the Dealer Manager or such Soliciting
Dealer, as the case may be, as the broker-dealer with respect thereto, and
as to such other information as the Dealer Manager may reasonably request.
(xiv) The Company will comply with the undertaking contained in
paragraph (c) of Item 33 in Part C of the Registration Statement.
(xv) In the event that at any time on or prior to the final issuance
and sale of Shares pursuant to the Offer any of the representations,
warranties or agreements of the Company would not be true and correct in
all material respects as if given or made at such time, the Company shall
promptly notify the Dealer Manager thereof. The Company shall also
promptly notify the Dealer Manager of its failure to perform any obligation
on its part required to be performed or to satisfy any condition on its
part required to be satisfied on or before any of the date hereof, the
Representation Date, the Expiration Date and any date of the issuance and
sale of Shares pursuant to the Offer.
(b) The Company and the Investment Adviser will not take, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the issuance of the Rights or the sale or resale of the Shares;
PROVIDED that any action authorized by and taken pursuant to the Company's
dividend reinvestment plan and cash purchase will not be deemed to be within the
meaning of this Section 4(b).
(c) In the event that at any time on or prior to the final issuance
and sale of Shares pursuant to the Offer any of the representations, warranties
or agreements of the Investment Adviser would not be true and
19
<PAGE>
correct in all material respects as if given or made at such time, the
Investment Adviser shall promptly notify the Dealer Manager thereof. The
Investment Adviser shall also promptly notify the Dealer Manager of its failure
to perform any obligation on its part required to be performed or to satisfy any
condition on its part required to be satisfied on or before any of the date
hereof, the Representation Date, the Expiration Date and any date of issuance
and sale of the Shares pursuant to the Offer.
5. PAYMENT OF EXPENSES.
(a) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, including, but not limited to, expenses
relating to (i) the printing and filing of the Registration Statement as
originally filed and of each amendment thereto, (ii) the preparation, issuance
and delivery of the certificates for the Shares and subscription certificates
relating to the Rights, (iii) the fees and disbursements of the Company's
counsel (including the fees and disbursements of local counsel) and accountants,
(iv) the qualification of the Rights and the Shares under securities laws in
accordance with the provisions of Section 4(a)(vii) of this Agreement, including
filing fees and the preparation of the Blue Sky Survey by counsel to the Dealer
Manager, (v) the printing or other production and delivery to the Dealer Manager
of copies of the Registration Statement as originally filed and of each
amendment thereto and of the Prospectus and any amendments or supplements
thereto, (vi) the printing and other production and delivery of copies of the
Blue Sky Survey, (vii) the fees and expenses incurred with respect to filing
with the National Association of Securities Dealers, Inc. ("NASD"), (viii) the
fees and expenses incurred in connection with the listing of the Shares on the
New York Stock Exchange, (ix) the printing or other production, mailing and
delivery expenses incurred in connection with Offering Materials and (x) the
fees and expenses incurred with respect to the Subscription Agent and
Information Agent.
(b) In addition to any fees that may be payable to the Dealer Manager
under this Agreement, the Company agrees to reimburse the Dealer Manager upon
request made from time to time for its reasonable expenses incurred in
connection with its activities under this
20
<PAGE>
Agreement, including the reasonable fees and disbursements of its legal counsel
(excluding Blue Sky and NASD fees and expenses which are paid directly by the
Company), in an amount up to $100,000.
(c) If this Agreement is terminated by the Company for any reason
(other than a material breach by the Dealer Manager of its duties hereunder) or
by the Dealer Manager in accordance with the provisions of Section 6 or Section
9(a), the Company agrees to reimburse the Dealer Manager for all of its
reasonable out-of-pocket expenses incurred in connection with its performance
hereunder, including the reasonable fees and disbursements of counsel for the
Dealer Manager. In the event the transactions contemplated hereunder are not
consummated, the Company agrees to pay all of the costs and expenses set forth
in paragraph (a) of this Section 5 which the Company would have paid if such
transactions had been consummated.
6. CONDITIONS OF THE DEALER MANAGER'S OBLIGATIONS. The obligations
of the Dealer Manager hereunder are subject to the accuracy of the respective
representations and warranties of the Company and the Investment Adviser
contained herein on the date hereof and as if made on each date up to and
including the final issuance and sale of Shares pursuant to the Offer, to the
performance by the Company and the Investment Adviser of their respective
obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on September 27, 1996, or at such later time
and date as may be approved in writing by the Dealer Manager; the Prospectus and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rule 497(c), (e) or (h), as
the case may be, under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company, the Investment Adviser or the
Dealer Manager, shall be contemplated by the Commission; and the Company shall
have complied with any request of the Commission
21
<PAGE>
for additional information (to be included in the Registration Statement or the
Prospectus or otherwise).
(b) On the Representation Date, the Dealer Manager shall have
received:
(1) The favorable opinion, dated the Representation Date, of Willkie,
Farr & Gallagher, counsel for the Company, in form and substance
satisfactory to counsel for the Dealer Manager, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, has full corporate power and authority to conduct its
business as described in the Registration Statement and Prospectus,
except that counsel need express no opinion as to securities or "blue
sky" laws of any state, and is duly qualified to do business as a
foreign corporation in each jurisdiction wherein it owns or leases
real property or in which the conduct of its business requires such
qualification, except where the failure to be so qualified would not
result in a Material Adverse Effect.
(ii) The Company is registered with the Commission under the
Investment Company Act as a closed-end, diversified management
investment company; to the knowledge of such counsel, no order of
suspension or revocation of such registration has been issued or
proceedings therefor initiated or threatened by the Commission; all
required action has been taken under the Securities Act and the
Investment Company Act to make the public offering and consummate the
issuance of the Rights and the issuance and sale of the Shares by the
Company upon exercise of the Rights, and the provisions of the
Company's charter and by-laws comply as to form in all material
respects with the requirements of the Investment Company Act.
(iii) The Company has an authorized capitalization as set forth
in the Prospectus under
22
<PAGE>
the heading "Common Stock"; the outstanding shares of Common Stock
have been duly authorized and are validly issued, fully paid and non-
assessable and conform in all material respects to the description
thereof in the Prospectus under the heading "Common Stock"; the Rights
have been duly authorized by all requisite action on the part of the
Company for issuance pursuant to the Offer; the Shares have been or,
with respect to Shares to be issued pursuant to the Oversubscription
Privilege, will be duly authorized by all requisite action on the part
of the Company for issuance and sale pursuant to the terms of the
Offer and, when issued and delivered by the Company pursuant to the
terms of the Offer against payment of the consideration set forth in
the Prospectus, will be validly issued, fully paid and non-assessable;
the Rights conform in all material respects to all statements relating
thereto contained in the Prospectus under the heading "The Offer";
and, to the knowledge of such counsel, the issuance of each of the
Rights and the Shares is not subject to any preemptive rights.
(iv) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding affecting the Company or to
which the Company is a party before or by any court or governmental
agency, authority or body or any arbitrator, whether foreign or
domestic.
(v) There are no contracts or other documents of the Company
required to be described in the Registration Statement or the
Prospectus, or to be filed or incorporated by reference as exhibits
which are not described or filed or incorporated by reference therein
as permitted by the Securities Act, the Investment Company Act or the
Rules and Regulations.
(vi) Each of this Agreement, the Subscription Agency Agreement,
the Information Agent Agreement and the Advisory Agreement has been
duly authorized, executed and delivered by the Company; each of this
Agreement, the Sub-
23
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scription Agency Agreement, the Information Agent Agreement and the
Advisory Agreement complies with all applicable provisions of the
Investment Company Act and the Advisers Act; and, assuming due
authorization, execution and delivery by the other parties thereto,
each of this Agreement, the Subscription Agency Agreement, the
Information Agent Agreement and the Advisory Agreement constitutes a
legal, valid, binding and enforceable obligation of the Company,
subject to the qualification that the enforceability of the Company's
obligations thereunder may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights, and to general principles
of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and subject to the qualification that
the right to indemnity may be limited by federal or state laws.
(vii) Neither the issuance of the Rights, nor the issuance and
sale of the Shares, nor the consummation by the Company of any other
of the transactions contemplated in this Agreement, the Subscription
Agency Agreement, the Information Agent Agreement and the Advisory
Agreement nor the consummation of the transactions contemplated in the
Registration Statement will result in a breach or violation of, or
constitute a default under, the charter or by-laws of the Company, or,
to the knowledge of such counsel, result in a breach or violation of,
or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any properties or assets of
the Company under the terms and provisions of any agreement,
indenture, mortgage, lease or other instrument to which the Company is
a party or by which it may be bound or to which any of the property or
assets of the Company is subject, nor, to the knowledge of such
counsel, will such action result in any violation of any order, law,
rule or regulation of any court or governmental agency or body under
the laws of New York, federal law or the laws of any other
24
<PAGE>
jurisdiction in the United States having jurisdiction over the Company
or any of its properties.
(viii) No consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body
is required under the laws of New York, federal law or, to such
counsel's knowledge, the laws of any other jurisdiction in the United
States for the consummation by the Company of the transactions
contemplated by this Agreement or the Registration Statement, except
(A) such as have been obtained and (B) such as may be required under
the blue sky laws of any jurisdiction in connection with the
transactions contemplated hereby.
(ix) The Common Stock has been duly listed on the New York Stock
Exchange and the Shares have been duly approved for listing, subject
to official notice of issuance, on the New York Stock Exchange.
(x) The Registration Statement has become effective under the
Securities Act; to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or
threatened; and the Registration Statement, the Prospectus and each
amendment thereof or supplement thereto (other than the financial
statements and the notes thereto and the schedules and other financial
and statistical data contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the applicable requirements of the Securities Act and the Investment
Company Act and the Rules and Regulations.
(xi) The statements in the Prospectus under the heading
"Taxation" fairly summarize the matters therein described.
25
<PAGE>
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of the laws of Maryland to the extent they deem proper and specified
in such opinion, upon the opinion of Venable, Baetjer and Howard LLP or upon the
opinion of other counsel of good standing whom such counsel believes to be
reliable and who are satisfactory to counsel for the Dealer Manager, (B) as to
matters regarding the organization of the Company and its initial offering of
its shares of capital stock, upon the opinion dated April 15, 1987 of Sullivan &
Cromwell, counsel to the Company in connection therewith, to the extent that
Willkie, Farr & Gallagher, the Dealer Manager and counsel to the Dealer Manager
are entitled pursuant to the terms of such opinion or the express written
authorization of Sullivan & Cromwell to rely thereon, and (C) as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Company and its independent accountants, no facts have come to their attention
which cause them to believe that the Registration Statement (except as to such
financial statements or schedules or other financial or statistical data
included or incorporated by reference in the Registration Statement or the
Prospectus, as to which such counsel expresses no belief), on the date it became
effective, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements contained therein not misleading or that the Prospectus, as of its
date and on such Representation Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(2) The favorable opinion, dated the Representation Date, of Venable,
Baetjer and Howard, LLP,
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special Maryland counsel to the Company, addressed to Willkie Farr &
Gallagher and in form and substance satisfactory to counsel for the Dealer
Manager, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, and has full corporate power and authority to conduct its
business in the State of Maryland as described in the Registration
Statement and Prospectus, except that counsel need express no opinion
as to securities or "blue sky" laws of the State of Maryland.
(ii) The Company has an authorized capitalization as set forth
in the Prospectus under the heading "Common Stock"; the outstanding
shares of Common Stock of the Company have been duly authorized and
are validly issued and are fully paid and nonassessable and, with
respect to statements pertaining to Maryland law thereto, the Shares
conform in all material respects to the description thereof in the
Prospectus under the heading "Common Stock"; the Rights have been duly
authorized by all requisite action on the part of the Company for
issuance pursuant to the Offer; the Shares have been or, with respect
to the Shares to be issued pursuant to the Over-Subscription Privilege
will be, duly authorized by all requisite action on the part of the
Company for issuance and sale pursuant to the terms of the Offer and,
when issued and delivered by the Company pursuant to the terms of the
Offer against payment of the consideration set forth in the
Prospectus, will be validly issued, fully paid and nonassessable; the
Rights conform in all material respects to all statements with respect
to Maryland law relating thereto contained in the Prospectus under the
heading "The Offer"; and the issuance of each of the Rights and the
Shares is not subject to any preemptive rights under the Company's
charter or bylaws or under Maryland law or, to their knowledge,
otherwise.
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(iii) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding affecting the Company or to
which the Company is a party before or by any Maryland court or
Maryland governmental agency, authority or body or any arbitrator in
the State of Maryland.
(iv) Each of this Agreement and the Company Agreements has been
duly authorized by the Company.
(v) Neither the issuance of the Rights, nor the issuance and
sale of the Shares by the Company, nor the consummation by the Company
of any other of the transactions contemplated in this Agreement and
the Company Agreements nor the consummation of the transactions
contemplated in the Registration Statement will result in a breach or
violation of, or constitute a default under the charter or by-laws of
the Company nor to our knowledge will such action result in any
violation of any order, law, rule or regulation of any Maryland court
or Maryland governmental agency or body.
(vi) No consent, approval, authorization, notification or order
of, or any filing with, any Maryland court or Maryland governmental
agency or body is required under the Maryland General Corporation Law
for the consummation by the Company of the transactions contemplated
by this Agreement or the Registration Statement in connection with the
issuance of the Rights and the sale of the Shares by the Company,
except (A) such as have been obtained and (B) such as may be required
under the securities and "Blue Sky" laws of the State of Maryland in
connection with the transactions contemplated hereby.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and public officials.
(3) The favorable opinion, dated the Representation Date, of Willkie,
Farr & Gallagher, counsel
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for the Investment Adviser, in form and substance satisfactory to counsel
for the Dealer Manager, to the effect that:
(i) The Investment Adviser is validly existing as a general
partnership under the laws of the State of New York, with partnership
power and authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, and is
duly qualified to do business as a foreign entity in each jurisdiction
wherein it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure to be
so qualified does not result in an Adviser Material Adverse Effect.
(ii) The Investment Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers
Act or the Investment Company Act, or the rules and regulations under
such Acts, from acting as an investment adviser for the Company as
contemplated in the Prospectus and the Advisory Agreement.
(iii) Each of this Agreement and the Advisory Agreement has been
duly authorized, executed and delivered by the Investment Adviser;
each of this Agreement and the Advisory Agreement complies with all
applicable provisions of the Advisers Act, the Investment Company Act
and the rules and regulations under such Acts; and each of this
Agreement and the Advisory Agreement is, assuming due authorization,
execution and delivery by the other parties thereto, a legal, valid,
binding and enforceable obligation of the Investment Adviser, subject
as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or
affecting creditors' rights, and to general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
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(iv) Neither the performance by the Investment Adviser of its
obligations under this Agreement nor the consummation of the
transactions contemplated therein or in the Registration Statement nor
the fulfillment of the terms thereof will result in a breach or
violation of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any properties
or assets of the Investment Adviser under the partnership agreement of
the Investment Adviser, or, to the knowledge of such counsel, the
terms and provisions of any agreement, indenture, mortgage, lease or
other instrument to which the Investment Adviser is a party or by
which it may be bound or to which any of the property or assets of the
Investment Adviser is subject, or any order, law, rule or regulation
of any court or governmental agency or body under the laws of New
York, federal law or the laws of any other jurisdiction in the United
States having jurisdiction over the Investment Adviser or any of its
properties.
(v) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding to which the Investment Adviser
is a party before or by any court or governmental agency, authority or
body or any arbitrator, whether foreign or domestic, which reasonably
might result in a Material Adverse Effect or might materially and
adversely affect the ability of the Investment Adviser to perform its
obligations under the Advisory Agreement.
(vi) No consent, approval, authorization, notification or order
of, or any filing with, any court or governmental agency or body,
under the laws of New York, federal law or the laws of any other
jurisdiction in the United States is required for the consummation by
the Investment Adviser of the transactions contemplated by this
Agreement.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent such counsel deems proper,
30
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on certificates of responsible officers of the Investment Adviser and public
officials.
(c) The Dealer Manager shall have received from Skadden, Arps, Slate,
Meagher & Flom, counsel for the Dealer Manager, such opinion, dated the
Representation Date, with respect to the Offer, the Registration Statement, the
Prospectus and other related matters as the Dealer Manager may reasonably
require, and the Company shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Dealer Manager a
certificate of the Company, signed by the Chairman of the Board, the President
or a Vice President of the Company, dated the Representation Date, to the effect
that the signers of such certificate have examined the Registration Statement,
the Prospectus, any supplement to the Prospectus and this Agreement and that, to
the best of their knowledge:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Representation Date with the same effect as if made on the
Representation Date and the Company has complied with all the
agreements and satisfied all the conditions in this Agreement on its
part to be performed or satisfied at or prior to the Representation
Date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened.
(iii) Since the date of the most recent balance sheet included or
incorporated by reference in the Prospectus, there has been no
material adverse change in the condition (financial or other),
earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus.
(e) The Investment Adviser shall have furnished to the Dealer Manager
a certificate, signed by a
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Managing Director, dated the Representation Date, to the effect that the signer
of such certificate has read the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and, to the best knowledge of
such signer, the representations and warranties of the Investment Adviser in
this Agreement are true and correct in all material respects on and as of the
Representation Date with the same effect as if made on the Representation Date
and the Investment Adviser has complied with all the agreements and satisfied
all the conditions in this Agreement on its part to be performed or satisfied at
or prior to the Representation Date.
(f) Price Waterhouse LLP shall have furnished to the Dealer Manager a
Letter, dated the Representation Date, in form and substance satisfactory to the
Dealer Manager, and stating in effect that:
(i) They are independent accountants with respect to the Company
within the meaning of the Securities Act and the applicable Rules and
Regulations.
(ii) In their opinion, the audited financial statements examined
by them and included or incorporated by reference in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
Investment Company Act and the respective Rules and Regulations with
respect to registration statements on Form N-2.
(iii) They have performed specified procedures, not constituting
an audit, including a reading of the latest available interim
financial information of the Company, a reading of the minute books of
the Company, inquiries of officials of the Company responsible for
financial or accounting matters and such other inquiries and
procedures which shall be specified in such letter, and on the basis
of such inquiries and procedures nothing came to their attention that
caused them to believe that at the date of the latest available
financial information read by such accountants, or at a subsequent
specified date not more than five business days prior to the
Representation Date, there was any change in the capital stock,
increase in long-term debt or de-
32
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crease in net assets of the Company as compared with amounts shown in
the most recent statement of assets and liabilities included or
incorporated by reference in the Registration Statement, except as the
Registration Statement discloses has occurred or may occur or as
disclosed in their letter.
(iv) In addition to the procedures referred to in clause (iii)
above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numerical data and financial information appearing in the Registration
Statement, which have previously been specified by the Dealer Manager
and which shall be specified in such letter, and have compared such
items with, and have found such items to be in agreement with, the
accounting and financial records of the Company.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been (i) any change or decrease specified in the letter or letters referred to
in paragraph (f) of this Section 6, or (ii) any change, or any development
involving a prospective change, in or affecting the business, condition
(financial or otherwise) or properties of the Company, the effect of which, in
any case referred to in clause (i) or (ii) above, makes it, in the reasonable
judgment of the Dealer Manager, impractical or inadvisable to proceed with the
Offer as contemplated by the Registration Statement and the Prospectus.
(h) Prior to the Representation Date, the Company shall have
furnished to the Dealer Manager such further information, certificates and
documents as the Dealer Manager may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects satisfactory in form and
substance to the Dealer Manager and its counsel, this Agreement and all
obligations of the Dealer Manager hereunder may be canceled at, or at any time
prior to, the Representation Date by the
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Dealer Manager. Notice of such cancellation shall be given to the Company in
writing or by telephone or telegraph confirmed in writing.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless the Dealer Manager,
the directors, officers, employees and agents of the Dealer Manager and each
person, if any, who controls the Dealer Manager within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several (including any
investigation, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act
or other statutory law or regulation, at common law or otherwise, whether
foreign or domestic, insofar as such losses, claims, damages or liabilities
arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectus or the Offering Materials, and any amendment or supplement thereto,
or the omission or alleged omission to state in any or all such documents a
material fact required to be stated therein or necessary to make the statements
in it not misleading (in the case of the Prospectus, in light of the
circumstances under which such statements were made), (ii) the failure by the
Company to make the Offer, including the withdrawal or termination of the Offer
by the Company or (iii) the failure of the Company to comply with the
undertaking contained in paragraph (c) of Item 33 in Part C of the Registration
Statement; provided that the Company will not be liable to the extent that such
loss, claim, damage or liability arises from an untrue statement or omission or
alleged untrue statement or omission made in reliance on and in conformity with
information furnished in writing to the Company by the Dealer Manager expressly
for use in the document.
(b) The Investment Adviser will indemnify and hold harmless the
Dealer Manager, the directors, officers, employees and agents of the Dealer
Manager and each person, if any, who controls the Dealer Manager within
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<PAGE>
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all losses, claims, damages or liabilities, joint or several
(including any investigation, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which they or any of them may become
subject under the Securities Act, the Exchange Act, the Investment Company Act,
the Advisers Act or other statutory law or regulation, at common law or
otherwise, whether foreign or domestic, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, the
Prospectus or the Offering Materials and any amendment or supplement thereto, or
the omission or alleged omission to state in any or all such documents a
material fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that the Investment Adviser shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of the Dealer Manager specifically for use in connection
with the preparation thereof; and PROVIDED FURTHER that (x) the obligation of
the Investment Adviser under this Section 7(b) shall not apply to any loss,
claim, damage or liability to the extent arising out of or based upon any untrue
statement or alleged untrue statement of or omission or alleged omission
contained in the Registration Statement, the Prospectus or the Offering
Materials (or any amendment or supplement thereto) except in respect of
statements contained under the captions "Management of the Fund -- BEA
Associates" or under the caption "Prospectus Summary" insofar as the statements
under such second caption relate to the information under the first caption
referred to in this proviso, and (y) the Investment Adviser will be liable to
any party to be indemnified by it under this Section 7(b) in any case only to
the extent that the Company fails to indemnify and hold harmless such
indemnified party pursuant to Section 7(a). The foregoing indemnity agreement is
in addition to any liability which the Investment Adviser may otherwise have to
the Dealer Manager or any controlling person of the
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Dealer Manager. This Section 7(b) is not intended to diminish in any way the
Company's obligation timely to indemnify and hold harmless any indemnified party
pursuant to Section 7(a). Each indemnified party agrees that the Investment
Adviser may bring suit, or take any other appropriate action in law or in
equity, against the Company in the name of such indemnified party to enforce the
Company's indemnity obligation to such indemnified party pursuant to Section
7(a) in respect of any amount that the Investment Adviser has paid to such
indemnified party pursuant to this Section 7(b). Such indemnified party will
cooperate with and assist the Investment Adviser in the conduct of any such
action and the Investment Adviser will pay all expenses of such action and will
reimburse such indemnified party for all reasonable out-of-pocket expenses. The
Investment Adviser will be entitled to all amounts recovered in any such action.
(c) The Dealer Manager will indemnify and hold harmless the Company,
the Investment Adviser, each director and officer of the Company who signs the
Registration Statement and each person, if any, who controls the Company or the
Investment Adviser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, to the same extent as the foregoing indemnity
from the Company or the Investment Adviser to the Dealer Manager, but only
insofar as losses, claims, damages or liabilities arise out of or are based on
any untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished in writing to the
Company by the Dealer Manager expressly for use in preparation of the documents
in which the statement or omission is made or alleged to be made. This
indemnity agreement will be in addition to any liability that the Dealer Manager
might otherwise have.
(d) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to notify such indemnifying party will not,
except to the extent set forth below, relieve it from liability that it may have
to any
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indemnified party. No indemnification provided for in Sections 7(a) - (c)
hereof shall be available to any party who shall fail to give notice as provided
in this Section 7(d) if the party to whom notice was not given was unaware of
the proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the omission to notify such indemnifying party
of such action shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise on account of the provisions in
Sections 7(a) - (c). If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in, and, to the extent that
it elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel reasonably satisfactory to the indemnified
party, and, after notice from the indemnifying party to the indemnified party of
its election to assume the defense, the indemnifying party will not be liable to
the indemnified party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred by
the indemnified party in connection with the defense. The indemnified party
will have the right to employ its counsel in any such action, but the fees and
expenses of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded that there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available to the
indemnifying party (in which case the indemnifying party will not have the right
to direct the defense of such action on behalf of the indemnified party) or (3)
the indemnifying party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees and expenses of
counsel will be at the expense of the indemnifying party or parties. All such
fees and expenses will be reimbursed promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected
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without its written consent or, in connection with any proceeding or related
proceeding in the same jurisdiction, for the fees and expenses of more than one
separate counsel for all indemnified parties except to the extent provided
herein.
(e) In no case shall the indemnification provided in this Section 7
be available to protect any person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its or his obligations or duties
hereunder, or by reason of its or his reckless disregard of its or his
obligations and duties hereunder.
(f) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 7 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), the Company, the Investment Adviser
and the Dealer Manager, in order to provide for just and equitable contribution,
agree as provided below. The Company and the Dealer Manager shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportions as are appropriate to reflect the relative benefits received by the
Company on the one hand and by the Dealer Manager on the other from the offering
of the Shares; PROVIDED, HOWEVER, that neither the Company nor the Dealer
Manager shall contribute to the amount paid or payable by such indemnified party
as a result of any such losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission contained in the Prospectus (or
any amendment or supplement thereto) in respect of statements contained under
the captions "Management of the Fund -- BEA Associates" or under the caption
"Prospectus Summary" insofar as the statements under the second caption related
to the information under the first caption referred to above, which amounts
shall be contributed by the Investment Adviser to the amount paid or payable by
the indemnified party. If the allocation between the Company and the Dealer
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Manager provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Dealer Manager shall contribute in such proportion
as is appropriate to reflect not only the relative benefits referred to above
but also the relative fault of the Company and the Dealer Manager, respectively,
in connection with the statements or omissions that result in such loss, claim,
damage or liability (or actions in respect thereof) as well as any other
relevant equitable considerations, subject, however, to the proviso contained in
the immediately preceding sentence. The relative benefits received by the
Company on the one hand and the Dealer Manager on the other shall be deemed to
be in the same proportion as the aggregate net proceeds from the subscription
for the Shares (before deducting expenses) received by the Company bears to the
amounts received by the Dealer Manager pursuant to Section 3 hereof. The
relative fault of the Company on the one hand and the Dealer Manager on the
other shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Dealer Manager, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Investment Adviser and the Dealer Manager agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (f).
Notwithstanding any other provision of this paragraph (f), the Dealer Manager
shall not be obligated to make contribution hereunder that in the aggregate
exceeds (i) the amount of the total fees paid to the Dealer Manager pursuant to
Section 3 of this Agreement, less (ii) the aggregate amount of any damages that
the Dealer Manager has otherwise been required to pay in respect of the same or
any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (f), each person,
if any, who controls the Investment Adviser or the Dealer Manager within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
shall have the same rights to contribution as the Investment Adviser or the
Dealer Manager, respectively, and each director of the Company, each officer of
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Company who signed the Registration Statement and each person, if any, who
controls the Company, within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, shall have the same rights to contribution as the Company.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 7, notify such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have otherwise than under this Section 7. No party
will be liable for contribution with respect to any action or claim settled
without its written consent.
(g) The Company and the Investment Adviser agree to indemnify each
Soliciting Dealer, the directors, officers, employees and agents of each
Soliciting Dealer and controlling persons of each Soliciting Dealer to the same
extent and subject to the same conditions and to the same agreements, including
with respect to contribution, provided for in subsections (a), (b), (c), (d),
(e) and (f) of this Section 7.
(h) The Company and the Investment Adviser acknowledge that the
statements contained in the first two sentences under the caption "Distribution
Arrangements" in the Prospectus constitute the only information furnished in
writing to the Company by the Dealer Manager expressly for use in such document;
and the Dealer Manager confirms that such statements are correct.
8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers, of the Investment Adviser and of the
Dealer Manager set forth in or made pursuant to this Agreement shall survive the
Expiration Date and will remain in full force and effect, regardless of any
investigation made by or on behalf of Dealer Manager, the Company or the
Investment Adviser or any of the officers, directors or controlling persons
referred to in Section 7 hereof, and will survive delivery of and payment for
the Shares pursuant to the Offer; provided, however, that following delivery and
payment for the Shares, the remedies against the Investment Adviser for breach
of its
40
<PAGE>
representations and warranties shall, in the absence of fraudulent
misrepresentation by the Investment Adviser, which shall not include fraudulent
misrepresentation attributed to the Investment Adviser solely by virtue of and
in the event of its being a controlling person of the Company, be limited to
those available pursuant to Section 7 hereof. The provisions of Section 5 and 7
hereof shall survive the termination or cancellation of this Agreement.
9. TERMINATION OF AGREEMENT. (a) This Agreement shall be subject to
termination in the absolute discretion of the Dealer Manager, by notice given to
the Company prior to the expiration of the Offer, if prior to such time (i)
there has been a material change in general economic, political, social or
financial conditions in the United States or the effect of international
conditions on the financial markets in the United States such that, in the
Dealer Manager's judgment, it is impracticable or inadvisable to proceed with
the Offer, (ii) there has occurred any outbreak or material escalation of
hostilities or other calamity or crisis the effect of which, in the Dealer
Manager's judgment, renders it impracticable or inadvisable to proceed with the
Offer, (iii) trading in the shares of Common Stock shall have been suspended by
the Commission or the New York Stock Exchange, (iv) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited,
(v) a banking moratorium shall have been declared either by Federal or New York
State authorities or (vi) the Company shall fail to amend or supplement the
Registration Statement or the Prospectus as provided in Section 4(a)(vi).
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 5.
10. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Dealer Manager, will be mailed,
delivered or telegraphed and confirmed to Smith Barney Inc., Attn.: William B.
Ogden, III, 388 Greenwich Street, New York, New York 10013; or if sent to the
Company or the Investment Adviser will be mailed, or delivered or telegraphed
and confirmed to them at: BEA Income Fund, Inc., c/o BEA
41
<PAGE>
Associates, One Citicorp Center, 153 East 53rd Street, 58th Floor, New York, New
York 10022 or BEA Associates, One Citicorp Center, 153 East 53rd Street, 57th
Floor, New York, New York 10022, respectively.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and will inure
to the benefit of the officers and directors and controlling persons referred to
in Section 7 hereof, and no other person will have any right or obligation
hereunder.
12. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of New York.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
42
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company,
the Investment Adviser and the Dealer Manager.
Very truly yours,
BEA Income Fund, Inc.
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
BEA Associates
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Smith Barney Inc.
By:
------------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
EXHIBIT A
BEA INCOME FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
October 22, 1996.(1)
To Securities Dealers and Brokers:
BEA Income Fund, Inc. (the "Company") is issuing to its shareholders
of record ("Record Date Shareholders") as of the close of business on September
27, 1996 (the "Record Date") non-transferable rights ("Rights") to subscribe for
an aggregate of up to 8,128,456 shares (the "Shares") of common stock, par value
$0.001 per share (the "Common Stock"), of the Company upon the terms and subject
to the conditions set forth in the Company's Prospectus (the "Prospectus") dated
September 27, 1996 (the "Offer"). Each such Record Date Shareholder is being
issued one Right for each full share of Common Stock owned on the Record Date.
The Rights entitle the Record Date Shareholder, during the Subscription Period
(as hereinafter defined) to acquire at the Subscription Price (as hereinafter
defined), one Share for each three Rights held in the primary subscription. No
fractional Shares will be issued. The Subscription Price will be 95% of the
lower of (i) the average of the last reported sales prices of a share of the
Company's Common Stock on the New York Stock Exchange on the date of the
expiration of the Offer (the "Pricing Date") and the four preceding business
days and (ii) the net asset value per share as of the Pricing Date. The
Subscription Period will commence on September 27, 1996 and end on the Expira-
tion Date. (With respect to the Offer, the term "Expiration Date" means 5:00
p.m., New York City time, on October 22, 1996, unless and until the Company
shall, in its sole discretion, have extended the
- ---------------
(1) Unless extended to a date no later than October 25, 1996.
A-1
<PAGE>
period for which the Offer is open, in which event the term "Expiration Date"
with respect to the Offer will mean the latest time and date on which the Offer,
as so extended by the Company, will expire.) Any Record Date Shareholder who
fully exercises all Rights issued to such shareholder is entitled to subscribe
for Shares which were not otherwise subscribed for by others on primary
subscription (the "Over-Subscription Privilege"). Shares acquired pursuant to
the Over-Subscription Privilege are subject to allotment, as more fully
discussed in the Prospectus.
For the duration of the Offer, the Company has agreed to pay Solicita-
tion Fees to any qualified broker or dealer executing a Soliciting Dealer
Agreement who solicits the exercise of Rights and the Over Subscription Privi-
lege in connection with the Offer and who complies with the procedures described
below (a "Soliciting Dealer"). Upon timely delivery to The Chase Manhattan
Bank, the Company's Subscription Agent for the Offer, of payment for Shares
purchased pursuant to the exercise of Rights and the Over Subscription Privilege
and of properly completed and executed documentation as set forth in this
Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to receive
Solicitation Fees equal to 2.50% of the Subscription Price per Share so pur-
chased; provided, however, that no payment shall be due with respect to the
issuance of any Shares until payment therefor is actually received. A qualified
broker or dealer is a broker or dealer which is a member of a registered
national securities exchange in the United States or the National Association of
Securities Dealers, Inc. ("NASD") or any foreign broker or dealer not eligible
for membership who agrees to conform to the Rules of Fair Practice of the NASD,
including Sections 8, 24, 25 and 36 thereof, in making solicitations in the
United States to the same extent as if it were a member thereof.
The Company has agreed to pay the Solicitation Fees payable to the
undersigned Soliciting Dealer and to indemnify such Soliciting Dealer on the
terms set forth in the Dealer Manager Agreement, dated September 27, 1996, among
Smith Barney Inc. as the Dealer Manager, the Company and others (the "Dealer
Manager Agreement"). Solicitation and other activities by Soliciting Dealers may
be undertaken only in accordance with the applicable rules and regulations of
the Securities and Exchange
A-2
<PAGE>
Commission and only in those states and other jurisdictions where such
solicitations and other activities may lawfully be undertaken and in accordance
with the laws thereof. Compensation will not be paid for solicitations in any
state or other jurisdiction in which, in the opinion of counsel to the Company
or counsel to the Dealer Manager, such compensation may not lawfully be paid.
No Soliciting Dealer shall be paid Solicitation Fees with respect to Shares
purchased pursuant to an exercise of Rights or the Over Subscription Privilege
for its own account or for the account of any affiliate of the Soliciting
Dealer, except that the Dealer Manager shall receive the Solicitation Fees with
respect to Shares purchased pursuant to an exercise of Rights or the Over
Subscription Privilege for its own account provided that such Shares are offered
and sold by the Dealer Manager to its clients. No Soliciting Dealer or any
other person is authorized by the Company or the Dealer Manager to give any
information or make any representations in connection with the Offer other than
those contained in the Prospectus and other authorized solicitation material
furnished by the Company through the Dealer Manager. No Soliciting Dealer is
authorized to act as agent of the Company or the Dealer Manager in any
connection or transaction. In addition, nothing herein contained shall
constitute the Soliciting Dealers partners with the Dealer Manager or with one
another, or agents of the Dealer Manager or of the Company, or create any
association between such parties, or shall render the Dealer Manager or the
Company liable for the obligations of any Soliciting Dealer. The Dealer Manager
shall be under no liability to make any payment to any Soliciting Dealer, and
shall be subject to no other liabilities to any Soliciting Dealer, and no
obligations of any sort shall be implied.
In order for a Soliciting Dealer to receive Solicitation Fees, the
Subscription Agent must have received from such Soliciting Dealer no later than
5:00 p.m., New York City time, on the Expiration Date, either (i) a properly
completed and duly executed Subscription Certificate with respect to Shares
purchased pursuant to the exercise of Rights or the Over Subscription Privilege
and full payment for such Shares; or (ii) a Notice of Guaranteed Delivery
guaranteeing delivery to the Subscription Agent by close of business on the
third business day after the Expiration Date, of (a) full payment
A-3
<PAGE>
for such Shares with respect to Shares purchased pursuant to the exercise of
Rights and the Over-Subscription Privilege and (b) a properly completed and duly
executed Subscription Certificate with respect to such Shares. Solicitation Fees
will only be paid after receipt by the Subscription Agent of a properly
completed and duly executed Soliciting Dealer Agreement (or a facsimile
thereof). In the case of a Notice of Guaranteed Delivery, Solicitation Fees
will only be paid after delivery in accordance with such Notice of Guaranteed
Delivery has been effected. Solicitation Fees will be paid by the Company to
the Soliciting Dealer in next day funds to an address designated by the
Soliciting Dealer below by November 20, 1996.
All questions as to the form, validity and eligibility (including time
of receipt) of this Soliciting Dealer Agreement will be determined by the
Company, in its sole discretion, which determination shall be final and binding.
Unless waived, any irregularities in connection with a Soliciting Dealer
Agreement or delivery thereof must be cured within such time as the Company
shall determine. None of the Company, the Dealer Manager, Subscription Agent,
the Information Agent for the Offer (Shareholder Communications Corporation) or
any other person will be under any duty to give notification of any defects or
irregularities in any Soliciting Dealer Agreement or incur any liability for
failure to give such notification.
The acceptance of Solicitation Fees from the Company by the under-
signed Soliciting Dealer shall constitute a representation by such Soliciting
Dealer to the Company that: (i) it has received and reviewed the Prospectus;
(ii) in soliciting purchases of Shares pursuant to the exercise of the Rights
and the Over Subscription Privilege, it has complied with the applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the applicable rules and regulations thereunder, any applicable securi-
ties laws of any state or jurisdiction where such solicitations may lawfully be
made, and the applicable rules and regulations of any self-regulatory organiza-
tion or registered national securities exchange; (iii) in soliciting purchases
of Shares pursuant to the exercise of the Rights and the Over Subscription
Privilege, it has not published, circulated or used any soliciting materials
other than the
A-4
<PAGE>
Prospectus and any other authorized solicitation material furnished by the
Company through the Dealer Manager; (iv) it has not purported to act as agent of
the Company or the Dealer Manager in any connection or transaction relating to
the Offer; (v) the information contained in this Soliciting Dealer Agreement is,
to its best knowledge, true and complete; (vi) it is not affiliated with the
Company; (vii) it will not accept Solicitation Fees paid by the Company pursuant
to the terms hereof with respect to Shares purchased by the Soliciting Dealer
pursuant to an exercise of Rights and the Over Subscription Privilege for its
own account; (viii) it will not remit, directly or indirectly, any part of
Solicitation Fees paid by the Company pursuant to the terms hereof to any
beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has
agreed to the amount of the Solicitation Fees and the terms and conditions set
forth herein with respect to receiving such Solicitation Fees. By returning a
Soliciting Dealer Agreement and accepting Solicitation Fees, a Soliciting Dealer
will be deemed to have agreed to indemnify the Company and the Dealer Manager
against losses, claims, damages and liabilities to which the Company or the
Dealer Manager may become subject as a result of the breach of such Soliciting
Dealer's representations made herein and described above. In making the
foregoing representations, Soliciting Dealers are reminded of the possible
applicability of Rule 10b-6 under the Exchange Act if they have bought, sold,
dealt in or traded in any Shares for their own account since the commencement of
the Offer.
Upon expiration of the Offer, no Solicitation Fees will be payable to
Soliciting Dealers with respect to Shares purchased thereafter.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Dealer Manager Agreement or, if not defined therein, in
the Prospectus.
This Soliciting Dealer Agreement will be governed by the laws of the
State of New York without reference to the choice of law principles thereof.
Please execute this Soliciting Dealer Agreement below accepting the
terms and conditions hereof and confirming that you are a member firm of a
registered
A-5
<PAGE>
national securities exchange or of the NASD or a foreign broker or dealer not
eligible for membership who has conformed to the Rules of Fair Practice of the
NASD, including Sections 8, 24, 25 and 36 thereof, in making solicitations of
the type being undertaken pursuant to the Offer in the United States to the same
extent as if you were a member thereof, and certifying that you have solicited
the purchase of the Shares pursuant to exercise of the Rights and the Over
Subscription Privilege, all as described above, in accordance with the terms and
conditions set forth in this Soliciting Dealer Agreement. Please forward two
executed copies of this Soliciting Dealer Agreement to The Chase Manhattan Bank,
Retail Processing, 770 Broadway, 7th Floor, New York, New York 10003. A signed
copy of this Soliciting Dealer Agreement will be promptly returned to the
Soliciting Dealer at the address set forth below.
Very truly yours,
BEA Income Fund, Inc.
By:
----------------------------
Name:
Title:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE COMPLETE THE INFORMATION BELOW:
ACCEPTED AND CONFIRMED BY SOLICITING DEALER
- ----------------------- ------------------------------
Printed Firm Name Address
- ----------------------- ------------------------------
Authorized Signature Area Code and Telephone Number
- ----------------------- ------------------------------
Name and Title Area Code and Facsimile Number
A-6
<PAGE>
Dated:
----------------
Payment of the Solicitation Fee shall
be mailed by check to the following address:
________________________
________________________
________________________
A-7
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
FIRST BOSTON INCOME FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
FIRST BOSTON INCOME FUND, INC.
TABLE OF CONTENTS
SECTION/PARAGRAPH PAGE
1. Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . .1
3. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4. Delivery and Registration of the Property. . . . . . . . . . . . . . . .5
5. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
6. Receipt and Disbursement of Money. . . . . . . . . . . . . . . . . . . .6
7. Receipt of Securities. . . . . . . . . . . . . . . . . . . . . . . . . .7
8. Use of Securities Depository or the Book-Entry System. . . . . . . . . .8
9. Instructions Consistent With The Articles, etc . . . . . . . . . . . . .9
10. Transactions Not Requiring Instructions. . . . . . . . . . . . . . . . 11
11. Transactions Requiring Instructions. . . . . . . . . . . . . . . . . . 16
12. Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . 17
13. Sales of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 18
14. Authorized Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16. Cooperation with Accountants . . . . . . . . . . . . . . . . . . . . . 19
17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18. Equipment Failures . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. Right to Receive Advice. . . . . . . . . . . . . . . . . . . . . . . . 20
20. Compliance with Governmental Rules and Regulations . . . . . . . . . . 21
21. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
22. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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<PAGE>
23. Responsibility of U.S. Trust . . . . . . . . . . . . . . . . . . . . . 23
24. Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25. Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . 25
26. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
27. Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
28. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
29. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Attachment A -- Fees and Expenses A-1
Attachment B -- Authorized Persons B-1
-ii-
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
THIS AGREEMENT is made as of May 1, 1993, by and between FIRST BOSTON
INCOME FUND, INC., a Maryland corporation (the "Company"), and UNITED STATES
TRUST COMPANY OF NEW YORK, a New York State chartered bank trust company ("U.S.
Trust").
W I T N E S S E T H
WHEREAS, the Company is registered as a closed-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Company desires to retain U.S. Trust to serve as the
Company's custodian and U.S. Trust is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints U.S. Trust to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. U.S. Trust accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 21 of this Agreement.
2. DELIVERY OF DOCUMENTS. The Company will promptly furnish to U.S.
Trust such copies, properly certified or authenticated, of contracts, documents
and other related information that U.S. Trust may request or requires to
properly
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<PAGE>
discharge its duties. Such documents may include but are not limited to the
following:
(a) Resolutions of the Company's Directors authorizing the
appointment of U.S. Trust as Custodian of the portfolio securities, cash and
other property of the Company and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereinafter defined, on behalf of the Company;
(c) The Company's Articles of Incorporation filed with the Department
of Assessments and Taxation of the State of Maryland and all amendments thereto
(such Articles of Incorporation, as currently in effect and as they shall from
time to time be amended, are herein called the "Articles");
(d) The Company's By-Laws and all amendments thereto (such By-Laws,
as currently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(e) Resolutions of the Company's Directors and/or the Company's
stockholders approving the Investment Advisory Agreement between the Company and
the Company's investment adviser (the "Advisory Agreement");
(f) The Advisory Agreement;
(g) The Company's current Registration Statement on Form N-2 under
the 1940 Act, as amended, as filed with the Securities and Exchange Commission
(the "SEC"); and
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<PAGE>
(h) Each Fund's most recent prospectus including all amendments and
supplements thereto (the "Prospectus").
The Company will furnish U.S. Trust from time to time with copies of
all amendments of or supplements to the foregoing, if any. The Company will
also furnish U.S. Trust with a copy of the opinion of counsel for the Company
with respect to the validity of the shares of common stock, par value $.001 per
share (the "Shares"), of the Company and the status of such Shares under the
1933 Act as registered with the SEC, and under any other applicable federal law
or regulation.
3. DEFINITIONS.
(a) "AUTHORIZED PERSON". As used in this Agreement, the term
"Authorized Person" means the Company's President, Vice-President, Treasurer and
any other person, whether or not any such person is an officer or employee of
the Company, duly authorized by the Directors of the Company to give Written
Instructions on behalf of the Company and listed on Attachment B hereto which
may be amended from time to time.
(b) "BOOK-ENTRY SYSTEM". As used in this Agreement, the term "Book-
Entry System" means the Federal Reserve/Treasury book-entry system for United
States and federal agency securities, its successor or successors and its
nominee or nominees.
(c) "PROPERTY". The term "Property", as used in this Agreement,
means:
(i) any and all securities, cash, and other property of the
Company which the Company may from time
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<PAGE>
to time deposit, or cause to be deposited, with U.S. Trust or which
U.S. Trust may from time to time hold for the Company;
(ii) all income in respect of any such securities or other
property;
(iii) all proceeds of the sales of any of such Securities or
other property; and
(iv) all proceeds of the sale of securities issued by the
Company, which are received by U.S. Trust from time to time from or on
behalf of the Company.
(d) "SECURITIES DEPOSITORY". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Company's Directors approving deposits by U.S. Trust therein.
(e) "WRITTEN INSTRUCTIONS". Means instructions
(i) delivered by mail, tested telegram, cable, telex, facsimile
sending device, and received by U.S. Trust, signed by two Authorized
Persons or by persons reasonably believed by U.S. Trust to be
Authorized Persons; or
(ii) transmitted electronically through the U.S. Trust Asset
Management System or any similar electronic instruction system
acceptable to U.S. Trust.
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<PAGE>
4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Company will deliver
or cause to be delivered to U.S. Trust all Property owned by it, including cash
received for the issuance of its Shares, at any time during the period of this
Agreement, except for securities and monies to be delivered to any subcustodian
appointed pursuant to Paragraph 7 hereof. U.S. Trust will not be responsible
for such securities and such monies until actually received by U.S. Trust or by
any subcustodian. All securities delivered to U.S. Trust or to any such
subcustodian (other than in bearer form) shall be registered in the name of the
Company or in the name of a nominee of the Company or in the name of U.S. Trust
or any nominee of U.S. Trust (with or without indication of fiduciary status) or
in the name of any subcustodian or any nominee of such subcustodian appointed
pursuant to Paragraph 7 hereof or shall be properly endorsed and in form for
transfer satisfactory to U.S. Trust.
5. VOTING RIGHTS. With respect to all securities, however registered, it
is understood that the voting and other rights and powers shall be exercised by
the Company. U.S. Trust's only duty shall be to mail to the Company any
documents received, including proxy statements and offering circulars, with any
proxies for securities registered in a nominee name executed by such nominee.
Where warrants, options, tenders or other securities have fixed expiration
dates, the Company understands that in order for U.S. Trust to act, U.S. Trust
must receive the Company's instructions at its offices in New York City,
addressed as U.S. Trust may from time to time request, by no later than noon
(New York City time)
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<PAGE>
at least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as permits the Company a reasonable period
of time in which to respond after U.S. Trust notifies the Company of such date
or time). Absent U.S. Trust's timely receipt of such instructions, such
instruments will expire without liability to U.S. Trust.
6. RECEIPT AND DISBURSEMENT OF MONEY.
(a) U.S. Trust shall open and maintain a custody account for the
Company (the "Account") subject only to draft or order by U.S. Trust acting
pursuant to the terms of this Agreement, and shall hold in such Account, subject
to the provisions hereof, all cash received by it from or for the Company. U.S.
Trust shall make payments of cash to, or for the account of, the Company from
such cash only (i) for the purchase of securities for the Company as provided in
paragraph 12 hereof; (ii) upon receipt of Written Instructions, for the payment
of dividends or other distributions of shares, or for the payment of interest,
taxes, administration, distribution or advisory fees or expenses which are to be
borne by the Company under the terms of this Agreement, any Advisory Agreement,
or any administration agreement of the Company; (iii) upon receipt of Written
Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Company and held by or to
be delivered to U.S. Trust; (iv) to a subcustodian pursuant to Paragraph 7
hereof; or (v) upon receipt of Written Instructions for other corporate
purposes.
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<PAGE>
(b) U.S. Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the Company.
7. RECEIPT OF SECURITIES.
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall hold
all securities and non-cash Property received by it for the Company. All such
securities and non-cash Property are to be held or disposed of by U.S. Trust for
the Company pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution authorizing the specific
transaction by the Company's Directors, U.S. Trust shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose
of any such securities and non-cash Property, except in accordance with the
express terms provided for in this Agreement. In connection with its duties
under this Paragraph 7, U.S. Trust may, at its own expense and with the consent
of the Company, enter into subcustodian agreements with other banks, trust
companies, or other qualified entities for the receipt of certain securities and
cash to be held by U.S. Trust for the account of the Company pursuant to this
Agreement; provided, that each such subcustodian shall meet the requirements
established by the 1940 Act for U.S. domestic and foreign investment company
custodians, including (i) the requirements of Rule 17f-5 under the 1940 Act and
(ii) a requirement of approval by the Company's Board of Directors, if any, and
that each such subcustodian agrees with U.S. Trust to comply with all relevant
provisions of the 1940 Act and
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<PAGE>
applicable rules and regulations thereunder. U.S. Trust will be liable for acts
or omissions of any such subcustodian.
(b) Promptly after the close of business on each day, U.S. Trust
shall furnish the Company with confirmations and a summary of all transfers to
or from the account of the Company during said day. Where securities are
transferred to the account of the Company established at a Securities Depository
or the Book-Entry System pursuant to Paragraph 8 hereof, U.S. Trust shall also
by book-entry or otherwise identify as belonging to the Company the quantity of
securities that belongs to the Company that are part of a fungible bulk of
securities registered in the name of U.S. Trust (or its nominee) or shown in
U.S. Trust's account on the books of a Securities Depository or the Book-Entry
System. At least monthly and from time to time, U.S. Trust shall furnish the
Company with a detailed statement of the Property held for the Company under
this Agreement.
8. USE OF SECURITIES DEPOSITORY OR THE BOOK-ENTRY SYSTEM. The Company
shall deliver to U.S. Trust a certified resolution of the Directors of the
Company approving, authorizing and instructing U.S. Trust on a continuous and
ongoing basis until instructed to the contrary by Written Instructions actually
received by U.S. Trust (1) to deposit in a Securities Depository or the Book-
Entry System all securities of the Company eligible for deposit therein and (ii)
to utilize a Securities Depository or the Book-Entry System to the extent
possible in connection with the performance of its duties hereunder, including
without limitation, settlements of purchases and sales of securities by
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<PAGE>
the Company, and deliveries and returns of securities collateral in connection
with borrowings. Without limiting the generality of such use, it is agreed that
the following provisions shall apply thereto:
(a) Securities and any cash of the Company deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by U.S. Trust in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such capacities. U.S.
Trust will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices in the place where the transaction
is settled, unless the Company has given U.S. Trust Written Instructions to the
contrary.
(b) All Books and records maintained by U.S. Trust which relate to
the Company's participation in a Securities Depository or the Book-Entry System
will at all times during U.S. Trust's regular business hours be open to the
inspection of the Company's duly authorized employees or agents, and the Company
will be furnished with all information in respect of the services rendered to it
as it may require.
9. INSTRUCTIONS CONSISTENT WITH THE ARTICLES, ETC. Unless otherwise
provided in this Agreement, U.S. Trust shall act only upon Written Instructions.
U.S. Trust may assume that any Written Instructions received hereunder are not
in any way inconsistent with any provision of the Articles or By-Laws of the
Company or any vote or resolution of the Company's Directors, or any committee
thereof. U.S. Trust shall be entitled to rely upon
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any Written Instructions actually received by U.S. Trust pursuant to this
Agreement. The Company agrees that U.S. Trust shall incur no liability in
acting upon Written Instructions given to U.S. Trust. In accord with
instructions from the Company, as required by accepted industry practice or as
U.S. Trust may elect in effecting the execution of Company instructions,
advances of cash or other Property made by U.S. Trust, arising from the
purchase, sale, redemption, transfer or other disposition of Property of the
Company, or in connection with the disbursement of funds to any party, or in
payment of fees, expenses, claims or liabilities owed to U.S. Trust by the
Company, or to any other party which has secured judgment in a court of law
against the Company which creates an overdraft in the accounts or over-delivery
of Property shall be deemed a loan by U.S. Trust to the Company, payable on
demand, bearing interest at such rate customarily charged by U.S. Trust for
similar loans. The Company agrees that test arrangements, authentication
methods or other security devices to be used with respect to instructions which
the Company may give by telephone, telex, TWX, facsimile transmission, bank wire
or through an electronic instruction system, shall be processed in accordance
with terms and conditions for the use of such arrangements, methods or devices
as U.S. Trust may put into effect and modify from time to time. The Company
shall safeguard any test keys, identification codes or other security devices
which U.S. Trust makes available to the Company and agrees that the Company
shall be responsible for any loss, liability or damage incurred by U.S. Trust or
by the
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Company as a result of U.S. Trust's acting in accordance with instructions from
any unauthorized person using the proper security device unless such loss,
liability or damage was incurred as a result of U.S. Trust's negligence or
willful misconduct. U.S. Trust may electronically record, but shall not be
obligated to so record, any instructions given by telephone and any other
telephone discussions with respect to the Account. In the event that the
Company uses U.S. Trust's Asset Management System ("AMS"), the Company agrees
that U.S. Trust is not responsible for the consequences of the failure of the
AMS to perform for any reason, beyond the reasonable control of U.S. Trust, or
the failure of any communications carrier, utility, or communications network.
In the event the AMS is inoperable, the Company agrees that it will accept the
communication of transaction instructions by telephone, facsimile transmission
on equipment compatible to U.S. Trust's facsimile receiving equipment or by
letter, at no additional charge to the Company.
10. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. U.S. Trust is authorized to
take the following action without Written Instructions:
(a) COLLECTION OF INCOME AND OTHER PAYMENT. U.S. Trust shall:
(i) collect and receive for the account of the Company, all
income and other payments and distributions, including (without
limitation) stock dividends, rights, warrants and similar items,
included or to be included in the Property of the Company, and
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promptly advise the Company of such receipt and shall credit such
income, as collected, to the Company. From time to time, U.S. Trust
may elect, but shall not be so obligated, to credit the Account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Company or
U.S. Trust. Any such crediting and posting shall be at the Company's
sole risk, and U.S. Trust shall be authorized to reverse any such
advance posting in the event U.S. Trust does not receive good funds
from any such payor, central depository, broker or agent of the
Company.
(ii) with respect to securities of foreign issuers, effect
collection of dividends, interest and other income, and to notify the
Company of any call for redemption, offer of exchange, right of
subscription, reorganization, or other proceedings affecting such
securities, or any default in payments due thereon. It is understood,
hovever, that U.S. Trust shall be under no responsibility for any
failure or delay in effecting such collections or giving such notice
with respect to securities of foreign issuers, regardless of whether
or not the relevant information is published in any financial service
available to U.S. Trust unless such failure or delay is due to its
negligence or willful misconduct; provided that this subparagraph (ii)
shall
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not be construed as creating any such responsibility with respect to
securities of non-foreign issuers. Collections of income in foreign
currency are, to the extent possible, to be converted into United
States Dollars unless otherwise instructed in writing, and in
effecting such conversion U.S. Trust may use such methods or agencies
as it may see fit, including the facilities of its own foreign
Trust shall have no responsibility for fluctuations in exchange rates
affecting any such conversion.
(iii) endorse and deposit for collection in the name of the
Company, checks, drafts, or other orders for the payment of money on
the same day as received;
(iv) receive and hold for the account of the Company all
securities received by the Company as a result of a stock dividend,
share split-up or reorganization, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities
issued with respect to any portfolio securities of the Company held by
U.S. Trust hereunder;
(v) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
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<PAGE>
(iv) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vii) with respect to domestic securities, to exchange
securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is
changed, and to surrender securities at maturity or when advised of
earlier call for redemption, against payment therefor in accordance
with accepted industry practice. The Company understands that U.S.
Trust subscribes to one or more nationally recognized services that
provide information with respect to calls for redemption of bonds or
other corporate actions. U.S. Trust shall not be liable for failure
to redeem any called bond or to take other action if notice of such
call or action was not provided by any service to which it subscribes
provided that U.S. Trust shall have acted in good faith without
negligence and in accordance with "Street Practice" (as is customary
in industry). U.S. Trust shall have no duty to notify the Company of
any rights, duties, limitations, conditions or other information set
forth in any security (including mandatory or optional put, call and
similar provisions), but U.S. Trust shall forward to the Company any
notices or other
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documents subsequently received in regard to any such security. When
fractional shares of stock of a declaring corporation are received as
a stock distribution, unless specifically instructed to the contrary
in writing, U.S. Trust is authorized to sell the fraction received and
credit the Company's account. Unless specifically instructed to the
contrary in writing, U.S. Trust is authorized to exchange securities
in bearer form for securities in registered form. If any Property
registered in the name of a nominee of U.S. Trust is called for
partial redemption by the issuer of such Property, U.S. Trust is
authorized to allot the called portion to the respective beneficial
holders of the Property in such manner deemed to be fair and equitable
by U.S. Trust in its sole discretion.
(b) MISCELLANEOUS TRANSACTIONS. U.S. Trust is authorized to deliver
or cause to be delivered Property against payment or other consideration or
written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of the
Company in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities
for definitive securities;
(iii) for transfer of securities into the name of the Company
or U.S. Trust or a nominee of either, or
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<PAGE>
for exchange of securities for a different number of bonds,
certificates, or other evidence, representing the same aggregate face
amount or number of units bearing the same interest rate, maturity
date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to U.S. Trust.
11. TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Written
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Company as owner of any securities may
be exercised;
(b) Deliver any securities held for the Company against receipt of
other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Company to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
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(d) Make such transfers or exchanges of the assets of the Company and
take such other steps as shall be stated in said instructions to be for the
purpose of effectuating and duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Company;
(e) Release securities belonging to the Company to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Company; provided, however, that securities shall be released only upon
payment to U.S. Trust of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization, further securities may be released for that purpose;
and pay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;
(f) Deliver any securities held for the Company upon the exercise of
a covered call option written by the Company on such securities; and
(g) Deliver securities held for the Company pursuant to separate
security lending agreements concerning the lending of the Company's securities
into which the Company may enter, from time to time.
12. PURCHASE OF SECURITIES. Promptly after each purchase of securities by
the Investment Adviser (or any sub-adviser), the Company shall deliver to U.S.
Trust (as Custodian) Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b)
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the number of shares of the principal amount purchased and accrued interest, if
any, (c) the dates of purchase and settlement, (d) the purchase price per unit,
(e) the total amount payable upon such purchase and (f) the name of the person
from whom or the broker through whom the purchase was made.
13. SALES OF SECURITIES. Promptly after each sale of securities by the
Investment Adviser, the Company shall deliver to U.S. Trust (as Custodian)
Written Instructions, specifying with respect to each such sale: (a) the name
of the issuer and the title of the security, (b) the number of shares or
principal amount sold, and accrued interest, if any, (c) the date of sale, (d)
the sale price per unit, (e) the total amount payable to the Company upon such
sale and (f) the name of the broker through whom or the person to whom the sale
was made. U.S. Trust shall deliver the securities upon receipt of the total
amount payable to the Company upon such sale, provided that the same conforms to
the total amount payable as set forth in such Written Instructions. Subject to
the foregoing, U.S. Trust may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
14. AUTHORIZED SHARES. The Company has a fixed number of authorized
shares of its securities, subject to the authority of the Board of Directors to
increase or decrease the number of authorized shares and to reclassify
authorized but unissued shares.
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<PAGE>
15. RECORDS. The books and records pertaining to the Company which are in
the possession of U.S. Trust shall be the property of the Company. Such books
and records shall be prepared and maintained as required by the 1940 Act; other
applicable federal and state securities laws and rules and regulations; and, any
state or federal regulatory body having appropriate jurisdiction. The Company,
or the Company's authorized representatives, shall have access to such books and
records at all times during U.S. Trust's normal business hours, and such books
and records shall be surrendered to the Company promptly upon request. Upon
reasonable request of the Company, copies of any such books and records shall be
provided by U.S. Trust to the Company or the Company's authorized representative
at the Company's expense.
16. COOPERATION WITH ACCOUNTANTS. U.S. Trust shall cooperate with the
Company's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Company's semiannual report on Form N-SAR.
17. CONFIDENTIALITY. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Company all records and other information relative to the Company and its prior,
present or potential Shareholders and relative to the investment advisers and
its
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prior, present or potential customers, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably withheld and may not be
withheld where U.S. Trust may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit U.S. Trust from advertising, or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential Shareholders of the Company.
18. EQUIPMENT FAILURES. In the event of equipment failures beyond U.S.
Trust's control, U.S. Trust shall, at no additional expense to the Company, take
reasonable steps to minimize service interruptions but shall not have liability
with respect thereto. U.S. Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
back up emergency use of electronic data processing equipment to the extent
appropriate equipment is available.
19. RIGHT TO RECEIVE ADVICE
(a) ADVICE OF FUND. If U.S. Trust shall be in doubt as to any action
to be taken or omitted by it, it may request, and shall receive, from the
Company clarification or advice.
(b) ADVICE OF COUNSEL. If U.S. Trust shall be in doubt as to any
question of law involved in any action to be
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taken or omitted by U.S. Trust it may request advice at its own cost from
counsel of its own choosing (who may be counsel for the Company or U.S. Trust,
at the option of U.S. Trust).
(c) CONFLICTING ADVICE. In case of conflict between directions or
advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph and
advice received by U.S. Trust pursuant to subparagraph (b) of this paragraph,
U.S. Trust shall be entitled to rely on and follow the advice received pursuant
to the latter provision alone.
(d) PROTECTION OF U.S. TRUST. U.S. Trust shall be protected in any
action or inaction which it takes or omits to take in reliance on any directions
or advice received pursuant to subparagraph (a) of this section which U.S.
Trust, after receipt of any such directions or advice, in good faith believes to
be consistent with such directions or advice. However, nothing in this
paragraph shall be construed as imposing upon U.S. Trust any obligation (i) to
seek such directions or advice, or (ii) to act in accordance with such
directions or advice when received, unless, under the terms or another provision
of this Agreement, the same is a condition to U.S. Trust's properly taking or
omitting to take such action. Nothing in this subparagraph shall excuse U.S.
Trust when an action or omission on the part of U.S. Trust constitutes willful
misfeasance, bad faith, negligence or reckless disregard by U.S. Trust of its
duties under this Agreement.
20. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Company
assumes full responsibility for insuring that the
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contents of each Prospectus of the Company complies with all applicable
requirements of the 1933 Act, the 1940 Act, and any laws, rules and regulations
of governmental authorities having Jurisdiction.
21. COMPENSATION. As compensation for the services described within this
Agreement and rendered by U.S. Trust during the term of this Agreement, the
Company will pay to U.S. Trust, in addition to reimbursement of its out-of-
pocket expenses, monthly fees as outlined in Attachment A.
22. INDEMNIFICATION. The Company, as sole owner of the Property, agrees
to indemnify and hold harmless U.S. Trust and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934 as amended, the 1940 Act, and any state and foreign securities and blue
sky laws, all as or to be amended from time to time) and expenses, including
(without limitation) attorney's fees and disbursements, arising directly or
indirectly (a) from the fact that securities included in the Property are
registered in the name of any such nominee or (b) without limiting the
generality of the foregoing clause (a) from any action or thing which U.S. Trust
takes or does or omits to take or do (i) at the request or on the direction of
or in reliance on the advice of the Company given in accordance with the terms
of this Agreement, or (ii) upon Written Instructions; provided, that neither
U.S. Trust nor any of its nominees or subcustodians shall be indemnified against
any liability to the Company or to its
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Shareholders (or any expenses incident to such liability) arising out of U.S.
Trust's or such nominee's or subcustodian's own willful misfeasance, bad faith,
negligence or reckless disregard of its duties under this Agreement or any
agreement between U.S. Trust and any nominee or subcustodian. In the event of
any advance of cash for any purpose made by U.S. Trust resulting from orders or
Written Instructions of the Company, or in the event that U.S. Trust or its
nominee or subcustodian shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's or subcustodian's
own negligent action, negligent failure to act, willful misconduct, or reckless
disregard of its duties under this Agreement or any agreement between U.S. Trust
and any nominee or subcustodian, the Company shall promptly reimburse U.S. Trust
for such advance of cash or such taxes, charges, expenses, assessments, claims
or liabilities.
23. RESPONSIBILITY OF U.S. TRUST. U.S. Trust shall be under no duty to
take any action on behalf of the Company except as specifically set forth herein
or as may be specifically agreed to by U.S. Trust in writing. In the
performance of its duties hereunder, U.S. Trust shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement. U.S. Trust shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith, or negligence on the part of U.S.
Trust
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or nominee or subcustodian or reckless disregard of the duties, obligations and
responsibilities hereunder. Without limiting the generality of the foregoing or
of any other provision of this Agreement, U.S. Trust in connection with its
duties under this Agreement shall not be under any duty or obligation to inquire
into and shall not be liable for or in respect of (a) the validity or invalidity
or authority or lack thereof of any advice, direction, notice or other
instrument which conforms to the applicable requirements of this Agreement, if
any, and which U.S. Trust believes to be genuine, (b) the validity of the issue
of any securities purchased or sold by the Company, the legality of the purchase
or sale thereof or the propriety of the amount paid or received therefor, (c)
the legality of the issue or sale of any Shares, or the sufficiency of the
amount to be received therefor, (d) the legality of the redemption of any
Shares, or the propriety of the amount to be paid therefor, (e) the legality of
the declaration or payment of any dividend or distribution on Shares, or (f)
delays or errors or loss of data occurring by reason of circumstances beyond
U.S. Trust's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown (except as provided
in Paragraph 18), flood or catastrophe, acts of God, insurrection, war, riots,
or failure of the mail, transportation systems, communication systems or power
supply.
24. COLLECTION. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by U.S. Trust)
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shall be at the sole risk of the Company. In any case in which U.S. Trust does
not receive any payment due the Company within a reasonable time after U.S.
Trust has made proper demands for the same, it shall so notify the Company in
writing, including copies of all demand letters, any written responses thereto,
and memoranda of all oral responses thereto, and to telephonic demands, and
await instructions from the Company. U.S. Trust shall not be obliged to take
legal action for collection unless and until reasonably indemnified to its
satisfaction. U.S. Trust shall also notify the Company as soon as reasonably
practicable whenever income due on securities is not collected in due course.
25. DURATION AND TERMINATION. This Agreement shall be effective as of the
date hereof and shall continue until termination by the Company or by U.S. Trust
on 60 day's written notice. Upon any termination of this Agreement, pending
appointment of a successor to U.S. Trust by the Company or a vote of the
Shareholders of the Company to dissolve or a vote of its Board of Directors to
function without a custodian of its cash, securities or other property, U.S.
Trust shall not deliver cash, securities or other property of the Company to the
Company, but may deliver them to a bank or trust company of its own selection,
having aggregate capital, surplus and undivided profits, as shown by its last
published report of not less than twenty million dollars ($20,000,000) as a
successor custodian for the Company to be held under terms similar to those of
this Agreement. Notwithstanding the making by U.S. Trust of any such delivery
or payment, U.S. Trust will remain entitled to full payment by the
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Company of all liabilities constituting a charge on or against the properties
previously held by U.S. Trust or on or against U.S. Trust and full payment of
all of its fees, compensation, costs and expenses, subject to the provisions of
Paragraph 21 of this Agreement.
26. NOTICES. All notices and other communications (collectively referred
to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or
by confirming telegram, cable, telex, or facsimile sending device. Notices
shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W. 47th
Street, New York, New York, 10036; (b) if to the Company, at the address of the
Company; or (c) if to neither of the foregoing, at such other address as shall
have been notified to the sender of any such Notice or other communication. If
the location of the sender of a Notice and the address of the addressee thereof
are, at the time of sending, more than 100 miles apart, the Notice may be sent
by first-class mail, in which case it shall be deemed to have been given three
days after it is sent, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately,
and, if the location of the sender of a Notice and the address of the addressee
thereof are, at the time of sending, not more than 100 miles apart, the Notice
may be sent by first-class mail, in which case it shall be deemed to have been
given two days after it is sent, or if sent by messenger, it shall be deemed to
have been given on the day it is delivered, or if sent by confirming telegram,
cable, telex or facsimile sending device,
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it shall be deemed to have been given immediately. All postage, cable,
telegram, telex and facsimile sending device charges arising from the sending of
a Notice hereunder shall be paid by the Sender.
27. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
28. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
29. MISCELLANEOUS. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
FIRST BOSTON INCOME FUND, INC.
Attest: /s/ Susanne M. Dennis By: /s/ Jay T. Roelof
---------------------------- ------------------------
Name: Jay T. Roelof
------------------------
Title: Secretary
------------------------
UNITED STATES TRUST COMPANY
OF NEW YORK
Attest: /s/ Witness By: /s/ Donald P. Hearn
--------------------------- -----------------------
Name: Donald P. Hearn
-----------------------
Title: S.V.P.
-----------------------
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MUTUAL FUND CUSTODY AGREEMENT
FIRST BOSTON INCOME FUND, INC.
MAY 1, 1993
ATTACHMENT A
FEES AND EXPENSES
For the services described in the Agreement, the Fund shall pay to U.S. Trust a
custody safekeeping fee and custody transaction fees as follows:
DOMESTIC CUSTODY SAFEKEEPING FEES
0.03% (3.0 Basis Points) of the first $50 million of the Fund's average daily
net assets; plus
0.02% (2.0 Basis Points) of the second $50 million of the Fund's average daily
net assets; plus
0.01% (1.0 Basis Points) of the Fund's average daily net assets in excess of
$100 million.
DOMESTIC CUSTODY TRANSACTION FEES
$15.00 per DTC, PTC or Fed Book Entry transaction
$25.00 per physical transaction
$35.00 per future, option or swap transaction
$40.00 per Cedel/Euroclear transaction
$ 8.00 per wire transfer
The Fund will be billed for all reasonable "out-of-pocket" expenses as they
relate to the provision of services under this Agreement. International
transactions and securities may involve additional fees and expenses.
A-1
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
FIRST BOSTON INCOME FUND, INC.
MAY 1, 1993
ATTACHMENT B
AUTHORIZED PERSONS
B-1
<PAGE>
SHAREHOLDER TRANSFER AGENCY AGREEMENT
<PAGE>
SHAREHOLDER TRANSFER AGENCY AGREEMENT
This Agreement is made as of April 30, 1993, between United States Trust
Company of New York ("U.S. Trust"), a New York corporation, and First Boston
Income Fund, Inc., a closed-end investment company incorporated under the
laws of the state of Maryland.
I. SERVICES
Commencing on May 3, 1993, U.S. Trust shall perform the (i) account
maintenance services, (ii) mailing and reporting services, (iii) dividend and
distribution payment services, (iv) dividend reinvestment plan services, and
(v) recordkeeping services (collectively, the "Standard Services") in
connection with the Fund's Common Stock, par value $.001 per share (the
"Shares"), as more fully described herein.
A. ACCOUNT MAINTENANCE SERVICES. U.S. Trust shall perform transfer
agent, registrar and other account maintenance services in connection with
the Shares. Such services are composed of (i) registering Share transfers on
the Fund's records of the holders of Shares (the "Shareholders") upon receipt
of instructions from the transferor and documentation in proper form to
effect a transfer of Shares; (ii) cancelling the certificates representing
such Shares, if any, and if so requested, countersigning, registering,
issuing and mailing by insured first class mail new certificates for the same
or a smaller whole number of Shares; (iii) issuing replacement certificates
in lieu
<PAGE>
of certificates which have been lost, stolen or destroyed upon receipt of a
properly executed affidavit with respect to such loss, theft or destruction
and a lost certificate bond in form satisfactory to U.S. Trust; (iv) provide
all reporting required regarding Escheat and Abandoned Property; (v)
combining certificates into large denominations; (vi) maintaining
stop-transfer orders, including placing and removing the same; (vii)
processing new Shareholder accounts; (viii) posting address changes; and (ix)
researching and responding to Shareholder inquiries. Shares will be
transferred and new certificates issued in transfer upon surrender of the old
certificates in form deemed by U.S. Trust to be properly endorsed for
transfer accompanied by delivery of such documents as U.S. Trust may deem
necessary to evidence the authority of the person making the transfer and
payment of any applicable stock transfer taxes. U.S. Trust reserves the
right to refuse to transfer shares until it is satisfied that the endorsement
or signature on the certificate or any other document is valid and genuine,
and for that purpose it may require a signature guarantee by a commercial
bank or trust company having its principal office or correspondent in the
City of New York, by a member firm of a major stock exchange or by a
guarantor previously approved by U.S. Trust. U.S. Trust will mail all
certificates representing shares of the "Fund" by insured first class mail.
U.S. Trust will provide for the replacement of certificates if non-receipt
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is reported in writing within one year of issuance, and an affidavit of
non-receipt is provided.
B. MAILING LIST AND REPORTING SERVICES. Mailing list and reporting
services provided to the Fund are composed of (i) annual preparation of a
list of Shareholders owning 5,000 or more Shares and (ii) quarterly
distribution of a report to Shareholders.
C. DIVIDEND AND DISTRIBUTION PAYMENT SERVICES. (1) Upon the declaration
of any dividend or distribution payable either in Shares or cash, the Fund
shall furnish to U.S. Trust a certified copy of a resolution of the Fund's
Board setting forth the date of payment (the "Payment Date") of such dividend
or distribution (which date shall be a date the New York Stock Exchange is
open for trading), the record date as of which Shareholders entitled to
payment thereof shall be determined (the "Record Date"), and the amount
payable per Share to Shareholders of record as of the Record Date. In the
case of dividends at regular intervals, such certified resolution may be a
standing resolution setting forth the method of calculating such dividends
and the Fund or its agent shall advise U.S. Trust of the amount of such
dividend at the appropriate intervals. U.S. Trust shall notify the Fund and
the entity then acting as the custodian (which entity may be U.S. Trust) for
the portfolio securities and cash of the Fund (the "Custodian") of the amount
of cash required to pay the dividend or distribution so that the Fund may
instruct the Custodian to make sufficient funds available on or before the
Payment Date. Upon receipt of such funds from the Custodian,
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<PAGE>
U.S. Trust shall prepare and mail to Shareholders who have elected to
withdraw from the DRP (as hereinafter defined) in accordance with the terms
of Section D, at their addresses as they appear on the records maintained by
U.S. Trust or pursuant to any written order of a Shareholder on file with
U.S. Trust, checks representing any dividends or distributions to which they
are entitled.
(2) In addition to the foregoing, dividend and distribution payment
services are composed of (i) inserting an enclosure supplied by the Fund with
each dividend or distribution check (all checks to be drawn on United States
Trust Company of New York with good funds in-house on mailing date); (ii)
replacing lost dividend checks; (iii) providing photocopies of cancelled
checks when requested by Shareholders; (iv) reconciling paid and outstanding
checks; (v) coding as "undeliverable" certain accounts to suppress mailing of
dividend checks to same; (vi) processing and recordkeeping of accumulated
uncashed dividends; (vii) furnishing requested dividend and distribution
information to Shareholders; and (viii) performing the following duties
required by the Interest and Dividend Tax Compliance Act of 1983:
- Withholding taxes from Shareholders who are not in compliance with
its provisions;
- Reconciling and reporting taxes withheld to the Internal Revenue
Service, including complying with additional 1099 reporting
requirements;
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- Responding to Shareholder inquiries regarding regulations
promulgated pursuant to the Act;
- Notifying Shareholders who have had taxes withheld of the
procedures to be followed to curtail future withholding; and
- Adjusting Shareholder account records to reflect subsequent
compliance.
D. DISTRIBUTION REINVESTMENT PLAN SERVICE. (1) U.S. Trust will act as
agent for Shareholders under the Distribution Reinvestment Plan (the "DRP"),
a copy of which is attached hereto as Exhibit A.
(1) The terms and conditions of the DRP may be amended or supplemented by
U.S. Trust or the Fund at any time but, except when necessary or appropriate
to comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to
each Participant appropriate written notice at least 90 days prior to the
Record Date for the applicable dividend or distribution. The amendment or
supplement shall be deemed to be accepted by a Participant unless, prior to
the effective date thereof, U.S. Trust receives written notice of the
termination of the Participant's participation in the DRP.
E. RECORDKEEPING SERVICES. U.S. Trust shall keep records relating to the
Standard Services to be performed hereunder, in such form and manner as it
may deem advisable. To the extent required by Section 31 of the Investment
Company Act
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of 1940, as amended, and the rules promulgated thereunder, U.S. Trust agrees
that all such records prepared or maintained by U.S. Trust relating to the
services to be performed by U.S. Trust hereunder are the property of the Fund
and will be preserved for the periods prescribed under Rule 3la-2 of said
rules, maintained at the expense of the Fund, and made available in
accordance with such section and rules. U.S. Trust shall forthwith upon the
Fund's demand surrender promptly to the Fund and cease to retain in its files
those records and documents created and maintained by U.S. Trust pursuant to
this Agreement.
II. SHARE CERTIFICATES
The Fund shall supply U.S. Trust with sufficient blank Share certificates.
Such blank Share certificates shall be properly signed, manually or by
facsimile signature, by the duly authorized officers of the Fund, and shall
bear the seal or a facsimile thereof of the Fund. Notwithstanding the death,
resignation or removal of any officer of the Fund authorized to sign such
share certificates, U.S. Trust may continue to countersign certificates which
bear the manual or facsimile signature of such officer until otherwise
directed by the Fund. U.S. Trust shall establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of share
certificates and facsimile signature imprinting devices, if any, and for the
preparation or use and for keeping account of such certificates and devices.
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III. FEES AND EXPENSES
For the services to be performed by U.S. Trust pursuant to this Agreement,
the Fund shall pay to U.S. Trust all fees and expenses described herein:
A. SHAREHOLDER SERVICE FEE. The Fund shall pay U.S. Trust an annual
service fee (the "Shareholder Service Fee") for each Shareholder account, as
described more fully in Exhibit B hereto, but in no event less than the
minimum Shareholder Service Fee specified in Exhibit B. For purposes of this
Section A, a "Shareholder account" is an account holding at least a fraction
of a Share and shall be deemed to exist after it is in fact terminated until
the final tax filing for the calendar year in which termination occurs. The
Shareholder Service Fee is prorated and payable quarterly based on the total
number of accounts on the system on the last day of each quarter. The
Shareholder Service Fee for a partial month's service will be prorated on a
30-day month basis.
B. OUT-OF-POCKET EXPENSES. The Fund agrees to reimburse U.S. Trust for
any equipment and supplies specially ordered by the Fund through U.S. Trust
and for any other expenses U.S. Trust may incur at the request of or
consented to by the Fund, including but not limited to expenses for
stationery, postage, telephone and telegraph line toll charges, data
communications lines, modems, direct access storage devices for account
history longer than 18 months, terminal access charges, supplies, blank
certificates, check stock, forms, envelopes, proxies and costs associated
with the termination of services
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pursuant to this Agreement. Postage and the cost of materials for mailings
to Shareholder accounts shall be advanced to U.S. Trust by the Fund at least
five business days prior to the mailing date of such materials.
C. ADDITIONAL SERVICES. The Fund may request additional processing,
special reports, changes in its DRP, or other additional services. The Fund
shall submit such requests for additional services in writing together with
such specifications as may be reasonably required by U.S. Trust, and U.S.
Trust shall respond to such requests in the form of a price quotation. The
Fund's written acceptance of the quotation must be received prior to
implementation of such request.
D. TERMS OF PAYMENT. All fees, out-of-pocket expenses, or additional
charges of U.S. Trust shall be billed on a quarterly basis and shall be due
and payable upon receipt of the invoice. U.S. Trust will render, after the
close of each month in which services have been furnished, a statement
reflecting all of the charges for such month. The Fund must notify U.S.
Trust in writing of any contested amounts within 45 days of receipt of a
billing for such amounts.
E. TAXES. In addition to any other charges specified hereunder, the Fund
shall pay any sales tax, use tax, transfer tax, excise tax, tariff, duty, or
any other tax or payment in lieu thereof imposed by any governmental
authority or agency as a direct result of the provision by U.S. Trust of
goods or services hereunder, except for taxes based on U.S. Trust's net
income.
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IV. REPRESENTATIONS AND WARRANTIES
A. U.S. TRUST. U.S. Trust represents and warrants to the Fund that:
(1) It is a corporation duly organized and existing and in good standing
under the laws of the State of New York as a trust company pursuant to
Article III of the New York Banking Law;
(2) It is empowered under applicable laws and by its organization
certificate and by-laws to enter into and perform this Agreement;
(3) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement; and
(4) Its entering into this Agreement shall not cause a material breach or
be in material conflict with any other agreement or obligation of U.S. Trust.
B. THE FUND. The Fund represents and warrants to U.S. Trust that:
(1) It is a corporation duly organized and existing and in good standing
under the laws of the State of Maryland;
(2) It is empowered under applicable laws and by its certificate or
articles of incorporation and by-laws (the "Organizational Documents") to
enter into and perform this Agreement;
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(3) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement;
(4) It is a closed-end investment company registered under the Investment
Company Act of 1940, as amended;
(5) Its entering into this Agreement shall not cause a material breach or
be in material conflict with any other agreement or obligation of the Fund;
and
(6) A registration statement on Form N-2 (including a prospectus), as
amended, is currently effective and will remain effective, and all necessary
filings under the securities laws of the states have been made.
V. DOCUMENTS FURNISHED BY THE FUND
A. INITIALLY FURNISHED DOCUMENTS. The Fund has furnished to U.S. Trust
the following documents:
(1) A copy of the Organizational Documents of the Fund, attached
hereto as Exhibit C;
(2) A specimen certificate representing outstanding Shares in the form
approved by the Board of the Fund, attached hereto as Exhibit D; and
(3) Copies of the Fund's registration statement on Form N-2 as amended
and declared effective by the Securities and Exchange Commission, attached
hereto as Exhibit E.
B. Prospectively Furnished Documents. The Fund shall furnish the
following documents immediately upon their adoption
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<PAGE>
or effectiveness, or upon request by U.S. Trust, as the case may be:
(1) Copies of all amendments to the Organizational Documents of the
Fund;
(2) Copies of all post-effective amendments to the Fund's
registration statement on Form-N-2; and
(3) Such other certificates, documents and opinions as U.S. Trust
shall deem to be appropriate or necessary for the proper performance of its
duties hereunder.
VI. INDEMNIFICATION
A. FUND INDEMNIFICATION OBLIGATION. U.S. Trust shall not be
responsible for, and the Fund shall indemnify and hold U.S. Trust harmless from
and against, any and all losses, damages, costs, charges, reasonable attorneys'
fees, payments, expenses and liability arising out of or attributable to:
(1) All actions of U.S. Trust or its agents or subcontractors required to
be taken pursuant to this Agreement unless such actions are taken in bad
faith or with negligence or willful misconduct;
(2) The Fund's refusal or failure to comply with the terms of this
Agreement, or the Fund's lack of good faith, negligence or willful
misconduct, or the breach of any representation or warranty of the Fund
hereunder;
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(3) The reliance on or use by U.S. Trust or its agents or
subcontractors of information, records or documents which are received by U.S.
Trust or its agents or subcontractors and furnished to it by or on behalf of the
Fund, and which have been prepared or maintained by the Fund or any other person
or firm (other than U.S. Trust or its agents or subcontractors) on behalf of the
Fund;
(4) The reliance on, or the carrying out by U.S. Trust or its agents
or subcontractors of, any instructions or requests of the Fund or recognition by
U.S. Trust of any Share certificates which are reasonably believed to bear the
proper manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or registrar, or of a co-
transfer agent or co-registrar; or
(5) The offer or sale of Shares by the Fund in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state, or in violation of any stop order or other
determination or ruling by any federal agency or any state agency with respect
to the offer or sale of such Shares in such state.
B. U.S. TRUST INDEMNIFICATION OBLIGATION. U.S. Trust shall indemnify and
hold the Fund harmless from and against any and all losses, damages, costs,
charges, reasonable attorney's fees, payments, expenses and liability arising
out of or attributable to U.S. Trust's refusal or failure to comply with the
terms of this Agreement, or U.S. Trust's lack of good faith,
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<PAGE>
negligence or willful misconduct, or the breach of any representation or
warranty of U.S. Trust hereunder.
C. CLAIMS. Upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion and shall keep the other
party advised with respect to all developments concerning such claim, but the
failure to give such notice shall not affect rights to indemnification
hereunder except to the extent that the indemnifying party demonstrates
actual damage caused by such failure. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim but not to control such defense.
The party seeking indemnification shall in no case confess any claim or make
any compromise in any case in which the other party may be required to
indemnify it, except with the indemnifying party's prior written consent.
D. FORCE MAJEURE. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, interruption of electrical power or other utilities, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable to the other
for any damages resulting from such failure to perform or otherwise from such
causes. U.S. Trust shall use all reasonable efforts to minimize the
likelihood of all damage, loss of data, delays and errors resulting from
uncontrollable events,
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<PAGE>
and should such damage, loss of data, delays or errors occur, U.S. Trust
shall use its reasonable efforts to mitigate the effects of such occurrence.
VII. TERM AND TERMINATION
A. NOTICE. This Agreement shall remain in effect until terminated by
either party, without penalty, upon 90 days' prior written notice.
B. BREACH. This Agreement may be terminated by either party if the other
party is in material breach of this Agreement. In order to so terminate this
Agreement, written notice shall be given to an officer of the other party of
the non-breaching party's intention to terminate due to a failure to comply
with, or breach of, a material term or condition of this Agreement. Said
written notice shall specifically state the material term or condition
claimed to be breached and shall provide at least 15 days in which to correct
such alleged breach. If such breach is not corrected in the time period
allowed, then the party giving notice may terminate this Agreement
immediately, upon written notice.
C. EXPENSES. Should this Agreement be terminated, all out-of-pocket
expenses reasonably incurred by U.S. Trust in connection with the movement of
records and materials to its successor or to the Fund shall be borne by the
Fund.
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<PAGE>
VIII. USE OF U.S. TRUST NAME
The Fund shall not use U.S. Trust's name in any prospectus, Shareholder
report, advertisement or other material relating to the Fund, other than for
the purpose of merely identifying and describing the functions of U.S. Trust
hereunder, in a manner not approved by U.S. Trust in writing prior to such
use; provided, however, that U.S. Trust shall consent to all uses of its name
required by the Securities and Exchange Commission, any state securities
commission, or any federal or state regulatory authority; and provided,
further, that in no case will such approval be unreasonably withheld.
IX. ASSIGNMENT
Except as hereunder provided, neither this Agreement nor any rights or
obligations hereunder may be assigned by either party without the written
consent of the other party. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective permitted successors and
assigns. U.S. Trust may, without further consent on the part of the Fund,
subcontract for the performance hereof with third parties, or subsidiaries or
other affiliates of U.S. Trust; provided, however, that U.S. Trust shall be
as fully responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions and shall be
responsible for its choice of subcontractor.
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X. CONFIDENTIALITY
The information contained in this Agreement is confidential and
proprietary in nature. By receiving this Agreement, the Fund agrees that
none of its directors, officers, employees, or agents, without the prior
written consent of U.S. Trust, will divulge, furnish or make accessible to
any third party, except as required by law or any regulatory authority or as
permitted by the next sentence, any part of this Agreement or information in
connection therewith which has been or may be made available to it. The Fund
agrees that it will limit access to the Agreement and such information to
only those officers or employees with responsibilities for analyzing the
Agreement, to its counsel and to such independent consultants hired expressly
for the purpose of assisting in such analysis. In addition, the Fund agrees
that any persons to whom such information is properly disclosed shall be
informed of the confidential nature of the Agreement and the information
relating thereto, and shall be directed to treat the same appropriately. The
terms set forth in this Article X shall continue without termination.
XI. MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each
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of which shall be deemed an original, but all of which taken together shall
constitute the entire Agreement between the parties hereto and supersede any
prior oral or written Agreement with respect to the subject matter hereof.
This Agreement may not be amended or modified in any manner except by a
written instrument executed by both parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the date first
above written.
UNITED STATES TRUST COMPANY FIRST BOSTON INCOME FUND, INC.
OF NEW YORK
By/s/ Paul J. Holland By/s/ Joseph F. Huber
Name Paul J. Holland Name Joseph F. Huber
Title Sr. Vice President Title Chairman
18
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EXHIBITS
A. Fund Distribution Reinvestment Plan
B. Shareholder Service Fee
C. Fund Organizational Documents
D. Fund Specimen Share Certificate
E. Fund Form N-2 Registration Statement
19
<PAGE>
EXHIBIT B
SHAREHOLDER SERVICE FEE
These fees are subject to increase after three years from the date of the
Agreement:
- $16.00 per Shareholder account per annum
Plus Out-of-Pocket Expenses
Blank Certificates
Check Stock
Postage
Proxy Services
Forms/Stationery
Envelopes
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<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
- FUND ADMINISTRATION SERVICES
- FUND ACCOUNTING SERVICES
CHASE GLOBAL FUNDS SERVICES COMPANY
SEPTEMBER _____, 1996
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
TABLE OF CONTENTS
SECTION/PARAGRAPH. . . . . . . . . . . . . . . . . . . . . . . . . . PAGE
1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Representations and Warranties. . . . . . . . . . . . . . . . . 1
3. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . 2
4. Services Provided . . . . . . . . . . . . . . . . . . . . . . . 3
5. Fees; Expenses; Expense Reimbursement . . . . . . . . . . . . . 4
6 Proprietary and Confidential Information. . . . . . . . . . . . 6
7. Duties, Responsibilities and Limitation of Liability. . . . . . 6
8. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10. Assignability . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 10
15. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
TABLE OF CONTENTS (CONTINUED)
SECTION/PARAGRAPH. . . . . . . . . . . . . . . . . . . . . . . . . . PAGE
Schedule A -- Fees and Expenses. . . . . . . . . . . . . . . . . . A-1
Schedule B -- Fund Administration Services Description . . . . . . B-1
Schedule C -- Fund Accounting Services Description . . . . . . . . C-1
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
AGREEMENT made as of ____, 1996 by and between BEA INCOME FUND, INC.
(the "Fund") a Maryland corporation, and CHASE GLOBAL FUNDS SERVICES COMPANY
("Chase"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Fund is registered as a non-diversified, closed-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Fund wishes to retain Chase to provide certain fund
administration and fund accounting services with respect to the Fund;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Chase to provide fund
administration and fund accounting services for the Fund, subject to the
supervision of the Board of Directors of the Fund (the "Board"), for the period
and on the terms set forth in this Agreement. Chase accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Paragraph 5 of and Schedule A to this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) Chase represents and warrants to the Fund that:
(i) Chase is a corporation in good standing and existing under
the laws of the State of Delaware;
(ii) Chase is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(iii) Chase is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform this Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize Chase to enter into and perform this Agreement;
(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
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(vi) no legal or administrative proceedings have been
instituted or threatened which would materially impair Chase's ability to
perform its duties and obligations under this Agreement; and
(vii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;
(b) The Fund represents and warrants to Chase that:
(i) the Fund is a Maryland corporation, duly organized and
existing and in good standing under the laws of Maryland;
(ii) the Fund is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the
Fund to enter into and perform this Agreement;
(iv) the Fund is an investment company registered under the
1940 Act;
(v) no legal or administrative proceedings have been
instituted or threatened which would materially impair the Fund's ability to
perform its duties and obligations under this Agreement; and
(vi) the Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that Chase may request or requires to properly discharge its
duties. Such documents may include but are not limited to the following:
(a) Resolutions of the Board authorizing the appointment of Chase to
provide certain fund administration and fund accounting services to the Fund and
approving this Agreement;
(b) The Fund's Articles of Incorporation ("Articles") as presently in
effect;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
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<PAGE>
(e) The Fund's registration statement, including exhibits, on Form
N-2 (the "Registration Statement") under the 1933 Act and the 1940 Act, as filed
with, and declared effective by, the SEC, and all amendments and supplements
thereto;
(f) Copies of the Investment Advisory Agreement between the Fund and
its investment adviser (the "Advisory Agreement");
(g) Opinions of counsel and auditors reports; and
(h) Such other certificates, documents, contracts or opinions which
the Administrator may in its reasonable discretion, deem necessary or
appropriate in the proper performance of its duties.
The Fund will furnish to the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
4. SERVICES PROVIDED
(a) Chase will provide the following services subject to the control,
direction and supervision of the Board and in compliance with the objectives,
policies and limitations set forth in the Fund's Registration Statement,
Articles of Incorporation, and By-Laws; applicable laws and regulations; and all
resolutions and policies implemented by the Board:
(i) Fund Administration
(ii) Fund Accounting
A detailed description of each of the above services is contained in Schedules B
and C, respectively, to this Agreement.
(b) Chase will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase );
(ii) provide the services of individuals to serve as officers
of the Fund who will be designated by Chase and elected by the Board subject to
reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in
Chase's sole discretion, for provision of the services contemplated herein;
(iv) furnish equipment and other materials, which Chase, in its
sole discretion, believes are necessary or desirable for provision of the
services contemplated herein; and
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<PAGE>
(v) keep records relating to the services provided hereunder
in such form and manner as set forth in Schedules B and C as Chase may otherwise
deem appropriate or advisable, all in accordance with the 1940 Act. To the
extent required by Section 31 of the 1940 Act and the rules thereunder, Chase
agrees that all such records prepared or maintained by Chase relating to the
services provided hereunder are the property of the Fund and will be preserved
for the periods prescribed under Rule 31a-2 under the 1940 Act, maintained at
the Fund's expense, and made available in accordance with such Section and
rules. Chase further agrees to surrender promptly to the Fund upon its request
and cease to retain in its records and files those records and documents created
and maintained by Chase pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Fund pursuant to
this Agreement the Fund shall pay Chase monthly fees determined as set forth in
Schedule A to this Agreement. Such fees are to be billed monthly and shall be
due and payable upon receipt of the invoice. Upon any termination of this
Agreement before the end of any month, the fee for the part of the month before
such termination shall be prorated according to the proportion which such part
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its Registration Statement, generally accepted
accounting principles, and resolutions of the Board.
(c) Chase may, in its sole discretion, from time to time employ or
associate with such person or persons as may be appropriate to assist Chase in
the performance of this Agreement. Such person or persons may be officers and
employees who are employed or designated as officers by both Chase and the Fund.
The compensation of such person or persons for such employment shall be paid by
Chase and no obligation will be incurred by or on behalf of the Fund in such
respect.
(d) The Fund may request additional services, additional processing,
or special reports. The Fund shall submit such requests in writing together
with such specifications and requirements documentation as may be reasonably
required by the Chase . If Chase elects to provide such services or arrange for
their provision, it shall be entitled to additional fees and expenses at its
customary rates and charges.
4
<PAGE>
(e) Chase will bear all of its own expenses in connection with the
performance of the services under this Agreement except as otherwise expressly
provided herein. The Fund agrees to promptly reimburse Chase for any equipment
and supplies specially ordered by or for the Fund through Chase and for any
other expenses not contemplated by this Agreement that Chase may incur on the
Fund's behalf at the Fund's request or as consented to by the Fund. Such other
expenses to be incurred in the operation of the Fund and to be borne by the
Fund, include, but are not limited to: taxes; interest; brokerage fees and
commissions; salaries and fees of officers and directors who are not officers,
directors, shareholders or employees of Chase, or the Fund's investment adviser
or distributor; SEC and state Blue Sky registration and qualification fees,
levies, fines and other charges; EDGAR filing fees, processing services and
related fees; advisory and administration fees; charges and expenses of pricing
and data services, independent public accountants and custodians; insurance
premiums including fidelity bond premiums; legal expenses; costs of maintenance
of corporate existence; expenses of typesetting and printing of prospectuses for
regulatory purposes and for distribution to current shareholders of the Fund;
expenses of printing and production costs of shareholders' reports and proxy
statements and materials; costs and expenses of Fund stationery and forms; costs
and expenses of special telephone and data lines and devices; costs associated
with corporate, shareholder, and Board meetings; trade association dues and
expenses; and any extraordinary expenses and other customary Fund expenses. In
addition, Chase may utilize one or more independent pricing services, approved
from time to time by the Board, to obtain securities prices and to act as backup
to the primary pricing services, in connection with determining the net asset
values of the Fund, and the Fund will reimburse Chase for the Fund's share of
the cost of such services based upon the actual usage, or a pro-rata estimate of
the use, of the services for the benefit of the Fund.
(f) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
Chase will render, after the close of each month in which services
have been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days shall bear interest in finance
charges equivalent to, in the aggregate, the Prime Rate (as publicly announced
by Chase) plus two percent per year and all costs and expenses of effecting
collection of any such sums, including reasonable attorney's fees, shall be paid
by the Fund to Chase.
5
<PAGE>
In the event that the Fund is more than sixty (60) days delinquent in
its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the Fund),
this Agreement may be terminated upon thirty (30) days' written notice to the
Fund by Chase. The Fund must notify Chase in writing of any contested amounts
within thirty (30) days of receipt of a billing for such amounts. Disputed
amounts are not due and payable while they are being investigated. The fees set
forth in Schedule A may be changed from time to time upon agreement of the
parties.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Chase agrees on behalf
of itself and its employees to treat confidentially and as proprietary
information of the Fund, all records and other information relative to the
Fund's prior, present or potential shareholders, and to not use such records and
information for any purpose other than performance of Chase 's responsibilities
and duties hereunder. Chase may seek a waiver of such confidentiality
provisions by furnishing reasonable prior notice to the Fund and obtaining
approval in writing from the Fund, which approval shall not be unreasonably
withheld and may not be withheld where Chase may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities. Waivers of confidentiality are
automatically effective without further action by Chase with respect to Internal
Revenue Service levies, subpoenas and similar actions, or with respect to any
request by the Fund.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, Chase shall be
obligated to act in good faith in performing the services provided for under
this Agreement. In performing its services hereunder, Chase shall be entitled
to rely on any oral or written instructions, notices or other communications,
including electronic transmissions, from the Fund and its custodians, officers
and directors, investors, agents and other service providers which Chase
reasonably believes to be genuine, valid and authorized. Chase shall also be
entitled to consult with and rely on the advice and opinions of outside legal
counsel retained by the Fund, as necessary or appropriate.
(b) Chase shall not be liable for any error of judgment or mistake of
law or for any loss or expense suffered by the Fund, in connection with the
matters to which this Agreement relates, except for a loss or expense solely
caused by or resulting from willful misfeasance, bad faith or negligence on
Chase's part in the performance of its duties or from reckless disregard by
Chase of its
6
<PAGE>
obligations and duties under this Agreement. In no event shall Chase be liable
for any indirect, incidental, special or consequential losses or damages of any
kind whatsoever (including but not limited to lost profits), even if Chase has
been advised of the likelihood of such loss or damage and regardless of the form
of action. Subject to Paragraph 7 (c) below, the Fund shall not be liable to
Chase to for any indirect, incidental, special or consequential losses or
damages of any kind whatsoever (including but not limited to lost profits), even
if Chase has been advised of the likelihood of such loss or damage and
regardless of the form of action. Any person, even though also an officer,
director, partner, employee or agent of Chase, who may be or become an officer,
director, partner, employee or agent of the Fund, shall be deemed when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with Chase's duties hereunder) to be rendering such
services to or acting solely for the Fund and not as an officer, director,
partner, employee or agent or person under the control or direction of Chase
even though paid by Chase.
(c) Subject to Paragraph 7 (b) above, Chase shall not be responsible
for, and the Fund shall indemnify and hold Chase harmless from and against, any
and all losses, damages, costs, reasonable attorneys' fees and expenses,
payments, expenses and liabilities arising out of or attributable to:
(i) all actions of Chase or its officers or agents required to
be taken pursuant to this Agreement;
(ii) the reliance on or use by Chase or its officers or agents
of information, records, or documents which are received by Chase or its
officers or agents and furnished to it or them by or on behalf of the Fund, and
which have been prepared or maintained by the Fund or any third party on behalf
of the Fund;
(iii) the Fund's refusal or failure to comply with the terms of
this Agreement or the Fund's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Fund
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, which is in compliance with applicable laws, or reliance by Chase
on telephone or other electronic instructions of any person
7
<PAGE>
acting on behalf of a shareholder or shareholder account for which telephone or
other electronic services have been authorized;
(vi) the reliance on or the carrying out by Chase or its
officers or agents of any proper instructions reasonably believed to be duly
authorized, or requests of the Fund or recognition by Chase of any share
certificates which are reasonably believed to bear the proper signatures of the
officers of the Fund and the proper countersignature of any transfer agent or
registrar of the Fund;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to Chase by data and pricing services;
(viii) the offer or sale of shares by the Fund in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Fund or its other service providers and
agents, or (2) existing or arising out of activities, actions or omissions by or
on behalf of the Fund prior to the effective date of this Agreement;
(ix) any failure of the Fund's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus; and
(x) the actions taken by the Fund, its investment adviser, and
its distributor in compliance with applicable securities, tax, commodities and
other laws, rules and regulations, or the failure to so comply.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 120 days' prior written
notice. Upon termination of this Agreement, the Fund shall pay to Chase such
compensation and any out-of-pocket or other reimbursable expenses which may
become due or payable under the terms hereof as of the date of termination or
after the date that the provision of services ceases, whichever is later.
8
<PAGE>
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Fund:
BEA Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
Attention: Paul Stamler
Fax: (212) 355-2099
WITH A COPY TO:
If to Chase :
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Attention: Karl O. Hartmann, Esq., General Counsel
Fax: (617) 557-8616
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNABILITY. This Agreement shall not be assigned by either of the
parties hereto without the prior consent in writing of the other party;
provided, however, that Chase may in its own discretion and without limitation
or prior consent of the Fund, whenever and on such terms and conditions as Chase
deems necessary or appropriate, subcontract, delegate or assign its rights,
duties, obligations and liabilities to subsidiaries or affiliates of Chase;
provided, further, that any such subcontract, agreement or understanding shall
not discharge Chase from its obligations hereunder. Similarly, Chase or its
affiliated subcontractor, designee, or assignee may at its discretion, without
notice to the Fund, enter into such subcontracts, agreements and understandings,
whenever and on such terms and conditions as Chase or they deem necessary or
appropriate to perform services hereunder, with non-affiliated third parties;
provided, that such subcontract, agreement or understanding shall not discharge
Chase, or its subcontractor, designee, or assignee, as the case may be, from
Chase 's obligations hereunder. Chase or its affiliated subcontractor,
designee, or assignee
9
<PAGE>
shall, however, be discharged from Chase's obligations hereunder, if the Fund or
its sponsor, or investment adviser require Chase or its affiliated
subcontractor, designee, or assignee to enter into any subcontract, agreement or
understanding to perform services hereunder with any non-affiliated third party;
and the Fund shall indemnify and hold harmless Chase and its affiliated
subcontractor, designee, or assignee from and against, any and all losses,
damages, costs, reasonable attorneys' fees and expenses, payments, expenses and
liabilities arising out of or attributable to such subcontract, agreement or
understanding.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. Chase shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, acts of God, earthquakes, fires, floods, wars,
acts of civil or military authorities, or governmental actions, nor shall any
such failure or delay give the Fund the right to terminate this Agreement.
13. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
14. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
10
<PAGE>
BEA INCOME FUND, INC.
Attest:____________________________ By:___________________________
Name:______________________________ Name:_________________________
Title:________________________
CHASE GLOBAL FUNDS SERVICES COMPANY
Attest:____________________________ By:___________________________
Name:______________________________ Name:_________________________
Title:________________________
11
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE A
FEES AND EXPENSES
FEES FOR FUND ADMINISTRATION AND FUND ACCOUNTING SERVICES:
15 Basis Points on the first $100 million in total assets
10 Basis Points on the next $300 million in total assets
5 Basis Points on total assets greater than $400 million
Plus Out-of-Pocket expenses as set forth in Section 5.
A-1
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE B
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. FINANCIAL AND TAX REPORTING
A. Prepare management reports and Board of Directors [Trustees]
materials, such as unaudited financial statements and summaries of
dividends and distributions.
B. Report Fund performance to outside services as directed by Fund
management.
C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Fund's prospectus(es). Assist
Fund management in making final determinations of distribution
amounts.
D. Estimate and recommend year-end dividend and capital gain
distributions necessary to establish Fund's status as a regulated
investment company ("RIC") under Section 4982 of the Internal Revenue
Code of 1986, as amended (the "Code") regarding minimum distribution
requirements.
E. Working with the Fund's public accountants or other professionals,
prepare and file Fund's Federal tax return on Form 1120-RIC along with
all state and local tax returns where applicable. Prepare and file
Federal Excise Tax Return (Form 8613).
F. Prepare and file Fund's Form N-SAR with the SEC.
G. Prepare and coordinate printing of Fund's Semiannual and Annual
Reports to Shareholders.
H. In conjunction with transfer agent, notify shareholders as to what
portion, if any, of the distributions made by the Fund's during the
prior fiscal year were exempt-interest dividends under Section 852
(b)(5)(A) of the Code.
I. Provide Form 1099-MISC to persons other than corporations (i.e.,
Trustees [Directors]) to whom the Fund paid more than $600 during the
year.
J. Prepare and file California State Expense Limitation Report, if
applicable.
K. Provide financial information for Fund proxies and prospectuses
(Expense Table).
B-1
<PAGE>
II. PORTFOLIO COMPLIANCE
A. Assist with monitoring each Investment Fund's compliance with
investment restrictions (e.g., issuer or industry diversification,
etc.) listed in the current prospectus(es) and Statement(s) of
Additional Information, although primary responsibility for such
compliance shall remain with the Fund's investment adviser or
investment manager.
B. Assist with monitoring each Investment Fund's compliance with the
requirements of Section 851 of the Code for qualification as a RIC
(i.e., 90% Income, 30% Income - Short Three, Diversification Tests),
although primary responsibility for such compliance shall remain with
the Fund's investment adviser or investment manager.
C. Assist with monitoring investment manager's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements", Rule 17a-7, and Rule 12d-3 procedures, although primary
responsibility for such compliance shall remain with the Fund's
investment adviser or investment manager.
D. Mail quarterly requests for "Securities Transaction Reports" to the
Fund's Directors [Trustees] and Officers and "access persons" under
the terms of the Fund's Code of Ethics and SEC regulations.
III. REGULATORY AFFAIRS AND CORPORATE GOVERNANCE
A. Prepare and file post-effective amendments to the Fund's registration
statement and supplements as needed.
B. Prepare and file proxy materials and administer shareholder meetings.
C. Prepare and file all state registrations of the Fund's securities
including annual renewals; registering new funds, portfolios, or
classes; preparing and filing sales reports; filing copies of the
registration statement, prospectus and statement of additional
information; and increasing registered amounts of securities in
individual states.
D. Prepare Board materials for Board meetings.
E. Assist with the review and monitoring of fidelity bond and errors and
omissions insurance coverage and the submission of any related
regulatory filings.
F. Prepare and update documents such as charter document, by-laws, and
foreign qualification filings.
G. Provide support with respect to routine regulatory examinations or
investigations of the Fund.
B-2
<PAGE>
H. File copies of financial reports to shareholders with the SEC under
Rule 30b2-1.
IV. GENERAL ADMINISTRATION
A. Furnish officers of the Fund, subject to reasonable Board approval.
B. Prepare fund, portfolio or class expense projections, establish
accruals and review on a periodic basis, including expenses based on a
percentage of average daily net assets (advisory and administrative
fees) and expenses based on actual charges annualized and accrued
daily (audit fees, registration fees, directors' fees, etc.).
C. For new funds, portfolios and classes, obtain Employer or Taxpayer
Identification Number and CUSIP numbers, as necessary. Estimate
organizational costs and expenses and monitor against actual
disbursements.
D. Coordinate all communications and data collection with regard to any
regulatory examinations and yearly audits by independent accountants.
B-3
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE C
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. GENERAL DESCRIPTION
Chase shall provide the following accounting services to the Fund:
A. Maintenance of the books and records for the Fund's assets, including
records of all securities transactions.
B. Calculation of each funds', portfolios' or classes' Net Asset Value in
accordance with the Prospectus, and after the fund, portfolio or class
meets eligibility requirements, transmission to NASDAQ and to such
other entities as directed by the Fund.
C. Accounting for dividends and interest received and distributions made
by the Fund.
D. Coordinate with the Fund's independent auditors with respect to the
annual audit, and as otherwise requested by the Fund.
E. As mutually agreed upon, Chase will provide domestic and/or
international reports.
C-1
<PAGE>
September 27, 1996
BEA Income Fund, Inc.
One Citicorp Center
153 East 53rd Street
57th Floor
New York, NY 10022
Ladies and Gentlemen,
We have acted as counsel to BEA Income Fund, Inc. (the "Fund"), a corporation
organized under the laws of the State of Maryland, in connection with the
issuance of up to 10,160,570 shares, consisting of 8,128,456 shares to be
issued under the Primary Subscription (the "Primary Subscription Shares") and
up to 2,032,114 shares to be issued pursuant to the Over-Subscription
Privilege (the "Additional Shares") of its common stock, par value $.001 per
share (the "Common Stock"), pursuant to the exercise of rights (the "Rights")
to purchase Common Stock to be distributed to shareholders of the Fund (the
"Offer") in accordance with the Fund's Registration Statement on Form N-2
(File Nos. 333-10851 and 811-05102) under the Securities Act of 1933, as
amended, and under the Investment Company Act of 1940, as amended (the
"Registration Statement").
We have examined copies of the Articles of Incorporation and By-Laws of the
Fund, as amended, the Registration Statement, resolutions adopted by the
Fund's Board of Directors and other records and documents that we have deemed
necessary for the purpose of this opinion, including certification of the
initial directors of the Fund. We have also examined such other documents,
papers, statutes and authorities as we have deemed necessary to form a basis
for the opinion hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others. We have further assumed that if the Fund decides to extend the
Offer, that extension will have been duly authorized by the Board of
Directors pursuant to the authority that has heretofore been delegated to it
by the Board of Directors. As to matters governed by the laws of
<PAGE>
BEA Income Fund, Inc.
September 27, 1996
Page 2
the State of Maryland, we have relied upon the opinion of Venable, Baetjer
and Howard, LLP that is attached to this opinion.
Based upon the foregoing, we are of the opinion that when the Primary
Subscription Shares have been issued and paid for as contemplated by the
Registration Statement, the Primary Subscription Shares to be issued upon
exercise of the Rights will have been validly and legally authorized and
issued and will be fully paid and non-assessable. We are further of the
opinion that when the Board of Directors of the Fund has taken appropriate
further action to authorize the issuance of the Additional Shares, the
Additional Shares to be issued upon exercise of the Rights will have been
duly authorized and, upon such exercise, when the Additional Shares have been
issued and paid for as contemplated by the Registration Statement, the
Additional Shares will have been validly and legally authorized and issued
and will be fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus included as part of the Registration Statement.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
September 27, 1996
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: BEA INCOME FUND, INC.
---------------------
Ladies & Gentlemen:
We have acted as special Maryland counsel to BEA Income Fund, Inc., a
Maryland corporation (the "Company"), in connection with the issuance of up
to 10,160,570 additional shares, consisting of 8,128,456 primary subscription
shares (the "Primary Subscription Shares") and up to 2,032,114 additional
over-subscription shares (the "Additional Over-Subscription Shares") that
may, at the discretion of the Board of Directors, be issued pursuant to an
over-subscription privilege, of the Company's common stock, par value $.001
per share (the "Common Stock"), pursuant to the exercise of non-transferable
rights (the "Rights") to purchase Common Stock to be distributed to the
Company's shareholders in accordance with the Company's Registration
Statement on Form N-2 (Securities Act File No. 333-10851, Investment Company
Act File No. 811-5012) (the "Registration Statement").
We have examined the Company's prospectus included in the Registration
Statement substantially in the form in which it is to be come effective (the
"Prospectus"), the form of subscription certificate for exercise of the
Rights, the Company's Charter and Bylaws, and resolutions adopted by the
Board of Directors of the Company with respect to the Rights, and have
further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation to the effect that the Company is duly
incorporated and existing under the laws of the State of Maryland and is in
good standing and duly authorized to transact business in the State of
Maryland. With respect to the due organization of the Company under Maryland
law and with the consent of Willkie
<PAGE>
Willkie Farr & Gallagher
September 27, 1996
Page 2
Farr & Gallagher, we have also relied on certifications of the initial
directors of the Company. We have assumed that if the initial Expiration
Date of the offering and the Rights is extended as described in the
Registration Statement, such action will have been duly authorized by further
action of the Board of Directors.
We have also examined and relied upon such other corporate records of
the Company and documents and certificates with respect to factual matters as
we have deemed necessary for purposes of this opinion. With respect to the
documents we have received, we have assumed, without independent
verification, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity with originals of
all documents submitted to us as copies.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland.
2. The Primary Subscription Shares to be issued upon exercise of the
Rights have been duly authorized, and, upon such exercise, when the Primary
Subscription Shares have been issued and paid for as contemplated by the
Registration Statement, the Primary Subscription Shares will have been
validly and legally authorized and issued and will be fully paid and
nonassessable. When the Board of Directors has taken appropriate further
action to authorize the issuance of the Additional Over-Subscription Shares,
the Additional Over-Subscription Shares to be issued upon exercise of the
Rights will have been duly authorized and, upon such exercise, when the
Additional Over-Subscription Shares have been issued and paid for as
contemplated by the Registration Statement, the Additional Over-Subscription
Shares will have been validly and legally authorized and issued and will be
fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"Blue Sky" laws of Maryland, to federal securities laws or to other laws.
You may rely on this opinion in rendering your opinion to the Company that is
to be filed as an exhibit to
<PAGE>
Willkie Farr & Gallagher
September 27, 1996
Page 3
the Registration Statement. We consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to us in the
Prospectus under the caption "Legal Matters." We do not thereby admit that
we are "experts" within the meaning of the Securities Act of 1933 and the
regulations thereunder.
This opinion may not be relied upon by any other person or for any other
purpose without our prior written consent.
Very truly yours,
/s/ Venable, Baetjer & Howard, LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information constituting
parts of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-2 (the "Registration Statement") of our
report dated February 13, 1996, relating to the financial
statements and financial highlights appearing in the December 31,
1995 Annual Report to Shareholders of BEA Income Fund, Inc.,
which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Experts" in the Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
September 27, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
among
CS FIRST BOSTON, INC.,
CS FIRST BOSTON INVESTMENT MANAGEMENT CORPORATION
and
CREDIT SUISSE CAPITAL CORPORATION
Dated as of April 26, 1995
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of April 26, 1995, among CS
First Boston, Inc., a Delaware corporation ("CS First Boston"), CS First
Boston Investment Management Corporation, a New York corporation (the
"Seller"), and Credit Suisse Capital Corporation, a New York corporation (the
"Purchaser") and an 80% partner of BEA Associates, a New York general
partnership ("BEA").
WHEREAS, the Seller desires to sell and transfer to the Purchaser,
and the Purchaser desires to purchase and assume from the Seller, certain
assets and liabilities all as more specifically provided herein;
WHEREAS, CS First Boston and CS Holding, a corporation organized
under the laws of Switzerland ("CS Holding"), have entered into a Memorandum
of Understanding, dated as of April 12, 1995, with respect to the transfer of
the investment and asset management activities of CS First Boston to CS
Holding or the group companies designated by CS Holding (the "Memorandum");
and
WHEREAS, this Agreement is being entered into pursuant to the terms
and provisions of the Memorandum and it is the intent of the parties hereto
that the investment and asset management business of the Seller be
transferred to the Purchaser and BEA;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
SECTION ONE. PURCHASE AND SALE OF ASSETS.
1.1 THE PURCHASE. Upon the terms and subject to the conditions of
this Agreement and on the basis of the representations, warranties and
agreements contained herein, at the Closing (as defined in Section 2.1
hereof): (a) the Seller shall (i) sell, assign, transfer, convey and deliver
to the Purchaser all of the Seller's right, title and interest in and to the
Assets (as defined in Section 1.2 hereof) except for the Client Contracts (as
defined in Section 1.2 hereof) and (ii) assign the Client Contracts to BEA at
the direction of the Purchaser, and (b) the Purchaser shall (i) pay to the
Seller the Purchase Price (as defined in Section 1.2 hereof) and (ii) assume
and become responsible for the discharge and performance of the Assumed
Liabilities (as defined in Section 1.2 hereof) in accordance with the
respective terms thereof. Such transaction is hereinafter referred to as the
"Purchase".
<PAGE>
1.2 CERTAIN DEFINITIONS. As used herein, the following terms have
the meanings indicated:
"Assets" means those assets of the Seller listed in Exhibit A
hereto.
"Assumed Liabilities" means those liabilities of the Seller listed
in Exhibit B hereto.
"Advisee" means any advisory client of the Seller.
"Advisers Act" means the Investment Advisers Act of 1940, as
amended.
"Authority" means any U.S. court, tribunal or arbitrator(s), U.S.
government or agency thereof or U.S. governmental or non-governmental
self-regulatory organization, agency or authority.
"Client Consents" means all of the consents, including without
limitation, the consents required to be obtained from an Advisee under the
Advisers Act with respect to the transfer or assignment of a Client Contract
to BEA or the execution and delivery of an investment advisory contract
between the Advisee and BEA on terms substantially similar to the Client
Contract (other than the term of such contract), as the case may be.
"Client Contract" means any investment advisory contract between
the Seller or any predecessor of the Seller and an Advisee listed on Annex I
attached hereto.
"Company Act" means the Investment Company Act of 1940, as amended.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization or other entity.
"Purchase Price" means an amount equal to U.S. $3,202,406, as such
amount may be adjusted prior to the Closing Date in accordance with the terms
of the Memorandum.
"RIC" means a company that is registered as an investment company
under the Company Act.
SECTION TWO. THE CLOSING.
2.1 CLOSING. The closing of the Purchase (the "Closing") shall
take place at the offices of the Seller, 599 Lexington Avenue, New York, New
York at 10:00 a.m., New York City time, on June 14, 1995, or at such other
time and location as the parties may agree. The day on which the Closing
takes place is herein referred to as the "Closing Date". Notwithstanding the
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Closing Date, the parties intend that for financial reporting purposes, the
Purchase will be effective as of January 1, 1995 and all cost and income
(except as otherwise agreed herein) incurred or realized by the Seller on or
after January 1, 1995 will be for the account of the Purchaser.
2.2 DELIVERIES AND PAYMENTS BY THE PURCHASER. At the Closing, the
Purchaser shall deliver to the Seller the Purchase Price payable to the
Seller in immediately available funds by wire transfer to the Seller's
designated account #066-004128 at Chemical Bank, New York, New York and an
assumption agreement in the form attached hereto as Exhibit C.
2.3 DELIVERIES BY THE SELLER. At the Closing, the Seller shall
deliver to the Purchaser the Assets (other than the Client Contracts that
have heretofore been transferred or assigned to BEA), a bill of sale in the
form attached hereto as Exhibit D, and such other instruments or documents as
may be reasonably requested by the Purchaser to carry out the Purchase and to
comply with the terms hereof, including without limitation, those specified
in Section 4 hereof.
SECTION THREE. REPRESENTATIONS AND WARRANTIES.
3.1 PURCHASER REPRESENTATIONS AND WARRANTIES. The Purchaser
represents and warrants to, and agrees with, the Seller and CS First Boston
as follows:
(a) ORGANIZATION AND QUALIFICATION. The Purchaser is a
corporation duly organized, validly existing and subsisting under the laws of
its jurisdiction of incorporation.
(b) AUTHORIZATION. The Purchaser has the full legal right
and power and authority to enter into, execute and deliver this Agreement and
to perform fully its obligations hereunder. This Agreement has been duly
authorized, executed and delivered by the Purchaser and, assuming the due
authorization, execution and delivery of this Agreement by the other parties
hereto, constitutes a legal, valid and legally binding obligation of it
enforceable against it in accordance with its terms.
(c) NO CONFLICTS. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, and the
performance by the Purchaser of this Agreement in accordance with its terms
does not and, on the Closing Date, will not conflict with or result in the
breach or violation of any of the terms or conditions of, or constitute (or
with notice or lapse of time or both constitute) a default under: (i) the
Certificate of Incorporation or By-Laws of the Purchaser; (ii) any material
instrument, contract or other agreement to which the Purchaser is a party or
by or to which it or its assets or properties are bound or subject; or (iii)
assuming that all Client Consents have been lawfully and properly obtained,
in any material respect, any existing applicable law, rule, regulation,
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<PAGE>
judgment, order or decree of any Authority having jurisdiction over the
Purchaser or any of its properties.
(d) CONSENTS. No consent, approval, authorization, order,
registration or qualification of or with any Authority is required to be
obtained by the Purchaser or BEA for the execution and delivery by the
Purchaser of this Agreement, the consummation by the Purchaser of the
transactions contemplated by this Agreement and the performance by the
Purchaser of this Agreement in accordance with its terms, other than the
filing with the Securities and Exchange Commission of any proxy statement or
other filings that may be required in connection with obtaining the approval
of the shareholders of any RIC that is an Advisee and an amendment to the
Form ADV of BEA and filings with the National Futures Association.
3.2 SELLER AND CS FIRST BOSTON REPRESENTATIONS AND WARRANTIES.
Each of the Seller and CS First Boston represents and warrants to the
Purchaser as follows:
(a) ORGANIZATION. Each of the Seller and CS First Boston is
a corporation duly organized, validly existing and subsisting or in good
standing, as the case may be, under the laws of its jurisdiction of
incorporation.
(b) AUTHORIZATION. Each of the Seller and CS First Boston
has the full legal right and power and authority to enter into, execute and
deliver this Agreement and to perform fully its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by each of the
Seller and CS First Boston and, assuming the due authorization, execution and
delivery of this Agreement by the Purchaser, constitutes a legal, valid and
legally binding obligation of it enforceable against it in accordance with
its terms.
(c) NO CONFLICTS. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, and the
performance by CS First Boston and the Seller of this Agreement in accordance
with its terms does not and, on the Closing Date, will not conflict with or
result in the breach or violation of any of the terms or conditions of, or
constitute (or with notice or lapse of time or both constitute) a default
under: (i) the Certificate of Incorporation or By-Laws of CS First Boston or
the Seller; (ii) any material instrument, contract or other agreement to
which CS First Boston or the Seller is a party or by or to which it or its
assets or properties are bound or subject; or (iii) assuming that all Client
Consents have been lawfully and properly obtained, in any material respect,
any existing applicable law, rule, regulation, judgment, order or decree of
any Authority having jurisdiction over CS First Boston or the Seller or any
of their respective properties.
(d) CONSENTS. Assuming that all Client Consents have been
lawfully and properly obtained, no consent, approval,
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<PAGE>
authorization, order, registration or qualification of or with any Authority
is required to be obtained by CS First Boston and the Seller for the
execution and delivery by CS First Boston and the Seller of this Agreement,
the consummation of the transactions contemplated by this Agreement and the
performance by CS First Boston and the Seller of this Agreement in accordance
with its terms, other than the filing with the Securities and Exchange
Commission of any proxy statement or other filings that may be required in
connection with obtaining the approval of the shareholders of any RIC that is
an Advisee.
(e) CLIENT CONTRACTS. Annex I, attached hereto, sets forth all
of the Client Contracts, including the names of the parties thereto.
(f) TITLE TO ASSETS; LIENS. The Seller owns outright and has
good and marketable title to all of the Assets, in each case free and clear
of any lien, pledge, mortgage, deed of trust, security interest, claim,
lease, charge, easement, transfer restriction or similar agreement,
encumbrance or other restriction or limitation whatsoever (each, a "Lien"),
except for: (i) Liens securing taxes, assessments, governmental charges or
levies, or the claims of materialmen, carriers, landlords and like Persons,
which are not yet due and payable and (ii) minor Liens of a character which
do not substantially impair the value of the Assets.
(g) I&AM ENTITIES. No I&AM Entity (as defined in the
Memorandum) other than the Seller is a party to any Client Contract or has
any right, title or interest in any Client Contract or any of the Assets.
SECTION FOUR. CONDITIONS PRECEDENT.
4.1 The obligations set forth herein of the Purchaser to
consummate this Agreement and the transactions contemplated hereby shall be
subject to the fulfillment, on or before the Closing Date, of the conditions
that:
(a) CS First Boston or the Seller shall deliver to the
Purchaser:
(i) true and fair copies of the management accounts and
reports for the Seller for each of the fiscal years ended 1992, 1993
and 1994, including details of intercompany allocations for office
services;
(ii) the financial statements of the Seller as of and for
each of the fiscal years ended 1992, 1993 and 1994 (the "1994
Financials");
(iii) copies of the 1995 business plan and budget for the
Seller;
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(iv) details as to assets and funds under management by
Seller, in particular a list of the management contracts to which the
Seller is a party;
(v) a list of all Seller's employees and their
respective functions and responsibilities whose total remuneration
exceeds U.S. $200,000 (average of last three years);
(vi) a description of any bonus or unit trust or share
plan or fee split plan for key employees of Seller, including total
remuneration (including share and unit trust awards and referral fees)
for any employees covered by such a plan for the period 1992 through
1994;
(vii) a certificate that, except as specifically disclosed
in Schedule 4.1(a) attached hereto:
(A) the 1994 Financials are complete and correct
in all material respects;
(B) the Seller does not have any liabilities or
obligations of any nature, whether absolute, accrued or
contingent that are not disclosed or provided for in the 1994
Financials or the March 1995 management reports;
(C) no litigation is pending or threatened
against the Seller or CS First Boston that would materially
adversely affect the net equity and the business of the Seller;
(D) the Seller conducted its business in material
compliance with all applicable legislation and regulations; and
(viii) all such documents, certificates and instruments as
the Purchaser may reasonably request for the purpose of enabling it to
evidence the accuracy and completeness of any of the representations
and warranties or statements of CS First Boston and the Seller or the
fulfillment of any of the conditions contained herein;
(b) there shall not be any injunction, restraining or similar
order issued by any Authority preventing consummation of the transactions
contemplated by this Agreement or any part hereof; and
(c) the representations and warranties of CS First Boston and
the Seller contained in this Agreement shall be true and correct on and as of
the Closing Date with the same
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<PAGE>
force and effect as though made on and as of the Closing Date. CS First
Boston and the Seller shall have delivered to the Purchaser a certificate,
dated the Closing Date and signed by the duly authorized officer of CS First
Boston and the duly authorized officer of the Seller, to the foregoing effect.
4.2 The obligations set forth herein of the Seller and CS First
Boston to consummate this Agreement and the transactions contemplated hereby
shall be subject to the fulfillment, on or before the Closing Date, of the
conditions that:
(a) the Purchaser shall deliver to the Seller all such
documents, certificates and instruments as the Seller may reasonably request for
the purpose of enabling it to evidence the accuracy and completeness of any of
the representations and warranties or statements of the Purchaser or the
fulfillment of any of the conditions contained herein;
(b) there shall not be any injunction, restraining or similar
order issued by any Authority preventing consummation of the transactions
contemplated by this Agreement or any part hereof; and
(c) the representations and warranties of the Purchaser
contained in this Agreement shall be true and correct on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date. The Purchaser shall have delivered to the Seller a
certificate, dated the Closing Date and signed by a duly authorized officer
of the Purchaser to the foregoing effect.
SECTION FIVE. ADDITIONAL AGREEMENTS.
5.1 INTERIM SERVICES AGREEMENT. The parties hereto acknowledge
and agree that CS First Boston Corporation and the Seller shall negotiate in
good faith an Interim Services Agreement on terms reasonably acceptable to
and acknowledged by the Purchaser or BEA.
5.2 COOPERATION. (a) The Seller and the Purchaser shall, and the
Purchaser shall use its best efforts to cause BEA to, cooperate with each
other and shall cause their officers, employees, agents, auditors and
representatives to cooperate with each other from the date hereof until the
Closing to ensure the orderly transfer of the Assets from the Seller to the
Purchaser or to BEA and to minimize any disruption to the respective
businesses of the Seller and the Purchaser that might result from the
transactions contemplated hereby. Neither party shall be required by this
Section 5.2 to take any action that would unreasonably interfere with the
conduct of its business.
(b) CS First Boston and the Seller shall use their respective
best efforts to obtain and deliver to the Purchaser such duly executed
consents, authorizations, approvals
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<PAGE>
or other documents or instruments that are reasonably required in order for
the Purchaser to use the premises leased by CS First Boston Corporation which
are described on Schedule 5.2(b) attached hereto (collectively, the "Leased
Office Space"), including the lessor of the Leased Office Space, as an
authorized occupant or subtenant and to sublet the Leased Office Space to a
third party.
5.3 CLIENT APPROVALS. (a) The parties hereto acknowledge and
agree that, as heretofore agreed, the Seller, to the extent it may lawfully
do so, has transferred all of its right, title and interest in the Client
Contracts to BEA at the direction of the Purchaser.
(b) Prior to the Closing, and thereafter as reasonably
requested by the Purchaser, to the extent resources are available, each of
the Seller, CS First Boston and the Purchaser shall, and the Purchaser shall
use its best efforts to cause BEA to, use their respective best efforts to
obtain the execution of consent letters relating to the consent of each
Advisee that is not a RIC or an advisor to a RIC to the transfer or
assignment of their respective Client Contract to BEA.
(c) Prior to the Closing, and thereafter as necessary, each
of the Seller, CS First Boston and the Purchaser shall, and the Purchaser
shall use its best efforts to cause BEA to, use its reasonable best efforts
as soon as practicable to obtain approvals from the directors and
shareholders of the investment companies registered under the Investment
Company Act of 1940, as amended, for which the Seller acts as investment
adviser or investment sub-adviser (the "Registered Funds") to permit BEA to
replace the Seller as investment adviser or investment sub-adviser for such
Registered Funds.
5.4 REMITTANCE OF ADVISORY FEES. From and after the date hereof,
the Seller shall: (i) promptly mail, in accordance with the Seller's past
practice, all statements for any unbilled and/or unpaid fees which shall
accrue prior to the Closing Date to BEA or the Seller by any party to a
Client Contract and (ii) remit to the Purchaser, promptly upon receipt
thereof, all amounts received by the Seller.
5.5 POST-CLOSING COOPERATION. Until December 31, 1995, as reasonably
requested by the Purchaser, to the extent resources are available, CS First
Boston shall cooperate with and assist the Purchaser and BEA in maintaining
business relationships with each Advisee; PROVIDED, HOWEVER, that in providing
such cooperation and assistance CS First Boston shall not be required to provide
any services to any such Advisee subsequent to: (i) the assignment of the Client
Contract of such Advisee to BEA, in the event such Advisee is not a RIC or an
adviser to a RIC or (ii) BEA having entered into an advisory contract with such
Advisee, in the event that such Advisee is a RIC or an advisor to a RIC.
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<PAGE>
5.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated to the Assets in accordance with the provisions of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
5.7 SATISFACTION OF CONDITIONS IN SECTION 15(f) OF THE COMPANY ACT.
The Purchaser agrees to use its best efforts to comply, and shall use its best
efforts to cause BEA to comply, with the provisions of Section 15(f) of the
Company Act.
SECTION SIX. INDEMNITY AND INSURANCE.
6.1 INDEMNITY BY THE PURCHASER. It is understood and agreed that the
Purchaser is acquiring the Assets subject to the Assumed Liabilities and that
the Purchaser is solely responsible for the Assumed Liabilities. Subject to
Section 6.2, the Purchaser shall indemnify and hold the Seller and the Seller's
successors, assigns, subsidiaries, affiliates and direct and indirect
stockholders and their respective officers, directors, employees, agents and
representatives ("Seller Indemnitees") harmless from and against any and all
damages, losses, liabilities, actions, claims, costs and expenses (including,
without limitation, fines, penalties, expenses of investigation and ongoing
monitoring, and reasonable attorney's fees) ("Losses") directly or indirectly
based upon, arising out of, resulting from or relating to (i) the Assumed
Liabilities; (ii) the ownership of the Assets or the use of the "CS First
Boston" name after the Closing Date; or (iii) a breach of any representation,
warranty, agreement or covenant of the Purchaser contained herein.
6.2 INDEMNITY BY CS FIRST BOSTON. CS First Boston shall indemnify
and hold the Purchaser and the Purchaser's successors, assigns, subsidiaries,
affiliates and direct and indirect stockholders and their respective officers,
directors, employees, agents and representatives ("Purchaser Indemnitees")
harmless from and against any and all Losses directly or indirectly based upon,
arising out of, resulting from or relating to: (i) any unprovided liabilities
from activities of Seller prior to January 1, 1995; (ii) any future claim
(except for claims which a reasonable person would consider to be "de minimis")
against any Purchaser Indemnitee stemming from a contractual obligation,
including undocumented intercompany arrangements between an affiliate of CS
First Boston and the Seller, in existence on December 31, 1994 which was not
specifically disclosed to the Purchaser prior to the signing of this Agreement;
and (iii) any breach of any representation, warranty, agreement or covenant of
CS First Boston or the Seller contained herein.
6.3 LOSSES ARISING OUT OF SELLER'S OPERATIONS. In the event of any
Losses relating to the operations of the Seller for the period from January 1,
1995 to the later to occur of: (i) the Closing Date and (ii) the cessation of
all operations of the
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<PAGE>
Seller that are not within the scope of the provisions of Sections 6.1 or
6.2, the Seller and the Purchaser shall cooperate to determine an appropriate
allocation of any such Losses in such proportion as is appropriate to
reflect: (i) the relative benefits received (or anticipated to be received)
by Purchaser or Seller, with respect to the Purchase and (ii) other legal and
equitable considerations such as the relative fault of the Purchaser on the
one hand and of the Seller on the other hand. If the Purchaser and Seller
are unable to reach agreement on an appropriate allocation for any such
Losses, the Seller and the Purchaser agree to submit the question of such
allocation to CS Holding and to be bound by any decision made by CS Holding
concerning any such allocation.
6.4 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by a
party entitled to indemnification under this Agreement (an "Indemnified
Party") of notice of the commencement of any action, demand, claim or
circumstances which, with the lapse of time, would give rise to a claim or
the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, such
Indemnified Party shall give prompt notice thereof (a "Claims Notice") to the
indemnifying party and the indemnifying party shall be entitled to
participate therein or, to the extent that it shall wish, assume the defense
thereof with its own counsel. If the indemnifying party elects to assume the
defense of any such action or claim, it shall within 30 days (or sooner, if
the nature of the Asserted Liability so requires) notify the Indemnified
Party of its intent to do so, and the Indemnified Party shall cooperate, at
the expense of the indemnifying party, in the compromise of, or defense
against, such Asserted Liability. The indemnifying party shall not be liable
to the Indemnified Party for any fees of other counsel or any other expenses,
in each case subsequently incurred by such Indemnified Party in connection
with the defense thereof, other than reasonable costs of investigation and
preparation, unless representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
Whether or not an indemnifying party elects to assume the defense of any
action or claim, the indemnifying party shall not be liable for any
compromise or settlement of any such action or claim effected without its
consent (which shall not be unreasonably withheld). In any event, the
Indemnified Party may engage at its own expense counsel to participate in the
defense of such Asserted Liability, but in such event the defense shall
remain under the control of the indemnifying party. The parties agree to
cooperate to the fullest extent possible in connection with any claim for
which indemnification is or may be sought under this Agreement.
6.5 INSURANCE PROCEEDS. Any future insurance proceeds, damage
awards or settlement amounts paid to CS First Boston or any of its affiliates
with respect to the trading losses sustained in 1994 by the CS First Boston
Offshore Cash
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Reserve Fund and certain managed accounts will be for CS First Boston's
account.
6.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, covenants and agreements shall survive any
investigations made hereunder, the execution and delivery hereof and the
Closing hereunder, and shall thereafter terminate and expire with respect to
any claims theretofore unasserted on or prior to the date that is 3 years
after the Closing Date.
SECTION SEVEN. MISCELLANEOUS
7.1 EXPENSES. Except as otherwise expressly stated herein, the
transaction costs, including without limitation, any sales and transfer taxes
attributable in whole or in part to the Purchase, except for legal fees,
associated with the Purchase will be shared equally by CS First Boston and
the Purchaser. Legal fees will only be shared, if and to the extent that CS
First Boston and the Purchaser so specifically agree.
7.2 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall
be deemed duly given if delivered or sent by hand, telecopy or registered or
certified mail, postage prepaid, as follows, or to such other address or
persons as any party may designate by notice to the other party or parties
hereunder:
If to CS First Boston or Seller:
c/o First Boston Corporation
Park Avenue Plaza
New York, New York 10055
Telecopier: (212) 753-2390
Attn: Agnes Reicke
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If to the Purchaser:
Credit Suisse Capital Corporation
165 Broadway
New York, New York 10006
Telecopier: (212) 238-2208
Attn: Daniel Sigg
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, NY 10022
Telecopier: (212) 593-5955
Attn: Edward G. Eisert, Esq.
7.3 AMENDMENTS; WAIVERS. This Agreement may not be changed orally
and no waiver of compliance with any provision or condition hereof and no
consent provided for herein shall be effective unless evidenced by an
instrument in writing duly executed by the proper party.
7.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
7.5 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns. Prior to the Closing, the rights and obligations under
this Agreement may not be assigned, delegated or transferred to any other
person other than a successor to the Purchaser and any attempt to do so shall
be null and void. There shall be no third-party beneficiaries (other than the
indemnified parties referred to in Section Six hereof) of the
representations, warranties, covenants and other provisions hereof.
7.6 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
7.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person or circumstance, is invalid or
unenforceable in any jurisdiction: (i) a suitable and equitable provision,
consented to by the parties hereto (which consent shall not be unreasonably
withheld), shall be substituted therefor in order to carry out, as far as may
be valid and enforceable in such jurisdiction, the extent and purpose of the
invalid or unenforceable provision and (ii) the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability
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affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
7.8 HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the interpretation of
this Agreement.
7.9 RELATIONSHIPS. Nothing herein shall be deemed to create any
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization or other similar arrangement between the Seller or
CS First Boston and the Purchaser.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
CS FIRST BOSTON, INC.
By: /s/ Agnes Reicke
-------------------------------
Name: Agnes Reicke
Title: Director and Secretary
CS FIRST BOSTON INVESTMENT
MANAGEMENT CORPORATION
By: /s/ Joseph F. Huber
-------------------------------
Name: Joseph F. Huber
Title: Co-Chairman
CREDIT SUISSE CAPITAL CORPORATION
By: /s/ Daniel Sigg
-------------------------------
Name: Daniel Sigg
Title: President
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<PAGE>
Exhibit A
Assets
Total As Reported
Assets 12/31/94 3/31/95
Investment Securities at Market:
CSFB Income Fund $ 75,600 $ 79,650
CSFB Strategic Income Fund $ 76,500 $ 76,500
Prepaid Insurance $343,603 $ 214,752
Funds Receivable (as described in Schedule I) $805,708 $ 116,478
MEI Receivable $ 287 $ --
Advisory fees receivable:
Billed Advisory fees $201,118 $ 289,848
Unbilled Advisory fees (as described in $3,705,291 $ 3,078,814
Schedule II)
Allowance for Doubtful Account $(166,922) $ (75,375)
Investment Management Contracts
Ricoh 3500L Model Facsimile Machine $ 875
Other Items:
19 AST Bravo 486/66 with 8mg RAM
34 AST Bravo 486/33 with 8mg RAM
2 Compaq Prosignia with 48mg RAM
3 Toshiba T4400C Laptop with 8mg RAM
3 Toshiba T4500C Laptop with 8mg RAM
2 Compaq Lite 486/26c with 8mg RAM
4 Hayes Ultra 14.4 External Data Modem
10 Hayes Ultra 9.6 External Data Modem
1 IPC TradeNet Phone System
Computer Software (as described in
Schedule V)*
Total for Other Items $ 50,000 $ 50,000
* To the extent such items may be lawfully transferred by the Seller.
<PAGE>
Schedule I
CS FIRST BOSTON INVESTMENT MANAGEMENT
SCHEDULE OF OTHER ASSETS
A/C #140025
3/31/95
11/30/94 Johnson & Higgins insurance expense 37,706.74
12/31/94 Rollins Hudig Hall insurance 71,292.80
10/31/94 Receivable from the FB Institutional
Gov't Funds for legal fees from Sullivan 7,478.72
& Cromwell
BALANCE AS OF 3/31/95 116,478.26
<PAGE>
SCHEDULE II
AMC UNBILLED ANALYSIS
3/31/95
<TABLE>
<CAPTION>
ADVISORY MARCH
2/28/95 REVERSAL OF ACTUAL INCOME ENTRY ADVISORY 3/31/95
ACCOUNT ACCRUAL BAL PRIOR ACCR INVOICE (DR)/CR ACCRUAL ACCRUAL BAL
<S> <C> <C> <C> <C> <C> <C>
Alexander Hamilton 26,600.00 0.00 14,209.00 40,800.00
Blue Cross Blue Shield of 14,808.22 0.00 7,404.11 22,212.33
Montana
BNP 29,593.90 0.00 14,796.90 44,380.70
Boston I + 84,763.36 0.00 42,376.88 + 127,130.04
City Detroit 12,425.00 0.000 8,200.00 15,625.00
Collateralized Bond Corp. 463,875.25 (483,679.25) 472,685.27 (11,092.95) 118,146.31 118,146.31
Dallas Fund + 30,786.86 0.00 15,378.43 + 48,135.29
Dayton Power & Light 16,600.00 0.00 6,300.00 24,800.00
EMS - K-3 118,025.00 0.00 50,500.00 171,625.00
EMS - K-4 150,876.00 0.00 74,000.00 224,075.00
EMS - K-6 42,076.00 0.00 20,000.00 63,575.00
EMS Series - 1 21,800.82 0.00 10,000.00 31,000.82
Equitable Life of Iowa-MBS 7,500.00 0.00 1,500.00 9,000.00
Equitable Life of Iowa-MM 170.00 0.00 60.00 220.00
Executive Life Insurance 202,200.00 0.00 100,600.00 302,700.00
Co.
FB Institutional Government 5,000.00 (5,000.00) 3,600.00 (1,310.00) 0.00 0.00
Fund
FB Institutional Money Mkt 44,000.00 (44,000.00) 42,483.00 (1,517.00) 0.00 0.00
Fund
FB Institutional Tax Exempt 0.00 0.00 0.00 0.00 0.00 0.00
Fund
FB Libor Plus 40,000.00 0.00 20,000.00 80,000.00
FB Pension Plan 30,000.00 0.00 15,000.00 45,000.00
FB Short-Term Income Corp. 113,550.00 0.00 60,000.00 183,550.00
FB Strategic Income 66,214.12 0.00 33,107.00 99,321.00
</TABLE>
<PAGE>
AMC UNBILLED ANALYSIS
3/31/95
<TABLE>
<CAPTION>
ADVISORY MARCH
2/28/95 REVERSAL OF ACTUAL INCOME ENTRY ADVISORY 3/31/95
ACCOUNT ACCRUAL BAL PRIOR ACCR INVOICE (DR)/CR ACCRUAL ACCRUAL BAL
<S> <C> <C> <C> <C> <C> <C>
FB Mortgage Performance 33,000.00 0.00 10,500.00 49,500.00
Series 1
FB Mortgage Performance 45,000.00 0.00 22,500.00 67,500.00
Series 2
FB Mortgage Performance 32,084.50 0.00 16,042.25 48,126.75
Series 4
First Boston Income Fund 164,000.00 0.00 82,000.00 246,000.00
Gerber Life Insurance 34,192.11 0.00 17,200.00 51,382.11
Hedge Fund* 0.00 0.00 0.00* 0.00
Home Depot 57,600.00 (43,200.00) 49,002.41 5,602.41 10,500.00 25,200.00
Mimic 20,000.00 0.00 10,000.00 30,000.00
Montgomery County 34,000.00 0.00 17,000.00 51,000.00
New England Zenith Fund 700.00 (700.00) 1,042.50 342.50 1,000.00 1,000.00
NYC Employment Retirement 114,000.00 (66,400.00) 64,985.20 (3,434.72) 28,400.00 74,000.00
System
NYC Police 94,200.00 (56,520.00) 63,819.44 (2,700.66) 23,100.00 66,760.00
Omaha School Empl. 16,000.00 0.00 8,000.00 24,000.00
Retirement
Seventh Day Adventist* 0.00 0.00 0.00* 0.00
State of Florida 70,000.00 0.00 35,000.00 106,000.00
State of Oklahoma 28,325.00 0.00 14,200.00 42,525.00
Super Mtge-93 183,100.00 (193,100.00) 187,696.06 (5,403.95) 30,000.00 30,000.00
Teamsters Local 66 12,019.22 0.00 6,009.61 18,028.83
Teamsters Local 614 (Eagle 27,916.66 0.00 13,958.33 41,674.99
___)
Topeka # 0.00 0.00 0.00 # 0.00
Total Return Fund 9,300.00 0.00 2,000.00 11,300.00
Troon Limited 268,800.00 0.00 33,700.00 383,500.00
</TABLE>
<PAGE>
AMC UNBILLED ANALYSIS
3/31/95
<TABLE>
<CAPTION>
ADVISORY MARCH
2/28/95 REVERSAL OF ACTUAL INCOME ENTRY ADVISORY 3/31/95
ACCOUNT ACCRUAL BAL PRIOR ACCR INVOICE (DR)/CR ACCRUAL ACCRUAL BAL
<S> <C> <C> <C> <C> <C> <C>
Troon II 117,200.00 (70,320.80) 71,515.73 1,195.73 23,500.00 70,380.00
US Affinity Advance+ 384.66 (384.66) 460.23 75.63 0.00+ 0.00
Vail 76,000.00 0.00 36,000.00 114,000.00
------------ ------------ ---------- ----------- ------------ -------------
2,890,147.60 (985,302.93) 947,280.28 (16,642.57) 1,053,969.68 3,078,614.35
</TABLE>
* See Deferred Income Schedule
+ Lost Client
# Performance Based Fee (Billed annually each August)
<PAGE>
Schedule V
1. Netware o/s
3.12 100 users
3.11 250 users
3.11 250 users
2. 4 gb disks, 2 disk controllers on each Compaq
Prosignia unit and a tape unit backup on each server.
3. Microsoft Excel for Windows 5.0: 30 licenses.
4. Microsoft Word for Windows 6.0: 30 licenses
5. Microsoft Access for Windows 2.0: 6 licenses
6. Lotus Freelance for Windows 2.01: 43 licenses
<PAGE>
Exhibit B
ASSUMED LIABILITIES
In addition to all obligations respecting the Assets from and after the
Closing Date, the Purchaser will assume all of the current liabilities of the
Seller set forth below:
Total as Reported
Assumed Liabilities 12/31/94 3/31/95
Other Payables (as described on Schedule$ 2,010,800 $ 1,283,862
III)
Legal Reserves $ 1,680,053 $ 1,680,053
Deferred Income $ - $ -
Other Reserves:
Severance and Relocation $ 544,109 $ 554,962
225 Franklin Street Lease $ 350,000 $ 350,000
225 Franklin Street Tenant $ 450,000 $ 450,000
Improvements
Reserve for CSFB Total Return $ 1,000,000 $ 800,000
Fund
Property Leases (as described on Schedule
IV):
599 Lexington Avenue (NY)
(not including infrastructure
systems)
225 Franklin Street (Boston)
100 Federal Street (Boston)
(Three months of lease
payments after 3/31/95)
101 California Street
(San Francisco)
(Three months of lease
payments after 3/31/95)
B1
<PAGE>
All costs and liabilities associated with the following matters:
Contingent Bonuses for Seller Employees
Net Present Value of Accrued Pension Liabilities
*Offshore Cash Reserve Fund settlements and related regulatory
inquiries
*Keith Walsh arbitration
*SEC Examination of registered funds managed by CSFBIM
State Street Research disputes concerning PMS-1 Fund and audit fees
for Funds
*Potential expenses for claims for expenses from SEI
Kokusai Funds
Deferred Compensation for CSFBIM employees
Severance arrangements for CSFBIM employees
Credit in the BEA retirement plans for time employed at CSFBIM
for CSFBIM employees transferred to BEA
Troon, Ltd. Position in treasury securities
Vendor Contract with the Merrin System
Bridge Data Services soft dollar arrangement
Service arrangement with Wang Laboratories
Ongoing salary and benefits payable pursuant to guaranteed
employment arrangements with Robert Coby and similar payments
payable pursuant to a separate side letter concerning the
employment of Joseph Huber
*Potential claim for legal expenses for The New England
*Potential reimbursement for expenses for Equitable of Iowa
* The Legal Reserves set forth in the table above were
established to approximate these potential liabilities.
B-2
<PAGE>
Schedule III
CS FIRST BOSTON INVESTMENT MANAGEMENT
SCHEDULE OF OTHER PAYABLES
A/C #220000
3/31/95
2/28/95 EXPENSE ACCRUALS (VARIOUS CATEGORIES)(1,351,562.45)
3/31/95 Price Waterhouse - Scorpion Fund 67,700.00
--------------
BALANCE AS OF 3/31/95 (1,283,862.45)
--------------
--------------
<PAGE>
Schedule IV
CS First Boston Investment Management Corporation
Analysis of Remaining Lease Obligation
March 31, 1995
<TABLE>
<CAPTION>
Location Sq. Ft. Rent/Sq.Ft. Annual Lease Cancellation Total
Rent Termination Penalty Obligation
<S> <C> <C> <C> <C> <C> <C>
225 Franklin Street 19,708 $27.79 $547,685 12/31/2001 $410,000 $1,056,200
29th Floor Option for 5/31/96
Boston MA
Sublease Offset (19,708) ($18.29) ($360,460) 05/31/96 ($414,900)
225 Franklin Street
29th Floor
Boston MA
Remaining Obligation 0 $9.50 $187,225 05/31/96 $410,000 $640,300
225 Franklin Street
29th Floor
Boston MA
</TABLE>
Notes
Total obligation is calculated commencing on 4/1/95 through the end of the
lease - 5/31/96.
The penalty of $410M to cancel the lease on 5/31/96 is included in the total
obligation calculation.
All electric and maintenance expenses are paid by the subtenants.
<PAGE>
Schedule IV (cont.)
CS First Boston Investment Management Corporation
Analysis of Premise Lease Obligations
March 31, 1995
<TABLE>
<CAPTION>
Annual Light & Occupancy Cleaning & Deprecia- Lease Total
Location Sq. Ft. Rent/Sq Rent Power/Sq. Tax/Sq. Maint/Sq. tion/ Total/Sq. Annual Termination Obligation
Ft. Ft. Ft. Ft. Sq. Ft. Ft. Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
599 Lexington 31,508 $34.27 $1,079,505 $3.69 $2.11 $1.85 -- $41.92 $1,320,480 12/31/96 $2,269,637
Avenue
35th & 36th
Floors
New York, NY
100 Federal 3,445 $32.04 $110,378 $1.49 -- $1.13 $12.59 $47.25 $162,776 12/31/03 $1,541,898
Street
30th Floor
Boston, MA
101 California 4,445 $49.31 $219,183 $4.09 -- $0.99 $9.56 $83.95 $284,258 04/14/98 $910,139
Street
43rd Floor
San Francisco, CA
</TABLE>
Notes
Total obligation is calculated commencing on 4/1/95 through the end of each
location's lease.
Total obligation calculations for each location include all increases to base
rent as provided for in the location's lease; escalatable expenses are
assumed to grow at 3% per year.
<PAGE>
Exhibit C
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT, dated ___________________, 1995 by Credit
Suisse Capital Corporation, a Delaware corporation (the "Purchaser"), in
favor of CS First Boston Investment Management Corporation, a New York
corporation (the "Seller"), and CS First Boston, Inc., a Delaware corporation
("CS First Boston").
WITNESSETH:
WHEREAS, pursuant to the Asset Purchase Agreement (the "Purchase
Agreement"), dated April 26, 1995, among the Seller, the Purchaser and CS
First Boston, the Seller is concurrently herewith, selling, conveying,
transferring, assigning, and delivering to the Purchaser, the assets listed
on Exhibit A attached to the Purchase Agreement;
WHEREAS, in partial consideration therefor, the Purchase Agreement
requires the Purchaser to execute and deliver to the Seller and CS First
Boston this Assumption Agreement;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which by the Purchaser is hereby
acknowledged, the Purchaser agrees as follows:
1. Subject to the terms and conditions of the Purchase Agreement,
the Purchaser hereby assumes and shall be responsible for the
discharge and performance of all liabilities and obligations
constituting the Assumed Liabilities (as defined in the Purchase
Agreement).
2. The terms hereof shall inure to the benefit of the Seller, CS
First Boston, their respective officers, directors and shareholders
and their successors and assigns and be binding upon the Purchaser
and its successors and assigns.
Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Purchase Agreement.
C-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this instrument to
be duly executed this ____ day of __________, 1995.
CREDIT SUISSE CAPITAL CORPORATION
By:________________________
Name:
Title:
C-2
<PAGE>
Exhibit D
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS that CS First Boston Investment
Management Corporation (the "Seller"), a New York corporation having
executive offices at 599 Lexington Avenue, New York, New York 10022, for
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, pursuant to the Asset Purchase Agreement (the "Purchase
Agreement"), dated April 26, 1995, among CS First Boston, Inc., a Delaware
corporation, the Seller and Credit Suisse Capital Corporation (the
"Purchaser"), a New York corporation having executive offices at 165
Broadway, New York, New York 10006, does hereby sell, convey, transfer,
assign and deliver to the Purchaser, all of the Seller's right, title and
interest in the assets listed on Exhibit A attached to the Purchase
Agreement other than the Client Contracts (as defined in the Purchase
Agreement), which have been assigned to BEA Associates, a New York general
partnership, at the direction of the Purchaser (the "Assets").
TO HAVE AND TO HOLD the Assets unto the Purchaser, its successors
and assigns, forever, and the Seller does hereby bind itself, its successors
and assigns, to forever warrant and defend the Assets unto the Purchaser, its
successors and assigns, from and against every person whomsoever claiming or
purporting to claim the same, or any part thereof, by, through or under the
Seller.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused these
presents to be signed by their respective proper officers thereunto duly
authorized on this ____ day of _________, 1995.
CS FIRST BOSTON INVESTMENT
MANAGEMENT CORPORATION
By:_______________________
Name:
Title:
CREDIT SUISSE CAPITAL CORPORATION
By:________________________
Name:
Title:
D-1
<PAGE>
SCHEDULE 5.2(b)
225 Franklin Street
Boston, MA
599 Lexington Avenue
New York, NY
<PAGE>
ACCOUNT TYPE PORTFOLIO
Private HOME DEPOT, INC.
Private HOMER BI
Private HOMER TLC, INC.
Private HOME DEPOT USA, INC.
Private ALEXANDER HAMILTON
Private CITY OF NEW YORK
Private CITY OF DETROIT
Private MONTGOMERY COUNTY
Private AMERITECH
Private TROON LTD, MATCHED
FUND
Private TROON LTD.
Private DAYTON POWER AND LIGHT
Private FB PENSION MGT-FIXED
INCOME
Private OKLAHOMA STATE
INSURANCE FUND
Private GERBER LIFE INSURANCE
Private BLUE CROSS/BLUE
SHIELD-MONTANA
Private EXECUTIVE LIFE INS.-NY
Advisory LOCAL 814
Private LOCAL 66
Private SEVENTH DAY ADVENTIST
Private BNP
Private BANK OF CHINA
Private MINNESOTA MUTUAL LIFE
INSURANCE
Private OMAHA TEACHERS
RETIREMENT SYSTEM
Page 1
<PAGE>
ACCOUNT TYPE PORTFOLIO
Private CONNECTICUT MUTUAL
LIFE
Closed End Regist CSFB INCOME FUND
Open End Fund-Sub Adviser EQUITABLE OF IOWA
MORTGAGE
Closed End Reg CSFB STRATEGIC INC
FUND
2a-7 Fund CSFB INSTITUTIONAL
MONEY MKT FUND
Open End Reg CSFB INSTITUTIONAL
GOVT FUND
Open End Reg N.E. VARIABLE ANNUITY
2A-7 Sub Adviser EQUITABLE OF IOWA
MONEY MKT
Open End Fund-Sub Adviser BEI
2A-7 Fund CSFB INSTITUTIONAL TAX
EXEMPT FUND
Offshore Fund LIBOR
Offshore Fund STIC
Offshore Fund EMS 1
Offshore Fund EMS K5
Offshore Fund PERF 2
Offshore Fund PERF 4
Offshore Fund CBC
Offshore Fund SUPER 93
Offshore Fund TOTAL RETURN
Offshore Fund PERF 1
Page 2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810766
<NAME> BEA INCOME FUND, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 214,103
<INVESTMENTS-AT-VALUE> 205,260
<RECEIVABLES> 6,927
<ASSETS-OTHER> 79
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 212,266
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,715
<TOTAL-LIABILITIES> 4,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 225,000
<SHARES-COMMON-STOCK> 24,385
<SHARES-COMMON-PRIOR> 24,385
<ACCUMULATED-NII-CURRENT> 1,972
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,578)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,843)
<NET-ASSETS> 207,551
<DIVIDEND-INCOME> 16
<INTEREST-INCOME> 10,613
<OTHER-INCOME> 0
<EXPENSES-NET> (996)
<NET-INVESTMENT-INCOME> 9,633
<REALIZED-GAINS-CURRENT> 2,156
<APPREC-INCREASE-CURRENT> (1,511)
<NET-CHANGE-FROM-OPS> 10,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,168)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,890)
<ACCUMULATED-NII-PRIOR> 5,507
<ACCUMULATED-GAINS-PRIOR> (12,734)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 996
<AVERAGE-NET-ASSETS> 207,438
<PER-SHARE-NAV-BEGIN> 8.63
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.51
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
