As filed with the Securities and Exchange Commission on December 11, 1996
1933 Act File No.________
1940 Act File No. 811-5399
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-2
(Check appropriate box or boxes)
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
| | Pre-Effective Amendment No. __
| | Post-Effective Amendment No. __
and
| | REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
|X| Amendment No. 19
--------------------
THE NEW AMERICA HIGH INCOME FUND, INC.
Exact Name of Registrant as Specified in Charter
10 Winthrop Square, Fifth Floor, Boston, Massachusetts 02110
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(617) 350-8610
Registrant's Telephone Number, including Area Code
Richard E. Floor, Secretary
The New America High Income Fund, Inc.
10 Winthrop Square, Fifth Floor
Boston, Massachusetts 02110
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
With a copy to:
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement
--------------------
If any of the securities being registered on this form are to 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|
--------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Being Amount Being Offering Price Aggregate Offering Amount of
Registered Registered Per Share Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 11,982,048 shares $5.3125(1) $63,654,630(1) $19,289.28
Subscription Rights 11,982,048 rights -- -- --
=======================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, on the basis of the average of the high and low prices
reported on the New York Stock Exchange on December 6, 1996.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Item Number of Form N-2 Location or Heading in Prospectus
----------------------- ----------------------------------
<S> <C> <C>
1. Outside Front Cover........................... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Page............................... Inside Front Cover Page; Outside Back Cover Page
3. Fee Table and Synopsis........................ Summary; Fee Table
4. Financial Highlights.......................... Financial Information Summary--Financial Highlights;
Capitalization and Information Regarding Senior
Securities
5. Plan of Distribution ......................... Not applicable
6. Selling Stockholders.......................... Not applicable
7. Use of Proceeds............................... Use of Proceeds; Investment Objective and Policies
8. General Description of the Registrant Cover Page; The Fund; Investment Objective and
Policies; Rating Agency Guidelines; Risk Factors and
Special Considerations; Description of Capital Stock
9. Management.................................... The Fund; Management of the Fund; Dividends and
Distributions; Dividend Reinvestment Plan
10. Capital Stock, Long-Term Debt
and Other Securities........................ Description of Capital Stock
11. Defaults and Arrears on Senior
Securities.................................. Not applicable
12. Legal Proceedings............................. Not applicable
13. Table of Contents of the Statement
of Additional Information................... Not applicable
14. Cover Page.................................... Not applicable
15. Table of Contents............................. Not applicable
16. General Information and History The Fund
17. Investment Objective and Policies............. The Fund; Investment Objective and Policies; Rating
Agency Guidelines; Portfolio Maturity and Turnover
18. Management.................................... Management of the Fund
19. Control Persons and Principal Holders
of Securities............................... Management of the Fund
20. Investment Advisory and Other Services........ The Offer; The Fund; Management of the Fund
(i)
<PAGE>
21. Brokerage Allocation and Other Policies Management of the Fund; Portfolio Maturity and
Turnover
22. Tax Status.................................... Dividends and Distributions; Dividend Reinvestment
Plan; Taxation
23. Financial Statements.......................... Financial Statements
</TABLE>
(ii)
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION,
DATED DECEMBER 11, 1996
PROSPECTUS
THE NEW AMERICA HIGH INCOME FUND, INC.
11,982,048 Rights to Subscribe for
11,982,048 Shares of Common Stock
----------------
The New America High Income Fund, Inc. (the "Fund") is issuing to its
common stockholders of record ("Record Date Stockholders") as of the close of
business on ____________, 1997 (the "Record Date"), transferable rights
("Rights") entitling the holders thereof to subscribe for an aggregate of
11,982,048 shares (the "Shares") of Common Stock, par value $0.01 per share (the
"Common Stock"), of the Fund (the "Offer"). Record Date Stockholders, where the
context requires, shall include beneficial owners whose shares are held of
record by Cede & Co. ("Cede"), nominee for The Depository Trust Company ("DTC"),
or by any other depository or nominee. Each Record Date Stockholder will receive
one transferable Right for each three shares of Common Stock beneficially owned
on the Record Date, and the Rights entitle Record Date Stockholders and holders
of Rights acquired during the Subscription Period (together "Rightholders") to
acquire one share of Common Stock for each Right held. Because the Subscription
Price per share will be less than the then net asset value per share, the Offer
will result in a substantial dilution to stockholders who do not fully exercise
their Rights. In addition, the Rights entitle each Rightholder to subscribe,
subject to certain limitations and subject to allotment, for any Shares not
acquired by exercise of Rights in the primary subscription. The Rights are
transferable and both the Rights and the Shares will be admitted for trading on
the New York Stock Exchange (the "Exchange"). See "The Offer." THE SUBSCRIPTION
PRICE PER SHARE IS __ AS OF THE CLOSE OF BUSINESS ON THE EXPIRATION DATE (AS
DEFINED BELOW)(THE "SUBSCRIPTION PRICE").
The Fund announced its intention to make the Offer after the close of
trading on the New York Stock Exchange on _________, 1996. The net asset values
per share of Common Stock at the close of business on ___________, 1996 and on
________, 1997 were $____ and $____, respectively, and the closing market prices
of a share of the Fund's Common Stock on such Exchange on those dates were $____
and $_____, respectively. The Fund's Common Stock trades under the symbol "HYB."
THE OFFER WILL EXPIRE AT 5:00 P.M. EASTERN TIME ON _________, 1997,
unless extended as described herein (the "Expiration Date").
The Fund is a diversified, closed-end management investment company with
a leveraged capital structure. Additionally, following the completion of the
Offer, it is the intention of the Fund, subject to market conditions, to add
incremental leverage (to the extent permitted under the Investment Company Act
of 1940, as amended, and certain restrictions imposed under its Charter and
By-Laws) such that the percentage of the Fund's assets representing leverage is
approximately the same as it was prior to the Offer. See "Capitalization and
Information Regarding Series Securities," "The Fund," "Risk Factors and Special
Considerations" and "Description of Capital Stock." Wellington Management
Company, LLP (the "Investment Adviser" or "Wellington Management") currently
serves as the investment adviser for the Fund. The Fund's investment objective
is to provide high current income, while seeking to preserve stockholders'
capital, through investment in a professionally managed, diversified portfolio
of "high-yield" fixed-income securities (commonly referred to as "junk bonds").
Such securities are regarded by rating agencies as predominantly speculative
with respect to capacity to pay interest and repay principal. Investment in such
securities and in the Fund entails significant and substantial risks, which are
increased due to the Fund's leveraged capital structure, and no assurance can be
given that the Fund will achieve its investment objective. See "Capitalization
and Information Regarding Senior Securities," "The Fund," "Investment Objective
and Policies" and "Risk Factors and Special Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================================
Estimated
Estimated Proceeds
Subscription Price(1) Sales Load to Fund (2)(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ................................. $_____ None $___________
Total(4).................................... $___________ None $___________
=====================================================================================================================
</TABLE>
<PAGE>
(1) This is an estimated price. The actual Subscription Price will be
determined as set forth above on the Expiration Date.
(2) Reflects deduction of offering expenses incurred by the Fund, estimated at
________, and is based on the Estimated Subscription Price.
(3) 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 accrue to the benefit of the Fund) pending proration and distribution
of Shares. Interest on such Funds is not reflected.
(4) Assumes all Rights are exercised at the estimated Subscription Price.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. Prospective investors
should carefully review the information set forth in this Prospectus and should
retain this Prospectus for future reference.________________
The date of this Prospectus is ___________, 1997
2
<PAGE>
All questions and inquiries related to the Offer should be directed to
the Information Agent, Corporate Investors Communications, Inc., toll free at
1-800-958-6468.
The Fund's address is 10 Winthrop Square, Fifth Floor, Boston,
Massachusetts 02110 and its telephone number is (617) 350-8610.
Record Date Stockholders holding a number of shares of Common Stock
that is not an integral multiple of three will receive one additional
Right. In the case of shares held of record by Cede, the nominee for DTC, or any
other depository or nominee, additional Rights to be received by beneficial
owners for whom Cede or such other depository or nominee is the holder of record
will be issued to Cede or such other depository or nominee only if Cede or such
other depository or nominee provides to the Fund, on or before the close of
business on ________, 1997, written representation as to the number of
additional Rights required for such issuance.
---------------------
Because the Subscription Price per Share will be less than the net asset
value per share of the Fund's Common Stock at the time the Shares are issued and
because the number of shares outstanding after the Offer will increase in a
greater percentage than the increase in the size of the Fund's assets due to the
exercise of the Rights, the Offer will result in a substantial dilution of the
aggregate net asset value of the shares owned by Record Date Stockholders who do
not fully exercise their Rights. Some additional dilution of the aggregate net
asset value of the Common Stock presently owned by stockholders will occur as a
result of the Offer. See "Risk Factors and Special Considerations--Dilution and
Other Investment Considerations."
----------------
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Prospectus.
The Fund is issuing Rights which allow stockholders to buy newly issued
Shares at a price equal to _________________ as of the close of business on the
Expiration Date. Stockholders of record will receive one Right for each three
shares of Common Stock of the Fund owned on the Record Date, subject to
rounding. Rightholders can then purchase one newly issued Share for each Right.
Thus, if a stockholder owns 300 shares on the Record Date, he or she will have
the opportunity to purchase up to 100 new Shares. Rightholders may request the
right to purchase additional Shares through an over-subscription privilege as
described under "The Offer--Over-Subscription Privilege." Rightholders may also
elect to sell their Rights as described under "The Offer--Sale of Rights."
Stockholders who do not exercise their Rights will suffer dilution as a result
of the Offer and should take steps to sell the Rights to avoid losing the market
value, if any, represented by such Rights. See "The Offer--Sale of Rights" and
"Risk Factors and Special Considerations--Dilution and Other Investment
Considerations."
Important Terms of the Offering
___________, 1997 market price per share....... $_____
___________, 1997 net asset value per share.... $_____
Estimated Subscription Price................... $_____
Shares outstanding at ___________, 1996........ ______
Transferable Rights issued..................... ______
Subscription ratio............................. 1 Right to buy 1 Share
Maximum number of Shares to be issued.......... ______
How to Exercise Rights
o Complete, sign and date the enclosed Subscription Certificate.
o Make your check or money order for $_____ for each Share
subscribed for, including any Shares subscribed for pursuant
to the over-subscription privilege. This payment may be more
or less than the actual Subscription Price. Additional payment
may be required for the Primary Subscription Shares, and any
Over-Subscription Privilege Shares, when the actual
Subscription Price is determined.
o Registered stockholders should mail the Subscription
Certificate and payment in the enclosed envelope to State
Street Bank and Trust Company in a manner that will ensure
receipt prior to 5:00 p.m. on ________, 1997, unless extended.
o If shares are held in a brokerage account or by a custodian
bank, contact your broker or financial adviser.
Important Dates to Remember
<TABLE>
<CAPTION>
Event Date
----- ----
<S> <C>
Record Date _____________, 1997
Expiration Date (Payment for Shares and
Notices of Guaranteed Delivery Due) ________, 1997 (unless extended)
Confirmation Date; Delivery of Subscription
Certificates to Subscription Agent pursuant
to Notice of Guaranteed Delivery ________, 1997
Mailing of Shares Not later than _________, 1997
</TABLE>
Shareholder inquiries should be directed to the Information Agent:
Corporate Investors Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Toll Free: (800) 958-6468
4
<PAGE>
Terms of the Offer
The Fund is issuing to stockholders of record as of the close of
business on ___________, 1997, Rights to subscribe for an aggregate of
11,982,048 shares of Common Stock, $.01 par value per share of the Fund. The
Rights entitle a stockholder to acquire at the Subscription Price one Share for
each Right held (the "Primary Subscription"). One Right is being issued for each
three full shares of Common Stock held on the Record Date. For example, if you
own 300 shares of the Fund's Common Stock, you will receive 100 transferable
Rights entitling you to purchase up to 100 additional Common Shares at the
Subscription Price. Rights may be exercised at any time from the date of this
Prospectus until 5:00 p.m., Eastern time, on ________, 1997, unless extended.
In addition, holders of Rights who subscribe for the maximum number of
Shares to which they are entitled through the Primary Subscription are entitled
to subscribe for Shares which were not otherwise subscribed for through the
Primary Subscription (the "Over-Subscription Privilege"). Shares acquired
pursuant to the Over-Subscription Privilege are subject to allotment which is
more fully discussed below under "The Offer--Over-Subscription Privilege." For
purposes of determining the number of Shares a holder may acquire pursuant to
the Offer, stockholders whose shares are held of record on the Record Date by
Cede, nominee for DTC, 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.
The Subscription Price is _________________ as of the close of business
on the Expiration Date. EXCEPT AS DESCRIBED BELOW UNDER "THE OFFER--NOTICE OF
NET ASSET VALUE DECLINE," A STOCKHOLDER WILL HAVE NO RIGHT TO RESCIND A PURCHASE
AFTER RECEIPT OF HIS OR HER SUBSCRIPTION CERTIFICATE OR NOTICE OF GUARANTEED
DELIVERY BY THE SUBSCRIPTION AGENT. There is no minimum number of Rights which
must be exercised for the Offer to close.
Rights may be exercised by completing and executing the enclosed
Subscription Certificate and mailing it, together with payment to State Street
Bank and Trust Company, as Subscription Agent. Alternatively, a Rightholder may
exercise Rights by completing and executing a Notice of Guaranteed Delivery
(which may be obtained from the Information Agent) and delivering it to the
Subscription Agent (as defined below). The Notice of Guaranteed Delivery must be
executed by a commercial bank or trust company having an office, branch or
agency in the Untied States or a New York Stock Exchange member firm, and must
guarantee delivery of (a) payment of the full Subscription Price and (b) a
properly completed and executed Subscription Certificate. Rightholders must
return the Subscription Certificate or Notice of Guaranteed Delivery to the
Subscription Agent in a manner that ensures delivery prior to 5:00 p.m., Eastern
time, on the Expiration Date. Rightholders who choose to exercise their Rights
will not know the final Subscription Price for Shares being acquired at the time
of exercise and will be required initially to pay for such Shares at the
estimated Subscription Price (the "Estimated Subscription Price") of $______
(approximately __% of the net asset value per share on ___________, 1997).
Exercising Rightholders will have no right to rescind a purchase after the
Subscription Agent has received payment. See "The Offer--Exercise of Rights" and
"The Offer--Payment for Shares."
The Rights are transferable and will be admitted for trading on the New
York Stock Exchange. See "The Offer--Sale of Rights."
The Fund
The Fund is a diversified, closed-end management investment company with
a leveraged capital structure. The Fund's investment objective is to provide
high current income, while seeking to preserve stockholders' capital, through
investment in a professionally managed, diversified portfolio of "high yield"
fixed-income securities, commonly known as "junk bonds." The Fund invests
primarily in "high yield" fixed-income securities rated in the lower categories
by established rating agencies, consisting principally of fixed income
securities rated "BB" or lower by Standard & Poor's Corporation ("S&P") or "Ba"
or lower by Moody's Investors Service, Inc. ("Moody's"), and, subject to
applicable rating agency guidelines ("Rating Agency Guidelines"), non-rated
securities deemed by the Investment Adviser to be of comparable quality. See
5
<PAGE>
"Investment Objective and Policies" and "Management of the Fund--The Investment
Adviser." The fixed-income securities in which the Fund invests are regarded by
the rating agencies, on balance, as predominately speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. Such securities may also be subject to greater market price
fluctuations than lower yielding, higher rated debt securities; credit ratings
do not reflect this market risk. An investment in the Fund involves a number of
significant risks, which are increased due to the Fund's leveraged capital
structure. No assurance can be given that the Fund will achieve its investment
objective. See "Risk Factors and Special Considerations."
The Fund has had a leveraged capital structure since its inception. The
Fund is subject to various portfolio diversification and related asset coverage
requirements under guidelines established by Moody's and Fitch Investors
Service, Inc. ("Fitch") in connection with such rating agencies' issuance of
ratings of "aaa" and AAA, respectively, with respect to the Fund's Auction Term
Preferred Stock (the "ATP"). Compliance with these guidelines limits to some
degree the Fund's flexibility to invest in certain types of portfolio
securities, that might otherwise be attractive investments, including private
placements. See "The Fund," "Investment Objective and Policies" and "Rating
Agency Guidelines."
The Fund currently intends to issue additional preferred stock following
completion of the Offer, subject to market conditions and rating agency
requirements, with the goal of maintaining a degree of leverage equivalent to
that which existed immediately prior to the Offer. As of December 31, 1996, the
Fund's leverage ratio (the ratio of the Fund's senior securities to the sum of
its net assets and its senior securities) was approximately ____%, which would
be reduced to approximately ___% in the event all Rights are exercised and no
additional leverage is incurred. Incurring additional leverage will reduce any
investment flexibility gained by the Fund as a result of the availability of
additional assets from the exercise of Rights pursuant to the Offer. See "The
Fund" and "Risk Factors and Special Considerations--Leverage" for discussion of
the risks and possible benefits associated with a leveraged capital structure.
The Investment Adviser
Wellington Management Company, LLP ("Wellington Management"), with its
principal offices at 75 State Street, Boston, Massachusetts 02109, was selected
by the Fund's Board of Directors to serve as the Fund's investment adviser
starting February 19, 1992. As of December 31, 1996, Wellington Management held
discretionary authority over approximately $__ billion of assets, including $__
billion of "high-yield" fixed-income securities. Wellington Management and its
predecessor organizations have provided investment advisory services to
investment companies since 1933 and to investment counseling clients since 1960.
Wellington Management has agreed to pay $100,000 of the expenses of the Offer.
Risk Factors
Investment in the Fund involves a number of significant and substantial
risks, which are increased due to the Fund's leveraged capital structure, and no
assurance can be given that the Fund will achieve its investment objective. The
net asset value and market price of the Fund's Common Stock has declined sharply
at times and may do so in the future.
Before exercising the Rights pursuant to the Offer, potential investors
should consider the factors described herein, including without limitation, the
factors described under "The Fund," "Investment Objective and Policies" and
"Risk Factors and Special Considerations." These factors include the dilutive
effects of the Offer, the effects of the Fund's leveraged capital structure, the
significant and substantial risks involved in investing in high yield, high risk
securities, the limitations on the ability of the Fund to pay dividends if it
fails to meet certain asset coverage requirements, and the fact that shares of
the Fund's Common Stock trade at times at a discount from, and at times at a
premium to, net asset value.
6
<PAGE>
FEE TABLE
Stockholder Transaction Expenses
Sales Load (as a percentage of offering price)(1)(2)................ None
Dividend Reinvestment and Cash Purchase Plan Fees(3)................ None
Annual Expenses (as a percentage of net
assets under management including amounts
represented by the liquidation value of the ATP)(4)
Investment Advisory Fee............................................ [ .32%]
Leverage Related Expenses................. [.10%]
Other Expenses............................ [.38%]
Total Other Expenses(2)............................................ [ .48%]
Total Annual Expenses................................................ [ .80%]
- -------------------------
(1) The Fund has agreed to pay First Albany Corporation a fee of $125,000 for
financial advisory services in connection with the Offer.
(2) Does not include expenses of the Fund incurred in connection with the
Offer, estimated at $________, including the fee payable to First
Albany described above. Such expenses will be borne by the Fund and
indirectly by all of the Fund's common stockholders, including those
who do not exercise their Rights, and will reduce the Fund's net asset
value per share. The reduction in net asset value per share caused by
expenses associated with the Offer will be increased to the extent that
a substantial number of Rightholders do not exercise their Rights.
(3) Each participant, however, will pay a pro rata share of brokerage
commissions if shares of Common Stock are purchased by the Fund's
dividend paying agent in the open market, which occurs only when the
net asset value of shares of Common Stock exceeds the market price.
There is a [$.75] fee for each cash purchase under the Fund's Cash
Purchase Plan. See "Dividends and Distributions; Dividend Reinvestment
Plan."
(4) See "Management of the Fund--The Investment Adviser" for additional
information. "Other Expenses" have been estimated for the current fiscal
year.
Example:
<TABLE>
<CAPTION>
Cumulative Expenses Paid for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment assuming a 5%
annual return throughout the periods $8 $26 $46 $102
</TABLE>
The purpose of the foregoing table is to assist investors in
understanding the various costs and expenses associated with investing in the
Fund.
The Example set forth above assumes reinvestment of all dividends and
other distributions at net asset value and an expense ratio of .80%, .10%
attributable to leverage expenses (including dividends on the preferred stock)
and .70% attributable to operating expenses. The tables above and the assumption
in the Example of a 5% annual return are required by Securities and Exchange
Commission ("Commission") regulations applicable to all investment companies.
The Example and Fee Table should not be considered a representation of past or
future expenses or annual rates of return. Actual expenses or annual rates of
return may be more or less than those assumed for purposes of the Example and
Fee Table. In addition, while the example assumes reinvestment of all dividends
and distributions at net asset value, participants in the Fund's Dividend
Reinvestment Plan may receive shares purchased or issued at a price or value
different from net asset value. See "Dividends and Distributions; Dividend
Reinvestment Plan."
7
<PAGE>
FINANCIAL INFORMATION SUMMARY
The following data with respect to a share of Common Stock of the Fund
outstanding during the periods indicated has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report thereto
included with the Fund's audited financial statements herein and should be read
in conjunction with the audited financial statements and related notes included
therein.
Financial Highlights
<TABLE>
<CAPTION>
For the
Period From
February 26, 1988
For the Years Ended December 31, (Commencement
------------------------------------------------------------------- of Operations) to
1996 1995 1994(c) 1993 1992(a) 1991 1990 1989 December 31, 1988
---- ---- ---- ---- ---- ---- ---- ---- -----------------
(For Each Share of Common Stock Outstanding Throughout the Period)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of period.......... $4.13 $5.15 $ 4.32 $ 3.79 $ 3.42 $ 6.23 $ 8.60 $ 9.25
----- ----- ------ ------ ------ ------ ------ ------
Net Investment Income........... .67 .72# .59 .57 .65 .92 1.54 1.42
Net Realized and Unrealized
Gain (Loss) on Investments... .62 (.82)# .89 .57 .38 (2.82) (2.26) (.66)
Total From Investment
Operations............. 1.29 (.10) 1.48 1.14 1.03 (1.90) (.72) .76
Distributions:
Dividends from net investment income:
To preferred stockholders (including
swap settlement payments) (.17) (.17) (.05) (.06) (.10) (.16) (.30) (.23)
To common stockholders.... (.50) (.53) (.53) (.55) (.56) (.75) (1.25) (1.18)
Dividends in excess of net
investment income
to common stockholders:... (.04) -- (.07) -- -- -- -- --
Returns of capital:
To common stockholders.... -- -- -- -- -- -- (.10) --
Total Distributions.......... (.71) (.70) (.65) (.61) (.66) (.91) (1.65) (1.41)
Effect of rights offering and related
expenses; and Auction Term Preferred
Stock offering costs and sales load -- (.22) -- -- -- -- -- --
Net Asset Value:
End of period................ $4.71 $4.13 $ 5.15 $ 4.32 $ 3.79 $3.42 $ 6.23 $ 8.60
Per Share Market Value:
End of period................ $4.75 $4.00 $ 5.13 $ 4.13 $ 3.63 $2.50 $ 5.88 $ 10.00
Total Investment Return+......... 33.50% (11.88)% 40.08% 29.70% 70.77% (47.94)% (30.04)% 13.28%
Net Assets, End of Period,
Applicable to Common Stock(b) $164,823 $141,590 $130,673 $107,897 $93,227 $ 83,813 $152,156 $ 202,363
Net Assets, End of Period,
Applicable to Preferred
Stock(b)..................... $100,000 $100,000 $ 35,000 $ 35,000 $35,000 $ 35,000 $ 58,500 $ 79,000
Total Net Assets, End of Period(b).... $264,823 $241,590 $165,673 $142,897 $128,227 $118,813 $210,656 $ 281,363
Expense Ratios
Ratio of interest expense to
average net assets**......... --% .01% 1.42% 2.95% 3.25% 4.17% 3.56% 3.29%*
Ratio of preferred and other
debt expenses to average
net assets**................. .11% .13% .40% .65% .78% .62% .24% .23%*
Ratio of operating expenses to
average net assets**......... .84% .75% 1.56% 1.22% 1.19% 1.10% .69% .70%*
Ratio of litigation settlement expense
to average net assets**..... .49% -- -- -- -- -- -- --
Ratio of Total Expenses
to Average Net Assets**...... 1.44% .89% 3.38% 4.82% 5.22% 5.89% 4.49% 4.22%*
Ratio of Net Investment
Income to Average Net
Assets**..................... 8.90% 9.06% 9.21% 10.09% 12.62% 14.50% 14.48% 13.56%*
Portfolio Turnover Rate......... 62.66% 58.56% 85.76% 129.86% 121.15% 49.98% 65.39% 149.00%*
</TABLE>
- ----------------------------
8
<PAGE>
(a) Prior to the appointment on February 19, 1992 of Wellington Management
Company the Fund was advised by Ostrander Capital Management, L.P.
(b) Dollars in thousands.
(c) The Fund entered into a refinancing transaction on January 4, 1994 and the
per share data and ratios for the year ended December 31, 1994 reflect
this transaction.
* Annualized.
** Ratios calculated on the basis of expenses and net investment income
applicable to both the Common Stock and preferred stock relative to the
average net assets of both the common and preferred stockholders. The
expense ratio and net investment income ratio do not reflect the effect of
dividend payments (including swap settlement payments) to preferred
stockholders.
# Calculation is based on average shares outstanding during the indicated
period due to the per share effect of the Fund's June 1994 rights
offering.
+ Total investment return is calculated assuming a purchase of common stock
at the current market value on the first day and a sale at the current
market value on the last day of each year reported. Dividends and
distributions are assumed for purposes of this calculation to be reinvested
at prices obtained under the dividend reinvestment plan. This calculation
does not reflect brokerage commissions.
9
<PAGE>
CAPITALIZATION AND INFORMATION REGARDING SENIOR SECURITIES
Capitalization as of December 31, 1996
The following table sets forth the capitalization of the Fund as of
December 31, 1996.
<TABLE>
<CAPTION>
Amount Held Amount Outstanding
by the Fund Exclusive of Amount
or for its Held by the Fund
Title of Class Amount Authorized Account or for its Account
-------------- ----------------- ------------ ---------------------
<S> <C> <C> <C>
Preferred Stock, $1.00 par value 1,000,000 shares -0- shares [2,000] shares
Common Stock, $0.01 par value 200,000,000 shares -0- shares [35,660,984 shares]
</TABLE>
Pro Forma Capitalization
The following table sets forth the total assets and liabilities of the Fund
and the net assets of the Fund, as of December 31, 1996 and as adjusted to give
effect to the issuance of all of the Shares offered hereby at the Estimated
Subscription Price. To the extent fewer than all of the Rights are exercised,
both the increase in net assets attributable to Common Stock outstanding and the
reduction in net asset value per share of Common Stock would be less.
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Total Assets............................................................ $ [271,469] $
Total Liabilities....................................................... [105,317]
----------- ---------
Net Assets.............................................................. $ [166,152] $
=========== =========
NET ASSETS REPRESENTS:
Auction Term Preferred Stock Series A, $1.00 par value, liquidation
preference $50,000 per share, 1,200 shares authorized,
[1,200] shares issued and outstanding ................................ $ [60,000] $ [60,000]
Auction Term Preferred Stock Series B, $1.00 par value, liquidation
preference $50,000 per share, 800 shares authorized,
[800] shares issued and outstanding .................................. $ [40,000] $ [40,000]
Common Stock, $.01 par value, 200,000,000 shares authorized,
[35,660,984] shares issued and outstanding, [47,547,860] shares
issued and outstanding as adjusted.................................... [500]
Capital in excess of par value.......................................... [268,599]
Accumulated net realized loss from security transactions [(100,323)]
Net unrealized depreciation on investments.............................. [(4,070)]
Accumulated undistributed net investment income......................... [1,592]
----------- ---------
NET ASSETS.............................................................. $ [226,152] $
----------- ---------
Less liquidation value of Auction Term Preferred Stock [100,000] [100,000]
Net assets attributable to Common Stock outstanding $[166,152] $
=========== =========
Net asset value per share of Common Stock............................... $ [4.70] $
=========== =========
</TABLE>
10
<PAGE>
Senior Securities
The following table shows certain information regarding each class of
senior security of the Fund as of the dates indicated. In connection with its
initial public offering in February 1988, the Fund issued senior securities
consisting of $105 million aggregate principal amount of 9% Senior Extendible
Notes ("Notes") and $79 million (aggregate liquidation preference) of Taxable
Auction Rate Preferred Stock ("TARPS"), the dividends on which were set in
monthly auctions with reference to short term interest rates. The Fund
repurchased substantial amounts of these securities during the severe decline in
the high yield securities market which occurred in 1989-1990 and by December 31,
1991 had $45.5 million aggregate principal amount of Notes and $35 million
(aggregate liquidation preference) of TARPS outstanding. See "The Fund." The
Notes were refinanced in January 1993 with the proceeds of a credit facility
from The First National Bank of Boston (the "Credit Facility") in the aggregate
principal amount of $45.5 million. The Credit Facility was repaid and the
outstanding TARPS were redeemed in January 1994 with the proceeds from an
offering of two series of newly authorized Auction Term Preferred Stock having
an aggregate liquidation preference of $100 million. See "Description of Capital
Stock," "The Fund" and "Financial Statements."
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Amount
Outstanding
Notes.................. $ -- -- $ -- $45,490,000 $45,490,000 $47,990,000 $96,100,000 $105,000,000
Preferred Stock........ 100,000,000 $100,000,000 35,000,000 35,000,000 35,000,000 35,000,000 58,500,000 79,000,000
Short-term Loan........ -- -- 45,000,000 -- -- -- -- --
Asset Coverage
Per $1,000 of Note (1). -- -- $ -- $ 4,141 $ 3,819 $ 3,476 $ 3,192 $ 3,680
Per Preferred Stock
Share (2)............ 132,411 $ 109,630 473,351 408,277 366,363 339,466 360,096 356,156
Per $1,000 of
Short-Term Loan...... -- -- 4,682 -- -- -- -- --
Involuntary Liquidation
Preference
Preferred Stock Share.. 50,000 $ 50,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
Approximate Market Value
(Unaudited)
Per Note............... -- -- $ -- $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Per Preferred Stock
Share................ 50,000 $ 50,000 100,000 100,000 100,000 100,000 100,000 100,000
Per $1,000 of
Short-Term Loan...... -- -- 1,000 -- -- -- -- --
</TABLE>
- ----------------------------
(1) Calculated by subtracting the Fund's total liabilities (not including
senior securities) from the Fund's total assets and dividing such
amount by the principal amount of senior securities constituting debt
outstanding.
(2) Calculated by subtracting the Fund's total liabilities (including
senior securities constituting debt but not including preferred stock)
from the Fund's total assets and dividing such amount by the number of
shares of preferred stock outstanding.
11
<PAGE>
NET ASSET VALUE AND MARKET PRICE INFORMATION
The shares of Common Stock of the Fund are listed on the Exchange. The
following table shows, for each calendar quarter since the inception of the Fund
in 1988 (i) the high and low net asset values per share of the Fund, (ii) the
high and low sale prices per share of Common Stock, as reported on the New York
Stock Exchange Composite Tape, and (iii) for 1991 through 1996, the largest
premium (or, if applicable, smallest discount) and the largest discount (or, if
applicable, the smallest premium) at which the Common Stock traded relative to
the Fund's net asset values per share during the periods indicated.
<TABLE>
<CAPTION>
Premium(Discount)
As A Percentage Of
Net Asset Value Market Price Net Asset Value*
----------------- -------------- -------------------
Quarter Ended High Low High Low High Low
- ------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
March 31, 1988 (from $9.31 $9.25 $10.50 $9.75
February 26, 1988)
June 30, 1988 9.32 8.94 10.38 9.88
September 30, 1988 9.01 8.81 10.38 9.63
December 31, 1988 8.90 8.73 10.25 9.63
March 31, 1989 $8.62 $8.31 $10.13 $8.88
June 30, 1989 8.37 7.71 9.63 8.63
September 30, 1989 7.69 7.20 9.13 6.63
December 31, 1989 7.18 6.23 6.88 5.25
March 31, 1990 $6.23 $4.83 $5.50 $3.88
June 30, 1990 4.79 4.68 4.63 3.75
September 30, 1990 4.79 4.25 4.38 2.25
December 31, 1990 4.19 3.42 3.00 2.00
March 31, 1991 $3.81 $2.35 $3.75 $3.50 (4.9) (27.1)
June 30, 1991 3.87 3.65 3.88 3.38 (2.3) (8.5)
September 30, 1991 3.77 3.64 3.75 3.38 0.0 (10.2)
December 31, 1991 3.91 3.75 3.88 3.50 (0.8) (10.5)
March 31, 1992 $4.08 $3.82 $4.25 $3.50 5.7 (4.3)
June 30, 1992 4.19 4.05 4.38 3.88 6.7 (3.2)
September 30, 1992 4.45 4.22 3.50 3.13 4.2 (4.5)
December 31, 1992 4.42 4.15 4.38 3.75 4.2 (7.6)
March 31, 1993 $4.68 $4.38 $4.88 $4.00 1.9 (3.8)
June 30, 1993 4.90 4.62 4.88 4.63 4.7 (1.0)
September 30, 1993 4.93 4.87 5.13 4.75 4.6 (2.3)
December 31, 1993 5.29 4.92 5.13 4.63 (3.5) (10.7)
March 31, 1994 5.31 4.67 5.38 4.75 4.4 (1.8)
June 30, 1994 4.68 4.43 5.00 4.38 11.6 (2.3)
September 30, 1994 4.47 4.32 4.38 4.00 (0.6) (5.8)
December 31, 1994 4.31 4.09 4.13 3.88 (0.7) (5.5)
March 31, 1995 4.32 4.13 4.50 3.88 4.9 (3.6)
June 30, 1995 4.64 4.37 5.13 4.38 9.0 0.3
September 30, 1995 4.60 4.67 5.13 4.63 8.7 0.3
December 31, 1995 4.74 4.62 5.00 4.63 4.8 0.1
March 31, 1996 4.88 4.73 5.13 4.75 4.6 (1.2)
June 30, 1996 4.75 4.64 5.00 4.75 6.6 0.0
September 30, 1996 4.91 4.67 5.25 4.75 6.8 0.9
December 31, 1996
</TABLE>
12
<PAGE>
- -----------------
* The data shown in this column generally is as of different dates than
the data appearing under "Net Asset Value" and "Market Price" and cannot
be calculated from that data.
The Fund's Common Stock has sometimes traded at a premium and sometimes
at a discount to net asset value. See "Risk Factors and Special Considerations--
Premium/Discount from Net Asset Value." At the close of business on
___________, 1996, and ___________, 1997 the Fund's net asset values per share
of Common Stock at the close of business were $______ and $_______,
respectively, while the closing market prices of a share of Common Stock on the
Exchange on such dates were $_____ and $________, respectively. The
premiums/discounts as a percentage of net asset value on such dates were ____%
and ___%, respectively.
13
<PAGE>
THE OFFER
Terms of the Offer
The Fund is issuing to Record Date Stockholders, as of the close of
business on ___________, 1997, Rights to subscribe for the Shares. Each Record
Date Stockholder will receive one transferable Right for each three shares of
Common Stock owned on the Record Date. No fractional Rights will be issued. The
Rights entitle the holders thereof to acquire, at the Subscription Price, one
Share for each Right held. Record Date Stockholders holding a number of shares
of Common Stock that is not an integral multiple of three will receive one
additional Right. In the case of shares held of record by Cede or by any other
depository or nominee, additional Rights to be received by beneficial owners for
whom Cede or any other depository or nominee is the holder of record will be
issued to Cede or such other depository or nominee only if Cede or such other
depository or nominee provides to the Fund on or before the close of business on
___________, 1997, written representation as to the number of additional Rights
required for such issuance. The Rights are evidenced by subscription
certificates ("Subscription Certificates") (a form of Subscription Certificate
is attached hereto as Appendix A) which will be mailed to Record Date
Stockholders, except that Subscription Certificates will not be mailed to Record
Date Stockholders whose record addresses are outside the United States. See "The
Offer--Foreign Stockholders."
The Subscription Price of the Shares to be issued pursuant to the Rights
is __________________ as of the close of business on the Expiration Date.
Exercising Rightholders, including both Rightholders purchasing Shares in the
Primary Subscription and those who purchase Shares pursuant to the
Over-Subscription Privilege (collectively, "Exercising Rightholders"), will not
know the actual Subscription Price at the time of exercise and will be required
initially to pay for the Shares at the Estimated Subscription Price of $______
per Share (based on the net asset value on ___________, 1997). The actual
Subscription Price may be more than the Estimated Subscription Price. Exercising
Rightholders will have no right to rescind a purchase after receipt by the
Subscription Agent of their payment for Shares.
The Fund announced its intention to make the Offer after the close of
trading on the Exchange on ___________, 1996. The net asset values per share of
Common Stock at the close of business on ___________, 1996 and ___________, 1997
were $_____ and $_____, respectively, and the closing market prices per share of
Common Stock on the Exchange on those dates were $_____ and $______,
respectively. There can be no assurance that the Subscription Price will be less
than the last reported market sale price of a share of Common Stock on the
Expiration Date.
Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on the date of
this Prospectus and ends at 5:00 p.m., Eastern time, on ___________, 1997,
unless extended by the Fund until a time not later than 5:00 p.m., Eastern time,
on ___________, 1997. See "Expiration of the Offer." All Rightholders may
purchase Shares in the Primary Subscription. All Rights may be exercised
immediately upon receipt and until 5:00 p.m. on the Expiration Date.
Any Rightholder who fully exercises all Rights held by such Rightholder
in the Primary Subscription is entitled to subscribe for Shares which were not
otherwise subscribed for in the Primary Subscription pursuant to the
Over-Subscription Privilege. Shares acquired pursuant to the Over-Subscription
Privilege may be subject to allotment, which is more fully discussed below in
"Over-Subscription Privilege."
Rights may be exercised by completing the Subscription Certificate and
delivering it, together with payment, to the Subscription Agent. The method by
which Rights may be exercised and Shares paid for is set forth below in
"Exercise of Rights" and "Payment for Shares." Interest will accrue to the
benefit of the Fund on payments received by the Subscription Agent prior to the
Expiration Date. An Exercising Rightholder will have no right to rescind a
purchase after the Subscription Agent has received payment. See "Payment for
Shares" below. Shares issued pursuant to an exercise of Rights will be listed on
the Exchange.
14
<PAGE>
The Rights are transferable until the Expiration Date and will be
admitted for trading on the Exchange. Assuming a market for the Rights exists,
the Rights may be purchased and sold through usual brokerage channels, or
delivered on or before ___________, 1997 (or, if the Offer is extended, until
two business days prior to the Expiration Date), to the Subscription Agent, for
sale through First Albany. Although no assurance can be given that a market for
the Rights will develop, if such a market does develop on the Exchange, trading
in the Rights on the Exchange may be conducted until and including the close of
trading on the last Exchange trading day prior to the Expiration Date. The
method by which the Rights may be transferred is set forth below in "Sale of
Rights."
There is no minimum number of Rights which must be exercised in order
for the Offer to close.
The Fund believes that the distribution to Record Date Stockholders of
transferable Rights which themselves may have realizable value will afford
nonparticipating Record Date Stockholders the potential of receiving a cash
payment upon sale of such Rights. Stockholders who do not exercise their Rights
in full will suffer a greater level of dilution of their interest in the Fund
than stockholders who do. See "Risk Factors and Special Considerations--Dilution
and Other Investment Considerations."
The first regular monthly dividend to be paid on shares of Common Stock
acquired upon exercise of Rights will be the first monthly dividend the record
date for which occurs after the issuance of such shares following the Expiration
Date. It is the Fund's present policy to pay dividends on the last business day
of each month to stockholders of record fourteen days prior to the payment date.
Assuming that the Subscription Period is not extended beyond ___________, 1997,
it is expected that the first dividend received by Rightholders acquiring shares
pursuant to the Offer will be paid on the last business day of ___________,
1997. See "Dividends and Distributions; Dividend Reinvestment Plan."
Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will
be issued Rights for the shares of Common Stock held in their accounts in the
Plan as of the Record Date. Participants wishing to exercise such Rights must
exercise such Rights in accordance with the procedures set forth below in
"Exercise of Rights" and "Payment for Shares." Such Rights will not be exercised
automatically by the Plan.
For purposes of determining whether a stockholder has fully exercised
such stockholder's Rights and for purposes of allotment, shares of Common Stock
and Rights held of record by Cede, nominee for DTC, or any other depository or
nominee will be deemed to be held by the broker-dealer on whose behalf they are
held (or, if there is no broker-dealer, by the stockholder on whose behalf they
are held).
Purpose of the Offer
The Fund is seeking through the Offer to allow existing stockholders of
the Fund an opportunity to purchase additional Shares at a price that will be
below market value without paying a brokerage commission. The Board of Directors
of the Fund has determined that it would be in the best interest of the Fund and
its stockholders to increase the assets of the Fund available for investment. In
reaching its decision, the Board of Directors concluded that an increase in the
assets of the Fund would enable the Fund to take advantage of investment and
leverage opportunities. The Board also concluded that an increase in the assets
of the Fund through a well-subscribed Offer could tend to reduce the Fund's
expense ratio in the future, after the expenses associated with the Offer have
been recouped. The Board observed that a lower expense ratio, if achieved, would
be of long term benefit to holders of Common Stock, although no assurance can be
given that the Fund will in fact achieve lower expenses in the future as the
Fund cannot predict with certainty its expenses over time. See "The Fund" and
"Description of Capital Stock--Asset Maintenance." The Board considered that a
well-subscribed Offer could also tend to increase liquidity on the Exchange,
where the Fund's shares of Common Stock are traded, by increasing the number of
outstanding shares. In connection with its analysis, the Board also considered
the effect of the Fund's previous rights offering which was completed on July
22, 1994. This offering permitted shareholders to acquire, at a subscription
price of $4.13, one new share for each right exercised in such rights offering.
All of the rights issued by the Fund pursuant to the rights offering were
exercised and, as a result, 8,568,000 new shares of Common Stock were issued
in August 1994 with the
15
<PAGE>
net proceeds to the Fund of approximately $35.4 million. All of the proceeds
from the exercise of rights in the offering have been invested in new securities
in accordance with the Fund's investment objective.
In considering the Offer, the Board considered that the Offer will
reduce the net asset value of the Fund's Common Stock and will adversely affect
any holder of Common Stock who fails or is unable to exercise his or her Rights.
The Board also took note of the fact that the possible beneficial effects of the
Offer would be reduced to the extent expenses associated with the Offer were
high and the Offer was not well subscribed.
Reflecting the foregoing considerations, the Board has established the
terms of the Offer on a basis which is intended to provide all existing
stockholders with an equal opportunity to exercise Rights and to achieve full or
substantial subscription. The Board has specified that Rights will be
transferable in order to give non-exercising Rightholders an opportunity to
receive partial compensation for the dilution they will suffer through
non-exercise by selling their Rights, and has established the Subscription Price
and the one-for-one exchange ratio with a view toward providing both an
incentive to exercise Rights and an opportunity to obtain value for the sale of
Rights. In this regard, the Board has noted that an existing stockholder who
seeks to maintain rather than increase his or her investment in the Fund may, in
lieu of selling Rights, sell a portion of his or her shares of the Fund
sufficient to provide, after expenses including commissions, funds for the
exercise of Rights. The Board has also sought to reduce costs associated with
the Offer by, among other things, engaging an information agent rather than
paying commissions to a broker or a dealer-manager, and has sought to
facilitate, through its arrangements with First Albany, the existence of an
adequate trading market for Rightholders who do not exercise their Rights.
There can, of course, be no assurance that the Offer will be successful
or that the objectives sought by the Board will be achieved, as in the case of
any rights offer. However, following analysis and discussion of the Offer and
consideration of its terms at a series of meetings over the past year, the Board
of Directors has determined that the Offer, if successful, would result in a net
benefit to existing stockholders. The Offer was approved unanimously by all the
Directors, present and voting at a meeting of the Board of Directors at which a
quorum was present and acting throughout, and by all the Directors who are not
"interested persons" of the Fund. None of the members of the Fund's Board of
Directors is affiliated with the Investment Adviser. It should be noted that the
Investment Adviser will benefit from the Offer because its fee is based on the
level of the Fund's net assets attributable to Common Stock, which will increase
as a result of the issuance of Shares in connection with the Offer. The benefit
to the Investment Adviser was not a material element of the Board's
deliberations.
The Fund intends to issue additional preferred stock following the
completion of the Offer subject to rating agency consent and applicable asset
coverage requirements such that the percentage of the Fund's assets represented
by the liquidation value of the ATP (leverage) will be either the same or
somewhat higher than immediately prior to the Offer. As of December 31, 1996,
the Fund's leverage ratio (the ratio of the Fund's total senior securities to
the sum of its total net assets and its senior securities) was approximately
____%, which would be reduced to approximately ___% in the event all Rights are
exercised and no additional leverage is incurred. The incurrence of additional
leverage would reduce the investment flexibility gained by the Fund through the
increase in assets that will result from the Offer. See "The Fund" and "Risk
Factors Special Considerations--Leverage" for discussion of the risks and
possible benefits associated with a leveraged capital structure.
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 this Offer. Any such further rights
offering will be made in accordance with the 1940 Act.
Expiration of the Offer
The Offer will expire at 5:00 p.m., Eastern time, on _________, 1997,
unless extended by the Fund until a time not later than 5:00 p.m., Eastern time,
on _________, 1997. Rights will expire on the Expiration Date and may not be
exercised thereafter.
16
<PAGE>
Subscription Agent
The Subscription Agent is State Street Bank and Trust Company, P.O. Box
9061, Boston, Massachusetts 02266-8686, which will receive, for its
administrative, processing, invoicing and other services as subscription agent,
a fee estimated to be $80,000, and reimbursement for all out-of-pocket expenses
related to the Offer. The Subscription Agent is also the Fund's Custodian,
Dividend Paying Agent, Transfer Agent and Registrar with respect to the Common
Stock. Questions regarding the Subscription Certificates should be directed to
State Street Bank and Trust Company, P.O. Box 9061, Boston, Massachusetts
02205-9061 (telephone 1 (800) 426-5523). SIGNED SUBSCRIPTION CERTIFICATES
SHOULD BE SENT TO STATE STREET BANK AND TRUST COMPANY, ATTENTION: CORPORATE
STOCK TRANSFER DEPARTMENT, by one of the methods described below. The Fund
reserves the right to accept Subscription Certificates actually received on a
timely basis at any of the addresses listed.
(1) BY FIRST CLASS MAIL:
P.O. Box 9061
Boston, Massachusetts 02205-8686
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:
c/o Boston Financial Data Services, Inc.
Two Heritage Drive - 4th Floor
North Quincy, Massachusetts 02171
(3) BY HAND:
225 Franklin Street - Concourse Level
Boston, Massachusetts 02110
or
61 Broadway - Concourse Level
New York, New York 10006
DELIVERY TO AN ADDRESS OTHER THAN THE ABOVE DOES NOT CONSTITUTE GOOD
DELIVERY.
Information Agent
Any questions or requests for assistance may be directed to the
Information Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Corporate Investors Communications, Inc.
11 Commerce Road
Curlstadt, New Jersey 07072-2586
Toll Free: (800) 958-6468
The Information Agent will receive a fee estimated to be _________ and
reimbursement for all out-of-pocket expenses related to the Offer.
Stockholders may also contact their brokers or nominees for information
with respect to the Offer.
17
<PAGE>
Exercise of Rights
Rights may be exercised by filling in and signing the Subscription
Certificate and mailing it in the envelope provided, or otherwise delivering the
completed and signed Subscription Certificate to the Subscription Agent,
together with payment for the Shares as described below under "Payment for
Shares." Rightholders may also exercise Rights by contacting a broker, bank or
trust company who can arrange, on behalf of the Rightholder, to guarantee
delivery of payment and of a properly completed and executed Subscription
Certificate. A fee may be charged for this service. Completed Subscription
Certificates and full payment for the Shares subscribed for must be received by
the Subscription Agent prior to 5:00 p.m., Eastern time, on the Expiration Date
(unless payment is effected by means of a notice of guaranteed delivery as
described below under "Payment for Shares") at one of the offices of the
Subscription Agent at the addresses set forth above.
Qualified Financial Institutions who hold shares of Common Stock as
nominee for the account of others should notify the respective beneficial owners
of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Rights. For purposes
of this Prospectus, "Qualified Financial Institution" shall mean a registered
broker-dealer, commercial bank or trust company, securities depository or
participant therein, or nominee thereof. If the beneficial owner so instructs,
the nominee should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Common Stock or Rights held through such a nominee should contact the nominee
and request the nominee to effect transactions in accordance with the beneficial
owner's instructions.
Stockholders who are registered holders can choose between either option
set forth under "Payment for Shares" below.
Over-Subscription Privilege
If Rightholders do not exercise all of the Rights held by them on
Primary Subscription, any Shares for which subscriptions have not been received
(the "Excess Shares") will be offered by means of the Over-Subscription
Privilege to those Rightholders (including those Rightholders who acquired their
Rights during the Subscription Period) who have exercised all the Rights held by
them on Primary Subscription and who wish to acquire more than the number of
Shares for which the Rights held by them are exercisable. Rightholders who
exercise on Primary Subscription all of the Rights held by them will be asked to
indicate on their Subscription Certificates how many Shares they would desire to
purchase pursuant to the Over-Subscription Privilege. If sufficient Excess
Shares remain as a result of unexercised Rights, all over-subscriptions will be
honored in full. If sufficient Excess Shares are not available to honor all
over-subscriptions, the available Shares will be allocated first among
Rightholders who subscribe for an aggregate of 1,000 or fewer Shares (inclusive
of Shares subscribed for by such Rightholders in the Primary Subscription).
Shares remaining thereafter will be allocated among those who over-subscribe
based on the number of Rights originally exercised by them in the Primary
Subscription. The percentage of Excess Shares each over-subscribing Exercising
Rightholder may acquire may be rounded up or down to result in delivery of whole
Shares. 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. Each Rightholder is required to purchase all
allocated Over-Subscription Shares requested on the Subscription Certificate.
The Fund will not otherwise offer or sell any Shares which are not
subscribed for pursuant to the Primary Subscription or the Over-Subscription
Privilege pursuant to the Offer.
Qualified Financial Institutions and other nominee holders of Rights
will be required to certify to the Subscription Agent, before any
Over-Subscription Privilege may be exercised as to any particular beneficial
owner, as to the aggregate number of Rights exercised pursuant to the Primary
Subscription and the number of Shares subscribed for pursuant to the
Over-Subscription Privilege by such beneficial owner and that such beneficial
owner's Primary Subscription was exercised in full. A form of Nominee Holder
Over-Subscription Form is contained in Appendix C.
18
<PAGE>
Payment for Shares
Exercising Rightholders who acquire Shares on Primary Subscription or
pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:
(1) An exercising Rightholder may send the Subscription
Certificate, together with payment for the Shares acquired on Primary
Subscription and for any additional Shares subscribed for pursuant to
the Over-Subscription Privilege, to the Subscription Agent, calculating
the total payment on the basis of the Estimated Subscription Price of
$______ per Share (based on the net asset value per share on _________,
1997). To be accepted, such payment, together with the properly
completed and executed 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., Eastern time, on the
Expiration Date. Exercise of the Rights by this method is subject to
actual collection of checks by 5:00 p.m. on the fifth day after the
Expiration Date. The Subscription Agent will deposit all share purchase
checks and any orders received by it prior to the final payment date
into a segregated interest bearing account pending proration and
distribution of Shares or return of funds. All interest earned on such
funds will accrue to the benefit of the Fund. 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, MUST BE PAYABLE TO THE NEW AMERICA
HIGH INCOME FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND
EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE
TO BE ACCEPTED.
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
EXERCISING RIGHTHOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS 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 SUBSCRIPTION AGENT PRIOR TO 5:00 P.M.,
EASTERN TIME, ON THE EXPIRATION DATE AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., EASTERN TIME, ON THE FIFTH DAY AFTER THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE FIVE BUSINESS DAYS OR MORE
TO CLEAR, RIGHTHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
(2) Alternatively, a subscription will be accepted by the
Subscription Agent if, prior to 5:00 p.m., Eastern time, on the
Expiration Date, the Subscription Agent has received a notice of
guaranteed delivery (in the form set forth in Appendix B) by facsimile
(telecopy) or otherwise from a bank, a trust company, or an Exchange
member guaranteeing delivery of (i) payment of the full Subscription
Price for the Shares subscribed for on Primary Subscription and any
additional Shares subscribed for pursuant to the Over-Subscription
Privilege, and (ii) a properly completed and executed Subscription
Certificate, and, if applicable, a Nominee Holder Over-Subscription
Form. The Subscription Agent will not honor a notice of guaranteed
delivery if a properly completed and executed Subscription Certificate
together with full payment is not received by the Subscription Agent by
the close of business on the fifth business day after the Expiration
Date (the "Confirmation Date").
On or before the Confirmation Date, the Subscription Agent will send to
each Exercising Rightholder (or, if shares are held by Cede or any other
depository or nominee, to Cede or such other depository or nominee), a
confirmation showing (i) the number of Shares purchased pursuant to the Primary
Subscription and, if applicable, the Over-Subscription Privilege, (ii) the per
Share and total purchase price for the Shares, (iii) any excess to be refunded
by the Fund to such Rightholder as a result of payment for Shares pursuant to
the Over-Subscription Privilege which the Rightholder is not acquiring and (iv)
any additional amount payable by such Rightholder to the Fund or any excess to
be refunded by the Fund to such Rightholder, in each case, based on the actual
Subscription Price as determined on the Expiration Date. Any additional payment
required from Rightholders 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 Rightholder will be mailed by the Subscription Agent as
19
<PAGE>
promptly as practicable. An Exercising Rightholder will have no right to rescind
a purchase after the Subscription Agent has received payment, either by means of
a notice of guaranteed delivery or a check.
See "Delivery of Shares."
Whichever of the two methods described above is used, issuance of the
Shares purchased is subject to collection of checks and actual full payment. If
a Rightholder who subscribes for Shares pursuant to the Primary Subscription or
Over-Subscription Privilege does not make payment of any amounts due, the
Subscription Agent reserves the right to take any or all of the following
actions: (i) find other stockholders for such subscribed and unpaid for Shares;
(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, the right to set off against payments actually
received by it with respect to such subscribed Shares.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Subscription Agent, whose
determinations will be final and binding. The Subscription Agent 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 Subscription Agent determines in its sole discretion. The
Subscription Agent 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.
Sale of Rights
Sales through Subscription Agent. Rightholders who do not wish to
exercise any or all of their Rights may instruct the Subscription Agent to sell
any unexercised Rights. Subscription Certificates representing the Rights to be
sold by the Subscription Agent must be received by the Subscription Agent prior
to __________ ___, 1997 (or if the Offer is extended, until two business days
prior to the Expiration Date). Upon the timely receipt by the Subscription Agent
of appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale; and the Subscription Agent will remit the
proceeds of sale, net of any commissions, to the Rightholders. No brokerage
commissions will be charged to holders in connection with any sale of fewer than
100 Rights who elect to direct the Subscription Agent to sell such Rights in
whole but not in part. Any commission on sales of 100 Rights or more will be
paid by the selling Rightholders. If the Rights can be sold, sales of such
Rights will be deemed to have been effected at the weighted-average price
received by the Subscription Agent on the day such Rights are sold. The
Subscription Agent will also attempt to sell all Rights which remain unclaimed
as a result of Subscription Certificates being returned by the postal
authorities to the Subscription Agent as undeliverable as of the fourth business
day prior to the Expiration Date. Such sales will be made net of commissions on
behalf of the nonclaiming stockholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such nonclaiming stockholder until
such proceeds are either claimed or escheat. There can be no assurance that the
Subscription Agent will be able to complete the sale of any such Rights, and
neither the Fund nor the Subscription Agent has guaranteed any minimum sales
price for the Rights. All such Rights will be sold at the market price, if any,
on the Exchange.
Other Transfers. The Rights are transferable on the Exchange until the
close of business on the last business day prior to the Expiration Date. The
Rights evidenced by a single Subscription Certificate may be transferred in
whole or in part by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights. In such event, a new Subscription Certificate evidencing the
balance of the Rights will be issued to the transferring Rightholder or, if the
transferring Rightholder so instructs, to an additional transferee.
Rightholders wishing to transfer all or a portion of their Rights should
allow at least five business days prior to the Expiration Date for (i) the
transfer instructions to be received and processed by the Subscription Agent;
(ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with
20
<PAGE>
respect to transferred Rights, and to the transferor with respect to retained
Rights, if any; and (iii) the Rights evidenced by such new Subscription
Certificate to be exercised or sold by the recipients thereof. Neither the Fund
nor the Subscription Agent shall have any liability to a transferee or
transferor of Rights if Subscription Certificates are not received in time for
exercise or sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent and brokerage
commissions on the sale of fewer than 100 Rights (which will be paid by the Fund
as described above), all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of Rights will be for the account of the transferor
of the Rights, and none of such commissions, fees or expenses will be paid by
the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Primary Subscription (but not the
Over-Subscription Privilege) may be effected through, the facilities of DTC;
Rights exercised through DTC are referred to as "DTC Exercised Rights". The
holder of a DTC Exercised Right may exercise the Over-Subscription Privilege in
respect of such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., Eastern time, on the Expiration
Date, a Nominee Holder Over-Subscription Form (See Appendix C), together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder
Over-Subscription Form may be obtained from the Subscription Agent.
Financial Advisor
First Albany Corporation, a broker-dealer and member of the National
Association of Securities Dealers, Inc. has been retained by the Fund to provide
financial advisory services in connection with the Offer. The Fund has agreed to
pay First Albany a fee for its advisory services in an amount equal to $125,000.
In addition, the Fund has agreed to reimburse First Albany, without prior
approval, for up to $5,000 of its reasonable expenses incurred in connection
with the Offer.
Delivery of Share Certificates
Participants in the Fund's Dividend Reinvestment Plan will have any
Shares acquired with respect to Shares held in their stockholder dividend
reinvestment accounts in the Plan on Primary Subscription and pursuant to the
Over-Subscription Privilege credited to such accounts. Stockholders whose Shares
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 on Primary
Subscription and pursuant to the Over-Subscription Privilege credited to the
account of Cede or such other depository or nominee. With respect to all other
stockholders, certificates for all Shares acquired on Primary Subscription and
pursuant to the Over-Subscription Privilege will be mailed within fifteen
business days after the Confirmation Date and after full payment for the Shares
subscribed for has been received and cleared, which clearance may take up to
fifteen days from the date of receipt of the payment.
Foreign Stockholders
Subscription Certificates will not be mailed to Record Date Stockholders
whose record addresses are outside the United States (the term "United States"
includes the states, the District of Columbia, and the territories and
possessions of the United States) ("Foreign Record Date Stockholders"). The
Rights to which such Subscription Certificates relate will be held by the
Subscription Agent for such Foreign Record Date Stockholders' accounts until
instructions are received to exercise, sell or transfer the Rights. If no
instructions have been received by 12:00 noon, Eastern time, three business days
prior to the Expiration Date regarding the Rights of those Foreign Record Date
Stockholders, the Subscription Agent will use its best efforts to sell the
Rights of those Foreign Record Date Stockholders on the Exchange. The net
proceeds, if any, from the sale of those Rights will be remitted to the Foreign
Record Date Stockholder.
21
<PAGE>
Federal Income Tax Consequences of the Other
The U.S. federal income tax consequences to holders of Common Stock
with respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Stockholders will
not result in taxable income to such holders nor will such holders
realize taxable income as a result of the exercise of the Rights.
2. The basis of a Right will be (a) to a holder of Common Stock
to whom it is issued and who exercises or sells the Right (i) if the
fair market value of the Right immediately after issuance is less than
15% of the fair market value of the Common Stock with regard to which it
is issued, zero (unless the holder elects, by filing a statement with
his timely filed federal income tax return for the year in which the
Rights are received, to allocate the basis of the Common Stock between
the Right and the Common Stock based on their respective fair market
values immediately after the Right is issued), and (ii) if the fair
market value of the Right immediately after issuance is 15% or more of
the fair market value of the Common Stock with regard to which it is
issued, a portion of the basis in the Common Stock based upon their
respective fair market values immediately after the Right is issued; (b)
to a holder of Common Stock to whom it is issued and who allows the
Right to expire, zero; and (c) to anyone who purchases a Right in the
market, the purchase price for a Right.
3. The holding period of a Right received by a Record Date
Stockholder includes the holding period of the Common Stock with regard
to which the Right is issued.
4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term,
depending on how long the Right has been held, in accordance with
paragraph 7 below. A Right issued with regard to Common Stock will be a
capital asset in the hands of the person to whom it is issued if the
Common Stock was a capital asset in the hands of that person. If a Right
is allowed to expire, there will be no loss realized unless the Right
had been acquired by purchase, in which case there will be a loss equal
to the basis of the Right.
5. If the Right is exercised by the Record Date Stockholder, the
basis of the Common Stock received will include the basis, if any,
allocated to the Right and the amount paid upon exercise of the Right.
6. If the Right is exercised, the holding period of the Common
Stock acquired begins on the date the Right is exercised.
7. If the Right is sold, the holding period of the Right will
include the holding period of the Common Stock with regard to which it
was issued.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
reportable payments paid on an account if the holder of the account provides the
Fund with either an incorrect taxpayer identification number or no number at all
or fails to certify that he is not subject to such withholding.
The foregoing is only a summary of applicable federal income tax laws
and does not include any state or local tax consequences of the Offer.
Rightholders should consult their own tax advisers concerning the tax
consequences of this transaction. See "Taxation."
Considerations for Certain Tax-Deferral Arrangements and Employee Plans
Special considerations apply with respect to Record Date Stockholders
that are tax-deferral arrangements such as plans qualified under Section 401(a)
of the Internal Revenue Service Code of 1986, as amended ("Code") (including
corporate savings and 401(k) plans and Keogh plans of self-employed
individuals), individual retirement accounts under Section 408(a) of the Code
("IRAs"), and custodial accounts under Section
22
<PAGE>
403(b) of the Code (collectively, "Plans"). For example, additional
contributions to a Plan (other than permitted rollover contributions or
trustee-to-trustee transfers from other Plans) in order to exercise Rights, when
taken together with other contributions made to the Plan, may exceed limits
under the Code, resulting in (among other things) excise taxes for excess or
nondeductible contributions, or the Plan's loss of its tax-favored status.
Furthermore, the sale or transfer of Rights may be treated as a distribution or
result in other adverse tax consequences.
Plans and other tax exempt entities should also be aware that if they
borrow in order to finance their exercise of Rights, they may become subject to
the tax on unrelated business taxable income ("UBTI") under Section 511 of the
Code. If any portion of an IRA is used as security for a loan, the portion so
used is also treated as distributed to the IRA depositor, which may result in
current income taxation and penalty taxes.
Certain Plans may be subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), which is a broad statutory framework that
governs most employer-maintained retirement plans ("ERISA Plans') and imposes
certain fiduciary obligations on the persons who manage such plans
("Fiduciaries"). In determining whether to exercise or transfer Rights,
Fiduciaries of Record Date Stockholders that are ERISA Plans must determine that
such actions are consistent with their fiduciary duties under ERISA and do not
result in transactions which are prohibited under Section 406 of ERISA. Further,
Record Date Stockholders which are Plans that are subject to Section 4975 of the
Code must determine that the exercise or transfer of Rights does not result in
transactions which are prohibited and subject to excise taxes under Section 4975
(under rules which generally parallel the prohibited transaction provisions of
Section 406 of ERISA). Employee benefit plans that are not ERISA Plans (such as
governmental plans) may be subject to state law restrictions that could affect
the decision to exercise or transfer Rights.
The Fund is an investment company registered under the Investment
Company Act of 1940, as amended, and intends to continue to qualify as such.
Therefore, under ERISA the assets of an ERISA Plan which is a stockholder of the
Fund will include only the equity interest owned by such ERISA Plan and not the
underlying assets of the Fund. The Investment Adviser will therefore not be a
Fiduciary with respect to stockholders which are ERISA Plans and the operation
of the Fund will not be subject to ERISA.
Due to the complexity of the foregoing rules and the taxes, penalties,
and potential liability for noncompliance, stockholders which are Plans should
consult with their counsel and other advisors before their exercise or transfer
of Rights.
Notice of Net Asset Value Decline
The Fund has, as required by the staff of the Commission, undertaken to
suspend the Offer until it amends this Prospectus if subsequent to _________,
1997, the effective date of the Fund's Registration Statement, the Fund's net
asset value declines more than 10% from its net asset value as of that date. In
such event, the Fund will notify stockholders of any such decline and thereby
permit them to cancel their exercise of Rights.
USE OF PROCEEDS
Assuming all Shares offered hereby are sold at the Estimated
Subscription Price of $____ per Share, the net proceeds of the Offer are
estimated to be approximately $_________ (after deducting offering expenses
payable by the Fund estimated at approximately _________). The Fund anticipates
that investment of such net proceeds in accordance with the Fund's investment
objective and policies will take up to four weeks from their receipt by the
Fund, depending on market conditions and the availability of appropriate
securities, but in no event will such investment take longer than six months.
Pending such investment in accordance with the Fund's investment objective and
policies, the proceeds will be held in U.S. Government securities (which include
obligations of the United States Government and its agencies and
instrumentalities) and other high-quality short-term money market instruments.
23
<PAGE>
THE FUND
The New America High Income Fund, Inc. is a diversified, closed-end
management investment company with a leveraged capital structure. Wellington
Management Company, LLP currently serves as the Fund's investment adviser. The
Fund's investment objective is to provide high current income, while seeking to
preserve stockholders' capital, through investment in a professionally managed,
diversified portfolio of "high yield" fixed-income securities, commonly known as
"junk bonds."
The Fund invests primarily in "high yield" fixed-income securities rated
in the lower categories by established rating agencies, consisting principally
of fixed income securities rated "BB" or lower by S&P or "Ba" or lower by
Moody's, and, subject to applicable rating agency guidelines (see "Rating Agency
Guidelines"), non-rated securities deemed by the Investment Adviser to be of
comparable quality. See "Investment Objective and Policies" and "Management of
the Fund--The Investment Adviser." The fixed-income securities in which the Fund
invests are regarded by the rating agencies, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Such securities may also be subject
to greater market price fluctuations than lower yielding, higher rated debt
securities; credit ratings do not reflect this market risk.
The Fund is subject to various portfolio diversification and related
asset coverage requirements under guidelines established by Moody's and Fitch in
connection with such rating agencies' issuance of ratings of "aaa" and AAA,
respectively, with respect to the Fund's ATP. These guidelines require specific
assets coverage ratios to be maintained on the basis of the discounted values of
eligible securities in the Fund's portfolio, which discounts are directly
correlated to the ratings assigned to the securities. The guidelines generally
cause the Fund to invest in higher quality assets and/or to maintain relatively
substantial balances of highly liquid assets than would otherwise be the case in
order to remain in compliance with applicable asset coverage requirements. See
"Investment Objective and Policies," "Rating Agency Guidelines," "Risk Factors
and Special Considerations--Leverage" and "Description of Capital Stock--Asset
Maintenance." An investment in the Fund involves a number of significant risks,
which are increased due to the Fund's leveraged capital structure, and no
assurance can be given that the Fund will achieve its investment objective. See
"Risk Factors and Special Considerations."
The Fund has had a leveraged capital structure since its inception.
Through the use of leverage, the Fund seeks to increase dividend yields to
holders of Common Stock over those that would be available in the absence of
leverage by investing in securities which pay interest at a higher rate than the
rates of required dividend payments on its outstanding ATP after related
expenses. By issuing senior securities having a "aaa"/AAA rating and agreeing to
various portfolio diversification guidelines established by the relevant rating
agencies in connection therewith, the Fund seeks to obtain a lower cost of
leverage than it believes would be available with lower rated or unrated senior
securities. However, the use of leverage can, under certain circumstances,
adversely affect the Fund's performance and generally will cause the net asset
value of the Common Stock to decline more rapidly when the value of portfolio
holdings declines than would be the case for an unleveraged fund. The asset
coverage requirements applicable to the Fund's senior securities affect the
management of its portfolio, as described in the preceding paragraph. Also, in
the event of a decline in the value of the Fund's portfolio securities, the Fund
may be forced to redeem or repurchase senior securities in order to reduce
investment leverage and thereby remain in compliance with applicable asset
coverage requirements, which may require the liquidation of portfolio securities
at prices below the prices at which they were purchased. Events such as
increases in short-term interest rates which increase the dividends required to
be paid on the Fund's outstanding ATP or increases in expenses associated with
the ATP, will, absent a corresponding increase in the rate of return of
portfolio holdings or a decrease in other expenses, result in a decrease in
dividends paid to holders of Common Stock. See "Risk Factors and Special
Considerations--Leverage," "Investment Objective and Policies" and "Description
of Capital Stock."
The Fund's performance since inception illustrates the significant risks
(and potential rewards) associated with investing in "high yield, high risk"
securities on a leveraged basis. The Fund commenced operations in 1988 with
total assets of $396,386,000, a net asset value per share of Common Stock of
$9.25 and outstanding senior securities of $184 million. At December 31, 1990,
following a significant decline in the high yield
24
<PAGE>
market during 1989 and 1990, the Fund's total assets were $169,059,000 (a
decline of 57.4% from total assets at inception), its net asset value per share
of Common Stock was $3.42 (a decline of 63.0% from net asset value per share at
inception), and outstanding senior securities aggregated $82,990,000 (a decline
of 54.9% relative to outstanding senior securities at inception). Total return
on an investment in Common Stock from inception through December 31, 1990 was
- -58.74%. At December 31, 1996, the Fund's total assets were $_________, net
asset value per share of Common Stock was $____ and outstanding senior
securities aggregated $[100] million. Cumulative total investment return for the
one-, three- and five-year periods ended December 31, 1996 was ____%, _____% and
____%, respectively. Past performance is, of course, no guarantee of future
results.
Existing Leverage
During 1993, the Fund had outstanding senior securities having an
aggregate principal amount/liquidation preference of $80 million of which $45
million consisted of short term debt and $35 million consisted of credit
enhanced, auction preferred stock. In January 1994 the Fund refinanced its
outstanding senior securities through the issuance of two series of ATP having
an aggregate liquidation preference of $100 million and no credit enhancement.
Dividends on both series of the ATP are established in periodic auctions
generally held every 28 days (subject to the right of the Fund to establish
longer or shorter dividend periods), and generally reflect short-term interest
rates during short-term dividend periods. See "Description of Capital
Stock--Dividends and Dividend Periods."
In connection with the refinancing of the Fund's senior securities
through the issuance of the ATP, the Fund (i) added $20 million of additional
investment leverage and became obliged to maintain required asset coverages with
respect to the outstanding ATP, (ii) eliminated certain fees and expenses
previously associated with its outstanding preferred stock, (iii) agreed to
relatively more stringent rating agency investment guidelines
25
<PAGE>
than had applied to the redeemed senior securities, and (iv) incurred
substantial transaction costs. Subsequently, in February 1994, the Fund entered
into a five-year interest payment swap arrangement effective through February
1999 ($65 million notional amount) with The First National Bank of Boston
("FNBB"). The effect of this arrangement is to hedge the Fund's dividend payment
obligations with respect to 65% of the ATP outstanding as of April 29, 1994.
Under this arrangement, the Fund makes monthly payments to FNBB at the annual
rate of 5.25% of the notional swap amount while receiving from FNBB payments at
a floating rate determined with reference to the level of short-term interest
rates from time to time (and which was ____% at December __, 1996). See
"Investment Objective and Policies" and "Description of Capital Stock--Dividends
and Dividend Periods." The Fund makes dividend payments to the holders of the
ATP based on the results of periodic auctions without regard to the swap.
The Fund is registered under the 1940 Act and was organized as a
corporation under the laws of the State of Maryland on November 19, 1987. The
Fund's address is 10 Winthrop Square, Fifth Floor, Boston, Massachusetts 02110,
and its telephone number is (617) 350-8610. The Investment Adviser's address is
75 State Street, Boston, Massachusetts 02109, and its telephone number is (617)
951-5000.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide high current income,
while seeking to preserve stockholders' capital, through investment in a
professionally managed, diversified portfolio of "high yield" fixed-income
securities, commonly known as "junk bonds." The Fund's investment objective and
the restrictions described below under "Investment Restrictions" are fundamental
policies and thus may not be changed without the affirmative vote of the holders
of a majority of the outstanding shares of the Fund's Common Stock and a
majority of the outstanding shares of the ATP, voting as separate classes, which
means for each class the lesser of (a) more than 50% of such class or (b) 67% or
more of such class present at a meeting at which more than 50% of the
outstanding shares of such class are present or represented by proxy.
No assurance can be given that the Fund will attain its investment
objective. Specifically, given the high risk nature and price volatility of the
Fund's investments as well as the Fund's leverage, it may be difficult to
achieve capital preservation on a consistent basis in the future. As described
above, in the high yield securities market of 1989 and 1990, the Fund suffered a
substantial decline in its net asset value as a result of these factors and thus
failed to achieve this objective during that period. While the Fund's
cummulative total returns for the one-, three-, and five-year periods ended
December 31, 1996 were __%, __%, and __%, respectively, past performance is no
guarantee of future results. See "The Fund" and "Risk Factors and Special
Considerations."
Investment Strategy
The policies described below may be changed by the Fund without the
approval of the Fund's stockholders.
The Fund seeks to achieve its investment objective by investing
primarily in "high yield" fixed-income securities rated in the lower categories
by recognized rating agencies, consisting principally of fixed-income securities
rated "Ba" or lower by Moody's or "BB" or lower by S&P and, subject to
applicable rating agency guidelines, (see "Rating Agency Guidelines") non-rated
securities deemed by the Investment Adviser to be of comparable quality. Because
non-rated securities are not eligible for inclusion in the calculation of the
discounted value of the Fund's assets under the current rating agency guidelines
to which the Fund is subject, however, it is not presently anticipated that such
securities will comprise a significant percentage of the Fund's investments,
although the Fund reserves full flexibility in this regard. See "Rating Agency
Guidelines." Under normal market conditions, the Fund will have at least 65% of
its total assets invested in securities rated BB or lower by S&P or Ba or lower
by Moody's or non-rated securities deemed by the Investment Adviser to be of
comparable quality, and the average maturity of the Fund's portfolio is expected
to be between eight and fifteen years. The dollar weighted average of credit
ratings of all bonds held by the Fund during the year ended December 31, 1996,
computed on a monthly basis, is set forth below. This information reflects the
average composition of the Fund's assets during the year ended December 31, 1996
and is not necessarily representative of the Fund as of the current fiscal year
or at any other time in the future.
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<PAGE>
S&P Percentage
Rating of Portfolio
------ ------------
BBB............................. [8.23]%
BB.............................. [31.42]%
B............................... [53.69]%
CCC............................. [1.73]%
CC.............................. [0.00]%
NR.............................. [4.93%]
--------
Total................... 100.00%
As of December 31, 1996, the weighted average maturity of the Fund's portfolio
was approximately ____ years.
The Fund's portfolio reflects requirements established by Moody's and
Fitch in connection with the issuance by such agencies of investment grade
ratings for the Fund's ATP (referred to herein as the "Rating Agency
Guidelines"). These guidelines relate, among other things, to industry and
credit quality characteristics of issuers and specify various "discount factors"
for debt securities (with the level of discount greater as the rating of a
security becomes lower). Under the Rating Agency Guidelines, certain types of
securities in which the Fund may otherwise invest consistent with its investment
strategy are not eligible for inclusion in the calculation of the discounted
value of the Fund's portfolio. Such instruments include, for example, securities
rated "CC"/"Ca" or lower by the Rating Agencies, non-rated securities, private
placements, non-U.S. securities, preferred or common stock, zero coupon or
similar securities that do not provide for the periodic payment of interest in
cash and other securities not within the investment guidelines. Accordingly,
although the Fund reserves the right to invest in such securities to the extent
set forth herein, they have not and it is anticipated that they will not
constitute a significant portion of the Fund's portfolio. See "Rating Agency
Guidelines."
The Rating Agency Guidelines require that the Fund maintain assets
having an aggregate discounted value, determined on the basis of the guidelines,
greater than the aggregate liquidation preference of the ATP plus specified
liabilities, payment obligations and other amounts, as of periodic valuation
dates. The Rating Agency Guidelines also require the Fund to maintain asset
coverage for the ATP on a non-discounted basis of at least 200% as of the end of
each month, and the 1940 Act requires such asset coverage as a condition to
paying dividends on Common Stock. See "Description of Capital Stock--Asset
Maintenance." The effect of compliance with these guidelines may be to cause the
Fund to invest in higher quality assets and/or to maintain relatively
substantial balances of highly liquid assets or to restrict the Fund's ability
to make certain investments that would otherwise be deemed potentially desirable
by the Investment Adviser, including private placements of other than Rule 144A
securities, and to limit or delay the Fund's ability to reinvest cash in a
rising "high-yield" market. See "The Fund" and "Risk Factors and Special
Considerations--Leverage." The Rating Agency Guidelines are subject to change
from time to time with the consent of the relevant rating agency and would not
apply if the Fund in the future elected not to use investment leverage
consisting of senior securities rated by one or more rating agencies, although
other similar arrangements might apply with respect to other senior securities
that the Fund may issue.
There is no minimum rating requirement applicable to the fixed-income
securities which may be acquired by the Fund. However, compliance with the
Rating Agency Guidelines, under which securities rated below "CCC/Caa" are not
eligible for inclusion in the calculation of the discounted value of the Fund's
assets and other lower rated securities are heavily discounted in such
calculation, may have the effect of precluding or limiting investments in such
issues.
"High-yield" bonds, the generic name for corporate bonds rated between
"BB"/"Ba" and "C"/"C" by the Rating Agencies, are frequently issued by
corporations in the growth stage of their development. Bonds which rated
"BB"/"Ba," "B"/"B," "CCC"/"Caa," "CC"/"Ca" and "C"/"C" are regarded by the
rating agencies, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligations. Such securities are also generally considered to be subject to
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greater risk than securities with higher ratings with regard to a deterioration
of general economic conditions. Further information concerning the ratings of
corporate bonds, including the rating categories of Moody's, Fitch and S&P) is
provided in Appendix D. "High-yield" securities held by the Fund may include
securities received as a result of a corporate reorganization or issued as part
of a corporate takeover. Securities issued to finance corporate restructurings
may have special credit risks due to the highly leveraged conditions of the
issuers, and such securities are usually subordinate to other securities issued
by the issuer. In addition, such issuers may lose experienced management as a
result of the restructurings. Finally, the market price of such securities may
be more volatile to the extent that expected benefits from restructuring do not
materialize.
Fixed-income securities which the Fund has the right to acquire include
preferred stocks (limited to 20% of the Fund's total assets and subject to
compliance with the Rating Agency Guidelines as described above) and all types
of debt obligations having varying terms with respect to security or credit
support, subordination, purchase price, interest payments and maturity. Such
obligations may include, for example, bonds, debentures, notes, mortgage or
other asset-backed instruments, equipment lease certificates, equipment trust
certificates, conditional sales contracts, commercial paper, zero coupon
securities and obligations issued or guaranteed by the United States government
or any of its political subdivisions, agencies or instrumentalities (including
obligations, such as repurchase agreements, secured by such instruments). Most
debt securities in which the Fund will invest will bear interest at fixed rates.
However, the Fund reserves the right to invest without limitation in
fixed-income securities that have variable rates of interest or involve equity
features, such as contingent interest or participations based on revenues, sales
or profits (i.e., interest or other payments, often in addition to a fixed rate
of return, that are based on the borrower's attainment of specified levels of
revenues, sales or profits and thus enable the holder of the security to share
in the potential success of the venture). The Fund also has the right to acquire
common stock as part of a unit in connection with the purchase of debt
securities consistent with the Fund's investment policies, although such
investments are not eligible for inclusion in the calculation of the Fund's
discounted value under the Rating Agency Guidelines.
The Fund has the right to invest up to 20% of its total assets in
securities that are not readily marketable (determined as of the time of
investment), including securities restricted as to resale, or so-called private
placements. Securities that are not readily marketable may offer higher yields
than comparable publicly traded securities. However, the Fund may not be able to
sell these securities when the Investment Adviser considers it desirable to do
so or, to the extent they are sold privately, may have to sell them at less than
the price of otherwise comparable securities. Also, like preferred stock,
private placements, unless they involve securities which may be resold pursuant
to Rule 144A, are not eligible for inclusion in the discounted value of the
portfolio for purposes of the Rating Agency Guidelines of Moody's or Fitch in
effect as of the date of this Prospectus. See "Rating Agency Guidelines."
The Fund is permitted to invest up to 20% of its total assets in zero
coupon securities, although such securities also may not be included in
calculating the discounted value of the Fund's portfolio under the Rating Agency
Guidelines. Zero coupon securities pay no cash income but are purchased at a
discount from their value at maturity. When held to maturity, their entire
return comes from the difference between their purchase price and their maturity
value. There may be special tax considerations associated with investing in
securities structured as deferred interest, zero coupon or payment-in-kind
securities. The Fund records the interest on these securities as income even
though it receives no cash interest until each security's maturity date. The
Fund will be required to distribute all or substantially all such amounts
annually and may have to obtain the cash to do so by selling securities. Thus,
to meet cash distribution obligations, the Fund may be required to liquidate a
portion of its assets, which it would otherwise continue to hold, at a
disadvantageous time. These distributions will be taxable to stockholders as
ordinary income. In the case of securities structured as deferred interest, zero
coupon or payment-in-kind securities, the market prices of such securities are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash.
The Fund may invest in U.S. dollar-denominated bonds sold in the United
States by non-U.S. issuers ("Yankee bonds"). As compared with bonds issued in
the United States, such bond issues normally carry a higher interest rate but
are less actively traded.
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<PAGE>
Notwithstanding any of the foregoing, when market conditions warrant a
temporary defensive investment strategy, including when it is necessary to
maintain compliance with the Rating Agency Guidelines (under which the Fund's
ability to invest in lower rated securities having relatively low discounted
values may be restricted, particularly as the market values of portfolio
holdings decline), the Fund may invest without limitation in money market
instruments, including rated and (subject to compliance with the Rating Agency
Guidelines) unrated commercial paper of domestic and foreign corporations,
certificates of deposit, bankers' acceptances and other obligations of banks,
repurchase agreements and short-term obligations issued or guaranteed by the
United States government or its instrumentalities or agencies. The yield on
these securities will tend to be lower than the yield on other securities to be
purchased by the Fund. The Fund may also invest in securities rated higher than
"Ba" by Moody's or "BB" by S&P or non-rated fixed-income securities of
comparable quality when the difference in yields between quality classifications
is relatively narrow or for temporary defensive purposes, including maintenance
of applicable asset coverage requirements, when the Investment Adviser
anticipates adverse market conditions. Investments in higher rated issues may
serve to lessen a decline in net asset value but may also affect the amount of
current income produced by the Fund, since the yields from such issues are
usually lower than those from lower rated issues.
As noted herein, the Fund has had a leveraged capital structure since
its inception and, as of December 31, 1996, had outstanding [2,000] shares of
preferred stock issued in two series, the ATP, having an aggregate liquidation
preference of $[100] million. The ATP is subject to optional redemption by the
Fund. The Fund is required to redeem the ATP in whole or in part in the event
the Fund fails to satisfy applicable asset coverage requirements and is required
to redeem the ATP in whole in the event the Fund fails to maintain the "aaa"/AAA
Credit Rating (as defined below) for the ATP and such rating is not restored on
a timely basis. See "Description of Capital Stock--Mandatory Redemption." The
"aaa"/AAA Credit Rating is a rating for the ATP in the highest rating category
of any two nationally recognized statistical rating organizations (as used in
the Securities Exchange Act of 1934, as amended), one of which must be Moody's
or S&P. Any such redemption will result in a loss of investment leverage and a
reduction in Fund income, the effect of which will be borne exclusively by the
holders of Common Stock. See "The Fund."
Investment Restrictions
The following investment restrictions are fundamental policies of the
Fund, and may not be amended without the affirmative vote of the holders of a
majority of the outstanding shares of the Fund's Common Stock and a majority of
the outstanding shares of the ATP, voting as separate classes, which means for
each class the lesser of (a) more than 50% of such class or (b) 67% or more of
such class present at a meeting at which more than 50% of the outstanding shares
of such class are present or represented by proxy. Under these restrictions, the
Fund may not:
1. Borrow money (through reverse repurchase agreements or otherwise)
or issue senior securities, except as permitted by Section 18 of the 1940 Act.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure borrowings permitted by restriction 1 above. Collateral
arrangements with respect to margins for futures contracts and options are not
deemed to be pledges or other encumbrances for purposes of this restriction.
3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities and except
that the Fund may make margin payments in connection with transactions in
futures contracts and options.
4. Make short sales of securities or maintain a short position for the
account of the Fund unless at all times when a short position is open the Fund
owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable for
securities of the same issue as, and in equal amount to, the securities sold
short.
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<PAGE>
5. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, the Fund
may be deemed to be an underwriter under the federal securities laws.
6. Purchase or sell real estate (including real estate mortgage loans),
although the Fund may purchase securities of issuers that deal in real estate,
securities that are secured by interests in real estate and securities
representing interests in real estate.
7. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase or sell financial futures contracts and related options.
8. Make loans, except by purchase of debt obligations in which the Fund
may invest consistently with its investment policies, by entering into
repurchase agreements with respect to not more than 25% of the value of its
total assets, or through the lending of its portfolio securities with respect to
not more than one-third of the value of its total assets.
9. Invest in securities of any issuer, if, to the knowledge of the Fund,
officers and Directors of the Fund and officers and partners of the Fund's
investment adviser who beneficially own more than 0.5% of the value of the
Fund's securities together own more than 5% of such issuer.
10. Invest in securities of any issuer if, immediately after such
investment, more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer, provided that this limitation does
not apply to obligations issued or guaranteed as to interest and principal by
the United States government or its agencies or instrumentalities.
11. Acquire more than 10% of the voting securities of any issuer.
12. Invest more than 25% of the value of its total assets in any one
industry, provided that this limitation does not apply to obligations issued or
guaranteed as to interest and principal by the United States government or its
agencies or instrumentalities.
13. Invest more than 20% of the market or other fair value of its total
assets in securities that are not readily marketable, including those that are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held in the portfolio of the Fund or to repurchase agreements
that have a maturity of seven days or less; however, the Fund will attempt to
dispose in an orderly fashion of any securities received under these
circumstances to the extent that such securities, together with other securities
that are not readily marketable, exceed 20% of the market or other fair value of
the Fund's total assets.
14. Invest in the securities of other registered investment companies,
except as they may be acquired as part of a merger or consolidation or
acquisition of assets or by purchases in the open market involving only
customary brokers' commissions.
15. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, although the Fund may purchase securities of issuers which deal in,
represent interests in or are secured by interests in such leases, rights or
contracts.
16. Make investments for the purpose of exercising control or
management over the issuer of any security.
Although the provisions of restrictions 2 (with respect to futures
contracts), 3 and 7 permit the Fund to engage in certain practices to a limited
extent, [the Fund does not currently engage in such practices]. See "Certain
Investment Policies" below.
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<PAGE>
The Fund also will be subject to certain investment restrictions so long
as the ATP remains outstanding, which may prohibit or limit certain practices
that are otherwise authorized. See "Certain Investment Practices" below and
"Rating Agency Guidelines."
Certain Investment Practices
The Fund and the Investment Adviser reserve the right to engage in
certain investment practices described below in order to help achieve the Fund's
investment objective. So long as the ATP is outstanding, the Fund may not
utilize certain of the practices described below, such as entering into swap
agreements, the making of securities loans and buying or selling futures
contracts and options thereon, unless the Fund receives written confirmation
from Moody's, Fitch or any other rating agency which is then rating the ATP and
which so requires, that any such action will not impair the "aaa"/AAA Credit
Rating. Further, the Rating Agency Guidelines limit or have the effect of
limiting the Fund's use of other investment practices described below, such as
investments in non-U.S. securities, private placements (except Rule 144A
Securities as discussed below) and options to the extent such investments are
not eligible for inclusion in the discounted value of the Fund's portfolio or
the Rating Agency Guidelines specify terms and restrictions on such investments.
Rating Agency Restrictions. While the Fund has reserved the right to
employ the investment practices described below, for so long as any of the ATP
is outstanding and either Moody's or Fitch is rating the ATP, the Fund will not,
unless it has received written confirmation from Moody's and/or Fitch, as
applicable, that any such action would not impair the respective rating then
assigned by Moody's or Fitch to the ATP, engage in any one or more of the
following transactions: (i) purchase or sell futures contracts or options
thereon with respect to portfolio securities or write unsecured put or uncovered
call options on portfolio securities, engage in options transactions involving
cross-hedging, or enter into any swap arrangement, other than the arrangement
described herein for which the Fund has obtained consent of Moody's and Fitch;
(ii) borrow money, except that the Fund may, without obtaining the written
confirmation described above, borrow money for the purpose of clearing
securities transactions; provided that the ATP Basic Maintenance Amount (as
defined below under "Description of Capital Stock") would continue to be
satisfied after giving effect to such borrowing and if the borrowing matures in
not more than 60 days and is non-redeemable; (iii) except in connection with a
refinancing of the ATP, issue any class or series of stock ranking prior to or
on a parity with the ATP with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Fund,
or reissue any shares of ATP previously purchased or redeemed by the Fund; (iv)
engage in any short sales of securities; (v) lend portfolio securities; or (vi)
merge or consolidate into or with any other corporation.
In addition, for so long as the ATP are rated by Moody's or Fitch: (a)
for purposes of the applicable rating agency asset coverage requirements, assets
in margin accounts are not eligible for inclusion in the determination of
discounted asset coverage, (b) where delivery of a security may be made to the
Fund with any of a class of securities, the Fund shall assume for purposes of
the rating agency coverage requirements that it takes delivery of that security
which yields it the least value, and (c) the Fund will not engage in forward
contracts.
Repurchase Agreements. The Fund may enter into repurchase agreements on
up to 25% of the value of its total assets. A repurchase agreement is a contract
under which the Fund acquires a security for a relatively short period (usually
not more than one week) subject to the obligation of the seller to repurchase
and the Fund to re-sell such security at a fixed time and price (representing
the Fund's cost plus interest). It is the Fund's present intention to enter into
repurchase agreements only with commercial banks and registered broker-dealers
and only with respect to obligations of the United States government or its
agencies or instrumentalities. Repurchase agreements may also be viewed as loans
made by the Fund which are collateralized by the securities subject to
repurchase. The Investment Adviser will monitor such transactions to ensure that
the value of the underlying securities will be at least equal at all times to
the total amount of the repurchase obligation, including the interest factor. If
the seller defaults, the Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the Fund may incur delay and costs in selling the underlying
security or may suffer a loss of
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principal and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements with respect to debt obligations which could otherwise be
sold by the Fund. A reverse repurchase agreement is an instrument under which
the Fund may sell an underlying debt instrument and simultaneously obtain the
commitment of the purchaser (a commercial bank or a broker or dealer) to sell
the security back to the Fund at an agreed upon price on an agreed upon date.
The value of underlying securities will be at least equal at all times to the
total amount of the resale obligation, including the interest factor. The Fund
receives payment for such securities only upon physical delivery or evidence of
book entry transfer by its custodian. Securities sold by the Fund under a
reverse repurchase agreement must be either segregated pending repurchase or the
proceeds must be segregated on the Fund's books and records pending repurchase.
Reverse repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities. An
additional risk is that the market value of securities sold by the Fund under a
reverse repurchase agreement could decline below the price at which the Fund is
obligated to repurchase them. The Fund will not hold more than 5% of the value
of its total assets in reverse repurchase agreements.
When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Fund may purchase securities on a when-issued
or delayed delivery basis (i.e, delivery and payment can take place a month or
more after the date of the transaction). The purchase price and the interest
rate payable on the securities are fixed on the transaction date. The securities
so purchased are subject to market fluctuation, and no interest accrues to the
Fund until delivery and payment take place. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed delivery basis, it
will record the transaction and thereafter reflect the value of such securities
in determining its net asset value. The Fund will make commitments for such
when-issued transactions only with the intention of actually acquiring the
securities. To facilitate such acquisitions, the Fund's custodian bank will
maintain, in a separate account of the Fund, liquid assets from its portfolio,
marked to market daily and having value equal to or greater than such
commitments. On the delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the separate
account and/or from then available cash flow. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of other portfolio obligations, incur a gain or loss due
to market fluctuation.
Permitted Investments in Direct Placement Securities. The Fund is
permitted by its investment objective and policies to invest without limitation
in direct placement securities. Direct placement securities are restricted
securities and therefore are subject to certain of the following risks which
would not apply to securities that were free for immediate public sale. In a
private sale of restricted securities, which may involve protracted negotiations
and a limited number of purchasers, the possibility of delay and the necessity
of obtaining a commitment of investment intent from the purchasers might
adversely affect the price of the securities. In a public offering, the delay
resulting from registration may make it impossible for the Fund to sell
securities at the most desirable time, and the price of the securities may
decline between the time of the decision to sell and the time when the sale is
accomplished. Since only the issuer of the securities can prepare and file a
registration statement under the Securities Act of 1933, as amended, the Fund
may not be able to obtain registration at the most desirable time.
In view of the above risks, the proceeds to the Fund from the sale of
restricted securities acquired by direct placement could be less than the
proceeds from the sale of similar securities which were free for immediate
public resale. If the Fund is required to liquidate portfolio investments to
satisfy applicable asset coverage requirements, it may be required to dispose of
direct placement securities at times or prices which are disadvantageous to the
Fund.
Direct placement securities, unless eligible for resale under Rule 144A,
are generally ineligible for inclusion in the calculation of the discounted
value of the Fund's investment portfolio under the Rating Agency Guidelines with
which the Fund will be required to comply for so long as the shares of ATP
remain outstanding. The guidelines require the Fund to maintain portfolio assets
eligible for inclusion in such calculation which have
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<PAGE>
an aggregate discounted value in excess of the specified asset coverage levels
and may therefore limit the Fund's ability to invest in direct placement
securities.
Foreign Investments. The Fund may invest up to 10% of the value of its
total assets in securities principally traded in foreign markets. In addition,
subject to the Fund's basic investment strategy, the Fund may also purchase
Eurodollar certificates of deposit issued by branches of U.S. banks. Foreign
investments may involve risks not present to the same degree in domestic
investments, such as future political and economic developments, the imposition
of withholding taxes on interest income, seizure or nationalization of foreign
deposits, the establishment of exchange controls and the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal of and interest on such obligations. Foreign securities may be less
liquid and more volatile than U.S. securities, and foreign accounting and
disclosure standards may differ from U.S. standards. In addition, settlement of
transactions in foreign securities may be subject to delays, which could result
in adverse consequences to the Fund including restrictions on the subsequent
resale of such securities. The value of foreign investments may rise or fall
because of changes in currency exchange rates. The Fund may buy or sell foreign
currencies or deal in forward foreign currency contracts in connection with the
purchase and sale of foreign investments.
Interest Rate Transactions. The Fund may enter into interest rate
transactions, such as swaps, caps, collars and floors for the purpose or with
the effect of hedging its portfolio and/or its payment obligations with respect
to senior securities. The costs of any such interest rate transaction and the
payment made or received by the Fund thereunder would be borne by or inure to
the benefit of the Fund's common stockholders. If there is a default by the
other party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these investment techniques were not used. Moreover, even if the
Investment Adviser is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or liability
being hedged.
In February 1994, the Fund entered into a five-year interest payment
swap arrangement having a $65 million notional amount with The First National
Bank of Boston. The effect of this arrangement is to hedge the Fund's dividend
payment obligations with respect to 65% of the ATP presently outstanding. Under
the swap arrangement, the Fund makes monthly payments to FNBB at the annual rate
of 5.25% of the notional swap amount while receiving from FNBB payments at a
floating rate determined with reference to the level of short-term interest
rates from time to time (and which was ____% at December __, 1996). See
"Investment Objective and Policies." The Fund makes dividend payments to the
holders of the ATP on the basis of the results of periodic auctions in
accordance with its terms without regard to the swap and would continue to do so
in the event the swap is terminated. The Fund has agreed to terminate the
arrangement in the event it fails to maintain certain asset coverage
requirements. See "Rating Agency Guidelines."
Options. The Fund may write (sell) call options which are traded on
national securities exchanges with respect to securities in its portfolio. The
Fund may only write "covered" call options, that is, options on securities it
holds in its portfolio or has an immediate right to acquire through conversion
or exchange of securities held in its portfolio. The Fund reserves the right to
write call options on its portfolio securities in an attempt to realize a
greater current return than would be realized on the securities alone. The Fund
may also write call options as a partial hedge against a possible market
decline. In view of its investment objective, the Fund generally would write
call options only in circumstances in which the Investment Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar
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<PAGE>
as the premium represents such a profit (and retains the risk of loss should the
value of the underlying security decline). The Fund may also enter into "closing
purchase transactions" in order to terminate its obligation as a writer of a
call option prior to the expiration of the option. Although the writing of call
options only on national securities exchanges increases the likelihood that the
Fund will be able to make closing purchase transactions, there is no assurance
that the Fund will be able to effect such transactions at any particular time or
at any acceptable price. The writing of call options could result in increases
in the Fund's portfolio turnover rate, especially during periods when market
prices of the underlying securities appreciate.
For purposes of valuation of the Fund's assets under the Rating Agency
Guidelines (see "Description of Capital Stock--Asset Maintenance"): (i) if the
Fund writes a call option, the underlying asset will be valued as follows: (a)
if the option is exchange-traded and may be offset readily or if the option
expires before the earliest possible redemption of the ATP, at the lower of the
discounted value of the underlying security of the option and the exercise price
of the option or (b) otherwise, it has no value; (ii) if the Fund writes a put
option, the underlying asset will be valued as follows: the lesser of (a)
exercise price and (b) the discounted value of the underlying security
determined in accordance with Rating Agency Guidelines; and (iii) call or put
option contracts which the Fund buys have no value. For so long as the ATP are
rated by Moody's or Fitch: (i) the Fund will not engage in options transactions
for leveraging or speculative purposes; (ii) the Fund will not write or sell any
anticipatory contracts pursuant to which the Fund hedges the anticipated
purchase of an asset prior to completion of such purchase; (iii) the Fund will
not enter into an option transaction with respect to portfolio securities
unless, after giving effect thereto, the Fund would continue to be in compliance
with applicable rating agency asset coverage requirements (see "Description of
Capital Stock--Asset Maintenance"); (iv) the Fund shall write only
exchange-traded options on exchanges approved by Moody's (if Moody's is then
rating the ATP) and Fitch (if Fitch is then rating the ATP); and (v) there shall
be a quarterly audit made of the Fund's options transactions, if any, by the
Fund's independent accountants to confirm that the Fund is in compliance with
these standards.
Futures Contracts and Related Options. The Investment Adviser does not
currently intend that the Fund will invest in futures contracts or related
options with respect to the portfolio. However, the Fund has reserved the right,
subject to the approval of the Board of Directors, to purchase and sell
financial futures contracts and options on such futures contracts for the
purpose of hedging its portfolio securities (or portfolio securities which it
expects to acquire) against anticipated changes in prevailing interest rates.
This technique could be employed if the Investment Adviser anticipates that
interest rates may rise, in which event the Fund could sell a futures contract
to protect against the potential decline in the value of its portfolio
securities. Conversely, if declining interest rates were anticipated, the Fund
could purchase a futures contract to protect against a potential increase in the
price of securities the Fund intends to purchase.
In the event the Fund determines to invest in futures contracts and
options thereon, it will not purchase or sell such instruments if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts would exceed 5% of the value of the
Fund's total assets. In addition, in accordance with the regulations of the
Commodity Futures Trading Commission (the "CFTC") under which the Fund will be
exempted from registration as a commodity pool operator, the Fund may only enter
into futures contracts and options on futures contracts transactions for other
than hedging purposes if immediately thereafter the sum of the amount of the
initial margin deposits and premiums on open positions with respect to futures
and options used for non-hedging purposes would exceed 5% of the market value of
the Fund's net assets. There is no overall limitation on the percentage of the
Fund's portfolio securities which may be subject to a hedge position. If the
CFTC were to amend its regulations such that the Fund would be permitted to
write options on futures contracts for income purposes without CFTC
registration, the Fund would have the right to engage in such transactions for
those purposes, subject to the approval of the Board of Directors. The extent to
which the Fund may enter into transactions involving futures contracts also may
be limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for qualification as a regulated investment company.
Risks of Hedging Transactions. The use of options, financial futures and
options on financial futures may involve risks not associated with other types
of investments which the fund intends to purchase, and it is possible that a
portfolio that utilizes hedging strategies may perform less well than a
portfolio that does not make use
34
<PAGE>
of such devices. Use of put and call options may result in losses to the Fund,
force the sale of portfolio securities at inopportune times or for prices other
than at current market values, limit the amount of appreciation the Fund can
realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
and the sale of options thereon would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium.
Incurrence of Indebtedness. For so long as any of the ATP are
outstanding, the Fund will not borrow money or issue senior securities
representing indebtedness unless it has received written notice from Moody's (if
Moody's is then rating the ATP) and Fitch (if Fitch is then rating the ATP) and
any other rating agency which is then rating the ATP which so requires that such
action would not impair the "aaa"/AAA Credit Rating. For so long as any of the
Fund's preferred stock, including the ATP, is outstanding, the lesser of (a) 67%
of the shares of the Fund's preferred stock, voting as a separate class, present
at a meeting at which more than 50% of the outstanding shares of preferred stock
entitled to vote is present or (b) more than 50% of the outstanding shares of
preferred stock, must approve any Fund borrowing. Preferred stockholder approval
is not, however, required if the Fund borrows for temporary or emergency
purposes in accordance with its investment policies and restrictions or for the
purpose of clearing transactions. To the extent that the Fund does incur any
borrowings, such borrowings would typically be senior in right of payment to the
ATP and the Common Stock upon liquidation of the Fund.
Securities Loans. The Fund reserves the right to make secured loans of
its portfolio securities amounting to not more than one-third of the value of
its total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delays in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. As a matter of policy
securities loans are made to unaffiliated broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities
subject to the loan. The borrower pays to the Fund an amount equal to any
interest or dividends received on the securities subject to the loan. The Fund
retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved.
RATING AGENCY GUIDELINES
The Fund intends at all times that, so long as any ATP are outstanding
and Moody's and Fitch are then rating the ATP, the composition of its portfolio
will reflect guidelines established by Moody's and Fitch in connection with
obtaining the "aaa"/AAA Credit Rating with respect to the ATP. Should the Fund
determine to seek (and be successful in obtaining) a rating from any other
rating agency or issue senior securities other than the ATP which are rated or
otherwise subject to portfolio diversification or similar requirements, the
composition of its portfolio would also reflect the guidelines and requirements
established by any rating agency rating such securities or by the purchaser or
purchasers of such securities. Moody's and Fitch, nationally recognized
statistical rating organizations, issue ratings for various securities
reflecting the perceived creditworthiness of such securities. The Fund has paid
certain fees to Moody's and Fitch for rating shares of the ATP. The guidelines
described below have been developed independently by Moody's and Fitch in
35
<PAGE>
connection with issuance of asset-backed and similar securities, including debt
obligations and adjustable rate preferred stocks, generally on a case-by-case
basis through discussions with the issuers of these securities. The guidelines
are designed to ensure that assets underlying outstanding debt or preferred
stock will be sufficiently varied and will be of sufficient quality and amount
to justify investment-grade ratings. The guidelines do not have the force of
law, but have been adopted by the Fund in order to satisfy current requirements
necessary for Moody's and Fitch to issue the above-described ratings for the
ATP, which ratings are generally relied upon by institutional investors in
purchasing such securities. In the context of a closed-end investment company
such as the Fund, therefore, the guidelines provide a set of tests for portfolio
composition and asset coverage which supplement (and in some cases are more
restrictive than) the applicable requirements under the 1940 Act, and which
accordingly affect significantly the management of the Fund's portfolio. A
rating agency's guidelines will apply to the ATP only so long as such rating
agency is rating such shares and such guidelines are subject to amendment with
the consent of the relevant rating agency.
The Fund intends to maintain a discounted value for its portfolio
("Discounted Value") at least equal to the amount specified by each rating
agency (the "ATP Basic Maintenance Amount"), the determination of which is as
set forth under "Description of Capital Stock--Asset Maintenance." Moody's and
Fitch have each established separate guidelines for determining Discounted
Value. To the extent any particular portfolio holding does not satisfy the
applicable rating agency's guidelines, all or a portion of such holding's value
will not be included in the calculation of Discounted Value (as defined by such
rating agency). The Moody's and Fitch guidelines do not impose any limitations
on the percentage of Fund assets that may be invested in holdings not eligible
for inclusion in the calculation of the Discounted Value of the Fund's
portfolio. The amount of such assets included in the portfolio at any time may
vary depending upon the rating, diversification and other characteristics of the
assets included in the portfolio which are eligible for inclusion in the
Discounted Value of the portfolio under the Rating Agency Guidelines ("Eligible
Assets").
Moody's "aaa" Rating Guidelines
For purposes of calculating the Discounted Value of the Fund's portfolio
under current Moody's guidelines, the fair market value of portfolio securities
eligible for consideration under such guidelines ("Moody's Eligible Assets")
must be discounted by certain discount factors set forth below ("Moody's
Discount Factors"). The Discounted Value of a portfolio security under Moody's
guidelines is the market value thereof determined in accordance with criteria
provided by the relevant rating agency ("Market Value") divided by the Moody's
Discount Factor. The Moody's Discount Factor with respect to securities other
than those described below will be the percentage provided in writing by
Moody's.
Corporate Debt Securities. Under current Moody's guidelines, portfolio
securities that are corporate debt securities will not be included in the
calculation of the Discounted Value of the Fund's portfolio unless (a) such
securities are rated Caa or higher by Moody's; (b) the senior unsecured rating
of the issuer's corporate bonds is higher than B3; (c) such securities provide
for the periodic payment of interest in cash in U.S. dollars; (d) such
securities do not provide for conversion or exchange into equity capital at any
time over their lives; (e) for debt securities rated Ba1 and below, no more than
10% of the original amount of such issue may constitute Moody's Eligible Assets;
and (f) such securities have been registered under the Securities Act of 1933,
as amended, or are restricted as to resale under federal securities laws but are
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, as determined by the Fund's adviser acting subject to the supervision
of the Fund's Board of Directors ("Rule 144A Securities"). Thus, the Moody's
guidelines have the effect of prohibiting or significantly restricting
investments in securities other than fixed-income obligations of U.S. issuers
which are rated Caa or higher.
The Discounted Value of any Moody's Eligible Asset that is a corporate
debt security is the percentage determined by reference to the rating on such
asset with reference to the remaining term to maturity of such assets, in
accordance with the table set forth below:
36
<PAGE>
Moody's Discount Factors --
Corporate Debt Securities+
<TABLE>
<CAPTION>
Remaining Term Rating Category
to ---------------------------------------------------------------------------
Maturity Asset Aaa Aa A Baa Ba B* Caa
- -------------- --- -- - --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year................. 112% 118% 123% 128% 139% 150% 260%
2 Years................ 118 124 130 135 147 158 260
3 Years................ 123 129 135 141 153 165 260
4 Years................ 139 135 141 148 160 172 260
5 Years................ 134 141 147 154 166 179 260
7 Years................ 142 149 155 162 176 189 260
10 Years................ 148 156 163 170 184 198 260
15 Years................ 153 161 168 175 190 205 260
20 Years................ 161 169 177 184 200 215 260
30 Years................ 162 170 178 185 201 216 260
</TABLE>
* Senior debt securities of an issuer rated B3 shall be deemed to be Caa
rated securities for purposes of determining the applicable Moody's
Discount Factor.
+ The Moody's Discount Factor applied to Rule 144A Securities is 160% of
the Moody's Discount Factor which would apply were the securities
registered under the 1933 Act.
The Moody's guidelines impose minimum issue size, issuer and industry
diversification and other requirements for purposes of determining Moody's
Eligible Assets. Specifically, portfolio holdings as described below must be
within the following diversification and issue size requirements in order to
constitute Moody's Eligible Assets includable within the calculation of
Discounted Value:
<TABLE>
<CAPTION>
Maximum Maximum
Single Single Minimum
Issuer Industry Issue Size
Asset Ratings(1) (%)(2,3) (%)(3,4) ($ in millions)(6)
---------------- -------- -------- ------------------
<S> <C> <C> <C>
"aaa", Aaa............................. 100 100 100
"aa", Aa............................... 20 60 100
"a", A, P-1............................ 10 40 100
"baa", Baa............................. 6 20 100
Ba..................................... 4 12 50(5)
B1-B2.................................. 3 8 50(5)
B3 (Caa subordinate)................... 2 5 50(5)
</TABLE>
See accompanying notes
- ---------------------
(1) Refers to the senior debt rating of asset.
(2) Companies subject to common ownership of 25% or more are considered as
one name.
(3) Percentages represent a portion of the aggregate Market Value of corporate
securities.
(4) Industries are determined according to industry classifications specified
by Moody's ("Moody's Industry Classification"). See below.
(5) Bonds from issues ranging from $50 million to $100 million are limited to
20% of the collateral pool.
37
<PAGE>
(6) Except for preferred stock, which has a minimum issue size of $50 million.
The Moody's Industry Classifications, for the purposes of determining
Moody's Eligible Assets, mean each of the following industry classifications,
determined with respect to particular issues in the discretion of the Fund:
Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition
Automobile: Automotive Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods,
Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks,
Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes,
Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
Engineering, Construction, Hardware, Forest Products (building-related only),
Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs,
Land Development
Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial
Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints,
Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood, or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals: Fabricating,
Distribution
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste Disposal
Electronics: Computer Hardware, Electric Equipment, Components, Controllers,
Motors, Household Appliances, Information Service Communication Systems,
Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
Farming and Agriculture: Livestock, Grains, Produce; Agricultural Chemicals,
Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment
38
<PAGE>
Home and Office Furnishings, Housewares and Durable Consumer Products:
Carpets, Floor Coverings, Furniture, Cooking, Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agent, Surety
Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes,
Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy
Manufacturing), Motion Picture Production Theaters, Motion Picture
Distribution
Machinery (Non-Agriculture, Non-Construction, Non-Electronic): Industrial,
Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead, Uranium,
Zinc, Aluminum, Stainless Steel Integrated Steel, Ore Production,
Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution
and Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper Products,
Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio,
T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-car builders, Ship Builders,
Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck
Manufacturing, Trailer Manufacturing, Air Cargo, Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog,
Showroom
Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph,
Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national Agencies
Where the Fund sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Moody's Eligible
Asset and the amount the Fund is required to pay upon repurchase of such asset
will count as a liability for the purposes of the ATP Basic Maintenance Amount.
Where the Fund purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Fund thereby will constitute a Moody's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and such agreement has a term of 30 days or less; otherwise the Discounted Value
of such asset will constitute a Moody's Eligible Asset. For the purposes of
calculation of Moody's Eligible Assets, portfolio securities which have been
called for redemption by the issuer thereof are valued at the lower of Market
Value or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic
39
<PAGE>
Maintenance Amount (see "Description of Capital Stock--Asset Maintenance") or it
is subject to any material lien, mortgage, pledge, security interest or security
agreement of any kind (collectively, "Liens"), except for (a) Liens which are
being contested in good faith by appropriate proceedings and which Moody's has
indicated to the Fund will not affect the status of such asset as a Moody's
Eligible Asset, (b) Liens for taxes that are not then due and payable or that
can be paid thereafter without penalty, (c) Liens to secure payment for services
rendered or cash advanced to the Fund by its investment adviser, the Fund's
custodian, transfer agent or registrar or the auction agent for the ATP (the
"Auction Agent") and (d) Liens by virtue of any repurchase agreement.
The effect of the foregoing discount factors may be to cause the Fund to
invest in higher rated securities than it would if it were not required to
maintain specified asset coverage on a discounted basis. This may have the
effect of reducing the yield on the portfolio. See "Risk Factors and Special
Considerations."
Preferred Stock. Under current Moody's guidelines, portfolio securities
that are preferred stocks will not be included in the calculation of Discounted
Value of the Fund's portfolio unless (a) dividends on such preferred stock are
cumulative, (b) such securities provide for the periodic payment of dividends
thereon in cash in U.S. dollars and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity capital
at any time over the respective lives of such securities, (c) the issuer of such
a preferred stock has common stock listed on either the New York Stock Exchange
or the American Stock Exchange, (d) the issuer of such a preferred stock has a
senior debt rating from Moody's of Baa1 or higher or a preferred stock rating
from Moody's of "baa3" or higher and (e) such preferred stock has paid
consistent cash dividends in U.S. dollars over the last three years or has a
minimum rating of "al" (if the issuer of such preferred stock has other
preferred issues outstanding that have been paying dividends consistently for
the last three years, then a preferred stock without such a dividend history
would also be eligible). In addition, the preferred stocks must have the
following diversification requirements: (x) the preferred stock issue must be
greater than $50 million and (y) the minimum holding by the Fund of each issue
of preferred stock is $500,000 and the maximum holding of preferred stock of
each issue is $5 million. In addition, preferred stocks issued by transportation
companies will not be considered as Moody's Eligible Assets.
The Moody's Discount Factors for Moody's Eligible Assets that are
preferred stock are (a) 152% for utility preferred stocks, (b) 197% for
industrial/financial preferred stocks and (c) 350% for auction rate preferred
stocks.
Other Moody's Eligible Assets. In addition to corporate debt securities
and preferred stocks which satisfy the above requirements, Moody's Eligible
Assets also include the following:
(i) cash (including, for this purpose, interest and
dividends due on assets rated (A) Baa3 or higher by Moody's if the
payment date is within five business days of the date on which the value
of the portfolio is being determined for purposes of determining
compliance with Moody's or Fitch's investment guidelines (a "Valuation
Date"), (B) A2 or higher if the payment date is within thirty days of
the Valuation Date, and (C) A1 or higher if the payment date is within
the Exposure Period) and receivables for Moody's Eligible Assets sold if
the receivable is due within five business days of the Valuation Date,
and if the trades which generated such receivables are (A) settled
through clearing house firms with respect to which the Fund has received
prior written authorization from Moody's or (B)(1) with counterparties
having a Moody's long-term debt rating of at least Baa3 or (2) with
counterparties having a Moody's short-term money market instrument
rating of at least P-1;
(ii) short-term money market instruments (as defined by
Moody's), so long as (A) such securities are rated at least P-1, (B) in
the case of demand deposits, time deposits and overnight funds, the
supporting entity is rated at least A2, or (C) in all other cases, the
supporting entity (1) is rated A2 and the security matures within one
month, (2) is rated A1 and the security matures within three months, or
(3) is rated at least Aa3 and the security matures within six months;
provided, however, that for purposes of this definition, such
instruments (other than commercial paper rated by S&P and not rated by
Moody's) need not meet any otherwise applicable S&P rating criteria; and
40
<PAGE>
(iii) U.S. Treasury Securities and Treasury Strips
(as defined by Moody's).
A Moody's Discount Factor of 100% will be applied to cash. The Moody's
Discount Factor applied to Moody's Eligible Assets that are short term money
instruments (as defined by Moody's) will be (a) 100%, so long as portfolio
securities mature or have a demand feature at par exercisable within 41 days of
the relevant valuation date (the "Exposure Period"), (b) 115%, so long as such
portfolio securities mature or have a demand feature at par not exercisable
within the Exposure Period, and (c) 125%, if such securities are not rated by
Moody's, so long as such portfolio securities are rated at least A-1+/AA or
SP-1+/AA by S&P and mature or have a demand feature at par exercisable within
the Exposure Period.
The Moody's Discount factors for Moody's Eligible Assets that are U.S.
Treasury Securities and U.S. Treasury Strips are as follows:
U.S. Treasury Securities:
Discount
Remaining Term to Maturity Factor
-------------------------- --------
1 year or less.............................................. 107%
2 years or less (but longer than 1 year).................... 113
3 years or less (but longer than 2 years)................... 118
4 years or less (but longer than 3 years)................... 123
5 years or less (but longer than 4 years)................... 128
7 years or less (but longer than 5 years)................... 135
10 years or less (but longer than 7 years).................. 141
15 years or less (but longer than 10 years)................. 146
20 years or less (but longer than 15 years)................. 154
30 years or less (but longer than 20 years)................. 154
U.S. Treasury Strips:
Discount
Remaining Term to Maturity Factor
-------------------------- --------
1 year or less.............................................. 107%
2 years or less (but longer than 1 year).................... 114
3 years or less (but longer than 2 years)................... 120
4 years or less (but longer than 3 years)................... 127
5 years or less (but longer than 4 years)................... 133
7 years or less (but longer than 5 years)................... 145
10 years or less (but longer than 7 years).................. 159
15 years or less (but longer than 10 years)................. 184
20 years or less (but longer than 15 years)................. 211
30 years or less (but longer than 20 years)................. 236
Fitch "AAA" Rating Guidelines
For purposes of calculating the Discounted Value of the Fund's portfolio
under current Fitch guidelines, the fair market value of portfolio securities
eligible for consideration under such guidelines ("Fitch Eligible Assets") must
be discounted by certain discount factors set forth below ("Fitch Discount
Factors"). The discounted value of a portfolio security under the Fitch
guidelines ("Discounted Value") is the market value thereof determined as
specified by Fitch ("Market Value") divided by the Fitch Discount Factor. The
Fitch Discount Factor with respect to securities other than those described
below will be the percentage provided in writing by Fitch.
Corporate Debt Securities. Under current Fitch guidelines, portfolio
securities that are corporate debt securities will not be deemed "Corporate
Bonds" includable in the calculation of the Discounted Value of the
41
<PAGE>
Fund's portfolio unless (a) such securities are rated either CCC or higher by
Fitch or Caa or higher by Moody's and CCC or higher by S&P; (b) such securities
provide for the periodic payment of interest in cash in U.S. dollars; (c) such
securities do not provide for conversion or exchange into equity capital at any
time over their lives; (d) such securities have been registered under the
Securities Act of 1933, as amended or are restricted as to resale under federal
securities laws but are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended, as determined by the Fund's adviser acting
subject to the supervision of the Fund's Board of Directors; and (e) such
securities are issued by a U.S. corporation. In addition, bonds which are issued
in connection with a reorganization under U.S. federal bankruptcy law
("Reorganization Bonds") will be considered Corporate Bonds constituting Fitch
Eligible Assets, if (a) they are rated CCC or higher by Fitch or, if unrated by
Fitch, rated Caa or higher by Moody's and CCC or higher by S&P; (b) they provide
for periodic payment of interest in cash in U.S. dollars; (c) they do not
provide for conversion or exchange into equity capital at any time over their
lives; (d) they have been registered under the Securities Act or are restricted
as to resale under federal securities laws but are eligible for trading under
Rule 144A promulgated pursuant to the Securities Act as determined by the Fund's
adviser acting subject to the supervision of the Fund's Board of Directors; (e)
they were issued by a U.S. corporation; and (f) at the time of purchase at least
one year had elapsed since the issuer's reorganization. Reorganization Bonds may
also be considered Corporate Bonds constituting Fitch Eligible Assets if they
have been approved by Fitch, which approval shall not be unreasonably withheld.
The discounted value of any Fitch Eligible Assets that is a corporate
debt security constituting a Fitch Eligible Asset (see "Corporate Debt
Securities," above) is the percentage determined by reference to (i) the rating
on such asset (i.e., whether it is a Type I, Type II, Type III, Type IV, Type V,
Type VI or Type VII Corporate Bond as defined below) and (ii) the remaining term
to maturity of such assets, in accordance with the table set forth below, except
that the Fitch Discount Factor applied to Rule 144A Securities will be 110% of
the Fitch Discount Factor which would apply were the securities registered under
the 1933 Act:
Type I Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.16
greater than 2 years, but less than or equal to 4 years 1.26
greater than 4 years, but less than or equal to 7 years 1.40
greater than 7 years, but less than or equal to 12 years 1.44
greater than 12 years, but less than or equal to 25 years 1.48
greater than 25 years, but less than or equal to 30 years 1.52
Type II Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.25
greater than 2 years, but less than or equal to 4 years 1.26
greater than 4 years, but less than or equal to 7 years 1.43
greater than 7 years, but less than or equal to 12 years 1.44
greater than 12 years, but less than or equal to 25 years 1.51
greater than 25 years, but less than or equal to 30 years 1.56
Type III Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.25
greater than 2 years, but less than or equal to 4 years 1.29
greater than 4 years, but less than or equal to 7 years 1.46
greater than 7 years, but less than or equal to 12 years 1.50
greater than 12 years, but less than or equal to 25 years 1.55
greater than 25 years, but less than or equal to 30 years 1.60
42
<PAGE>
Type IV Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.22
greater than 2 years, but less than or equal to 4 years 1.32
greater than 4 years, but less than or equal to 7 years 1.52
greater than 7 years, but less than or equal to 12 years 1.57
greater than 12 years, but less than or equal to 25 years 1.63
greater than 25 years, but less than or equal to 30 years 1.69
Type V Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.32
greater than 2 years, but less than or equal to 4 years 1.36
greater than 4 years, but less than or equal to 7 years 1.59
greater than 7 years, but less than or equal to 12 years 1.65
greater than 12 years, but less than or equal to 25 years 1.72
greater than 25 years, but less than or equal to 30 years 1.80
Type VI Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.40
greater than 4 years, but less than or equal to 7 years 1.67
greater than 7 years, but less than or equal to 12 years 1.74
greater than 12 years, but less than or equal to 25 years 1.82
greater than 25 years, but less than or equal to 30 years 1.91
Type VII Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.64
greater than 4 years, but less than or equal to 7 years 2.28
greater than 7 years, but less than or equal to 12 years 2.49
greater than 12 years, but less than or equal to 25 years 2.74
greater than 25 years, but less than or equal to 30 years 3.06
For purposes of the foregoing:
"Type I Corporate bonds" means Corporate Bonds (as defined above) rated
either AAA by Fitch or, if not rated by Fitch, rated AAA by S&P and Aaa by
Moody's;
"Type II Corporate Bonds" means Corporate Bonds rated either at least
AA- by Fitch or, if not rated by Fitch, rated at least AA- by S&P and at least
Aa3 by Moody's which do not constitute Type I Corporate Bonds;
"Type III Corporate Bonds" means Corporate Bonds rated either at least
A- by Fitch or, if not rated by Fitch, rated at least A- by S&P and at least A3
by Moody's which do not constitute Type I or Type II Corporate Bonds
"Type IV Corporate Bonds" means Corporate Bonds rated either at least
BBB- by Fitch or, if not rated by Fitch, rated at least BBB- by S&P and at least
Baa3 by Moody's which do not constitute Type I, Type II or Type III Corporate
Bonds;
"Type V Corporate Bonds" means Corporate Bonds rated either at least BB-
by Fitch or, if not rated by Fitch, rated at least BB- by S&P and at least Ba3
by Moody's which do not constitute Type I, Type II, Type III or Type IV
Corporate Bonds;
43
<PAGE>
"Type VI Corporate Bonds" means Corporate Bonds rated either at least B-
by Fitch or, if not rated by Fitch, rated at least B- by S&P and at least B3 by
Moody's which do not constitute Type I, Type II, Type III, Type IV or Type V
Corporate Bonds; and
"Type VII Corporate Bonds" means Corporate Bonds rated either at least
CCC by Fitch or, if not rated by Fitch, rated at least CCC by S&P and at least
Caa by Moody's which do not constitute Type I, Type II, Type III, Type IV, Type
V or Type VI Corporate Bonds.
In addition, portfolio holdings as described below must be within the
following diversification and issue size requirements in order to be included in
Fitch Eligible Assets:
Maximum Maximum
Single Single Minimum
Issuer Industry Issue in Size
Type of Corporate Bond (%) (1,2) (%) (2,3) ($ in millions)
- ---------------------- ----------- ----------- ---------------
Type I........................ 100% 100% $100
Type II....................... 20 75 100
Type III (4).................. 10 50 100
Type IV....................... 6 25 100
Type V........................ 4 16 50 (5)
Type VI....................... 3 12 50 (5)
Type VII...................... 2 8 50 (5)
See accompanying notes
- ---------------------
(1) Companies subject to common ownership of 25% or more are considered as
one name.
(2) Percentages represent a portion of the aggregate Market Value of corporate
securities.
(3) Industries are determined according to industry classifications specified
by Fitch ("Fitch Industry Classifications") (see below).
(4) Includes Short Term Money Market Instruments which do not constitute Type
I or Type II Corporate Bonds and which have a maturity greater than the
Exposure Period.
(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.
The Fitch Industry Classifications, for the purposes of determining Fitch
Eligible Assets, mean the following industry classifications, determined with
respect to particular issues in the discretion of the Fund:
Aerospace & Defense
Automobiles
Banking, Finance & Insurance
Building & Materials
Chemicals
Computers & Electronics
Consumer Products
Energy
Environmental Services
Farming & Agriculture
Food, Beverage & Tobacco
44
<PAGE>
Healthcare & Pharmaceutical
Industrial Machinery
Media, Leisure & Entertainment
Metals & Mining
Miscellaneous
Paper & Forest Products
Retail
Sovereigns
Textiles & Furniture
Transportation
Utilities
Other Fitch Eligible Assets. Other Fitch Eligible Assets include cash,
certain receivables for Fitch Eligible Assets, interest and dividends due on
certain assets rated not lower than Baa3 by Moody's or BBB- by S&P, U.S.
Treasury Securities (as defined by Fitch) and Short-Term Money Market
Instruments (as defined by Fitch). The Fitch Discount Factors for Fitch Eligible
Assets that are U.S. Treasury Securities are as follows:
U.S. Treasury Securities with remaining maturities of:
less than or equal to 1 year 1.06
greater than 1 year, but less than or equal to 2 years 1.11
greater than 2 years, but less than or equal to 5 years 1.16
greater than 5 years, but less than or equal to 15 years 1.24
greater than 25 years, but less than or equal to 30 years 1.26
The Fitch Discount Factor applied to short-term portfolio securities
will be (A) 100%, so long as such portfolio securities mature or have a demand
feature at par exercisable within the Exposure Period and, (B) 125%, so long as
such portfolio securities neither mature nor have a demand feature at par
exercisable within the Exposure Period. A Fitch Discount Factor of 100% will be
applied to cash.
Under Fitch's current guidelines, portfolio securities that are
preferred stocks will not be deemed Fitch Eligible Assets.
When the Fund sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Fitch Eligible
Asset and the amount the Fund is required to pay upon repurchase of such asset
will count as a liability for the purposes of the ATP Basic Maintenance Amount.
Where the Fund purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Fund thereby will constitute a Fitch's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and A by S&P and such agreement has a term of 30 days or less; otherwise the
Discounted Value of such asset will constitute a Fitch Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Fitch
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic Maintenance
Amount (see "Description of Capital Stock--Asset Maintenance") or it is subject
to any material Lien, except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Fitch has indicated to the Fund will
not affect the status of such asset as a Fitch Eligible Asset, (b) Liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Fund by its investment adviser, the Fund's custodian, transfer agent or
registrar or the Auction Agent and (d) Liens by virtue of any repurchase
agreement.
* * *
The Board of Directors may, without approval of the Fund's stockholders,
from time to time amend, alter or repeal any or all of the definitions which
relate to the Moody's and Fitch guidelines and which generally establish the
investment guidelines for the Fund's portfolio in the event the Fund receives
written confirmation
45
<PAGE>
from the appropriate rating agency that any such amendment, alteration or repeal
would not impair the rating then assigned to the ATP by such rating agency. In
addition, the Board of Directors, without the vote or consent of the Fund's
stockholders, may from time to time adopt, amend, alter or repeal any or all of
additional or other definitions or add covenants and other obligations of the
Fund (e.g., maintenance of a minimum liquidity level) or confirm the
applicability of covenants and other obligations in connection with obtaining or
maintaining the rating of Moody's, Fitch or any other rating agency with respect
to the ATP. See "Description of Capital Stock--Voting Rights."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution and Other Investment Considerations
Because the Subscription Price will be less than the net asset value per
share on the Expiration Date, the net asset value, on a per share basis, of the
Common Stock outstanding prior to the Offer will be reduced as a result of the
Offer. Although it is not possible to state precisely the amount of such a
decrease in value, because it is not known at this time what the net asset value
per share will be at the Expiration Date or what proportion of the Shares will
be subscribed for, such dilution could be substantial. For example, assuming
that all Rights are exercised at the Estimated Subscription Price of $____,
expenses associated with the Offer were $_________, and the Fund's net asset
value otherwise remained constant, the Fund's net asset value per share on such
date would be reduced by approximately $____ per share. Stockholders on the
Record Date will experience a decrease in the net asset value per share held by
them, irrespective of whether they exercise all or any portion of their Rights.
In addition, as a result of the terms of the Offer, stockholders on the Record
Date who do not fully exercise their Rights will, at the completion of the
Offer, suffer significant dilution and own a smaller proportional interest in
the Fund than they owned prior to the Offer. The Fund cannot predict what
portion of any shares sold will be purchased by Record Date Stockholders as
compared to other Rightholders. The Fund believes that the distribution to
stockholders of transferable Rights which themselves may have a realizable value
may afford non-participating stockholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as compensation
for the dilution of their interest in the Fund. In addition, a stockholder may
participate in the Offer without increasing his or her investment in the Fund by
selling a sufficient number of shares of the Fund to provide (after expenses)
the necessary funds to exercise Rights.
Leverage
The Fund is subject to a number of significant risks as a result of its
focus on investments in so called "junk bonds." See "High Yield, High Risk
Securities," below. As evidenced by its historical performance, the Fund's
leveraged capital structure magnifies and enhances these risks, particularly in
a declining market environment, while increasing the possibility for superior
performance in a rising market environment. See "The Fund." The Fund's leveraged
capital structure results in a higher volatility of the net asset value of the
Common Stock and potentially more volatility in the market value of the Common
Stock. Because the Fund will pay accumulated dividends on the ATP, an increase
or decrease in capital or income of the Fund will have an increased effect on
the Common Stock. Any investment income or gains earned from the capital
contributed by the purchasers of the ATP which is in excess of dividends due
thereon and associated expenses will be available for distribution to the
holders of the Fund's Common Stock and may cause the value of and dividends on
the Common Stock to rise more quickly than would be the case if the Fund were
unleveraged. Conversely, if the investment performance of the capital
contributed by the purchasers of the ATP fails to cover the dividends on such
capital, the value of the Common Stock may decrease more quickly than would
otherwise be the case and dividends thereon will be reduced or eliminated. This
is the speculative effect of "leverage." See "The Fund." In addition, the Fund
is required to meed certain asset coverage requirements imposed by the 1940 Act
and the rating agencies. Upon any failure to meet such requirements, the Fund
may seek to alter the composition of its portfolio to reattain compliance with
such requirements, thereby incurring additional transaction costs and possible
losses and/or gains on disposition of portfolio securities. Because higher
quality assets are given greater credit under the Rating Agency Guidelines, the
overall portfolio quality of the Fund may be higher, and the overall rate of
return on portfolio holdings may be lower, than if the Fund were unleveraged.
46
<PAGE>
The Fund's capital structure is designed to take advantage of the
"spread" between the rate of return on the longer-term "high yield" securities
in which the Fund invests and the dividends required to be paid on the ATP,
which generally are determined with reference to short-term interest rates for
investment grade obligations. To the extent this "spread" decreases due to
increases in short term rates, decreases in the rate of return on portfolio
holdings, defaults, or increased Fund expenses, the incremental returns accruing
to holders of the Fund's Common Stock will be correspondingly reduced.
Short-term and long-term interest rates change from time to time as does their
relationship to each other (i.e., the slope of the yield curve) depending upon
such factors as supply and demand forces, monetary and tax policies and investor
expectations. Changes in such factors could cause the relationship between
short-term and long-term rates to change (i.e., to flatten or to invert the
slope of the yield curve) so that short-term rates may substantially increase
relative to the rates of longer term obligations in which the Fund may be
invested. To the extent that the applicable rate plus expenses on the ATP
approaches the net return on the Fund's investment portfolio, the benefit of
leverage to holders of Common Stock will be reduced, and if the applicable rate
plus expenses on the ATP were to exceed the net return on the Fund's portfolio,
the Fund's leveraged capital structure would result in a lower rate of return to
holders of Common Stock than if the Fund were not leveraged. The Fund, however,
has entered into an interest rate swap arrangement through February 1999 having
a $65 million notional amount, as described under "The Fund" and "Description of
Capital Stock--Dividends and Dividend Periods." This arrangement has the effect
of partially hedging against increases in short-term interest rates.
The following table may assist the investor in understanding the effects
of leverage by illustrating the effect of leverage on return to a stockholder.
The figures appearing in the table are hypothetical and actual returns may be
greater or less than those appearing in the table.
Assumed
Return on -10% -5% 0% 5% 10%
Portfolio (net
of expenses
and costs of
leverage)
Corresponding
Return to -15.2% -7.6% 0% 7.6% 15.2%
Holder of
Common
Stock*
* Assuming $100 million aggregate liquidation preference of leverage
outstanding, 35.7 million Shares of Common Stock outstanding and a
market value of the Fund's portfolio of $270 million.
The terms of the Fund's arrangements with Moody's and Fitch, which have
been agreed to in order to obtain investment grade ratings for the ATP, require
that the Fund maintain (i) asset coverage with respect to the ATP at least
equal, on a discounted basis to the liquidation preference of the ATP plus
certain accrued and projected payment obligations of the Fund and other amounts
on an on-going basis and (ii) non-discounted asset coverage of at least 200% of
the aggregate liquidation preference of the ATP as of the last business day of
each month. See "Description of Capital Stock-Asset Maintenance." The 1940 Act
also requires that the Fund maintain asset coverage of at least 200% on a
non-discounted basis as a condition of paying dividends to the holders of the
Common Stock. As market conditions and the value of portfolio securities decline
(as occurred in 1989-1990 and as described under "The Fund"), one effect of the
foregoing requirements is to cause the Fund to invest in higher quality assets
and/or to maintain relatively substantial balances of highly liquid assets
having low discount factors assigned by the rating agencies in order to remain
in compliance with asset coverage requirements, which may tend to reduce
portfolio yield. In addition, the value of higher quality assets may react with
greater volatility to interest rate changes than would lower quality assets.
Under some circumstances, a decline in the value of portfolio securities may
force the Fund to redeem or repurchase senior securities in order to remain in
compliance with applicable asset coverage requirements, which requires the
liquidation of portfolio
47
<PAGE>
securities, the related realization of substantial capital losses and the
incurrence of transaction costs. Thereafter, as market conditions improve and
market opportunities arise, the discounted asset coverage requirements tend to
restrict the redeployment of assets from cash and higher quality assets having
lower discount factors to lower quality, higher yielding assets having higher
discount factors, even when such securities are available at attractive prices.
Also, redeploying cash as the value of the Fund's assets rise involves
significant transaction costs and possible delays, which further inhibits the
Fund's ability to take advantage of a favorable investment environment. See "The
Fund."
Since any decline in the net asset value of the Fund's investments will
be borne entirely by holders of Common Stock, the effect of leverage in a
declining market would result in a greater decrease in net asset value and yield
to holders of Common Stock than if the Fund were not leveraged, which would
likely be reflected in a greater decline in the market price for the Common
Stock. In an extreme case, the Fund's investment leverage and related asset
coverage requirements could prevent or adversely effect the ability of the Fund
to make dividend payments on its Common Stock, and such failure to pay dividends
or make distributions may result in the Fund ceasing to qualify as a regulated
investment company under the Internal Revenue Code. See "Description of Capital
Stock--Dividends and Dividend Periods" and "Taxation." The ATP may constitute a
substantial lien and burden on the Common Stock by reason of its prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation.
If all of the Common Stock offered hereby is sold, the Fund could
thereafter consider incurring additional investment leverage, although there is
no assurance that it will do so. Any such additional leverage would not require
stockholder approval. See "The Offer" and "Description of Capital Stock."
High-Yield, High Risk Investments
As indicated by its historical results, the Fund is designed for
long-term investors who can accept the risks entailed in seeking the highest
level of current income available from investments in long-term high yielding,
medium and lower quality, fixed-income securities and who are willing to assume
the particular risks associated with the Fund's investment objective and
leveraged structure. Investors in the Fund should not rely on the Fund for their
short-term financial needs. The principal value of the lower quality securities
in which the Fund invests will be affected by interest rate levels, general
economic conditions, specific industry conditions and the creditworthiness of
the individual issuer. Although the Fund seeks to reduce risk by portfolio
diversification, extensive credit analysis and attention to trends in the
economy, industries and financial markets, such efforts will not eliminate risk.
Fixed-income securities offering the high current income sought by the
Fund will ordinarily be in the lower rating categories of recognized rating
agencies or will be non-rated. The values of such securities tend to reflect
individual corporate developments or adverse economic changes to a greater
extent than higher rated securities, which react primarily to fluctuations in
the general level of interest rates. Periods of economic uncertainty and change
generally result in increased volatility in the market prices and yields of
"high yield," high risk securities and thus in the Fund's net asset value.
Further, these fixed-income securities are considered by rating agencies, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation and such
securities are generally considered to involve greater credit risk than
securities in the higher rating categories; the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal of or interest on its portfolio holdings. The "high yield,"
high risk securities held by the Fund are frequently subordinated to the prior
payment of senior indebtedness and are traded in markets that may be relatively
less liquid than the market for higher rated securities. Changes by recognized
rating agencies in their ratings of any security in the Fund's portfolio and in
the ability of an issuer to make payments of interest and principal may also
affect the value of the Fund's investments. Changes in the value of portfolio
securities will not necessarily affect cash income derived from such securities,
but will affect the Fund's net asset value. The Fund will rely on the Investment
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issue. In this evaluation, the Investment Adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
48
<PAGE>
Some of the lower-rated securities in which the Fund invests were issued
to raise funds in connection with the acquisition of companies in so-called
"leveraged buy-out" transactions. The highly leveraged capital structure of such
issuers may make them especially vulnerable to adverse changes in economic
conditions.
Generally, when interest rates rise, the value of fixed rate debt
obligations, including "high yield," high risk securities, tends to decrease;
when interest rates fall, the value of fixed rate debt obligations tends to
increase. If an issuer of a "high yield," high risk security containing
redemption or call provisions exercises either provision in a declining interest
rate market, the Fund would have to reinvest the proceeds from such redemption
or call at current interest rates, which could result in a decreased return for
common stockholders.
The credit ratings issued by credit rating services may not fully
reflect the true risks of an investment. For example, credit ratings typically
evaluate the safety of principal and interest payments, not market value risk,
of "high yield," high risk securities. Also, credit rating agencies may fail to
change on a timely basis a credit rating to reflect changes in economic or
company conditions that affect a security's market value. Although the
Investment Adviser considers ratings of recognized rating agencies such as
Moody's and S&P, the Investment Adviser primarily relies on its own credit
analysis, which includes a study of existing debt, capital structure, ability to
service debt and to pay dividends, the issuer's sensitivity to economic
conditions, its operating history and the current trend of earnings. The
Investment Adviser continually monitors the investments in the Fund's portfolio
and carefully evaluates whether to dispose of or retain "high yield," high risk
securities whose credit ratings have changed (see Appendix D for a description
of ratings of "high yield," high risk securities).
At times a major portion of an issue of lower-rated securities may be
held by relatively few institutional purchasers. Although the Fund generally
considers such securities to be liquid because of the availability of an
institutional market for such securities, under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Fund may find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if the securities were more widely held. In
such circumstances, the Fund may also find it more difficult to determine the
fair value of such securities for purposes of computing the Fund's net asset
value. The Fund, in most instances, utilizes an independent pricing service to
determine the fair value of its securities for financial statement purposes
since market quotations are not readily ascertainable. Securities for which
market quotations are not readily available will be valued at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Fund.
Dividends and Distributions
The Fund will not be permitted to declare dividends or other
distributions with respect to the shares of Common Stock or the ATP or purchase
shares of Common Stock or the ATP unless at the time thereof the Fund meets
certain asset coverage requirements, including those imposed by the 1940 Act and
under the Fund's Articles of Amendment and Restatement, as amended (including
any Articles Supplementary of the Fund, the "Articles"). Failure to pay
dividends or other distributions could result in the Fund ceasing to qualify as
a regulated investment company under the Code. See "Taxation" and "Description
of Capital Stock--Dividends and Dividend Periods." Further, upon any failure to
pay dividends in an amount equal in two full years of dividends with respect to
the ATP, the holders thereof shall have the right to elect a majority of the
Directors until all accrued dividends have been provided for or paid. In the
event the Fund fails to satisfy certain asset coverage requirements, the Fund
may be required to effect mandatory partial redemptions of the ATP (subject to
certain limitations) or in certain circumstances may result in the mandatory
redemption of all of the ATP. Redemption of ATP would reduce the Fund's leverage
and could negatively affect potential returns with respect to the Common Stock.
The Fund intends, however, to the extent possible to redeem shares of ATP from
time to time to maintain compliance with applicable asset coverage requirements.
See "Taxation."
Premium/Discount From Net Asset Value
The Fund is a closed-end investment company. Closed-end investment
companies differ from open-end investment companies (commonly referred to as
"mutual funds") in that closed-end investment companies have
49
<PAGE>
a fixed capital base, whereas open-end companies issue securities redeemable at
net asset value at any time at the option of the stockholder and typically
engage in a continuous offering of their shares. Shares of closed-end funds
frequently trade at a market price which is less than the value of the net
assets attributable thereto. The possibility that shares of the Fund will trade
at a discount from net asset value is a risk separate and distinct from the risk
that the Fund's net asset value will decrease. It should be noted, however, that
in some cases, shares of closed-end funds may trade at a premium. The Fund's
shares have traded in the market above, at, and below net asset value since the
commencement of the Fund's operations. During the past two years, the Fund's
shares have generally traded in the market at a [premium/discount] to net asset
value. See "Net Asset Value and Market Price Information." In addition, the net
asset value of the Fund will change with changes in the value of its portfolio
securities. Because the Fund invests primarily in fixed-income securities, the
net asset value of the shares of the Fund can be expected to change as general
levels of interest rates fluctuate. When interest rates decline, the value of a
fixed-income portfolio can be expected to rise. Conversely, when interest rates
rise, the value of a fixed-income portfolio can be expected to decline. See "Net
Asset Value and Market Price Information" for the ranges of the market prices
and the ranges of the net asset values of the shares of Common Stock for each
calendar quarter since inception.
MANAGEMENT OF THE FUND
Board Of Directors
The management of the Fund, including general supervision of the duties
performed by the Investment Adviser, is the responsibility of the Board of
Directors. The Directors and officers of the Fund, their addresses and their
principal occupations for at least the past five years are set forth below.
50
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With Fund During Past 5 Years
---------------- ------------- -------------------
<S> <C> <C>
Robert F. Birch*.................... President and Director Mr. Birch, a private investor, joined
10 Winthrop Square, Fifth Floor Fund as Fund as President, Treasurer and
Boston, MA 02110 a Director in August 1992 and since May
1993 has served as President and a Director.
Mr. Birch served as Chairman and Chief Executive
Officer of Memtek Corporation, a manufacturer of
capital equipment utilized in the treatment
of liquid toxic waste, from 1990 to July 1991,
and was associated with Finn Wishengrad Warnke &
Geyton, a consulting firm specializing in
work-outs of financially distressed companies,
from 1988 through 1989. Prior to that time,
Mr. Birch was President and Chief Executive
Officer of Gardner and Preston Moss, Inc., a
Boston-based investment management firm.
Joseph L. Bower..................... Director Professor since 1963, Donald K. David
Harvard Business School Professor of Business Administration
Boston, MA 02138 since 1986, and Chairman of the Doctoral
Programs since 1990, Harvard Business School.
Mr. Bower also has been a member and
research fellow at the Institute of Politics
since 1966 and a faculty member of the
Kennedy School of Government since 1969.
He is a director of Ainka Research, Inc.,
Sonesta International Hotels Corporation
and Brown Group, Inc. and a general partner
of ML-Lee Acquisition Fund, L.P.
Richard E. Floor*................... Secretary and Director Partner with the law firm of Goodwin,
Exchange Place Procter & Hoar LLP, Boston,
Boston, MA 02109 Massachusetts, since 1975 (individually
and through his professional corporation).
Mr. Floor also serves as a director of Town &
Country Corporation.
Bernard J. Korman................... Director Chairman and Chief Executive Officer
Graduate Health System, Inc. of Graduate Health System, Inc;
22nd and Chestnut Streets President, Chief Executive Officer and
Philadelphia, PA 19103 a Director of MEDIQ Incorporated from
1980 to 1996. Mr. Korman is a director
of Innoserv Technologies, Inc., Kapson
Senior Quarters Corp.; Nutramax Products,
Inc., Omega Healthcare Investors, Inc., The
Pep Boys, Inc. and Today's Man, Inc.
51
<PAGE>
Franco Modigliani................... Director Professor of Finance and Economics
Massachusetts Institute from 1962 to 1970, Institute Professor
of Technology from 1970 to 1988, and Professor
77 Massachusetts Avenue Emeritus since 1988, Massachusetts
Cambridge, MA 02139 Institute of Technology. Mr. Modigliani is
a member of the National Academy of Sciences,
the American Academy of Arts and Sciences,
and the Academia dei Lincei. In 1985 he was
awarded the James Killan, Jr. Faculty Achievement
Award from MIT and the Alfred Nobel Memorial
Prize in Economic Sciences. He is an Honorary
President of the International Economic
Association and a former President of the
American Econometric Association, the American
Finance Association and the Econometric Society, and
has served as a consultant to the Federal Reserve
System, the U.S. Treasury Department and a
number of European banks.
Ernest E. Monrad.................... Director Trustee since 1960 and Chairman of
50 Congress Street the Trustees since 1969, Northeast
Boston, MA 02109 Investors Trust; Chairman, Assistant
Treasurer and Director since 1981, Northeast
Investors Growth Fund, Inc. Mr. Monrad also
serves as a vice president and director of
Guild, Monrad & Oates, Inc., a registered
investment adviser, and as a director of
Century Shares Trust and Furman Lumber, Inc.
Ellen E. Terry*..................... Vice President and Vice President of the Fund from
10 Winthrop Square, Fifth Floor Treasurer December 1992 to present and
Boston, MA 02110 Treasurer from May 1993 to present;
Acting President and Treasurer of the
Fund from October 1991 through February
1992; and Vice President of the Fund
from February 1988 through February 1992.
From 1987 to February 1992, Ms. Terry was
employed by Ostrander Capital Management,
L.P., the former investment adviser of the
Fund.
</TABLE>
- ---------------------
* Directors and officers who are "interested persons" of the Fund, as defined
in the 1940 Act.
The Fund's Board of Directors consists of six members. Under the Fund's
Articles and the 1940 Act, holders of the ATP are entitled to elect two
Directors with the other four Directors elected by the holders of the Common
Stock and the ATP voting as a single class, except in certain circumstances. In
the event the Fund has no outstanding preferred stock, all of the Directors will
be elected by the holders of the Common Stock. Since the Fund's inception,
Messrs. Bower and Korman have been nominated for election as Directors by, and
have been elected as Directors by the holders of, the Fund's outstanding
preferred stock. Election of Directors
52
<PAGE>
is non-cumulative; accordingly, holders of a majority of the outstanding shares
of Common Stock and ATP or a majority of the outstanding ATP may elect all of
the Directors who are subject to election by them.
The Fund pays each Director a fee of $[20,000] per year plus $[2,000]
per Directors' meeting attended in person and $[1,000] per telephonic Directors'
meeting in which the Director participates, together with actual out-of-pocket
expenses relating to attendance at such meetings. In addition, Mr. Birch
received a fee of $[40,000] for his services rendered to the Fund in his
capacity as President for the calendar year ended December 31, 1996, and
currently receives an annual retainer of $[30,000] for his services to the Fund
as President. The members of the Fund's Audit Committee, which consists of the
Fund's non-interested Directors, receive [$2,000] for each Audit Committee
meeting attended, other than meetings held on days on which there is also a
Directors' meeting. Directors of the Fund received for the fiscal year ended
December 31, 1996 aggregate remuneration of $________.
The Fund's Articles and By-Laws provide that the Fund will indemnify its
Directors and officers against liabilities and expenses incurred in connection
with the performance of their duties on behalf of the Fund to the full extent
permitted by Maryland law, subject to the applicable requirements of the 1940
Act. Maryland law generally permits a director or officer to be indemnified with
respect to any proceeding to which he was made a party by reason of service in
his capacity as a director or officer, provided that the director or officer
must have (i) acted in good faith, (ii) reasonably believed his conduct, if
undertaken in his official capacity, was in the best interests of the
corporation, or in any other case was at least not opposed to the best interests
of the corporation, and (iii) in the case of any criminal proceeding, had no
reasonable cause to believe that his conduct was unlawful. No indemnification is
permitted, however, with respect to any proceeding by or in the right of the
corporation in which the director or officer has been adjudged liable on the
basis that he improperly received personal benefit. Further, under the 1940 Act
as interpreted by the staff of the Commission, an indemnification provision is
consistent with the 1940 Act if it (i) precludes indemnification for any
liability, whether or not there is an adjudication of liability, arising by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of duties as described in Section 17(h) and (i) of the 1940 Act ("disabling
conduct") and (ii) sets forth reasonable and fair means for determining whether
indemnification shall be made; in the case of the Fund "reasonable and fair
means" would include (1) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct (including a
dismissal for insufficiency of evidence) and (2) a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by reason
of disabling conduct, by (a) the vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section 2(a)(10) of
the 1940 Act nor parties to the proceeding, or (b) an independent legal counsel
in written opinion.
The Fund, at its expense, may in the future provide liability insurance
for the benefit of its Directors and officers.
Holdings of ATP and Common Stock
The Fund does not know of any person who beneficially owned more than 5%
of the outstanding shares of the Common Stock or ATP at December 31, 1996. As of
such date, all Directors and officers of the Fund owned less than 1% of the
Common Stock of the Fund, and no Director or officer owned any of the ATP.
The Investment Adviser
Wellington Management Company, LLP ("Wellington Management") with its
principal offices at 75 State Street, Boston, Massachusetts 02109, has
served as the Fund's investment adviser since February 19, 1992, when the Fund's
investment management agreement with Ostrander Capital Management, L.P. expired
without renewal. Wellington Management, a Massachusetts limited liability
partnership of which Robert W. Doran,
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Duncan M. McFarland and John B. Neff are Managing Partners, is a
professional investment counseling firm which provides investment services to
investment companies, employee benefit plans, endowment funds, foundations and
other institutions and individuals. As of December 31, 1996, Wellington
Management held discretionary authority over approximately $___ billion of
assets, including $___ billion of fixed income securities of which $___ billion
represented "high-yield" investments. Wellington Management and its predecessor
organizations have provided investment advisory services to investment companies
since 1933 and to investment counseling clients since 1960. Wellington
Management has agreed to pay $100,000 of the expenses of the Offer.
Catherine A. Smith, a Senior Vice President of the Investment Adviser,
is primarily responsible for the day-to-day management of the Fund's portfolio.
Ms. Smith has served in such capacity since the Investment Adviser succeeded to
the management of the Fund's portfolio on February 19, 1992. In addition to
serving as the portfolio manager of the Fund, Ms. Smith serves as the portfolio
manager of several other high yield bond portfolios, including The High Yield
Plus Fund, Inc., a closed-end management investment company. After receiving her
Bachelor of Arts degree from Harvard College in 1983, Ms. Smith worked as a
securities analyst for Fred Alger Management, Inc. in New York and subsequently
joined Wellington Management in 1985. Ms. Smith is a CFA and a member of the
Boston Security Analysts Society.
[Wellington Management managed the following other investment companies
as of December 31, 1996: AFL-CIO (American Federation of Labor and Congress of
Industrial Organizations) Housing Investment Trust, Anchor Series Trust, The
Arbor Fund Oak Tree Prime Obligation Money Market fund Portfolio, The Arbor Fund
OVB Prime Obligations Portfolio, Cambridge Series Trust Income and Growth Fund,
Compass Equity Income Fund, Compass Growth Fund, First Financial Fund, First
Investors Global Fund, First Investors Growth Fund, First Investors Growth and
Income Fund, First Investors Life Series Fund, Frank Russell Investment Company,
Frank Russell Trust Company Equity II Funds, Galaxy International Fund, Gemini
II Fund, Global Utility Fund, Hartford International Opportunities Fund, High
Yield Plus Fund, Horace Mann Balanced Fund, Horace Mann Growth Fund, Horace Mann
Income Fund, Horace Mann Short-Term Investment Fund, HVA Advisers Fund, HVA
Aggressive Growth Fund, HVA Stock Fund, NASL Series Trust, Nicholas-Applegate
Investment Trust Money Market Portfolio, North American Funds, SEI Cash Plus
Trust, SEI Liquid Asset Trust, SunAmerica Tax-Exempt Insured Fund, SunAmerica
U.S. Government Securities Fund, Target Portfolio Trust (Mortgage Backed
Securities Portfolio and U.S. Government Money Market Portfolio), U.S. Affinity
Green Fund, Vanguard Explorer Fund, Vanguard Fixed Income Securities Fund,
Vanguard/Morgan Growth Fund, Vanguard Preferred Stock Fund, Vanguard Specialized
Portfolios, Vanguard Variable Insurance Fund (Balanced Portfolio),
Vanguard/Wellesley Income Fund, Vanguard/Wellington Fund and Vanguard/Windsor
Fund.]
Advisory Agreement. The Investment Advisory Agreement between the
Investment Adviser and the Fund (the "Advisory Agreement") became effective on
February 19, 1992 following the expiration of the advisory agreement with
Ostrander Capital Management, L.P., the former adviser. The Advisory Agreement
provides that, subject to the direction of the Board of Directors of the Fund
and the applicable provisions of the 1940 Act, the Investment Adviser is
responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular investment
rests with the Investment Adviser, subject to review by the Board of Directors
and compliance with the applicable provisions of the 1940 Act.
The Investment Adviser is not dependent on any other party in providing
the investment advisory services required for the management of the Fund. The
Investment Adviser may, however, consider analyses from various sources,
including broker-dealers with which the Fund does business. The Advisory
Agreement provides that the Investment Adviser will, upon request of the Fund
but subject to availability, make available to the Fund office facilities,
equipment, personnel and services (other than as specifically set forth in the
Advisory Agreement). Such office facilities, equipment, personnel and services
are to be provided to the Fund at cost.
Under the Advisory Agreement, the Investment Adviser receives a monthly
investment advisory fee equal to .50% (on an annual basis) of the Fund's
"Average Net Assets," based on the average weekly net asset value of the Fund.
For purposes of the computation of such fee, the Fund's "Average Net Assets" is
defined as the
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Fund's total assets minus (a) the Fund's accrued liabilities (including the
aggregate principal amount of and the amount of the accrued interest on any
senior securities of the Fund constituting debt within the meaning of Section 18
of the 1940 Act or under any credit facility with any bank or other lender) and,
without duplication of (a), (b) the aggregate liquidation preference of and the
amount of accumulated dividends on any senior securities of the Fund
constituting stock within the meaning of Section 18 of the 1940 Act. At December
31, 1996, the Fund's Average Net Assets were $____ million under this
definition. The aggregate dollar amount paid by the Fund to Wellington
Management under the terms of the Advisory Agreement for the periods January 1,
1995 through December 31, 1995 and January 1, 1996 through December 31, 1996
were $______ and $_______, respectively.
The Fund bears all costs of its operation other than those incurred by
the Investment Adviser under the Advisory Agreement. In particular, the Fund
pays investment advisory fees, the fees and expenses associated with the Fund's
administration, record keeping and accounting, fees and expenses for the
custodian of the Fund's assets, legal, accounting and auditing fees, taxes,
expenses of preparing prospectuses and stockholder reports, registration fees
and expenses, fees and expenses for the transfer and dividend disbursing agent,
the compensation and expenses of the Directors who are not otherwise employed by
or affiliated with the Investment Adviser or any of its affiliates, and any
extraordinary expenses.
At a meeting held on February 18, 1992, the Board of Directors
(including all Directors who are not "interested persons" of the Fund, as
defined in the 1940 Act) unanimously approved the Advisory Agreement for a
two-year period commencing February 19, 1992. The Advisory Agreement was
subsequently approved by the Fund's stockholders at a meeting held on May 11,
1992. The Advisory Agreement was last approved by the Board of Directors and by
a majority of the Directors who are not parties to the Advisory Agreement or
interested persons of any such party on February 15, 1996. The Advisory
Agreement will remain in effect from year to year if approved annually (i) by
the Board of Directors of the Fund or by the holders of a majority of the Fund's
outstanding voting securities restrictions, voting as a single class, and (ii)
by a majority of the Directors who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act) of any such party. The Advisory
Agreement may be terminated at any time, without payment of any penalty, by vote
of the Board of Directors, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act and as further described
below), or by the Investment Adviser, in each case on sixty (60) days prior
written notice, and will terminate automatically in the event of its assignment.
Under the 1940 Act, a vote of a majority of the outstanding voting securities of
the Fund means the lesser of either (a) the vote of 67% or more of the shares of
the applicable class or classes present at the relevant meeting, if the holders
of more than 50% of the outstanding shares of the applicable class or classes
are present or represented by proxy, or (b) the vote of more than 50% of the
outstanding shares of the applicable class or classes. For purposes of voting on
any approval, continuation or termination of the Advisory Agreement, holders of
the ATP and the Common Stock vote as a single class.
Under the terms of the Advisory Agreement, the Investment Adviser is not
liable for any error of judgment or for any loss suffered by the Fund in
connection with performance of its obligations under the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of, or from reckless disregard by it of its
obligations and duties under, the Advisory Agreement, or damages resulting from
a breach of fiduciary duty with respect to receipt of compensation for services.
Portfolio Execution. The Advisory Agreement authorizes Wellington
Management to arrange for the execution of the Fund's portfolio transactions by
selecting the brokers or dealers that will execute the purchases and sales of
portfolio securities of the Fund and directs Wellington Management to use its
best efforts to obtain the best net results, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm involved.
Wellington Management may, in its discretion, purchase and sell portfolio
securities through brokers who provide Wellington Management or the Fund with
research, analysis, advice and similar services, and Wellington Management may
pay to these brokers, in return for research and analysis, a higher commission
than may be charged by other brokers, provided that Wellington Management
determines in good faith that such commission is reasonable in terms either of
that particular transaction or of the overall responsibility of
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Wellington Management to the Fund and Wellington Management's other clients and
that the total commission paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term.
In selecting a broker or dealer for each specific transaction,
Wellington Management will use its best judgment to choose the broker or dealer
most capable of providing the brokerage services necessary to obtain the best
available price and most favorable execution. The full range and quality of
brokerage services available will be considered in making these determinations.
For example, brokers may be selected on the basis of the quality of such
brokerage services related to the requirements of the specific transaction such
as the following: capable floor brokers or traders, competent block trading
coverage, good communication, ability to position, retail distribution and
underwriting, use of automation, research contracts, arbitrage skills,
administrative ability, or provision of market information relating to the
security. Wellington Management will make periodic evaluations of the quality of
these brokerage services as provided by various firms and measure these services
against its own standards of execution. Brokerage services will be obtained only
from those firms which meet its standards, maintain a reasonable capital
position and can be expected to reliably and continuously supply these services.
On occasions when Wellington Management deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients,
Wellington Management, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction will be made by Wellington Management in the manner it considers to
be the most equitable and consistent with its fiduciary obligations to the Fund
and to such other clients. In some instances, this procedure may affect the
price and size of the positions obtainable for the Fund. Research services
furnished by brokers through which the Fund effects securities transactions may
be used by Wellington Management in servicing all of its clients, and not all
such services may be used by Wellington Management in connection with the Fund.
For the fiscal years ended December 31, 1994, 1995 and 1996, the Fund
paid brokerage commissions for the execution of portfolio transactions of
$______, $_____ and $_____, respectively.
Administrative Services. Wellington Management provides only investment
advisory services to clients and does not provide administrative and managerial
services that generally are required by a publicly held investment company such
as the Fund. Accordingly, since February 1992 the Fund has engaged Ellen E.
Terry, Vice President and Treasurer, to perform administrative services. Subject
to the supervision of the Board of Directors and officers of the Fund, Ms.
Terry, among other things, coordinates the preparation of the Fund's
semi-annual, annual and other periodic reports, proxy statements and other
communications with stockholders; oversees the preparation of the Fund's
periodic reports required to be filed with the Commission and the rating
agencies; and assists in responding to stockholder/retail broker inquiries and
disseminating information to the same based on information provided. Since
February 1992 the Fund has also engaged Paul E. Saidnawey to provide certain
related administrative services subject to the supervision of the Board of
Directors and Ms. Terry. Ms. Terry and Mr. Saidnawey previously performed these
administrative services for the Fund as employees of the Fund's former
investment adviser.
Ms. Terry receives $[6,250] per month for the services set forth above
and her services are terminable by either party on ninety (90) days' notice. Mr.
Saidnawey receives $[3,500] per month for the services set forth above and his
services are terminable by either party on ninety (90) days' notice. Unlike
other funds that are affiliated with larger organizations, the Fund relies on
Ms. Terry, Mr. Saidnawey and Robert F. Birch, its President, for its
administrative and related services. In the event of a departure of these
individuals, the Fund would likely be forced to replace them with others or with
a larger organization, which could result in an increase in the Fund's annual
expenses.
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PORTFOLIO MATURITY AND TURNOVER
The Fund's holdings may include issues of various maturities.
Ordinarily, the Fund will emphasize investments in medium and longer term
instruments (i.e., those with maturities in excess of three years), but the
weighted average maturity of portfolio holdings may be shortened or lengthened
depending on the Investment Adviser's general investment outlook or changes in
the characteristics of high-yield securities. To the extent the weighted average
maturity of the Fund's portfolio securities is lengthened, the value of such
holdings will be more susceptible to fluctuation in response to changes in
interest rates and general economic conditions. As of December 31, 1996, the
weighted average maturity of the Fund's portfolio holdings was approximately
_____ years. The weighted average of the Fund's portfolio will fluctuate
depending on market conditions and investment opportunities. The Fund, however,
does not expect that the weighted average maturity of the Fund's portfolio will,
under normal conditions, exceed 15 years.
The Investment Adviser actively makes portfolio adjustments that reflect
the Fund's investment strategy, but generally does not trade securities for the
Fund for the purpose of seeking short-term profits. It will, however, change the
Fund's securities, regardless of how long they have been held, when it believes
doing so will further the Fund's investment objective.
In light of the Fund's investment objective and policies, it is
anticipated that the Fund's portfolio turnover rate may, from time to time,
exceed 100% per annum. A 100% annual turnover rate would occur, for example, if
all the securities in the Fund's portfolio were replaced once within a period of
one year. The Fund reserves full freedom with respect to portfolio turnover. In
periods when there are rapid changes in economic conditions or security price
levels or when investment strategy is changed significantly, portfolio turnover
may be significantly higher than during times of economic and market price
stability, when investment strategy remains relatively constant. A high rate of
portfolio turnover will result in increased transaction costs for the Fund in
the form of increased dealer spreads and brokers commissions. The Fund's
portfolio turnover rates for the fiscal years ended December 31, 1994, 1995 and
1996 were ___%, ___% and ___%, respectively.
TAXATION
The following discussion offers only a brief outline of the federal
income tax consequences of investing in the Common Stock. Investors should
consult their own tax advisors for more detailed information and for information
regarding the impact of state and local taxes upon such an investment.
Federal Income Tax Treatment of the Fund
The Fund qualifies and elects to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code. To qualify as a
regulated investment company, the Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in stocks, securities or currencies;
(b) derive in each taxable year less than 30% of its gross income from the sale
or disposition of stock, securities, and certain other assets held less than
three months; and (c) diversify its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities).
As a regulated investment company, in any fiscal year with respect to
which the Fund distributes at least 90% of its investment company taxable income
(which includes, among other items, dividends and interest but excludes net
long-term capital gains in excess of net short-term capital losses), the Fund
(but not its stockholders) generally will be relieved of U.S. federal income
taxes on its net investment income and net capital gains (net long-term capital
gains in excess of the sum of net short-term capital losses and capital loss
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carryovers from prior years, if any) that it distributes to stockholders. To the
extent the Fund retains its net capital gains for investment, it will be subject
under current tax rates to a federal income tax at a maximum effective rate of
35% on the amount retained. See "Federal Income Tax Treatment of Holders of
Common Stock" below. Amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax payable by the Fund. To avoid the tax, the Fund must distribute, or
be deemed to have distributed, during each calendar year an amount equal to the
sum of (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the twelve-month period ending on October 31 of the calendar year, and (3) all
ordinary income and capital gains for previous years that were not distributed
during such years. To prevent application of the excise tax, the Fund intends to
make its distributions in accordance with the calendar year distribution
requirement. Compliance with the calendar year distribution requirement may
limit the extent to which the Fund will be able to retain its net capital gains
for investment.
If in any taxable year the Fund fails to qualify as a regulated
investment company under the Internal Revenue Code, the Fund will be taxed in
the same manner as an ordinary corporation, and distributions to its
stockholders will not be deductible by the Fund in computing its taxable income.
In addition, in the event of failure to qualify, the Fund's distributions, to
the extent derived from the Fund's current or accumulated earnings and profits,
will constitute dividends (eligible for the corporate dividends-received
deduction) which are taxable to stockholders as ordinary income, even though
those distributions might otherwise (at least in part) have been treated in the
stockholder's hands as long-term capital gains.
If the Fund does not meet the asset coverage requirements of the 1940
Act, the Fund will be required to suspend distributions to the holders of the
Common Stock and/or the ATP until the asset coverage is restored. See
"Description of Capital Stock--Dividends and Dividend Periods." Such a
suspension of distributions might prevent the Fund from distribution 90% of its
investment company taxable income, as is required in order to qualify for
taxation as a regulated investment company or cause the Fund to incur a tax
liability or a non-deductible 4% excise tax on its undistributed table income
(including gain) or both.
Upon any failure to meet the asset coverage requirements of the 1940
Act, the Fund intends to repurchase or redeem (to the extent permitted under the
1940 Act) ATP in order to maintain or restore the requisite asset coverage and
avoid failure to remain qualified as a regulated investment company. The
determination to repurchase or redeem ATP and the amounts to be repurchased or
redeemed, if any, will be made in the sole discretion of the Fund.
Use of the Fund's cash to repurchase or redeem ATP may adversely affect
the Fund's ability to distribute annually at least 90% of its investment company
taxable income, which distribution is required to qualify for taxation as a
regulated investment company. The Fund may also realize income in connection
with funding repurchases or redemptions of ATP, and such income would be taken
into account in determining whether or not the above-described distribution
requirements have been met. Depending on the size of the Fund's assets relative
to its outstanding senior securities, redemption of the ATP might restore asset
coverage. Payment of distributions after restoration of asset coverage could
requalify (or avoid a disqualification of) the Fund as a regulated investment
company, depending upon the facts and circumstances. The Fund's ability to
liquidate portfolio securities may be limited by the requirement for
qualification as a regulated investment company that less than 30% of the Fund's
annual gross income be derived from the disposition of securities held for less
than three months.
Investments of the Fund in securities issued at a discount or providing
for deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
stockholders. For example, with respect to certain securities issued at a
discount, the Fund will be required to accrue as income each year a portion of
the discount and to distribute such income each year in order to satisfy the 90%
distribution requirement and the distribution requirements for avoiding income
and excise taxes. In order to generate sufficient cash to make distributions
necessary to satisfy the 90% distribution requirement and to avoid income and
excise taxes, the Fund may have to borrow money or dispose of securities
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that it would otherwise have continued to hold. The extent to which the Fund may
liquidate securities at a gain may be limited by the 30% limitation discussed
above.
The Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) 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, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to stockholders. These provisions
also may 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) which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the 90% and 98% 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 foreign currency, option, futures
contract, forward contract, or hedged investment in order to mitigate the effect
of these rules and prevent disqualifications of the Fund as a regulated
investment company and minimize the imposition of income and excise taxes.
If the Fund fails to qualify as a regulated, investment company for any
year, it generally must pay out its earnings and profits accumulated in that
year less an interest charge to the Treasury on 50% of such earnings and profits
before it can again qualify as a regulated investment company.
Federal Income Tax Treatment of Holders of Common Stock
For any period during which the Fund qualifies as a regulated investment
company for federal income tax purposes, dividends paid out of the Fund's net
investment income and short-term capital gains to holders of Common Stock will
be taxable as ordinary income. It is expected that dividends received by
corporate stockholders will not be eligible for the dividends received
deduction. Distributions of net long-term capital gains designated by the Fund
as capital gain dividends, if any, are taxable as long-term capital gains,
regardless of how long the stockholder has held the Fund's shares and are not
eligible for the dividends received deduction. Dividends and distributions will
be taxable to stockholders as if actually distributed, even if they are
reinvested in additional shares of the Fund. Stockholders receiving
distributions in the form of newly issued shares will have a cost basis in each
share received equal to the fair market value of a share of the Fund on the
distribution date.
Generally, dividends paid by the Fund are treated as received in the
taxable year in which the distribution is made; however, any dividend declared
by the Fund in October, November or December of any calendar year, payable to
stockholders of record on a specified date in such a month and actually paid
during January of the following year, will be treated as received on December 31
of the year in which declared.
Any distribution by the Fund to a holder of Common Stock not made out of
the Fund's earnings and profits will be treated as a return of capital to each
holder of Common Stock, will reduce the basis of each share of Common Stock with
respect to which it is distributed and will be subject to tax as capital gain to
the extent that the distribution exceeds the basis of the share of Common Stock
with respect to which it is distributed. Investors should carefully consider the
tax implications of buying shares of Common Stock just prior to a distribution,
as the price of shares purchased at this time may reflect the amount of the
forthcoming distribution which will, except in unusual circumstances, be taxable
when received.
After the close of each taxable year, the Fund will identify for its
holders of Common Stock the portions of its distributions that are attributable
to capital gains and to ordinary income, respectively.
The Internal Revenue Code limits certain miscellaneous itemized
deductions by individuals, including deductions of investment expenses, to the
extent the aggregate of such deductions exceeds 2% of an individual's federal
adjusted gross income. The Internal Revenue Code would treat such expenses
incurred by a regulated investment company as being indirectly incurred by the
stockholders of the investment company. Stockholder
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expenses of publicly offered regulated investment companies are exempted from
the application of the 2% floor. Thus, the limitation will not apply with
respect to indirect deductions through the Fund. Such expenses will also be
fully deductible by the Fund's corporate stockholders.
If the Fund suffers a net taxable loss in any taxable year, the holders
of Common Stock will not be permitted to utilize that loss in their tax returns.
Generally, gain realized by a stockholder on the sale of shares held for
more than one year will be taxable as long-term capital gain. If a stockholder
holds shares primarily for sale to customers in the ordinary course of business
rather than for investment, any gain recognized on the sale of those shares
would be taxable as ordinary income. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a stockholder on a
disposition of Fund shares held by the stockholder for six months or less will
be treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received or treated as having been received by the
stockholder with respect to such shares. Stockholders who acquire shares on
multiple dates should consult their tax advisers to determine how to allocate
the cost of stock for basis purposes.
In general, federal withholding taxes at a 30% rate or a lesser rate
established by treaty may apply to distributions to stockholders (except to
those distributions designated by the Fund as capital gains dividends) that are
nonresident aliens or foreign partnerships, trusts or corporations.
In the event the Fund retains any net capital gains, it may designate
such retained amounts as undistributed capital gains in a notice to its
stockholders. In the event such a designation is made, stockholders subject to
U.S. tax would include in income, as long-term capital gains, their
proportionate share of such undistributed amounts, but would be allowed a credit
or refund, as the case may be, for their proportionate share of the 35% tax paid
by the Fund. If the designation is made, for U.S. federal income tax purposes,
the tax basis of shares owned by a stockholder would be increased by an amount
equal to 65% of the amount of undistributed capital gains included in the
stockholder's income.
Backup Withholding
The Fund may be required to withhold for U.S. federal income taxes 31%
of all taxable distributions payable to stockholders who fail to provide the
Fund with their correct taxpayer identification number or who fail to make
required certifications or if the Fund or a stockholder has been notified by the
U.S. Internal Revenue Service that they are subject to backup withholding.
Corporate stockholders and other stockholders specified in the Internal Revenue
Code are exempt from such backup withholding. Backup withholding is not an
additional tax, Any amounts withheld may be credited against the stockholder's
U.S. federal income tax liability.
Other Taxation
Investors are advised to consult their own tax advisors with respect to
the application to their own circumstances of the above-described general
taxation rules and with respect to the state, local or foreign tax consequences
to them of an investment in the Common Stock.
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the terms of the capital stock
of the Fund. This description does not purport to be complete and is subject to
qualification in its entirety by reference to the Articles which establish and
fix the rights and preferences of the Common Stock and the shares of ATP. A copy
of the Articles, including a copy of the Articles Supplementary establishing the
ATP, is filed as an exhibit to the
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Registration Statement of which this Prospectus is a part and may be inspected
and copies thereof may be obtained as described under "Additional Information."
General
The authorized capital stock of the Fund consists of 1,000,000 shares of
preferred stock, $1.00 par value, issuable in one or more series and 200,000,000
shares of Common Stock, par value $.01 per share. All shares of Common Stock
have equal rights as to voting, dividends and liquidation. At November 30, 1996,
there were [35,716,882] outstanding shares of Common Stock of the Fund and
2000 outstanding shares of preferred stock of which 1,200 are classified as
ATP Series A and 800 are classified as ATP Series B. All shares of Common
Stock and ATP issued and outstanding are fully paid and nonassessable. Shares of
Common Stock have no preemptive, conversion or redemption rights and are freely
transferable. Subject to confirmation from the rating agencies that its rating
of the ATP will not change, the Fund may issue additional shares of either
series or additional series of preferred stock in the future, which additional
series may have substantially different terms than the terms of the ATP. The
description herein of the Fund's capital structure relates to its capital
structure at the date hereof.
The following description refers to each series of ATP separately as and
when the context so requires.
Dividends and Dividend Periods
Dividends on shares of ATP are cumulative from the date on which such
shares were originally issued and are payable, when, as and if declared by the
Board of Directors of the Fund out of funds legally available therefor, on each
Dividend Payment Date thereafter. "Dividend Payment Date" for either series of
ATP, means (i) with respect to any Dividend Period of one year or less, the
business day next succeeding the last day thereof and, if any, the 91st, 181st
and 271st days thereof, and (ii) with respect to any Dividend Period of more
than one year, on a quarterly basis on each January 1, April 1, July 1 and
October 1 and on the Business Day following the last day of such Dividend
Period. For Dividend Periods of one year or less, Dividend Payment Dates occur
on the business day next succeeding the last day of such Dividend Period and, if
any, on the 91st, 181st and 271st days thereof. "Dividend Period" means, with
respect to the relevant series of ATP, the period commencing on the day
following each Dividend Period for such series and ending on the day established
for such series by the Fund. For Dividend Periods of more than one year,
Dividend Payment Dates occur on a quarterly basis on each January 1, April 1,
July 1 and October 1 within such Dividend Period and on the business day
following the last day of such Dividend Period. Dividends are paid through a
securities depository (DTC or a successor securities depository) (a "Securities
Depository") on each Dividend Payment Date. The Securities Depository's current
procedures provide for it to distribute dividends in same-day funds to members
of or participants in the Securities Depository that will act on behalf of a
holder of ATP or person placing an order for ATP ("Agent Member"), who are in
turn expected to distribute such dividends to the persons for whom they are
acting as agents. For each Dividend Period, subject to certain exceptions, the
dividend rates will be the rate (the "Applicable Rate") that the Auction Agent
advises the Fund has resulted from a periodic auction ("Auction") of the ATP in
accordance with the auction procedures.
Dividend Periods are either standard term periods of 28 days (unless
such 28th day is not a business day, then the number of days ending on the
business day next preceding such 28th day) (a "Standard Term Period") or,
subject to certain conditions and with notice to holders, periods longer or
shorter than 28 days and having such duration as the Board of Directors shall
specify (each, an "Alternate Term Period").
An Alternate Term Period will not be effective unless, among other
things, sufficient clearing orders exist at the Auction in respect of such
Alternate Term Period (that is, in general, the number of shares of ATP subject
to buy orders by potential holders is at least equal to the number of shares
subject to sell orders by existing holders). If sufficient clearing orders do
not exist at any Auction in respect of an Alternate Term Period, the Dividend
Period commencing on the business day succeeding such Auction will be a Standard
Term Period and the holders of the shares of the affected series will be
required to continue to hold such shares for such Standard Term Period.
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Except during a "Default Period" as described below, the Applicable Rate
resulting from an Auction will not be greater than the "Maximum Applicable
Rate," which is equal to 150% of the applicable AA Composite Commercial Paper
Rate (for a Dividend Period of fewer than 184 days) or the applicable Treasury
Index Rate (as defined below) (for a Dividend Period of 184 days or more (each,
a "Reference Rate")), in each case subject to upward but not downward adjustment
in the discretion of the Board of Directors after consultation with the
broker-dealers who place orders on behalf of their clients in connection with
the Auction ("Broker-Dealers"), provided that immediately following any such
increase the Fund would be in compliance with the ATP Basic Maintenance Amount.
"Treasury Index Rate" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities having the same
number of 30-day periods to maturity as the length of the applicable Dividend
Period, determined, to the extent necessary, by linear interpolation based upon
the yield for such securities having the next shorter and next longer number of
30-day periods to maturity treating all Dividend Periods with a length greater
than the longest maturity for such securities as having a length equal to such
longest maturity, in all cases based upon data set forth in the most recent
weekly statistical release published by the Board of Governors of the Federal
Reserve System (currently in H.15(519)); provided, however, if the most recent
such statistical release shall not have been published during the 15 days
preceding the date of computation, the foregoing computations shall be based
upon the average of comparable data as quoted to the Fund by at least three
recognized dealers in U.S. Government securities selected by the Fund.
The Maximum Applicable Rate for the shares of ATP will apply
automatically following an Auction for such shares in which sufficient clearing
orders have not been made (other than because all shares of ATP were the subject
of hold orders by existing holders) or following the failure to hold an Auction
for any reason on the first business day next preceding the first day of a
Dividend Period for the relevant series of ATP ("Auction Date") scheduled to
occur (except for circumstances in which the dividend rate for the ATP is the
Default Rate, as described below).
The "Minimum Applicable Rate" will apply automatically following an
Auction in respect of a Dividend Period of 93 days or fewer in which all of the
outstanding shares are subject to (or are deemed to be subject to) hold orders.
The Minimum Applicable Rate is 80% of the applicable AA Composite Commercial
Paper Rate. No minimum rate is specified for Auctions in respect of Dividend
Periods of more than 93 days.
Default Period. A "Default Period" will commence on the applicable date
set forth below if the Fund fails to (i) declare prior to the close of business
on the second business day preceding any Dividend Payment Date, for payment on
or (to the extent permitted as described below) within two business days after
such Dividend Payment Date to the persons who held shares of ATP as of 12:00
noon, New York City time, on the business day preceding such Dividend Payment
Date, the full amount of any dividend payable on such Dividend Payment Date,
(ii) to deposit, irrevocably in trust, in same-day funds, with a designated
paying agent by 12:00 noon, New York City time, (A) on or (to the extent
permitted as described below) within two business days after any Dividend
Payment Date the full amount of any declared dividend on the relevant series of
ATP payable on such Dividend Payment Date (together with the failure to timely
declare dividends described in (i) above, hereinafter referred to as a "Dividend
Default") or (B) on or (to the extent permitted as described below) within two
business days after any date fixed for redemption of shares of ATP called for
redemption, the applicable redemption price (a "Redemption Default"), or (iii)
to maintain the "aaa"/AAA Credit Rating unless the "aaa"/AAA Credit Rating is
restored by the Dividend Payment Date next following the date on which the Fund
fails to maintain the "aaa"/AAA Credit Rating (a "Rating Default"). A Default
Period with respect to a Dividend Default or a Redemption Default will consist
of the period commencing on and including the aforementioned Dividend Payment
Date or redemption date, as the case may be, and ending on and including the
business day on which, by 12:00 noon, New York City time, all unpaid dividends
and unpaid redemption price shall have been so deposited or shall have otherwise
been made available to the applicable holders in same day funds. A Default
Period with respect to a Rating Default shall commence as of the date on which
the Fund fails to maintain the "aaa"/AAA Credit Rating (provided that such
Rating Default shall be deemed not to have occurred and such Default Period
shall not commence if such Rating Default is cured by the next succeeding
Dividend Payment Date) and shall end on the earlier of the date on which such
default is cured as provided
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herein or the date on which the ATP is mandatorily redeemed as provided herein.
Holders of two-thirds of the ATP then outstanding may waive any Dividend
Default, Redemption Default or Rating Default.
The Applicable Rate for each Default Period, including each Dividend
Period commencing during a Default Period, will be equal to the Reference Rate
multiplied by three (3) (the "Default Rate"); and each subsequent Dividend
Period commencing after the beginning of a Default Period shall be a Standard
Term Period; provided, however, that the commencement of a Default Period will
not by itself cause the commencement of a new Dividend Period. Any dividend due
on any Dividend Payment Date (if, prior to 12:00 noon, New York City time, on
such Dividend Payment Date, the Fund has declared such dividend payable on or
within three business days after such Dividend Payment Date to the persons who
held such shares as of 12:00 noon, New York City time, on the business day
preceding such Dividend Payment Date) or redemption price with respect to such
shares not paid to such persons when due may (if such default is not solely due
to the willful failure of the Fund) be paid to such Persons in the same form of
funds by 12:00 noon, New York City time, on any of the first three business days
after such Dividend Payment Date or due date, as the case may be, provided that
such amount is accompanied by an additional amount for such period of
non-payment at the Default Rate applied to the amount of such default based on
the actual number of days comprising such period divided by 360. For the
purposes of the foregoing, payment to a person in same-day funds made on or
before 12:00 noon New York City time on any business day at any time will be
considered equivalent to payment to that person in New York Clearing House
(next-day) funds at the same time on the preceding business day, and any payment
made after 12:00 noon, New York City time, on any business day shall be
considered to have been made instead in the same form of funds and to the same
person before 12:00 noon, New York City time, on the next business day.
Subject to the foregoing, and any requirements of Maryland law, to the
extent that the Fund's net investment income for any year exceeds any current or
accumulated dividends on the ATP, it will be distributed to the holders of the
Common Stock. The term "net investment income" includes interest, dividends,
short-term capital gains and other income received or accrued less the advisory
fee, bank custodian charges, taxes (except capital gain taxes) and other
expenses properly chargeable against income, but does not include net capital
gains, stock dividends, transfer taxes, brokerage or other capital charges or
distributions designated as a return of capital. Any realized net capital gains
(defined as the excess of net long-term capital gains over net short-term
capital losses) of the Fund will be distributed annually to the holders of the
Common Stock (subject to the prior rights of the holders of the ATP) subject to
the foregoing and any requirements of Maryland law.
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), holders
of Common Stock may elect to receive all dividends and capital gains
distributions in cash paid by check mailed directly to such holders by State
Street Bank and Trust Company, as dividend disbursing agent. Pursuant to the
Plan, holders of Common Stock not making such election will have all such
amounts automatically reinvested by the bank serving as Plan agent, in whole or
fractional shares of Common Stock, as the case may be. See "Dividends and
Distributions; Dividend Reinvestment Plan."
Swap Arrangement. The Fund has entered into a five-year interest payment
swap arrangement (the "Swap Arrangement") with The First National Bank of Boston
dated as of February 3, 1994. Pursuant to the Swap Arrangement the Fund makes
payments to FNBB on a monthly basis at the annual rate of 5.25% of the $65
million notional amount of the Swap Arrangement. In exchange for such payments
FNBB makes payments to the Fund on a monthly basis at a variable rate determined
with reference to short-term interest rates.
The effect of the Swap Arrangement is to hedge the Fund's dividend
payment obligations with respect to $65 million of the ATP. For example, if the
dividend rate on the ATP and the short-term interest rate used to determine the
Fund's payment obligation under the Swap Arrangement were 8%, the Fund would (i)
receive a payment from FNBB in an amount equal to 8% (per annum) of the $65
million notional amount of the Swap Arrangement, (ii) make a payment to FNBB in
an amount equal to 5.25% (per annum) of the $65 million notional amount of the
Swap Arrangement, and (iii) pay dividends to the holders of the outstanding ATP
in an amount equal to 8% (per annum) of the $100 million aggregate liquidation
preference of the ATP. Conversely, if the dividend rate on the ATP and the
short-term interest rate used to determine the Fund's payment obligation under
the Swap Arrangement were 4%, the Fund would (i) receive a payment from FNBB in
an amount equal
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to 4% (per annum) of the $65 million notional amount of the Swap Arrangement,
(ii) make a payment to FNBB in an amount equal to 5.25% (per annum) of the $65
million notional amount of the Swap Arrangement, and (iii) pay dividends to the
holders of the outstanding ATP in an amount equal to 4% (per annum) of the $100
million dollar aggregate liquidation preference of the ATP. It should be noted
that the relationship between the Swap Arrangement and the ATP has been
simplified in the foregoing examples for purposes of illustration. The Fund's
payment obligation under the Swap Arrangement and rate of dividends on the two
series of ATP are likely to differ, particularly if the Fund elects to establish
a dividend period for the ATP which is longer than 28 days, although each
generally should be determined with reference to short-term interest rates
(except to the extent the Fund establishes relatively long ATP dividend
periods). See "Description of Capital Stock." The Fund makes dividend payments
to the holders of ATP on the basis of the results of periodic auctions in
accordance with its terms without regard to the Swap Arrangement and will
continue to do so in the event the Swap Arrangement is terminated. The Fund is
subject to the risk that FNBB will not make its required payments under the Swap
Arrangement. In such event, the Fund will have contractual remedies pursuant to
the agreements related to the Swap Arrangement.
The Fund obtained consents from Moody's and Fitch to enter into the Swap
Arrangement. In connection with obtaining such consent, the Fund agreed to an
increase in its discounted asset coverage requirement as described below under
"--Asset Maintenance." The Swap Arrangement will remain in effect through
February 1999, subject to early termination in certain circumstances, such as a
default in payment obligations under the Swap Arrangement, a breach by either
party of any agreement or obligation under the Swap Arrangement, the bankruptcy
of either party to the Swap Arrangement, certain changes in tax laws, and
illegality. Upon any such early termination the Fund will be required to make a
payment to, or will receive a payment from, FNBB, based on the market value of
the Swap Arrangement at that time. In the event that the Fund fails to satisfy
certain asset coverage requirements that give rise to a mandatory redemption of
ATP, the Fund has agreed with Moody's and Fitch that it will terminate the Swap
Arrangement to the extent the notional amount of the Swap Arrangement following
such redemption would exceed the aggregate liquidation preference of the ATP
that would remain outstanding following such redemption, or in such greater
amount as the Fund may determine, subject to deferral to the extent the value of
the Swap Arrangement then exceeds a specified benchmark.
Restrictions on Dividends and Other Payments. Under the 1940 Act, the
Fund may not declare dividends or make other distributions on the Common Stock
or purchase any Common Stock if, at the time of the declaration, distribution or
purchase, as applicable (and after giving effect thereto), asset coverage (as
defined in the 1940 Act) with respect to the outstanding shares of ATP would be
less than 200%. Under the Code, the Fund must, among other things, distribute at
least 90% of its investment company taxable income each year in order to
maintain its qualification for tax treatment as a regulated investment company.
The foregoing limitation on dividends, distributions and purchases may in
certain circumstances impair the Fund's ability to maintain such qualification.
The Fund intends, however, to redeem shares of ATP to the extent necessary to
maintain such qualification. See "Taxation."
Upon failure to pay dividends for two (2) years or more, the holders of
ATP will acquire certain additional voting rights. See "Voting Rights" below.
Such rights shall be the exclusive remedy of the holders of ATP upon any failure
to pay dividends on the ATP.
For so long as any shares of ATP are outstanding, except in connection
with the liquidation the Fund, or a refinancing of the ATP as provided in the
Articles, the Fund will not declare, pay or set apart for payment any dividend
or other distribution (other than a dividend or distribution paid in shares of,
or options, warrants or rights to subscribe for or purchase, Common Stock or
other shares, if any, ranking junior to the ATP as to dividends or upon
liquidation) in respect to Common Stock or any other shares of the Fund ranking
junior to or on a parity with the ATP as to dividends or upon liquidation, or
call for redemption, redeem, purchase or otherwise acquire for consideration any
Common Stock or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to the ATP as to dividends and
upon liquidation) or any such parity shares (except by conversion into or
exchange for shares of the Fund ranking junior to or on a parity with the ATP as
to dividends and upon liquidation), unless (i) immediately after such
transaction, the Fund would have Eligible Assets with an aggregate Discounted
Value at least equal to the ATP Basic Maintenance Amount and the 1940 Act ATP
Asset Coverage (see "Asset Maintenance" and "Redemption" below) would
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be achieved, (ii) full cumulative dividends on the ATP due on or prior to the
date of the transaction have been declared and paid and (iii) the Fund has
redeemed the full number of shares of ATP required to be redeemed by any
provision for mandatory redemption contained in the Articles.
Redemption
Optional Redemption. To the extent permitted under the 1940 Act and
Maryland Law, the Fund at its option may redeem shares of ATP having a Dividend
Period of less than one year, in whole or in part, on the business day after the
last day of such Dividend Period upon not less than 15 days and not more than 40
days prior notice. The optional redemption price shall be $50,000 per share,
plus an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to the date fixed for redemption. Shares of ATP having a
Dividend Period of more than one year may be redeemable at the option of the
Fund prior to the end of the relevant Dividend Period, subject to any Specific
Redemption Provisions (as defined below), which may include the payment of
redemption premiums to the extent required under any applicable Specific
Redemption Provisions. The Fund shall not effect any optional redemption unless
after giving effect thereto the Fund would have Eligible Assets with an
aggregate Discounted Value at least equal to the ATP Basic Maintenance Amount.
"Specific Redemption Provisions" means with respect to any Alternate
Term Period of more than one year, either, or any combination of (i) a period (a
"Non-Call Period") determined by the Board of Directors after consultation with
the Broker-Dealers, during which the shares subject to such Alternate Term
Period are not subject to redemption at the option of the Fund pursuant to
Section 3(a)(i) of the Articles and/or Section 3(a)(ii) and/or 3(a)(iii) of the
Articles and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years as determined by the Board of Directors after consultation with the
Broker-Dealers, during each year of which the shares subject to such Alternate
Term Period shall be redeemable at the Fund's option pursuant to Section 3a(i)
of the Articles and/or in connection with any mandatory redemption pursuant to
Section 3(a)(ii) and/or 3(a)(iii) of the Articles at a price per share equal to
$50,000 plus accumulated but unpaid dividends plus a premium expressed as a
percentage or percentages of $50,000 or expressed in a formula using specified
variables as determined by the Board of Directors after consultation with the
Broker-Dealers.
The Fund also reserves the right to repurchase ATP in market or other
transactions from time to time in accordance with applicable law and at a price
that may be more or less than the liquidation preference of the ATP, but is
under no obligation to do so.
Mandatory Redemption. If the Fund fails to maintain, as of any Valuation
Date, Eligible Assets with an aggregate Discounted Value at least equal to the
ATP Basic Maintenance Amount or, as of the last business day of any month, the
1940 Act ATP Asset Coverage, and such failure is not cured within two business
days following the relevant Valuation Date in the case of a failure to maintain
the ATP Basic Maintenance Amount or the last business day of the following month
in the case of a failure to maintain 1940 Act ATP Asset Coverage as of such last
business day (each an "Asset Coverage Cure Date"), the ATP will be subject to
mandatory redemption out of funds legally available therefor. See "Asset
Maintenance." The number of shares of ATP to be redeemed in such circumstances
will be equal to the lesser of (i) the minimum number of shares of ATP the
redemption of which, if deemed to have occurred immediately prior to the opening
of business on the relevant Asset Coverage Cure Date, would result in the Fund
having Eligible Assets with an aggregate Discounted Value at least equal to the
ATP Basic Maintenance Amount, or sufficient to satisfy 1940 Act ATP Asset
Coverage, as the case may be, in either case as of the relevant Asset Coverage
Cure Date (provided that, if there is no such minimum number of shares the
redemption of which would have such result, all shares of ATP then outstanding
will be redeemed), and (ii) the maximum number of shares of ATP that can be
redeemed out of funds expected to be available therefor on the Mandatory
Redemption Date (as defined below).
If the Fund at any time fails to maintain the "aaa"/AAA Credit Rating
for the ATP, and such failure is not cured within 90 calendar days thereafter
(the "Rating Default Cure Date"), all shares of ATP will be subject to mandatory
redemption out of funds legally available therefor, on the Mandatory Redemption
Date, and dividends thereon will be payable at the Default Rate until such
redemption is effected as provided above under "Dividends and Dividend
Periods-Default Period." To maintain the "aaa"/AAA Credit Rating, the Fund must
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maintain a rating for the ATP in the highest rating category from any two
nationally recognized statistical rating organizations, as used in the
Securities Exchange Act of 1934, as amended, one of which shall be Moody's or
S&P.
Shares of ATP may be subject to mandatory redemption in accordance with
the foregoing redemption provision notwithstanding the terms of any Specific
Redemption Provisions.
The Fund is required to effect such a mandatory redemption not later
than 30 days after the Asset Coverage Cure Date or the Rating Default Cure Date,
as the case may be (the "Mandatory Redemption Date"), except that if the Fund
does not have funds legally available for the redemption of, or is not otherwise
legally permitted to redeem, all of the required number of shares of ATP which
are subject to mandatory redemption, together with shares of other ATP which are
subject to mandatory redemption under provisions similar to the ATP, or the Fund
otherwise is unable to effect such redemption on or prior to such Mandatory
Redemption Date, the Fund will redeem those shares of ATP and shares of other
ATP which it was unable to redeem on the earliest practicable date on which the
Fund will have such funds available, upon notice to record owners of shares of
ATP and the Auction Agent. The Fund's ability to make a mandatory redemption may
be limited by the provisions of the 1940 Act or Maryland law.
The redemption price in the event of any mandatory redemption will be
$50,000 per share, plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) to the date fixed for redemption
plus (in the case of a Dividend Period of not less than one year only) any
redemption premium specified in any applicable Specific Redemption Provisions.
In connection with any redemption, whether optional or mandatory, the
Fund shall pay, together with the redemption price, an amount equal to all
accumulated dividends, whether or not such dividends have been declared through
the redemption date.
Notwithstanding the provisions for redemption described above, no shares
of ATP may be redeemed unless all dividends in arrears on the outstanding shares
of ATP, and all capital stock of the Fund ranking on a parity with the ATP with
respect to the payment of dividends or upon liquidation, have been or are being
contemporaneously paid or set aside for payment, except in connection with the
liquidation of the Fund in which case all shares of ATP and all shares ranking
in a parity with the ATP must receive proportionate amounts.
Except for the provisions described above, nothing contained in the
Articles limits any right of the Fund to purchase or otherwise acquire any
shares of ATP outside of an Auction at any price, whether higher or lower than
the price that would be paid in connection with an optional or mandatory
redemption, so long as, at the time of any such purchase, there is no arrearage
in the payment of dividends on or the mandatory or optional redemption price
with respect to, any shares of ATP for which Notice of Redemption has been given
and the Fund is in compliance with the 1940 Act ATP Asset Coverage and has
Eligible Assets with an aggregate Discounted Value at least equal to the ATP
Basic Maintenance Amount after giving effect to such purchase or acquisition on
the date thereof. Any shares which are purchased, redeemed or otherwise acquired
by the Fund shall have no voting rights. If fewer than all the outstanding
shares of ATP are redeemed or otherwise acquired by the Fund, the Fund shall
give notice of such transaction to the Auction Agent, in accordance with the
procedures agreed upon by the Board of Directors.
Ratings
The Fund has obtained the "aaa"/AAA Credit Rating from Moody's and Fitch
for the ATP. While there is no assurance that the "aaa"/AAA Credit Rating with
respect to the ATP will not be changed, suspended or withdrawn, the Fund will
endeavor to maintain such rating and any failure to maintain such rating would,
subject to cure and certain exceptions, result in mandatory redemption of the
ATP. See "Mandatory Redemption" above. While the Fund does not presently intend
to seek a rating from a rating agency other than Moody's and Fitch, it reserves
the right to do so.
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Asset Maintenance
The Fund is required to satisfy two separate asset coverage requirements
under the terms of the Articles. These requirements are summarized below.
ATP Basic Maintenance Amount. The Fund is required to maintain as of
each Valuation Date Eligible Assets having in the aggregate a Discounted Value
at least equal to the ATP Basic Maintenance Amount, calculated separately for
Moody's (if Moody's is then rating the ATP) and Fitch (if Fitch is rating the
ATP). For this purpose, the Market Value of the Fund's portfolio securities is
(i) computed based upon one or more pricing services agreements approved by the
Board of Directors or (ii) the lower bid price from two independent dealers in
securities, one of which bids shall be in writing. The Fund has a pricing
services agreement with each of Kenny S&P Evaluation Services and Merrill Lynch
Capital Markets Securities Pricing Service. The Fund may substitute another
pricing service, provided that it has received notice from Moody's (if Moody's
is then rating the ATP) and Fitch (if Fitch is rating the ATP) that such
substitution will not impair the "aaa"/AAA Credit Rating. If the Fund fails to
maintain Eligible Assets having in the aggregate a Discounted Value at least
equal to the ATP Basic Maintenance Amount as of any Valuation Date and such
failure is not cured on or before the second business day after such Valuation
Date, the Fund will be required in certain circumstances to redeem certain of
the shares of ATP. See "Redemption."
The "ATP Basic Maintenance Amount" as of any Valuation Date is defined
as the dollar amount equal to the sum of
(1) (A) the product of the number of outstanding shares of ATP on
such date multiplied by $50,000; (B) the aggregate amount of dividends
that will have accumulated at the Applicable Rate (whether or not earned
or declared) to and including the first following Dividend Payment Date
for each share of ATP outstanding that follows such Valuation Date (or
to the 42nd day after such Valuation Date, if such 42nd day occurs
before the first following Dividend Payment Date); (C) the aggregate
amount of dividends that would accumulate at the then current Maximum
Applicable Rate for a Standard Term Period multiplied by the Volatility
Factor on any shares of ATP outstanding from the first day following the
Dividend Payment Date referred to in (B) above through the 42nd day
after such Valuation Date, but only if such 42nd day occurs after the
first day following the Dividend Payment Date, except that if such
Valuation Date occurs during a Default Period, the dividend for purposes
of the calculation would accumulate at the Default Rate; (D) the amount
of anticipated Fund expenses for the 90 days subsequent to such
Valuation Date; (E) any current liabilities, including, without
limitation, indebtedness due within one year and any redemption premium
due with respect to shares of ATP for which a Notice of Redemption has
been given, as of such Valuation Date to the extent not reflected in any
of (1)(A) through (1)(D), and (F) without duplication, 10% of the
exercise price of any call option written by the Fund and the exercise
price of any put option written by the Fund; less
(2) the sum of any cash or the value of any Fund assets
irrevocably deposited by the Fund for the payment of any of (1)(B)
through (1)(F) ("value" for purposes of this clause (2) shall mean the
Discounted Value of the security, except that if the security matures
prior to the relevant redemption payment date and is either fully
guaranteed by the U.S. Government or is rated P-1 by Moody's and A-1+ by
S&P, it will be valued at its face value).
Pursuant to the Fund's arrangements with Moody's and Fitch in connection
with the Swap Arrangement, the Fund has agreed that the Basic Maintenance Amount
will include (i) a fixed amount which was equal to $2,630,215 at the time the
Fund entered into the Swap Arrangement and which declines on a proportionate
basis thereafter through February 1999, plus the amount the Fund would pay, or
minus the amount the Fund would receive, upon termination of the Swap
Arrangement, in either case based on mark-to-market quotations obtained by the
Fund as of each Valuation Date (provided that the amount determined under this
clause will not be a negative number) and (ii) amounts which are payable by the
Fund under the swap during the 17-day period following the relevant Valuation
Date. Amounts received by the Fund within 31 calendar days of the relevant
Valuation Date may be included as assets in determining compliance with the
Basic Maintenance Amount requirement only if FNBB has issued securities with a
rating of at least A by Fitch, if rated by Fitch or if not
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rated by Fitch, then rated at least A by S&P and A2 by Moody's (if Fitch is then
rating the ATP). Currently FNBB does not satisfy this rating standard.
Solely for purposes of calculating the ATP Basic Maintenance Amount,
interest on borrowed funds outstanding as of any date will be treated as
dividend payments, at a deemed dividend rate equal to the interest rate payable
on such funds on the relevant date, but shall be subject to multiplication by
the larger of the factors that the Fund has been informed by Moody's (if Moody's
is then rating the ATP) or Fitch (if Fitch is then rating the ATP) are
applicable (as described in 1(C) above) only in the event that interest on such
borrowed funds is payable on the basis of a variable rate of interest, and the
interest rate is subject to change within the relevant 43-day period.
The discount factors, the criteria used to determine whether the assets
held in the Fund's portfolio are Eligible Assets and guidelines for determining
the market value of the Fund's portfolio holdings have been based on criteria
established in connection with rating the ATP. These factors include, but are
not limited to, the sensitivity of the market value of the relevant asset to
changes in interest rates, the liquidity and depth of the market for the
relevant asset, the credit quality of the relevant asset (for example, the lower
the rating of a debt obligation, the higher the related discount factor) and the
frequency with which the relevant asset is marked to market. In no event shall
the Discounted Value of any asset of the Fund exceed its unpaid principal
balance or face amount as of the date of calculation. The Discount Factor
relating to any asset of the Fund, the ATP Basic Maintenance Amount, the assets
eligible for inclusion in the calculation of the Discounted Value of the Fund's
portfolio and certain definitions and methods of calculation relating thereto
may be changed from time to time by the Fund, without stockholder approval, but
only in the event that the Fund receives written confirmation from Moody's (if
Moody's is then rating the ATP), Fitch (if Fitch is then rating the ATP) and any
other rating agency which is then rating the ATP and which so requires that any
such changes would not impair the "aaa"/AAA Credit Rating. If the Fund fails to
maintain the "aaa"/AAA Credit Rating and is unable to restore the "aaa"/AAA
Credit Rating by the Rating Default Cure Date, the Fund will be required to
redeem the ATP. See "Redemption," above.
1940 Act ATP Asset Coverage. The Fund is required under the Articles to
maintain 1940 Act ATP Asset Coverage as of the last business day of each month
in which any shares of ATP are outstanding. If the Fund fails to maintain 1940
Act ATP Asset Coverage and such failure is not cured as of the last business day
of the following month, the Fund will be required to redeem certain shares of
the ATP. See "Redemption."
On December 31, 1996, the 1940 Act ATP Asset Coverage was:
Value of Fund assets less
liabilities not constituting
senior securities [$278,347,919]
- ----------------------------- --------------
Senior securities [$100,000,000] = [278%]
representing indebtedness ($0)
plus liquidation value
of the ATP
Notices. The Fund is required to deliver a certificate with respect to
the calculation of the ATP Basic Maintenance Amount and the value of the
portfolio holdings of the Fund (a "ATP Basic Maintenance Certificate") to the
Auction Agent, and any rating agency which is then rating the ATP and which so
requires as of (a) any Valuation Date on which the Fund fails to have Eligible
Assets with an aggregate Discounted Value at least equal to 125% of the ATP
Basic Maintenance Amount, (b) every fourth Valuation Date for the first year
following the date of original issue of the ATP, (c) if the Fund fails to have
Eligible Assets with an aggregate Discounted Value at least equal to the ATP
Basic Maintenance Amount, (d) the Valuation Date next following the date of
redemption by the Fund of shares of Common Stock which, together with all other
shares of Common Stock purchased during the six months preceding such date,
equal in excess of 1,000,000 shares of Common Stock, and (e) the last Valuation
Date of each fiscal quarter and a Valuation Date during such fiscal quarter
randomly selected by the Fund's independent accountants as provided below, (f) a
business day on or before any cure date relating to the Fund's cure of a failure
to have Eligible Assets with an aggregate
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Discounted Value at least equal to the ATP Basic Maintenance Amount, and at any
time upon the request of a rating agency then rating the ATP. Such certificate
must be accompanied by a certificate from the Fund's accountants certifying as
to the accuracy of the Fund's calculations.
The Fund is required to deliver to the Auction Agent, and any rating
agency which is then rating the ATP and which so requires, a certificate with
respect to the calculation of the 1940 Act ATP Asset Coverage and the value of
the portfolio holdings of the Fund (a "1940 Act ATP Asset Coverage Certificate")
as of (a) the last Valuation Date of each quarter thereafter, and (b) as of the
business day on or before the Asset Coverage Cure Date relating to the failure
to satisfy the 1940 Act Asset Coverage. Such 1940 Act ATP Asset Coverage
Certificate shall be delivered on or before the third business day after the
relevant Valuation Date or the Asset Coverage Cure Date. Such certificate must
be accompanied by a certificate from the Fund's accountants certifying as to the
accuracy of the Fund's calculations.
In the event that a ATP Basic Maintenance Certificate or 1940 Act ATP
Asset Coverage Certificate or the applicable accountant's certificates with
respect thereto are not delivered within the time periods specified in the
Articles, the Fund shall be deemed to have failed to have Eligible Assets with
an aggregate Discounted Value at least equal to the ATP Basic Maintenance Amount
or the 1940 Act ATP Asset Coverage, as the case may be, as of the related
Valuation Date, and such failure shall be deemed not to have been cured as of
such cure date for purposes of the mandatory redemption provisions.
Liquidation
In the event of a liquidation, dissolution or winding up of the Fund,
whether voluntary or involuntary, the holders of ATP and any other shares
ranking in parity with the ATP, in preference to the holders of Common Stock,
will be entitled to payment, out of the assets of the Fund or the proceeds
thereof available for distribution to stockholders after satisfaction of claims
of creditors of the Fund, of a liquidation distribution in the amount of $50,000
per share, plus an amount equal to accumulated dividends (whether or not earned
or declared but without interest) to the date payment of such distribution is
made in full or a sum sufficient for the payment thereof is set apart with the
paying agent. However, holders of ATP will not be entitled to any premium to
which such holder would be entitled to receive upon redemption of such shares of
ATP. After payment of the full amount of such liquidation distribution, the
owners of the ATP will not be entitled to any further participation in any
distribution of assets of the Fund.
If, upon the liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the assets of the Fund or proceeds thereof available
for distribution to stockholders after satisfaction of claims of creditors of
the Fund shall be insufficient to pay in full the liquidation distribution to
which owners of any shares of ATP are entitled, such assets or the proceeds
thereof will be distributed among the owners of the shares of ATP and any other
shares ranking on a parity therewith, ratably.
In the event of any such liquidation, dissolution or winding up of the
Fund, whether voluntary or involuntary, until payment in full is made to the
owners of the shares of ATP of the liquidation distribution to which they are
entitled, no dividend or other distribution shall be made to the holders of
Common Stock and no purchase, redemption or other acquisition for any
consideration by the Fund shall be made in respect of the Common Stock.
A consolidation or merger of the Fund with or into any other company or
companies, or a sale, lease or exchange of all or substantially all of the
assets of the Fund in consideration for the issuance of equity securities of
another company, shall not be deemed to be a liquidation, dissolution or winding
up of the Fund; provided, however, that the consolidation, merger, sale, lease
or exchange does not materially adversely affect any designation, right,
preference or limitation of the ATP or any shares issuable in exchange for
shares of ATP in any such consolidation or merger.
To the extent other shares of ATP are issued by the Fund, including
additional series of ATP or additional shares of the ATP Series A or the ATP
Series B, such shares will share equally and on a pro rata basis with the ATP
then outstanding in connection with any liquidation, dissolution or winding up
of the Fund.
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Voting Rights
Except as otherwise indicated herein and except as otherwise required by
applicable law, holders of shares of ATP have equal voting rights with holders
of Common Stock (one vote per share) and vote together with holders of shares of
Common Stock as a single class. Under applicable rules of Exchange, the Fund is
currently required to hold annual meetings of stockholders.
In connection with the election of the Fund's Board, Holders of shares
of preferred stock, including the ATP, voting as a separate class, are entitled
to elect two of the Fund's Directors, and the remaining Directors will be
elected by holders of Common Stock and the holders of shares of preferred stock,
including the ATP, voting as a single class. In addition, if at any time
dividends on outstanding shares of ATP, including the ATP, shall be unpaid in an
amount equal to two full years' dividends thereon, then the number of members
constituting the Board shall automatically be increased by the smallest number
that, when added to the two Directors elected exclusively by the holders of
shares of preferred stock as described above, would constitute a majority of the
Board as so increased by such smallest number; and at a special meeting of
stockholders which will be called and held as soon as practicable, and at all
subsequent meetings at which Directors are to be elected, the holders of shares
of preferred stock, including the ATP, voting as a separate class, will be
entitled to elect the smallest number of additional Directors that, together
with the two Directors which such holders will be in any event entitled to
elect, constitutes a majority of the total number of Directors of the Fund as so
increased. The terms of office of the persons who are Directors at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment, in full all dividends payable on all outstanding shares
of preferred stock, including the ATP, for all past Dividend Periods, the voting
rights stated in the preceding sentence shall cease, and the terms of office of
all of the additional Directors elected by the holders of shares of preferred
stock including the ATP (but not of the Directors with respect to whose election
the holders of Common Stock were entitled to vote or the two Directors the
holders of shares of preferred stock including the ATP, have the right to elect
in any event) will terminate automatically. Any shares of ATP issued after the
date hereof shall vote with the ATP as a single class on the matters described
above, and the issuance of any other shares of ATP by the Fund may reduce the
voting power of the ATP.
The voting rights of the Common Stock are noncumulative, which means
that the holders of more than 50% of the shares of Common Stock and ATP voting
for the election of those Directors subject to election by the Common Stock and
ATP can elect 100% of the Directors subject to election by them if they choose
to do so, and, in such event, the holders of the remaining shares of Common
Stock and ATP voting for the election of Directors will not be able to elect any
Directors. The holders of the Common Stock vote as a single class with the
holders of the ATP on all matters except as described.
The rights of the holders of the Common Stock as set forth in the
Articles may not be modified by a vote of less than a majority of the shares of
Common Stock outstanding.
Also, the affirmative vote of the holders of a majority of the
outstanding preferred stock, including the ATP, voting as a class, is required
to (i) amend, alter or repeal any of the preferences, rights or powers of such
class so as to affect materially and adversely such preferences, rights or
powers; (ii) increase the authorized number of shares of ATP; (iii) create,
authorize or issue shares of any class of capital stock ranking senior to or on
a parity with the ATP with respect to the payment of dividends or the
distribution of assets, or any securities convertible into, or warrants, options
or similar rights to purchase, acquire or receive, such shares of capital stock
ranking senior to or on parity with the ATP or reclassify any authorized shares
of capital stock of the Fund into any shares ranking senior to or on parity with
the ATP (except that, the Board of Directors, without the vote or consent of the
holders of ATP, may from time to time authorize, create and classify, and the
Fund may from time to time issue, series or shares of preferred stock, including
ATP, ranking on a parity with the ATP with respect to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up to
the affairs of the Fund, subject to continuing compliance by the Fund with 1940
Act ATP Asset Coverage and ATP Basic Maintenance Amount requirements, or in
connection with a refinancing of the ATP); (iv) institute any proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law relating
to bankruptcy or insolvency, or
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consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Fund or a substantial part of
its property, or make any assignment for the benefit of creditors, or, except as
may be required by applicable law, admit in writing its inability to pay its
debts generally as they become due or take any corporate action in furtherance
of any such action; (v) create, incur or suffer to exist, or agree to create,
incur or suffer to exist, or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) the creation, incurrence or existence
of any material lien, mortgage, pledge, charge, security interest, security
agreement, conditional sale or trust receipt or other material encumbrance of
any kind upon any of the Fund's assets as a whole, except (A) liens the validity
of which are being contested in good faith by appropriate proceedings, (B) liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (C) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
permitted under clause (vi) below and (D) liens to secure payment for services
rendered including, without limitation, services rendered by the Fund's
custodian and the Auction Agent, or (vi) create, authorize, issue, incur or
suffer to exist any indebtedness for borrowed money or any direct or indirect
guarantee of such indebtedness for borrowed money or any direct or indirect
guarantee of such indebtedness, except the Fund may borrow from banks for
temporary or emergency purposes or as may be permitted by the Fund's investment
restrictions; provided, however, that transfers of assets by the Fund subject to
an obligation to repurchase shall not be deemed to be indebtedness for purposes
of this provision to the extent that after any such transaction the Fund has
Eligible Assets with an aggregate Discounted Value at least equal to the ATP
Basic Maintenance Amount as of the immediately preceding Valuation Date.
The affirmative vote of the Holders of a majority of the outstanding
shares of ATP, voting as a separate class, will also be required to approve any
plan of reorganization adversely affecting such shares or any action requiring a
vote of security holders under Section 13(a) of the 1940 Act including, among
other things, changes in the Fund's investment objective or changes in the
investment restrictions described as fundamental policies under "Investment
Restrictions." The class vote of Holders of shares of ATP described above will
in each case be in addition to a separate vote of the requisite percentage of
shares of Common Stock necessary to authorize the action in question. In
addition, the affirmative vote of the holders of a majority of the outstanding
shares of each series of ATP, voting separately from any other series, shall be
required with respect to any matter that materially and adversely affects the
rights, preferences, or powers of such series in a manner different from that of
other series of classes of the Fund's shares of capital stock. For purposes of
the foregoing, no matter shall be deemed to adversely affect any right,
preference or power unless such matter (i) alters or abolishes any preferential
right of such series; (ii) creates, alters or abolishes any right in respect of
redemption of such series; or (iii) creates or alters (other than to abolish)
any restriction on transfer applicable to such series.
The Board of Directors may amend certain provisions of the Articles
without any vote or consent of the holders of ATP or any other stockholder of
the Fund. See "Rating Agency Guidelines" and Section 6(j), Part I of the form of
Articles filed as an Exhibit to the Registration Statement of which this
Prospectus is a part. Definitions and provisions in the Articles subject to
amendment by action of the Board (subject to rating agency approval) include the
following:
ATP Basic Maintenance Amount Maximum Applicable Rate
ATP Basic Maintenance Certificate Minimum Applicable Rate
Asset Coverage Cure Date Moody's Discount Factor
Deposit Securities Moody's Eligible Assets
Discounted Value Moody's Industry Classification
Exposure Period 1940 Act Asset Coverage Cure Date
Fitch Discount Factor 1940 Act ATP Asset Coverage
Fitch Eligible Assets Short Term Money Market
Fitch Industry Classification Instruments
Market Value (including certain Volatility Factor
provisions relevant to futures Last Paragraph of Section 12
and options transactions)
In addition, the Board of Directors may amend the definition of Maximum
Applicable Rate to increase the percentage amount by which the Reference Rate is
multiplied to determine the Maximum Applicable Rate
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shown therein without the vote or consent of the holders of shares of the ATP,
including the ATP, or any other stockholder of the Fund and without confirmation
of Moody's, Fitch or any Other Rating Agency, after consultation with the
Broker-Dealers.
The foregoing voting provisions will not apply with respect to the ATP
if, at or prior to the time when a vote is required, such shares have been (i)
redeemed or (ii) called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
DETERMINATION OF NET ASSET VALUE
Net asset value of the Common Stock will be determined no less
frequently than the close of trading on the Exchange (generally 4:00 p.m. New
York time) on the last business day of each week (generally Friday). It will be
determined by dividing the value of the net assets of the Fund (for the purpose
of determining the net asset value per share of the Common Stock, the value of
the Fund's net assets shall be deemed to equal the value of the Fund's assets
less (i) the Fund's liabilities, (ii) accumulated and unpaid dividends on the
outstanding ATP and (iii) the aggregate liquidation value (i.e., $50,000 per
share, plus accrued and unpaid dividends to the date of liquidation) of the
outstanding ATP) by the total number of shares of Common Stock outstanding. In
valuing the Fund's assets for all purposes other than the determination of the
Discounted Value of such assets pursuant to the investment guidelines of the
rating agencies then rating the ATP, portfolio securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, will be valued at the mean
between the most recently quoted bid and asked prices provided by the principal
market makers. The Fund has a pricing service agreement with each of [Kenny S&P
Evaluation Services and Merrill Lynch Capital Markets Securities Pricing
Service.] Any security or option for which the primary market is on an exchange
will be valued at the last sale price on such exchange on the day of valuation
or, if there was no sale on such day, the last bid price quoted on such day.
Options for which the primary market is not on an exchange or which are not
listed on an exchange will be valued at market value or fair value if no market
exists. Securities and assets for which market quotations are not readily
available will be valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund. While no single standard
for determining fair value exists, as a general rule, the current fair value of
a security would appear to be the amount which the Fund could expect to receive
upon its current sale. Some, but not necessarily all, of the general factors
which may be considered in determining fair value include: (i) the fundamental
analytical data relating to the investments; (ii) the nature and duration of
restrictions on disposition of the securities; and (iii) an evaluation of the
forces which influence the market in which these securities are purchased and
sold. Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include: type
of security, financial condition of the issuer, cost at date of purchase,
special reports prepared by analysts, information as to any transaction or
offers with respect to the security, existence of merger proposals or tender
offers affecting the securities, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant matters.
Short-term debt securities which mature in less than 60 days will be
valued at amortized cost if their term to maturity from the date of acquisition
by the Fund was less than 60 days or by amortizing their value on the 61st day
prior to maturity if their term to maturity from the date of acquisition by the
Fund was more than 60 days, unless this method is determined by the Board of
Directors not to represent fair value. Repurchase agreements will be valued at
cost plus accrued interest.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Fund distributes to stockholders substantially all of its net
investment income in monthly dividends on or about the last day of each month.
Capital gains, if any, net of capital losses, are distributed annually, with
such distribution to be declared in December of each year, or otherwise as
required by Treasury regulations then in effect. Stockholders are informed of
the tax consequences of the Fund's distributions after the end of the Fund's
fiscal year. See "Taxation."
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Stockholders may elect to have all distributions of dividends and
capital gains paid in cash, which will be paid by check and mailed directly to
the stockholder by State Street Bank and Trust Company (the "Dividend Paying
Agent"). Stockholders who fail to elect not to participate in the Plan will have
all distributions from the Fund automatically reinvested by the Dividend Paying
Agent under the Automatic Dividend and Distribution Investment Plan (the
"Plan"). Stockholders may elect not to participate in the Plan and to have all
distributions of dividends and capital gains paid in cash by sending written
instructions to the Dividend Paying Agent at the address set forth below.
If the Directors of the Fund declare a dividend or determine to make a
capital gains distribution payable either in shares of the Fund or in cash, as
stockholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares. If the
market price of the shares on the payment date for the dividend or distribution
is equal to or exceeds their net asset value as determined on the payment date,
participants will be issued shares of the Fund at a value equal to the higher of
net asset value or 95% of the market price. If net asset value exceeds the
market price of the shares at such time, or if the Fund declares a dividend or
other distribution payable only in cash, the Dividend Paying Agent will, as
agent for Plan participants, buy shares in the open market, on the Exchange or
elsewhere, for the participants' accounts. If, before the Dividend Paying Agent
has completed its purchases, the market price exceeds the net asset value of the
shares of Common Stock, the average per share of Common Stock purchase price
paid by the Dividend Paying Agent may exceed the asset value of the shares,
resulting in the acquisition of fewer shares than if the dividend or
contribution had been paid in shares issued by the Fund.
In connection with the Offer, participants in the Fund's Dividend
Reinvestment Plan (the "Plan") will be issued Rights for the shares of Common
Stock held in their accounts in the Plan as of the Record Date. Participants
wishing to exercise such Rights must exercise such Rights in accordance with the
procedures set forth below in "Exercise of Rights" and "Payment for Shares."
Such Rights will not be exercised automatically by the Plan.
Participants in the Plan have the option of making additional cash
payments to the Dividend Paying Agent, quarterly, in any amount of $100 to $500
for investment in the Fund's shares. The Dividend Paying Agent uses all funds
received from participants to purchase Fund shares in the open market on or
about the last day of each calendar quarter. Participant's cash payments are
also used to acquire Fund shares under the same procedure as that used for
reinvestment of dividends and distributions. To allow ample time for receipt and
processing by the Dividend Paying Agent, participants should send voluntary cash
payments to be received by the Dividend Paying Agent not later than five
business days before the last day of each calendar quarter. To avoid unnecessary
cash accumulations, cash payments received after that time and cash payments
received more than 30 days prior to these dates will be returned by the Dividend
Paying Agent and interest will not be paid on any uninvested cash payments. A
participant may withdraw a voluntary cash payment by written notice, if the
notice is received by the Dividend Paying Agent not less than 48 hours before
such payment is to be invested. There is a [$.75] fee for each cash purchase
under the Plan.
Participants in the Plan may withdraw from the Plan upon written notice
to the Dividend Paying Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided below, certificates for whole shares of
Common Stock credited to his account under the Plan will be issued and a cash
payment will be made for any fraction of a share of Common Stock credited to
such account.
The Dividend Paying Agent will maintain all stockholders' accounts in
the Plan and will furnish written confirmation of all transactions in the
account, including information needed by stockholders for tax records. Shares of
Common Stock in the account of each Plan participant (other than participants
whose shares of Common Stock are registered in the name of banks, brokers,
nominees or other third parties) will be held by the Dividend Paying Agent in
non-certificated form in the name of the participant, and each stockholder's
proxy will include those shares of Common Stock purchased pursuant to the Plan.
In the case of stockholders such as banks, brokers or nominees which
hold shares of Common Stock for others who are the beneficial owners, the
Dividend Paying Agent administers the Plan on the basis of the number of shares
of Common Stock certified from time to time by the record stockholders as
representing the
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total amount registered in the record stockholder's name and held for the
account of beneficial owners who are to participate in the Plan. Investors whose
shares of Common Stock are held in the name of banks, brokers or nominees must
confirm with such entities that participation in the Plan is possible. Those who
participate in the Plan may subsequently elect not to participate by notifying
such entities.
There is no charge to participants for reinvesting dividends or
distributions, except for certain brokerage commissions, as described below. The
Dividend Paying Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Fund. There will be no brokerage
commissions charged with respect to shares issued directly by the Fund. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Dividend Paying Agent's open market purchases in connection
with the reinvestment of dividends or distributions.
Participants in the Plan should be aware that they will realize capital
gains and income for tax purposes upon dividends and distributions although they
will not receive any payment of cash. 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 dividend or distribution paid subsequent to
written notice of the change sent to the participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan also may
be amended or terminated by the Dividend Paying Agent on at least 90 days'
written notice to participants in the Plan. All correspondence or inquiries
concerning the Plan should be directed to State Street Bank and Trust Company,
Stock Transfer Department, P.O. Box 8200, Boston, Massachusetts 02266-8200 or by
telephone call to 1-800-426-5523.
CONVERSION TO OPEN-END STATUS AND REPURCHASE OF SHARES
Conversion to Open-End Status
The Fund's Board of Directors may elect at any time to submit to the
holders of the Common Stock and the ATP a proposal to convert the Fund to an
open-end investment company and in connection therewith to redeem or otherwise
retire the ATP (subject to any Specific Redemption Provisions) as would be
required upon such conversion by the 1940 Act. In determining whether to
exercise its discretion to submit this issue to stockholders, the Board of
Directors would consider all factors then relevant, including the relationship
of the market price of the Common Stock to net asset value, the extent to which
the Fund's capital structure is leveraged and the possibility of re-leveraging,
the spread, if any, between yields on "high yield" securities in the Fund's
portfolio as compared to interest and dividend charges on senior securities and
general market and economic conditions. In addition to any vote required by
Maryland law, conversion of the Fund to an open-end investment company would
require the affirmative vote of the holders of a majority (as defined in the
1940 Act) of each class of the shares entitled to be voted on the matter.
Stockholders 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 charges, if
any, as might be in effect at the time of redemption. If the Fund converted to
an open-end investment company, it could be required to liquidate portfolio
securities to meet requests for redemption, and the Common Stock would no longer
be listed on the Exchange. In the event the Fund converts to open-end status,
the Fund would only be able to borrow through bank borrowings within certain
limits and would not be allowed to have preferred stock, thus requiring a
redemption of the ATP.
Repurchase of Common Stock
Shares of closed-end management investment companies frequently trade at
a discount from net asset value but in some cases trade at a premium. In
recognition of the possibility that the Fund's Common Stock might similarly
trade at a discount, the Fund may from time to time take action to attempt to
reduce or eliminate a market value discount from net asset value by repurchasing
its Common Stock in the open market or by tendering for its own shares at net
asset value. There can be no assurance that the Board will, in fact, decide to
undertake either of these actions or, if undertaken, that such actions will
result in the Fund's Common Stock trading at a price which is equal to or
approximates its net asset value. The Board does not have a policy with
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respect to a periodic consideration of the appropriateness of taking action to
repurchase or tender for the Fund's shares. In addition, the Board will not
necessarily announce when it has given consideration to these matters.
Notwithstanding the foregoing, so long as any shares of ATP are outstanding, the
Fund may not purchase, redeem or otherwise acquire any Common Stock unless (1)
all accumulated dividends on the ATP have been paid or set aside for payment
through the date of such purchase, redemption or other acquisition and (2) at
the time of such purchase, redemption or acquisition the ATP Basic Maintenance
Amount and the 1940 Act ATP Asset Coverage (determined after deducting the
acquisition price of the Common Stock) are met. Any tender offer will be made
and holders of Common Stock notified in accordance with the requirements of the
Securities Exchange Act of 1934 and the 1940 Act, either by publication or
mailing or both.
Although the Board of Directors believes that share repurchases and
tenders generally would have a favorable effect on the market price of the
Fund's Common Stock, it should be recognized that the acquisition of shares by
the Fund will decrease the total assets of the Fund and, therefore, have the
effect of increasing the Fund's expense ratio. In addition, any purchase by the
Fund of its Common Stock as at a time when the shares of ATP are outstanding
will increase the leverage applicable to the outstanding Common Stock then
remaining. Repurchases of Common Stock may result in the Fund being required to
redeem shares of ATP to satisfy asset coverage requirements.
CUSTODIAN, AUCTION AGENT, REGISTRAR,
TRANSFER AGENT AND PAYING AGENT
The Fund's securities and cash are held under a Custodian Agreement by
State Street Bank and Trust Company, whose principal place of business is
located at 225 Franklin Street, Boston, Massachusetts 02110. State Street Bank
and Trust Company is authorized to establish and has established separate
accounts in foreign currencies and to cause securities of the Fund to be held in
separate accounts outside the United States in the custody of non-U.S. banks.
Rules adopted under the 1940 Act permit the Fund to maintain its securities and
cash in the custody of certain eligible banks and securities depositories.
Pursuant to those rules, the Fund's portfolio of securities and cash, when and
if invested in securities of foreign countries, is held by its subcustodians who
are approved by the Board of Directors of the Fund in accordance with the rules
of the SEC. Selection of the subcustodians is made by the directors of the Fund
following a consideration of a number of factors, including, but not limited to,
the reliability and financial stability of the institution, the ability of the
institution to capably perform custodial services for the Fund, the reputation
of the institution in its national market, and the political and economic
stability of the countries in which the subcustodians will be located. In
addition, the 1940 Act requires that foreign subcustodians, among other things,
have stockholder equity in excess of $200 million, have no lien on the Fund's
assets and maintain adequate and accessible records. State Street Bank and Trust
Company serves as transfer agent, registrar and dividend disbursing agent for
the Fund's Common Stock.
Bankers Trust Company acts as the Registrar, Transfer Agent, Paying
Agent and Auction Agent for the ATP.
REPORTS TO STOCKHOLDERS
The Fund will send unaudited semi-annual and audited annual reports to
stockholders, including a list of the portfolio investments held by the Fund.
CERTAIN LEGAL MATTERS
Certain legal matters with respect to the Offer will be passed upon for
the Fund by _______________. ____________ will rely as to matters of Maryland
law upon the legal opinion of __________________________________.
75
<PAGE>
EXPERTS
The audited balance sheet of the Fund, including the portfolio of
investments in securities by industry classification, as of December 31, 1996,
and the related statements of operations, changes in net assets and cash flows
and the financial highlights for each of the years since the Fund commenced
operations appearing herein to the extent and for the periods indicated in their
report have been audited by Arthur Andersen LLP, independent auditors, as set
forth in their report thereon appearing herein, and are included herein upon the
authority of said firm as experts in accounting and auditing in giving said
report.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith
is required to file reports, proxy statements and other information with the
Commission. Any such reports, proxy statements and other information can be
inspected without charge at the public reference facilities of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at Seven World Trade Center,
New York, New York 10048 and Suite 1400, 500 W. Madison Street, Chicago,
Illinois 60621-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York, and Chicago, Illinois, at prescribed rates. Reports, proxy
statements and other information concerning the Fund can also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
Additional information regarding the Fund is contained in the
Registration Statement on Form N-2, including the Statement of Additional
Information comprising a part thereof and any amendments, exhibits and schedules
thereto, relating to such shares filed by the Fund with the Commission. This
Prospectus does not contain all of the information set forth in the Registration
Statement, including the Statement of Additional Information comprising a part
thereof and any amendments, exhibits and schedules thereto. For further
information with respect to the Fund and the shares offered hereby, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of the Articles or any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Fund's Annual Report, which includes financial statements, for the
fiscal year ended December 31, 1996, which either accompanies this Prospectus or
has previously been provided to the person to whom this Prospectus is being
sent, is incorporated herein by reference with respect to all information other
than the information set forth in the Letter to Shareholders included therein.
Any statement contained in the Fund's Annual Report that was incorporated herein
shall be deemed modified or superseded for purposes of this Prospectus to the
extent a statement contained in this Prospectus varies from such statement. Any
such statement so modified or superseded shall not, except as so modified or
superseded, be deemed to constitute a part of this Prospectus. The Fund will
furnish, without charge, a copy of its Annual Report, upon written request to
the Fund at 10 Winthrop Square, Fifth Floor, Boston, Massachusetts or request by
phone at (617) 350-8610.
76
<PAGE>
FINANCIAL STATEMENTS
[to be filed by amendment]
F-1
<PAGE>
APPENDIX A
----------
FORM OF SUBSCRIPTION
CERTIFICATE VOID IF NOT RECEIVED BY THE
SUBSCRIPTION AGENT BEFORE 5:00 P.M.
EASTERN TIME ON ___________, 1996, UNLESS EXTENDED.
Cusip No. 641876115 Shares available for Subscription _________
---------
THE NEW AMERICA HIGH INCOME FUND, INC.
SUBSCRIPTION RIGHTS FOR COMMON STOCK
Dear Stockholder:
IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST COMPLETE THE TEAR OFF CARD BELOW.
As the registered owner of this Subscription Certificate, you are entitled to
subscribe for the number of Shares of Common Stock of The New America High
Income Fund, Inc. shown above. You may subscribe for such Shares pursuant to the
Primary Subscription right at the Subscription Price for each Share specified in
the Prospectus accompanying this Subscription Certificate. The Rights
represented hereby include the Over-Subscription Privilege for all Rightholders
as described in the accompanying Prospectus. Under the Over-Subscription
Privilege, any number of additional shares may be purchased by Rightholders if
such Shares are available and you have fully exercised your Primary Subscription
rights with respect to the Rights issued to you hereby.
(continued on reverse side)
How to Calculate your Full Primary Subscription Entitlement
-----------------------------------------------------------
No. of shares owned ______ / 3 = ______ Rights, each of
which entitles you to buy one new Share.
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE
NOTE: $______ is an estimated price only. The final price to be determined on
___________, 1996 (unless extended) could be higher or lower depending on the
movement in the net asset value and share price. Additional payment may be
required for the Primary Subscription Shares, and any Over-Subscription Shares,
when the actual Subscription Price is determined. Please reference the Control
Number appearing on the form below on your check, money order, or notice of
guaranteed delivery.
...............................................................................
CUSIP NO. 641876115 VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT
--------- BEFORE 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE
Control No. _______ Rights Represented by this Subscription Certificate _____
Account No. _______
THE NEW AMERICA HIGH INCOME FUND, INC.
SUBSCRIPTION RIGHTS FOR COMMON STOCK
(Complete appropriate sections on reverse side of this card)
The registered owner of this Subscription Certificate named below, or assigns,
is entitled to the number of Rights to subscribe for the Common Stock, $.01 par
value of The New America High Income Fund, Inc. (the "Fund") shown above, in the
ratio of one Share for Right, pursuant to the Primary Subscription right and
upon terms and conditions and at the Subscription Price for each Share of Common
Stock specified in the Prospectus relating thereto. The Rights represented
hereby include the Over-Subscription Privilege for all Rightholders, as
described in the Prospectus. Under the Over-Subscription Privilege, any number
of additional shares may be purchased by Rightholders if such Shares are
available and the owner's Primary Subscription rights have been fully exercised.
Stock certificates for the Shares subscribed for pursuant to the Primary
Subscription right and Over-Subscription Privilege will be delivered within
fifteen business days after the Confirmation Date and after full payment for the
Shares subscribed for has been received and cleared, and all allocations have
been affected. Additional payment may be required for the Primary Subscription
Shares, and any Over-Subscription Shares, when the actual Subscription Price is
determined. Any refund in connection with subscriptions will be delivered as
soon as practicable after the expiration of the Offer. This Subscription
Certificate may be transferred, in the same manner and with the same effect as
in the case of a negotiable instrument payable to specific persons, by duly
completing and signing the assignment on the reverse side hereof.
TO SUBSCRIBE PURSUANT TO THE PRIMARY SUBSCRIPTION RIGHT OR THE OVER-SUBSCRIPTION
PRIVILEGE, A RIGHT AND FULL PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE ARE
REQUIRED FOR EACH SHARE. SEE REVERSE SIDE FOR FORM.
THE NEW AMERICA HIGH INCOME FUND, INC.
By: ________________________________________
A-1
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By: ________________________________________
A-2
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
If the aggregate Subscription Price paid by a Rightholder is insufficient to
purchase the aggregate number of Shares subscribed for then such Rightholder
will be deemed to have exercised first, the Primary Subscription right and
second, the Over-Subscription Privilege to full extent of the payment tendered.
If the aggregate Subscription price paid by a Rightholder exceeds the amount
necessary to purchase the number of Shares for which the Rightholder has
indicated an intention to subscribe, then the Rightholder will be deemed to have
exercised first, the Primary Subscription right and second, the
Over-Subscription Privilege to the full extent of the excess payment tendered.
Stock certificates for the Shares subscribed to pursuant to the Primary
Subscription right and Over-Subscription Privilege will be delivered within
fifteen business days after the Confirmation Date and after full payment for the
Shares subscribed for has been received and cleared. Any refund in connection
with your subscription will be delivered as soon as practicable after the
expiration of the offering.
Full Payment for both Primary and Over-Subscription shares must accompany this
form 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 The New America High
Income Fund, Inc. Alternatively, a notice of guaranteed delivery must accompany
the exercise form.
...............................................................................
THE NEW AMERICA HIGH INCOME FUND, INC.
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY
PLEASE FILL IN ALL APPLICABLE INFORMATION
Expiration Date: ___________, 1996 (unless extended)
TO: State Street Bank and Trust Company, Subscription Agent
P.O. Box 9061
Boston, Massachusetts 02205-8686
IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT:
----
A: I apply for all of my entitlement of new shares.
_______________ x $______ = $___________AMOUNT ENCLOSED $___________
(no. of new shares)
B: I apply for the Over-Subscription Privilege
(You can only subscribe if you have fully
exercised your Primary Subscription rights.)
_______________ x $______ $___________
(no. of additional shares)
IF YOU WISH TO APPLY FOR LESS THAN YOUR FULL ENTITLEMENT:
----
C: I apply for __________________ x $____ = $___________________________
(no. of new shares) (AMOUNT ENCLOSED)
IF YOU WISH TO SELL ANY RIGHTS:
D: Sell any remaining Rights [ ]
E: Sell all of my Rights [ ]
TO SUBSCRIBE: I hereby irrevocably subscribe for the face amount of
Common Stock indicated as the total of A and B or C above, upon the terms and
conditions specified in the Prospectus relating thereto, receipt of which is
acknowledged. I hereby agree that if I fail to pay for the Shares of Common
Stock for which I have subscribed, the Fund may exercise any of the remedies set
forth in the Prospectus.
TO SELL RIGHTS: If I have checked either the box on line D or on line
E, I authorize the sale of Rights by the Subscription Agent according to the
procedures described in the Prospectus.
___________________________________________________________
___________________________________________________________
Signature(s) of Subscriber(s)
___________________________________________________________
Address for delivery of Shares if other than shown on front
Please give your telephone number:
(____)___________________________
TO TRANSFER RIGHTS: (except pursuant to D or E above): For value
received, ____ of the Rights represented by the Subscription Certificate are
assigned to:
____________________________________________________________
(Print Full Name of Assignee)
____________________________________________________________
(Print Full Address)
____________________________________________________________
Signature(s) of Assignor(s)
IMPORTANT: The Signature(s) must correspond in every particular, without
alteration, with the name(s) as printed on the reverse of this
Subscription Certificate.
Your Signature must be guaranteed by: (a) a commercial bank or trust company
or (b) a member firm of a domestic stock exchange, or (c) a savings bank or
credit union
Signature __________________________________________________
(Name of Bank or Firm)
By: ________________________________________________________
(Signature of Officer and Title)
A-3
<PAGE>
APPENDIX B
----------
NOTICE OF GUARANTEED DELIVERY
FOR SHARES OF COMMON STOCK
OF
THE NEW AMERICA HIGH INCOME FUND, INC.
As set forth in the Prospectus under "The Offer--Payment for Shares," this form
or one substantially equivalent hereto, may be used as a means of effecting the
subscription and payment for all Shares of Common Stock (the "Shares") of The
New America High Income Fund, Inc. (the "Fund") subscribed for pursuant to the
Primary Subscription and the Over-Subscription Privilege, as such terms are
defined in the Prospectus. This form may be delivered by hand or sent by
facsimile transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent Is:
STATE STREET BANK AND TRUST COMPANY
CST - Corporate Reorganization Department
<TABLE>
<CAPTION>
By Express Mail
By First Class Mail By Hand or Overnight Courier:
------------------- ------- --------------------
<S> <C> <C>
P.O. Box 9061 225 Franklin Street Two Heritage Drive, 4th Floor
Boston, MA 02205-8686 Concourse Level North Quincy, MA 02171
Boston, MA 02110
or
61 Broadway
Concourse Level
New York, NY 10006
By Facsimile
(617) 246-5735
Confirmed by telephone to:
(617) 245-7397
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
The bank, trust company or New York Stock Exchange member firm which
completes this form must communicate the guarantee and the number of Shares
subscribed for (pursuant to both the Primary Subscription and the
Over-Subscription Privilege) to the Subscription Agent and must delivery this
Notice of Guaranteed Delivery to the Subscription Agent prior to 5:00 p.m.,
Eastern time, on the Expiration Date (_________, 1996). This Notice of
Guaranteed Delivery guarantees delivery to the Subscription Agent of (i) a
properly completed and executed Subscription Certificate and (ii) delivery of
payment in full for all subscribed Shares (determined based on the net asset or
market value at the close of business on the Expiration Date). Failure to so
deliver this Notice or to make the delivery guaranteed herein will result in a
forfeiture of the Rights.
GUARANTEE
The undersigned, a bank or trust company having an office or
correspondent in the United States, or a New York Stock Exchange member firm,
hereby guarantees delivery to the Subscription Agent by 5:00 p.m., Eastern time
on the fifth business day after the Expiration Date of (i) a properly completed
and executed Subscription Certificate and (ii) payment of the full Subscription
Price for Shares subscribed for pursuant to the Primary Subscription and, if
applicable, the Over-Subscription Privilege, as such subscription for Shares is
indicated herein and in the Subscription Certificate.
B-1
<PAGE>
Broker Assigned Control #_______
THE NEW AMERICA HIGH INCOME FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Primary Number of Rights to be Number of Shares Payment to be made in
Subscription exercised subscribed for connection with Shares
pursuant to the subscribed for pursuant
Primary Subscription to the Primary
for which you are Subscription
guaranteeing delivery
of Rights and
Payment
_______ Rights = ______ Shares $------------
2. Over-Subscription Number of Shares Payment to be made in
subscribed for connection with Shares
pursuant to the Over- subscribed for pursuant
Subscription to the
Privilege for which Over-Subscription
you are guaranteeing Privilege
payment
______ Shares $------------
3. Totals Total Number of Rights Total number of Total Payment
to be Delivered Shares requested
_______ Rights ______ Shares $------------
</TABLE>
Method of delivery (circle one)
A. Through The Depository Trust Company ("DTC")
B. Direct to State Street Bank and Trust Company, as Subscription Agent.
Please reference below the registration of the rights to be delivered.
-------------------------------
-------------------------------
-------------------------------
Please assign a unique control number for each guarantee submitted. This number
----
needs to be referenced on any direct delivery of rights or any delivery through
DTC. In addition, please note that if you are guaranteeing for Shares subscribed
for pursuant to the Over-Subscription Privilege and are a DTC participant, you
must also execute and forward to State Street Bank and Trust Company a Nominee
Holder Over-Subscription Form.
___________________________________ _____________________________________
Name of Firm Authorized Signature
___________________________________ _____________________________________
DTC Participant Number Title
___________________________________ _____________________________________
Address Name (Please Type or Print)
___________________________________ _____________________________________
Zip Code Phone Number
___________________________________ _____________________________________
Contact Name Date
B-2
<PAGE>
APPENDIX C
----------
NOMINEE HOLDER OVER-SUBSCRIPTION FORM
THE NEW AMERICA HIGH INCOME FUND, INC.
RIGHTS OFFERING
THIS FORM IS TO BE USED ONLY BY NOMINEES TO EXERCISE THE OVER-SUBSCRIPTION
PRIVILEGE OF RIGHTS, AS ISSUED BY THE NEW AMERICA HIGH INCOME FUND, INC. (THE
"FUND"), FOR WHICH THE FULL 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 CERTIFICATES.
---------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED _______, 1997 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CIC, THE
FUND'S INFORMATION AGENT, AT 800-________.
---------------------
THIS FORM WILL BE DEEMED TO BE VOID UNLESS RECEIVED BY STATE STREET BANK AND
TRUST COMPANY (THE "SUBSCRIPTION AGENT") BY 5:00 P.M., EASTERN TIME, ON
_________, 1997 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE FUND.
---------------------
Please complete all applicable information and return to:
STATE STREET BANK AND TRUST COMPANY, CST - CORPORATE REORGANIZATION DEPARTMENT
<TABLE>
<CAPTION>
By First Class Mail: By Hand: By Overnight Courier:
- ------------------- ------- ---------------------
<S> <C> <C>
P.O. Box 9061 225 Franklin Street-Concourse Level Two Heritage Drive, 4th Floor
Boston, Massachusetts 02205 Boston, Massachusetts 02110 North Quincy, Massachusetts 02171
or
61 Broadway-Concourse Level
New York, New York 10006
By Facsimile:
(617) 246-5735
Confirmed by Telephone to:
(617) 245-7397
</TABLE>
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 full 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 the Primary
Subscription and will deliver the Rights called for in such Notice of Guaranteed
Delivery to the Subscription Agent by means of transfer to the DTC account of
the Subscription Agent.
2. The undersigned hereby exercises the Over-Subscription Privilege to purchase,
to the extent available, ___________ shares of the Fund's 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 hereby agrees to make payment of the Estimated Subscription
Price of $____ per share for each share of Common Stock subscribed for pursuant
to the Over-Subscription Privilege to the Subscription Agent at or before 5:00
p.m., Eastern Time, on the Expiration Date and hereby represents that (check
appropriate box):
C-1
<PAGE>
[ ] payment of the actual Subscription Price will be delivered to the
Subscription Agent pursuant to the Notice of Guaranteed Delivery
(Broker Assigned Control #___________)
[ ] payment of the Estimated Subscription Price is being delivered to the
Subscription Agent herewith, in the aggregate amount of $_____;
[ ] payment of the Estimated Subscription Price has been delivered separately
to the Subscription Agent, in the aggregate amount of $_____;
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 information relating thereto):
[ ] uncertified check
[ ] certified check
[ ] bank draft
____________________________________________________
Primary Subscription Confirmation Number
____________________________________________________
Depository Participant Number
____________________________________________________
Name of Depository Participant
* PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE NUMBER OF RIGHTS OWNED
BY EACH BENEFICIAL OWNER, THE NUMBER OF RIGHTS EXERCISED ON PRIMARY SUBSCRIPTION
ON BEHALF OF EACH SUCH OWNER AND THE NUMBER OF ADDITIONAL COMMON SHARES
REQUESTED ON BEHALF OF EACH SUCH OWNER PURSUANT TO THE OVER-SUBSCRIPTION
PRIVILEGE.
Registration into which shares of Common Stock, and/or refund checks should be
issued:
Name(s): _______________________________________________
Address: _______________________________________________
_______________________________________________
Certified TIN: _______________________________________________
By: _______________________________________________
Name:
Title:
Contact Name: _______________________________________________
Phone Number: _______________________________________________
Dated: ________________________, 1994
C-2
<PAGE>
APPENDIX D
RATINGS OF CORPORATE OBLIGATIONS
MOODY'S INVESTORS SERVICE
Long-Term Debt
Aaa Bonds which 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 edge." Interest payments are protected by a large or by an
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 which 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 fluctuations or protective elements may be of greater amplitude or
there may be other elements present which make long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which 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
sometime in the future.
Baa Bonds which are Baa rated 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.
Ba Bonds which 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 other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which 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 which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which 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 which 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.
Absence
of Rating Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated
to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue
or issuer.
4. The issue was privately placed, in which case the rating
is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
D-1
<PAGE>
Note Moody's applies numerical modifiers 1, 2 and 3 in each generic range
classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security 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 issue ranks in the lower
end of its generic rating category.
Short-Term Debt
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year.
Among the obligations covered are commercial paper, Eurocommercial
paper, bank deposits, bankers' acceptances and obligations to deliver foreign
exchange. Obligations relying upon support mechanisms such as letters-of-credit
and bonds of indemnity are excluded unless explicitly rated.
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Preferred Stock
Preferred stock rating symbols and their definitions are as follows:
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be medium grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.
c This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
D-2
<PAGE>
FITCH
Investment Grade Bond Ratings
AAA Bonds considered to be investment grade and of the highest credit
quality. the obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonable foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short term debt of these
issuers is generally rated 'F--1+'.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. the likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
Plus (+)
Minus (--) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
'AAA' category.
NR Indicated that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.
Withdrawn A rating will be withdrawn when an issue natures or is called
or refinanced, and, at Fitch's discretion, when an issuer
fails to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive", indicating a potential upgrade, "Negative", for
potential downgrade, or "Evolving", where ratings may be
raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
Credit Trend Credit trend indicators are not predictions that any
rating change will occur, and have a longer-term time frame
than issuers placed on FitchAlert.
Speculative Grade Bond Ratings
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB Bonds are considered speculative. the obligator's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.
D-3
<PAGE>
CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD,
DD, and D Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. 'DDD' represents
the highest potential for recovery on these bonds, and 'D'
represents the lowest potential for recovery.
Plus (+)
Minus (--) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
'DDD', 'DD', or 'D'; categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ Exceptionally
Strong Credit
Quality Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 Very Strong
Credit Quality Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated
'F-1+'.
F-2: Good
Credit Quality Issues assigned this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is
not as great as for issues assigned 'F-1+' and 'F-1'
ratings.
F-3 Fair
Credit Quality Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment
is adequate, however, near-term adverse changes could
cause these securities to be rated below investment grade.
F-5 Weak
Credit Quality Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D Default Issues assigned this rating are in actual or imminent
payment default.
LOC the symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.
Preferred Stock Ratings
Preferred stock ratings should be viewed in the universe of quality
(preferred and preference) and not in relationship to bonds. Although certain
preferred stock issues may carry the same rating as an issuer's bond
obligations, preferred stocks by definition are junior to debt obligations.
Preferred capital is basically permanent capital which in certain instances may
be retired via sinking funds or called. The rating of a preferred stock issue is
on indication of the company's ability to pay the preferred dividends and any
sinking fund obligations on a timely basis. Preferred dividends are payable only
when declared; they are not contractually guaranteed.
AAA Preferred stock assigned this rating are the highest quality. Strong
asset protection, conservative balance sheet ratios, and positive
indications of continued protection of preferred dividend requirements
are prerequisites for an 'AAA' rating.
AA Preferred or preference issues assigned this rating are very high
quality. Maintenance of asset protection and dividend paying ability
appears assured but not quite to the extent of the 'AAA'
classification.
D-4
<PAGE>
A Preferred or preference issues assigned this rating are good quality.
Asset protection and coverages of preferred dividends are considered
adequate and are expected to be maintained.
BBB Preferred or preference issues assigned this rating are reasonably safe
but lack the protections of the 'A' to 'AAA' categories. Current
results should be watched for possible signs of deterioration.
BB Preferred or preference issues assigned this rating are considered
speculative. The margin of protection is slim or subject to aide
fluctuations. The longer term financial capacities of the enterprises
cannot be predicted with assurance.
B Issues assigned this rating are considered highly speculative. While
earnings should normally cover dividends, directors may reduce or omit
payment due to unfavorable developments, inability to finance, or wide
fluctuations in earnings.
CCC Issues assigned this rating are extremely speculative and should be
assessed on their prospects in a possible reorganization. Dividend
payments may be in arrears with the status of the current dividend
uncertain.
CC Dividends are not currently being paid and may be in arrears. The
outlook for future payments cannot be assured.
C Dividends are not currently being paid and may be in arrears.
Prospects for future payments are remote.
D Issuer is in default on its debt obligations and has filed for
reorganization or liquidation under the bankruptcy law.
D Issuer is in default on its debt obligations and has filed for
reorganization or liquidation under the bankruptcy law.
Plus (+)
Minus (--) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
'AAA', 'CCC', 'CC', 'C', and 'D' categories.
Euro Issuers/Euro Dollars
These securities have not been and will not be registered under the
U.S. Securities Act of 1933. Any offer or sale of notes in the U.S. (including
its territories and possessions and all areas subject to it jurisdiction or to
nationals or residents thereof, including any corporation or other entity
created or organized therein) may constitute a violation of U.S. law.
Claims-Paying Ability Ratings
Fitch claims-paying ability ratings provide an assessment of an
insurance company's financial strength and, therefore, its ability to pay policy
and contract claims under the terms indicated. The rating does not apply to
non-policy obligations of the insurer, such as debt obligations (which are
addressed under Fitch's bond ratings), nor does it apply to the suitability or
terms of any individual policy or contract.
AAA The ability to pay claims is extremely strong for insurance companies
with this highest rating. Foreseeable business and economic risk
factors should not have any material adverse impact on the ability of
these insurers to pay claims. Profitability, overall balance sheet
strength, capitalization, and liquidity are all at very secure levels
and are unlikely to be affected by potential adverse underwriting,
investment, or cyclical events.
AA Insurance companies with this rating are very strong and only slightly
more susceptible to exhibiting any weakening of financial strength due
to adverse business and economic developments. Any foreseeable
deterioration in financial strength would still leave carriers in this
category with a strong claims-paying ability.
A Issuers in this category are strong companies with no immediate
expectations for encountering events significant enough to weaken their
claims-paying ability. However, major business or cyclical pressures
are more likely to have an adverse impact on profitability, liquidity,
and capitalization and, therefore, on the ability to pay claims.
BBB Companies in this category have adequate financial strength and
claims-paying capability. For insurers with this rating, longer-term
obligations would be more susceptible to claims-paying concerns under
adverse circumstances that for higher rated companies.
BB For insurers rated in this category, the ability to pay claims is
vulnerable to company-specific adverse financial events or stressful
cyclical downturns. It will be more difficult for carriers with this
rating to maintain adequate claims-paying ability under severe business
and economic circumstances.
B There is significant risk that companies in this category will not be
able to pay claims when due. Liquidity and capital adequacy are likely
to be impaired under even moderately negative business and economic
developments.
D-5
<PAGE>
CCC, CC,
and C Insurance companies with one of these ratings are considered very
weak with respect to their ability to pay claims. The carrier may be
under the supervision of a state insurance department and already may
not be making all policy claims payments in a timely fashion.
D Insurance carriers have been placed in liquidation by state insurance
departments and policy claims payments are being controlled, delayed,
or reduced.
Plus (+)
Minus (--) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
'AAA' and 'D' categories.
Servicer Ratings
Servicers are key to maintaining the credit quality of a pool of
nonperforming commercial mortgages and real estate owned assets. In assessing
and analyzing a servicer's capabilities, Fitch reviews several key factors,
including the servicer's management team, organizational structure, track
record, and workout and asset disposition experience and strategies.
Superior Servicer considered to be of the highest quality. A servicer
in this category possesses a strong, seasoned management team,
extensive workout and disposition experience, and, typically,
significant financial resources.
Above Average Servicer considered to be of very high quality. A servicer
in this category possesses a strong management team, with
good workout and disposition experience, and may have
significant financial resources.
Average Servicer considered to be of high quality. A servicer in this
category possesses adequate workout and disposition
experience but may lack significant financial resources.
Below Average Servicer considered to be of acceptable, but sub-par,
quality. Senior management is relatively unseasoned, workout
experience is minimal, and typically lacks significant
financial resources.
Unacceptable Servicer unacceptable to Fitch. Use of such a servicer
probably would preclude Fitch's rating the transaction's debt
securities at 'BBB' or higher levels.
D-6
<PAGE>
STANDARD & POOR'S CORPORATION
Long-Term Debt
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
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 the
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.
BB, B,
CCC,
CC, C Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. 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 risk exposures to adverse conditions.
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.
C1 The rating C1 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
Standard & Poor's 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.
Plus (+) or
Minus (--) The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing
within the major rating categories.
NR Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
D-7
<PAGE>
Commercial Paper
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from "A-1"
for the highest quality obligations to "D" for the lowest. The top two
categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issued determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated B are regarded as having only a speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating 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 Standard & Poor's
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investment. These ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained by Standard
& Poor's from other sources it considers reliable. Standard & Poor's does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information or
based on circumstances.
Variable Rate Demand Bonds
Standard & Poor's assigns "dual" ratings to all long-term debt issues
that have as part of their provisions a variable rate demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1") or if the nominal maturity is short, a rating of
"SP-1+/AAA" is assigned.
Municipal Notes
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in 3 years or less will likely
receive a note rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating.
The following criteria will be used in making that assessment:
-- Amortization schedule (the longer the final maturity relative
to other maturities the more likely it will be treated as a
note).
-- Source of payment (the more dependent the issue is on the
market for its refinancing, the more likely it will be treated
as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
Preferred Stock
A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect
D-8
<PAGE>
this difference, the preferred stock rating symbol will normally not be higher
than the debt rating symbol assigned to, or that would be assigned to, the
senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated 'AA' also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated 'AAA'.
A An issue rated 'A' is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated 'BBB' is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for preferred stock in this category than for issues in the
'A' category.
BB, B Preferred stock rated 'BB', 'B', or 'CCC' is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations.
CCC 'BB' indicates the lowest degree of speculation and 'CCC' the highest
degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC The rating 'CC' is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C A preferred stock rated 'C' is a non-paying issue.
D A preferred stock rated 'D' is a non-paying issue with the issuer in
default on debt instruments.
NR This indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Plus (+) or
Minus (--) To provide more detailed indications of preferred stock
quality, the ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing
within the major rating categories.
D-9
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Fund or the Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
---------------------------
TABLE OF CONTENTS
Page
----
Summary..........................................
Fee Table........................................
Financial Information Summary....................
Capitalization and Information
Regarding Senior Securities....................
Net Asset Value and
Market Price Information.......................
The Offer........................................
Use of Proceeds..................................
The Fund.........................................
Investment Objective and Policies
Rating Agency Guidelines.........................
Risk Factors and Special Considerations
Management of the Fund...........................
Portfolio Maturity and Turnover..................
Taxation.........................................
Description of Capital Stock.....................
Determination of Net Asset Value.................
Dividends and Distributions;
Dividend Reinvestment Plan.....................
Conversion to Open-End Status and
Repurchase of Shares...........................
Custodian, Auction Agent, Registrar,
Transfer Agent and Paying Agent................
Reports to Stockholders..........................
Certain Legal Matters............................
Experts..........................................
Available Information............................
Financial Statements............................. F-1
Appendix A....................................... A-1
Appendix B....................................... B-1
Appendix C....................................... C-1
Appendix D....................................... D-1
---------------------------
The New America
High Income Fund, Inc.
_________Rights to Subscribe
for
_________Shares of
Common Stock
-------------
PROSPECTUS
-------------
________________, 1997
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
PART C - OTHER INFORMATION
Item 24: Financial Statements and Exhibits
1. Financial Statements
Financial Statements included in PART A (Prospectus) of this
Registration Statement:
Financial Highlights For Each Share of Common Stock
outstanding Throughout the Period (For the Years Ended
December 31, 1995, 1994, 1993, 1992, 1991, 1990 and 1989
and For the Period from February 26, 1988 (Commencement of
Operations) to December 31, 1988)
2. Exhibits
(a)(1) Articles of Amendment and Restatement of The New
America High Income Fund, Inc. dated as of February
19, 1988 together with First, Second and Third
Certificates of Changes of Definitions set forth
therein dated as of March 8, 1988, May 3, 1988 and
October 14, 1988, respectively.
(a)(2) Articles of Amendment of The New America High
Income Fund, Inc. dated as of June 15, 1989.
(a)(3) Articles of Amendment of The New America High
Income Fund, Inc., as filed with the State
Department of Assessments and Taxation of the
State of Maryland on December 28, 1993.
(a)(4) Articles Supplementary of The New America High
Income Fund, Inc. Establishing and Defining the
Rights and Preferences of Two Series of Shares of
Auction Term Preferred Stock, as filed with the
State Department of Assessments and Taxation of
the State of Maryland on December 29, 1993.
(a)(5) Certificate of Correction of The New America High
Income Fund, Inc., as filed with the State
Department of Assessments and Taxation of the
State of Maryland on February 1, 1996.
(a)(6) Articles of Amendment of The New America High
Income Fund, Inc., as filed with the State
Department of Assessments and Taxation of the
State of Maryland on October 31, 1996.
(a)(7) Articles of Amendment of The New America High
Income Fund, Inc., as filed with the State
Department of Assessments and Taxation of the
State of Maryland on October 31, 1996.
(b) By-Laws, as amended, of the Registrant.
(c) Not applicable.
(d) Not applicable.
C-1
<PAGE>
(e) Dividend Reinvestment Plan, as modified.
(f) Not applicable.
(g) Investment Advisory Agreement dated as of February
19, 1992 between the Registrant and Wellington
Management Company, LLP.
(h)(1) Underwriting Agreement dated December 20, 1993
between the Registrant and Bear, Stearns & Co.
Inc. with respect to the Auction Term Preferred
Stock, Series A and Series B, of the Registrant.
(h)(2) Form of Selected Dealer Agreement.
(i) Not applicable.
(j) Custodian Contract dated as of February 11, 1988
between the Registrant and State Street Bank and
Trust Company.
(k)(1) Registrar, Transfer Agency and Service Agreement
dated as of February 11, 1988 between the
Registrant and State Street Bank and Trust Company.
(k)(2) Auction Agent Agreement dated as of January 4, 1994
between the Registrant and Bankers Trust Company
with respect to the Auction Term Preferred Stock,
Series A and Series B, of the Registrant.
(k)(3) Letter of Representation Agreements dated as of
January 4, 1994 among the Registrant, Bankers Trust
Company and The Depository Trust Company with
respect to the Auction Term Preferred Stock, Series
A and Series B, of the Registrant.
(k)(4) Broker-Dealer Agreement dated as of January 4,
1994 between the Registrant and Bear, Stearns &
Co. Inc. with respect to the Auction Term
Preferred Stock, Series A and Series B, of the
Registrant.
(k)(5) Affirmation and Undertaking dated August 13, 1990
executed by certain directors and executive
officers of the Registrant. (i)
(k)(6) Agreement dated as of November 15, 1993 between
the Registrant and Ellen E. Terry. (ii)
(k)(7) Agreement dated as of November 15, 1993 between
the Registrant and Paul E. Saidnawey. (ii)
(k)(8) Interest payment swap arrangement between the
Fund and First National Bank of Boston, N.A.
(k)(9) Engagement Letter between the Fund and First
Albany Corporation.
(k)(10) Form of Subscription Agent Agreement. (iii)
(l) Opinion of ________________ as to legality of
securities being registered and consent to its
use. (iii)
(m) Not applicable.
C-2
<PAGE>
(n) Consent of Arthur Andersen LLP.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Powers of Attorney for Robert F. Birch, Joseph L.
Bower, Richard E. Floor, Bernard J. Korman, Ernest
E. Monrad, Franco Modigliani, and Ellen E. Terry
(included as part of the signature pages to this
Registration Statement).
- ---------------
Footnote
Reference Description
- --------- -----------
(i) Filed as an exhibit under Amendment No. 8 (filed June 21, 1990) to the
Registrant's Registration Statement on Form N-2, Registration No.
33-18664, under the same exhibit number and incorporated herein
by reference.
(ii) Filed as an exhibit under Amendment No. 16 (filed December 7, 1993) to
the Registrant's Registration Statement on Form N-2, Registration
No. 33-61674, under the same exhibit number and incorporated herein
by reference.
(iii) To be filed by amendment.
Item 25: Marketing Arrangements
Not Applicable.
Item 26: Other Expenses of Issuance and Distribution
Securities and Exchange Commission fees............. $15,005.93
New York Stock Exchange listing fee................. 32,000.00
Printing and engraving expenses..................... 60,000.00
Legal fees and expenses............................. 75,000.00
Accounting fees and expenses........................ 20,000.00
Blue Sky filing fees and expenses................... 7,500.00
Financial Adviser fee and expenses.................. 130,000.00
Subscription Agent fee and mailing expenses......... 125,000.00
Information Agent fee and expenses.................. 62,500.00
Miscellaneous expenses.............................. 32,994.07
-----------
Total......................................$ 560,000.00
==========
Item 27: Persons Controlled by or under Common Control with Registrant
None.
C-3
<PAGE>
Item 28: Number of Holders of Securities
At October 31, 1996 the numbers of recordholders of shares of the
Registrant were as follows:
Number of
Title of Class Record Holders
-------------- ---------------
Common Shares, $.01 par value per share...................... 5,113
Series A Auction Term Preferred Stock, $1.00 par value
per share............................................... 1
Series B Auction Term Preferred Stock, $1.00 par value
per share............................................... 1
Item 29: Indemnification
Article V, paragraph (D) of the Registrant's Articles provides that the
Registrant shall indemnify its directors to the full extent permitted by the
Registrant's By-Laws and Maryland law.
Article V, Section 1 of the Registrant's By-Laws provides that the
Registrant shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law and shall indemnify its officers to the same extent as its directors and to
such further extent as is consistent with law. Section 2-418 of the Maryland
General Corporation Law empowers a corporation, subject to certain limitations,
to indemnify its directors against judgments, penalties, fines, settlements, and
reasonable expenses (including attorneys' fees) actually incurred by the
director in connection with any suit or proceeding to which they are a party
unless it is established that the director's act or omission was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty, the director received an
improper personal benefit in money, property or services or, in a criminal
proceeding, the director had reasonable cause to believe the act or omission was
unlawful.
The Registrant's By-Laws further provide that the Registrant shall
indemnify its directors and officers who while serving as directors or officers
also serve at the request of the Registrant as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights provided by the
Registrant's By-Laws continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person, and do not protect any such person against any
liability to the Registrant or any stockholder thereof 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 his
office ("disabling conduct").
Under the Registrant's By-Laws, any current or former director or
officer of the Registrant seeking indemnification within the scope of the
By-Laws shall be entitled to advances from the Registrant for payment of the
reasonable expenses incurred by him in connection with the matter as to which he
is seeking indemnification in the manner and to the fullest extent permissible
under the Maryland General Corporation Law. The person seeking indemnification
must provide to the Registrant a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Registrant has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (i)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Registrant for his undertaking; (ii) the Registrant is insured
against losses arising by reason of the advance; or (iii) a majority of a quorum
of directors of the Registrant who are neither "interested persons" as defined
in Section 2(a)(19) of the 1940 Act nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel in a written
opinion, shall have determined, based on a review of the facts readily available
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
C-4
<PAGE>
At the request of any person claiming indemnification under the
Registrant's By-Laws, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the Maryland General Corporation Law,
whether the standards required by the By-Laws have been met. Indemnification
shall be made only following: (i) a final decision on the merits by a court or
other body before which the proceeding was brought that the person to be
indemnified was not liable by reason of disabling conduct or (ii) in the absence
of such a decision, a reasonable determination, based upon a review of the
facts, that the person to be indemnified was not liable by reason of disabling
conduct by (A) the vote of a majority of a quorum of disinterested non-party
directors or (B) an independent legal counsel in a written opinion.
Employees and agents who are not officers or directors of the
Registrant may be indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the 1940 Act.
In connection with certain actions filed against the directors and
executive officers of the Registrant, the Registrant has, subject to the terms
and conditions outlined above, authorized the advancement of reasonable
attorneys' fees and related costs arising from the defense of such actions.
Under the terms of an Affirmation and Undertaking entered into by each of the
directors and executive officers, each such person has agreed to repay to the
Registrant all amounts advanced for expenses (including attorneys' fees) on his
or her behalf if it is ultimately determined that the director or executive
officer is not entitled to indemnification.
In addition to the foregoing, Article V(E) to Registrant's charter
provides as follows:
"(E) To the fullest extent that limitations on the liability
of directors and officers are permitted by the Maryland General
Corporation Law, as from time to time amended, no director or officer
of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer
at the time of any proceeding in which liability is asserted. No
provision of this Article V(E) shall be effective to protect or purport
to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. No future amendment to this Article V(E)
shall affect any right of any person under this Article V(E) based on
any event, omission or proceeding prior to such amendment."
Section 2-405.2 of the Maryland General Corporation Law together with
Section 5-349 of the Courts and Judicial Proceedings Article of the Maryland
Code provides that a charter provision limiting the liability of a director or
officer may not include a provision which limits or restricts the liability of a
director or officer to the corporation's stockholders to the extent it is proved
that the person actually received an improper personal benefit to the extent of
the value of such benefit or an adverse final adjudication is entered in a
proceeding based on a finding that the person's act or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated.
As permitted by Section 2-418(k) of the Maryland General Corporation
Law, Article V, Section 3 of the Registrant's By-Laws provides that the
Registrant shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Registrant or who, while a director, officer, employee or agent of the
Registrant, is or was serving at the request of the Registrant as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's positions.
The Investment Advisory Agreement between the Registrant and Wellington
Management Company, LLP provides that the Registrant will indemnify Wellington
Management Company, LLP for all liabilities and expenses, including defense
costs, in connection with any litigation pertaining to the period prior to
Wellington Management's relationship with the Registrant under such agreement,
other than liabilities resulting from willful misfeasance, bad faith or gross
negligence on the part of Wellington Management Company, LLP.
C-5
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1940 Act and
will be governed by the final adjudication of such issues.
Item 30: Business and Other Connections of Investment Adviser
Wellington Management Company, LLP (the Registrant's investment
adviser), a Massachusetts limited liability partnership, is a registered
investment adviser primarily engaged in the investment advisory business.
Information as to the general partners of Wellington Management Company, LLP is
included in its Form ADV, as amended, filed with the Securities and Exchange
Commission (File No. 801-15908), and is incorporated herein by reference thereto
together with all amendments thereto subsequently filed, which amendments shall
be deemed to be incorporated by reference in this registration statement and be
a part hereof from the date of filing of such amendments to the extent permitted
by the applicable rules and regulations of the Securities and Exchange
Commission.
Item 31: Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
(17 CFR 270.31a-1 to 31a-3) promulgated thereunder are maintained at the offices
of the custodian of the Registrant at One Heritage Drive, North Quincy,
Massachusetts 02171, except that the corporate records of the Registrant
(including its Articles of Incorporation and By-Laws) are maintained at the
offices of the Registrant at 10 Winthrop Square, Fifth Floor, Boston,
Massachusetts 02110.
Item 32: Management Services
Not applicable.
Item 33: Undertakings
1. The Registrant undertakes to suspend the offering of its shares
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. The Registrant undertakes:
a. to file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of
the 1933 Act [15 U.S.C. 77j(a)(3)];
C-6
<PAGE>
(2) to reflect in the prospectus any facts or events
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; and
(3) 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.
b. that, for the purpose of determining any liability under
the 1933 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 those securities at that time shall be
deemed to be the initial bona fide offering thereof; and
c. 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.
5. The Registrant undertakes that:
a. For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant under
Rule 497(h) under the Securities Act of 1933 shall be deemed to be
part of the Registration Statement as of the time it was declared
effective.
b. For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering thereof.
6. Not applicable.
C-7
<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 on Form N-2 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts, on
the 9th day of December, 1996.
THE NEW AMERICA HIGH INCOME
FUND, INC.
By: /s/ Robert F. Birch
-----------------------------
Robert F. Birch
President
Know all men by these presents that each person whose signature appears
below hereby severally constitutes and appoints Robert F. Birch and Ellen E.
Terry, and each of them singly, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign and
affix the undersigned's name to any and all amendments to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or incidental
to the performance and execution of the powers herein granted, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-2 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert F. Birch President and Director December 9, 1996
- ------------------------------ (Principal Executive Officer)
Robert F. Birch
/s/ Ellen E. Terry Vice President and Treasurer December 9, 1996
- ------------------------------ (Principal Financial and
Ellen E. Terry Accounting Officer)
/s/ Joseph L. Bower
- ------------------------------- Director December 9, 1996
Joseph L. Bower
/s/ Richard E. Floor Director December 9, 1996
- ------------------------------
Richard E. Floor
/s/ Bernard J. Korman Director December 9, 1996
- ------------------------------
Bernard J. Korman
/s/ Franco Modigliani Director December 9, 1996
- -------------------------------
Franco Modigliani
/s/ Ernest E. Monrad Director December 9, 1996
- ------------------------------
Ernest E. Monrad
</TABLE>
C-8
<PAGE>
1933 Act File No. __-_____
1940 Act File No. 811-5399
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 19 [x]
--------------------
THE NEW AMERICA HIGH INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
--------------------
EXHIBITS
================================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number: Exhibit: Numbered Page:
- ------- -------- --------------
<S> <C> <C>
A1 Articles of Amendment and Restatement of The New America High
Income Fund, Inc. dated as of February 19, 1988 together with
First, Second and Third Certificates of Changes of Definitions
set forth therein dated as of March 8, 1988, May 3, 1988 and
October 14, 1988, respectively.
A2 Articles of Amendment of The New America High Income Fund, Inc. dated as of
June 15, 1989.
A3 Articles of Amendment of The New America High Income Fund, Inc., as filed with
the State Department of Assessments and Taxation of the State of Maryland on
December 28, 1993.
A4 Articles Supplementary of The New America High Income Fund, Inc.
Establishing and Defining the Rights and Preferences of Two
Series of Shares of Auction Term Preferred Stock, as filed with
the State Department of Assessments and Taxation of the State of
Maryland on December 29, 1993.
A5 Certificate of Correction of The New America High Income Fund, Inc., as filed with
the State Department of Assessments and Taxation of the State of Maryland on February
1, 1996.
A6 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on October 31, 1996.
A7 Articles of Amendment of The New America High Income Fund, Inc.,
as filed with the State Department of Assessments and Taxation of
the State of Maryland on October 31, 1996.
B By-Laws, as amended, of the Registrant.
E Dividend Reinvestment Plan, as modified.
G Investment Advisory Agreement dated as of February 19, 1992 between the Registrant and
Wellington Management Company, LLP.
H1 Underwriting Agreement dated December 20, 1993 between the Registrant and Bear, Stearns
& Co. Inc. with respect to the Auction Term Preferred Stock, Series A and Series B, of the
Registrant.
H2 Form of Selected Dealer Agreement.
J Custodian Contract dated as of February 11, 1988 between the Registrant and State Street Bank
and Trust Company.
K1 Registrar, Transfer Agency and Service Agreement dated as of February 11, 1988 between the
Registrant and State Street Bank and Trust Company.
K2 Auction Agent Agreement dated as of January 4, 1994 between the
Registrant and Bankers Trust Company with respect to the Auction
Term Preferred Stock, Series A and Series B, of the Registrant.
(2)
<PAGE>
K3 Letter of Representation Agreements dated as of January 4, 1994
among the Registrant, Bankers Trust Company and The Depository
Trust Company with respect to the Auction Term Preferred Stock,
Series A and Series B, of the Registrant.
K4 Broker-Dealer Agreement dated as of January 4, 1994 between the Registrant and Bear,
Stearns & Co. Inc. with respect to the Auction Term Preferred Stock, Series A and Series B,
of the Registrant.
K8 Interest payment swap arrangement between the Fund and First National Bank of Boston, N.A.
K9 Engagement Letter between the Fund and First Albany Corporation.
N Consent of Arthur Andersen LLP.
</TABLE>
(3)
Exhibit A1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
THE NEW AMERICA HIGH INCOME FUND, INC.
The New America High Income Fund, Inc. (hereinafter referred to as the
"Corporation"), a Maryland corporation having its principal office in the State
of Maryland c/o The Prentice-Hall Corporation System, Maryland, 929 North Howard
Street, Baltimore, Maryland 21201, hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The total number of shares of capital stock the Corporation is
presently authorized to issue is 100,000,300 shares of capital stock, consisting
of 100,000,000 shares of Common Stock, $.01 par value per share, and 300 shares
of Preferred Stock, $.01 par value per share, representing an aggregate par
value of $1,000,003.
SECOND: The Corporation desires to amend and restate its Charter as
currently in effect as hereinafter provided. The provisions set forth in these
Articles of Amendment and Restatement (hereinafter referred to as the "Articles
of Incorporation") are all the provisions of the Charter of the Corporation as
in effect as of this l9th day of February, 1988 (the "Restatement Date").
THIRD: The Charter of the Corporation is hereby amended by striking in
their entirety Articles I through VII inclusive, and by substituting in lieu
thereof the following:
ARTICLE I
NAME
The name of the Corporation is THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLE II
PURPOSES AND POWERS
The Corporation has been formed for the following purposes:
1. To conduct and carry on the business of an investment company;
2. To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash;
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
STATE OF MARYLAND
I hereby certify that this is a true and complete copy of the 53 page
document on file in this office. DATED: Feb. 23, 1988.
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
By: /s/ Paula ????? Dean
This stamp replaces our previous certification system. Effective: 10/84
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
3. To issue and sell shares of its capital stock and other securities in
such amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by law; and
4. To do any and all additional acts and to exercise any and all additional
powers or rights as may be necessary, incidental, appropriate or desirable for
the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the
Maryland General Corporation Law now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers,
rights or privileges so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Prentice-Hall Corporation System, Maryland, 929
North Howard Street, Baltimore, Maryland 21201. The name of the resident agent
of the Corporation in the State of Maryland is The Prentice-Hall Corporation
System, Maryland, a corporation of this state, and the post office address of
the resident agent is 929 North Howard Street, Baltimore, Maryland 21201.
ARTICLE IV
CAPITAL STOCK
(A) CAPITAL STOCK
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is two hundred million, two thousand
(200,002,000) shares having an aggregate par value of $2,000,000, of which two
hundred million (200,000,000) shares shall be Common Stock, $.01 par value per
share, and two thousand (2,000) shares shall be Taxable Auction Rate Preferred
Stock, no par value per share, liquidation preference $100,000 per share (the
"Preferred Stock"). No share of the Corporation's capital stock shall be
entitled to preemptive rights.
(B) COMMON STOCK
The preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and
2
<PAGE>
conditions of redemption in respect of the Common Stock are as follows:
1. Ranking.
The Common Stock shall rank junior to the Preferred Stock with respect to
payment of dividends (other than dividends in Common Stock) and distributions on
liquidation or dissolution and shall have such other qualifications, limitations
and restrictions as provided in this Article IV.
2. Dividends.
After all accumulated and unpaid dividends upon all outstanding shares of
the Preferred Stock for all past Dividend Periods (as defined below) have been
or are contemporaneously paid in full (or declared and sufficient Deposit
Securities (as defined below) have been set apart for their payment), then and
not otherwise, and subject to any other applicable provisions of Article IV(C),
to the extent there are funds legally available therefor, dividends or other
distributions may be declared upon and paid to the holders of shares of the
Common Stock, to the exclusion of the holders of shares of the Preferred Stock.
3. Liquidation Rights.
In the event of the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, after payment in full of the
amounts required to be paid to the holders of the Preferred Stock as provided
for in Article IV(C), the holders of shares of the Common Stock shall be
entitled, to the exclusion of the holders of shares of the Preferred Stock, to
share ratably in all remaining assets of the Corporation.
4. Redemption.
The Corporation may redeem or repurchase shares of Common Stock to the
extent now or hereafter permitted by the laws of the State of Maryland, by the
Investment Company Act (as defined below) and by these Articles of
Incorporation.
5. Voting Rights.
Each holder of Common Stock shall be entitled to one vote for each such
whole share (and a proportionate vote for each fractional share) on each matter
on which the holders of shares of the Common Stock shall be entitled to vote.
Except as otherwise provided in these Articles of Incorporation, the holders of
shares of the Common Stock and the holders of the
3
<PAGE>
Preferred Stock shall vote as a single class on all matters submitted to the
stockholders.
(C) PREFERRED STOCK
The preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption in respect of
the Preferred Stock are as follows:
1. Designation.
The designation of the Preferred Stock shall be "Taxable Auction Rate
Preferred Stock." Except as otherwise provided herein, each share of Preferred
Stock shall be identical and equal in all respects to every other share of
Preferred Stock. The Corporation shall not issue fractional shares of Preferred
Stock.
2. Definitions.
Capitalized terms not defined in this paragraph 2 shall have the respective
meanings specified in paragraph 8(a) of this Article IV(C). Unless the context
or use indicates another or different meaning, the following terms shall have
the following meanings, whether used in the singular or plural:
"Applicable Rate" has the meaning specified in paragraph 3(c)(i) below.
"Articles of Incorporation" mean the Articles of Amendment and Restatement
of the Corporation, as amended and restated from time to time.
"Auction" means each operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Company or its successor or any other
auction agent appointed by the Corporation to perform the functions performed by
the Auction Agent.
"Auction Agent Agreement" has the meaning specified in paragraph 3(c)(i)
below.
"Auction Date" has the meaning specified in paragraph 8(a)(iv) below.
"Auction Procedures" means the procedures for conducting Auctions set forth
in paragraph 8 below.
"Basic Maintenance Amount" means, as of any date, the dollar amount equal
to the sum of (a) 100% of the aggregate
4
<PAGE>
principal amount of the Notes then outstanding; (b) $l00,250 times the number
of shares of Preferred Stock then outstanding; (c) an amount equal to
interest on the aggregate principal amount of the Notes then outstanding from
the most recent date to which interest has been paid or duly provided for
(or, for purposes of calculating the Basic Maintenance Amount prior to the
first date on which interest on the Notes is payable, then from February 15,
1988) until but not including (i) the next date to which interest on the
Notes is scheduled to be paid or (ii) if the number of days from the date on
which the Basic Maintenance Amount is determined until the next date on which
interest on the Notes is scheduled to be paid is less than 64, all interest
to accrue on the Notes then outstanding during the 63 days following the date
of such calculation; (d) the aggregate amount of accumulated but unpaid
dividends with respect to the Preferred Stock; (e) the aggregate Projected
Dividend Amount; (f) the aggregate principal amount of any then outstanding
indebtedness of the Corporation for money borrowed (other than the Notes);
and (g) the greater of $200,000 or the Corporation's current liabilities as
of such date to the extent not otherwise reflected in any of (a) through (f)
above, less the combined value of any Deposit Securities irrevocably
deposited by the Corporation for the payment of principal of or interest on
the Notes or redemptions of or dividend payments with respect to the
Preferred Stock. Without amending these Articles of Incorporation and to the
extent permitted by Maryland law, the elements comprising the Basic
Maintenance Amount may be changed from those set forth in these Articles of
Incorporation if the Board of Directors of the Corporation determines and the
Rating Agency advises the Corporation in writing that the change will not
adversely affect its then-current rating of the Preferred Stock.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York, New
York, or the City of Boston, Massachusetts, are authorized or obligated by law
or executive order to close.
"Cash" means such coin or currency of the United States as at the time
shall be legal tender for payment of public and private debts.
"Certificate of Minimum Liquidity" has the meaning specified in paragraph
7(b)(i) below.
"Commercial Paper Dealers" means Drexel Burnham Lambert Incorporated and
any of its Affiliates or successors.
5
<PAGE>
"Conventional Mortgage Pass-Through Certificates" means an instrument
issued in bearer or registered form, that is one of a class or series or by its
terms is divisible into a class or series, and that is of a type commonly dealt
in upon securities exchanges or markets or commonly recognized in any area in
which it is issued or dealt in as a medium for investment, evidencing (directly
or indirectly) a proportional undivided interest in specified pools of whole
mortgage loans that are secured by a valid first lien on each mortgagor's fee or
leasehold interest in related mortgaged property (except for Permitted Tax Liens
and other matters to which like properties are commonly subject which neither
individually nor in the aggregate materially interfere with the benefits of the
security intended to be provided by such mortgages or deeds of trust, and
standard exceptions and exclusions in title insurance policies) on one- to
four-unit residences (including, without limitation, owner-occupied attached or
detached single-unit residences, two- to four-unit primary residences,
condominiums, second/vacation homes and non-owner occupied residences) and with
respect to which the Required Documentation is required to be held by a trustee
or independent custodian, which mortgage loans are serviced pursuant to
servicing agreements with services that have either expressed the intention to
advance funds to meet deficiencies (to the extent such servicers reasonably
believe such advances are recoverable) or provided for alternative credit
enhancement in lieu thereof, and which instruments (a) have been rated "AA" or
better by Standard & Poor's or (b) do not qualify pursuant to clause (a) above,
but the inclusion of which as Eligible Portfolio Property will not, in and of
itself, impair, or cause the Preferred Stock to fail to retain, the rating
assigned to such Preferred Stock by the Rating Agency, as evidenced by a letter
to the Corporation to such effect from the Rating Agency which letter shall be
delivered to the Auction Agent at the time each such Conventional Mortgage
Pass-Through Certificate is to be included in the Eligible Portfolio Property,
provided, that a Conventional Mortgage Pass-Through Certificate shall be
eligible for inclusion in the Eligible Portfolio Property as of any Valuation
Date only if it continues to satisfy as of such Valuation Date the requirements
of at least one of clauses (a) or (b) above, as the Corporation may confirm
verbally or in writing, directly or indirectly, or by reference to a publication
of the Rating Agency, by confirmation from a nationally recognized securities
dealer having a minimum capitalization of $25 million or by such other means as
the Rating Agency shall approve. The Auction Agent shall be entitled to rely on
the representations of the Corporation contained in the Portfolio Valuation
Report with respect to any Valuation Date, that as of such Valuation Date the
Corporation has confirmed that the Conventional Mortgage Pass-Through
6
<PAGE>
Certificates included in the Eligible Portfolio Property are within the scope
of this paragraph.
"Corporate Bonds" means corporate debt obligations (other than Short Term
Money Market Instruments or U.S. Government Obligations) rated from CCC to AAA
by Standard & Poor's, which corporate debt obligations (a) provide for the
periodic payment of interest thereon in cash, (b) do not provide for conversion
or exchange into equity capital at any time over their respective lives, (c)
have been registered under the Securities Act of 1933, as amended, and (d) have
not had notice given in respect thereof that any such corporate debt obligations
are the subject of an offer by the issuer thereof of exchange or tender for
cash, securities or any other type of consideration (except that corporate debt
obligations in an amount not exceeding 10% of the aggregate value of the
Corporation's assets at any time shall not be subject to the provisions of this
clause (d)). In addition, no corporate debt obligation held by the Corporation
shall be deemed a Corporate Bond (i) if it fails to meet the criteria in column
(1) below or (ii) to the extent (and only to the proportionate extent) the
acquisition or holding thereof by the Corporation causes the Corporation to
exceed any applicable limitation set forth in column (2) or (3) below as of any
relevant date of determination (provided that in the event that the Corporation
shall exceed any such limitation or any other percentage limitation set forth in
this definition of Corporate Bonds, the Corporation shall designate, in its sole
discretion, the particular Corporate Bond(s) and/or portions thereof which shall
be deemed to have caused the Corporation to exceed such limitation):
<TABLE>
<CAPTION>
Column (1) Column (2) Column (3)
------------ ------------- ---------------
Maximum
Percent of
Value
of
Corporation Maximum
Assets, Percent of
Including Value
Eligible of Corporation
Port- Assets,
folio Including
Minimum Property, Eligible Port-
Original Invested in folio Property,
Standard & Issue Size any Invested in any
Poor's of One Issuer One Industry
Rating (1) Each Issue (2) Category (2)
- --------------- ------------ ------------- ---------------
($ in millions)
<S> <C> <C> <C>
AAA $100 10.0% 50.0%
AA 100 10.0 33.3
A 100 10.0 33.3
BBB 100 5.0 20.0
BB 100(4) 4.0 12.0
B 100(4) 3.0 8.0
CCC (3) 100(4) 3.0 8.0
</TABLE>
7
<PAGE>
- ----------------------------
(1) Rating designations include (+) or (-) modifiers to the Standard & Poor's
rating where appropriate except that corporate debt obligations rated
CCC- shall not constitute Corporate Bonds.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(3) Corporate debt obligations in this rating category must be subordinated
debt of the issuer to constitute Corporate Bonds and the aggregate value
of corporate debt obligations in this rating category in excess of 20% of
the aggregate value of the Corporation's assets, including Eligible
Portfolio Property, shall not be deemed within the definition of
Corporate Bonds.
(4) 20% of the aggregate value of all Corporate Bonds in these rating
categories may be from issues with an original issue size of greater than
or equal to $50 million and less than $100 million.
Without amending these Articles of Incorporation, the assets (and/or the
characteristics thereof) included within the definition of Corporate Bonds
for purposes of determining compliance with the Basic Maintenance Amount may
be changed to encompass other assets constituting, and/or other
characteristics of, corporate debt obligations from those set forth in these
Articles of Incorporation if the Board of Directors of the Corporation
determines and the Rating Agency advises the Corporation in writing that the
change will not adversely affect its then-current rating of the Preferred
Stock.
"Cure Date" means the eighth Business Day following a Valuation Date, such
date being the last day upon which the Corporation's failure to fulfill its
obligations pursuant to paragraph 7(a)(i)-(iii) below could be cured.
"Deposit Securities" means Cash, U.S. Government Obligations and Short Term
Money Market Instruments. Except for purposes of determining compliance with
the Basic Maintenance Amount, each Deposit Security shall be deemed to have a
value equal to its principal or face amount payable at maturity plus any
interest payable thereon after delivery of such Deposit Security but only if
payable on or prior to the applicable payment date in advance of which the
relevant deposit is made.
"Discount Factor" means, for any asset held by the Corporation, the number
set forth opposite each such type of
8
<PAGE>
asset in the following table (it being understood that any asset held by the
Corporation and not listed in the following table or in an amendment thereof
shall have a Discounted Value of zero):
<TABLE>
<CAPTION>
Type of Eligible Portfolio Property Discount
Factor
- ------------------------------------------------ ------------
<S> <C>
Type I Corporate Bonds: 1.50
Type II Corporate Bonds: 1.55
Type III Corporate Bonds: 1.60
Type IV Corporate Bonds: 1.65
Type V Corporate Bonds: 1.70
Type VI Corporate Bonds: 1.80
Type VII Corporate Bonds: 1.90
Type VIII Corporate Bonds: 2.05
Type IX Corporate Bonds: 2.20
GNMA Certificates with fixed interest rates: 1.35
GNMA Certificates with adjustable interest
rates: 1.54
FHLMC and FNMA Certificates with fixed interest
rates: 1.45
FHLMC and FNMA Certificates with adjustable
interest rates: 1.58
FHLMC Multifamily Securities: 1.65
FHLMC and FNMA Certificates with variable
interest rates (1):
GNMA Multifamily Securities (1):
GNMA Graduated Payment Securities (2): 1.55
Conventional Mortgage Pass-Through Certificates (1):
U.S. Government Obligations having a remaining
term to maturity of 90 days or less: 1.00
U.S. Government Obligations having a remaining
term to maturity of more than 90 days but not
more than five years: 1.28
U.S. Government Obligations having a remaining
term to maturity of more than five years but
not more than 10 years: 1.35
U.S. Government Obligations having a remaining
term to maturity of more than 10 years but not
more than 15 years: 1.45
U.S. Government Obligations having a remaining
term to maturity of more than 15 years but not
more than 30 years: 1.50
Cash and Short Term Money Market Instruments 1.00
</TABLE>
9
<PAGE>
(1) The Discount Factor determined therefor in writing by the Rating Agency.
(2) A Discount Factor of 1.55 applies in the case of GNMA Graduated Payment
Securities as to which the Fund notifies the Auction Agent that scheduled
principal payments are being made to holders; in the case of GNMA
Graduated Payment Securities as to which the Fund notifies the Auction
Agent that scheduled principal payments are not being made to holders,
the Discount Factor shall be that which is determined in writing by the
Rating Agency.
Without amending these Articles of Incorporation, the Discount Factor applied
to determine the Discounted Value of any item of Eligible Portfolio Property
may be changed from that set forth in these Articles of Incorporation or a
Discount Factor may be specified for any asset constituting Eligible
Portfolio Property if the Board of Directors of the Corporation determines
and the Rating Agency advises the Corporation in writing that the change or
specification will not adversely affect its then-current rating of the
Preferred Stock.
"Discounted Value," with respect to any asset held by the Corporation, means
the quotient of the Market Value of such asset divided by the applicable
Discount Factor, provided that in no event shall the Discounted Value of any
asset constituting Eligible Portfolio Property as of any date exceed the
unpaid principal balance or face amount of such asset as of that date. With
respect to the calculation of the aggregate Discounted Value of all Corporate
Bonds included in the Corporation's Eligible Portfolio Property in
determining the aggregate Discounted Value of the Corporation's Eligible
Portfolio Property for comparison with the Basic Maintenance Amount, such
calculations shall be made using the criteria set forth in the definitions of
Corporate Bonds and Market Value and set forth herein. Notwithstanding any
other provision hereof, any Corporate Bond that has a remaining term to
maturity of more than 30 years and any asset to which a Discount Factor is
not assigned shall have a Discounted Value of zero.
"Dividend Payment Date" has the meaning specified in paragraph 3(b) below.
"Dividend Period" has the meaning specified in paragraph 3(b) below.
"Eligible Portfolio Property" means Corporate Bonds, Cash, U.S. Government
Obligations, Short Term Money Market Instruments, FNMA Certificates, FHLMC
Certificates, FHLMC
10
<PAGE>
Multifamily Securities, GNMA Certificates, GNMA Multifamily Securities, GNMA
Graduated Payment Securities and Conventional Mortgage Pass-Through
Certificates. Without amending these Articles of Incorporation, other assets
may be specified as Eligible Portfolio Property if the Board of Directors of
the Corporation determines and the Rating Agency advises the Corporation in
writing that the specification will not adversely affect its then-current
rating of the Preferred Stock.
"FHLMC" means the Federal Home Loan Mortgage Corporation created by Title
III of the Emergency Home Finance Act of 1970, and includes any successor
thereto.
"FHLMC Certificate" means a mortgage participation certificate in physical
or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences
a proportional undivided interest in, or participation interest in, specified
pools of fixed-, variable- or adjustable-rate, fully amortizing mortgage
loans secured by first-priority mortgages on one- to four-family residences.
"FHLMC Multifamily Security" means a "Plan B Multifamily Security" in
physical or book-entry form, the timely payment of interest on and the
ultimate collection of principal of which is guaranteed by FHLMC, and which
evidences a proportional undivided interest in, or participation interest in,
specified pools of fixed-, variable- or adjustable-rate mortgage loans
secured by first-priority mortgages on multifamily residences, the inclusion
of which in the Eligible Portfolio Property will not, in and of itself,
impair or cause the Preferred Stock to fail to retain, the rating assigned to
such Preferred Stock by the Rating Agency, as evidenced by a letter to such
effect from the Rating Agency.
"FNMA" means the Federal National Mortgage Association, a United States
Government-sponsored private corporation established pursuant to Title VIII
of the Housing and Urban Development Act of 1968, and includes any successor
thereto.
"FNMA Certificate" means a mortgage pass-through certificate in physical or
book-entry form, the full and timely payment of principal of and interest on
which is guaranteed by FNMA, and which evidences a proportional undivided
interest in specified pools of fixed-, variable- or adjustable-rate, fully
amortizing mortgage loans secured by first-priority mortgages on
single-family residences.
"GNMA" means the Government National Mortgage Association, and includes any
successor thereto.
11
<PAGE>
"GNMA Certificate" means a fully modified pass-through certificate in
physical or book-entry form, the full and timely payment of principal of and
interest on which is guaranteed by GNMA and which evidences a proportional
undivided interest in specified pools of fixed-, variable- or adjustable-rate,
fully amortizing mortgage loans secured by first-priority mortgages on
single-family residences.
"GNMA Graduated Payment Security" means a fully modified pass-through
certificate in physical or book-entry form, the full and timely payment of
principal of and interest on which is guaranteed by GNMA, which obligation is
backed by the full faith and credit of the United States, and which evidences
a proportional undivided interest in specified pools of graduated payment
mortgage loans with payments that increase annually at a predetermined rate
for up to the first five or ten years of the mortgage loan and that are
secured by first-priority mortgages on one- to four-unit residences.
"GNMA Multifamily Security" means a fully modified pass-through certificate
in physical or book-entry form, the full and timely payment of principal of
and interest on which is guaranteed by GNMA, which obligation is backed by
the full faith and credit of the United States, and which evidences a
proportional undivided interest in specified pools of fixed-rate mortgage
loans secured by first-priority mortgages on multifamily residences, the
inclusion of which in the Eligible Portfolio Property will not, in and of
itself, impair or cause the Preferred Stock to fail to retain the rating
assigned to such Preferred Stock by the Rating Agency as evidenced by a
letter to such effect from the Rating Agency.
"Holder" means a Person who has signed a Master Purchaser's Letter and in
whose name one or more outstanding shares of Preferred Stock are registered
on the Stock Books.
"Independent Accountants" means the Corporation's independent accountants,
which shall be a nationally recognized accounting firm.
"Industry Category" means, as to any Corporate Bond, any of the industry
categories set forth in the following table:
1. Aerospace and Defense
2. Airlines
3. Automobile/Auto Parts/Truck Manufacturing
4. Banks/Savings and Loans
5. Finance Companies/Consumer Credit
6. Financial Services--Brokerage/Syndication/Leasing
7. Building/Construction
8. Real Estate Development/REITS
9. Broadcasting--TV, Cable, and Radio
12
<PAGE>
10. Publishing
11. Electronics/Computers
12. Electrical Equipment
13. Diversified/Conglomerate Services
14. Diversified/Conglomerate Manufacturing
15. Leisure/Amusement/Motion Pictures
16. Agricultural Chemicals
17. Chemicals
18. Food
19. Beverage
20. Tobacco
21. Retail
22. Consumer Durable Goods/Home Furnishings
23. Grocery/Convenience Stores
24. Healthcare/Drugs/Hospital Supplies
25. Childcare/Toys
26. Personal Care Products/Cosmetics
27. Hotel/Gaming
28. Insurance Companies
29. Machinery
30. Metals/Mining
31. Oil/Natural Gas
32. Oil Services
33. Packaging/Containers
34. Paper/Forest Products/Printing
35. Pollution Control/Waste Removal
36. Electric Utilities
37. Other Utilities
38. Rail/Trucking/Overnight Delivery
39. Telephone/Communications
40. Textiles/Apparel
41. Transportation
42. Agriculture/Agricultural Equipment
43. Miscellaneous
Without amending these Articles of Incorporation, the industry categories
applicable with respect to the Corporation may be changed from those set
forth in these Articles of Incorporation to other industry categories
recognized by the Rating Agency if the Board of Directors of the Corporation
determines and the Rating Agency advises the Corporation in writing that the
change will not adversely affect its then-current rating of the Preferred
Stock.
"Initial Dividend Payment Date" has the meaning set forth in paragraph 3(b)
below.
"Initial Dividend Period" has the meaning specified in paragraph 3(b) below.
"Interest and Dividend Coverage Amount," as of any date of determination,
means the sum of:
13
<PAGE>
(a) the amount of interest on the Notes, if any, due to become payable on
or prior to the next Dividend Payment Date and
(b) the product of
(i) the number of shares of Preferred Stock outstanding on such date
multiplied by $100,000,
(ii) the Applicable Rate in effect as of such date, and
(iii) a fraction, the numerator of which is the number of days in the
Dividend Period ending on the next Dividend Payment Date (determined by
including the first day thereof but excluding the last day thereof) and
the denominator of which is 360;
less
(c) the combined value of any Deposit Securities irrevocably deposited by
the Corporation for the payment of interest on the Notes or dividends on the
Preferred Stock.
"Interest and Dividend Coverage Assets," as of any date of determination,
means Deposit Securities with maturity dates not later than the day preceding
the next Dividend Payment Date; provided that if interest on the Notes shall
be due prior to such Dividend Payment Date, then a portion of such Deposit
Securities equal to the amount of such interest shall have maturity dates on
or prior to the day preceding the applicable interest payment date; and
provided further that if the applicable date of determination is a Dividend
Payment Date or a date on which interest on the Notes is payable, any Deposit
Securities to be applied to the dividends payable on the Preferred Stock or
to interest on the Notes on such date shall not be included in Interest and
Dividend Coverage Assets.
"Investment Company Act" means the Investment Company Act of 1940 (15 U.S.
Code S.80 et seq.), as amended from time to time.
"Lien" has the meaning set forth in paragraph 3(d)(iv) below.
"Market Value" means the amount determined with respect to specific assets
of the Corporation in the manner set forth below:
(a) as to any Corporate Bond, (i) the product of (A) the unpaid principal
balance of such Corporate Bond as of the Reporting Date, and (B) the lower of
two bid prices for
14
<PAGE>
such Corporate Bond provided by two nationally recognized securities
dealers with a minimum capitalization of $25 million or by one such
securities dealer and any other source (provided that the utilization of such
source would not adversely affect the rating of the Preferred Stock) to the
custodian of the Corporation's assets, at least one of which shall be
provided in writing or by telecopy, telex, other electronic transcription,
computer obtained quotation reducible to written form or similar means, and
in turn provided to the Corporation by any such means by such custodian
(provided that evidence of the bid quotes furnished by such custodian shall
be provided to the Auction Agent by the Corporation with the related
Portfolio Valuation Report), plus (ii) accrued interest on such Corporate
Bond (unless such accrued interest is payable to the holder of such Corporate
Bond prior to the next Valuation Date), or, if two bid prices cannot be
obtained, such item of Eligible Portfolio Property shall have a Market Value
of zero;
(b) the product of (i) as to GNMA Certificates, GNMA Graduated Payment
Securities, GNMA Multifamily Securities, FNMA Certificates, FHLMC
Certificates and FHLMC Multifamily Securities, the aggregate unpaid principal
amount of the mortgage loans evidenced by each such Certificate or security,
as the case may be, as determined by the Corporation by any method which the
Corporation believes reliable, which may include amounts shown on the most
recent report related to the Certificate or security received by the
Corporation prior to the Reporting Date, and as to U.S. Government
Obligations and Short Term Money Market Instruments (other than demand
deposits, federal funds, bankers' acceptances and next Business Day's
repurchase agreements), the face amount or aggregate principal amount of such
U.S. Government Obligations or Short Term Money Market Instruments, as the
case may be, and (ii) the lower of the bid prices for the same kind of
Certificates, securities or instruments, as the case may be, having, as
nearly as practicable, comparable interest rates and maturities provided by
two nationally recognized securities dealers having minimum capitalization of
$25 million or by one such securities dealer and any other source (provided
that the utilization of such source would not adversely affect the rating of
the Preferred Stock) to the custodian of the Corporation's assets, at least
one of which shall be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation reducible to written
form or similar means, and in turn provided to the Corporation by any such
means by such custodian (provided that evidence of the bid quotes furnished
by such custodian shall be delivered to the Auction Agent with the related
Portfolio Valuation Report),
15
<PAGE>
or, if two bid prices cannot be obtained, such item of Eligible Portfolio
Property will have a Market Value of zero;
(c) as to Conventional Mortgage Pass-Through Certificates, the product of
(i) the outstanding aggregate principal balance of the mortgage loans
underlying the Certificates as determined by the Corporation by any method
which the Corporation believes reliable, which may include amounts based on
verbal reports of the servicers of the related mortgage loans to the
Corporation, as of the applicable Reporting Date and (ii) the dollar value of
the lower of two bid prices per dollar of outstanding principal amount as of
such applicable Reporting Date for such Certificates, provided by two
nationally recognized securities dealers having minimum capitalization of $25
million or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect the rating of the
Preferred Stock) to the custodian of the Corporation's assets, at least one
of which shall be provided in writing or by telecopy, telex, other electronic
transcription, computer obtained quotation reducible to written form or
similar means, and in turn provided to the Corporation by any such means by
such custodian (provided that evidence of the bid quotes furnished by such
custodian shall be delivered to the Auction Agent with the related Portfolio
Valuation Report), or, if two bid prices cannot be obtained, such item of
Eligible Portfolio Property shall have a Market Value of zero; and
(d) as to Cash, demand deposits, federal funds, bankers' acceptances and
next Business Day's repurchase agreements included in Short Term Money Market
Instruments, the face value thereof.
Without amending these Articles of Incorporation, (i) the calculation of the
Market Value of an asset constituting Eligible Portfolio Property may be
changed to any method recognized by the Rating Agency from that set forth in
these Articles of Incorporation and (ii) a method recognized by the Rating
Agency for calculating the Market Value of any asset identified as Eligible
Portfolio Property after the Restatement Date may be specified if the Board
of Directors of the Corporation determines and the Rating Agency advises the
Corporation in writing that the change or specification will not adversely
affect its then-current rating of the Preferred Stock.
"Minimum Liquidity Level is met" means, as of any date of determination,
that the aggregate Market Value of the Interest
16
<PAGE>
and Dividend Coverage Assets equals or exceeds the Interest and Dividend
Coverage Amount.
"Notes" means the Corporation's Senior Extendible Notes issued pursuant to
the indenture dated as of February 15, 1988 with respect thereto having
Shawmut Bank, N.A. as trustee.
"Notice of Redemption" has the meaning specified in paragraph 5(c)(iii)
below.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of the Corporation.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer, Assistant Secretary or Assistant
Controller of the Corporation.
"Original Issuance Date" means the date on which the Corporation originally
issues shares of Preferred Stock.
"Paying Agent" means Bankers Trust Company and its successors or any other
paying agent appointed by the Corporation to perform the functions performed
by the Paying Agent.
"Permitted Tax Liens" means liens of general and special taxes and
assessments on the property in question.
"Person" means an individual, a corporation, a company, a voluntary
association, a partnership, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
"Portfolio Calculation" shall have the meaning specified in paragraph
7(a)(ii).
"Portfolio Valuation Report" means an Officers' Certificate delivered to the
Auction Agent with respect to the valuation of the Eligible Portfolio
Property.
"Projected Dividend Amount" for the Preferred Stock shall mean, if the date
of determination is a Valuation Date, the amount of dividends, based on the
number of shares of Preferred Stock outstanding on such Valuation Date,
projected to accumulate on such shares from such Valuation Date through the
63rd day after such Valuation Date, at the following dividend rates:
(a) If the Valuation Date is the Original Issuance Date or a Dividend
Payment Date, (i) for the Dividend Period beginning on the Original Issuance
Date or such
17
<PAGE>
Dividend Payment Date and ending on (but not including) the first
following Dividend Payment Date, the Applicable Rate in effect on such
Valuation Date, and (ii) for the period beginning on (and including) the
first following Dividend Payment Date and ending on (and including) the 63rd
day following such Valuation Date, the product of 1.95 and (x) the Maximum
Applicable Rate on the Original Issuance Date (in the case of the Original
Issuance Date) or (y) the Maximum Applicable Rate as of the last occurring
Auction Date (in the case of any Dividend Payment Date); and
(b) If such Valuation Date is not the Original Issue Date or a Dividend
Payment Date, (i) for the period beginning on such Valuation Date and ending
on (but not including) the first following Dividend Payment Date, the
Applicable Rate in effect on such Valuation Date, and (ii) for the period
beginning on (and including) the first following Dividend Payment Date and
ending on (but not including) the sooner of the second following Dividend
Payment Date or the 64th day following such Valuation Date, the product of
1.95 and (x) the Maximum Applicable Rate on the Original Issuance Date (in
the case of a Valuation Date occurring prior to the first Auction Date) or
(y) the Maximum Applicable Rate on the last occurring Auction Date (in the
case of any other Valuation Date) and (iii) for the period, if any, beginning
on (and including) the second following Dividend Payment Date and ending on
(but not including) the 64th day following such Valuation Date, the product
of 2.50 and the rate specified in clause (x) or (y) above.
If the date of determination is not a Valuation Date, then the Projected
Dividend Amount on such date of determination shall equal the Projected
Dividend Amount therefor on the immediately preceding Valuation Date,
adjusted to reflect any decrease in the number of shares of Preferred Stock
outstanding. The calculation of the Projected Dividend Amount may be made on
bases other than those set forth above if the Board of Directors of the
Corporation determines and the Rating Agency shall have advised the
Corporation in writing that the revised calculation of the Projected Dividend
Amount would not adversely affect its then-current rating of the Preferred
Stock.
"Quarterly Valuation Date" means, so long as any shares of Preferred Stock
are outstanding, the last Business Day of March, June, September and December
of each year, commencing March 31, 1988, or, if such day is not a Valuation
Date, the next preceding Valuation Date.
"Rating Agency" means Standard & Poor's, for so long as Standard & Poor's
issues a rating for the Preferred Stock, and, at such time as Standard &
Poor's no longer issues a rating for
18
<PAGE>
the Preferred Stock, the successor to Standard & Poor's as the primary rating
agency for the Preferred Stock.
"Reporting Date," with respect to any price referred to in the definition of
the Market Value of an item of Eligible Portfolio Property, shall mean the
date as of which the Market Value of such item of Eligible Portfolio Property
is to be determined or, if no such price is available as provided above for
such date, the next closest prior date as of which such price is so
available; provided, that no such price shall be deemed to be available as of
a Reporting Date if such price is not available as of a date within five
Business Days next preceding the date as of which the determination of such
Market Value is to be made.
"Required Documentation," with respect to a mortgage loan means:
(a) the mortgage note or other evidence of indebtedness secured by the
mortgage endorsed without recourse in blank or to the trustee or other
custodian and accompanied by an assignment thereof;
(b) the mortgage, deed of trust, deed to secure debt or similar security
instruments encumbering real property or related documentation, with evidence
of recording or filing thereof, in each case accompanied by assignments
thereof, executed in blank or to the trustee or other custodian, in
recordable form as may be appropriate in the jurisdiction where the property
is located and evidence that such assignment has been recorded in the name of
the trustee or other custodian, and such trustee or other custodian receives
an opinion of counsel (containing only such exceptions as may be permissible
under the indenture or other agreement pursuant to which the mortgage loan is
pledged to the trustee in connection with the related Conventional Mortgage
Pass-Through Certificate) to the effect that, notwithstanding that the
assignment of the mortgage has not been recorded, the actions taken with
respect to the mortgage loan are sufficient to permit the trustee or other
custodian to avail itself of all protection available under applicable law
against the claims of any present or future creditors of the issuer, and are
sufficient to prevent any other sale, transfer, assignment, pledge or
hypothecation of the mortgage and the related mortgage note by the issuer
from being enforceable, or will create a valid assignment of and a valid and
perfected lien upon and security interest in a mortgage and related mortgage
note, which lien and security interest is (except for the trustee's lien
securing certain obligations of the issuer to the trustee as provided in the
indenture pursuant to which the mortgage loan is pledged to the
19
<PAGE>
trustee in connection with the related Conventional Mortgage Pass-Through
Certificate) prior in right to all other security interests therein created
or perfected under the Uniform Commercial Code (as in effect in the
jurisdiction where the property is located);
(c) in the case of mortgage notes covered by private mortgage insurance,
evidence that such mortgage notes are so insured; and
(d) a copy of the title insurance policy or an opinion or certificate of
counsel stating that the mortgage constitutes a first lien on the premises
described in such mortgage (which opinion or certificate may be subject to
exceptions for Permitted Tax Liens and other matters to which like properties
are commonly subject which neither individually nor in the aggregate
materially interfere with the benefits of the security interest intended to
be provided by such mortgage and standard exceptions and exclusions from
mortgage title insurance policies).
"Securities Depository" means The Depository Trust Company and any successor
thereto.
"Scheduled Payment Day" has the meaning specified in paragraph 3(b) below.
"Short Term Money Market Instruments" means the following kinds of
instruments, if on the date of purchase or other acquisition by the
Corporation of such instrument the remaining term to maturity thereof is not
more than 30 days:
(a) demand deposits in, certificates of deposit of, bankers' acceptances
issued by, or federal funds sold to, any depository institution, the deposits
of which are insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation, provided that, at the time of
the Corporation's investment therein, the commercial paper or other unsecured
short-term debt obligations of such depository institution are rated at least
A-1+ by Standard & Poor's;
(b) repurchase obligations with respect to a U.S. Government Obligation,
FNMA Certificate, FHLMC Certificate or GNMA Certificate entered into with a
depository institution, the deposits of which are insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation and the commercial paper or other unsecured short-term debt
obligations of which are rated at least A-1+ by Standard & Poor's, which must
be repurchased within one Business Day from the date such repurchase
obligation was entered into; and
20
<PAGE>
(c) commercial paper rated at the time of the Corporation's investment
therein at least A-1+ by Standard & Poor's.
"Special Redemption Assets" has the meaning specified in paragraph 5(b)
below.
"Standard & Poor's" means Standard & Poor's Corporation or any successor
thereto or, if Standard & Poor's is not the Rating Agency, the references to
Standard & Poor's shall be deemed to refer to the Rating Agency at such time
and references to particular ratings of Standard & Poor's appearing herein
shall be deemed to refer to the equivalent rating of such Rating Agency.
"Stock Books" means the stock transfer books of the Corporation maintained
by the Paying Agent with respect to the shares of Preferred Stock.
"Subsequent Dividend Period" has the meaning specified in paragraph 3(b)
below.
"30-day "AA" Composite Commercial Paper Rate" on any date means (a) the
interest equivalent of the 30-day rate on commercial paper on behalf of
issuers whose corporate bonds are rated AA by Standard & Poor's, or Aa2 by
Moody's Investors Service, Inc., or the equivalent of such rating by another
nationally recognized rating agency, as announced by the Federal Reserve Bank
of New York for the close of business on the Business Day immediately
preceding such date; or (b) if the Federal Reserve Bank of New York does not
make available such a rate, then the arithmetic average of the interest
equivalent of the 30-day rates on commercial paper placed on behalf of such
issuers, as quoted on a discount basis or otherwise by the Commercial Paper
Dealers to the Auction Agent for the close of business on the Business Day
immediately preceding such date (rounded to the next highest .001 of 1%). If
any Commercial Paper Dealer does not quote a rate required to determine the
30-day "AA" Composite Commercial Paper Rate, such rate shall be determined on
the basis of the quotations (or quotation) furnished by the remaining
Commercial Paper Dealers (or Dealer), if any, or, if there are no such
Commercial Paper Dealers, by the Auction Agent.
"Type I Corporate Bonds" as of any date means Corporate Bonds whose Standard
& Poor's rating is AAA as of such date.
"Type II Corporate Bonds" as of any date means Corporate Bonds whose
Standard & Poor's rating is AA+ to AA- as of such date.
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"Type III Corporate Bonds" as of any date means Corporate Bonds whose
Standard & Poor's rating is A+ to A- as of such date. "Type IV Corporate
Bonds" as of any date means Corporate Bonds whose Standard & Poor's rating is
BBB+ to BBB- as of such date.
"Type V Corporate Bonds" as of any date means Corporate Bonds whose Standard
& Poor's rating is BB+ to BB- as of such date.
"Type VI Corporate Bonds" as of any date means Corporate Bonds whose
Standard & Poor's rating is B+ to B as of such date.
"Type VII Corporate Bonds" as of any date means Corporate Bonds whose
Standard & Poor's rating is B- as of such date.
"Type VIII Corporate Bonds" as of any date means Corporate Bonds whose
Standard & Poor's rating is CCC+ as of such date and which are subordinated
debt of the issuer.
"Type IX Corporate Bonds" as of any date means Corporate Bonds whose
Standard & Poor's rating is CCC as of such date and which are subordinated
debt of the issuer.
"U.S. Government Obligations" means direct obligations of the United States,
provided that such direct obligations are entitled to the full faith and
credit of the United States and that any such obligations, other than United
States Treasury Bills, provide for the periodic payment of interest and the
full payment of principal at maturity or call for redemption.
"Valuation Date" means (a) the fifteenth day of each month or, if such day
is not a Business Day, the next succeeding Business Day and (b) the last
Business Day of such month; provided, however, that the first Valuation Date
may occur on any other date established by the Corporation; provided,
further, however, that such date shall be not more than fifteen days from the
date on which the Preferred Stock initially is issued.
"Vote of a Majority of the Outstanding Voting Securities" means the vote, at
the annual or a special meeting of the stockholders of the Corporation duly
called, (A) of 67 per cent or more of the voting securities present at such
meeting, if the holders of more than 50 per cent of the outstanding voting
securities of the Corporation are present or represented by proxy; or (B) of
more than 50 per cent of the outstanding voting securities of the
Corporation, whichever is less; to the extent stockholders of the Corporation
are required to vote as
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a separate class or classes with respect to any matter, such requirements
shall apply on a class-by-class basis.
"Voting Period" has the meaning specified in paragraph 6(b) below.
3. Dividends.
(a) Holders of shares of Preferred Stock shall be entitled to receive, when,
as, and if declared by the Board of Directors, out of funds legally available
therefor, cumulative cash dividends at the Applicable Rate per annum
(determined as set forth below) payable on the respective dates set forth
below.
(b) Dividends on the shares of Preferred Stock shall accumulate from the
Original Issuance Date. Accrued dividends shall be payable commencing on
April 5, 1988 (the 40th day after the Original Issuance Date, hereinafter
referred to as the "Initial Dividend Payment Date" ) and on each day
thereafter which is the last day of the successive 30-day periods after such
date. If any such last day (the "Scheduled Payment Day" ) is not a Business
Day or, unless the Paying Agent shall make payments in same-day funds, the
day succeeding the Scheduled Payment Day is not a Business Day, dividends
payable on such Scheduled Payment Day shall be paid on the first Business Day
succeeding such Scheduled Payment Day that is next succeeded by a day which
is also a Business Day; provided, however, that if the Paying Agent shall
make payments with respect to the shares of Preferred Stock in same-day
funds, such next succeeding day need not be a Business Day. Any date on which
a dividend on the Preferred Stock is payable pursuant to this paragraph 3(b)
is herein called a "Dividend Payment Date." The period beginning on (and
including) the Original Issuance Date and ending on (but not including) the
Initial Dividend Payment Date is referred to herein as the "Initial Dividend
Period." Each successive period commencing on, and including, the Dividend
Payment Date for the previous Dividend Period and ending on and including the
day preceding the next succeeding Dividend Payment Date is referred to herein
as a "Subsequent Dividend Period" and the Initial Dividend Period and each
Subsequent Dividend Period together are sometimes referred to herein as
"Dividend Periods."
(c) (i) The Applicable Rate for the Initial Dividend Period shall be 7 1/8%
per annum. For the purpose of calculating the rate of dividends per annum
payable on shares of Preferred Stock (the "Applicable Rate") for each
Subsequent Dividend Period the Corporation shall enter into an agreement with
the Auction Agent (the "Auction Agent Agreement"). The Applicable Rate on the
shares of Preferred Stock for each Subsequent Dividend Period shall be
determined by the Auction
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Agent in accordance with the Auction Agent Agreement, which shall provide
that the Auction Agent will follow the Auction Procedures described in
paragraph 8 hereof to determine the Applicable Rate. In the event there is no
Auction Agent on the Business Day prior to the first day of a Dividend
Period, the Applicable Rate for such Dividend Period shall be equal to the
Maximum Applicable Rate (as defined in paragraph 8(a) hereof) that could have
resulted pursuant to the Auction Procedures, as determined by the
Corporation, on such Business Day. The Corporation shall exercise its best
efforts to maintain an Auction Agent pursuant to an agreement containing
terms no less favorable to the Corporation than the terms of the Auction
Agent Agreement. If, due to the issuance of a Notice of Redemption, no shares
of Preferred Stock are deemed outstanding on any Auction Date, or if no
Auction is held on such date for any other reason, the Applicable Rate for
the Dividend Period beginning on the Business Day following such Auction Date
shall be equal to the Maximum Applicable Rate that could have resulted
pursuant to the Auction Procedures, as determined by the Auction Agent (or,
if there is no Auction Agent, by the Corporation), on such Business Day.
(ii) The amount of dividends per share payable on shares of Preferred Stock
for each Dividend Period or part thereof shall be determined by the Auction
Agent and shall be an amount equal to $100,000 per share of Preferred Stock
multiplied by the product of (1) the Applicable Rate for such Dividend Period
and (2) a fraction, the numerator of which shall be the actual number of days
in such Dividend Period or part thereof and the denominator of which shall be
360. All dollar amounts used in or resulting from such calculations will be
rounded to the nearest cent (with 0.5 cents being rounded up).
(d) (i) The Corporation will not issue any other series or class of stock
which is senior to or on a parity with the Preferred Stock. No Holders of
shares of Preferred Stock shall be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends, as
provided in this paragraph 3, on shares of Preferred Stock. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payments on any shares of the Preferred Stock that may be in arrears.
(ii) For so long as shares of Preferred Stock are outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend or
other distribution in respect of the Common Stock or any other stock of the
Corporation ranking junior to the shares of Preferred Stock as to dividends
or upon liquidation, or call for redemption, redeem, purchase or otherwise
acquire for consideration any shares of the Common Stock or any other stock
of the Corporation ranking junior to
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the shares of Preferred Stock as to dividends or upon liquidation (except by
conversion into or exchange for stock of the Corporation ranking junior to
the shares of Preferred Stock as to dividends and upon liquidation), unless,
in each case, (A) immediately thereafter, the Basic Maintenance Amount would
be achieved, and (B) all accumulated and unpaid dividends for all past
Dividend Periods shall have been or are contemporaneously paid in full (or
declared and sufficient Deposit Securities have been set apart for their
payment).
(iii) Any dividend payment made on the shares of Preferred Stock shall first
be credited against the dividends accumulated with respect to the earliest
Dividend Period for which dividends have not been paid.
(iv) For so long as any shares of Preferred Stock are outstanding, the
Corporation shall not create, incur or suffer to exist, or agree to create,
incur or suffer to exist, or consent to cause or permit in the future (upon
the happening of a contingency or otherwise) the creation, incurrence or
existence of any material lien, mortgage, pledge, charge, security interest,
security agreement, conditional sale or trust receipt or other material
encumbrance of any kind (collectively "Liens" ) upon any of its Eligible
Portfolio Property, except for (A) Liens the validity of which are being
contested in good faith by appropriate proceedings, (B) Liens for taxes that
are not then due and payable or that can be paid thereafter without penalty,
(C) Liens to secure payment for services rendered by the Auction Agent or the
Trustee with respect to the Notes in connection with the Preferred Stock or
the Notes and (D) Liens otherwise incurred in connection with borrowings made
in the ordinary course of business in accordance with the Corporation's
stated investment objective, policies and restrictions.
(e) Not later than noon on the Business Day next preceding each Dividend
Payment Date, the Corporation shall deposit with the Paying Agent Deposit
Securities constituting immediately available funds in an amount sufficient
to pay the dividends that are payable on such Dividend Payment Date. The
Corporation may direct the Paying Agent with respect to the investment of any
such Deposit Securities, provided that the proceeds of any such investment
will be available at the opening of business on such Dividend Payment Date.
(f) Dividends in arrears for any past Dividend Period may be declared and
paid to the Holders at any time, without reference to any regular Dividend
Payment Date.
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary
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or involuntary, the Holders of shares of Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to
stockholders, but before any distribution or payment shall be made in respect
of the Common Stock or any other stock of the Corporation ranking junior to
the Preferred Stock as to liquidation payments, a liquidation distribution in
the amount of $100,000 per share, plus an amount equal to all unpaid
dividends accumulated to and including the date fixed for such distribution
or payment (whether or not earned or declared by the Corporation, but
excluding interest thereon), but such Holders shall be entitled to no further
participation in any distribution or payment in connection with any such
liquidation, dissolution or winding up.
(b) If, upon any such liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the Holders of all outstanding
shares of Preferred Stock shall be insufficient to permit the payment in full
to such Holders of the amounts to which they are entitled, then such
available assets shall be distributed among the Holders of shares of
Preferred Stock ratably in any such distribution of assets according to the
respective amounts which would be payable on all such shares if all amounts
thereon were paid in full.
(c) Neither the consolidation or merger of the Corporation with or into any
other corporation or corporations, nor the sale, lease, exchange or transfer
by the Corporation of all or substantially all of its property and assets,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this paragraph 4.
5. Redemption.
Shares of the Preferred Stock shall be redeemable by the Corporation as
provided below:
(a) Optional Redemption.
At its option, the Corporation may, out of funds legally available therefor
(giving consideration to all applicable legal restraints, including, without
limitation, the restraints imposed by Section 18(a) of the Investment Company
Act), upon at least 15 but not more than 30 days' notice pursuant to a Notice
of Redemption, redeem some or all of the outstanding shares of Preferred
Stock on any Dividend Payment Date, at $100,000 per share plus an amount
equal to the accumulated and unpaid dividends on such shares (whether or not
earned or declared by the Corporation, but excluding interest thereon) to the
redemption date.
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(b) Mandatory Redemption.
If the Corporation shall default in the performance or observance of any
covenant contained in paragraph 7(a)(i) through (iii) hereof, and such
default shall not have been cured prior to the close of business on the Cure
Date, then the Corporation shall (i) notify the Paying Agent in writing by
the close of business on the second Business Day following the Cure Date of
its intention to redeem the number of whole shares of Preferred Stock
calculated in clause (iii) below, (ii) give a Notice of Redemption (which
shall specify a mandatory redemption date not more than 45 days after the
Valuation Date on which the Corporation defaulted in the performance or
observance of such covenant) with respect to the redemption of such shares
and (iii) redeem, out of funds legally available therefor (giving
consideration to all applicable legal restraints, including, without
limitation, the restraints imposed by Section 18(a) of the Investment Company
Act), the minimum number of shares the redemption of which, if deemed to have
occurred on the Valuation Date with respect to which the requirements of
Section 7(a)(i) through (iii) were not met, could have been effected using
the proceeds from the deemed sale of "Special Redemption Assets." For
purposes hereof, Special Redemption Assets shall mean such portfolio holdings
as are identified by the Corporation in its sole discretion, the deemed sale
of which for Cash on the applicable Valuation Date on which the requirements
of paragraph 7(a)(i) through (iii) were not met would have caused the
requirements of paragraph 7(a)(i) to have been satisfied on a pro forma basis
as of such Valuation Date. Such shares of Preferred Stock redeemed pursuant
to this paragraph 5(b) shall be redeemed at a redemption price equal to
$100,250 per share plus an amount equal to all accumulated and unpaid
dividends (whether or not earned or declared by the Corporation, but
excluding interest thereon) to such mandatory redemption date.
(c) General Provisions for Redemptions.
(i) Notwithstanding the other provisions of this paragraph 5, no shares of
Preferred Stock may be redeemed other than as specified below, unless all
accumulated and unpaid dividends on all outstanding shares of Preferred Stock
for all past Dividend Periods shall have been or are contemporaneously paid
or declared and Deposit Securities maturing on or prior to the date fixed for
redemption are set apart for the payment of such dividends; provided,
however, that the Corporation may, without regard to such limitations,
redeem, purchase or otherwise acquire shares of Preferred Stock (A) as a
whole, pursuant to a mandatory or optional redemption or (B) pursuant to a
purchase or exchange offer made for all of the outstanding shares of
Preferred Stock, to the extent permitted under the
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Investment Company Act, Maryland law and these Articles of Incorporation.
(ii) If fewer than all the outstanding shares of Preferred Stock are to be
redeemed by mandatory or optional redemption, the shares to be redeemed shall
be identified by the Board of Directors of the Corporation by lot or by such
other method as the Corporation shall deem fair and equitable.
(iii) Whenever shares of the Preferred Stock are to be redeemed, the
Corporation shall mail, not fewer than 15 nor more than 30 days prior to the
applicable redemption date, a written notice of redemption by first-class
mail, postage prepaid, to each Holder of shares of Preferred Stock to be
redeemed (a "Notice of Redemption"), as its name and address appear on the
Stock Books, and to the Auction Agent. The Notice of Redemption shall also be
published by the Corporation on or about the date thereof in The Wall Street
Journal (National Edition) (or, if such notice cannot be published therein,
then in a comparable newspaper printed in the English language and of general
circulation in New York City). Each Notice of Redemption shall state (A) the
redemption date, (B) the redemption price, (C) the number of shares of
Preferred Stock to be redeemed, (D) the place or places where such Preferred
Shares are to be redeemed, (E) that dividends on the shares to be redeemed
will cease to accumulate on such redemption date and (F) the provision of
these Articles of Incorporation under which the redemption is being made. No
defect in the Notice of Redemption or in the mailing or publication thereof
shall affect the validity of the redemption proceedings, except as required
by applicable law.
(iv) Following delivery of notice to the Paying Agent of the Corporation's
intention to redeem shares of Preferred Stock pursuant to paragraph 5(b), (A)
such shares of Preferred Stock and (B) Special Redemption Assets identified
by the Corporation with respect to such shares of Preferred Stock shall
thereafter be excluded from the calculation of the Basic Maintenance Amount
and the Portfolio Calculation.
(v) On each redemption date, the Securities Depository shall surrender the
certificate evidencing the shares of Preferred Stock. Each Holder of shares
of Preferred Stock that were called for redemption shall then be entitled to
receive payment of the redemption price for each share. If fewer than all of
the shares represented by such certificate are to be redeemed, the
Corporation shall issue a new certificate for the shares not redeemed.
(vi) If the Corporation shall give a Notice of Redemption, then by the
Business Day next preceding the date fixed for redemption the Corporation
shall deposit with the
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Paying Agent Deposit Securities constituting immediately available funds in
an amount sufficient to redeem the shares of Preferred Stock to be redeemed.
In such event the Corporation shall give the Paying Agent irrevocable
instructions and authority to pay the redemption price to the holders of the
shares of Preferred Stock called for redemption upon the redemption date. The
Corporation may direct the Paying Agent with respect to the investment of any
Deposit Securities so deposited provided that the proceeds of any such
investment will be available at the opening of business on such redemption
date. The Deposit Securities deposited with the Paying Agent pursuant to the
immediately preceding sentence and the shares of Preferred Stock to be
redeemed shall be excluded from the calculation of the Basic Maintenance
Amount and the Portfolio Calculation. Upon the date of such deposit, or if no
such deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making payment of the redemption price), all
rights of the Holders of the shares of Preferred Stock so called for
redemption shall cease and terminate except the right of the Holders thereof
to receive the redemption price thereof inclusive of accumulated but unpaid
dividends, but without any interest, and such shares shall no longer be
deemed outstanding for any purpose. The Corporation shall be entitled to
receive, promptly after the date fixed for redemption, any cash in excess of
the aggregate redemption price of the shares of Preferred Stock called for
redemption on such date and any remaining Deposit Securities. Any assets so
deposited which are unclaimed at the end of two years from such redemption
date shall, to the extent permitted by law, be repaid to the Corporation,
after which the Holders of the shares of Preferred Stock so called for
redemption shall look only to the Corporation for payment thereof. The
Corporation shall be entitled to receive, from time to time after the date
fixed for redemption, any interest on the Deposit Securities so deposited.
(vii) Shares of Preferred Stock that have been redeemed, purchased or
otherwise acquired by the Corporation may not be reissued, shall not be
deemed outstanding, and shall be retired and cancelled. Shares with respect
to which a Notice of Redemption has been given as provided in paragraph
5(c)(iii) above shall not be deemed outstanding for purposes of the Auction
Procedures set forth in paragraph 8 hereof.
(viii) In addition to redemption rights expressly established under these
Articles of Incorporation the Corporation may repurchase shares of Preferred
Stock to the extent now or hereafter permitted by the laws of the State of
Maryland, by the Investment Company Act and by these Articles of
Incorporation.
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(ix) If the Corporation shall not have funds legally available for the
redemption of all the shares of the Preferred Stock to be redeemed on any
redemption date (or is otherwise legally unable to effect such redemption), the
Corporation shall redeem on such redemption date the number of shares of
Preferred Stock as it shall be legally able to redeem, ratably from each Holder
whose shares are to be redeemed and the remainder of the shares of the Preferred
Stock required to be redeemed shall be redeemed on the earliest practicable date
on which the Corporation shall first be legally able to redeem such shares upon
not fewer than 15 and not more than 30 days' notice pursuant to a Notice of
Redemption.
6. Voting Rights.
(a) General. Each Holder of Preferred Stock shall be entitled to one vote
for each share held on each matter on which the Holders of the Preferred
Stock are entitled to vote and, except as otherwise provided in these
Articles of Incorporation or by law, the holders of the Preferred Stock and
the Common Stock of the Corporation shall vote together as one class on all
matters submitted to the stockholders; provided, however, that at any meeting
of the stockholders of the Corporation held for the election of directors,
the Holders of a majority of the shares of Preferred Stock represented in
person or by proxy at said meeting shall be entitled as a class, to the
exclusion of the holders of the Common Stock, to elect two directors of the
Corporation; provided, however, that the identity of the two directors
representing the Holders of Preferred Stock on and after the Restatement Date
until the first meeting of the Corporation's stockholders following the
Restatement Date may be designated by the Board of Directors. Subject to
paragraph 6(b) hereof, the holders of a majority of the shares of Common
Stock shall be entitled to elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors. During any period in
which any one or more of the conditions described below shall exist (such
period being referred to herein as a "Voting Period" ), the number of
directors constituting the Board of Directors shall be automatically
increased by the smallest number that, when added to the number of directors
then constituting the Board of Directors, shall (together with the two
directors elected by the Holders pursuant to paragraph 6(a)) constitute a
majority of such increased number, and the Holders shall be entitled, voting
as a single class on a one-vote-per-share basis (to the exclusion of the
holders of all other securities and classes of capital stock of the
Corporation), to elect the smallest number of additional directors of the
Corporation that shall constitute a majority of the total number of directors
of the Corporation so increased. A Voting Period shall commence:
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(i) if at the close of business on any Dividend Payment Date any accumulated
dividends (whether or not earned or declared by the Corporation, and whether or
not funds are then legally available in an amount sufficient therefor) on the
outstanding shares of Preferred Stock shall be unpaid and sufficient Deposit
Securities shall not have been deposited with the Paying Agent for the payment
of such accumulated dividends;
(ii) if the Corporation fails (A) to give a Notice of Redemption when
required, (B) to redeem any of the shares of Preferred Stock that it is
obligated to redeem as provided in paragraph 5(b) on or prior to the 45th day
after the Valuation Date on which the Corporation's default giving rise to
the obligation to redeem Preferred Stock initially occurred, or (C) to redeem
any shares of Preferred Stock that it would have been required to redeem but
for the fact that the Corporation is not legally able to redeem such shares;
or
(iii) if the Minimum Liquidity Level is not met as of any Valuation Date
(unless the Corporation takes action so that the Minimum Liquidity Level is
met by the fifth Business Day following such Valuation Date).
The Voting Period and the voting rights so created upon the occurrence of
the conditions set forth in this paragraph 6(b) shall continue unless and
until:
(A) all accumulated and unpaid dividends on the then outstanding shares of
Preferred Stock including the accumulated and unpaid dividends as of the last
preceding Dividend Payment Date shall have been paid or declared and
sufficient Deposit Securities set apart for the payment of such dividends;
(B) the Corporation shall have redeemed all of the shares of Preferred
Stock (if any) that were subject (without regard to the Fund's legal ability
to effect such redemption) to mandatory redemption or shall have given a
Notice of Redemption and deposited with the Paying Agent Deposit Securities
sufficient to effect such redemption; and
(C) the Minimum Liquidity Level is met as of the most recent Valuation
Date.
Upon the termination of a Voting Period, the voting rights described in this
paragraph 6(b) shall cease, subject always, however, to the revesting of such
voting rights in the Holders upon the further occurrence of any of the events
described in this paragraph 6(b).
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(c) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the Holders to
elect directors pursuant to paragraph 6(b), the Corporation shall notify the
Auction Agent and shall call a special meeting of the Holders by directing
the Auction Agent to give a notice to the Holders of such special meeting
which special meeting shall be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send
such notice or direction to the Auction Agent or if the Auction Agent does
not give notice of such special meeting as provided above, the meeting may be
called by any Holder on like notice. The record date for determining the
Holders entitled to notice of and to vote at such special meeting shall be
the close of business on the fifth Business Day preceding the day on which
such notice is given. At any such special meeting and at each meeting at
which directors are elected held during a Voting Period, the Holders, voting
together as a class (to the exclusion of the holders of all other securities
and classes of capital stock of the Corporation), shall be entitled to elect
the number of directors prescribed in paragraph 6(b) above on a
one-vote-per-share basis. At any such meeting or adjournment thereof in the
absence of a quorum, a majority of the Holders of the shares of Preferred
Stock present in person or by proxy shall have the power to adjourn the
meeting without notice, other than an announcement at the meeting, until a
quorum is present.
(ii) For purposes of determining any rights of the Holders to vote on any
matter, whether such right is created by these Articles of Incorporation, by
statute or otherwise, no Holder shall be entitled to vote and no share of
Preferred Stock shall be deemed to be "outstanding" for the purpose of voting
or determining the number of shares required to constitute a quorum, if prior
to or concurrently with the time of determination of shares entitled to vote
or shares deemed outstanding for quorum purposes, as the case may be,
sufficient Deposit Securities for the redemption of such shares have been
deposited in trust with the Paying Agent for that purpose and the requisite
Notice of Redemption with respect to such shares shall have been given as
provided in paragraph 5(c)(iii) above.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of Holders to elect directors
pursuant to paragraph 6(b) shall continue, notwithstanding the election at
such meeting by the Holders of the number of directors that they are entitled
to elect, and the persons so elected by the Holders, together with the
incumbent directors, shall constitute the duly elected directors of the
Corporation.
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(iv) Simultaneously with the expiration of a Voting Period, the terms of
office of the directors elected by the Holders pursuant to paragraph 6(b) shall
terminate, the persons elected by the holders of the Common Stock and the two
directors elected by the Holders of the Preferred Stock pursuant to Section 6(a)
and who are incumbent shall constitute the directors of the Corporation and the
voting rights of the Holders to elect directors pursuant to paragraph 6(b) shall
cease.
(v) The directors elected by the Holders pursuant to paragraph 6(b) shall
(subject to the provisions of any applicable law) be subject to removal only
by the vote of the Holders of a majority of shares of the Preferred Stock
outstanding. Any vacancy on the Board of Directors occurring by reason of
such removal or otherwise (in the case of directors subject to election by
the Holders) may be filled only by vote of the Holders of at least a majority
of shares of the Preferred Stock outstanding, and if not so filled such
vacancy shall (subject to the provisions of any applicable law) be filled by
a majority of the remaining directors (or the remaining director) who were
elected by the Holders. Any other vacancy on the Board of Directors during a
Voting Period shall be filled as provided in the Corporation's By-Laws.
(d) Exclusive Remedy. Unless otherwise required by law, the Holders shall
not have any relative rights or preferences or other special rights other
than those specifically set forth herein. In the event that the Corporation
fails to pay any dividends on the shares of Preferred Stock or the
Corporation fails to redeem any shares of Preferred Stock which it is
required to redeem, or any other event occurs which requires the mandatory
redemption of Preferred Stock and the required Notice of Redemption has not
been given, the exclusive remedy of the Holders shall be the right to vote
for directors pursuant to the provisions of this paragraph 6. In no event
shall the Holders have any right to sue for, or bring a proceeding with
respect to, such dividends or redemptions or damages for the failure to
receive the same.
7. Asset and Liquidity Coverage.
(a) Required Basic Maintenance Amount.
(i) For so long as any shares of Preferred Stock are outstanding, the
Corporation will maintain, on each Valuation Date, Eligible Portfolio
Property having an aggregate Discounted Value at least equal to the Basic
Maintenance Amount, each as of such Valuation Date.
(ii) On or before 5:00 P.M., Boston time, on the third Business Day after
each Valuation Date, the Corporation shall
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complete and deliver to the Auction Agent a Portfolio Valuation Report, which
will be deemed to have been delivered to the Auction Agent (A) if the Auction
Agent receives a copy or telecopy, telex or other electronic transcription
thereof, or (B) if the Auction Agent receives a telecopy, telex or other
electronic transcription setting forth at least the applicable Discounted
Value of the aggregate of all Eligible Portfolio Property (the "Portfolio
Calculation") and the Basic Maintenance Amount each as of the relevant
Valuation Date and on the same day the Corporation mails to the Auction Agent
for delivery on the next Business Day the full Portfolio Valuation Report. A
failure by the Corporation to deliver a Portfolio Valuation Report under this
paragraph 7(a)(ii) shall be deemed to be delivery of a Portfolio Valuation
Report indicating a Discounted Value for all Eligible Portfolio Property of
less than the Basic Maintenance Amount, as of the relevant Valuation Date.
(iii) Within three Business Days after the date of delivery to the Auction
Agent of a Portfolio Valuation Report in accordance with paragraph 7(a)(ii)
above relating to a Quarterly Valuation Date, the Corporation shall deliver
to the Auction Agent a letter reviewing the Portfolio Calculation, prepared
by the Corporation's Independent Accountants, relating to such Portfolio
Valuation Report substantially to the effect that (A) the Independent
Accountants have read the Portfolio Valuation Report for the current
Quarterly Valuation Date (the "Report" ); (B) with respect to the issue size
compliance, issuer diversification and industry diversification calculations,
such calculations and the resulting eligible portfolio market value are
numerically correct; (C) with respect to the Basic Maintenance Amount, the
results of the calculation set forth in the Report have been recalculated and
are numerically correct; (D) with respect to the excess or deficiency of the
Discounted Value amount when compared to the Basic Maintenance Amount, the
results of the calculation set forth in the Report have been recalculated and
are numerically correct; (E) with respect to the Standard & Poor's rating on
Corporate Bonds, issuer name, issue size and coupon rate listed in the
Report, that information has been traced and agrees with the information
listed in The Standard & Poor's Bond Guide (in the event such information
does not agree or such information is not listed in The Standard & Poor's
Bond Guide, the Independent Accountants will inquire of Standard & Poor's
what such information is, and provide a listing in their letter of such
differences, if any); and (F) with respect to the lower of two bid prices (or
alternative permissible factors used in calculating the Market Value)
provided by the custodian of the Corporation's assets to the Corporation for
purposes of valuing securities in the portfolio, the Independent Accountants
have traced the price used in the Report to the lower of the two bid prices
listed in
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the report provided by such custodian and verified that such information
agrees (in the event such information does not agree, the Independent
Accountants will provide a listing in their letter of such differences). If
any letter reviewing the Portfolio Calculation delivered pursuant to this
paragraph shows that an error was made in the Portfolio Valuation Report for
such Quarterly Valuation Date, or shows that a lower aggregate Discounted
Value for the aggregate of all Eligible Portfolio Property was determined by
the Independent Accountants, the calculation or determination made by such
Independent Accountants shall be final and conclusive and shall be binding on
the Corporation, and the Corporation shall promptly amend the Portfolio
Valuation Report and deliver the amended Portfolio Valuation Report to the
Auction Agent.
(iv) The Corporation shall deliver an Officers' Certificate to the Auction
Agent as of the last Business Day of each week certifying, to the best
knowledge of the Officers signing such Officers' Certificate, the Portfolio
Calculation as of such Business Day and the Basic Maintenance Amount as of
such Business Day.
(b) Liquidity Coverage.
(i) As of each Valuation Date as long as any shares of Preferred Stock are
outstanding, the Corporation shall determine (A) the Market Value of the
Interest and Dividend Coverage Assets owned by the Corporation as of that
Valuation Date, (B) the Interest and Dividend Coverage Amount on that
Valuation Date, and (C) whether the Minimum Liquidity Level is met as of that
Valuation Date. The calculations of the Interest and Dividend Coverage
Assets, the Interest and Dividend Coverage Amount and whether the Minimum
Liquidity Level is met shall be set forth in a certificate (a "Certificate of
Minimum Liquidity" ) dated as of the Valuation Date. The Portfolio Valuation
Report and the Certificate of Minimum Liquidity may be combined in one
certificate. The Corporation shall cause the Certificate of Minimum Liquidity
to be delivered to the Auction Agent not later than the close of business on
the third Business Day after the Valuation Date. The Minimum Liquidity Level
shall be deemed to be met as of any date of determination if the Corporation
has timely delivered a Certificate of Minimum Liquidity relating to such
date, which states that the same has been met and which is not manifestly
inaccurate. In the event that a Certificate of Minimum Liquidity is not
delivered to the Auction Agent when required, the Minimum Liquidity Level
shall be deemed not to have been met as of the applicable date.
(ii) If the Minimum Liquidity Level is not met as of any Valuation Date,
then the Corporation shall purchase or otherwise acquire Interest and
Dividend Coverage Assets (with
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the proceeds from the liquidation of Eligible Portfolio Property or
otherwise) to the extent necessary so that the Minimum Liquidity Level is met
as of the fifth Business Day following such Valuation Date. The Corporation
shall, by such fifth Business Day, provide to the Auction Agent a Certificate
of Minimum Liquidity setting forth the calculations of the Interest and
Dividend Coverage Assets and the Interest and Dividend Coverage Amount and
showing that the Minimum Liquidity Level is met as of such fifth Business Day
together with a report of the custodian of the Corporation's assets
confirming the amount of the Corporation's Interest and Dividend Coverage
Assets as of such fifth Business Day.
8. Auction Procedures.
(a) Certain Definitions. Capitalized terms not defined in this paragraph
8(a) shall have the respective meanings specified in paragraph 2. As used in
this paragraph 8, the following terms shall have the following meanings,
unless the context otherwise requires:
(i) "Affiliate" shall mean any Person known to the Auction Agent to be
controlled by, in control of or under common control with the Corporation.
(ii) "Agent Member" shall mean the member of the Securities Depository
that will act on behalf of a Bidder and is identified as such in such
Bidder's Master Purchaser's Letter.
(iii) "Auction" shall mean the periodic operation of the procedures set
forth in this paragraph 8.
(iv) "Auction Date" shall mean the first Business Day next preceding the
first day of a Dividend Period.
(v) "Available Preferred Stock" shall have the meaning specified in
paragraph 8(d)(i)(A) below.
(vi) "Bid" and "Bids" shall have the respective meanings specified in
paragraph 8(b)(i) below.
(vii) "Bidder" and "Bidders" shall have the respective meanings specified
in paragraph 8(b)(i) below.
(viii) "Broker-Dealer" shall mean Drexel Burnham Lambert Incorporated and
any other broker-dealer, or other entity permitted by law to perform the
functions required of a Broker-Dealer in this paragraph 8, that has been
selected by the Corporation and has entered into a Broker-Dealer Agreement
with the Auction Agent that remains effective.
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(ix) "Broker-Dealer Agreements" shall mean the agreement between the
Auction Agent and Drexel Burnham Lambert Incorporated and similar agreements
with one or more other Broker-Dealers pursuant to which such Broker-Dealer
agrees to follow the procedures specified in this paragraph 8.
(x) "Existing Holder," when used with respect to shares of Preferred
Stock, shall mean a Person who has signed a Master Purchaser's Letter and is
listed as the beneficial owner of such shares of Preferred Stock in the
records of the Auction Agent.
(xi) "Hold Order" and "Hold Orders" shall have the respective meanings
specified in paragraph 8(b)(i) below.
(xii) "Master Purchaser's Letter" shall mean a letter addressed to the
Corporation, the Auction Agent and a Broker Dealer in which a Person agrees,
among other things, to offer to purchase, purchase, offer to sell and/or sell
auction rate securities as set forth in this paragraph 8.
(xiii) "Maximum Applicable Rate" and "Minimum Applicable Rate" on any
Auction Date shall be 130% and 90%, respectively, of the 30-day "AA"
Composite Commercial Paper Rate at the close of business on the Business Day
next preceding the Auction Date.
(xiv) "Potential Holder" shall mean any Person, including any Existing
Holder, (A) who shall have executed a Master Purchaser's Letter and (B) who
may be interested in acquiring shares of Preferred Stock (or, in the case of
an Existing Holder, additional shares of Preferred Stock).
(xv) "Securities Depository" shall mean The Depository Trust Company and
its successors and assigns or any other securities depository selected by the
Corporation which agrees to follow the procedures required to be followed by
such securities depository in connection with shares of Preferred Stock.
(xvi) "Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph 8(b)(i) below.
(xvii) "Submission Deadline" shall mean 12:30 p.m., New York City time, on
any Auction Date or such other time on any Auction Date (as specified by the
Auction Agent from time to time) by which Broker-Dealers are required to
submit Orders to the Auction Agent.
(xviii) "Submitted Bid" and "Submitted Bids" shall have the respective
meanings specified in paragraph 8(d)(i) below.
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(xix) "Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragraph 8(d)(i) below.
(xx) "Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph 8(d)(i) below.
(xxi) "Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph 8(d)(i) below.
(xxii) "Sufficient Clearing Bids" shall have the meaning specified in
paragraph 8(d)(i) below.
(xxiii) "Winning Bid Rate" shall have the meaning specified in paragraph
8(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) On or prior to the Submission Deadline on each Auction Date:
(A) each Existing Holder, with respect to shares of Preferred Stock it
then holds, may submit to a Broker-Dealer by telephone or otherwise
information as to:
(1) the number of shares, if any, of Preferred Stock held by such
Existing Holder which such Existing Holder desires to continue
to hold without regard to the Applicable Rate for the next
Dividend Period therefor:
(2) the number of shares, if any, of Preferred Stock which such
Existing Holder desires to continue to hold if the Applicable
Rate for the next Dividend Period therefor shall not be less
than the rate per annum then specified by such Existing Holder;
and/or
(3) the number of shares, if any, of Preferred Stock held by such
Existing Holder which such Existing Holder offers to sell
without regard to the Applicable Rate for the next succeeding
Dividend Period therefor; and
(B) each Broker-Dealer, using a list of Potential Holders that shall be
maintained by such Broker-Dealer in good faith for the purposes of
conducting a competitive Auction, shall contact Potential Holders on
such lists to determine the number of shares, if any, of Preferred
Stock which such Potential Holders offer to purchase if the
Applicable Rate for the next succeeding Dividend Period
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therefor shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in this paragraph 8(b) is hereinafter referred to as an "Order"
and collectively as "Orders" and each Existing Holder and each Potential
Holder placing an Order is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to
in clause (A)(1) of this paragraph 8(b) is hereinafter referred to as a "Hold
Order" and collectively as "Hold Orders"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 8(b) is
hereinafter referred to as a "Bid" and collectively as "Bids"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
8(b) is hereinafter referred to as a "Sell Order" and collectively as "Sell
Orders."
(ii) As a condition to participating in any Auction, each prospective
purchaser of shares of Preferred Stock shall be required to sign and deliver
two copies to the Auction Agent, and one copy to a Broker-Dealer, of a Master
Purchaser's Letter, in which such prospective purchaser will agree, among
other things, that:
(A) a Bid by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of shares of Preferred Stock specified in such Bid if
the Applicable Rate determined on such Auction Date shall be less than the
rate specified therein;
(2) such specified number or a lesser number of shares of Preferred
Stock to be determined as set forth in clause (D) of paragraph 8(e)(i) if
the Applicable Rate determined on such Auction Date shall be equal to the
rate specified therein; or
(3) such specified number or a lesser number of shares of Preferred
Stock to be determined as set forth in clause (C) of paragraph 8(e)(ii) if
the rate specified therein shall be higher than the Maximum Applicable
Rate and Sufficient Clearing Bids do not exist.
(B) a Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of shares of Preferred Stock specified in such Sell
Order; or
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(2) such specified number or a lesser number of shares of Preferred
Stock as set forth in clause (C) of paragraph 8(e)(ii) if Sufficient
Clearing Bids do not exist.
(C) a Bid by a Potential Holder shall constitute an irrevocable offer to
purchase:
(1) the number of shares of Preferred Stock specified in such Bid if
the Applicable Rate determined on such Auction Date shall be higher than
the rate therein: or
(2) such specified number or a lesser number of shares of Preferred
Stock as set forth in clause (E) of paragraph 8(e)(i) if the Applicable
Rate determined on such Auction Date shall be equal to the rate specified
therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer for the Auction to be conducted on such Auction Date and shall
specify with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of shares of Preferred Stock that are the subject
of such Order;
(C) to the extent that such Bidder is an Existing Holder the number of
shares, if any, of Preferred Stock subject to any:
(1) Hold Order placed by such Existing Holder;
(2) Bid placed by such Existing Holder and the rate specified in such
Bid; and
(3) Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder the rate specified in
such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
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(iii) If an Order or Orders covering all of the shares of Preferred Stock
held by any Existing Holder is not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order to have been
submitted on behalf of such Existing Holder covering the number of shares of
Preferred Stock held by such Existing Holder and not subject to Orders submitted
to the Auction Agent.
(iv) If one or more Orders covering in the aggregate more than the number
of shares of Preferred Stock held by an Existing Holder are submitted to the
Auction Agent, such Orders shall be considered valid as follows and in the
following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall be
considered valid up to and including the number of outstanding shares of
Preferred Stock held by such Existing Holder; provided that if more than one
Hold Order is submitted on behalf of such Existing Holder and the number of
shares of Preferred Stock subject to such Hold Orders exceeds the number of
shares of Preferred Stock held by such Existing Holder, the number of shares
of Preferred Stock subject to each such Hold Order shall be reduced pro rata
so that such Hold Order shall cover the number of shares of Preferred Stock
held by such Existing Holder;
(B) (1) any Bid shall be considered valid up to and including the excess
of the number of shares of Preferred Stock held by such Existing Holder
over the number of shares of Preferred Stock subject to any Hold Orders
referred to in clause (iv)(A) of paragraph 8(c);
(2) subject to subclause (1), if more than one Bid with the same rate
is submitted on behalf of such Existing Holder and the number of shares of
Preferred Stock subject to such Bids is greater than the excess described
in subclause (1), the number of shares of Preferred Stock subject to such
Bids shall be reduced pro rata so that such Bids shall cover the number of
shares of Preferred Stock equal to such excess:
(3) subject to subclause (1), if more than one Bid with different rates
is submitted on behalf of such Existing Holder, such Bids shall be
considered valid in the ascending order of their respective rates; and
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(4) the number, if any, of such shares of Preferred Stock subject to
Bids not valid under this clause (B) shall be treated as the subject of a
Bid by a Potential Holder at the rate therein specified; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of shares of Preferred Stock held by such Existing
Holder over the sum of the shares of Preferred Stock subject to valid Hold
Orders referred to in clause (iv)(A) of paragraph 8(c) and valid Bids by such
Existing Holder referred to in clause (iv)(B) of paragraph 8(c), provided
that if more than one Sell Order is submitted on behalf of any Existing
Holder and the number of shares of Preferred Stock subject to such Sell
Orders is greater than such excess, the number of shares of Preferred Stock
subject to such Sell Orders shall be reduced pro rata so that such Sell
Orders shall cover the number of shares of Preferred Stock equal to such
excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate and number of shares of
Preferred Stock therein specified.
(vi) If any rate specified in any Bid is lower than the Minimum Applicable
Rate for the Dividend Period with respect to which such Bid is made, such Bid
shall be deemed to be a Bid specifying a rate equal to such Minimum Applicable
Rate.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to as a "Submitted Hold Order," a
"Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a
"Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids"
or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and
shall determine:
(A) the excess of the total number of outstanding shares of Preferred
Stock over the number of shares of Preferred Stock that are the subject of
Submitted Hold Orders (such excess being hereinafter referred to as the
"Available Preferred Stock");
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(B) from the Submitted Orders whether the number of shares of Preferred
Stock that are the subject of Submitted Bids by Potential Holders specifying
one or more rates equal to or lower than the Maximum Applicable Rate exceeds
or is equal to the sum of:
(1) the number of shares of Preferred Stock that are the subject of
Submitted Bids by Existing Holders specifying one or more rates higher
than the Maximum Applicable Rate; and
(2) the number of shares of Preferred Stock that are subject to
Submitted Sell Orders;
in the event of such excess or such equality (other than because all of
the outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), such Submitted Bids are hereinafter referred to collectively
as "Sufficient Clearing Bids"; and
(C) if Sufficient Clearing Bids exist, the lowest rate specified in the
Submitted Bids (the "Winning Bid Rate") which if:
(1) each Submitted Bid from Existing Holders specifying such lowest
rate and all other Submitted Bids from Existing Holders specifying lower
rates were accepted, thus entitling such Existing Holders to continue to
hold the shares of Preferred Stock that are the subject of such Submitted
Bids; and
(2) each Submitted Bid from Potential Holders specifying such lowest
rate and all other Submitted Bids from Potential Holders specifying lower
rates were accepted, thus entitling those Potential Holders to purchase
the shares of Preferred Stock that are the subject of such Submitted Bids,
would result in such Existing Holders described in subclause (1) above
continuing to hold an aggregate number of shares of Preferred Stock which,
when added to the number of shares of Preferred Stock to be purchased by such
Potential Holders described in subclause (2) above, would equal not less than
the Available Preferred Stock.
(ii) Promptly after the Auction Agent has made the determination pursuant
to paragraph 8(d)(i) the Auction Agent shall advise the Corporation of the
Maximum Applicable Rate and the Minimum Applicable Rate and, based on all such
determinations, the Applicable Rate for the next succeeding Dividend Period as
follows:
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(A) if Sufficient Clearing Bids exist, that the Applicable Rate for the
next succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all of
the outstanding shares of Preferred Stock are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Maximum Applicable Rate; or
(C) if all the shares of Preferred Stock are the subject of Submitted Hold
Orders, that the Applicable Rate for Preferred Stock for the next succeeding
Dividend Period shall be equal to the Minimum Applicable Rate.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocations of Shares. Existing Holders shall continue to hold the shares
of Preferred Stock that are the subject of Submitted Hold Orders, and, based
on the determinations made pursuant to paragraph 8(d)(i), the Submitted Bids
and Submitted Sell Orders shall be accepted or rejected and the Auction Agent
shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the provisions
of paragraph 8(e)(iii), Submitted Bids and Submitted Sell Orders shall be
accepted or rejected in the following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted and
the Submitted Bid of each Existing Holder specifying any rate that is higher
than the Winning Bid Rate shall be rejected, thus requiring each such
Existing Holder to sell the shares of Preferred Stock that are the subject of
such Submitted Sell Orders or Submitted Bids:
(B) the Submitted Bid of each Existing Holder specifying any rate that is
lower than the Winning Bid Rate shall be accepted, thus entitling each such
Existing Holder to continue to hold the shares of Preferred Stock that are
the subject of such Submitted Bid:
(C) the Submitted Bid of each Potential Holder specifying any rate that is
lower than the Winning Bid Rate shall be accepted and such Potential Holder
shall purchase the number of shares of Preferred Stock subject to such
Submitted Bid;
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(D) the Submitted Bid of each Existing Holder specifying a rate that is
equal to the Winning Bid Rate shall be accepted, thus entitling such Existing
Holder to continue to hold the shares of Preferred Stock that are subject of
such Submitted Bid, unless the number of shares of Preferred Stock subject to
all such Submitted Bids shall be greater than the number of shares of
Preferred Stock equal to the excess of the Available Preferred Stock over the
number of shares of Preferred Stock subject to Submitted Bids described in
clauses (B) and (C) of this paragraph 8(e)(i) (the "Remaining Shares" ). In
such event such Existing Holder shall be required to sell shares of Preferred
Stock subject to such Submitted Bid, but only in an amount equal to the
difference between (x) the number of shares of Preferred Stock then held by
such Existing Holder subject to such Submitted Bid and (y) the number of
shares of Preferred Stock obtained by multiplying the number of Remaining
Shares by a fraction the numerator of which shall be the number of
outstanding shares of Preferred Stock held by such Existing Holder subject to
such Submitted Bid and the denominator of which shall be the sum of the
number of outstanding shares of Preferred Stock subject to such Submitted
Bids made by all such Existing Holders that specified a rate equal to the
Winning Bid Rate; and
(E) the Submitted Bid of each Potential Holder specifying a rate that is
equal to the Winning Bid Rate shall be accepted, but only in an amount equal
to the number of shares of Preferred Stock obtained by multiplying the
difference between the Available Preferred Stock and the number of shares of
Preferred Stock subject to Submitted Bids described in clauses (B), (C) and
(D) of this paragraph 8(e)(i) by a fraction the numerator of which shall be
the number of shares of Preferred Stock subject to such Submitted Bid and the
denominator of which shall be the sum of the number of shares of Preferred
Stock subject to such Submitted Bids made by all such Potential Holders that
specified a rate equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), subject to the provisions of paragraph 8(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate that is
equal to or lower than the Maximum Applicable Rate shall be accepted, thus
entitling such Existing Holders to continue to hold the shares of Preferred
Stock that are the subject of such Submitted Bid;
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(B) the Submitted Bid of each Potential Holder specifying any rate that is
equal to or lower than the Maximum Applicable Rate shall be accepted and such
Potential Holder shall purchase the number of shares of Preferred Stock
subject to such Submitted Bid; and
(C) the Submitted Bid of each Existing Holder specifying any rate that is
higher than the Maximum Applicable Rate shall be rejected, thus requiring
each such Existing Holder to sell the shares of Preferred Stock that are the
subject of such Submitted Bid, and the Submitted Sell Order of each Existing
Holder shall be accepted, in both cases only in an amount equal to the
difference between (x) the number of outstanding shares of Preferred Stock
then held by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and (y) the number of outstanding shares of Preferred Stock
obtained by multiplying the difference between the Available Preferred Stock
and the aggregate number of shares of Preferred Stock subject to Submitted
Bids described in clauses (A) and (B) of this paragraph 8(e)(ii) by a
fraction the numerator of which shall be the number of shares of Preferred
Stock held by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the aggregate number of
shares of Preferred Stock subject to all such Submitted Bids and Submitted
Sell Orders.
(iii) If, as a result of the procedures described in paragraphs 8(e)(i) or
8(e)(ii), any Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a fraction of a
share of Preferred Stock on any Auction Date, the Auction Agent shall, in such
manner as it shall determine, round up or down the number of shares of Preferred
Stock to be purchased or sold by any Existing Holder or Potential Holder on such
Auction Date so that the number of shares purchased or sold by each Existing
Holder or Potential Holder on such Auction Date shall be whole shares of
Preferred Stock, even if such allocation results in one or more of such
Potential Holders not purchasing shares of Preferred Stock on such Auction Date
or any Existing Holder not selling shares of Preferred Stock on such Auction
Date.
(iv) Based on the results of each Auction, the Auction Agent shall
determine the aggregate number of shares of Preferred Stock to be purchased and
the aggregate number of shares of Preferred Stock to be sold by Potential
Holders and Existing Holders on whose behalf each Broker-Dealer submitted Bids
or Sell Orders and, with respect to each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such aggregate number of shares
to be sold differ, determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or
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from which other Broker-Dealer or Broker-Dealers acting for one or more sellers
such Broker-Dealer shall receive, as the case may be, shares of Preferred Stock.
(f) Participation in Auctions. Neither the Corporation nor any Affiliate of
the Corporation may submit an Order in any Auction.
(g) Miscellaneous.
(i) The Board of Directors of the Corporation may interpret the provisions of
this paragraph 8 to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification which does not adversely affect
the rights of Existing Holders of Preferred Stock. If such inconsistency,
ambiguity or defect reflects an inaccurate provision hereof, the Board of
Directors may, in appropriate circumstances as permitted by law, authorize the
filing of a Certificate of Correction.
(ii) (A) An Existing Holder may sell, transfer or otherwise dispose of
shares of Preferred Stock only (1) pursuant to a Bid or a Sell Order placed
in an Auction in accordance with the procedures set forth in this paragraph
8, (2) to or through a Broker-Dealer or (3) to a Person that has delivered a
signed Master Purchaser's Letter to the Auction Agent, provided that as a
condition to such transfer (in the case of all transfers other than those
pursuant to Auctions), such Existing Holder, the transferee or the
transferee's Broker-Dealer or Agent Member of the Securities Depository shall
advise the Auction Agent of such transfer; and
(B) except as otherwise provided by law, all of the outstanding shares of
Preferred Stock shall be represented by a separate certificate or
certificates registered in the name of the nominee of the Securities
Depository, and no Person acquiring shares of Preferred Stock shall be
entitled to receive a certificate representing such shares.
(iii) The Corporation shall exercise its best efforts to maintain a
Auction Agent pursuant to an agreement containing terms not materially less
favorable to the Corporation than the terms of the Auction Agent Agreement first
entered into by the Corporation pursuant to the resolutions adopted by the Board
of Directors of the Corporation on January 27, 1988.
(iv) The Corporation shall use its best efforts to maintain a rating of
the Preferred Stock from Standard & Poor's.
47
<PAGE>
(h) Headings of Subdivisions. The headings of the various subdivisions of
this paragraph 8 are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
ARTICLE V
BOARD OF DIRECTORS
(A) All corporate powers and authority of the Corporation (except as
otherwise provided by statute, by these Articles of Incorporation or by the
Corporation's By-Laws) shall be vested in and exercised by the Board of
Directors. Except as may be required to give effect to paragraph 6(b) of Article
IV(C), the number of directors constituting the Board of Directors shall be no
less than three (3) nor more than fifteen (15), with the exact number to be
fixed pursuant to the By-Laws provided that the number of directors shall at no
time be less than the minimum number required under the Maryland General
Corporation Law or, as long as any shares of Preferred Stock are outstanding,
the Investment Company Act. The current number of directors is six (6) and the
persons who are currently acting as directors are Patricia Ostrander, Richard E.
Floor, Joseph L. Bower, Bernard J. Korman, Franco Modigliani and Ernest E.
Monrad.
At any time when the Holders of Preferred Stock of the Corporation become
entitled to elect additional directors pursuant to paragraph 6(b) of Article
IV(C), the exact number of directors fixed by the By-Laws of the Corporation or
otherwise shall automatically be increased by the number of such additional
directors and the maximum number of directors of the Corporation specified by
these Articles of Incorporation shall be increased accordingly, if required; and
at such time as the holders of Preferred Stock shall no longer be entitled to
elect directors pursuant to paragraph 6(b) of Article IV(C), such exact number
shall automatically be decreased by the number by which they were increased by
reason of this provision.
(B) In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Maryland, but subject to the other provisions of these
Articles of Incorporation, the Board of Directors is expressly authorized:
1. To make, alter or repeal the By-Laws of the Corporation, except where
such power is reserved by the By-Laws to the stockholders, and except as
otherwise required by the Investment Company Act.
2. From time to time to determine whether and to what extent and at what
times and places and under what conditions and regulations the books and
accounts of the
48
<PAGE>
Corporation, or any of them other than the stock ledger, shall be open to
the inspection of the stockholders. No stockholder shall have any right to
inspect any account or book or documents of the Corporation, except as
conferred by law or authorized by resolution of the Board of Directors or of
the stockholders.
3. Without the assent or vote of the stockholders, to authorize the
issuance from time to time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, and securities convertible
into shares of stock of the Corporation of any class or classes, whether now
or hereafter authorized, for such consideration as the Board of Directors may
deem advisable.
4. Without the assent or vote of the stockholders, to authorize and issue
obligations of the Corporation, secured and unsecured, as the Board of
Directors may determine, and to authorize and cause to be executed mortgages
and liens upon the real or personal property of the Corporation.
5. To establish the basis or method for determining the value of the
assets belonging to any class, the value of the liabilities belonging to any
class and the net asset value of each share of any class of the Corporation's
stock.
6. To determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to determine what accounting periods
shall be used by the Corporation for any purpose to the extent consistent
with the By-Laws of the Corporation; to set apart out of any funds of the
Corporation reserves for such purposes as it shall determine and to abolish
the same; to declare and pay any dividends and distributions in cash,
securities or other property from surplus or any funds legally available
therefor, at such intervals as it shall determine and by means of a formula
or other method of determination; and to establish payment dates for
dividends or any other distributions on any basis.
7. In addition to the powers and authorities granted herein and by statute
expressly conferred upon it, the Board of Directors is authorized to exercise
all powers and do all acts that may be exercised or done by the Corporation
pursuant to the provisions of the laws of the State of Maryland, these
Articles of Incorporation and the By-Laws of the Corporation.
(C) Any determination made in good faith, and in accordance with these
Articles of Incorporation and generally
49
<PAGE>
accepted accounting practices, if applicable, by or pursuant to the direction
of the Board of Directors, with respect to the amount of assets, obligations
or liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose of creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
the reserves or charges have been created has been paid or discharged or is
then or thereafter required to be paid or discharged), as to the value of any
security owned by the Corporation, the determination of the net asset value
of shares of any class of the Corporation's capital stock, or as to any other
matters relating to the issuance, sale, redemption or other acquisition or
disposition of securities or shares of capital stock of the Corporation,
shall be final and conclusive, and shall be binding upon the Corporation and
all holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall
be binding as aforesaid. No provision of these Articles of Incorporation of
the Corporation shall be effective to (i) require a waiver of compliance with
any provisions of the Securities Act of 1933, as amended, or the Investment
Company Act, or of any valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect or purport to protect
any director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(D) Each Director of the Corporation shall be indemnified by the Corporation
to the full extent permitted by the Corporation's By-Laws and by the General
Laws of the State of Maryland (including, but not limited to, S.2-418 of the
Maryland General Corporation Law as in effect as of the date hereof or as
amended and in effect from time to time) subject to applicable requirements of
the Investment Company Act of 1940.
ARTICLE VI
AMENDMENTS; CLASS VOTING
(A) The Corporation reserves the right from time to time to amend, alter,
change or repeal any provision contained in these Articles of Incorporation, now
or hereafter authorized by
50
<PAGE>
law, including any amendment that alters the contract rights, as expressly
set forth in these Articles of Incorporation, of any outstanding stock. Any
amendment to these Articles of Incorporation shall be adopted at either an
annual or special meeting of the stockholders pursuant to affirmative vote of
a majority of all of the outstanding shares of the Company's capital stock,
voting as a single class, except as provided below.
(B) As long as any shares of Preferred Stock are outstanding (i) the
Corporation may not be voluntarily liquidated, dissolved, wound up, merged or
consolidated, or converted to open-end status, and may not sell all or
substantially all of its assets, without the approval of at least a majority of
the outstanding shares of Preferred Stock and a majority of the outstanding
shares of Common Stock, each voting as a separate class; (ii) the adoption of
any plan of reorganization adversely affecting either the Preferred Stock or the
Common Stock shall require the separate approval of a majority of the
outstanding shares of such class; (iii) any action requiring a vote of security
holders under Section 13(a) of the Investment Company Act including, among other
things, changes in the Corporation's sub-classification as a closed-end
investment company, changes in its investment objective or changes in any
fundamental investment policy, shall require the approval of at least a majority
of the outstanding shares of Preferred Stock and a majority of the outstanding
shares of Common Stock, each voting as a separate class; (iv) the approval of a
majority of the outstanding shares of Preferred Stock, voting separately as a
class, shall be required to amend, alter or repeal any of the preferences,
rights or powers, or increase the number of Preferred Shares authorized to be
issued or decrease the number of Preferred Shares authorized to be issued; (v)
the holders of the Preferred Stock and the Common Stock shall vote as separate
classes in connection with the election of directors as provided in paragraph 6
of Article IV(C); and (vi) the Common Stock and the Preferred Stock will vote as
separate classes to the extent otherwise required under Maryland law or the
Investment Company Act. To the extent required under the Investment Company Act,
any action by the stockholders of the Corporation shall require a Vote of a
Majority of the Outstanding Voting Securities.
FOURTH: By written informal action taken by the Board of Directors of the
Corporation pursuant to and in accordance with Section 2-408(c) of the
Corporations and Associations Article of the Annotated Code of Maryland, the
Board of Directors of the Corporation duly advised the foregoing Articles of
Amendment and Restatement, and by written informal action unanimously taken by
the stockholder of the Corporation in accordance with Section 2-505 of the
Corporations and Associations Article of the Annotated Code of Maryland, the
stockholder of the Corporation duly approved said Articles of Amendment and
Restatement.
51
<PAGE>
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC., has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunder affixed and attested by its Secretary on this
l9th day of February, 1988, and its President acknowledges that these Articles
of Amendment and Restatement are the act and deed of The New America High Income
Fund, Inc., and, under the penalties of perjury, that the matters and facts set
forth herein with respect to authorization and approval are true in all material
respects to the best of her knowledge, information and belief.
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Patricia Ostrander
Patricia Ostrander, President
ATTEST:
/s/ Richard E. Floor
Richard E. Floor, Secretary
VS-0976/d
52
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
First Certificate of Change of Definitions
set forth in Articles of Amendment
and Restatement dated as of February 19, 1988
WITNESSETH
WHEREAS, the Articles of Amendment and Restatement dated as of February 19,
1988 (the "Articles") of The New America High Income Fund, Inc. (the
"Corporation") provide for changes in certain definitions set forth in
Article IV(C), paragraph 1 thereof without amending the Articles provided the
Board of Directors of the Corporation determines, and the Rating Agency
advises the Corporation in writing, that such change will not adversely
affect the Rating Agency's then current rating for the Corporations Taxable
Auction Rate Preferred Stock, no par value (the "Preferred Stock"); and
WHEREAS, the Board of Directors of the Corporation has determined and the
Rating Agency has advised the Corporation in writing that the changes set
forth below, adopted for the purpose of expanding the types of commercial
paper eligible for inclusion in the discounted value of the Corporation's
portfolio, will not have such an effect.
NOW THEREFORE, the following changes to the Articles are hereby adopted,
effective as of the date hereof.
ARTICLE I
Changes to Articles
1.01 Definition of Eligible Portfolio Property.
The definition of Eligible Portfolio Property set forth in Article IV(C),
paragraph 1 of the Articles is hereby changed in its entirety to provide as
follows:
"Eligible Portfolio Property" means Corporate Bonds (including without
limitation commercial paper rated at the time of the Corporation's investment
therein at least A-2 but lower than A-1+ by the Rating Agency), Cash, U.S.
Government Obligations, Short Term Money Market Instruments, FNMA
Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA
Certificates, GNMA Multifamily Securities, GNMA Graduated
<PAGE>
Payment Securities and Conventional Mortgage Pass-Through Certificates.
Without amending these Articles of Incorporation, other assets may be
specified as Eligible Portfolio Property if the Board of Directors of the
Corporation determines and the Rating Agency advises the Corporation in
writing that the specification will not adversely affect its then-current
rating of the Preferred Stock.
1.02 Definition of Corporate Bonds.
The definition of Corporate Bonds set forth in Article IV(C), paragraph 1 of
the Articles is hereby changed in its entirety to provide as follows:
"Corporate Bonds" means corporate debt obligations (other than Short Term
Money Market Instruments or U.S. Government Obligations) rated from CCC to
AAA by Standard & Poor's (or rated as provided below in the case of
commercial paper), which corporate debt obligations (a) provide for the
periodic payment of interest thereon in cash, (b) do not provide for
conversion or exchange into equity capital at any time over their respective
lives, (c) have been registered under the Securities Act of 1933, as amended
(such requirement shall not apply with respect to commercial paper), and (d)
have not had notice given in respect thereof that any such corporate debt
obligations are the subject of an offer by the issuer thereof of exchange or
tender for cash, securities or any other type of consideration (except that
corporate debt obligations in an amount not exceeding 10% of the aggregate
value of the Corporation's assets at any time shall not be subject to the
provision so of this clause (d)). In addition, no corporate debt obligation
held by the Corporation shall be deemed a Corporate Bond (i) if it fails to
meet the criteria in column (1) below or (ii) to the extent (and only to the
proportionate extent) the acquisition or holding thereof by the Corporation
causes the Corporation to exceed any applicable limitation set forth in
column (2) or (3) below as of any relevant date of determination (provided
that in the event that the Corporation shall exceed any such limitation or
any other percentage limitation set forth in this definition of Corporate
Bonds, the Corporation shall designate, in its sold discretion, the
particular Corporate Bond(s) and/or portions thereof which shall be deemed to
have caused the Corporation to exceed such limitation):
<PAGE>
<TABLE>
<CAPTION>
Column (1) Column (2) Column (3)
---------------- ----------------- -------------------
Maximum
Maximum Percent of Value
Percent of Value of Corporation
of Corporation Assets, Including
Assets, Including Eligible Port-
Eligible Port- folio Property,
Minimum Original folio Property, Invested in any
Standard & Poor's Issue Size of Invested in any One Industry
Rating (1) Each Issue One Issuer (2) Category (2)
- ---------------------------------- ---------------- ----------------- -------------------
($ in millions)
<S> <C> <C> <C>
AAA $100 10.0% 50.0%
AA 100 10.0 33.3
A 100 10.0 33.3
BBB 100 5.0 20.0
BB 100(4) 4.0 12.0
B 100(4) 3.0 8.0
CCC (3) 100(4) 3.0 8.0
At least A-1 but lower than A-1+
(5) NA 10.0 33.3
At least A-2 but lower than A-1
(5) NA 5.0 25.0
</TABLE>
(1) Rating designations include (+) or (-) modifiers to the Standard & Poor's
rating where appropriate except that corporate debt obligations rated
CCC- shall not constitute Corporate Bonds.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category, except that the
calculations with respect to commercial paper investments constituting
Corporate Bonds shall be made separately and independently of but on the
same basis as the cumulative total guidelines applicable to other types
of Corporate Bonds.
(3) Corporate debt obligations in this rating category must be subordinated
debt of the issuer to constitute Corporate Bonds and the aggregate value
of corporate debt obligations in this rating category in excess of 20% of
the aggregate value of the Corporation's assets, including Eligible
Portfolio Property, shall not be deemed within the definition of
Corporate Bonds.
<PAGE>
(4) 20% of the aggregate value of all Corporate Bonds in these rating
categories may be from issues with an original issue size of greater than
or equal to $50 million and less than $100 million.
(5) Represents commercial paper investments.
Without amending these Articles of Incorporation, the assets (and/or the
characteristics thereof) included within the definition of Corporate Bonds
for purposes of determining compliance with the Basic Maintenance Amount may
be changed to encompass other assets constituting, and/or other
characteristics of, corporate debt obligations from those set forth in these
Articles of Incorporation if the Board of Directors of the Corporation
determines and the Rating Agency advises the Corporation in writing that the
change will not adversely affect its then-current rating of the Preferred
Stock.
1.03 Definition of Discount Factor.
The definition of Discount Factor set forth in Article IV(C), paragraph 1 of
the Articles is hereby changed in its entirety to provide as follows:
"Discount Factor" means, for any asset held by the Corporation, the number
set forth opposite each such type of asset in the following table (it being
understood that any asset held by the Corporation and not listed in the
following table or in an amendment thereof shall have a Discounted Value of
zero):
<TABLE>
<CAPTION>
Type of Eligible Portfolio Property Discount Factor
- ---------------------------------------------------- ------------------
<S> <C>
Type I Corporate Bonds: 1.50
Type II Corporate Bonds: 1.55
Type III Corporate Bonds: 1.60
Type IV Corporate Bonds: 1.65
Type V Corporate Bonds: 1.70
Type VI Corporate Bonds: 1.80
Type VII Corporate Bonds: 1.90
Type VIII Corporate Bonds: 2.05
Type IX Corporate Bonds: 2.20
GNMA Certificates with fixed interest rates: 1.35
GNMA Certificates with adjustable interest rates: 1.54
FHLMC and FNMA Certificates with fixed interest
rates: 1.45
FHLMC and FNMA Certificates with adjustable interest
rates: 1.58
<PAGE>
FHLMC Multifamily Securities: 1.65
FHLMC and FNMA Certificates with variable interest
rates (1):
GNMA Multifamily Securities (1):
GNMA Graduated Payment Securities (2): 1.55
Conventional Mortgage Pass-Through Certificates (1):
U.S. Government Obligations having a remaining term
to maturity of 90 days or less: 1.00
U.S. Government Obligations having a remaining term
to maturity of more than 90 days but not more than
five years: 1.28
U.S. Government Obligations having a remaining term
to maturity of more than five years but not more
than 10 years: 1.35
U.S. Government Obligations having a remaining term
to maturity of more than 10 years but not more
than 15 years: 1.45
U.S. Government Obligations having a remaining term
to maturity of more than 15 years but not more
than 30 years: 1.50
Cash and Short Term Money Market Instruments 1.00
Commercial paper having a rating of at least A-1 but
lower than A-1+ from the Rating Agency at the time
of the Corporation's investment therein: 1.60
Commercial paper having a rating of at least A-2 but
lower than A-1 from the Rating Agency at the time
of the Corporation's investment therein: 1.65
</TABLE>
(1) The Discount Factor determined therefor in writing by the Rating Agency.
(2) A Discount Factor of 1.55 applies in the case of GNMA Graduated Payment
Securities as to which the Fund notifies the Auction Agent that scheduled
principal payments are being made to holders; in the case of GNMA
Graduated Payment Securities as to which the Fund notifies the Auction
Agent that scheduled principal payments are not being made to holders,
the Discount Factor shall be that which is determined in writing by the
Rating Agency.
<PAGE>
Without amending these Articles of Incorporation, the Discount Factor applied
to determine the Discounted Value of any item of Eligible Portfolio Property
may be changed from that set forth in these Articles of Incorporation or a
Discount Factor may be specified for any asset constituting Eligible
Portfolio Property if the Board of Directors of the Corporation determines
and the Rating Agency advises the Corporation in writing that the change or
specification will not adversely affect its then-current rating of the
Preferred Stock.
ARTICLE II
Miscellaneous Provisions
2.01 Articles. Except as hereby expressly changed, the Articles are in all
respects ratified and confirmed and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
2.02 Terms Defined. For all purposes of this Certificate of Change of
Definitions, except as otherwise defined or unless the context otherwise
requires, terms used in capitalized form herein and defined in the Articles
have the meanings specified in the Articles.
2.03 Italics. Where partial changes of definitions contained in the Articles
have been made in Article I hereof, the deleted wording appears in brackets
and the amended wording appears underscored. Such device is merely for
convenience and denotes no special emphasis or meaning.
<PAGE>
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunder affixed and attested by its Secretary on this
8th day of March, 1988, and its President acknowledges that these presents
are the act and deed of The New America High Income Fund, Inc., and, under
the penalties of perjury, that the matters and facts set forth herein with
respect to authorization and approval are true in all material respects to
the best of her knowledge, information and belief.
THE NEW AMERICA HIGH INCOME FUND, INC.
SEAL By: /s/ Patricia Ostrander
-----------------------
Patricia Ostrander, President
ATTEST:
/s/ Richard E. Floor
- --------------------
Richard E. Floor, Secretary
VS-1810/m
3/8/88
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
Second Certificate of Change of Definitions
set forth in Articles of Amendment
and Restatement dated as of February 19, 1988
WITNESSETH
WHEREAS, the Articles of Amendment and Restatement dated as of February 19,
1988, as heretofore changed (the "Articles"), of The New America High Income
Fund, Inc. (the "Corporation") provide for changes in certain definitions set
forth in Article IV(C), paragraph 2 thereof without amending the Articles
provided the Board of Directors of the Corporation determines, and the Rating
Agency advises the Corporation in writing, that such change will not
adversely affect the Rating Agency's then current rating for the
Corporation's Taxable Auction Rate Preferred Stock, no par value, liquidation
preference $100,000 per share (the "Preferred Stock"); and
WHEREAS, the Board of Directors of the Corporation has determined and the
Rating Agency has advised the Corporation in writing that the changes set
forth below, adopted in connection with the issuance of a surety bond (the
"Bond") with respect to the Preferred Stock by Financial Security Assurance
Inc. ("Financial Security"), will not have such an effect.
NOW THEREFORE, the following changes to the Articles are hereby adopted,
effective as of the date hereof.
ARTICLE I
Changes to Articles
1.01 Definition of Corporate Bonds.
Until such time as (i) Financial Security's claims-paying ability shall have
a rating of less than "AA+" from the Rating Agency and less than "Aa1" from
Moody's Investors Service, Inc. ("Moody's"), (ii) the Bond and related
arrangements with Financial Security shall have terminated for any reason, or
(iii) the Articles shall be further amended or changed (a "Termination
Event"), the definition of Corporate Bonds set
<PAGE>
forth in Article IV(C), paragraph 2 of the Articles shall be deemed to
provide in its entirety as follows:
"Corporate Bonds" means (a) Unrated Private Corporate Bonds (as defined
below), (b) corporate debt obligations (other than Short Term Money Market
Instruments, [or] U.S. Government Obligations and debt obligations of the
type specified in clause (a) or (c) of this paragraph) rated from CCC to AAA
by Standard & Poor's and/or from B3 to Aaa by Moody's (or rated as provided
below in the case of commercial paper), which corporate debt obligations
[(a)] (i) provide for the periodic payment of interest thereon in cash, [(b)]
(ii) do not provide for conversion or exchange into equity capital at any
time over their respective lives, [(c)] (iii) have been registered under the
Securities Act of 1933, as amended (the "Securities Act" (such requirement
shall not apply with respect to commercial paper), and [(d)] (iv) have not
had notice given in respect thereof that any such corporate debt obligations
are the subject of an offer by the issuer thereof of exchange or tender for
cash, securities or any other type of consideration (except that corporate
debt obligations including Unrated Private Corporate Bonds in an amount not
exceeding 10% of the aggregate value of the Corporation's assets at any time
shall not be subject to the provisions of this clause [(d)] (iv)) and (c)
securities issued by the International Bank for Reconstruction and
Development meeting the requirements of clauses (b)(i), (b)(ii) and (b)(iv)
above. In addition, no corporate debt obligation held by the Corporation
shall be deemed a Corporate Bond (i) if it fails to meet the criteria in
column (1) below or (ii) to the extent (and only to the proportionate extent)
the acquisition or holding thereof by the Corporation causes the Corporation
to exceed any applicable limitation set forth in column (2) or (3) below as
of any relevant date of determination (provided that in the event that the
Corporation shall exceed any such limitation or any other percentage
limitation set forth in this definition of Corporate Bonds, the Corporation
shall designate, in its sole discretion, the particular Corporate Bond(s)
and/or portions thereof which shall be deemed to have caused the Corporation
to exceed such limitation):
<PAGE>
<TABLE>
<CAPTION>
Column (1) Column (2) Column (3)
---------------- ----------------- -------------------
Maximum
Maximum Percent of Value
Percent of Value of Corporation
of Corporation Assets, Including
Assets, Including Eligible Port-
Eligible Port- folio Property,
Minimum Original folio Property, Invested in any
Standard & Poor's/ Issue Size of Invested in any One Industry
Moody's Rating (1) (6) Each Issue One Issuer (2) Category (2)
- -------------------------------------------- ---------------- ----------------- -------------------
($ in millions)
<S> <C> <C> <C>
AAA/Aaa $100 10.0% 50.0%
AA/Aa 100 10.0 33.3
A/A 100 10.0 33.3
BBB/Baa 100 5.0 20.0
BB/Ba 100(4) 4.0 12.0
B/B1 or B2 100(4) 3.0 8.0
CCC (3)/B3 100(4) 3.0 8.0
Unrated Private Corporate Bonds 50(7) 3.0 8.0
-------------- --------------- -----------------
At least A-1 but lower than A-1+/P2 (5) NA 10.0 33.3
A-2/P2 (5) [At least A-2 but lower than A-1] NA 5.0 25.0
</TABLE>
(1) Rating designations include (+) or (-) modifiers to the Standard & Poor's
rating and (1), (2) or (3) modifiers to the Moody's rating where
appropriate except that corporate debt obligations rated CCC- by Standard
& Poor's shall not constitute Corporate Bonds.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category, except that the
calculations with respect to commercial paper investments constituting
Corporate Bonds shall be made separately and independently of but on the
same basis as the cumulative total guidelines applicable to other types
of Corporate Bonds.
(3) Corporate debt obligations in this rating category that are rated by
Standard & Poor's must be subordinated debt of the issuer to constitute
Corporate Bonds and the aggregate value of corporate debt obligations in
this rating category in excess of 20% of the aggregate value of the
Corporation's assets, including Eligible Portfolio Property, shall not be
deemed within the definition of Corporate Bonds.
<PAGE>
(4) 20% of the aggregate value of all Corporate Bonds in these rating
categories may be from issues with an original issue size of greater than
or equal to $50 million and less than $100 million.
(5) Represents commercial paper investments. Commercial paper rated A-1+
shall not be subject to the above table notwithstanding any Moody's
rating.
(6) For purposes of applying the tests in the table, Corporate Bonds shall be
deemed rated by Standard & Poor's only, except for Corporate Bonds rated
only by Moody's, for which the Moody's rating shall be used in applying
the standards in the table above with respect to such Corporate Bonds.
(7) Unrated Private Corporate Bonds may not constitute more than 22-1/2% of
the aggregate value of the Corporation's Eligible Portfolio Property. Not
more than 55.6% of the aggregate value of the Corporation's Unrated
Private Corporate Bonds may be from issues with an original issue size of
$50 million or more but less than $100 million, provided that not more
than 27.8% of the aggregate value of the Corporation's Unrated Private
Corporate Bonds may be from issues with an original issue size of $50
million or more but less than $75 million.
For purposes hereof (and as part of this definition of Corporate Bonds),
"Unrated Private Corporate Bond" shall mean any corporate debt obligation
(other than Short-Term Money Market Instruments, U.S. Government Obligations,
commercial paper, Corporate Bonds of the type specified in clause (b) of the
first paragraph of this definition of Corporate Bonds and corporate debt
obligations rated lower than CCC by Standard & Poor's and lower than B3 by
Moody's (or, if rated by only one of such agencies, by the applicable
agency)), which corporate debt obligation (a) was issued by a Person whose
financial statements were the subject of an opinion prepared by a nationally
recognized independent public accounting firm at the time of purchase of the
applicable corporate debt obligation; (b) has been registered under the
Securities Act or, if a security exempt from registration under Section 3 of
the Securities Act or a security issued in a transaction exempt from the
registration requirements of Section 5 of the Securities Act, is not a
Restricted Security (as hereinafter defined) in the hands of the Corporation,
as of the relevant date of determination, as applicable; (c) is an
interest-paying obligation which provides for the regularly scheduled payment
of interest thereon and the payment of principal on a stated dated or dates
in cash; and (d) does not provide for conversion
<PAGE>
or exchange into equity capital at any time over its life. Notwithstanding
the foregoing, any corporate debt obligation (or portion thereof, if
applicable) otherwise within the provisions of the preceding sentence shall
not be deemed an Unrated Private Corporate Bond if (and, if applicable, only
to the extent that) (i) as of the relevant date of determination (A) it has
an unpaid principal balance of less than $100,000; (B) it has had notice
given to the holders thereof which has not expired or been rescinded (of
which notice the Corporation shall have reasonable knowledge) that such
corporate debt obligation is the subject of an offer by the issuer of such
corporate debt obligation of exchange or tender for cash, securities or any
other type of consideration (except that corporate debt obligations in an
amount not exceeding 10% of the aggregate value of the Corporation's assets
(including Corporate Bonds of the type specified in clause (b) of the first
paragraph of this definition) shall not be subject to the provisions of this
clause (B)); (C) to the reasonable knowledge of the Corporation, the
Corporation owns, directly or indirectly, more than 10% of the aggregate
principal amount of the issue of which such corporate debt obligation is a
part at the time outstanding; and (D) to the reasonable knowledge of the
Corporation, such corporate debt obligation is in default under the terms of
its governing instruments; and (ii) at the time of purchase, the Corporation
owned, directly or indirectly, more than 10% of the aggregate principal
amount of the issue of which such corporate debt obligation is a part. In the
event that the Corporation shall exceed any percentage limitation set forth
in this definition of Unrated Private Corporate Bonds, the Corporation shall
designate, in its sole discretion, the particular Unrated Private Corporate
Bond(s) and/or portions thereof which shall be deemed to have caused the
Corporation to exceed such limitation and therefore shall not be deemed
within the definition of Corporate Bonds. For purposes hereof (and as part of
this definition of Corporate Bonds), a "Restricted Security" is a corporate
debt obligation which (1) is a "restricted security" as defined in Rule
144(a)(3) under the Securities Act or any successor rule, law or
interpretation; provided, however, that such meaning shall not apply with
respect to any corporate debt obligation if there exists Registration Rights
(as hereinafter defined) with respect to the issue of which such corporate
debt obligation is a part or (2) is subject to any further material condition
to, or restriction on, the ability of the Corporation to sell, assign,
transfer or otherwise liquidate such corporate debt obligation in a
commercially reasonable time and manner or which would otherwise materially
deprive the Corporation of the benefits of such corporate debt obligation
intended to be provided hereunder; provided, however, that, notwithstanding
the foregoing limitations, any requirement of registration or qualification
applicable with respect to a corporate debt obligation pursuant to federal
and any applicable state or other securities laws and any requirement of
delivery of any
<PAGE>
certificate, consent, agreement, approval, opinion of counsel, notice or any
other document of any Person reasonably necessary or appropriate in
connection with the sale of such corporate debt obligation pursuant to any
exemption from registration or qualification under federal and any applicable
state or other securities laws and/or the registration or qualification of
such corporate debt obligation under such federal and applicable state or
other securities laws and the delivery of any certificate or other document
usual or customary in connection with the transfer or registration of
transfer of securities shall not be deemed to cause such corporate debt
obligation to be deemed a "Restricted Security" under the foregoing clause
(2). For purposes hereof (and as part of this definition of Corporate Bonds),
"Registration Rights" means a right in favor of the holders of a majority or
less than a majority of the principal amount of securities of a particular
issue of securities to request registration of such securities under the
Securities Act and an obligation of the issuer of such securities (subject to
customary limitations relating to the amount sold, market conditions and the
like) under the Securities Act within a specified period of time not to
exceed 12 months either from the date of issuance of such securities or the
date of such request, or the right of the Corporation to include securities
held by it in a registration initiated by the issuer or others.
Without amending these Articles of Incorporation, the assets (and/or the
characteristics thereof) included within the definition of Corporate Bonds
for purposes of determining compliance with the Basic Maintenance Amount may
be changed to encompass other assets constituting, and/or other
characteristics of, corporate debt obligations from those set forth in these
Articles of Incorporation if the Board of Directors of the Corporation
determines and the Rating Agency advises the Corporation in writing that the
change will not adversely affect its then-current rating of the Preferred
Stock.
* * *
(b) From and after any Termination Event, the definition of Corporate Bonds
shall revert to and mean the definition of Corporate Bonds set forth in
Article IV(C), paragraph 2 of the Articles immediately prior to the date
hereof, the terms of which provide in their entirety as follows:
"Corporate Bonds" means corporate debt obligations (other than Short Term
Money Market Instruments or U.S. Government Obligations) rated from CCC to
AAA by Standard & Poor's (or rated as provided below in the case of
commercial paper), which corporate debt obligations (a) provide for the
periodic payment of interest thereon in cash, (b) do not provide for
conversion or exchange into equity capital at any time over their respective
lives, (c) have been registered under the Securities Act of 1933, as amended
(such requirement shall not apply with
<PAGE>
respect to commercial paper), and (d) have not had notice given in respect
thereof that any such corporate debt obligations are the subject of an offer
by the issuer thereof of exchange or tender for cash, securities or any other
type of consideration (except that corporate debt obligations in an amount
not exceeding 10% of the aggregate value of the Corporation's assets at any
time shall not be subject to the provisions of this clause (d)). In addition,
no corporate debt obligation held by the Corporation shall be deemed a
Corporate Bond (i) if it fails to meet the criteria in column (1) below or
(ii) to the extent (and only to the proportionate extent) the acquisition or
holding thereof by the Corporation causes the Corporation to exceed any
applicable limitation set forth in column (2) or (3) below as of any relevant
date of determination (provided that in the event that the Corporation shall
exceed any such limitation or any other percentage limitation set forth in
this definition of Corporate Bonds, the Corporation shall designate, in its
sole discretion, the particular Corporate Bond(s) and/or portions thereof
which shall be deemed to have caused the Corporation to exceed such
limitation):
<TABLE>
<CAPTION>
Column (1) Column (2) Column (3)
---------------- ----------------- -------------------
Maximum
Maximum Percent of Value
Percent of Value of Corporation
of Corporation Assets, Including
Assets, Including Eligible Port-
Eligible Port- folio Property,
Minimum Original folio Property, Invested in any
Standard & Poor's Issue Size of Invested in any One Industry
Rating (1) Each Issue One Issuer (2) Category (2)
- ----------------------------------- ---------------- ----------------- -------------------
($ in millions)
<S> <C> <C> <C>
AAA $100 10.0% 50.0%
AA 100 10.0 33.3
A 100 10.0 33.3
BBB 100 5.0 20.0
BB 100(4) 4.0 12.0
B 100(4) 3.0 8.0
CCC (3) 100(4) 3.0 8.0
At least A-1 but lower than A-1+
(5) NA 10.0 33.3
At least A-2 but lower than A-1 (5) NA 5.0 25.0
</TABLE>
(1) Rating designations include (+) or (-) modifiers to the Standard & Poor's
rating where appropriate except that corporate debt obligations rated
CCC- shall not constitute Corporate Bonds.
<PAGE>
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category, except that the
calculations with respect to commercial paper investments constituting
Corporate Bonds shall be made separately and independently of but on the
same basis as the cumulative total guidelines applicable to other types
of Corporate Bonds.
(3) Corporate debt obligations in this rating category must be subordinated
debt of the issuer to constitute Corporate Bonds and the aggregate value
of corporate debt obligations in this rating category in excess of 20% of
the aggregate value of the Corporation's assets, including Eligible
Portfolio Property, shall not be deemed within the definition of
Corporate Bonds.
(4) 20% of the aggregate value of all Corporate Bonds in these rating
categories may be from issues with an original issue size of greater than
or equal to $50 million and less than $100 million.
(5) Represents commercial paper investments.
Without amending these Articles of Incorporation, the assets (and/or the
characteristics thereof) included within the definition of Corporate Bonds
for purposes of determining compliance with the Basic Maintenance Amount may
be changed to encompass other assets constituting, and/or other
characteristics of, corporate debt obligations from those set forth in these
Articles of Incorporation if the Board of Directors of the Corporation
determines and the Rating Agency advises the Corporation in writing that the
change will not adversely affect its then-current rating of the Preferred
Stock.
1.02 Definition of Discount Factor.
(a) Until the occurrence of a Termination Event, the definition of Discount
Factor set forth in Article IV(C), paragraph 2 of the Articles shall be
deemed to provide in its entirety as follows:
"Discount Factor" means, for any asset held by the Corporation, the number
set forth opposite each such type of asset in the following table in column
(a); provided, however, that the "Discount Factor" for any asset held by the
Corporation shall be the number set forth opposite each such type of asset in
the following table in column (b) upon receipt by the Corporation of written
notice from Financial Security to such effect until such time as the
Corporation shall have received a further written notice from Financial
Security to the effect that the Discount Factors in column (a) shall again
apply (provided that, if any such notice is received on a
<PAGE>
Valuation Date, the applicable change shall apply as of such Valuation Date)
(it being understood that any asset held by the Corporation and not listed in
the following table or in an amendment thereof shall have a Discounted Value
of zero):
<TABLE>
<CAPTION>
Type of Eligible Portfolio Property (3) Discount Factor
- ----------------------------------------------------------- ----------------
(a) (b)
--- -----------
<S> <C> <C>
Type I Corporate Bonds/ Corporate Bonds rated Aaa by
Moody's: 1.13 [1.50]
Type II Corporate Bonds/Corporate Bonds rated Aa1 to Aa3 by
Moody's: 1.16 [1.55]
Type III Corporate Bonds/Corporate Bonds rated A1 to A3 by
Moody's: 1.20 [1.60]
Type IV Corporate Bonds/Corporate Bonds rated Baa1 to Baa3
by Moody's: 1.24 [1.65]
Type V Corporate Bonds/Corporate Bonds rated Ba1 to Ba3 by
Moody's: 1.28 [1.70]
Type VI Corporate Bonds/Corporate Bonds rated B1 to B2 by
Moody's: 1.35 [1.80]
Type VII Corporate Bonds/Corporate Bonds rated B3 by
Moody's: 1.43 [1.90]
Type VIII Corporate Bonds: 1.54 [2.05]
Type IX Corporate Bonds: 1.65 [2.20]
Unrated Private Corporate Bonds: 1.69 (4)
GNMA Certificates with fixed interest rates: 1.01 [1.35]
GNMA Certificates with adjustable interest rates: 1.16 [1.54]
FHLMC and FNMA Certificates with fixed interest rates: 1.09 [1.45]
FHLMC and FNMA Certificates with adjustable interest rates: 1.19 [1.58]
FHLMC Multifamily Securities: 1.24 [1.65]
FHLMC and FNMA Certificates with variable interest rates
(1):
GNMA Multifamily Securities (1):
GNMA Graduated Payment Securities (2): 1.16 [1.55]
Conventional Mortgage Pass-Through Certificates (1):
U.S. Government Obligations having a remaining term to
maturity of 90 days or less: 1.00 [1.00]
U.S. Government Obligations having a remaining term to
maturity of more than 90 days but not more than five
years: 1.00 [1.28]
U.S. Government Obligations having a remaining term to
maturity of more than five years but not more than 10
years: 1.01 [1.35]
<PAGE>
U.S. Government Obligations having a remaining term to
maturity of more than 10 years but not more than 15
years: 1.09 [1.45]
U.S. Government Obligations having a remaining term to
maturity of more than 15 years but not more than 30
years: 1.13 [1.50]
Cash and Short Term Money Market Instruments: 1.00 [1.00]
Commercial paper having a rating of at least A-1 but lower
than A-1+ from the Rating Agency or P1 from Moody's at
the time of the Corporation's investment therein: 1.20 [1.60]
Commercial paper having a rating of at least A-2 but lower
than A-1 from the Rating Agency or P2 from Moody's at the
time of the Corporation's investment therein: 1.24 [1.65]
</TABLE>
(1) The Discount Factor determined therefor in writing by the Rating Agency.
(2) A Discount Factor of 1.55 applies in the case of GNMA Graduated Payment
Securities as to which the Fund notifies the Auction Agent that scheduled
principal payments are being made to holders; in the case of GNMA
Graduated Payment Securities as to which the Fund notifies the Auction
Agent that scheduled principal payments are not being made to holders,
the Discount Factor shall be that which is determined in writing by the
Rating Agency.
(3) For Purposes of the above table, any instrument rated by both Standard &
Poor's and Moody's shall be deemed rated by Standard & Poor's only. The
discount factor for any instrument rated by Moody's but not by Standard &
Poor's shall be determined with reference to the Moody's rating in
accordance with the above table. All discount factors shall be based on
the applicable rating as of the relevant date of determination.
(4) Unrated Private Corporate Bonds from issues with an original issue size
of $50 million or more but less than $75 million shall have a Discount
Factor of 2.60; Unrated Private Corporate Bonds from issues with an
original issue size of $75 million or more but less than $100 million
shall have a Discount Factor of 2.50; and all other Unrated Private
Corporate Bonds shall have a Discount Factor or 2.25.
<PAGE>
Without amending these Articles of Incorporation, the Discount Factor applied
to determine the Discounted Value of any item of Eligible Portfolio Property
may be changed from that set forth in these Articles of Incorporation or a
Discount Factor may be specified for any asset constituting Eligible
Portfolio Property if the Board of Directors of the Corporation determines
and the Rating Agency advises the Corporation in writing that the change or
specification will not adversely affect its then-current rating of the
Preferred Stock.
* * *
(b) From and after any Termination Event, the definition of Discount Factor
shall revert to and mean the definition of Discount Factor set forth in
Article IV(C), paragraph 2 of the Articles immediately prior to the date
hereof, the terms of which provide in their entirety as follows:
"Discount Factor" means, for any asset held by the Corporation, the number
set forth opposite each such type of asset in the following table (it being
understood that any asset held by the Corporation and not listed in the
following table or in an amendment thereof shall have a Discounted Value of
zero):
<TABLE>
<CAPTION>
Type of Eligible Portfolio Property Discount Factor
------------------------------------------------------- ------------------
<S> <C>
Type I Corporate Bonds: 1.50
Type II Corporate Bonds: 1.55
Type III Corporate Bonds: 1.60
Type IV Corporate Bonds: 1.65
Type V Corporate Bonds: 1.70
Type VI Corporate Bonds: 1.80
Type VII Corporate Bonds: 1.90
Type VIII Corporate Bonds: 2.05
Type IX Corporate Bonds: 2.20
GNMA Certificates with fixed interest rates: 1.35
GNMA Certificates with adjustable interest rates: 1.54
FHLMC and FNMA Certificates with fixed interest rates: 1.45
FHLMC and FNMA Certificates with adjustable interest
rates: 1.58
FHLMC Multifamily Securities: 1.65
FHLMC and FNMA Certificates with variable interest
rates (1):
GNMA Multifamily Securities (1):
GNMA Graduated Payment Securites (2): 1.55
Conventional Mortgage Pass-Through Certificates (1):
U.S. Government Obligations having a remaining term to
maturity of 90 days or less: 1.00
<PAGE>
U.S. Government Obligations having a remaining term to
maturity of more than 90 days but not more than five
years: 1.28
U.S. Government Obligations having a remaining term to
maturity of more than five years but not more than 10
years: 1.35
U.S. Government Obligations having a remaining term to
maturity of more than 10 years but not more than 15
years: 1.45
U.S. Government Obligations having a remaining term to
maturity of more than 15 years but not more than 30
years: 1.50
Cash and Short Term Money Market Instruments 1.00
Commercial paper having a rating of at least A-1 but
lower than A-1+ from the Rating Agency at the time of
the Corporation's investment therein: 1.60
Commercial paper having a rating of at least A-2 but
lower than A-1 from the Rating Agency at the time of
the Corporation's investment therein: 1.65
</TABLE>
(1) The Discount Factor determined therefor in writing by the Rating Agency.
(2) A Discount Factor of 1.55 applies in the case of GNMA Graduated Payment
Securities as to which the Fund notifies the Auction Agent that scheduled
principal payments are being made to holders; in the case of GNMA
Graduated Payment Securities as to which the Fund notifies the Auction
Agent that scheduled principal payments are not being made to holders,
the Discount Factor shall be that which is determined in writing by the
Rating Agency.
Without amending these Articles of Incorporation, the Discount factor applied
to determine the Discounted Value of any item of Eligible Portfolio Property
may be changed from that set forth in these Articles of Incorporation or a
Discount Factor may be specified for any asset constituting Eligible
Portfolio Property if the Board of Directors of the Corporation determines
and the Rating Agency advises the Corporation in writing that the change or
specification will not adversely affect its then-current rating of the
Preferred Stock.
<PAGE>
1.03 Definition of Market Value.
(a) Until the occurrence of a Termination Event, the definition of Market
Value set forth in Article IV(C), paragraph 2 of the Articles shall be deemed
changed by adding the following as paragraph (b) of such definition and
redesignating paragraphs (b), (c) and (d) of such definition as paragraphs
(c), (d) and (e):
"(b) as to any Unrated Private Corporate Bond as of any Reporting Date,
the product of (i) the unpaid principal balance of such Unrated Private
Corporate Bond as of the applicable Reporting Date, and (ii) a fraction
with a denominator of 1,000 and a numerator consisting of the average bid
price on $1,000 principal amount of such Unrated Private Corporate Bond,
as quoted as of such Reporting Date during normal trading hours on the New
York Stock Exchange, Inc. by two nationally recognized securities dealers
who are members of the National Association of Securities Dealers, Inc.
regularly making a market in such Unrated Private Corporate Bond selected
by the Corporation; provided, however, that, if the lower of the two bids
is not within 5% of the higher bid, the lower bid shall be used; and
provided, further, that the numerator shall in no case exceed any call
price then applicable to such Unrated Private Corporate Bond plus (iii)
accrued interest on such Unrated Private Corporate Bond (unless such
accrued interest is payable to the holder of such Unrated Private
Corporate Bond prior to the next Valuation Date); provided, however, that,
if the Corporation is able to obtain only one bid quotation in accordance
with clause (ii) above, the Corporation may request from Financial
Security a second bid price obtained by Financial Security at its own
expense from any nationally recognized securities dealer who is a member
of the National Association of Securities Dealers, Inc. which bid
quotation obtained shall be averaged with the bid quotation obtained by
the Corporation in clause (ii) above; provided, further, however, that, if
such second bid quotation is obtained but the lower of the two bids is not
within 5% of the higher bid, the lower bid shall be used;
<PAGE>
and provided, further, that, if no second bid quotation can be or is
obtained from Financial Security as provided herein, the single bid
quotation shall be used to determine Market Value of such Unrated Private
Corporate Bond;"
* * *
(b) From and after any Termination Event, the provision added by Section
1.03(a) above shall be deemed deleted and the definition of Market Value
shall revert to and mean the definition of Market Value set forth in Article
IV(C), paragraph 2 of the Articles immediately prior to the date hereof, the
terms of which provide in their entirety as follows:
"Market Value" means the amount determined with respect to specific assets
of the Corporation in the manner set forth below:
(a) as to any Corporate Bond, (i) the product of (A) the unpaid
principal balance of such Corporate Bond as of the Reporting Date, and (B)
the lower of two bid prices for such Corporate Bond provided by two
nationally recognized securities dealers with a minimum capitalization of
$25 million or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
the rating of the Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to the
Corporation by any such means by such custodian (provided that evidence of
the bid quotes furnished by such custodian shall be provided to the
Auction Agent by the Corporation with the related Portfolio Valuation
Report), plus (ii) accrued interest on such Corporate Bond (unless such
accrued interest is payable to the holder of such Corporate Bond prior to
the next Valuation Date), or, if two bid prices cannot be obtained, such
time of Eligible Portfolio Property shall have a Market Value of zero;
(b) the product of (i) as to GNMA Certificates, GNMA Graduated Payment
Securities, GNMA Multifamily Securities, FNMA Certificates, FHLMC
Certificates and FHLMC Multifamily Securities, the aggregate unpaid
principal amount of the mortgage loans evidenced by each such Certificate
or security, as the case may be, as determined by the Corporation by any
method which the Corporation believes reliable, which may include amounts
shown on the most recent report related to the Certificate or security
received by the
<PAGE>
Corporation prior to the Reporting Date, and as to U.S. Government
Obligations and Short Term Money Market Instruments (other than demand
deposits, federal funds, bankers' acceptances and next Business Day's
repurchase agreements), the face amount or aggregate principal amount of
such U.S. Government Obligations or Short Term Money Market Instruments,
as the case may be, and (ii) the lower of the bid prices for the same kind
of Certificates, securities or instruments, as the case may be, having, as
nearly as practicable, comparable interest rates and maturities provided
by two nationally recognized securities dealers having minimum
capitalization of $25 million or by one such securities dealer and any
other source (provided that the utilization of such source would not
adversely affect the rating of the Preferred Stock) to the custodian of
the Corporation's assets, at least one of which shall be provided in
writing or by telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar means, and in turn
provided to the Corporation by any such means by such custodian (provided
that evidence of the bid quotes furnished by such custodian shall be
delivered to the Auction Agent with the related Portfolio Valuation
Report), or, if two bid prices cannot be obtained, such item of Eligible
Portfolio Property will have a Market Value of zero;
(c) as to Conventional Mortgage Pass-Through Certificates, the product
of (i) the outstanding aggregate principal balance of the mortgage loans
underlying the Certificates as determined by the Corporation by any method
which the Corporation believes reliable, which may include amounts based
on verbal reports of the services of the related mortgage loans to the
Corporation, as of the applicable Reporting Date and (ii) the dollar value
of the lower of two bid prices per dollar of outstanding principal amount
as of such applicable Reporting Date for such Certificates, provided by
two nationally recognized securities dealers having minimum capitalization
of $25 million or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
the rating of the Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to the
Corporation by any such means by such custodian (provided that evidence of
the bid quotes furnished by such custodian shall be delivered to the
Auction Agent with the related Portfolio Valuation Report), or, if two bid
prices cannot be obtained, such item of Eligible Portfolio Property shall
have a Market Value of zero; and
<PAGE>
(d) as to Cash, demand deposits, federal funds, bankers' acceptances and
next Business Day's repurchase agreements included in Short Term Money
Market Instruments, the face value thereof.
Without amending these Articles of Incorporation, (i) the calculation of the
Market Value of an asset constituting Eligible Portfolio Property may be
changed to any method recognized by the Rating Agency from that set forth in
these Articles of Incorporation and (ii) a method recognized by the Rating
Agency for calculating the Market Value of any asset identified as Eligible
Portfolio Property after the Restatement Date may be specified if the Board
of Directors of the Corporation determines and the Rating Agency advises the
Corporation in writing that the change or specification will not adversely
affect its then-current rating of the Preferred Stock.
ARTICLE II
Miscellaneous Provisions
2.01 Articles. Except as hereby expressly changed, the Articles are in all
respects ratified and confirmed and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
2.02 Terms Defined. For all purposes of this Certificate of Change of
Definitions, except as otherwise defined or unless the context otherwise
requires, terms used in capitalized form herein and defined in the Articles
have the meanings specified in the Articles.
2.03 Italics. Where partial changes of definitions contained in the Articles
have been made in Sections 1.01(a) and 1.02(a) of Article I hereof, the
deleted wording appears in brackets and the amended wording appears
underscored. Such device is merely for convenience, denotes no special
emphasis or meaning and shall not be deemed to limit or otherwise affect the
applicability of column (b) under the definition of Discount Factors in
Section 1.02(a) hereof to the extent provided therein.
<PAGE>
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunder affixed and attested by its Assistant
Secretary on this 3rd day of May, 1988, and its President acknowledges that
these presents are the act and deed of The New America High Income Fund,
Inc., and, under the penalties of perjury, that the matters and facts set
forth herein with respect to authorization and approval are true in all
material respects to the best of her knowledge, information and belief.
THE NEW AMERICA HIGH INCOME FUND, INC.
SEAL By: /s/Patricia Ostrander, President
--------------------------------
Patricia Ostrander, President
ATTEST:
/s/John R. LeClaire,
- --------------------
John R. LeClaire,
Assistant Secretary
DP-2448/m
5/3/88
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
Third Certificate of Change of Definitions
set forth in Articles of Amendment
and Restatement dated as of February 19, 1988
WITNESSETH
WHEREAS, the Articles of Amendment and Restatement dated as of February 19,
1988, as heretofore changed (the "Articles") of The New America High Income
Fund, Inc. (the "Corporation") provide for changes in certain definitions set
forth in Article IV(C), paragraph 2 thereof without amending the Articles
provided the Board of Directors of the Corporation determines, and the Rating
Agency advises the Corporation in writing, that such change will not
adversely affect the Rating Agency's then current rating for the
Corporation's Taxable Auction Rate Preferred Stock, no par value, liquidation
preference $100,000 per share (the "Preferred Stock"); and
WHEREAS, the Board of Directors of the Corporation has determined and the
Rating Agency has advised the Corporation in writing that the changes set
forth below will not have such an effect, and Financial Security Assurance
Inc. ("Financial Security") has consented to such changes as required under
the Insurance Agreement dated as May 1, 1988 by and between the Corporation
and Financial Security relating to the issuance of a surety bond (the
"Bond").
NOW THEREFORE, the following change to the Articles are hereby adopted,
effective as of the date hereof.
ARTICLE I
Change to Articles
1.01 Definition of Corporate Bonds.
(a) Until such time as (i) Financial Security's claims-paying ability shall
have a rating of less than "AA+" from the Rating Agency and less than "Aa1"
from Moody's Investors Service, Inc. ("Moody's"), (ii) the Bond and related
arrangements with Financial Security shall have terminated for any reason, or
(iii) the Articles shall be further amended or changed (a "Termination
Event"), the definition of Corporate Bonds set forth in Article IV(C),
paragraph 2 of the Articles shall be deemed to provide in its entirety as
follows:
<PAGE>
"Corporate Bonds" means (a) Unrated Private Corporate Bonds (as
defined below), (b) corporate debt obligations (other than Short Term Money
Market Instruments, U.S. Government Obligations and debt obligations of the type
specified in clause (a) or (c) of this paragraph) rated from CCC to AAA by
Standard & Poor's and/or from B3 to Aaa by Moody's (or rated as provided below
in the case of commercial paper), which corporate debt obligations (i) provide
for the periodic payment of interest thereon in cash, (ii) do not provide for
conversion or exchange into equity capital at any time over their respective
lives, (iii) have been registered under the Securities Act of 1933, as amended
(the "Securities Act") (such requirement shall not apply with respect to
commercial paper), and (iv) have not had notice given in respect thereof that
any such corporate debt obligations are the subject of an offer by the issuer
thereof of exchange or tender for cash, securities or any other type of
consideration (except that corporate debt obligations including Unrated Private
Corporate Bonds in an amount not exceeding 10% of the aggregate value of the
Corporation's assets at any time shall not be subject to the provisions of this
clause (iv)) and (c) securities issued by the International Bank for
Reconstruction and Development meeting the requirements of clauses (b)(i),
(b)(ii) and (b)(iv) above. In addition, no corporate debt obligation held by the
Corporation shall be deemed a Corporate Bond (i) if it fails to meet the
criteria in column (1) below or (ii) to the extent (and only to the
proportionate extent) the acquisition or holding thereof by the Corporation
causes the Corporation to exceed any applicable limitation set forth in column
(2) or (3) below as of any relevant date of determination (provided that in the
event that the Corporation shall exceed any such limitation or any other
percentage limitation set forth in this definition of Corporate Bonds, the
Corporation shall designate, in its sole discretion, the particular Corporate
Bond(s) and/or portions thereof which shall be deemed to have caused the
Corporation to exceed such limitation):
2
<PAGE>
Column (1) Column (2) Column (3)
---------- ---------- ----------
Maximum
Maximum Percent of Value
Percent of Value of Corporation
of Corporation Assets, Including
Assets, Including Eligible Port-
Eligible Port- folio Property,
Minimum Original folio Property, Invested in any
Standard & Poor's/ Issue Size of Invested in any One Industry
Moody's Rating (1)(6) Each Issue One Issuer(2) Category(2)
- --------------------- ---------- ------------- -----------
($ in millions)
AAA/Aaa.............. $100 10.0% 50.0%
AA/Aa................ 100 10.0 33.3
A/A.................. 100 10.0 33.3
BBB/Baa.............. 100 5.0 20.0
BB/Ba................ 100(4) 4.0 12.0
B/B1 or B2........... 100(4) 3.0 8.0
CCC(3)/B3............ 100(4) 3.0 8.0
Unrated Private
Corporate Bonds 50(7) 3.0 8.0
At least A-1 but lower
than A-1+/P2(5) NA 10.0 33.3
A-2/P2(5) NA 5.0 25.0
- ----------
(1) Rating designations include (+) or (-) modifiers to the Standard & Poor's
rating and (1), (2) or (3) modifiers to the Moody's rating where
appropriate except that corporate debt obligations rated CCC- by Standard &
Poor's shall not constitute Corporate Bonds.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category, except that the
calculations with respect to commercial paper investments constituting
Corporate Bonds shall be made separately and independently of but on the
same basis as the cumulative total guidelines applicable to other types of
Corporate Bonds.
(3) Corporate debt obligations in this rating category that are rated by
Standard & Poor's must be subordinated debt of the issuer to constitute
Corporate Bonds and the aggregate value of corporate debt obligations in
this rating category in excess of 20% of the aggregate value of the
Corporation's assets, including Eligible Portfolio Property, shall not be
deemed within the definition of Corporate Bonds.
3
<PAGE>
(4) 20% of the aggregate value of all Corporate Bonds in these rating
categories may be from issues with an original issue size of greater than
or equal to $50 million and less than $100 million.
(5) Represents commercial paper investments. Commercial paper rated A-1+ shall
not be subject to the above table notwithstandinq any Moody's rating.
(6) For purposes of applying the tests in the table, Corporate Bonds shall be
deemed rated by Standard & Poor's only, except for Corporate Bonds rated
only by Moody's, for which the Moody's rating shall be used in applying the
standards in the table above with respect to such Corporate Bonds.
(7) Unrated Private Corporate Bonds may not constitute more than 22 1/2% of the
aggregate value of the Corporation's Eligible Portfolio Property. Not more
than 55.6% of the aggregate value of the Corporation's Unrated Private
Corporate Bonds may be from issues with an original issue size of $50
million or more but less than $100 million, provided that not more than
27.8% of the aggregate value of the Corporation's Unrated Private Corporate
Bonds may be from issues with an original issue size of $50 million or more
but less than $75 million.
For purposes hereof (and as part of this definition of Corporate
Bonds), "Unrated Private Corporate Bond" shall mean any corporate debt
obligation (other than Short-Term Money Market Instruments, U.S. Government
Obligations, commercial paper, Corporate Bonds of the type specified in clause
(b) of the first paragraph of this definition of Corporate Bonds and corporate
debt obligations rated lower than CCC by Standard & Poor's and lower than B3 by
Moody's (or, if rated by orly one of such agencies, by the applicable agency)),
which corporate debt obligation (a) was issued by a Person whose financial
statements were the subject of an opinion prepared by a nationally reccgnized
independent public accounting firm at the time of purchase of the applicable
corporate debt obligation; (b) has been registered under the Securities Act or,
if a security exempt from registration under Section 3 of the Securities Act, or
a security issued in a transaction exempt from the registration requirements of
Section 5 of the Securities Act, is not a Restricted Security (as hereinafter
defined) in the hands of the Corporation, as of the relevant date of
determination, as applicable; (c) is an interest-paying obligation which
provides for the regularly scheduled payment of interest thereon and the payment
of principal on a stated dated or dates in cash; and (d) does not provide for
conversion or exchange into equity capital at any time over its life.
Notwithstanding the foregoing, any corporate debt obligation (or portion
thereof, if applicable) otherwise within the
4
<PAGE>
provisions of the preceding sentence shall not be deemed an Unrated Private
Corporate Bond if (and, if applicable, only to the extent that) (i) as of the
relevant date of determination (A) it has an unpaid principal balance of less
than $100,000; (B) it has had notice given to the holders thereof which has not
expired or been rescinded (of which notice the Corporation shall have reasonable
knowledge) that such corporate debt obligation is the subject of an offer by the
issuer of such corporate debt obligation of exchange or tender for cash,
securities or any other type of consideration (except that corporate debt
obligations in an amount not exceeding 10% of the aggregate value of the
Corporation's assets (including Corporate Bonds of the type specified in clause
(b) of the first paragraph of this definition) shall not be subject to the
provisions of this clause (B)); (C) to the reasonable knowledge of the
Corporation, the Corporation owns, directly or indirectly, more than 10% of the
aggregate principal amount of the issue of which such corporate debt obligation
is a part at the time outstanding; [and] or (D) to the reasonable knowledge of
the Corporation, such corporate debt obligation is in default under the terms of
its governing instruments; [and] or (ii) at the time of purchase, the
Corporation owned, directly or indirectly, more than 10% of the aggregate
principal amount of the issue of which such corporate debt obligation is a part.
In the event that the Corporation shall exceed any percentage limitation set
forth in this definition of Unrated Private Corporate Bonds, the Corporation
shall designate, in its sole discretion, the particular Unrated Private
Corporate Bond(s) and/or portions thereof which shall be deemed to have caused
the Corporation to exceed such limitation and therefore shall not be deemed
within the definition of Corporate Bonds. For purposes hereof (and as part of
this definition of Corporate Bonds), a "Restricted Security" is a corporate debt
obligation which (1) is a "restricted security" as defined in Rule 144(a)(3)
under the Securities Act or any successor rule, law or interpretation; provided,
however, that such meaning shall not apply with respect to any corporate debt
obligation if there exists Registration Rights (as hereinafter defined) with
respect to the issue of which such corporate debt obligation is a part or (2) is
subject to any further material condition to, or restriction on, the ability of
the Corporation to sell, assign, transfer or otherwise liquidate such corporate
debt obligation in a commercially reasonable time and manner or which would
otherwise materially deprive the Corporation of the benefits of such corporate
debt obligation intended to be provided hereunder; provided, however, that,
notwithstanding the foregoing limitations, any requirement of registration or
qualification applicable with respect to a corporate debt obligation pursuant to
federal and any applicable state or other securities laws and any requirement of
delivery of any certificate, consent, agreement, approval, opinion of counsel,
notice or any other document of any Person reasonably necessary or appropriate
in connection with the sale of such corporate
5
<PAGE>
debt obligation pursuant to any exemption from registration or qualification
under federal and any applicable state or other securities laws and/or the
registration or qualification of such corporate debt obligation under such
federal and applicable state or other securities laws and the delivery of any
certificate or other document usual or customary in connection with the transfer
or registration of transfer of securities shall not be deemed to cause such
corporate debt obligation to be deemed a "Restricted Security" under the
foregoing clause (2). For purposes hereof (and as part of this definition of
Corporate Bonds), "Registration Rights" means (i) a right in favor of the
holders of a majority or less than a majority of the principal amount of
securities of a particular issue of securities to request registration of such
securities under the Securities Act and an obliqation of the issuer of such
securities (subiect to customary limitations relating to the amount sold, market
conditions and the like) to file or cause to be filed a registration statement
under the Securities Act within a specified period of time not to exceed 12
months either from the date of issuance of such securities or the date of such
request, (ii) [and] an obligation of the issuer of such securities (subject to
customary limitations relating to the amount sold, market conditions and the
like) to file or cause to be filed a registration statement under the Securities
Act within a specified period of time not to exceed 12 months [either] from the
date of issuance of such securities [or the date of such request] or (iii) a
provision in the relevant security or securities or the related documentation
under which the holder or holders thereof would be entitled to receive an
automatic increase in the rate of interest on such securities in the event that
such security or securities have not been registered under the Securities Act
within a specified period of time not to exceed 12 months from the date of
issuance of such security or securities (and further that such interest rate
shall increase thereafter periodically until such registration has been
effected). [or the right of the Corporation to include securities held by it in
a registration initiated by the issuer or others.]
Without amending these Articles of Incorporation, the assets (and/or
the characteristics thereof) included within the definition of Corporate Bonds
for purposes of determining compliance with the Basic Maintenance Amount may be
changed to encompass other assets constituting, and/or other characteristics of,
corporate debt obligations from those set forth in these Articles of
Incorporation if the Board of Directors of the Corporation determines and the
Rating Agency advises the Corporation in writing that the change will not
adversely affect its then-current rating of the Preferred Stock.
* * *
(b) From and after any Termination Event, the definition
of Corporate Bonds shall revert to and mean the definition of
6
<PAGE>
Corporate Bonds set forth in Article IV(C), paragraph 2 of the Articles
immediately prior to the date hereof, the terms of which provide in their
entirety as follows:
"Corporate Bonds" means corporate debt obligations (other than Short
Term Money Market Instruments or U.S. Government Obligations) rated from CCC to
AAA by Standard & Poor's (or rated as provided below in the case of commercial
paper), which corporate debt obligations (a) provide for the periodic payment of
interest thereon in cash, (b) do not provide for conversion or exchange into
equity capital at any time over their respective lives, (c) have been registered
under the Securities Act of 1933, as amended (such requirement shall not apply
with respect to commercial paper), and (d) have not had notice given in respect
thereof that any such corporate debt obligations are the subject of an offer by
the issuer thereof of exchange or tender for cash, securities or any other type
of consideration (except that corporate debt obligations in an amount not
exceeding 10% of the aggregate value of the Corporation's assets at any time
shall not be subject to the provisions of this clause (d)). In addition, no
corporate debt obligation held by the Corporation shall be deemed a Corporate
Bond (i) if it fails to meet the criteria in column (1) below or (ii) to the
extent (and only to the proportionate extent) the acquisition or holding thereof
by the Corporation causes the Corporation to exceed any applicable limitation
set forth in column (2) or (3) below as of any relevant date of determination
(provided that in the event that the Corporation shall exceed any such
limitation or any other percentage limitation set forth in this definition of
Corporate Bonds, the Corporation shall designate, in its sole discretion, the
particular Corporate Bond(s) and/or portions thereof which shall be deemed to
have caused the Corporation to exceed such limitation):
7
<PAGE>
Column (1) Column (2) Column (3)
---------- ---------- ----------
Maximum
Maximum Percent of Value
Percent of Value of Corporation
of Corporation Assets, Including
Assets, Including Eligible Port-
Eligible Port- folio Property
Minimum Original folio Property, Invested in any
Standard & Poor's/ Issue Size of Invested in any One Industry
Rating (1) Each Issue One Issuer(2) Category(2)
- --------------------- ---------- ------------- -----------
($ in millions)
AAA.................. $100 10.0% 50.0%
AA................... 100 10.0 33.3
A.................... 100 10.0 33.3
BBB.................. 100 5.0 20.0
BB................... 100(4) 4.0 12.0
B.................... 100(4) 3.0 8.0
CCC(3)............... 100(4) 3.0 8.0
At least A-1 but lower
than A-1+(5) NA 10.0 33.3
At least A-2 but lower
than A-1(5) NA 5.0 25.0
- ----------
(1) Rating designations include (+) or (-) modifiers to the Standard & Poor's
rating where appropriate except that corporate debt obligations rated CCC-
shall not constitute Corporate Bonds.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category, except that the
calculations with respect to commercial paper investments constituting
Corporate Bonds shall be made separately and independently of but on the
same basis as the cumulative total guidelines applicable to other types of
Corporate Bonds.
(3) Corporate debt obligations in this rating category must be subordinated debt
of the issuer to constitute Corporate Bonds and the aggregate value of
corporate debt obligations in this rating category in excess of 20% of the
aggregate value of the Corporation's assets, including Eligible Portfolio
Property, shall not be deemed within the definition of Corporate Bonds.
(4) 20% of the aggregate value of all Corporate Bonds in these ratinq categories
may be from issues with an original issue
8
<PAGE>
size of greater than or equal to $50 million and less than $100 million.
(5) Represents commercial paper investments.
Without amending these Articles of Incorporation, the assets (and/or the
characteristics thereof) included within the definition of Corporate Bonds for
purposes of determining compliance with the Basic Maintenance Amount may be
changed to encompass other assets constituting, and/or other characteristics of,
corporate debt obligations from those set forth in these Articles of
Incorporation if the Board of Directors of the Corporation determines and the
Rating Agency advises the Corporation in writing that the change will not
adversely affect its then-current rating of the Preferred Stock.
1.02 Definition of Market Value.
(a) Until the occurrence of a Termination Event, the definition of Market
Value set forth in Article IV(C), paragraph 2 of the Articles shall be deemed to
provide in its entirety as follows:
"Market Value" means the amount determined with respect to specific assets
of the Corporation in the manner set forth below:
(a) as to any Corporate Bond (other than any Unrated Private Corporate
Bond), (i) the product of (A) the unpaid principal balance of such
Corporate Bond as of the Reporting Date, and (B) the lower of two bid
prices for such Corporate Bond provided by two nationally recognized
securities dealers with a minimum capitalization of $25 million or by one
such securities dealer and any other source (provided that the utilization
of such source would not adversely affect the rating of the Preferred
Stock) to the custodian of the Corporation's assets, at least one of which
shall be provided in writing or by telecopy, telex, other electronic
transcription, computer obtained quotation reducible to written form or
similar means, and in turn provided to the Corporation by any such means by
such custodian (provided that evidence of the bid quotes furnished by such
custodian shall be provided to the Auction Agent by the Corporation with
the related Portfolio Valuation Report), plus (ii) accrued interest on such
Corporate Bond (unless such accrued interest is payable to the holder of
such Corporate Bond prior to the next Valuation Date), or, if two bid
prices cannot be obtained, such item of Eligible Portfolio Property shall
have a Market Value of zero;
9
<PAGE>
(b) as to any Unrated Private Corporate Bond as of any Reporting Date,
the product of (i) the unpaid principal balance of such Unrated Private
Corporate Bond as of the applicable Reporting Date, and (ii) a fraction
with a denominator of 1,000 and a numerator consisting of the average bid
price on $1,000 principal amount of such Unrated Private Corporate Bond, as
quoted as of such Reporting Date during normal trading hours on the New
York Stock Exchange, Inc. by two nationally recognized securities dealers
who are members of the National Association of Securities Dealers, Inc.
regularly making a market in such Unrated Private Corporate Bond selected
by the Corporation; provided, however, that, if the lower of the two bids
is not within 5% of the higher bid, the lower bid shall be used; and
provided, further, that the numerator shall in no case exceed any call
price then applicable to such Unrated Private Corporate Bond plus (iii)
accrued interest on such Unrated Private Corporate Bond (unless such
accrued interest is payable to the holder of such Unrated Private Corporate
Bond prior to the next Valuation Date); provided, however, that, if the
Corporation is able to obtain only one bid quotation in accordance with
clause (ii) above, the Corporation may request from Financial Security a
second bid price obtained by Financial Security at its own expense from any
nationally recognized securities dealer who is a member of the National
Association of Securities Dealers, Inc. which bid quotation obtained shall
be averaged with the bid quotation obtained by the Corporation in clause
(ii) above; provided, further, however, that, if such second bid quotation
is obtained but the lower of the two bids is not within 5% of the higher
bid, the lower bid shall be used; and provided, further, that, if no second
bid quotation can be or is obtained from Financial Security as provided
herein, the single bid quotation shall be used to determine Market Value of
such Unrated Private Corporate Bond;
(c) (i) the product of [(i)] (A) as to GNMA Certificates, GNMA
Graduated Payment Securities, GNMA Multifamily Securities, FNMA
Certificates, FHLMC Certificates and FHLMC Multifamily Securities, the
aggregate unpaid principal amount of the mortgage loans evidenced by each
such Certificate or security, as the case may be, as determined by the
Corporation by any method which the Corporation believes reliable, which
may include amounts shown on the most recent report related to the
Certificate or security received by the Corporation prior to the Reporting
Date, and as to U.S. Government Obligations havinq a remaininq maturity of
more than 30 days [and Short Term Money Market Instruments (other than
demand deposits, federal funds, bankers' acceptances and next Business
Day's repurchase agreements)], the face amount or aggregate principal
amount of such U.S.
10
<PAGE>
Government Obligations [or Short Term Money Market Instruments, as the case
may be,] and [(ii)] (B) the lower of the bid prices for the same kind of
Certificates, securities or instruments, as the case may be, having, as
nearly as practicable, comparable interest rates and maturities provided by
two nationally recognized securities dealers having minimum capitalization
of $25 million or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
the rating of the Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to the
Corporation by any such means by such custodian (provided that evidence of
the bid quotes furnished by such custodian shall be delivered to the
Auction Agent with the related Portfolio Valuation Report), plus (ii)
accrued and unpaid interest thereon if such interest is not included in the
above prices; provided, however that [or,] if two bid prices cannot be
obtained, such item of Eligible Portfolio Property will have a Market Value
of zero;
(d) as to U.S. Government Obligations havinq a remaining term to
maturity of 30 days or less and Short Term Money Market Instruments (other
than demand deposits, federal funds, bankers' acceptances and next Business
Day's repurchase agreements), the face amount or aggreqate Principal amount
of such U.S. Government Securities or Short Term Money Market Instruments,
as the case may be, plus accrued and unpaid interest thereon;
[(d)] (e) as to Conventional Mortgage Pass-Through Certificates, the
product of (i) the outstanding aggregate principal balance of the mortgage
loans underlying the Certificates as determined by the Corporation by any
method which the Corporation believes reliable, which may include amounts
based on verbal reports of the servicers of the related mortgage loans to
the Corporation, as of the applicable Reporting Date and (ii) the dollar
value of the lower of two bid prices per dollar of outstanding principal
amount as of such applicable Reporting Date for such Certificates, provided
by two nationally recognized securities dealers having minimum
capitalization of $25 million or by one such securities dealer and any
other source (provided that the utilization of such source would not
adversely affect the rating of the Preferred Stock) to the custodian of the
Corporation's assets, at least one of which shall be provided in writing or
by telecopy, telex, other electronic transcription, computer obtained
quotation
11
<PAGE>
reducible to written form or similar means, and in turn provided to the
Corporation by any such means by such custodian (provided that evidence of
the bid quotes furnished by such custodian shall be delivered to the
Auction Agent with the related Portfolio Valuation Report), or, if two bid
prices cannot be obtained, such item of Eligible Portfolio Property shall
have a Market Value of zero; and
[(e)] (f) as to Cash, demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements included in Short
Term Money Market Instruments, the face value thereof.
* * *
(b) From and after any Termination Event, the provision added by Section
1.02(a) above shall be deemed deleted and the definition of Market Value shall
revert to and mean the definition of Market Value set forth in Article IV(C),
paragraph 2 of the Articles immediately prior to the date hereof, the terms of
which provide in their entirety as follows:
"Market Value" means the amount determined with respect to specific assets
of the Corporation in the manner set forth below:
(a) as to any Corporale Bond, (i) the product of (A) the unpaid
principal balance of such Corporate Bond as of the Reporting Date, and (B)
the lower of two bid prices for such Corporate Bond provided by two
nationally recognized securities dealers with a minimum capitalization of
$25 million or by one such securities dealer and any other source (provided
that the utilization of such source would not adversely affect the rating
of the Preferred Stock) to the custodian of the Corporation's assets, at
least one of which shall be provided in writing or by telecopy, telex,
other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by
any such means by such custodian (provided that evidence of the bid quotes
furnished by such custodian shall be provided to the Auction Agent by the
Corporation with the related Portfolio Valuation Report), plus (ii) accrued
interest on such Corporate Bond (unless such accrued interest is payable to
the holder of such Corporate Bond prior to the next Valuation Date), or, if
two bid prices cannot be obtained, such item of Eligible Portfolio Property
shall have a Market Value of zero;
12
<PAGE>
(b) the product of (i) as to GNMA Certificates, GNMA Graduated Payment
Securities, GNMA Multifamily Securities, FNMA Certificates, FHLMC
Certificates and FHLMC Multifamily Securities, the aggregate unpaid
principal amount of the mortgage loans evidenced by each such Certificate
or security, as the case may be, as determined by the Corporation by any
method which the Corporation believes reliable, which may include amounts
shown on the most recent report related to the Certificate or security
received by the Corporation prior to the Reporting Date, and as to U.S.
Government Obligations and Short Term Money Market Instruments (other than
demand deposits, federal funds, bankers' acceptances and next Business
Day's repurchase agreements), the face amount or aggregate principal amount
of such U.S. Government Obligations or Short Term Money Market Instruments,
as the case may be, and (ii) the lower of the bid prices for the same kind
of Certificates, securities or instruments, as the case may be, having, as
nearly as practicable, comparable interest rates and maturities provided by
two nationally recognized securities dealers having minimum capitalization
of $25 million or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
the rating of the Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to tne
Corporation by any such means by such custodian (provided that evidence of
the bid quotes furnished by such custodian shall be delivered to the
Auction Agent with the related Portfolio Valuation Report), or, if two bid
prices cannot be obtained, such item of Eligible Portfolio Property will
have a Market Value of zero:
(c) as to Conventional Mortgage Pass-Through Certificates, the product
of (i) the outstanding aggregate principal balance of the mortgage loans
underlying the Certificates as determined by the Corporation by any method
which the Corporation believes reliable, which may include amounts based on
verbal reports of the servicers of the related mortgage loans to the
Corporation, as of the applicable Reporting Date and (ii) the dollar value
of the lower of two bid prices per dollar of outstanding principal amount
as of such applicable Reporting Date for such Certificates, provided by two
nationally recognized securities dealers having minimum capitalization of
$25 million or by one such securities dealer and any other source (provided
that the utilization of such source would not adversely affect the rating
of the Preferred Stock) to
13
<PAGE>
the custodian of the Corporation's assets, at least one of which shall be
provided in writing or by telecopy, telex, other electronic transcription,
computer obtained quotation reducible to written form or similar means, and
in turn provided to the Corporation by any such means by such custodian
(provided that evidence of the bid quotes furnished by such custodian shall
be delivered to the Auction Agent with the related Portfolio Valuation
Report), or, if two bid prices cannot be obtained, such item of Eligible
Portfolio Property shall have a Market Value of zero; and
(d) as to Cash, demand deposits, federal funds, bankers' acceptances
and next Business Day's repurchase agreements included in Short Term Money
Market Instruments, the face value thereof.
Without amending these Articles of Incorporation, (i) the calculation of the
Market Value of an asset constituting Eligible Portfolio Property may be changed
to any method recognized by the Rating Agency from that set forth in these
Articles of Incorporation and (ii) a method recognized by the Rating Agency for
calculating the Market Value of any asset identified as Eligible Portfolio
Property after the Restatement Date may be specified if the Board of Directors
of the Corporation determines and the Rating Agency advises the Corporation in
writing that the change or specification will not adversely affect its
then-current rating of the Preferred Stock.
ARTICLE II
Miscellaneous Provisions
2.01 Articles. Except as hereby expressly changed, the Articles are in all
respects ratified and confirmed and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
2.02 Terms Defined. For all purposes of this Certificate of Change of
Definitions, except as otherwise defined or unless the context otherwise
requires, terms used in capitalized form herein and defined in the Articles have
the meanings specified in the Articles.
2.03 Italics. Where partial changes of the definition of Corporate Bonds
contained in the Articles have been made in Section l.Ol(a) or 1.02(a) of
Article I hereof, the deleted wording appears in brackets and the amended
wording appears underscored. Such device is merely for convenience, denotes no
special emphasis or meaning.
14
<PAGE>
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunder affixed and attested by its Assistant Secretary
on this 14th day of October, 1988, and its President acknowledges that these
presents are the act and deed of The New America High Income Fund, Inc., and,
under the penalties of perjury, that the matters and facts set forth herein with
respect to authorization and approval are true in all material respects to the
best of her knowledge, information and belief.
THE NEW AMERICA HIGH INCOME FUND, INC.
[SEAL] By: /s/ Patricia Ostrander
--------------------------
Patricia Ostrander, President
ATTEST:
/s/ John R. LeClaire
John R. LeClaire,
Assistant Secretary
15
Exhibit A2
ARTICLES OF AMENDMENT
OF
THE NEW AMERICA HIGH INCOME FUND, INC.
The New America High Income Fund, Inc. (hereinafter referred to as the
"Corporation"), a Maryland corporation having its principal office in
Baltimore City, Maryland, hereby certifies that:
FIRST: The charter of the Corporation is hereby amended as follows:
1. Article V is amended by adding the following as Article V(E) following
Article V(D):
"(E) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, as from time to time amended, no director or officer
of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer
at the time of any proceeding in which liability is asserted. No
provision of this Article V(E) shall be effective to protect or
purport to protect any director or officer of the Corporation against
any liability to the Corporation of its security holders as which he
or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. No future amendment to
this Article V(E) shall affect any right of any person under this
Article V(E) based on any event, omission or proceeding prior to such
amendment."
2. Paragraphs 3(b) and 8(a)(iv) of Article IV(C) are amended by adding
the following at the end of each such paragraph.
<PAGE>
"Notwithstanding anything herein to the contrary, to the extent
that the term of these Articles of Incorporation (including without
limitation the provisions of paragraphs 3(b) and 8(a)(iv) of Article
IV(C) hereof including therein the definitions of "Dividend Payment
Date" and "Auction Date") would require the holding of an Auction on a
day which is the last Business Day of any calendar quarter (i.e., the
last Business Day of March, June, September and December), such
Auction shall instead be held on the second succeeding Business Day
after such last Business Day of the calendar quarter, and the related
Dividend Payment Date shall occur on the first Business Day thereafter
that is next succeeded (unless the Paying Agent shall make payments in
same-day funds) by a day which is also a Business Day; provided,
however, that following such Auction Date and Dividend Payment Date
the sequence of Auctions and Divident Payment Dates shall continue to
occur in accordance with the schedule and sequence provided for in
these Articles of Incorporation, including without limitation
paragraphs 3(b) and 8(a)(iv) of Article IV(C) hereof; and all
provisions of these Articles of Incorporation, including the defined
terms contained herein, shall be construed and applied to give effect
to any deferral of the Auction Date required by this sentence as and
to the extent required."
3. Paragraph 6(a) of Article IV(C) is amended and restated in its
entirety to provide as follows:
"(a) General. Each Holder of Preferred Stock shall be entitled to
one vote for each share held on each matter on which the Holders of
the Preferred Stock are entitled to vote and, except as otherwise
provided in these Articles of Incorporation or by law, the holders of
the Preferred Stock and the Common Stock of the Corporation shall vote
together as one class on all matters submitted to the stockholders;
provided, however, that at any meeting of the stockholders of the
Corporation held for the election of directors, the Holders of the
Preferred Stock shall be entitled as a class, to the
<PAGE>
exclusion of the holders of the Common Stock, to elect two directors
and, subject to paragraph 6(b) hereof, the holders of the Common
Stock, voting as a separate class, shall be entitled to elect the
balance of the directors of the Corporation."
SECOND: The amendment of the charter of the Corporation as hereinabove set
forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC. has caused
these presents to be signed in its name and on its behalf by its President
and attested by its Secretary on this 15th day of June, 1989.
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Patricia Ostrander
Patricia Ostrander
President
ATTEST:
/s/ Richard E. Floor
Richard E. Floor
Secretary
THE UNDERSIGNED, President of The New America High Income Fund, Inc., who
executed on behalf of said corporation the foregoing Articles of Amendment,
of which this certificate is made a part, hereby acknowledges, in the name
and on behalf of said corporation, the foregoing Articles of Amendment to be
the corporate act of said corporation and further certifies that, to the best
of her knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
/s/ Patricia Ostrander
Patricia Ostrander
VP-??446N
Exhibit A3
266972
STATE OF MARYLAND
DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: DECEMBER 28, 1993
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT FOR THE NEW AMERICA HIGH
INCOME FUND, INC. (EFFECTIVE DATE 1/4/94 AT 9:00 A.M.) WERE RECEIVED AND
APPROVED FOR RECORD ON DECEMBER 28, 1993 AT 3:11 PM.
FEE PAID: 143.00
SEAL OF STATE OF MARYLAND
PAULA CARY MCLEAN
CHARTER SPECIALIST
AT5-031
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES OF AMENDMENT
The New America High Income Fund, Inc., a Maryland corporation having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Amendment and Restatement, as heretofore amended, are
hereby further amended as follows:
1. Article IV of the Fund's Articles of Amendment and Restatement as
heretofore amended shall be amended by deleting in its entirety Article IV
Section (A) and inserting in lieu thereof the following Sections (A) and (B):
(A) CAPITAL STOCK.
The total number of shares of stock which the Corporation shall have
authority to issue is Two Hundred One Million Two Thousand (201,002,000)
shares, having an aggregate par value of Three Million Dollars ($3,000,000),
divided into the following classes:
two hundred million (200,000,000) shares of common stock, par value
$.01 per share (the "Common Stock");
two thousand (2,000) shares of taxable auction rate preferred
stock, no par value per share (the "TARPS Stock"); and
one million (1,000,000) shares of preferred stock, par value $1.00
per share (the "Preferred Stock").
No shares of the Corporation's capital stock of any class shall be entitled
to preemptive rights.
(B) PREFERRED STOCK.
Preferred Stock may be issued in one or more series. The Board of
Directors may authorize the issuance of the Preferred Stock in such series
without stockholder approval and may fix from time to time before issuance
the number of shares to be included in any series and the designation,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms or conditions of
redemption and other terms of all shares of such series. The authority of the
Board of Directors with respect to each series includes, without limiting the
foregoing, the determination of any or all of the following:
-----------------------------------------------------------------------------
STATE OF MARYLAND
I hereby certify that this is a true and complete copy of the 9 page document
on file in this office. DATED: 12-28-93.
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY: /s/ ???
This stamp replaces our previous certification system. Effective: 10/84
-----------------------------------------------------------------------------
<PAGE>
(a) The number of shares of any series and the designation to distinguish
shares of such series from shares of all other series;
(b) The voting powers, if any, and whether such voting powers are full or
limited and whether other classes or series have the right to vote on
specific matters as to which voting powers are granted to such series and
whether voting is by class;
(c) The redemption provisions, if any, applicable to such series,
including the time or times and the prices;
(d) The dividends (which may be cumulative or non-cumulative) to be paid
on such series, including the rate or rates (or the procedures by which the
rate or rates are to be determined), the conditions and the times and whether
payable in preference to, or in such relation to, the dividends payable on
any other class or classes or series of stock;
(e) The rights of such series upon the dissolution (voluntary or
involuntary) of, or upon any distribution of the assets of, the Corporation;
(f) The provisions, if any, pursuant to which the shares of such series
are convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock of the Corporation or any other security of the Corporation and the
price or prices or the rates of exchange, and any adjustments thereto;
(g) The provisions, if any, of a sinking fund or purchase fund to be
applied to the redemption or purchase of shares of such series;
(h) The provisions, if any, relating to the conditions and restrictions
upon the creation of indebtedness of the Corporation, upon the issuance of
any additional stock (including additional shares of such series or of any
other series) and upon the payment of dividends or the making of other
distributions on, and the purchase, redemption or other acquisition by the
Corporation of any outstanding stock of the Corporation; and
(i) Any other relative, participating, optional or other special rights
and qualifications, limitations or restrictions thereof;
2
<PAGE>
all as shall be determined by the Board of Directors and stated in said
resolution or resolutions and Articles Supplementary establishing or amending
the characteristics of such class or series of preferred stock. Except where
otherwise set forth in the resolution or resolutions adopted by the Board of
Directors providing for the classification of any series of Preferred Stock,
the number of shares comprising such series may be increased or decreased
(but not below the number of shares then outstanding) from time to time by
like action of the Board of Directors.
Preferred Stock of any series not issued or which have been redeemed,
converted, exchanged, purchased, or otherwise acquired by the Corporation
shall constitute authorized but unissued Preferred Stock.
2. Article IV Section (B) of the Fund's Articles of Amendment and
Restatement as heretofore amended is hereby amended by deleting in its entirety
the existing Article IV Section (B), renumbering the Section and all references
thereto as Section (C) and substituting therefor the following:
(C) COMMON STOCK.
The preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption in respect
to the Common Stock are as follows, except as otherwise set forth in this
Charter or any Articles Supplementary which may be filed from time to time
hereafter:
1. Ranking.
The Common Stock shall rank junior to the Preferred Stock and the TARPS
Stock with respect to payment of all dividends (other than dividends in
Common Stock) and distributions on liquidation or dissolution and shall have
such other qualifications, limitations and restrictions as provided in this
Charter.
2. Dividends.
After all accumulated and unpaid dividends upon all outstanding shares of
the Preferred Stock and TARPS Stock for all past Dividend Periods (as defined
herein or in Articles Supplementary) have been or are contemporaneously paid
in full (or declared and sufficient Deposit Securities (as defined herein or
in Articles Supplementary) have been set apart for their payment), then and
not otherwise, and subject to any other applicable provisions of the Charter,
3
<PAGE>
to the extent there are funds legally available therefor, dividends or
other distributions may be declared upon and paid to the holders of shares of
the Common Stock, to the exclusion of the holders of shares of the Preferred
Stock and TARPS Stock.
3. Liquidation Rights.
In the event of the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, after payment in full of the
amounts required to be paid to the holders of the Preferred Stock and the
TARPS Stock as provided for in this Charter, the holders of shares of the
Common Stock shall be entitled, to the exclusion of the holders of shares of
the Preferred Stock and TARPS Stock, to share ratably in all remaining assets
of the Corporation.
4. Redemption.
The Corporation may redeem or repurchase shares of Common Stock to the
extent now or hereafter permitted by the laws of the State of Maryland and
applicable Federal law and by this Charter.
5. Voting Rights.
Each holder of Common Stock shall be entitled to one vote for each such
whole share (and a proportionate vote for each such fractional share) on each
matter on which the holders of shares of the Common Stock shall be entitled
to vote. Except as otherwise provided in this Charter, the holders of shares
of the Common Stock and the holders of shares of Preferred Stock and TARPS
Stock shall vote as a single class on all matters submitted to the
stockholders.
3. Article IV Section (C) of the Fund's Articles of Amendment and
Restatement as heretofore amended is hereby amended by renumbering such section
and all references thereto as Section (D) and by changing each reference to
"Preferred Stock" therein to "TARPS Stock." Article V and Article VI are
likewise amended by changing each reference to "Preferred Stock" therein to
"TARPS Stock."
4. Article IV of the Fund's Articles of Amendment and Restatement as
heretofore amended shall be amended by adding new Sections (E) and (F) as
follows:
4
<PAGE>
(E) CONFLICT BETWEEN TERMS OF TARPS STOCK AND PREFERRED STOCK.
Notwithstanding anything in Section (D) which, absent this Section (E),
would limit the right of the Corporation or the Board of Directors to create,
classify or issue the Preferred Stock or to grant rights, powers and
preferences of any nature which might be equal in any respect to the TARPS
Stock, the Board of Directors as specified in Section (A) and Section (B) may
classify such stock and grant any rights or preferences equal to the TARPS
Stock, to the extent permitted by the Investment Company Act of 1940, as
amended from time to time.
The creation, classification and issuance of Preferred Stock at a time
when the TARPS Stock is outstanding shall not be deemed to be a default under
subsection (D)(5)(b) or to cause the holders of the TARPS Stock to have a
right to elect a majority of the Board of Directors under subsection
(D)(5)(b) if, upon issuance, the net proceeds from the sale of such Preferred
Stock (or such portion thereof needed to redeem the TARPS Stock) are
deposited with the Paying Agent in accordance with Article IV Section
(D)(5)(c)(vi), notice of Optional Redemption pursuant to subsection (D)(5)(a)
has been delivered prior thereto or is sent promptly thereafter and such
proceeds are used to redeem the TARPS Stock. The redemption price of all
TARPS Stock redeemed with such proceeds shall be the price set forth in
subsection (D)(5)(a).
Any classification of the Preferred Stock may provide for rights, powers,
privileges and preferences inconsistent with the terms of the TARPS Stock
even if such rights, powers, preferences or privileges are subordinated to
the rights of the TARPS Stock so long as any of the TARPS Stock is deemed
outstanding.
(F) ELIMINATION OF TARPS STOCK.
At such time as all of the outstanding TARPS Stock has been redeemed or
Deposit Securities constituting immediately available funds sufficient to
redeem all of the TARPS Stock have been deposited with the Paying Agent as
required by Article IV Section (D)(5)(c)(vi), the Board of Directors may
adopt a resolution declaring that the Corporation shall no longer be
authorized to issue the TARPS Stock. Upon adoption of such resolution,
subsections (D), (E) and (F) of Article IV and all other references to the
TARPS Stock shall automatically be deleted from the Charter and the Board of
Directors is hereby authorized to restate the Charter deleting all of such
provisions. Any
5
<PAGE>
former holders of TARPS Stock who have not then submitted their TARPS
Stock for redemption shall have only the right to receive the payment for
their stock deposited with the Paying Agent in accordance with the terms
formerly set forth in Section (D).
At such time as the TARPS Stock is eliminated, the following additional
amendments shall automatically take effect:
1. Article V Section A of the Fund's Articles of Amendment and
Restatement as heretofore amended shall be amended by deleting the same and
substituting in lieu thereof the following:
(A) All corporate power and authority of the Corporation (except as
otherwise provided by statute, by this Charter, or by the Corporation's
By-Laws) shall be vested in and exercised by the Board of Directors. Except
as may be required by other provisions of this Charter, the number of
Directors constituting the Board of Directors shall be not less than three
(3), nor more than fifteen (15) with the exact number to be fixed pursuant to
the By-Laws, provided that the numbers of Directors shall at no time be less
than the minimum number required under the Maryland General Corporation Law
or, as long as any shares of the preferred stock are outstanding, the
Investment Company Act of 1940, as amended from time to time.
2. Article VI Sections (A) and (B) of the Fund's Articles of Amendment
and Restatement as heretofore amended shall be amended by deleting the same and
substituting in lieu thereof only the following Section (A):
(A) The Corporation reserves the right from time to time to amend, alter,
change or repeal any provision contained in this Charter, now or hereafter
authorized by law, including any amendment that alters the contract rights,
as expressly set forth in this Charter, of any outstanding stock. Any
amendment to this Charter shall be adopted at either a special meeting of the
stockholders pursuant to affirmative vote of a majority of all the
outstanding shares of the Corporation's capital stock, voting as a single
class, except as otherwise provided in this Charter. The Common Stock and the
Preferred Stock shall vote as separate classes to the extent otherwise
required under Maryland law or the Investment Company Act of 1940, as amended
from time to time.
SECOND: The board of directors of the Corporation, by written consent to
such action signed by all the members thereof and filed with the minutes of
proceedings of the board,
6
<PAGE>
adopted a resolution in which was set forth the foregoing amendment to the
charter declaring that the said amendment to the charter was advisable and
directing that it be submitted for action thereon at a meeting of the
stockholders of the Corporation.
THIRD: Notice setting forth the aforesaid amendment of the charter and
stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote required by law and the
Corporation's charter.
FOURTH: (a) The total number of shares of all classes of stock of the
corporation heretofore authorized, and the number and par value of the shares of
each class were as follows:
Total authorized stock--two hundred million, two thousand (200,002,000)
shares, having an aggregate par value of $2,000,000, divided into the
following classes:
1. two hundred million (200,000,000) shares of common stock, $.01
par value per share;
2. two thousand (2,000) shares of taxable auction rate preferred
stock, no par value per share.
(b) The total number of shares of all classes of stock of the
Corporation as increased by these Articles of Amendment, and the number and par
value of the shares of each class, are as follows:
The total number of shares of stock which the Corporation shall have
authority to issue is Two Hundred One Million Two Thousand
(201,002,000) shares, having an aggregate par value of Three Million
Dollars ($3,000,000), divided into the following classes:
1. two hundred million (200,000,000) shares of common stock, par
value $.01 per share;
2. two thousand (2,000) shares of taxable auction rate preferred
stock, no par value per share; and
7
<PAGE>
3. one million (1,000,000) shares of preferred stock, par value
$1.00 per share.
(c) The aggregate par value of all shares of all classes of stock
of the Corporation heretofore authorized was $2,000,000. The aggregate par value
of all shares of all classes of stock as increased by this amendment is
$3,000,000. This amendment has the effect of increasing the aggregate par value
of all shares of all classes of stock of the Corporation by $1,000,000.
(d) The shares have been divided into classes as indicated above.
A description of each class is reflected in Article IV of the Corporation's
Articles of Amendment and Restatement as previously amended and as amended by
these Articles of Amendment.
FIFTH: These Articles shall be effective at the later of the time the
State Department of Assessments and Taxation of Maryland accepts the Articles
for record of 9:00 am Eastern Standard Time on January 4, 1994.
IN WITNESS WHEREOF The New America High Income Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its President (or its
Vice-President) and its corporate seal to be hereunto affixed and attested by
its Secretary (or its Assistant Secretary).
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that, to the best of his or her
knowledge, information and belief, the matters and facts set forth herein with
respect to the authorization and approval hereof are true in all material
respects and that this statement is made under the penalties of perjury.
Attest: THE NEW AMERICA HIGH INCOME FUND, INC.
/s/ Richard E. Floor By: /s/ Robert F. Birch
Richard E. Floor, Secretary Robert F. Birch, President
[Affix corporate seal]
8
Exhibit A4
267157
STATE OF MARYLAND
DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: DECEMBER 29, 1993
THIS IS TO ADVISE YOU THAT THE ARTICLES SUPPLEMENTARY FOR
THE NEW AMERICA HIGH INCOME FUND INC.
EFFECTIVE DATE: 01/04/94@ 9:01 AM
WERE RECEIVED AND APPROVED FOR RECORD ON DECEMBER 29, 1993 AT 3:12 PM.
FEE PAID: 211.00
[Seal of the State of Maryland]
HARRY J. NOONAN
CHARTER SPECIALIST
AT5-031
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
ESTABLISHING AND FIXING THE RIGHTS AND
PREFERENCES OF TWO SERIES OF SHARES OF PREFERRED STOCK
The New America High Income Fund, Inc., a Maryland corporation (the
"Corporation"), certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article IV of its Articles of Amendment and
Restatement, as heretofore amended (which, as hereafter restated or amended
from time to time, are together with these Articles Supplementary herein
called the "Articles"), the Board of Directors has, by resolution,
authorized the issuance of 2,000 shares of its Preferred Stock, par value
$1.00 per share, liquidation preference $50,000 per share, classified into
two series designated respectively: Series A Auction Term Preferred Stock
and Series B Auction Term Preferred Stock (collectively the "ATP").
SECOND: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the shares of such series of ATP are as follows:
DESIGNATION
Series A: A series of 1,200 shares of Preferred Stock, par value $1.00 per
share, liquidation preference $50,000 per share, is hereby designated "Series
A Auction Term Preferred Stock" ("ATP Series A"). Each share of ATP Series A
shall have an Applicable Rate for its initial Dividend Period equal to 3.43%
per annum and an initial Dividend Payment Date of February 1, 1994; and each
share of ATP Series A shall have such other preferences, rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms
and conditions of redemption, in addition to those required by applicable law
or set forth in the Articles applicable to preferred stock of the
Corporation, as are set forth in Part I and Part II of these Articles
Supplementary. The ATP Series A shall constitute a separate series of
Preferred Stock of the Corporation.
Series B: A series of 800 shares of Preferred Stock, par value $1.00 per
share, liquidation preference $50,000 per share, is hereby designated "Series
B Auction Term Preferred Stock" ("ATP Series B"). Each share of ATP Series B
shall have an Applicable Rate for its initial Dividend Period equal to 3.46%
per annum and have an initial Dividend Payment Date of February 15, 1994; and
each share of ATP Series B shall have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or
set forth in the Articles applicable to preferred stock of the Corporation,
as are set
-----------------------------------------------------------------------------
STATE OF MARYLAND
I hereby certify that this is a true and complete copy of the 58 page
document on file in this office. DATED 12-29-93.
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY: /s/ Nancy Grueninge
This stamp replaces our previous certification system. Effective: 10/84
-----------------------------------------------------------------------------
<PAGE>
forth in Part I and Part II of these Articles Supplementary. The ATP Series B
shall constitute a separate series of Preferred Stock of the Corporation.
Subject to the provisions of Section 12(c) of Part I hereof, the Board of
Directors of the Corporation may, in the future, reclassify additional shares
of the Corporation's Preferred Stock as Series A or Series B ATP, with the
same preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption and other
terms of the respective series herein described, except that the Applicable
Rate for its initial Dividend Period, its initial Dividend Payment Date and
any other changes in the terms herein set forth shall be as set forth in the
Articles Supplementary reclassifying such shares as ATP.
As used in Part I and Part II of these Articles Supplementary, capitalized
terms shall have the meanings provided in Section 18 of Part I and Section 1
of Part II.
PART I
1. Number of Shares; Ranking.
(a) The initial number of authorized shares constituting each series
of ATP is 1,200 shares for ATP Series A and 800 shares for ATP Series B. No
fractional shares of ATP shall be issued.
(b) Any shares of ATP which at any time have been redeemed or
purchased by the Corporation shall, after such redemption or purchase, have
the status of authorized but unissued shares of Preferred Stock.
(c) The shares of ATP shall rank on a parity with shares of any other
series of Preferred Stock (including any other shares of ATP) as to the
payment of dividends to which such shares are entitled and the distribution
of assets upon dissolution, liquidation or winding up of the affairs of the
Corporation.
(d) No holder of shares of any series of ATP shall have, solely by
reason of being such a holder of any series, any preemptive or other right
to acquire, purchase or subscribe for any shares of ATP, shares of Common
Stock of the Corporation or other securities of the Corporation which it
may hereafter issue or sell.
2. Dividends.
(a) The Holders of shares of any series of ATP shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends on their shares at
the Applicable Rate, determined as set forth in paragraph (c) of this
Section 2, and no more, payable on the respective dates determined as set
forth in paragraph (b) of this Section 2. Dividends on the Outstanding
shares of any
2
<PAGE>
series of ATP issued on the Date of Original Issue shall accumulate from
the Date of Original Issue.
(b) (i) Dividends shall be payable when, as and if declared by the
Board of Directors following the initial Dividend Payment Date, subject to
subparagraph (b)(ii) of this Section 2, on the shares of each series of ATP
as follows:
(A) with respect to any Dividend Period of one year or less, on
the Business Day next succeeding the last day thereof and, if any, on
the 91st, 181st and 271st days thereof; and
(B) with respect to any Dividend Period of more than one year, on
a quarterly basis on each January 1, April 1, July 1 and October 1
within such Dividend Period and on the Business Day following the last
day of such Dividend Period.
(ii) If a day payment of dividends resulting from the application of
subparagraph (b)(i) above is not a Business Day then the Dividend Payment
Date shall be the day next succeeding such day, or if the day next
succeeding such day for payment of dividends is not a Business Day, then
the Dividend Payment Date shall be the first Business Day prior to such day
for payment of dividends that is next succeeded by a Business Day;
provided, however, that if the Securities Depository pays dividends in
same-day funds, and such day for payment is not a Business Day, the
Dividend Payment Date shall by the first Business Day following such day
for payment of dividends.
(iii) The Corporation shall pay to the Paying Agent not later than
3:00 p.m., New York City time, on the Business Day next preceding each
Dividend Payment Date for the shares of the relevant series of ATP, an
aggregate amount of funds available on the next Business Day in the City of
New York, New York, equal to the dividends to be paid to all Holders of
such shares on such Dividend Payment Date. The Corporation shall not be
required to establish any reserves for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of dividends
shall be held in trust for the payment of such dividends by the Paying
Agent for the benefit of the Holders specified in subparagraph (b)(v) of
this Section 2. Any moneys paid to the Paying Agent in accordance with the
foregoing but not applied by the Paying Agent to the payment of dividends,
including interest earned on such moneys, will, to the extent permitted by
law, be repaid to the Corporation at the end of 90 days from the date on
which such moneys were to have been so applied.
(v) Each dividend on the ATP shall be paid on the Dividend Payment
Date therefor to the Holders of the relevant series as their names appear
on the stock ledger or stock records of the Corporation on the Business Day
next
3
<PAGE>
preceding such Dividend Payment Date. Dividends in arrears for any
past Dividend Period may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to the Holders as their
names appear on the stock ledger or stock records of the Corporation on
such date, not exceeding 15 days preceding the payment date thereof, as may
be fixed by the Board of Directors.
(c)(i) The dividend rate on Outstanding shares of each series of ATP
during the period from and after the Date of Original Issue to and
including the last day of the initial Dividend Period thereof shall be
equal to the rate per annum set forth under "Designation" above. For each
subsequent Dividend Period with respect to the Outstanding shares of any
series of ATP outstanding thereafter, the dividend rate shall be equal to
the rate per annum that results from an Auction for Outstanding shares of
the relevant series of ATP on the respective Auction Date therefor next
preceding such subsequent Dividend Period; provided, however, that if an
Auction for any subsequent Dividend Period of such series of ATP is not
held for any reason or if Sufficient Clearing Orders have not been made in
an Auction (other than as a result of all shares of such series of ATP
being the subject of Submitted Hold Orders or Submitted Hold/Sell Orders),
then the dividend rate on the shares of such series of ATP for any such
Dividend Period shall be the Maximum Applicable Rate for such shares on the
Auction Date for such Dividend Period (Except during a Default Period when
the dividend rate shall be the Default Rate, as set forth in Section
2(c)(ii) below). The Minimum Applicable Rate, if any, will apply
automatically following an Auction in which all of the Outstanding shares
of the relevant series of ATP are subject (or are deemed to be subject) to
Hold Orders of Hold/Sell Orders. The rate per annum at which dividends are
payable on shares of any series of ATP as determined pursuant to this
Section 2(c)(i) shall be the "Applicable Rate."
(ii) A "Default Period" will commence on the applicable date set forth
below if the Corporation fails to (A) declare prior to the close of
business on the second Business Day preceding any Dividend Payment Date,
for payment on or (to the extent permitted as described below) within two
Business Days after such Dividend Payment Date to the persons who held
shares as of 12:00 noon, New York City time, on the Business Day preceding
such Dividend Payment Date, the full amount of any dividend payable on such
Dividend Payment Date, (B) deposit, irrevocably in trust, in same-day
funds, with the Paying Agent by 12:00 noon, New York City time, (I) on or
(to the extent permitted as described below) within two Business Days after
any Dividend Payment Date the full amount of any declared dividend on the
relevant series of ATP payable on such Dividend Payment Date (together with
the failure to timely declare dividends described in (A) above, hereinafter
referred to as a "Dividend Default") or (II) on or (to the extent permitted
as described below) within two Business Days after any date fixed for
redemption of shares of ATP called for redemption, the applicable
redemption price (a "Redemption Default") or (C) maintain the "aaa"/AAA
Credit Rating unless the "aaa"/AAA Credit Rating is restored by the
Dividend Payment Date next following the date on which the Corporation
fails to maintain the "aaa"/AAA Credit Rating (a "Rating Default" and,
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together with a Dividend Default and a Redemption Default, hereinafter
referred to as a "Default"). A Default Period with respect to a Dividend
Default or a Redemption Default will consist of the period commencing on
and including the aforementioned Dividend Payment Date or redemption date,
as the case may be, and ending on and including the Business Day on which,
by 12:00 noon, New York City time, all unpaid dividends and unpaid
redemption price shall have been so deposited or shall have otherwise been
made available to the applicable holders in same-day funds. A Default
Period with respect to a Rating Default shall commence as of the date on
which the Corporation fails to maintain the "aaa"/AAA Credit Rating
(provided that such Rating Default shall be deemed not to have occurred and
such Default Period shall not commence if such Rating Default is cured by
the next succeeding Dividend Payment Date) and shall end on the earlier of
the date on which such default is cured as provided herein or the date on
which the ATP is mandatorily redeemed as provided herein. The Applicable
Rate for each Default Period, including each Dividend Period commencing
during a Default Period, will be equal to the Default Rate; and each
subsequent Dividend Period commending after the beginning of a Default
Period shall be a Standard Term Period; provided, however, that the
commencement of a Default Period will not by itself cause the commencement
of a new Dividend Period. Any dividend due on any Dividend Payment Date
(if, prior to 12:00 noon, New York City time, on such Dividend Payment
Date, the Corporation has declared such dividend payable on or within two
Business Days after such Dividend Payment Date to the persons who held such
shares as of 12:00 noon, New York City time, on the Business Day preceding
such Dividend Payment Date) or redemption price with respect to such shares
not paid to such Persons when due may (if such default is not solely due to
the willful failure of the Corporation) be paid to such persons in the same
form of funds by 12:00 noon, New York City time, on any of the first two
Business Days after such Dividend Payment Date or due date, as the case may
be, provided that such amount is accompanied by an additional amount for
such period of non-payment at the Default Rate applied to the amount of
such non-payment based on the actual number of days comprising such period
divided by 360. For the purposes of the foregoing, payment to a person in
same-day funds made on or before 12:00 noon New York City time on any
Business Day at any time will be considered equivalent to payment to that
person in New York Clearing House (next-day) funds at the same time on the
preceding Business Day, and any payment made after 12:00 noon, New York
City time, on any Business Day shall be considered to have been made
instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day. The Default Rate is equal to
the Reference Rate multiplied by three (3).
(iii) The amount of dividends per share payable (if declared) on each
Dividend Payment Date of each Dividend Period of less than one (1) year
shall be computed by multiplying the Applicable Rate (or the Default Rate)
for such Dividend Period by a fraction, the numerator or which will be the
number of days in such Dividend Period such share was Outstanding and for
which the Applicable Rate or the Default Rate was applicable and the
denominator of which will be 360, multiplying
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the amount so obtained by $50,000, and rounding the amount so obtained
to the nearest cent. During any Dividend Period of one (1) year or more,
the amount of dividends per share payable on any Dividend Payment Date
shall be computed as described in the preceding sentence, except that it
will be determined on the basis of a year consisting of twelve 30-day
months.
(d) Any dividend payment made on shares of any series of ATP shall
first be credited against the earliest accumulated but unpaid dividends due
with respect to such series of ATP.
(e) For so long as the shares of ATP are Outstanding, except as
contemplated by Sections 3(j) and 7(e) or in connection with the redemption
or repurchase of the Corporation's Taxable Auction Rate Preferred Stock in
connection with the issuance of the ATP, the Corporation will not declare,
pay or set apart for payment any dividend or other distribution (other than
a dividend or distribution paid in shares of, or options, warrants or
rights to subscribe for or purchase, Common Stock or other shares, if any,
ranking junior to the ATP as to dividends or upon liquidation) in respect
to Common Stock or any other shares of the Corporation ranking junior to or
on a parity with the ATP as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any
Common Stock or any other such junior shares (except by conversion into or
exchange for shares of the Corporation ranking junior to the ATP as to
dividends an upon liquidation) or any such parity shares (except by
conversion into or exchange for shares of the Corporation ranking junior to
or on a parity with the ATP as to dividends and upon liquidation), or any
such parity shares (except by conversion into or exchange for shares of the
Corporation ranking junior to or on a parity with the ATP as to dividends
and upon liquidation), unless (i) immediately after such transaction, the
Corporation would have Eligible Assets with an aggregate Discounted Value
at least equal to the ATP Basic Maintenance Amount and the 1940 Act ATP
Asset Coverage would be achieved, (ii) full cumulative dividends on the ATP
due on or prior to the date of the transaction have been declared and paid
and (iii) the Corporation has redeemed the full number of shares of ATP
required to be redeemed by any provision for mandatory redemption contained
in Section 3(a)(ii).
3. Redemption
(a)(i) After the initial Dividend Period, subject to the provisions of
this Section 3 and to the extent permitted under the 1940 Act and Maryland
law, the Corporation may, at its option, redeem in whole or in part out of
funds legally available therefor shares of any series of ATP herein
designated as (A) having a Dividend Period of one year or less, on the
Business Day after the last day of such Dividend Period by delivering a
notice of redemption not less than 15 days and not more than 40 days prior
to such redemption, at a redemption price per share equal to $50,000, plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to the date fixed for redemption, or (B) having a
Dividend Period of more than one year, on any Business Day prior to the end
of the relevant Dividend Period by delivering a notice of redemption not
less than 15 days and not more than 40 days prior to the date fixed for
such redemption, at a redemption price
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per share equal to $50,000, plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to the date
fixed for redemption, plus a redemption premium, if any, determined by the
Board of Directors after consultation with the Broker-Dealers and set forth
in any applicable Specific Redemption Provisions at the time of the
designation of such Dividend Period as set forth in Section 4 of these
Articles Supplementary; provided, however, that during a Dividend Period of
more than one year no shares of ATP will be subject to optional redemption
except in accordance with any Specific Redemption Provisions approved by
the Board of Directors after consultation with the Broker-Dealers at the
time of the designation of such Dividend Period. Notwithstanding the
foregoing, the Corporation shall not give a notice of or effect any
redemption pursuant to this Section 3(a)(i) unless, on the date on which
the Corporation intends to give such notice and on the date of redemption
(a) the Corporation has available certain Deposit Securities with maturity
or tender dates not later than the day preceding the applicable redemption
date and having a value not less than the amount (including any applicable
premium) due to Holders of ATP by reason of the redemption of such ATP on
such date fixed for the redemption and (b) the Corporation would have
Eligible Assets with an aggregate Discounted Value at least equal the ATP
Basic Maintenance Amount immediately subsequent to such redemption, if such
redemption were to occur on such date, it being understood that the
provisions of paragraph (d) of this Section 3 shall be applicable in such
circumstances in the event the Corporation makes the deposit and takes the
other action required thereby.
(ii) If the Corporation fails to maintain, as of any Valuation Date,
Eligible Assets with an aggregate Discounted Value at least equal to the
ATP Basic Maintenance Amount or, as of the last Business Day of any month,
the 1940 Act ATP Asset Coverage, an such failure is not cured within two
Business Days following the relevant Valuation Date in the case of a
failure to maintain the ATP Basic Maintenance Amount or the last Business
Day of the following month in the case of a failure to maintain 1940 Act
Asset Coverage as of such last Business Day (respectively, the "Asset
Coverage Cure Date"), the ATP will be subject to mandatory redemption out
of funds legally available therefor. The number of shares of ATP to be
redeemed in such circumstances will be equal to the lesser of (A) the
minimum number of shares of ATP the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the relevant Asset
Coverage Cure Date, would result in the Corporation having Eligible Assets
with an aggregate Discounted Value at least equal to the ATP Basic
Maintenance Amount, or sufficient to satisfy 1940 Act Asset Coverage, as
the case may be, in either case as of the relevant Asset Coverage Cure Date
(provided that, if there is no such minimum number of shares the redemption
of which would have such result, all shares of ATP then outstanding will be
redeemed), and (B) the maximum number of shares of ATP that can be redeemed
out of funds expected to be available therefor on the mandatory redemption
date at the Mandatory Redemption Price set forth in subparagraph (a)(iv) of
this Section 3.
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(iii) If the Corporation at any time fails to maintain the "aaa"/AAA
Credit Rating and the Corporation is unable to restore the "aaa"/AAA Credit
Rating within 90 calendar days thereafter (the "Rating Default Cure Date"),
all shares of ATP will be subject to mandatory redemption out of funds
legally available therefor, on the Mandatory Redemption Date at the
Mandatory Redemption Price set forth in subparagraph (a)(iv) of this
Section 3.
(iv) In determining the shares of ATP required to be redeemed in
accordance with the foregoing Section 3(a)(ii), the Corporation shall
allocate the number of shares required to be redeemed to satisfy the ATP
Basic Maintenance Amount or the 1940 Act ATP Asset Coverage, as the case
may be, pro rata among the Holders of shares of ATP in proportion to the
number of shares they hold and shares of other Preferred Stock subject to
mandatory redemption provisions similar to those contained in this Section
3, subject to the further provisions of this subparagraph (iv). The
Corporation shall effect any required mandatory redemption pursuant to
subparagraph (a)(ii) or (a)(iii) of this Section 3 no later than 30 days
after the Asset Coverage Cure or the Rating Default Cure Date, as the case
may be (the "Mandatory Redemption Date"), except that if the Corporation
does not have funds legally available for the redemption of, or is not
otherwise legally permitted to redeem, the number of shares of ATP which
would be required to be redeemed by the Corporation under clause (A) of
subparagraph (a)(ii) or subparagraph (a)(iii) of this Section 3 if
sufficient funds were available, together with shares of other Preferred
Stock which are subject to mandatory redemption under provisions similar to
those contained in this Section 3, or the Corporation otherwise is unable
to effect such redemption on or prior to such Mandatory Redemption Date,
the Corporation shall redeem those shares of ATP, and shares of other
Preferred Stock which it was unable to redeem, on the earliest practicable
date on which the Corporation will have such funds available, upon notice
pursuant to Section 3(b) to record owners of shares of ATP to be redeemed
and the Paying Agent. The Corporation will deposit with the Paying Agent
funds sufficient to redeem the specified number of shares of ATP with
respect to a redemption required under subparagraph (a)(ii) or subparagraph
(a)(iii) of this Section 3, by 1:00 p.m., New York City time, of the
Business Day immediately preceding the Mandatory Redemption Date. If fewer
than all of the Outstanding shares of ATP are to be redeemed pursuant to
this Section 3(a)(iv), the number of shares to be redeemed shall be
redeemed pro rate from the Holders of such shares in proportion to the
number of such shares held by such Holders, by lot or by such other method
as the Corporation shall deem fair and equitable, subject, however, to the
terms of any applicable Specific Redemption Provisions. "Mandatory
Redemption Price" means $50,000 per share, plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or
declared) to the date fixed for redemption, plus (in the case of a Dividend
Period of one year or more only) a redemption premium, if any, determined
by the Board of Directors after consultation with the Broker-Dealers and
set forth in any applicable Specific Redemption Provisions.
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(b) In the event of a redemption pursuant to Section 3(a), the
Corporation will file a notice of its intention to redeem with the
Securities and Exchange Commission so as to provide at least the minimum
notice required under Rule 23c-2 under the 1940 Act or any successor
provision. In addition, the Corporation shall deliver a notice of
redemption to the Auction Agent (the "Notice of Redemption") containing the
information set forth below (i) in the case of an optional redemption
pursuant to subparagraph (a)(i) above, one Business Day prior to the giving
of notice to the Holders, (ii) in the case of a mandatory redemption
pursuant to subparagraph (a)(ii) or subparagraph (a)(iii) above, on or
prior to the 30th day preceding the Mandatory Redemption Date. The Auction
Agent will use its reasonable efforts to provide telephonic notice to each
Holder of shares of ATP called for redemption not later than the close of
business on the Business Day immediately following the day on which the
Auction Agent determines the shares to be redeemed (or, during a Default
Period with respect to such shares, not later than the close of business on
the Business Day immediately following the day on which the Auction Agent
receives Notice of Redemption from the Corporation). The Auction Agent
shall confirm such telephonic notice in writing not later than the close of
business on the third Business Day preceding the date fixed for redemption
by providing the Notice of Redemption to each Holder of shares called for
redemption, the Paying Agent (if different from the Auction Agent) and the
Securities Depository. Notice of Redemption will be addressed to the
registered owners of the ATP at their addresses appearing on the share
records of the Corporation. Such Notice of Redemption will set forth (i)
the date fixed for redemption, (ii) the number and identity of shares of
ATP to be redeemed, (iii) the redemption price (specifying the amount of
accumulated dividends to be included therein), (iv) that dividends on the
shares to be redeemed will cease to accumulate on such date fixed for
redemption, and (v) the provision under which redemption shall be made. No
defect in the Notice of Redemption or in the transmittal or mailing thereof
will affect the validity of the redemption proceedings, except as required
by applicable law. If fewer than all shares held by any Holder are to be
redeemed, the Notice of Redemption mailed to such Holder shall also specify
the number of shares to be redeemed from such Holder.
(c) Notwithstanding the provisions of paragraph (a) of this Section 3,
but subject to Section 7(e), no shares of ATP may be redeemed unless all
dividends in arrears on the Outstanding shares of ATP and all capital stock
of the Corporation ranking on a parity with the ATP with respect to payment
of dividends or upon liquidation, have been or are being contemporaneously
paid or set aside for payment; provided, however, that the foregoing shall
not prevent the purchase or acquisition of all Outstanding shares of ATP
pursuant to the successful completion of an otherwise lawful purchase or
exchange offer made on the same terms to, and accepted by, Holders of all
Outstanding shares of ATP.
(d) Upon the deposit of funds sufficient to redeem shares of ATP with
the Paying Agent and the giving of the Notice of Redemption to the Auction
Agent under paragraph (b) of this Section 3, dividends on such shares shall
cease to accumulate and such shares shall no longer be deemed to be
Outstanding for any purpose (including, without limitation, for purposes of
calculating whether the Corporation has maintained the requisite ATP Basic
Maintenance Amount or the 1940 Act ATP Asset Coverage), and all rights of
the
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holder of the shares so called for redemption shall cease and
terminate, except the right of such holder to receive the redemption price
specified herein, but without any interest or other additional amount. Such
redemption price shall be paid by the Paying Agent to the nominee of the
Securities Depository. The Corporation shall be entitled to receive from
the Paying Agent, promptly after the date fixed for redemption, any cash
deposited with the Paying Agent in excess of (i) the aggregate redemption
price of the shares of ATP called for redemption on such date and (ii) such
other amounts, if any, to which Holders of shares of ATP called for
redemption may be entitled. Any funds so deposited that are unclaimed at
the end of two years from such redemption date shall, to the extent
permitted by law, be paid to the Corporation, after which time the Holders
of shares of ATP so called for redemption may look only to the Corporation
for payment of the redemption price and all other amounts, if any, to which
they may be entitled. The Corporation shall be entitled to receive, from
time to time after the date fixed for redemption, any interest earned on
the funds so deposited.
(e) To the extent that any redemption for which Notice of Redemption
has been given is not made by reason of the absence of legally available
funds therefor, or is otherwise prohibited, such redemption shall be made
as soon as practicable to the extent such funds become legally available or
such redemption is no longer otherwise prohibited. Failure to redeem shares
of ATP shall be deemed to exist at any time after the date specified for
redemption in a Notice of Redemption when the Corporation shall have
failed, for any reason whatsoever, to deposit in trust with the Paying
Agent the redemption price with respect to any shares for which such Notice
of Redemption has been given. Notwithstanding the fact that the Corporation
may not have redeemed shares of ATP for which a Notice of Redemption has
been given, dividends may be declared and paid on shares of ATP and shall
include those shares of ATP for which Notice of Redemption has been given
but for which deposit of funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the redemption
price of shares of ATP called for redemption shall be held in trust by the
Paying Agent for the benefit of holders of shares so to be redeemed.
(g) So long as any shares of ATP are held of record by the nominee of
the Securities Depository, the redemption price for such shares will be
paid on the date fixed for redemption to the nominee of the Securities
Depository for distribution to Agent Members for distribution to the
persons for whom they are acting as agent.
(h) Except for the provisions described above, nothing contained in
these Articles Supplementary limits any right of the Corporation to
purchase or otherwise acquire any shares of ATP outside of an Auction at
any price, whether higher or lower than the price that would be paid in
connection with an optional or mandatory redemption, so long as, at the
time of any such purchase, there is no arrearage in the payment of
dividends on, or the mandatory or optional redemption price with respect
to, any shares of ATP for which Notice of Redemption has been given and the
Corporation is in compliance with the 1940 Act ATP Asset Coverage and has
Eligble Assets with an aggregate Discounted Value at least equal to
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the ATP Basic Maintenance Amount after giving effect to such purchase
or acquisition on the date thereof. Any shares which are purchased,
redeemed or otherwise acquired by the Corporation shall have no voting
rights. If fewer than all the Outstanding shares of ATP are redeemed or
otherwise acquired by the Corporation, the Corporation shall give notice of
such transaction to the Auction Agent, in accordance with the procedures
agreed upon by the Board of Directors.
(i) In the case of any redemption pursuant to this Section 3, only
whole shares of ATP shall be redeemed, and in the event that an provision
of the Articles would require redemption of a fractional share, the Auction
Agent shall be authorized to round up so that only whose shares are
redeemed.
(j) Notwithstanding anything herein to the contrary, including,
without limitation, Sections 2(e), 6(g) and 12 of Part I hereof, the Board
of Directors may authorize, create or issue any class or series of stock
ranking prior to or on a parity with the ATP with respect to the payment of
dividends or the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Corporation, to the extent permitted by
the 1940 Act, as amended, if upon issuance, the net proceeds from the sale
of such stock (or such portion thereof needed to redeem or repurchase the
Outstanding ATP) are deposited with the Auction Agent in accordance with
Section 3(d) of Part I hereof, Notice of Redemption as contemplated by
Section 3(b) of Part I hereof has been delivered prior thereto or is sent
promptly thereafter, and such proceeds are used to redeem all Outstanding
ATP.
4. Designation of Dividend Period
(a) The initial Dividend Period for each series of the ATP is as set
forth under "Designation" above. The Corporation will designate the
duration of subsequent Dividend Periods of each series of ATP; provided,
however, that no such designation is necessary for a Standard Term Period
and, provided further, that any designation of an Alternate Term Period
shall be effective only if (i) notice thereof shall have been given as
provided herein, (ii) any failure to pay in a timely manner to the Auction
Agent the full amount of any dividend on, or the redemption price of, the
ATP shall have been cured as provided above, (iii) Sufficient Clearing
Orders shall have existed in an Auction held on the Auction Date
immediately preceding the first day of such proposed Alternate Term Period,
(iv) if the Corporation shall have mailed a Notice of Redemption with
respect to any shares, the redemption price with respect to such shares
shall have been deposited with the Paying Agent, and (v) in the case of the
designation of an Alternate Term Period, the Corporation has confirmed that
as of the Auction Date next preceding the first day of such Alternate Term
Period, it has Eligible Assets with an aggregate Discounted Value at least
equal to the ATP Basic Maintenance Amount, and the Corporation has
consulted with the Broker-Dealers and has provided notice of such
designation and an ATP Basic Maintenance Report to Fitch (if Fitch is then
rating the ATP), Moody's (if Moody's is then rating the ATP) and any Other
Rating Agency which is then rating the ATP and so requires.
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(b) If the Corporation proposes to designate any Alternate Term
Period, not fewer than 15 (or two Business Days in the event the duration
of the Dividend Period prior to such Alternate Term Period is fewer than 15
days) nor more than 30 days prior to the first day of such Alternate Term
Period, notice shall be (i) made by press release and (ii) communicated by
the Corporation by telephonic or other means to the Auction Agent and
confirmed in writing promptly thereafter. Each such notice shall state (A)
that the Corporation proposes to exercise its option to designate a
succeeding Alternate Term Period, specifying the first and last days
thereof and (B) that the Corporation will by 3:00 p.m., New York City time,
on the second Business Day next preceding the first day of such Alternate
Term Period, notify the Auction Agent, who will promptly notify the
Broker-Dealers, of either (x) its determination, subject to certain
conditions, to proceed with such Alternate Term Period, subject to the
terms of any Specific Redemption Provisions, or (y) its determination not
to proceed with such Alternate Term Period, in which latter event the
succeeding Dividend Period shall be a Standard Term Period.
No later than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Alternate Term Period, the
Corporation shall deliver to the Auction Agent, who will promptly deliver to
the Broker-Dealers and Existing Holders, either:
(i) a notice stating (A) that the Corporation has determined to
designate the next succeeding Dividend Period as an Alternate Term Period,
specifying the first and last days thereof and (B) the terms of any
Specific Redemption Provisions; or
(ii) a notice stating that the Corporation has determined not to
exercise its option to designate an Alternate Term Period.
If the Corporation fails to deliver either such notice with respect to any
designation of any proposed Alternative Term Period to the Auction Agent or
is unable to make the confirmation provided in clause (v) of Paragraph (a) of
this Section 4 by 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of such proposed Alternate Term Period, the
Corporation shall be deemed to have delivered a notice to the Auction Agent
with respect to such Dividend Period to the effect set forth in clause (ii)
above, thereby resulting in a Standard Term Period.
5. Restrictions on Transfer. Shares of ATP may be transferred only (a)
pursuant to an Order placed in an Auction, (b) to or through a Broker-Dealer,
(c) to a Person that has delivered a signed Master Purchaser's Letter to the
Auction Agent or (d) to the Corporation or any Affiliate. Notwithstanding the
foregoing, no transfers other than those transfers made pursuant to Auctions
will be effective unless the selling Existing Holder or the Broker-Dealer or
Agent Member of such Existing Holder advises the Auction Agent of such
transfer. The certificates representing the shares of ATP issued to the
Securities Depository will bear legends with respect to the restrictions
described above and stop-transfer instructions will be issued to the Transfer
Agent and/or Registrar.
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6. Voting Rights. (a) Except as otherwise provided in the Articles or as
otherwise required by applicable law, (i) each Holder of shares of ATP shall
be entitled to one vote for each share of ATP held on each matter submitted
to a vote of shareholders of the Corporation, and (ii) the holders of
outstanding shares of Preferred Stock, including the ATP, and shares of
Common Stock shall vote together as a single class; provided, however, that,
at any meeting of the stockholders of the Corporation held for the election
of directors, the holders of outstanding shares of Preferred Stock, including
the ATP, represented in person or by proxy at said meeting, shall be
entitled, as a class, to the exclusion of the holders of all other securities
and classes of capital stock of the Corporation, to elect two directors of
the Corporation, each share of Preferred Stock, including the ATP, entitling
the holder thereof to one vote. Subject to paragraph (b) of this Section 6,
the holders of outstanding shares of Common Stock and Preferred Stock,
including the ATP, voting together as a single class, shall elect the balance
of the directors.
(b) During any period in which any one or more of the conditions
described below shall exist (such period being referred to herein as a
"Voting Period"), the number of directors constituting the Board of
Directors shall be automatically increased by the smallest number that,
when added to the two directors elected exclusively by the holders of
shares of Preferred Stock, including the ATP, would constitute a majority
of the Board of Directors as so increased by such smallest number; and the
holders of shares of Preferred Stock, including the ATP, shall be entitled,
voting as a class on a one-vote-per-share basis (to the exclusion of the
holders of all other securities and classes of capital stock of the
Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled
to elect. A Voting Period shall commence:
(i) if at the close of business on any Dividend Payment Date
accumulated dividends (whether or not earned or declared) on shares of
the Preferred Stock, including the ATP, equal to at least two full
years' dividends shall be due and unpaid; or
(ii) if at any time holders of any other shares of Preferred
Stock are entitled under the 1940 Act to elect a majority of the
directors of the Corporation.
Upon the termination of a Voting Period, the voting rights described in
this paragraph (b) of Section 6 shall cease, subject always, however, to
the revesting of such voting rights in the Holders of shares of Preferred
Stock, including the ATP, upon the further occurrence of any of the events
described in this paragraph (b) of Section 6.
(c) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock, including the ATP, to elect
additional directors as described in paragraph (b) of this Section 6, the
Corporation shall notify the Auction Agent, and the Auction Agent shall
call a special meeting of such holders, by mailing a notice of such special
meeting to such holders, such meeting to be held not less than 10 nor more
than 30 days after the date of mailing of such notice. If the Corporation
fails to send such notice to
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the Auction Agent or if the Auction Agent does not call such a special
meeting, it may be called by any such holder on like notice. The record
date for determining the holders entitled to notice of and to vote at such
special meeting shall be the close of business on the fifth Business Day
preceding the day on which such notice is mailed. At any such special
meeting and at each meeting of holders of shares of Preferred Stock,
including the ATP, held during a Voting Period at which directors are to be
elected, such holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the
Corporation), shall be entitled to elect the number of directors prescribed
in paragraph (b) of this Section 6 on a one-vote-per-share basis.
(d) For purposes of determining any rights of the Holders to vote on
any matter, whether such right is created by the Articles, by statute or
otherwise, no Holders shall be entitled to vote and no share of ATP shall
be deemed to be "Outstanding" for the purpose of voting or determining the
number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or
shares deemed Outstanding for quorum purposes, as the case may be, the
redemption price for the redemption of such shares has been deposited in
trust with the Paying Agent for that purpose and the requisite Notice of
Redemption with respect to such shares shall have been given as provided in
Section 3. No share of ATP held by the Corporation or any Affiliate of the
Corporation shall have any voting rights or be deemed to be Outstanding for
voting or other purposes, except that shares of ATP held by any Affiliate
of the Corporation are deemed Outstanding for purposes of determining the
ATP Basic Maintenance Amount.
(e) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of the ATP and
holders of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the holders and such other
holders of the number of directors that they are entitled to elect, and the
persons so elected by such holders, together with the two incumbent
directors elected by such holders and the remaining incumbent directors
elected by the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
(f) Simultaneously with the termination of a Voting Period, the terms
of office of the additional directors elected by the Holders of the ATP and
holders of other Preferred Stock pursuant to paragraph (b) of this Section
6 shall terminate, the remaining directors shall constitute the directors
of the Corporation and the voting rights of such holders to elect
additional directors pursuant to paragraph (b) of this Section 6 shall
cease, subject to the provisions of the last sentence of paragraph (b) of
this Section 6.
(g) So long as any of the shares of Preferred Stock, including the
ATP, are Outstanding, the Corporation will not, without the affirmative
vote of the holders of a majority of the Outstanding shares of Preferred
Stock determined with reference to a "majority of outstanding voting
securities" as that term is defined in Section 2(a)(42) of the 1940 Act,
voting as a separate class, (i) amend, alter or repeal any of the
preferences, rights or powers of such class so as to affect materially and
adversely such preferences, rights or powers; (ii) increase the authorized
number of shares of Preferred Stock; (iii) create,
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authorize or issue shares of any class of capital stock ranking senior to
or on a parity with the Preferred Stock with respect to the payment of
dividends or the distribution of assets, or any securities convertible
into, or warrants, options or similar rights to purchase, acquire or
receive, such shares of capital stock ranking senior to or on a parity with
the Preferred Stock or reclassify any authorized shares of capital stock of
the Corporation into any shares ranking senior to or on a parity with the
Preferred Stock (except that, notwithstanding the foregoing, but subject to
the provisions of Sections 3(j) and 12, the Board of Directors, without the
vote or consent of the holders of the Preferred Stock, may from time to
time authorize, create and classify, and the Corporation may from time to
time issue, shares or series of Preferred Stock ranking on a parity with
the ATP with respect to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up to the affairs of the
Corporation, and may reclassify and/or issue any shares of the ATP
previously purchased or redeemed by the Corporation subject to continuing
compliance by the Corporation with 1940 Act ATP Asset Coverage and ATP
Basic Maintenance Amount requirements); (iv) institute any proceedings to
be adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition seeking
or consenting to reorganization or relief under any applicable federal or
state law relating to bankruptcy or insolvency, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Corporation or a substantial part of its
property, or make any assignment for the benefit of creditors, or, except
as may be required by applicable law, admit in writing its inability to pay
its debts generally as they become due or take any corporate action in
furtherance of any such action; (v) create, incur or suffer to exist, or
agree to create, incur or suffer to exist, or consent to cause or permit in
the future (upon the happening of a contingency or otherwise) the creation,
incurrence or existence of any material lien, mortgage, pledge, charge,
security interest, security agreement, conditional sale or trust receipt or
other material encumbrance of any kind upon any of the Corporation's assets
as a whole, except (A) liens the validity of which are being contested in
good faith by appropriate proceedings, (B) liens for taxes that are not
then due and payable or that can be paid thereafter without penalty, (C)
liens, pledges, charges, security interests, security agreements or other
encumbrances arising in connection with any indebtedness permitted under
clause (vi) below and (D) liens to secure payment for services rendered
including, without limitation, services rendered by the Corporation's
custodian and the Auction Agent; or (vi) create, authorize, issue, incur or
suffer to exist any indebtedness for borrowed money or any direct or
indirect guarantee of such indebtedness for borrowed money or any direct or
indirect guarantee of such indebtedness, except the Corporation may borrow
for temporary or emergency purposes as may be permitted by the
Corporation's investment restrictions or as permitted under the proviso to
Section 12(b) hereof; provided, however, that transfers of assets by the
Corporation subject to any obligation to repurchase shall not be deemed to
be indebtedness for purposes of this provision to the extent that after any
such transaction the Corporation has Eligible Assets with an aggregate
Discounted Value at least equal to the ATP Basic Maintenance Amount as of
the immediately preceding Valuation Date.
(h) The affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including the ATP, voting as a
separate class, shall be required to approve any plan of reorganization (as
such term is used in the 1940 Act) adversely affecting
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such shares or any action requiring a vote of security holders of the
Corporation under Section 13(a) of the 1940 Act. In the event a vote of
holders of shares of Preferred Stock is required pursuant to the provisions
of Section 13(a) of the 1940 Act, the Corporation shall, not later than ten
Business Days prior to the date on which such vote is to be taken, notify
Moody's (if Moody's is then rating the ATP), Fitch (if Fitch is then rating
the ATP) and any Other Rating Agency which is then rating the ATP and which
so requires that such vote is to be taken and the nature of the action with
respect to which such vote is taken and shall, not later than ten Business
Days after the date on which such vote is taken, notify Moody's, Fitch and
any such Other Rating Agency, as applicable, of the results of such vote.
(i) The affirmative vote of the holders of a majority of the
Outstanding shares of each series of ATP, voting separately from any other
series, shall be required with respect to any matter that materially and
adversely affects the rights, preferences, or powers of such series in a
manner different from that of other series of classes of the Corporation's
shares of capital stock. For purposes of the foregoing, no matter shall be
deemed to adversely affect any right, preference or power unless such
matter (i) alters or abolishes any preferential right of such series; (ii)
creates, alters or abolishes any right in respect of redemption of such
series; or (iii) creates or alters (other than to abolish) any restriction
on transfer applicable to such series. The vote of holders of ATP described
in this Section 6(i) will in each case be in addition to a separate vote of
the requisite percentage of Common Stock and/or ATP necessary to authorize
the action in question.
(j) The Board of Directors, without the vote or consent of any holder
of the Preferred Stock, including the ATP, or any other stockholder of the
Corporation, may from time to time amend, alter or repeal any or all of the
definitions of the terms or provisions listed below in connection with
obtaining or maintaining one or more ratings with respect to the ATP, and
any such amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of shares of ATP or the Holders thereof,
provided that the Board of Directors receives written confirmation from
Moody's (if Moody's is then rating the ATP) and Fitch (if Fitch is then
rating the ATP) (with such confirmation in no event being required to be
obtained from a particular rating agency in the case of the definitions
relevant only to and adopted in connection with the rating of the ATP, if
any, by any other rating agency) that such amendment, alteration or repeal
would not impair the rating then assigned by Moody's or Fitch,
respectively. In addition, the Board of Directors, without the vote or
consent of any Holder of the Preferred Stock, including the ATP, or any
other stockholder of the Corporation, may from time to time adopt, amend,
alter or repeal any or all of any additional or other definitions or add
covenants and other obligations of the Corporation (e.g., maintenance of
minimum liquidity level) or confirm the applicability of covenants and
other obligations set forth herein in connection with obtaining or
maintaining the rating of Moody's, Fitch or any Other Rating Agency with
respect to the ATP, and any such amendment, alteration or repeal will not
be deemed to affect the preferences, rights or powers of the ATP or the
Holders thereof, provided the Board of Directors receives written
confirmation from the relevant rating agency (such confirmation in no event
being required to be obtained from a particular rating agency with respect
to definitions or other provisions
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relevant only to another rating agency's rating) that any such amendment,
alteration or repeal would not adversely affect the rating then assigned by
such rating agency.
Definitions and Provisions Subject to Change by Director Action:
ATP Basic Maintenance Amount Minimum Applicable Rate
ATP Basic Maintenance Certificate Moody's Discount Factor
Asset Coverage Cure Date Moody's Eligible Assets
Deposit Securities Moody's Industry Classification
Discounted Value 1940 Act Asset Coverage Cure Date
Exposure Period 1940 Act Asset Coverage Cure Date
Fitch Discount Factor 1940 Act ATP Asset Coverage
Fitch Eligible Assets Volatility Factor
Fitch Industry Classification Short Term Money Market Instruments
Market Value
Maximum Applicable Rate
Last Paragraph of Section 12
In addition, the Board of Directors may amend the definition of
Maximum Applicable Rate to increase the percentage amount by which the
Reference Rate is multiplied to determine the Maximum Applicable Rate shown
therein without the vote or consent of the holders of the shares of the
Preferred Stock, including the ATP, or any other stockholder of the
Corporation, and without receiving any confirmation from any rating agency
after consultation with the Broker-Dealers, provided that immediately
following any such increase the Corporation would be in compliance with the
ATP Basic Maintenance Amount.
(k) Unless otherwise required by law, holders of shares of ATP shall
not have any relative rights or preferences or other special rights other
than those specifically set forth herein. The holders of shares of ATP
shall have no rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of ATP, the exclusive
remedy of the holders shall be the right to vote for directors pursuant to
the provisions of this Section 6.
(l) The foregoing voting provisions will not apply with respect to the
ATP if, at or prior to the time when a vote is required, such shares have
been (i) redeemed or (ii) called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
7. Liquidation Rights. (a) Upon the dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or involuntary, the
holders of ATP then Outstanding, together with holders of shares of any class
of stock ranking on a parity with the ATP upon dissolution, liquidation or
winding up, shall be entitled to receive and to be paid out of the assets of
the Corporation available for distribution to its stockholders after
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satisfaction of claims of creditors of the Corporation an amount equal to the
liquidation preference with respect to such shares. The liquidation
preference for shares of ATP shall be $50,000 per share, plus an amount equal
to all accumulated dividends thereon (whether or not earned or declared) to
the date payment of such distributioon is made in full or a sum sufficient
for the payment thereof is set apart with the Paying Agent. No redemption
premium shall be paid upon any liquidation even if such redemption premium
would be paid upon optional or mandatory redemption of the relevant shares.
(b) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, until payment in full is
made to the holders of ATP of the liquidation distribution to which they
are entitled, no dividend or other distribution shall be made to the
holders of shares of Common Stock or any other class of stock of the
Corporation ranking junior to the ATP upon dissolution, liquidation or
winding up and no purchase, redemption or other acquisition for any
consideration by the Corporation shall be made in respect of the shares of
Common Stock or any other class of stock of the Corporation ranking junior
to the ATP upon dissolution, liquidation or winding up.
(c) A consolidation or merger of the Corporation with or into any
other company or companies, or a sale, lease or exchange of all or
substantially all of the assets of the Corporation in consideration for the
issuance of equity securities of another company shall not be deemed to be
a liquidation, dissolution or winding up, whether voluntary or involuntary,
for the purposes of this Section 7; provided, however, that the
consolidation, merger, sale, lease or exchange does not materially
adversely affect any designation, right, preference or limitation of the
ATP or any shares issuable in exchange for shares of the ATP in any such
consolidation or merger.
(d) After the payment to the Holders of ATP of the full preferential
amounts provided for in this Section 7, the holders of ATP as such shall
have no right or claim to any of the remaining assets of the Corporation.
(e) In the event the assets of the Corporation or proceeds thereof
available for distribution to the Holders of ATP, upon any dissolution,
liquidation or winding up of the affairs of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to paragraph (a) of this
Section 7, no such distribution shall be made on account of any shares of
any other class or series of Preferred Stock ranking on a parity with the
ATP with respect to the distribution of assets upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall
be paid on account of the shares of ATP, ratable, in proportion to the full
distributable amounts to which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(f) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with the ATP with respect to
the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Corporation, after payment shall have been made in full
to the holders of the shares of ATP as provided in paragraph (a)
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of this Section 7, but not prior thereto, any other series or class or
classes of stock ranking junior to the ATP with respect to the distribution
of assets upon dissolution, liquidation or winding up of the affairs of the
Corporation shall, subject to any respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of the shares of ATP shall not be
entitled to share therein.
8. Auction Agent. For so long as any shares of ATP are Outstanding, the
Auction Agent, duly appointed by the Corporation to so act, shall be in each
case a commercial bank, trust company or other financial institution
independent of the Corporation and its Affiliates (which, however, may engage
or have engaged in business transactions with the Corporation or its
Affiliates) and at no time shall the Corporation or any of its Affiliates act
as the Auction Agent in connection with the Auction Procedures. If the
Auction Agent resigns or for any reason its appointment is terminated during
any period that any shares of ATP are Outstanding, the Corporation shall use
its best efforts promptly thereafter to appoint another qualified commercial
bank, trust company or financial institution to act as the Auction Agent.
9. 1940 Act ATP Asset Coverage. The Corporation shall maintain, as of each
Valuation Date on which any share of ATP is Outstanding, asset coverage with
respect to the ATP which is equal to or greater than the 1940 Act ATP Asset
Coverage; provided, however, that Section 3(a)(ii) shall be the sole remedy
in the event the Corporation fails to do so.
10. ATP Basic Maintenance Amount. So long as shares of ATP are Outstanding
and Moody's, Fitch or any Other Rating Agency which so requires is then
rating the shares of ATP, the Corporation shall maintain, as of each
Valuation Date, Moody's Eligible Assets (if Moody's is then rating the ATP),
Fitch Eligible Assets (if Fitch is then rating the ATP) and (if applicable)
Other Rating Agency Eligible Assets having an aggregate Discounted Value
equal to or greater than the ATP Basic Maintenance Amount; provided, however,
that Section 3(a)(ii) shall be the sole remedy in the event the Corporation
fails to do so.
11. [Reserved]
12. Certain Other Restrictions. For so long as any shares of ATP are
Outstanding and Moody's, Fitch or any Other Rating Agency which so requires
is then rating such shares, the Corporation will not, unless it has received
written confirmation from Moody's (if Moody's is then rating the ATP), Fitch
(if Fitch is then rating the ATP) and (if applicable) such Other Rating
Agency that any such action would not impair the rating then assigned by such
rating agency to the ATP, engage in any one or more of the following
transactions:
(a) purchase or sell futures contracts or options thereon with respect
to portfolio securities or write unsecured put or uncovered call options on
portfolio securities, engage in options transactions involving
cross-hedging, or enter into any swap transaction;
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(b) borrow money, except that the Corporation may, without obtaining
the written confirmation described above, borrow money for the purpose of
clearing securities transactions; provided that the ATP Basic Maintenance
Amount would continue to be satisfied after giving effect to such borrowing
and if the borrowing matures in not more than 60 days and is
non-redeemable;
(c) issue any class or series of stock ranking prior to or on a parity
with the ATP with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Corporation,
or reissue any shares of ATP previously purchased or redeemed by the
Corporation;
(d) engage in any short sales of securities;
(e) lend portfolio securities; or
(f) merge or consolidate into or with any other corporation.
For purposes of valuation of Moody's Eligible Assets and Fitch Eligible
Assets: (A) if the Corporation writes a call option, the underlying asset
will be valued as follows: (1) if the option is exchange-traded and may be
offset readily or if the option expires before the earliest possible
redemption of the ATP, at the lower of the Discounted Value of the underlying
security of the option and the exercise price of the option or (2) otherwise,
it has no value; (B) if the Corporation writes a put option, the underlying
asset will be valued as follows: the lesser of (1) exercise price and (2) the
Discounted Value of the underlying security; and (C) call or put option
contracts which the Corporation buys have no value. For so long as ATP are
rated by Moody's or Fitch: (A) the Corporation will not engage in options
transactions for leveraging or speculative purposes; (B) the Corporation will
not write or sell any anticipatory contracts pursuant to which the
Corporation hedges the anticipated purchase of an asset prior to completion
of such purchase; (C) the Corporation will not enter into an option
transaction with respect to portfolio securities unless, after giving effect
thereto, the Corporation would continue to have Eligible Assets with an
aggregate Discounted Value equal to or greater than the ATP Basic Maintenance
Amount; (D) the Corporation will not enter into an option transaction with
respect to portfolio securities unless after giving effect to such
transaction the Corporation would continue to be in compliance with the
provisions relating to the ATP Basic Maintenance Amount; (E) for purposes of
the ATP Basic Maintenance Amount assets in margin accounts are not Eligible
Assets; (F) the Corporation shall write only exchange-traded options on
exchanges approved by Moody's (if Moody's is then rating the ATP) and Fitch
(if Fitch is then rating the ATP); (G) where delivery may be made to the
Corporation with any of a class of securities, the Corporation shall assume
for purposes of the ATP Basic Maintenance Amount that it takes delivery of
that security which yields it the least value; (H) the Corporation will not
engage in forward contracts; and (I) there shall be a quarterly audit made of
the Corporation's options
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transactions by the Corporation's independent accountants to confirm that the
Corporation is in compliance with these standards.
13. Compliance Procedures for Asset Maintenance Tests. For so long as any
shares of ATP are Outstanding and Moody's, Fitch or any Other Rating Agency
which so requires is then rating such shares:
(a) As of each Valuation Date, the Corporation shall determine in
accordance with the procedures specified herein (i) the Market Value of
each Eligible Asset owned by the Corporation on that date, (ii) the
Discounted Value of each such Eligible Asset using the Discount Factors,
(iii) whether the ATP Basic Maintenance Amount is met as of that date, (iv)
the value of the total assets of the Corporation, less all liabilities, and
(v) whether the 1940 Act ATP Asset Coverage is met as of that date.
(b) Upon any failure to maintain the required ATP Basic Maintenance
Amount or 1940 Act ATP Asset Coverage on any Valuation Date, the
Corporation may use reasonable commercial efforts (including, without
limitation, altering the composition of its portfolio, purchasing shares of
ATP outside of an Auction or in the event of a failure to file on a timely
basis, submitting the requisite certificate), subject to the fiduciary
obligations of the Board of Directors, to reattain (or certify in the case
of a failure to file on a timely basis, as the case may be) the required
ATP Basic Maintenance Amount or 1940 Act ATP Asset Coverage on or prior to
the ATP Basic Maintenance Cure Date or 1940 Act ATP Cure Date, as the case
may be.
(c) Compliance with the ATP Basic Maintenance Amount and 1940 Act
Asset Coverage Tests shall be determined with reference to those shares of
ATP which are deemed to be Outstanding hereunder.
(d) The Corporation shall deliver a certificate which sets forth a
determination of items (i) - (iii) of paragraph (a) of this Section 13 (an
"ATP Basic Maintenance Certificate") (i) to the Auction Agent, Moody's (if
Moody's is then rating the ATP), Fitch (if Fitch is then rating the ATP)
and any Other Rating Agency which is then rating the ATP and which so
requires as of (A) the Business Day preceding the Date of Original Issue
and (B) any Valuation Date on which the Corporation fails to have Eligible
Assets with an aggregate Discounted Value at least equal to 125% of the ATP
Basic Maintenance Amount, (ii) to the Auction Agent, Fitch (if Fitch is
then rating the ATP) and any Other Rating Agency which is then rating the
ATP and which so requires (A) as of every fourth Valuation Date after the
Date of Original Issue for the first year following the Date of Original
Issue, (B) if the Corporation fails to have Eligible Assets with an
aggregate Discounted Value at least equal to the ATP Basic Maintenance
Amount, and (C) on request by Fitch or such Other Rating Agency, as
applicable, (iii) to the Auction Agent, Moody's (if Moody's is then rating
the ATP), Fitch (if Fitch is then rating the ATP) and any Other Rating
Agency which is then rating the ATP and which so requires as of (A) the
Valuation Date next following the date of redemption by the Corporation of
shares of Common Stock which, together with all other shares of Common
Stock purchased during the six months
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preceding such date, equal in excess of 1,000,000 shares of Common Stock,
and (B) the last Valuation Date of each fiscal quarter and a Valuation Date
during such fiscal quarter randomly selected by the Corporation's
independent accountants as provided in Section 10(g), and (iv) to the
Auction Agent, Moody's (if Moody's is then rating the ATP), Fitch (if Fitch
is then rating the ATP) and any Other Rating Agency which is then rating
the ATP and which so requires as of a Business Day on or before any Asset
Coverage Cure Date relating to the Corporation's cure of a failure to have
Eligible Assets with an aggregate Discounted Value at least equal to the
ATP Basic Maintenance Amount. Such ATP Basic Maintenance Certificate shall
be delivered in the case of clause (i)(A) on the Date of Original Issue and
in the case of clauses (i)(B), (ii), (iii) and (iv) above on or before the
third Business Day after the relevant Valuation Date or Asset Coverage Cure
Date.
(e) The Corporation shall deliver to the Auction Agent, Moody's (if
Moody's is then rating the ATP), Fitch (if Fitch is then rating the ATP),
and any Other Rating Agency which is then rating the ATP and which so
requires a certificate with respect to the calculation of the 1940 Act ATP
Asset Coverage and the value of the portfolio holdings of the Corporation
(a "1940 Act ATP Asset Coverage Certificate") (i) as of the Business Day
preceding the Date of Original Issue, and (ii) as of (A) the last Valuation
Date of each quarter thereafter, and (B) as of the Business Day on or
before the Asset Coverage Cure Date relating to the failure to satisfy the
1940 Act Asset Coverage. Such 1940 Act ATP Asset Coverage Certificate shall
be delivered in the case of clause (i) on the Date of Original Issue and in
the case of clause (ii) on or before the third Business Day after the
relevant Valuation Date or the Asset Coverage Cure Date.
(f) [Reserved]
(g) On the Date of Original Issue, the Corporation shall deliver to
the Auction Agent, Moody's (if Moody's is then rating the ATP), Fitch (if
Fitch is then rating the ATP) and any Other Rating Agency which is then
rating the ATP and which so requires a letter prepared by the Corporation's
independent accountants (an "Accountant's Certificate") regarding the
accuracy of the calculations made by the Corporation in the ATP Basic
Maintenance Certificate and the 1940 Act ATP Asset Coverage Certificate
required to be delivered by the Corporation as of the Date of Original
Issue. Within eight Business Days after the last Valuation Date of each
fiscal quarter of the Corporation on which an ATP Basic Maintenance
Certificate is required to be delivered, the Corporation (x) will deliver
to the Auction Agent, Moody's (if Moody's is then rating the ATP), Fitch
(if Fitch is then rating the ATP) and any Other Rating Agency which is then
rating the ATP and which so requires an Accountant's Certificate regarding
the accuracy of the calculations made by the Corporation in such ATP Basic
Maintenance Certificate and in any other ATP Basic Maintenance Certificate
randomly selected by the Corporation's independent accountants during such
fiscal quarter. Within eight Business Days after the last Valuation Date of
each fiscal quarter of the Corporation on which a 1940 Act ATP Asset
Coverage Certificate is required to be delivered, the Corporation will
deliver to the Auction Agent, Moody's (if Moody's is then rating the ATP),
Fitch (if Fitch is then rating the ATP) and any Other Rating Agency which
is then rating the ATP and which so requires an Accountant's
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Certificate regarding the accuracy of the calculations made by the
Corporation in such 1940 Act ATP Asset Coverage Certificate. In addition,
the Corporation will deliver to the relevant persons specified in the
preceding sentence an Accountant's Certificate regarding the accuracy of
the calculations made by the Corporation on each ATP Basic Maintenance
Certificate and 1940 Act ATP Asset Coverage Certificate delivered pursuant
to clause (iv) of paragraph (d) or clause (ii)(B) of paragraph (e) of this
Section 13, as the case may be, within five days after the relevant Asset
Coverage Cure Date. If an Accountant's Certificate delivered with respect
to an Asset Coverage Cure Date shows an error was made in the Corporation's
report with respect to such Asset Coverage Cure Date, the calculation or
determination made by the Corporation's independent accountants will be
conclusive and binding on the Corporation with respect to such reports. If
any other Accountant's Certificate shows that an error was made in any such
report, the calculation or determination made by the Corporation's
independent accountants will be conclusive and binding on the Corporation;
provided, however, any errors shown in the Accountant's Certificate filed
on a quarterly basis shall not be deemed to be a failure to maintain the
ATP Basic Maintenance Amount on any prior Valuation Dates.
(h) The Accountant's Certificates referred to in paragraph (g) will
confirm, based u pon the independent accountant's review, (i) the
mathematical accuracy of the calculations reflected in the related ATP
Basic Maintenance Account and 1940 Act ATP Asset Coverage Certificates, as
the case may be, and (ii) that the Corporation determined whether the
Corporation had, at such Valuation Date, Eligible Assets with an aggregate
Discounted Value at least equal to the Basic Maintenance Amount in
accordance with the Articles Supplementary.
(i) In the event that an ATP Basic Maintenance Certificate or 1940 Act
ATP Asset Coverage Certificate with respect to an applicable Valuation Date
is not delivered within the time periods specified in this Section 13, the
Corporation shall be deemed to have failed to maintain the ATP Basic
Maintenance Amount or the 1940 Act ATP Asset Coverage, as the case may be,
on such Valuation Date for purposes of Section 13(b). In the event that an
ATP Basic Maintenance Certificate or 1940 Act ATP Asset Coverage
Certificate or the applicable Accountant's Certificates with respect to an
applicable Asset Coverage Cure Date are not delivered within the time
periods specified herein, the Corporation shall be deemed to have failed to
have Eligible Assets with an aggregate Discounted Value at least equal to
the ATP Basic Maintenance Amount or the 1940 ATP Asset Coverage, as the
case may be, as of the related Valuation Date, and such failure shall be
deemed not to have been cured as of such Asset Coverage Cure Date for
purposes of the mandatory redemption provisions.
14. [Reserved]
15. Notice. All notices or communications hereunder, unless otherwise
specified in these Articles Supplementary, shall be sufficiently given if in
writing and delivered in person, by telecopier or mailed by first-class mail,
postage prepaid. Notices delivered pursuant to this Section 15 shall be
deemed given on the earlier of the date received or the date five days after
which such notice is mailed.
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16. Waiver. Holders of at least two-thirds of the shares of ATP then
Outstanding may waive any provision hereof intended for the benefit of the
Holders of the ATP in accordance with such procedures as may from time to
time be established by the Board of Directors.
17. Termination. In the event that no shares of either series of ATP are
Outstanding, all rights and preferences of such shares established and
designated hereunder shall cease and terminate, and all obligations of the
Corporation under these Articles Supplementary shall terminate.
18. Definitions. As used in Part I and Part II of these Articles
Supplementary, the following terms shall have the following meanings (with
terms defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:
(a) " "aaa"/AAA Credit Rating" means a credit rating in the highest
category of any two nationally recognized statistical rating organizations
(as used in the Securities Exchange Act of 1934), one of which shall be
Moody's or S&P.
(b) "AA Composite Commercial Paper Rate" on any date means (i) the
interest equivalent of the 30-day rate, in the case of a Dividend Period
which is a Standard Term Period or shorter, or the 180-day rate, in the
case of all other Dividend Periods, on commercial paper on behalf of
issuers whose corporate bonds are rated AA by S&P, or Aa2 by Moody's, or
the equivalent of such rating by another nationally recognized rating
agency, as announced by the Federal Reserve Bank of New York for the close
of business on the Business Day immediately preceding such date; or (ii) if
the Federal Reserve Bank of New York does not make available such a rate,
then the arithmetic average of the interest equivalent of such rates on
commercial paper placed on behalf of such issuers, as quoted on a discount
basis or otherwise by the Commercial Paper Dealers to the Auction Agent for
the close of business on the Business Day immediately preceding such date
(rounded to the next highest .001 of 1%). If any Commercial Paper Dealer
does not quote a rate required to determine the AA Composite Commercial
Paper Rate, such rate shall be determined on the basis of the quotations
(or quotation) furnished by the remaining Commercial Paper Dealers (or
Dealer), if any, or, if there are no such Commercial Paper Dealers, by the
Auction Agent. For purposes of this definition, (A) "Commercial Paper
Dealers" shall mean (1) J.P. Morgan Securities, Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Smith Barney Shearson Inc.; (2) in
lieu of any thereof, its respective affiliate or successor, and (3) in the
event that any of the foregoing shall cease to quote rates for commercial
paper of issuers of the sort described above, in substitution therefor, a
nationally recognized dealer in commercial paper of such issuers then
making such quotations selected by the Corporation, and (B) "interest
equivalent" of a rate stated on a discount basis for commercial paper of a
given number of days' maturity shall mean a number equal to the quotient
(rounded upward to the next higher one-thousandth of 1%) of (1) such rate
expressed as a decimal, divided by (2) the difference between (x) 1.00 and
(y) a fraction, the numerator of which shall be the
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<PAGE>
product of such rate expressed as a decimal, multiplied by the number of
days in which such commercial paper shall mature and the denominator of
which shall be 360.
(c) "Accountant's Certificate" has the meaning set forth in Section
13(g).
(d) "Affiliate" means any person known to the Auction Agent to be
controlled by, in control of or under common control with the Corporation;
provided that no Broker-Dealer controlled by, in control of or under common
control with the Corporation shall be deemed to be an Affiliate nor shall
any corporation or any person controlled by, in control of or under common
control with such corporation one of the directors or executive officers of
which is also a director of the Corporation be deemed to be an Affiliate
solely because such director or executive officer is also a director of the
Corporation.
(e) "Alternate Term Period" means a Dividend Period that is not a
Standard Term Period.
(f) "Applicable Rate" means, with respect to each series of ATP, for
each Dividend Period (i) if Sufficient Clearing Orders exist for the
Auction in respect thereof, the Winning Rate, (ii) if Sufficient Clearing
Orders do not exist for the Auction in respect thereof, the Maximum
Applicable Rate and (iii) in the case of any Dividend Period of 93 days or
fewer if all the shares of ATP are the subject of Submitted Hold Orders for
the Auction in respect thereof, the Minimum Applicable Rate.
(g) "Articles" means the Articles of Amendment and Restatement, as
amended including any Articles Supplementary, of the Corporation.
(h) "Asset Coverage Cure Date" has the meaning set forth in Section
3(a)(ii).
(i) "ATP" means the Auction Term Preferred Stock, $1.00 par value per
share and liquidation preference $50,000 per share, Series A and Series B
of the Corporation or any other series of Preferred Stock hereinafter
designated "ATP" by Articles Supplementary or Articles of Amendment.
(j) "ATP Basic Maintenance Amount" as of any Valuation Date means the
dollar amount equal to the sum of
(i) (A) the product of the number of Outstanding shares of ATP on
such date multiplied by $50,000; (B) the aggregate amount of dividends
that will have accumulated at the Applicable Rate (whether or not
earned or declared) to and including the first following Dividend
Payment Date for each share of ATP Outstanding that follows such
Valuation Date (or to the 42nd day after such Valuation Date, if such
42nd day occurs before the first following Dividend Payment Date); (C)
the aggregate amount of dividends that would accumulate at the then
current Maximum Applicable Rate for a Standard Term Period multiplied
by the Volatility
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Factor on any shares of ATP Outstanding from the first day
following the Dividend Payment Date referred to in (B) above
through the 42nd day after such Valuation Date, only if such 42nd
day occurs after the first day following the Dividend Payment
Date, except that if such Valuation Date occurs during a Default
Period, the dividend for purposes of the calculation would
accumulate at the Default Rate; (D) the amount of anticipated
Corporation expenses for the 90 days subsequent to such Valuation
Date; (E) any current liabilities, including, without limitation,
indebtedness due within one year and any redemption premium due
with respect to shares of ATP for which a Notice of Redemption
has been given, as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(D); and (F) without
duplication, 10% of the exercise price of any call option written
by the Corporation and the exercise price of any put option
written by the Corporation; less
(ii) the sum of any cash or the value of any Corporation assets
irrevocably deposited by the Corporation for the payment of any of
(i)(B) through (i)(F) ("value" for purposes of this clause (ii) shall
mean the Discounted Value of the security, except that if the security
matures prior to the relevant redemption payment date and is either
fully guaranteed by the U.S. Government or is rated P1 by Moody's and
A1+ by S&P, it will be valued at its face value).
(k) "ATP Basic Maintenance Certificate" has the meaning set forth in
Section 13(d).
(l) "ATP Series A" means the shares of Series A of the ATP or any
other series of Preferred Stock hereinafter designated as shares of Series
A of the ATP by Articles Supplementary or Articles of Amendment.
(m) "ATP Series B" means the shares of Series B of the ATP or any
other series of Preferred Stock hereinafter designated as shares of Series
B of the ATP by Articles Supplementary or Articles of Amendment.
(n) "Auction" means each periodic operation of the procedures set
forth under "Auction Procedures."
(o) "Auction Agent" means Bankers Trust Company unless and until
another commercial bank, trust company, or other financial institution
appointed by a resolution of the Board of Directors enters into an
agreement with the Corporation to follow the Auction Procedures for the
purpose of determining the Applicable Rate.
(p) "Auction Date" means the first Business Day next preceding the
first day of a Dividend Period for the relevant series of ATP.
(q) "Auction Procedures" means the procedures for conducting Auctions
set forth in Part II hereof.
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<PAGE>
(r) "Board of Directors" means the Board of Directors of the
Corporation or any duly authorized committee thereof as permitted by
applicable law.
(s) "Broker-Dealer" or "Broker-Dealers" means any broker-dealer or
broker-dealers, or other entity permitted by law to perform the functions
required of a Broker-Dealer by the Auction Procedures, that has been
selected by the Corporation and has entered into a Broker-Dealer Agreement
with the Auction Agent that remains effective.
(t) "Broker-Dealer Agreement" means an agreement entered into by the
Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer
agrees to follow the Auction Procedures.
(u) "Business Day" means a day on which the New York Stock Exchange is
open for trading and which is not a Saturday, Sunday or other day on which
banks in the City of New York, New York are authorized or obligated by law
to close.
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(w) "Commercial Paper Dealers" has the meaning set forth in the
definition of AA Composite Commercial Paper Rate.
(x) "Commission" means the Securities and Exchange Commission.
(y) "Common Stock" means the common stock, par value $.01 per share,
of the Corporation.
(z) "Corporate Bonds" means corporate debt securities having the
characteristics set forth in paragraph (iv) of the definition of Fitch
Eligible Assets.
(aa) "Date of Original Issue" means with respect to each of the ATP
Series A and the ATP Series B the date on which such ATP are originally
issued by the Corporation.
(bb) "Default Period" has the meaning set forth in Section 2(c)(ii).
(cc) "Default Rate" means the Reference Rate multiplied by three (3).
(dd) "Depository" means Bankers Trust Company or a successor
organization which has agreed to perform the duties of the depository as
described herein.
(ee) "Deposit Securities" means cash and any obligations or
securities, including Short Term Money Market Instruments that are Eligible
Assets, rated at least AAA, A-1+ or SP-1+ by S&P, except that, for purposes
of section 3(a)(i) of this Part I, such obligations or securities shall be
considered "Deposit Securities" only if they are also rated at least P-1 by
Moody's.
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<PAGE>
(ff) "Discount Factor" means the Moody's Discount Factor (if Moody's
is then rating the ATP), the Fitch Discount Factor (if Fitch is then rating
the ATP) or the discount factor established by any Other Rating Agency
which is then rating the ATP and which so requires, whichever is
applicable.
(gg) "Discounted Value" means the quotient of the Market Value of an
Eligible Asset divided by the applicable Discount Factor provided that with
respect to an Eligible Asset that is currently callable, Discounted Value
shall be equal to the quotient as calculated above or the call price,
whichever is lower, and that with respect to an Eligible Asset that is
prepayable, Discounted Value shall be equal to the quotient as calculated
above or the par value, whichever is lower.
(hh) "Dividend Default" has the meaning set forth in Section
2(c)(iii).
(ii) "Dividend Payment Date" for either series of ATP, means (i) with
respect to any Dividend Period of one year or less, the Business Day next
succeeding the last day thereof and, if any, the 91st, 181st and 271st days
thereof, and (ii) with respect to any Dividend Period of more than one
year, on a quarterly basis on each January 1, April 1, July 1 and October 1
and on the Business Day following the last day of such Dividend Period.
(jj) "Dividend Period" means, with respect to the relevant series of
ATP, the period commencing on the Date of Original Issue thereof and ending
on the date specified for such series on the Date of Original Issue thereof
and thereafter, as to such series, the period commencing on the day
following each Dividend Period for such series and ending on the day
established for such series by the Corporation.
(kk) "Eligible Assets" means Moody's Eligible Assets (if Moody's is
then rating the ATP), Fitch Eligible Assets (if Fitch is then rating the
ATP) and/or Other Rating Agency Eligible Assets if any Other Rating Agency
is then rating the ATP, whichever is applicable.
(ll) "Exposure Period" means the period commencing on (and including)
a given Valuation Date and ending 41 days thereafter.
(mm) "Fitch" means Fitch Investors Service, Inc. and its successors at
law.
(nn) "Fitch Discount Factor" means, for purposes of determining the
Discounted Value of any Fitch Eligible Asset, the percentage determined as
follows. The Fitch Discount Factor for any Fitch Eligible Asset other than
the securities set forth below will be the percentage provided in writing
by Fitch.
(i) Corporate Bonds: The percentage determined by reference to
the type of corporate bond in accordance with the table set forth
below.
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<PAGE>
Type I Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.16
greater than 2 years, but less than or equal to 4 years 1.26
greater than 4 years, but less than or equal to 7 years 1.40
greater than 7 years, but less than or equal to 12 years 1.44
greater than 12 years, but less than or equal to 25 years 1.48
greater than 25 years, but less than or equal to 30 years 1.52
Type II Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.25
greater than 2 years, but less than or equal to 4 years 1.26
greater than 4 years, but less than or equal to 7 years 1.43
greater than 7 years, but less than or equal to 12 years 1.44
greater than 12 years, but less than or equal to 25 years 1.51
greater than 25 years, but less than or equal to 30 years 1.56
Type III Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.25
greater than 2 years, but less than or equal to 4 years 1.29
greater than 4 years, but less than or equal to 7 years 1.46
greater than 7 years, but less than or equal to 12 years 1.50
greater than 12 years, but less than or equal to 25 years 1.55
greater than 25 years, but less than or equal to 30 years 1.60
Type IV Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.22
greater than 2 years, but less than or equal to 4 years 1.32
greater than 4 years, but less than or equal to 7 years 1.52
greater than 7 years, but less than or equal to 12 years 1.57
greater than 12 years, but less than or equal to 25 years 1.63
greater than 25 years, but less than or equal to 30 years 1.69
Type V Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.32
greater than 2 years, but less than or equal to 4 years 1.36
greater than 4 years, but less than or equal to 7 years 1.59
greater than 7 years, but less than or equal to 12 years 1.65
greater than 12 years, but less than or equal to 25 years 1.72
greater than 25 years, but less than or equal to 30 years 1.80
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<PAGE>
Type VI Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.40
greater than 4 years, but less than or equal to 7 years 1.67
greater than 7 years, but less than or equal to 12 years 1.74
greater than 12 years, but less than or equal to 25 years 1.82
greater than 25 years, but less than or equal to 30 years 1.91
Type VII Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.64
greater than 4 years, but less than or equal to 7 years 2.28
greater than 7 years, but less than or equal to 12 years 2.49
greater than 12 years, but less than or equal to 25 years 2.74
greater than 25 years, but less than or equal to 30 years 3.06
(ii) Short Term Money Market Instruments: The Fitch Discount Factor
applied to short-term portfolio securities will be (A) 100%, so long as
such portfolio securities mature or have a demand feature at par
exercisable within the Exposure Period and, (B) 125%, so long as such
portfolio securities neither mature nor have a demand feature at par
exercisable within the Exposure Period. A Fitch Discount Factor of 100%
will be applied to cash.
(iii) U.S. Treasury Securities with remaining maturities of:
less than or equal to 1 year 1.06
greater than 1 year, but less than or equal to 2 years 1.11
greater than 2 years, but less than or equal to 5 years 1.16
greater than 5 years, but less than or equal to 15 years 1.24
greater than 25 years, but less than or equal to 30 years 1.26
(oo) "Fitch Eligible Assets" means
(i) cash (including, for this purpose, interest and dividends due
on assets rated (A) Baa3 or higher by Moody's, BBB or higher by S&P or
BBB or higher by Fitch if the payment date is within five Business
Days of the Valuation Date, (B) A2 or higher by Moody's and either A
or higher by S&P or A or higher by Fitch if the payment date is within
thirty days of the Valuation Date, and (C) A1 or higher by Moody's and
either A+ or higher by S&P or A+ or higher by Fitch if the payment
date is within the Exposure Period) and receivables for Fitch Eligible
Assets sold if the receivable is due within five Business Days of the
Valuation Date, and if the trades which generated such receivables are
(A) settled through clearing house firms with respect to which the
Corporation has received prior written authorization
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<PAGE>
from Fitch or (B) (1) with counterparties having a Fitch long-term
debt rating of at least BBB- by Fitch, if rated by Fitch or, if not
rated by Fitch, then rated at least BBB- by S&P and rated at least
Baa3 by Moody's or (2) with counterparties having a Fitch Short-Term
Money Market Instrument rating of at least F-1+ by Fitch, if rated by
Fitch or, if not rated by Fitch, then rated at least A-1 by S&P and
rated at least P-1 by Moody's;
(ii) Short-Term Money Market Instruments so long as (A) such
securities are rated at least P-1 by Moody's and either at least A-1+
by S&P or F1+ by Fitch, (B) in the case of demand deposits, time
deposits and overnight funds, the supporting entity is rated at least
A2 by Moody's and either at least A by S&P or A by Fitch, or (C) in
all other cases, the supporting entity (1) is rated at least A2 by
Moody's and at least A by S&P and the security matures within one
month, (2) is rated at least A1 by Moody's and either at least A+ by
S&P or at least A by Fitch and the security matures within three
months or (3) is rated at least Aa3 by Moody's and either at least AA
by S&P or at least AA by Fitch and the security matures within six
months;
(iii) U.S. Treasury Securities;
(iv) debt securities constituting Corporate Bonds if (A) such
securities are rated either CCC or higher by Fitch or Caa or higher by
Moody's and CCC or higher by S&P; (B) such securities provide for the
periodic payment of interest in cash in U.S. dollars; (C) such
securities do not provide for conversion or exchange into equity
capital at any time over their lives; (D) such securities have been
registered under the Securities Act of 1933, as amended; and (E) such
securities are issued by a U.S. corporation. In addition, bonds which
are issued in connection with a reorganization under U.S. federal
bankruptcy law will be considered Corporate Bonds constituting Fitch
Eligible Assets, so long as such bonds are rated by Fitch.
(v) In addition, portfolio holdings as described below must be
within the following diversification and issue size requirements in
order to be included in Fitch Eligible Assets:
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Maximum Maximum Minimum
Single Single Issue Size
Type of Corporate Issuer Industry ($ in
Bond (%)(1,2) (%)(2,3) millions)
------ -------- -------- ----------
Type I 100% 100% $ 100
Type II 20 75 100
Type III (4) 10 50 100
Type IV 6 25 100
Type V 4 16 50(5)
Type VI 3 12 50(5)
Type VII 2 8 50(5)
See accompanying notes
- ------------
(1) Companies subject to common ownership of 25% or more are considered as
one name.
(2) Percentages represent a portion of the aggregate Market Value of
corporate securities.
(3) Industries are determined according to Fitch Industry Classifications.
(4) Includes Short Term Money Market Instruments which do not constitute Type
I or Type II Corporate Bonds and which have a maturity greater than the
Exposure Period.
(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.
Where the Corporation sells an asset and agrees to repurchase such asset in
the future, the Discounted Value of such asset will constitute a Fitch
Eligible Asset and the amount the Corporation is required to pay upon
repurchase of such asset will count as a liability for the purposes of the
ATP Basic Maintenance Amount. Where the Corporation purchases an asset and
agrees to sell it to a third party in the future, cash receivable by the
Corporation thereby will constitute a Fitch Eligible Asset if the long-term
debt of such other party is rated at least A2 by Moody's and at least A by
S&P and such agreement has a term of 30 days or less; otherwise the
Discounted Value of such asset will constitute a Fitch Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Fitch
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic
Maintenance Amount or it is subject to any material lien, mortgage, pledge,
security interest or security agreement of any kind (collectively, "Liens"),
except for (A) Liens which are being contested in good faith by appropriate
proceedings and which Fitch has indicated to the Corporation will not affect
the status of such asset as a Fitch Eligible Asset, (B) Liens for taxes that
are not then due and payable or that can be paid thereafter without penalty,
(C) Liens to secure payment for services rendered or cash
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<PAGE>
advanced to the Corporation by its investment adviser, the Corporation's
custodian, transfer agent or registrar or the Auction Agent and (D) Liens by
virtue of any repurchase agreement. See also Section 12 for certain
information with respect to Fitch Eligible Assets.
(pp) "Fitch Industry Classifications" means, for the purposes of
determining Fitch Eligible Assets, each of the following industry
classifications:
Aerospace & Defense
Automobiles
Banking, Finance & Insurance
Building & Materials
Chemicals
Computers & Electronics
Consumer Products
Energy
Environmental Services
Farming & Agriculture
Food, Beverage & Tobacco
Healthcare & Pharmaceuticals
Industrial Machinery
Media, Leisure & Entertainment
Metals & Mining
Miscellaneous
Paper & Forest Products
Retail
Sovereigns
Textiles & Furniture
Transportation
Utilities
The Corporation shall use its discretion in determining which industry
classification is applicable to a particular investment.
(qq) "Holder" means, with respect to any series of ATP, the registered
holder of shares of such series of ATP as the same appears on the stock
ledger or stock records of the Corporation.
(rr) "Mandatory Redemption Date" has the meaning set forth in Section
3(a)(iv).
(ss) "Market Value" shall mean the fair market value of an asset of
the Corporation (excluding interest and dividends due on such assets) as
computed based upon (i) pricing services to be provided pursuant to a
pricing services agreement entered into between the Corporation and Merrill
Lynch Capital Markets Securities Pricing Service, Kenny S&P Evaluation
Services or such other pricing service determined from time to time
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<PAGE>
by the Board of Directors, provided that Moody's (if Moody's is then rating
the ATP), Fitch (if Fitch is then rating the ATP) and any Other Rating
Agency which is then rating the ATP and so requires have informed the
Corporation in writing that use of such pricing service will not adversely
affect such rating agency's then current rating of the shares of ATP or
(ii) the lower of the value set forth in bids from two independent dealers
that are members or affiliates of members of the National Association of
Securities Dealers, Inc. and that make markets in such security, one of
which bids shall be in writing.
(tt) "Maximum Applicable Rate" means, on any date on which the
Applicable Rate is determined, the rate equal to 150% of the applicable
Reference Rate, subject to upward but not downward adjustment in the
discretion of the Board of Directors after consultation with the
Broker-Dealers, provided that immediately following any such increase the
Corporation would be in compliance with the ATP Basic Maintenance Amount.
(uu) "Minimum Applicable Rate" means, on any Auction Date with respect
to a Dividend Period of 93 days or fewer, 99% of the AA Composite
Commercial Paper Rate at the close of business on the Business Day next
preceding such Auction Date. There shall be no Minimum Applicable Rate on
any Auction Date with respect to a Dividend Period of more than 93 days.
(vv) "Moody's" means Moody's Investors Service, Inc. and its
successors at law.
(ww) "Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined
as follows. The Moody's Discount Factor for any Moody's Eligible Asset
other than the securities set forth below will be the percentage provided
in writing by Moody's.
(i) Corporate Debt Securities: The percentage determined by
reference to the rating on such asset (which percentage is based upon
the Exposure Period) with reference to the remaining term to maturity
of such assets, in accordance with the table set forth below.
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Moody's Discount Factors--
Corporate Debt Securities
Rating Category
Maturity -----------------------------------------------
of Collateral Aaa Aa A Baa Ba B* Caa
- -------------- --- --- --- --- --- --- -----
1 Year 112% 118% 123% 128% 139% 150% 260%
2 Years 118 124 130 135 147 158 260
3 Years 123 129 135 141 153 165 260
4 Years 129 135 141 148 160 172 260
5 Years 134 141 147 154 166 179 260
7 Years 142 149 155 162 176 189 260
10 Years 148 156 163 170 184 198 260
15 Years 153 161 168 175 190 205 260
20 Years 161 169 177 184 200 215 260
30 Years 162 170 178 185 201 216 260
*Senior debt securities of an issuer rated B3 shall be deemed to be Caa rated
securities for purposes of determining the applicable Moody's Discount
Factor.
(ii) Preferred Stock: For (A) utility preferred stocks, 152%, (B)
industrial/financial preferred stocks, 197%, and (c) auction rate preferred
stocks, 350%.
(iii) Short Term Money Market Instruments: The Moody's Discount Factor
applied to short-term portfolio securities will be (A) 100%, so long as such
portfolio securities mature or have a demand feature at par exercisable
within the Exposure Period, (B) 115%, so long as such portfolio securities
mature or have a demand feature at par not exercisable within the Exposure
Period, and (C) 125%, if such securities are not rated by Moody's, so long as
such portfolio securities are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable within the Exposure
Period. A Moody's Discount Factor of 100% will be applied to cash.
(iv) U.S. Treasury Securities and Treasury Strips:
U.S. Treasury Securities:
Discount
Remaining Term to Maturity Factor
- ----------------------------------------------- ----------
1 year or less 107%
2 years or less (but longer than 1 year) 113
3 years or less (but longer than 2 years) 118
4 years or less (but longer than 3 years) 123
5 years or less (but longer than 4 years) 128
7 years or less (but longer than 5 years) 135
10 years or less (but longer than 7 years) 141
15 years or less (but longer than 10 years) 146
20 years or less (but longer than 15 years) 154
30 years or less (but longer than 20 years) 154
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<PAGE>
U.S. Treasury Strips:
Remaining Term to Maturity Discount
Factor
- ----------------------------------------------- --------
1 year or less 107%
2 years or less (but longer than 1 year) 114
3 years or less (but longer than 2 years) 120
4 years or less (but longer than 3 years) 127
5 years or less (but longer than 4 years) 133
7 years or less (but longer than 5 years) 145
10 years or less (but longer than 7 years) 159
15 years or less (but longer than 10 years) 184
20 years or less (but longer than 15 years) 211
30 years or less (but longer than 20 years) 236
(xx) "Moody's Eligible Assets" means
(i) cash (including, for this purpose, interest and dividends due on assets
rated (A) Baa3 or higher by Moody's if the payment date is within five
Business Days of the Valuation Date, (B) A2 or higher if the payment date is
within thirty days of the Valuation date, and (C) A1 or higher if the payment
date is within the Moody's Exposure Period) and receivables for Moody's
Eligible Assets sold if the receivable is due within five Business Days of
the Valuation Date, and if the trades which generated such receivables are
(A) settled through clearing house firms with respect to which the
Corporation has received prior written authorization from Moody's or (B) (1)
with counterparties having a Moody's long-term debt rating of at least Baa3
or (2) with counterparties having a Moody's Short-Term Money Market
Instrument rating of at least P-1;
(ii) Short-Term Money Market Instruments so long as (A) such securities are
rated at least P-1, (B) in the case of demand deposits, time deposits and
overnight funds, the supporting entity is rated at least A2, or (C) in all
other cases, the supporting entity (1) is rated A2 and the security matures
within one month, (2) is rated A1 and the security matures within three
months or (3) is rated at least Aa3 and the security matures within six
months; provided, however, that for purposes of this definition, such
instruments (other than commercial paper rated by S&P and not rated by
Moody's) need not meet any otherwise applicable S&P rating criteria;
(iii) U.S. Treasury Securities and Treasury Strips;
(iv) Corporate debt securities will be included in Moody's Eligible Assets
if (A) such securities are rated Caa or higher by Moody's; (B) the senior
unsecured rating of the issuer's corporate bonds is higher than B3; (C) such
securities provide for the periodic payment of interest in cash in U.S.
dollars; (D) such securities do not provide for conversion or exchange into
equity capital at any time
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<PAGE>
over their lives; (E) for debt securities rated Ba1 and below, no more than
10% of the original amount of such issue may constitute Moody's Eligible
Assets; and (F) such securities have been registered under the Securities Act
of 1933, as amended. In addition, debt securities which are issued in
connection with a reorganization under federal bankruptcy law will not be
considered Moody's Eligible Assets.
(v) Portfolio securities that are preferred stocks will be included in
Moody's Eligible Assets if (A) dividends on such preferred stock are
cumulative, (B) such securities provide for the periodic payment of dividends
thereon in cash in U.S. dollars and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity
capital at any time over the respective lives of such securities, (C) the
issuer of such a preferred stock has common stock listed on either the New
York Stock Exchange or the American Stock Exchange, (D) the issuer of such a
preferred stock has a senior debt rating from Moody's of Baa1 or higher or a
preferred stock rating from Moody's of "baa3" or higher and (E) such
preferred stock has paid consistent cash dividends in U.S. dollars over the
last three years or has a minimum rating of "al" (if the issuer of such
preferred stock has other preferred issues Outstanding that have been paying
dividends consistently for the last three years, then a preferred stock
without such a dividend history would also be eligible). In addition, the
preferred stocks must have the following diversification requirements: (X)
the preferred stock issue must be greater than $50 million and (Y) the
minimum holding by the Corporation of each issue of preferred stock is
$500,000 and the maximum holding of preferred stock of each issue is $5
million. In addition, preferred stocks issued by transportation companies
will not be considered Moody's Eligible Assets.
(vi) In addition, portfolio holdings as described below must be within the
following diversification and issue size requirements in order to be included
in Moody's Eligible Assets:
Minimum
Maximum Maximum Issue Size
Single Single ($ in
Collateral Ratings Issuer Industry millions)
(1) (%)(2,3) (%)(3,4) (6)
- -------------------- ----- ------ ----------
"aaa" Aaa 100% 100% $100
"aa", Aa 20 60 100
"a", A, P-1 10 40 100
"baa", Baa 6 20 100
Ba 4 12 50 (5)
B1-B2 3 8 50 (5)
B3 (C as
subordinate) 2 5 50 (5)
See accompanying notes
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(1) Refers to the senior debt rating of collateral.
(2) Companies subject to common ownership of 25% or more are considered as
one name.
(3) Percentages represent a portion of the aggregate Market Value of
corporate securities.
(4) Industries are determined according to Moody's Industry Classifications.
(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.
(6) Except for preferred stock, which has a minimum issue size of $50
million.
Where the Corporation sells an asset and agrees to repurchase such asset in
the future, the Discounted Value of such asset will constitute a Moody's
Eligible Asset and the amount the Corporation is required to pay upon
repurchase of such asset will count as a liability for the purposes of the ATP
Basic Maintenance Amount. Where the Corporation purchases an asset and agrees
to sell it to a third party in the future, cash receiveable by the
Corporation thereby will constitute a Moody's eligible Asset if the long-term
debt of such other party is rated at least A2 by Moody's and such agreement
has a term of 30 days or less; otherwise the Discounted Value of such asset
will constitute a Moody's Eligible Asset. For the purposes of calculation of
Moody's Eligible Assets, portfolio securities which have been called for
redemption by the issuer thereof shall be valued at the lower of Market Value
or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic
Maintenance Amount or it is subject to any material lien, mortgage, pledge,
security interest or security agreement of any kind (collectively, "Liens"),
except for (A) Liens which are being contested in good faith by appropriate
proceedings and which Moody's has indicated to the Corporation will not
affect the status of such asset as a Moody's Eligible Asset, (B) Liens for
taxes that are not then due and payable or that can be paid thereafter
without penalty, (C) Liens to secure payment for services rendered or cash
advanced to the Corporation by its investment adviser, the Corporation's
custodian, transfer agent or registrar or the Auction Agent and (D) Liens by
virtue of any repurchase agreement. See also Section 12 for certain
information with respect to Moody's Eligible Assets.
(yy) "Moody's Industry Classification" means, for the purposes of
determining Moody's Eligible Assets, each of the following industry
classifications:
Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition
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Automobile: Automotive Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods,
Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks,
Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes,
Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
Engineering, Construction, Hardware, Forest Products (building-related only),
Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs,
Land Development
Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial
Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints,
Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood, or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals: Fabricating,
Distribution
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste Disposal
Electronics: Computer Hardware, Electric Equipment, Components, Controllers,
Motors, Household Appliances, Information Service Communication Systems,
Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
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Farming and Agriculture: Livestock, Grains, Produce; Agricultural Chemicals,
Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment
Home and Office Furnishings, Housewares and Durable Consumer Products:
Carpets, Floor Coverings, Furniture, Cooking, Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agent, Surety
Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes,
Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy
Manufacturing, Motion Picture Production Theaters, Motion Picture
Distribution
Machinery (Non-Agriculture, Non-Construction, Non-Electronic): Industrial,
Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead, Uranium,
Zinc, Aluminum, Stainless Steel Integrated Steel, Ore Production,
Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and
Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper Products,
Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio,
T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-car builders, Ship Builders,
Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck
Manufacturing, Trailer Manufacturing, Air Cargo, Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog,
Showroom
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Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph,
Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national Agencies
The Corporation shall use its discretion in determining which industry
classification is applicable to a particular investment.
(zz) "1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
(aaa) "1940 Act ATP Asset Coverage" means asset coverage, as defined in
Section 18(h) of the 1940 Act, of at least 200% with respect to all
Outstanding senior securities of the Corporation which are stock, including
all Outstanding ATP (or such other asset coverage as may in the future be
specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition
of declaring dividends on its common stock), determined on the basis of
values calculated as of a time within 48 hours next preceding the time of
such determination.
(bbb) "1940 Act ATP Asset Coverage Certificate" means the certificate
required to be delivered by the Corporation pursuant to Section 13(e).
(ccc) "Notice of Redemption" means any notice with respect to the redemption
of shares of ATP pursuant to Section 3.
(ddd) "Other Rating Agency" means any rating agency other than Moody's or
Fitch then providing a rating for the ATP pursuant to the request of the
Corporation.
(eee) "Other Rating Agency Eligible Assets" means assets of the Corporation
designated by any Other Rating Agency as eligible for inclusion in
calculating the discounted value of the Corporation's assets in connection
with such Other Rating Agency's rating of the ATP.
(fff) "Outstanding" means, as of any date, shares of each series of ATP
theretofore issued by the Corporation except, without duplication, (i) any
shares of ATP theretofore cancelled, redeemed or repurchased by the
Corporation, or delivered to the Auction Agent for cancellation or with
respect to which the Corporation has given notice of redemption and
irrevocably deposited with the Paying Agent sufficient funds to redeem such
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shares of each series of ATP, (ii) any shares of ATP as to which the
Corporation or any Afiliate thereof is an Existing Holder; provided, however,
that for purposes of determining the ATP Basic Maintenance Amount, shares of
ATP held by any Affiliate of the Corporation will be deemed Outstanidng, and
(iii) any shares of ATP represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Corporation.
(ggg) "Paying Agent" means Bankers Trust Company unless and until another
entity appointed by a resolution of the Board of Directors enters into an
agreement with the Corporation to serve as paying agent, which paying agent
may be the same as the Auction Agent.
(hhh) "Person" or "person" means and includes an individual, a partnership,
a corporation, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency or political subdivision thereof.
(iii) "Preferred Stock" means the preferred stock of the Corporation from
time to time.
(jjj) "Proration Procedures" means:
(i) if Sufficient Clearing Orders exist, in the case of a Submitted
Hold/Sell Order specifying a rate equal to the Winning Rate
(A) the number of shares of the relevant series of ATP to be the subject of
an accepted Hold Order will be (1) the number of shares of such series of ATP
subject to such Submitted Hold/Sell Order multiplied by (2) the total number
of shares of such series of ATP that are neither the subject of a Submitted
Buy Order or a Submitted Hold/Sell Order specifying a rate lower than the
Winning Rate nor the subject of a Submitted Hold Order and divided by (3) the
total number of shares of such series of ATP subject to Submitted Hold/Sell
Orders that specified a rate equal to the Winning Rate, and
(B) the number of shares of the relevant series of ATP to be the subject of
an accepted Sell Order will be the remaining number of shares of such series
of ATP subject to such Submitted Hold/Sell Order,
(ii) if Sufficient Clearing Orders exist, in the case of a Submitted Buy
Order specifying a rate equal to the Winning Rate
(A) the number of shares of the relevant series of ATP to be the subject of
an accepted Buy Order will be (1) the number of shares of such series of ATP
subject to such Submitted Buy Order multiplied by (2) the difference between
(x) the number of shares of such series of ATP that are the subject of a
Submitted Sell Order or a Submitted Hold/Sell Order that specified a rate
higher than the Winning Rate and (y) the number of shares of
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such series of ATP that are the subject of a Submitted Buy Order that
specified a rate lower than the Winning Rate and divided by (3) the total
number of shares of such series of ATP subject to Submitted Buy Orders that
specified a rate equal to the Winning Rate, and
(B) such Submitted Buy Order will not be accepted as to the remaining number
of shares subject to such Submitted Buy Order, and
(iii) if Sufficient Clearing Orders do not exist, in the case of a Submitted
Hold/Sell Order specifying a rate higher than the Maximum Applicable Rate and
in the case of a Submitted Sell Order
(A) the number of shares of the relevant series of ATP to be the subject of
an accepted Sell Order will be (1) the number of shares of such series of ATP
subject to such Submitted Hold/Sell Order or Submitted Sell Order multiplied
by (2) the total number of shares of such series of ATP that are the subject
of a Submitted Buy Order specifying a rate equal to or lower than the Maximum
Rate and dividend by (3) the total number of shares of such series of ATP
subject to all Submitted Hold/Sell Orders that specified a rate higher than
the Maximum Applicable Rate and Submitted Sell Orders, and
(B) the number of shares of the relevant series of ATP to be the subject of
an accepted Hold Order will be the remaining number of shares of such series
of ATP subject to such Submitted Hold/Sell Order or Submitted Sell Order.
(kkk) "Rating Default" has the meaning se forth in Section 3(c)(ii).
(lll) "Rating Default Cure Date" has the meaning set forth in Section
3(a)(iii).
(mmm) "Redemption Default" has the meaning set forth in Section 3(c)(ii).
(nnn) "Reference Rate" means, with respect to the determination of the
Maximum Applicable Rate, the applicable AA Composite Commercial Paper Rate
(for a Dividend Period of fewer than 184 days) or the applicable Treasury
Index Rate for a Dividend Period of 184 days or more).
(ooo) "Rounding Procedures" means, if as a result of an Auction (including
the Proration Procedures) any Existing Holder would be entitled to hold or
required to sell, or any Potential Holder would be required to purchase, a
number of shares of the relevant series of ATP not evenly divisible by 1, on
any Auction Date, the Auction Agent will, in such manner as it determines,
round up or down the number of shares of such series of ATP to be held,
purchased or sold by any Existing Holder or Potential Holder on such Auction
Date so that the number of shares held, purchased or sold by each Existing
Holder or
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Potential Holder on such Auction Date will be a number of shares of such
series of ATP evenly divisible by 1.
(ppp) "S&P" means Standard & Poor's Corporation and its successors at law.
(qqq) "Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Corporation that agrees to follow the procedures required to be followed by
such securities depository in connection with the shares of each series of
ATP.
(rrr) "Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Corporation, the remaining terms to maturity thereof are not in excess of (a)
180 days for instruments rated at least Aa3 or 270 days for instruments rated
at least Aaa for purposes of determining Moody's Eligible Assets (if Moody's
is then rating the ATP), and (b) 180 days for purposes of determining Fitch
Eligible Assets (if Fitch is then rating the ATP):
(i) commercial paper that is rated as of each Valuation Date P-1 by Moody's
and either F-1+ by Fitch or A-1+ by S&P, respectively;
(ii) demand or time deposits in, certificates of deposit of (A) a depository
institution or trust company incorporated under the laws of the United States
of America or any state thereof or the District of Columbia or (B) a United
States branch office or agency of a foreign depository institution (provided
that such branch office or agency is subject to banking regulation under the
laws of the United States, any state thereof or the District of Columbia) if,
in each case, the certificates of deposit, if any, and the long-term
unsecured debt obligations (other than such obligations the ratings of which
are based on the credit of a person or entity other than such depository
institution or trust company) of such depository institution or trust company
that have (1) credit ratings on each Valuation Date of at least P-1 from
Moody's and either F-1+ from Fitch or A-1+ from S&P, in the case of
commercial paper or certificates of deposit, and (2) credit ratings on each
Valuation Date of at least Aa3 from Moody's and either AA- from Fitch or AA-
from S&P, in the case of long-term unsecured debt obligations; provided,
however, that in the case of any such investment that matures in no more than
one Business Day from the date of purchase or other acquisition by the
Corporation, all of the foregoing requirements shall be applicable except
that the required long-term unsecured debt credit rating of such depository
institution or trust company from Moody's, Fitch and S&P shall be at least
A2, A and A, respectively; and provided further, however, that the foregoing
credit rating requirements shall be deemed to be met with respect to a
depository institution or trust company if (1) such depository institution or
trust company is the principal depositiory institution in a holding company
system, (2) the certificates of deposit, if any, of such depository
institution or trust company are not rated on any Valuation Date below P-1 by
Moody's, F-1+ by Fitch or A-1+ by S&P and there is no long-term rating, and
(3) the holding company shall meet all of the foregoing credit
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rating requirements (including the preceding proviso in the case of
investments that mature in no more than one Business Day from the date of
purchase or other acquisition by the Corporation);
(iii) next-day federal funds; and
(iv) Eurodollar demand or time deposits in, or certificates of deposit of,
the head office or the London branch office of a depository institution or
trust company meeting the credit rating requirements of commercial paper and
long-term unsecured debt obligations specified in clause (ii) above, provided
that the interest receivable by the Corporation shall not be subject to any
withholding or similar taxes.
(sss) "Specific Redemption Provisions" means, with respect to any Alternate
Term Period of more than one year, either, or any combination of (i) a period
(a "Non-Call Period") determined by the Board of Directors after consultation
with the Broker-Dealers, during which the shares subject to such Alternate
Term Period are not subject to redemption at the option of the Corporation
pursuant to Section 3(a)(i) and/or Section 3(a)(ii) and/or 3(a)(iii) and (ii)
a period (a "Premium Call Period"), consisting of a number of whole years as
determined by the Board of Directors after consultation with the
Broker-Dealers, during each year of which the shares subject to such
Alternate Term Period shall be redemable at the Corporation's option pursuant
to Section 3(a)(i) and/or in connection with any mandatory redemption
pursuant to Section 3(a)(ii) and/or 3(a)(iii) at a price per share equal to
$50,000 plus accumulated but unpaid dividends plus a premium expressed as a
percentage or percentages of $50,000 or expressed as a formula using
specified variables as determined by the Board of Directors after
consultation with the Broker-Dealers.
(ttt) "Standard Term Period" means a Dividend Period of 28 days, unless such
28th day is not a Business Day, then the number of days ending on the
Business Day next preceding such 28th day.
(uuu) "Submission Deadline" means 1:00 p.m., New York City time, on each
Auction Date, or such other time on such Auction Date as may be specified
from time to time by the Auction Agent as the time by which each Broker-
Dealer must submit to the Auction Agent all Orders obtained by it for the
Auction to be conducted on such Auction Date.
(vvv) "Treasury Index Rate" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities having the
same number of 30-day periods to maturity as the length of the applicable
Dividend Period, determined, to the extent necessary, by linear interpolation
based upon the yield for such securities having the next shorter and next
longer number of 30-day periods to maturity treating all Dividend Periods
with a length greater than the longest maturity for such securities as having
a length equal to such longest maturity, in all cases based upon data set
forth in the most recent weekly statistical release published by the Board of
Governors of the Federal Reserve System (currently in H.15(519)); provided,
however, if the most recent such statistical release shall
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not have been published during the 15 days preceding the date of computation,
the foregoing computations shall be based upon the average of comparable data
as quoted to the Corporation by at least three recognized dealers in U.S.
Government securities selected by the Corporation.
(www) "Type I Corporate Bonds" means Corporate Bonds rated either AAA by
Fitch or, if not rated by Fitch, rated AAA by S&P and Aaa by Moody's.
(xxx) "Type II Corporate bonds" means Corporate Bonds rated either at least
AA- by Fitch or, if not rated by Fitch, rated at least AA- by S&P and at
least Aa3 by Moody's which do not constitute Type I Corporate Bonds.
(yyy) "Type III Corporate Bonds" means Corporate Bonds rated either at least
A- by Fitch or, if not rated by Fitch, rated at least A- by S&P and at least
A3 by Moody's which do not constitute Type I or Type II Corporate Bonds.
(zzz) "Type IV Corporate Bonds" means Corporate Bonds rated either at least
BBB- by Fitch or, if not rated by Fitch, rated at least BBB- by S&P and at
least Baaa3 by Moody's which do not constitute Type I, Type II or Type III
Corporate Bonds.
(aaaa) "Type V Corporate Bonds" means Corporate Bonds rated either at least
BB- by Fitch or, if not rated by Fitch, rated at least BB- by S&P and at
least Ba3 by Moody's which do not constitute Type I, Type II, Type III or
Type IV Corporate Bonds.
(bbbb) "Type VI Corporate Bonds" means Corporate Bonds rated either at least
B- by Fitch or, if not rated by Fitch, rated at least B- by S&P and at least
B3 by Moody's which do not constitute Type I, Type II, Type III, Type IV or
Type V Corporate Bonds.
(cccc) "Type VII Corporate Bonds" means Corporate Bonds rated either at
least CCC by Fitch or, if not rated by Fitch, rated at least CCC by S&P and
at least Caa by Moody's which do not constitute Type I, Type II, Type III,
Type IV, Type V or Type VI Corporate Bonds.
(dddd) "Validity Procedures" means the following procedures and priorities:
(i) if one or more Hold Orders shall be submitted on behalf of an Existing
Holder as to a number of shares of the relevant series of ATP greater than
the number of shares of such series of ATP held by such Existing Holder, such
Hold Order or Hold Orders shall be considered valid only as to the number of
shares of such series of ATP held by such Existing Holder. In the case of
multiple Hold Orders, each such Hold Order shall be considered valid pro
rata.
(ii) If one or more Hold/Sell Orders shall be submitted on behalf of an
Existing Holder as to a number of shares of the relevant series of ATP
greater
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than the excess of the number of shares of such series of ATP held by such
Existing Holder over the number of shares of such series of ATP subject to
Hold Orders submitted on behalf of such Existing Holder, such Hold/Sell Order
or Hold/Sell Orders shall be considered valid only as to the number of shares
of such series of ATP equal to such excess. In the case of multiple Hold/Sell
Orders specifying different rates, such Hold/Sell Orders shall be considered
valid in increasing order of such rates. In the case of multiple Hold/Sell
Orders specifying the same rate, each such Hold/Sell Order shall be
considered valid pro rata.
(iii) If one or more Sell Orders shall be submitted on behalf of an Existing
Holder as to a number of shares of the relevant series of ATP greater than
the excess of the number of shares of such series of ATP held by such
Existing Holder over the number of shares of such series of ATP subject to
Hold Orders and Hold/Sell Orders submitted on behalf of such Existing Holder,
such Sell Order or Sell Orders shall be considered valid only as to the
number of shares equal to such excess. In the case of multiple Sell Orders,
each such Sell Order shall be considered valid pro rata.
(eeee) "Valuation Date" means every Friday, or, if such day is not a
Business Day, the next preceding Business Day; provided, however, that the
first Valuation Date may occur on any other date established by the
Corporation; provided, further, however, that such date shall be not more
than one week from the date on which the ATP initially is issued.
(ffff) "Volatility Factor" means 1.89.
19. Interpretation. References to sections, subsections, clauses,
sub-clauses, paragraphs and subparagraphs are to such sections, subsections,
clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I
or Part II hereof, as the case may be, unless specifically identified
otherwise. In addition, capitalized terms not defined in Section 18 or this
Part I shall have the respective meanings specified in Part II hereof.
PART II
1. Certain Definitions: As used in this Part II, the following terms shall
have the following meanings, unless the context otherwise requires and all
section references below are to this Part II except as otherwise indicated.
Capitalized terms not defined in this Section 1 of this Part II shall have
the respective meanings specified in Part I hereof.
(a) "Agent Member" means a member of or participant in the Securities
Depository that will act on behalf of an Existing Holder or person placing an
Order and is identified as such in such Existing Holder's or person's Master
Purchaser's Letter.
(b) "Available ATP" has the meaning specified in Section 5(a)(i).
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(c) "Buy Order" has the meaning specified in Section 2(b).
(d) "Existing Holder" means a Person who has signed a Master Purchaser's
Letter and is listed as the beneficial owner of shares of either series of
ATP in the records of the Auction Agent.
(e) "Hold Order" has the meaning specified in Section 2(b).
(f) "Hold/Sell Order" has the meaning specified in Section 2(b).
(g) "Master Purchaser's Letter" means a letter addressed to the Corporation,
the Auction Agent, a Broker- Dealer and an Agent Member in which a Person
agrees, among other things, to offer to purchase, to purchase, to offer to
sell and/or to sell shares of ATP as set forth in this Part II.
(h) "Order" has the meaning specified in Section 2(b).
(i) "Potential Holder," when used with respect to shares of ATP, means any
Person, including any Existing Holder of shares of ATP (i) who shall have
executed a Master Purchaser's Letter and (ii) who may be interested in
acquiring shares of ATP (or, in the case of an Existing Holder of shares of
ATP, additional shares of ATP).
(j) "Sell Order" has the meaning specified in Section 2(b).
(k) "Submitted Buy Order" has the meaning specified in Section 5(a).
(l) "Submitted Hold Order" has the meaning specified in Section 5(a).
(m) "Submitted Hold/Sell Order" has the meaning specified in Section 5(a).
(n) "Submitted Order" has the meaning specified in Section 5(a).
(o) "Submitted Sell Order" has the meaning specified in Section 5(a).
(p) "Sufficient Clearing Orders" means that all shares of the relevant
series of ATP are the subject of Submitted Hold Orders or that the number of
shares of such series of ATP that are the subject of Submitted Buy Orders by
Potential Holders specifying one or more rates equal to or less than the
Maximum Applicable Rate exceeds or equals the sum of (A) the number of shares
of such series of ATP that are the subject of Submitted Hold/Sell Orders by
Existing Holders specifying one or more rates higher than the Maximum
Applicable Rate and (B) the number of shares of such series of ATP that are
subject to Submitted Sell Orders.
(q) "Winning Rate" means the lowest rate specified in the Submitted Orders
which, if (i) each Submitted Hold/ Sell Order from Existing Holders
specifying such
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lowest rate and all other Submitted Hold/Sell Orders from Existing Holders
specifying lower rates were accepted and (ii) each Submitted Buy Order from
Potential Holders specifying such lowest rate and all other Submitted Buy
Orders from Potential Holders specifying lower rates were accepted, would
result in the Existing Holders described in clause (i) above continuing to
hold an aggregate number of shares of the relevant series of ATP which, when
added to the number of shares of such series of ATP to be purchased by the
Potential Holders described in Clause (ii) above and the number of shares of
such series of ATP subject to Submitted Hold Orders, would be equal to the
number of shares of such series of ATP.
Section 2. Orders by Existing Holders and Potential Holders.
(a) On or prior to the Submissions Deadline on each Auction Date with
respect to the relevant series of ATP:
(i) each Existing Holder may submit to a Broker-Dealer information as to:
(A) the number of Outstanding shares of such series of ATP, if any, held by
such Existing Holder which such Existing Holder desires to continue to hold
without regard to the Applicable Rate for the next succeeding Dividend
Period;
(B) the number of Outstanding shares of such series of ATP, if any, held by
such Existing Holder which such Existing Holder desires to continue to hold,
provided that the Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such Existing Holder;
and/or
(C) the number of Outstanding shares of such series of ATP, if any, held by
such Existing Holder which such Existing Holder offers to sell without regard
to the Applicable Rate for the next succeeding Dividend Period; and
(ii) each Broker-Dealer, using a list of Potential Holders that shall be
maintained in good faith for the purpose of conducting a competitive Auction,
shall contact Potential Holders, including persons that are not Existing
Holders, on such list to determine the number of Outstanding shares of ATP,
if any, which each such Potential Holder offers to purchase, provided that
the Applicable Rate for the next succeeding Dividend Period shall not be less
than the rate per annum specified by such Potential Holder.
(b) For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (i) and (ii) of Section 2(a) of this Part
II is hereinafter referred to as an "Order"; an Order containing the
information referred to in clause (i) (A) of
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Section 2(a) of this Part II is hereinafter referred to as a "Hold Order"; an
Order containing the information referred to in clause (i)(B) of Section 2(a)
of this Part II is hereinafter referred to as a "Hold/Sell"; an Order
containing the information referred to in clause (i)(C) of Section 2(a) of
this Part II is hereinafter referred to as a "Sell Order"; and an Order
containing the information referred to in clause (ii) of Section 2(a) of this
Part II is hereinafter referred to as a "Buy Order."
(c) (i) A Hold/Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding shares of the relevant series of ATP specified
in such Order if the Applicable Rate determined on such Auction Date shall be
less than the rate per annum specified in such Order; or
(B) a lesser number of Outstanding shares of the relevant series of ATP to
be determined as set forth in Section 6(a)(v) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per annum
specified therein; or
(C) a lesser number of Outstanding shares of the relevant series of ATP to
be determined as set forth in Section 6(b)(iv) if such specified rate per
annum shall be higher than the Maximum Applicable Rate and Sufficient
Clearing Orders do not exist.
(ii) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell the number of Outstanding shares of the relevant series of ATP
specified in such Sell Order.
(iii) A Buy Order by a Potential Holder shall constitute an irrevocable
offer to purchase:
(A) the number of Outstanding shares of the relevant series of ATP specified
in such Order if the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Order; or
(B) such number or a lesser number of Outstanding shares of the relevant
series of ATP to be determined as set forth in Section 6(a)(vi) if the
Applicable Rate determined on such Auction Date shall be equal to the rate
per annum specified therein.
Section 3. [Reserved]
50
<PAGE>
Section 4. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to
the Submission Deadline on each Auction Date for the Auction to be conducted
on such Auction Date all Orders obtained by such Broker-Dealer and specifying
with respect to each Order:
(i) the name of the Existing Holder or Potential Holder placing such Order;
(ii) the aggregate number of shares of the relevant series of ATP that are
the subject of such Order;
(iii) to the extent that such Orders are placed by an Existing Holder:
(A) the number of shares of the relevant series of ATP, if any, subject to
any Hold Order placed by such Existing Holder;
(B) the number of shares of the relevant series of ATP, if any, subject to
any Hold/Sell Order placed by such Existing Holder;
(C) the number of shares of the relevant series of ATP, if any, subject to
any Sell Order placed by such Existing Holder; and
(iv) the rate per annum specified in such Order.
(b) If any rate per annum specified in any Order contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.0001) of 1%.
(c) If an Order or Orders covering all shares of the relevant series of ATP
held by any Existing Holder are not submitted to the Auction Agent by the
Submission Deadline, the Auction Agent shall, only in the case of an Auction
preceding a Dividend Period of 93 days or fewer and at the conclusion of a
Dividend Period of 93 days or fewer, deem a Hold Order to have been submitted
on behalf of such Existing Holder covering the number of shares held by such
Existing Holder and not subject to Orders submitted to the Auction Agent. If
an Order or Orders covering all shares of ATP held by any Existing Holder are
not submitted to the Auction Agent by the Submission Deadline, the Auction
Agent will, in the case of all other Auctions, deem a Sell Order to have been
submitted on behalf of such Existing Holder covering the number of shares
held by such Existing Holder and not subject to Orders submitted to the
Auction Agent.
(d) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of shares of the relevant series of ATP held
by such
51
<PAGE>
Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:
(i) If one or more Hold Orders shall be submitted on behalf of an Existing
Holder as to a number of shares of such series of ATP greater than the number
of shares of such series of ATP held by such Existing Holder, such Hold Order
or Hold Orders shall be considered valid only as to the number of shares of
such series of ATP held by such Existing Holder. In the case of multiple Hold
Orders, each such Hold Order shall be considered valid pro rata.
(ii) If one or more Hold/Sell Orders shall be submitted on behalf of an
Existing Holder as to a number of shares of such series of ATP greater than
the excess of the number of shares of such series of ATP held by such
Existing Holder over the number of shares of such series of ATP subject to
Hold Orders submitted on behalf of such Existing Holder, such Hold/Sell Order
or Hold/Sell Orders shall be considered valid only as to the number of shares
of such series of ATP equal to such excess. In the case of multiple Hold/Sell
Orders specifying different rates, such Hold/Sell Orders shall be considered
valid in increasing order of such rates. In the case of multiple Hold/Sell
Orders specifying the same rate, each such Hold/Sell Order shall be
considered valid pro rata.
(iii) If one or more Sell Orders shall be submitted on behalf of an Existing
Holder as to a number of shares of such series of ATP greater than the excess
of the number of shares of such series of ATP held by such Existing Holder
over the number of shares of such series of ATP subject to Hold Orders and
Hold/Sell Orders submitted on behalf of such Existing Holder, such Sell Order
or Sell Orders shall be considered valid only as to the number of shares
equal to such excess. In the case of multiple Sell Orders, each such Sell
Order shall be considered valid pro rata.
(e) If more than one Order is submitted on behalf of any Potential Holder,
each Order submitted shall be a separate Order with the rate and shares of
the relevant series of ATP therein specified.
(f) In the case of any Dividend Period of 93 days or fewer, if any rate
specified in any Order is lower than the Minimum Applicable Rate for the
Dividend Period with respect to which such Order is made, such Order will be
deemed to be an Order specifying a rate equal to such Minimum Applicable
Rate.
(g) In the case of any Dividend Period of more than 93 days, only Buy
Orders, Hold/Sell Orders and Sell Orders may be submitted.
52
<PAGE>
Section 5. Determination of Sufficient Clearing Orders, Winning Rate and
Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Hold/Sell Order", a "Submitted Sell Order" or a
"Submitted Buy Order," as the case may be, or as a "Submitted Order") and
shall determine:
(i) the excess of the total number of Outstanding shares of the relevant
series of ATP over the number of Outstanding shares of such series of ATP
that are the subject of Submitted Hold Orders (such excess being hereinafter
referred to as the "Available ATP");
(ii) from the Submitted Orders whether the number of Outstanding shares of
the relevant series of ATP that are the subject of Submitted Buy Orders by
Potential Holders specifying one or more rates per annum equal to or lower
than the Maximum Applicable Rate exceeds or is equal to the sum of:
(A) the number of shares of such series of ATP that are the subject of
Submitted Hold/Sell Orders by Existing Holders specifying one or more rates
per annum higher than the Maximum Applicable Rate, and
(B) the number of shares of such series of ATP that are subject to Submitted
Sell Orders (if such excess or such equality exists (other than because the
number of Outstanding shares of such series of ATP in clauses (A) and (B)
above are each zero because all of the Outstanding shares of such series of
ATP are the subject of Submitted Hold Orders), such Submitted Buy Orders by
Potential Holders being hereinafter referred to collectively as "Sufficient
Clearing Orders"), would result in the number of shares subject to all
Submitted Orders specifying the Winning Rate or a lower rate per annum being
at least equal to the Available ATP.
(b) Promptly after the Auction Agent has made the determinations pursuant to
Section 5(a), the Auction Agent shall advise the Corporation of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for
the next succeeding Dividend Period as follows:
(i) If Sufficient Clearing Orders exist, that the Applicable Rate for the
next succeeding Dividend Period shall be equal to the Winning Rate;
(ii) If Sufficient Clearing Orders do not exist (other than because all of
the Outstanding shares of the relevant series of ATP are the subject of
Submitted Hold Orders), that the Applicable Rate for the next succeeding
Dividend Period shall
53
<PAGE>
be equal to Maximum Applicable Rate and the Dividend Period shall be a
Standard Term Period; or
(iii) If all Existing Holders submit (or are deemed to have submitted) Hold
Orders in an Auction, the Dividend Period next succeeding the Auction shall
automatically be the same Dividend Period as that Dividend Period immediately
preceding the Auction and the Applicable Rate will be the Minimum Applicable
Rate (or such other rate if there is no Minimum Applicable Rate) in effect on
the date of the Auction with respect to such Dividend Period.
Section 6. Acceptance and Rejection of Submitted Orders and Submitted Sell
Orders and Allocation of Shares.
Based upon the results of the Auction, the Auction Agent will determine the
aggregate number of shares to be held and sold by Existing Holders and to be
purchased by Potential Holders, and, with respect to each Broker-Dealer,
determine the extent to which such Broker-Dealer will deliver, and from which
other Broker-Dealers such Broker-Dealer will receive, shares.
(a) If Sufficient Clearing Orders exist, subject to the Rounding Procedures:
(i) all Submitted Hold Orders will be accepted;
(ii) all Submitted Sell Orders will be accepted and all Submitted Hold/Sell
Orders specifying any rate higher than the Winning Rate will be accepted as
Sell Orders;
(iii) all Submitted Hold/Sell Orders specifying a rate lower than the
Winning Rate will be accepted as Hold Orders;
(iv) all Submitted Buy Orders specifying a rate lower than the Winning Rate
will be accepted;
(v) all Submitted Hold/Sell Orders specifying a rate equal to the Winning
Rate will be accepted as Hold Orders unless the number of shares subject to
all such Submitted Hold/Sell Orders is greater than the number of shares
remaining unaccounted for after the acceptances described in clauses (i),
(iii) and (iv) above, in which event each such Submitted Hold/Sell Order will
be accepted as a Hold Order and a Sell Order as to the respective number of
shares determined in accordance with the Proration Procedures; and
(vi) all Submitted Buy Orders specifying a rate equal to the Winning Rate
will be accepted, unless the number of shares subject to all such Submitted
Buy Orders is greater than the number of shares remaining unaccounted for
after the acceptances described in clauses (i), (iii), (iv) and (v) above, in
which event each
54
<PAGE>
such Submitted Buy Order will be accepted only as to the number of shares
determined in accordance with the Proration Procedures.
(b) If Sufficient Clearing Orders do no exist, subject to the Rounding
Procedures:
(i) all Submitted Hold Orders will be accepted;
(ii) all Submitted Hold/Sell Orders specifying a rate equal to or lower than
the Maximum Applicable Rate will be accepted as Hold Orders;
(iii) all Submitted Buy Orders specifying a rate equal to or lower than the
Maximum Applicable Rate will be accepted; and
(iv) all Submitted Hold/Sell Orders specifying a rate higher than the
Maximum Applicable Rate and all Submitted Sell Orders will be accepted as
Hold Orders and as Sell Orders as to the respective number of shares of ATP
determined in accordance with the Proration Procedures.
(c) If as a result of the procedures described in Section 6(a) or 6(b) any
Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction of a share of
ATP in any Auction, the Auction Agent will, in such manner as, in its sole
discretion, it shall determine, round up or down the number of shares of ATP
being sold or purchased on such Auction Date so that each share sold or
purchased by each Existing Holder or Potential Holder will be a whole share
of ATP even if such allocation results in one or more of such Potential
Holders not purchasing any shares of ATP or in one or more Existing Holders
no longer holding any shares of ATP.
(d) If, as a result of the procedures described in Section 6(a), any
Potential Holder would be entitled or required to purchase a fraction of a
share of ATP, as applicable, on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion it shall determine, allocate shares of
ATP for purchase among Potential Holders so that only whole shares of ATP are
purchased on such Auction Date by any Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any shares of ATP on such Auction Date or in one or more Existing Holders no
longer holding any shares of ATP.
(e) Based on the results of each Auction, the Auction Agent shall determine,
with respect to each Broker-Dealer that submitted Orders on behalf of
Existing Holders or Potential Holders, the aggregate number of shares of the
relevant series of ATP to be purchased and the aggregate number of shares of
such series of ATP to be sold by such Potential Holders and Existing Holders
and, to the extent that such aggregate number of shares of such series of ATP
to be purchased and such aggregate number of shares of such series of ATP to
be sold differ, the Auction Agent shall determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall
55
<PAGE>
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one
or more sellers such Broker-Dealer shall receive, as the case may be, shares
of such series of ATP.
Section 7. Notification of Results: Settlement.
(a) The Auction Agent will advise each Broker-Dealer that submitted an Order
whether such Order was accepted and of the Applicable Rate for the next
Dividend Period by telephone by approximately 3:00 p.m., New York City time,
on each Auction Date. Each Broker-Dealer that submitted an Order will as soon
as practicable advise each Existing Holder and Potential Holder whether its
Order was accepted and will confirm in writing purchases and sales with each
Existing Holder and Potential Holder purchasing or selling shares as a result
of an auction as soon as practicable on the Business Day next succeeding the
Auction Date. Each Broker-Dealer that submitted a Hold Order will advise each
Existing Holder on whose behalf such Hold Order was submitted of the
Applicable Rate for the shares of ATP for the next Dividend Period.
(b) In accordance with the Securities Depository's normal procedures, on the
Business Day after the Auction Date, the transactions described above will be
executed through the Securities Depository and the accounts of the respective
Agent Members at the Securities Depository will be debited and credited and
shares delivered as necessary to effect the purchases and sales as determined
in the Auction. Purchasers will make payment through their Agent Members in
same-day funds to the Securities Depository against delivery through their
Agent Members; the Securities Depository will make payment in accordance with
its normal procedures as in effect from time to time.
(c) If any Existing Holder selling shares in an Auction fails to deliver
such shares, the Broker-Dealer of any person that was to have purchased
shares in such Auction may deliver to such person a number of whole shares
that is less than the number of shares that otherwise was to be purchased by
such person. In such event, the number of shares to be so delivered shall be
determined by such Broker-Dealer. Delivery of such lesser number of shares
shall constitute good delivery.
Section 8. Miscellaneous.
The Board of Directors may interpret the provisions of these Auction
Procedures to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification that does not adversely
affect the rights of Existing Holders of shares of ATP. An Existing Holder
(A) may sell, transfer or otherwise dispose of shares of ATP only pursuant to
a Hold/Sell Order or Sell Order in accordance with the procedures described
in this Part II, to or through a Broker-Dealer, to a Person that has
delivered a signed copy of a Master Purchaser's Letter to the Auction Agent,
or as otherwise permitted under Section 5 of Part I, provided that in the
case of all transfers other than pursuant to Auctions such Existing Holder,
its Broker-Dealer or its Agent Member advised the Auction Agent of such
transfer and (B) except as otherwise required by law, shall have the
ownership of the shares of ATP held by it maintained in book entry form by
the Securities Depository in the account of its
56
<PAGE>
Agent Member, which in turn will maintain records of such Existing Holder's
beneficial ownership. Neither the Corporation nor any Affiliate of the
Corporation shall submit an Order in any Auction. Any Existing Holder that is
such an Affiliate shall not sell, transfer or otherwise dispose of shares of
ATP to any Person other than the Corporation. All of the shares of ATP of any
series shall be represented by a single certificate registered in the name of
the nominee of the Securities Depository unless otherwise required by law or
unless there is no Securities Depository. If there is no Securities
Depository, at the Corporation's option and upon its receipt of such
documents as it deems appropriate, any shares of ATP may be registered in the
share register for the shares of ATP maintained by he Auction Agent in the
name of the Existing Holder thereof and such Existing Holder thereupon will
be entitled to receive certificates therefor and required to deliver
certificates therefor upon transfer or exchange thereof.
THIRD: These Articles Supplementary shall be effective at the later of the
time the State Department of Assessments and Taxation of Maryland accepts the
Articles for record or 9:01 a.m. Eastern Standard Time on January 4, 1994.
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC. has caused these
presents to be signed in its name and on its behalf by its President, and its
corporate seal to be hereunto affixed and attested by its Secretary, and the
said officers of the Corporation further acknowledge said instrument to be
the corporate act of the Corporation, and state under the penalties of
perjury that to the best of their knowledge, information and belief the
matters and facts therein set forth with respect to approval are true in all
material respects.
THE NEW AMERICA HIGH INCOME FUND, INC.
By /s/ R Birch
Robert F. Birch, President
ATTEST:
/s/ Richard E. Floor
Richard E. Floor, Secretary
37933.c3
12/22/93 9:07 pm
57
Exhibit A5
THE NEW AMERICA HIGH INCOME FUND, INC.
CERTIFICATE OF CORRECTION
The New America High Income Fund, Inc., a Maryland corporation
having its principal office in Maryland in Baltimore, Maryland (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The title of the document being corrected is "Articles
of Amendment."
SECOND: The name of the only party to the document being
corrected is "The New America High Income Fund, Inc."
THIRD: The date that the document being corrected was filed is
December 28, 1993, effective January 4, 1994 at 9:00 A.M.
FOURTH: The following provision of the Articles of Amendment is
hereby corrected as follows:
The last paragraph of ARTICLE FIRST, section 4 on page 6 of the
Articles of Amendment, which now reads as follows:
"2. Article VI Sections (A) and (B) of the Fund's
Articles of Amendment and Restatement as heretofore amended shall
be amended by deleting the same and substituting in lieu thereof
only the following Section (A):
(A) The Corporation reserves the right from time
to time to amend, alter, change or repeal any provision contained
in this Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth
in this Charter, of any outstanding stock. Any amendment to this
Charter shall be adopted at either a special meeting of the
stockholders pursuant to affirmative vote of a majority of all the
outstanding shares of the Corporation's capital stock, voting as a
single class, except as otherwise provided in this Charter. The
Common Stock and the Preferred Stock shall vote as separate
classes to the extent otherwise required under Maryland law or the
Investment Company Act of 1940, as amended from time to time."
is corrected to read as follows:
<PAGE>
"2. Article VI Sections (A) and (B) of the Fund's
Articles of Amendment and Restatement as heretofore amended shall
be amended by deleting the same and substituting in lieu thereof
only the following Section (A):
(A) The Corporation reserves the right from time
to time to amend, alter, change or repeal any provision contained
in this Charter, now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth
in this Charter, of any outstanding stock. Any amendment to this
Charter shall be adopted at either a special or annual meeting of
the stockholders pursuant to affirmative vote of a majority of all
the outstanding shares of the Corporation's capital stock, voting
as a single class, except as otherwise provided in this Charter.
The Common Stock and the Preferred Stock shall vote as separate
classes to the extent otherwise required under Maryland law or the
Investment Company Act of 1940, as amended from time to time."
IN WITNESS WHEREOF, The New America High Income Fund, Inc. has
caused these presents to be signed in its name and on its behalf by its Vice
President and witnessed by its Secretary on January 31, 1996.
WITNESS: THE NEW AMERICA HIGH
INCOME FUND, INC.
/s/Richard E. Floor By: /s/Ellen E. Terry
- ---------------------------- -------------------------------
Richard E. Floor, Secretary Ellen E. Terry, Vice President
THE UNDERSIGNED, Vice President of The New America High Income
Fund, Inc., who executed on behalf of the Corporation this Certificate of
Correction hereby acknowledges in the name and on behalf of said Corporation the
foregoing Certificate of Correction to be the corporate act of said Corporation
and hereby certifies that the matters and facts set forth herein with respect to
authorization and approval hereof are true in all material respects under the
penalties of perjury.
/s/Ellen E. Terry
-------------------------------
Ellen E. Terry, Vice President
-2-
Exhibit A6
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES OF AMENDMENT
The New America High Income Fund, Inc., a Maryland corporation having
its principal office in Boston, Massachusetts (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Part I of the Articles Supplementary to the Fund's Articles of
Amendment and Restatement, as heretofore amended, is hereby further amended by
replacing current Section 6(j) with new Section 6(j) as follows:
"(j) The Board of Directors, without the vote or consent of any holder
of the Preferred Stock, including the ATP, or any other stockholder of
the Corporation, may from time to time amend, alter or repeal any or
all of the definitions of the terms or provisions listed below, and any
such amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of shares of ATP or the Holders thereof,
provided that the Board of Directors receives written confirmation from
Moody's (if Moody's is then rating the ATP) and Fitch (if Fitch is then
rating the ATP) (with such confirmation in no event being required to
be obtained from a particular rating agency in the case of the
definitions relevant only to and adopted in connection with the rating
of the ATP, if any, by any other rating agency) that such amendment,
alteration or repeal would not impair the rating then assigned by
Moody's or Fitch, respectively. In addition, the Board of Directors,
without the vote or consent of any Holder of the Preferred Stock,
including the ATP, or any other stockholder of the Corporation, may
from time to time adopt, amend, alter or repeal any or all of any
additional or other definitions or add covenants and other obligations
of the Corporation (e.g., maintenance of minimum liquidity level) or
confirm the applicability of covenants and other obligations set forth
herein in connection with obtaining or maintaining the rating of
Moody's, Fitch or any Other Rating Agency with respect to the ATP, and
any such amendment, alteration or repeal will not be deemed to affect
the preferences, rights or powers of the ATP or the Holders thereof,
provided the Board of Directors receives written confirmation from the
relevant rating agency (such confirmation in no event being required to
be obtained from a particular rating agency with respect to definitions
or other provisions relevant only to another rating agency's rating)
that any such amendment, alteration or repeal would not adversely
affect the rating then assigned by such rating agency.
<PAGE>
Definitions and Provisions Subject to Change by Director Action:
ATP Basic Maintenance Amount Minimum Applicable Rate
ATP Basic Maintenance Moody's Discount Factor
Certificate Moody's Eligible Assets
Asset Coverage Cure Date Moody's Industry Classification
Deposit Securities 1940 Act Asset Coverage Cure
Discounted Value Date
Exposure Period 1940 Act ATP Asset Coverage
Fitch Discount Factor Volatility Factor
Fitch Eligible Assets Short Term Money Market
Fitch Industry Classification Instruments
Market Value
Maximum Applicable Rate
Last Paragraph of Section 12
In addition, the Board of Directors may amend the definition
of Maximum Applicable Rate to increase the percentage amount by which
the Reference Rate is multiplied to determine the Maximum Applicable
Rate shown therein without the vote or consent of the holders of the
shares of the Preferred Stock, including the ATP, or any other
stockholder of the Corporation, and without receiving any confirmation
from any rating agency after consultation with the Broker-Dealers,
provided that immediately following any such increase the Corporation
would be in compliance with the ATP Basic Maintenance Amount."
SECOND: The board of directors of the Corporation has adopted a
resolution in which was set forth the foregoing amendment to the charter
declaring that said amendment to the charter was advisable and directing that it
be submitted for action thereon at a meeting of the stockholders of the
Corporation.
THIRD: Notice setting forth the aforesaid amendment of the charter and
stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote required by law and the
Corporation's charter.
FOURTH: These Articles shall be effective at the later of the date the
State Department of Assessments and Taxation of Maryland accepts the Articles
for record or on October 31, 1996.
<PAGE>
IN WITNESS WHEREOF The New America High Income Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President (or
its Vice-President) and its corporate seal to be hereunto affixed and attested
by its Secretary (or its Assistant Secretary) as of this 31st day of October,
1996.
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that, to the best of his or her
knowledge, information and belief, the matters and facts set forth herein with
respect to the authorization and approval hereof are true in all material
respects and that this statement is made under the penalties of perjury.
[Affix corporate seal] THE NEW AMERICA HIGH INCOME
FUND, INC.
Attest:
/s/Richard E. Floor By: /s/Robert F. Birch
- ---------------------------- ---------------------------------
Richard E. Floor, Secretary Robert F. Birch, President
Exhibit A7
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES OF AMENDMENT
The New America High Income Fund, Inc., a Maryland corporation having
its principal office in Boston, Massachusetts (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Part I of the Articles Supplementary to the Fund=s Articles of
Amendment and Restatement, as heretofore amended, is hereby further amended by
replacing current Section 18(oo)(iv) with new Section 18(oo)(iv) as follows:
" (iv) debt securities constituting Corporate Bonds if (A) such
securities are rated CCC or higher by Fitch or, if unrated by Fitch,
rated Caa or higher by Moody's and CCC or higher by S&P; (B) such
securities provide for the periodic payment of interest in cash in U.S.
dollars; (C) such securities do not provide for conversion or exchange
into equity capital at any time over their lives; (D) such securities
have been registered under the Securities Act of 1933, as amended, (the
"Securities Act") or are restricted as to resale under federal
securities laws but are eligible for resale pursuant to Rule 144A under
the Securities Act as determined by the Fund's adviser acting subject
to the supervision of the Fund's Board of Directors; and (E) such
securities are issued by a U.S. corporation. In addition, bonds which
are issued in connection with a reorganization under U.S. federal
bankruptcy law ("Reorganization Bonds") will be considered Corporate
Bonds constituting Fitch Eligible Assets if (a) they are rated CCC or
higher by Fitch or, if unrated by Fitch, rated Caa or higher by Moody's
and CCC or higher by S&P; (b) they provide for periodic payment of
interest in cash in U.S. dollars; (c) they do not provide for
conversion or exchange into equity capital at any time over their
lives; (d) they have been registered under the Securities Act or are
restricted as to resale under federal securities laws but are eligible
for trading under Rule 144A promulgated pursuant to the Securities Act
as determined by the Fund's adviser acting subject to the supervision
of the Fund's Board of Directors; (e) they were issued by a U.S.
corporation; and (f) at the time of purchase at least one year had
elapsed since the issuer's reorganization. Reorganization Bonds may
also be considered Corporate Bonds constituting Fitch Eligible Assets
if they have been approved by Fitch, which approval shall not be
unreasonably withheld."
<PAGE>
SECOND: Part I of the Articles Supplementary to the Fund's Articles of
Amendment and Restatement, as heretofore amended, is hereby further amended by
replacing current Section 18(xx)(iv) with new Section 18(xx)(iv) as follows:
"(iv) Corporate debt securities will be included in Moody's
Eligible Assets if (A) such securities are rated Caa or higher by
Moody's; (B) the senior unsecured rating of the issuer's corporate
bonds is higher than B3; (C) such securities provide for the periodic
payment of interest in cash in U.S. dollars; (D) such securities do not
provide for conversion or exchange into equity capital at any time over
their lives; (E) for debt securities rated Ba1 and below, no more than
10% of the original amount of such issue may constitute Moody's
Eligible Assets; and (F) such securities have been registered under the
Securities Act or are restricted as to resale under federal securities
laws but are eligible for resale pursuant to Rule 144A under the
Securities Act as determined by the Fund's adviser acting subject to
the supervision of the Fund's Board of Directors."
THIRD: Part I of the Articles Supplementary to the Fund's Articles of
Amendment and Restatement, as heretofore amended, is hereby further amended by
replacing current Section 18(uu) with new Section 18(uu) as follows:
" (uu) "Minimum Applicable Rate" means, on any Auction Date with
respect to a Dividend Period of 93 days or fewer, 80% of the AA
Composite Commercial Paper Rate at the close of business on the
Business Day next preceding such Auction Date. There shall be no
Minimum Applicable Rate on any Auction Date with respect to a Dividend
Period of more than 93 days."
FOURTH: Part I of the Articles Supplementary to the Fund's Articles of
Amendment and Restatement, as heretofore amended, is hereby further amended by
adding new Section 18 (nn)(iv) as follows:
" (iv) Rule 144A Securities: The Fitch Discount Factor applied
to securities which are restricted as to resale under federal
securities laws but are eligible for resale pursuant to Rule
144A under the Securities Act as determined by the Fund's
adviser acting subject to the supervision of the Fund's Board
of Directors ("Rule 144A Securities") will be 110% of the
Fitch Discount Factor which would apply were the securities
registered under the 1933 Act."
FIFTH: Part I of the Articles Supplementary to the Fund's Articles of
Amendment and Restatement, as heretofore amended, is hereby further amended by
adding new Section 18(ww)(v) as follows:
<PAGE>
" (v) Rule 144A Securities: The Moody's Discount Factor
applied to Rule 144A Securities will be 160% of the Moody's
Discount Factor which would apply were the securities
registered under the 1933 Act."
SIXTH: A majority of the board of directors of the Corporation has
approved the foregoing amendments to the charter.
SEVENTH: No stock entitled to vote on the foregoing amendments to the
charter was outstanding or subscribed for at the time of the approval of such
amendments by the board of directors of the Corporation.
EIGHTH: These Articles shall be effective at the later of the date the
State Department of Assessments and Taxation of Maryland accepts the Articles
for record or on November 1, 1996.
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IN WITNESS WHEREOF The New America High Income Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President (or
its Vice-President) and its corporate seal to be hereunto affixed and attested
by its Secretary (or its Assistant Secretary) as of this 1st day of November,
1996.
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that, to the best of his or her
knowledge, information and belief, the matters and facts set forth herein with
respect to the authorization and approval hereof are true in all material
respects and that this statement is made under the penalties of perjury.
[Affix corporate seal] THE NEW AMERICA HIGH INCOME
FUND, INC.
Attest:
/s/Richard E. Floor By: /s/Robert F. Birch
- --------------------------- -----------------------------
Richard E. Floor, Secretary Robert F. Birch, President
Exhibit B
BY-LAWS
OF
THE NEW AMERICA HIGH INCOME FUND, INC.
A Maryland Corporation
Amended as of February 15, 1996
ARTICLE I - STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the stockholders of THE
NEW AMERICA HIGH INCOME FUND, INC. (the "Corporation") shall be held on a date
fixed from time to time by the Board of Directors within the thirty-one (31) day
period commencing April 15 of each year. An annual meeting may be held at the
time and at any place within or outside of the State of Maryland as may be
determined by the Board of Directors as shall be designated in the notice of the
meeting. Any business of the Corporation may be transacted at an annual meeting
without being specifically designated in the notice unless otherwise provided by
statute, the Corporation's Articles of Incorporation (for purposes hereof,
references to the "Articles of Incorporation" shall be deemed to mean and
include all amendments and/or restatements thereof) or these By-Laws.
Notwithstanding the foregoing, no annual meeting of the stockholders shall be
held in any year in which:
(a) the election of directors is not required to be acted upon by the
stockholders under the Investment Company Act of 1940, as amended (the "1940
Act"); and
(b) an annual meeting is not otherwise required under the rules and
regulations of the principal exchange on which the Corporation's securities are
then traded.
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SECTION 2. Special Meetings. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Articles of Incorporation, may be held at any place within or
outside the State of Maryland, and may be called at any time by the Board of
Directors or by the President, and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors, at the
request in writing of stockholders entitled to cast at least twenty-five percent
(25)% of the votes entitled to be cast at the meeting upon payment by such
stockholders to the Corporation of the reasonably estimated cost of preparing
and mailing a notice of the meeting (which estimated cost shall be provided to
such stockholders by the Secretary of the Corporation), or as otherwise provided
in the Articles of Incorporation.
Notwithstanding the foregoing, unless requested by stockholders entitled to
cast a majority of the votes entitled to be cast at the meeting, a special
meeting of the stockholders need not be called at the request of stockholders to
consider any matter that is substantially the same as a matter voted on at any
special meeting of the stockholders held during the preceding twelve (12)
months. A written request of a stockholder for the holding of a special meeting
shall state the purpose or purposes of the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose or
purposes and of the time and place of every meeting of the stockholders shall be
given by the Secretary of the Corporation to each stockholder of record entitled
to vote at the meeting, by placing the notice in the mail at least ten (10) days
but not more than ninety (90) days prior to the date designated for the meeting
(except as otherwise specified in the Articles of Incorporation), addressed to
each such stockholder at his address appearing on the books of
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the Corporation or supplied by the stockholder to the Corporation for the
purpose of notice. The notice of any meeting of stockholders may be accompanied
by a form of proxy approved by the Board of Directors in favor of the actions or
persons as the Board of Directors may select. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who attends the meeting
in person or by proxy, or who before or after the meeting submits a signed
waiver of notice that is filed with the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by statute or by the
Articles of Incorporation, the presence in person or by proxy of stockholders of
the Corporation entitled to cast at least a majority of the votes entitled to be
cast at the meeting shall constitute a quorum at each meeting of the
stockholders and all questions shall be decided by a majority of votes cast
except for the election of directors which shall be decided by a plurality of
votes cast. In the absence of a quorum, the stockholders present in person or by
proxy at the meeting, by majority vote and without notice other than by
announcement at the meeting, may adjourn the meeting from time to time as
provided in Section 5 of this Article I until a quorum shall attend. The
stockholders present at any duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. The absence from any meeting in person or by proxy of
holders of the number of shares of stock of the Corporation in excess of a
majority that may be required by the laws of the State of Maryland, the 1940 Act
or other applicable statute, the Articles of Incorporation or these By-Laws, for
action upon any given matter shall not prevent action at the meeting on any
other matter or matters that may properly come before the meeting, so
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long as there are present, in person or by proxy, holders of the number of
shares of stock of the Corporation required for action upon such other matter or
matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be adjourned
from time to time, without notice other than by announcement at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum shall
be present any action may be taken that could have been taken at the meeting
originally called. A meeting of the stockholders may not be adjourned to a date
more than one-hundred twenty (120) days after the original record date.
SECTION 6. Organization. At every meeting of the stockholders, the Chairman
of the Board, if any, or in his absence or inability to act or if there is no
Chairman of the Board, the President, or in his absence or inability to act, a
Vice President designated by the President, or in the absence or inability to
act of the Chairman of the Board, the President and all Vice Presidents, a
chairman chosen by the stockholders, shall act as chairman of the meeting. The
Secretary, or in his absence or inability to act, a person appointed by the
chairman of the meeting, shall act as secretary of the meeting and keep the
minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the Articles
of Incorporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
(1) vote for every share of stock (and a proportionate fractional interest for
each such fractional share) standing in his name on
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the records of the Corporation as of the record date determined pursuant to
Section 9 of this Article I.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney provided in the proxy. Every proxy shall be
revocable at the pleasure of the stockholder executing it, except in those cases
in which the proxy states that it is irrevocable and in which an irrevocable
proxy is permitted by law.
SECTION 9. Fixing of Record Date for Determining Stockholders Entitled to
Vote at Meeting. The Board of Directors may set a record date for the purpose of
determining stockholders entitled to vote at any meeting of the stockholders.
The record date for a particular meeting shall be not more than ninety (90) nor
fewer than ten (10) days before the date of the meeting. All persons who were
holders of record of shares as of the record date of a meeting, and no others,
shall be entitled to vote at such meeting and any adjournment thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one (1) or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall, if required by the chairman of the meeting, take
and sign an oath to execute faithfully the duties of inspector at the meeting
with strict impartiality and according to the best of his ability. The
inspectors shall determine the number of shares outstanding and the voting power
of each share, the number of shares represented at the
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meeting, the existence of a quorum and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise
provided by statute or the Corporation's Articles of Incorporation, any action
required to be taken at any annual or special meeting of stockholders, or any
action that may be taken at any annual or special meeting of the stockholders,
may be taken without a meeting, without prior notice and without a vote, if the
following are filed with the records of stockholders' meetings: (a) a unanimous
written consent that sets forth the action and is signed by each stockholder
entitled to vote on the matter and (b) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at the meeting.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Articles of Incorporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under
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authority of the Board of Directors except as conferred on or reserved to the
stockholders by law, by the Articles of Incorporation or by these By-Laws.
SECTION 2. Number, Election and Term of Directors. Subject to the Articles
of Incorporation, the number of directors and the directorships to be filled by
vote of the holders of particular classes of stock, if applicable, to the
exclusion of other classes of stock, shall be fixed from time to time by
resolution of the Board of Directors adopted by a majority of the directors then
in office. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 5 of this Article II, and each
director elected shall hold office until his successor shall have been elected
and shall have qualified, or until his death, or until he shall have resigned or
have been removed as provided in these By-Laws, or as otherwise provided by
statute or the Articles of Incorporation. Any vacancy created by an increase in
directors may be filled in accordance with Section 5 of this Article II and the
terms of the Articles of Incorporation. Except as provided in the Articles of
Incorporation, no reduction the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless the
director is specifically removed pursuant to Section 4 of this Article II at the
time of the decrease. A director need not be a stockholder of the Corporation, a
citizen of the United States or a resident of the State of Maryland.
SECTION 3. Resignation. A director of the Corporation may resign at any time
by giving written notice of his resignation to the Board of Directors or the
Chairman of the Board or to the President or the Secretary of the Corporation.
Any resignation shall take effect at the time specified in it or, should the
time when it is to become effective not be specified in it,
7
<PAGE>
immediately upon its receipt. Acceptance of a resignation shall not be necessary
to make it effective unless the resignation states otherwise.
SECTION 4. Removal of Directors. Any director of the Corporation may be
removed by the stockholders having the power to elect such director, with or
without cause, by a vote of a majority of the votes entitled to be cast for the
election of such director, subject to the terms of the Articles of
Incorporation.
SECTION 5. Vacancies. Subject to the provisions of the 1940 Act and the
Articles of Incorporation, any vacancies in the Board of Directors, whether
arising from the death, resignation, removal or any other cause except an
increase in the number of directors, shall be filled by the Board of Directors
pursuant to the vote of the majority of all directors then in office and by a
separate vote of a majority of the directors who were elected by the class of
stockholders, if applicable, that elected the director whose death, resignation
or removal caused the vacancy, provided that no vacancy or vacancies shall be
filled by action of the remaining directors if, after the filling of the vacancy
or vacancies, fewer than two-thirds (2/3) of the directors then holding office
shall have been elected by the stockholders of the Corporation. Except as
provided in the Articles of Incorporation, a majority of the entire Board may
fill a vacancy that results from an increase in the number of directors. In the
event that at any time a vacancy exists in any office of a director that may not
be filled by the remaining directors, a special meeting of the stockholders
shall be held for the purpose of filling the vacancy or vacancies. Except as
provided in the Articles of Incorporation, any director appointed by the Board
of Directors to fill a vacancy shall hold office only until the next annual
meeting of stockholders of the Corporation and until a successor has been
elected
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and qualifies or until his earlier resignation or removal. Except as provided
in the Articles of Incorporation, any director elected by the stockholders to
fill a vacancy shall hold office for the balance of the term of the director
whose death, resignation or removal occasioned the vacancy and until a successor
has been elected and qualified or until his earlier resignation or removal.
SECTION 6. Place of Meetings. Meetings of the Board may be held at any place
that the Board of Directors may from time to time determine or that is specified
in the notice of the meeting.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at the time and place determined by the Board of
Directors.
SECTION 8. Special Meetings. Special meetings of the Board of Directors may
be called by two (2) or more directors of the Corporation or by the Chairman of
the Board or the President.
SECTION 9. Notice of Special Meetings. Notice of each special meeting of the
Board of Directors shall be given by the Secretary or any Assistant Secretary as
hereinafter provided. Each notice shall state the time and place of the meeting
and shall be delivered to each director, either personally or by telephone or
other standard form of telecommunication, at least twenty-four (24) hours before
the time at which the meeting is to be held, or by first-class mail, postage
prepaid, addressed to the director at his residence or usual place of business,
and mailed at least three (3) days before the day on which the meeting is to be
held.
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SECTION 10. Waiver of Notice of Meetings. Notice of any special meeting need
not be given to any director who shall, either before or after the meeting, sign
a written waiver of notice that is filed with the records of the meeting or who
shall attend the meeting.
SECTION 11. Quorum and Voting. Except as otherwise expressly required by
statute, the Corporation's Articles of Incorporation, these By-Laws, the 1940
Act or any other applicable statute, one-third (1/3), but not fewer than two
(2), of the members of the entire Board of Directors shall be present in person
at any meeting of the Board so as to constitute a quorum for the transaction of
business at the meeting, and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present may adjourn the meeting to another time and place until a quorum shall
be present. Notice of the time and place of any adjourned meeting shall be given
to the directors who were not present at the time of the adjournment and, unless
the time and place were announced at the meeting at which the adjournment was
taken, to the other directors. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 12. Organization. The Board of Directors may designate a Chairman of
the Board, who shall preside at each meeting of the Board. In the absence or
inability of the Chairman of the Board to act, the President, or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside at the meeting. The
Secretary (or, in his absence or inability to act, any person
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appointed by the chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
SECTION 13. Committees. The Board of Directors may designate one (1) or more
committees of the Board of Directors, each consisting of two (2) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation. Any
committee or committees shall have the name or names determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and provide those minutes to the Board of
Directors when required. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member.
SECTION 14. Written Consent of Directors in Lieu of a Meeting. Subject to
the provisions of the 1940 Act, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board or committee.
SECTION 15. Telephone Conference. Members of the Board of Directors or any
committee of the Board may participate in any Board or committee meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting, subject to the provisions of the 1940 Act.
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SECTION 16. Compensation. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III - OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation shall
be a President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one (1) or
more Vice Presidents and may also appoint any other officers it deems necessary
or proper. Any two (2) or more offices may be held by the same person. Each
Officer shall hold office until his successor shall have been duly elected and
shall have qualified, or until his death, or until he shall have resigned or
have been removed, as provided in these By-Laws. Such other officers shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation.
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SECTION 3. Removal of Officer. Any officer of the Corporation may be removed
by the Board of Directors with or without cause at any time. Removal shall be
without prejudice to the person's contract rights, if any, but the appointment
of any person as an officer, of the Corporation shall not of itself create
contract rights.
SECTION 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office that shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to the office.
SECTION 5. Compensation. The compensation of the officers of the Corporation
shall be fixed by the Board of Directors, but this power may be delegated to any
officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board of Directors,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief executive officer of
the Corporation. In the absence or inability of the Chairman of the Board to act
(or if there is none) the President shall preside at all meetings of the
stockholders and of the Board of Directors. The President shall have, subject to
the control of the Board of Directors, general charge of the business and
affairs of the Corporation, and may employ and discharge employees and agents of
the Corporation and delegate any of the foregoing powers.
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SECTION 8. Vice President. Each Vice President shall have the powers and
perform the duties that the Board of Directors or the President may from time to
time prescribe.
SECTION 9. Treasurer. Subject to the provisions of any contract that may be
entered into with any custodian pursuant to authority granted by the Board of
Directors, the Treasurer shall have charge of all receipts and disbursements of
the Corporation and shall have or provide for the custody of the Corporation's
funds and securities; he shall have full authority to receive and give receipts
for all money due and payable to the Corporation, and to endorse checks, drafts
and warrants, in its name and on its behalf and to give full discharge for the
same; he shall deposit all funds of the Corporation, except those that may be
required for current use, in such banks or other places of deposit as the Board
of Directors may from time to time designate; and in general he shall perform
all duties incident to the office of Treasurer and such other duties as may from
time to time be assigned to him by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on
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such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
SECTION 11. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE IV - STOCK
SECTION 1. Stock Certificates. The Certificates representing shares of the
Corporation's stock shall be signed by or in the name of the Corporation by the
Chairman of the Board, the President or a Vice President and by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before the certificate is issued, it may be issued by the Corporation with the
same effect as if the officer, transfer agent or registrar was still in office
at the date of issue.
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SECTION 2. Stock Ledger. There shall be maintained a stock ledger containing
the name and address of each stockholder and the number of shares of stock of
each class the stockholder holds. The stock ledger may be in written form or any
other form which can be converted within a reasonable time into written form for
visual inspection. The original or a duplicate of the stock ledger shall be kept
at the principal office of the Corporation or at any other office or agency
specified by the Board of Directors.
SECTION 3. Transfers of Shares. Subject to the Articles of Incorporation,
transfers of shares of stock of the Corporation shall be made on the stock
records of the Corporation only by the registered holder of the shares, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or with a transfer agent or transfer clerk, and on surrender
of the certificate or certificates, if issued, for the shares properly endorsed
or accompanied by a duly executed stock transfer power and the payment of all
taxes thereon. Except as otherwise provided by law or the Articles of
Incorporation, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, for purposes of the right to receive dividends or other
distributions and to vote as the owner, and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person.
SECTION 4. Regulations. The Board of Directors may authorize the issuance of
uncertificated securities if permitted by law. If stock certificates are issued,
the Board of Directors may make any additional rules and regulations, not
inconsistent with these By-Laws,
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as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation. The Board may appoint, or
authorize any officer or officers to appoint, one or more transfer agents or one
or more transfer clerks and one or more registrars and may require all
certificates for shares of stock to bear the signature or signatures of any of
them.
SECTION 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing the shares of stock of the Corporation shall
immediately notify the Corporation of its loss, destruction or mutilation and
the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been lost or destroyed or
that shall have been mutilated. The Board may, in its discretion, require the
owner (or his legal representative) of a lost, destroyed or mutilated
certificate: to give to the Corporation a bond in a sum, limited or unlimited,
and in a form and with any surety or sureties, as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate or the issuance of a new certificate. Anything herein to the
contrary notwithstanding, the Board of Directors, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
SECTION 6. Fixing of Record Date for Dividends, Distributions, etc. The
Board may fix, in advance, a date not more than ninety (90) days preceding the
date fixed for the payment of any dividend or the making of any distribution or
the allotment of rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or
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evidences of interests arising out of any change, conversion or exchange of
common stock or other securities, as the record date for the determination of
the stockholders entitled to receive any such dividend, distribution, allotment,
rights or interests, and in such case only the stockholders of record at the
time so fixed shall be entitled to receive such dividend, distribution,
allotment, rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
ARTICLE V - INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification of Officers, Directors, Employees and Agents.
(a) The Corporation shall indemnify its directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify its officers to the same extent
as its directors and to such further extent as is consistent with law. The
Corporation shall indemnify its directors and officers who while serving as
directors or officers also serve at the request of the Corporation as a
director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the fullest extent consistent with law. The indemnification and
other rights provided by this Article shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person. This Article shall not protect
any such person against any liability to the Corporation or any stockholder
thereof to which such
18
<PAGE>
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
his office ("disabling conduct").
(b) Any current or former director or officer of the Corporation
seeking indemnification within the scope of this Article shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred by
him in connection with the matter as to which he is seeking indemnification in
the manner and to the fullest extent permissible under the Maryland General
Corporation Law. The person seeking indemnification shall provide to the
Corporation a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Corporation has been met and a
written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (i) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (ii) the Corporation is insured against losses
arising by reason of the advance; or (iii) a majority of a quorum of directors
of the Corporation who are neither "interested persons" as defined in Section
2(a)(19) of the 1940 Act nor parties to the proceeding ("disinterested non-party
directors"), or independent legal counsel in a written opinion, shall have
determined, based on a review of the facts readily available to the Corporation
at the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
19
<PAGE>
(c) At the request of any person claiming indemnification under this
Article, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (ii) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (A) the vote of
a majority of a quorum of disinterested non-party directors or (B) an
independent legal counsel in a written opinion.
(d) Employees and agents who are not officers or directors of the
Corporation may be indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the 1940 Act.
(e) References in this Article are to the Maryland General Corporation
Law and to the 1940 Act as from time to time amended. No amendment of these
By-Laws shall affect any right of any person under this Article based on any
event, omission or proceeding prior to the amendment.
SECTION 2. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
20
<PAGE>
officer of the Corporation in his official capacity and as to action by such
person in another capacity while holding such office or position, and shall
continue as to a person who has ceased to hold the relevant office or position
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
SECTION 3. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who, while a director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such.
ARTICLE VI - SEAL
The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation, the year of its incorporation, the word "Maryland" and
any emblem or device approved by the Board of Directors. The seal may be used by
causing it or a facsimile to be impressed or affixed or in any other manner
reproduced, or by placing the word "(seal)" adjacent to the signature of the
authorized officer of the Corporation.
ARTICLE VII - FISCAL YEAR
SECTION 1. Fiscal Year. The Corporation's fiscal year shall be fixed by the
Board of Directors.
21
<PAGE>
SECTION 2. Accountant.
(a) The Corporation shall employ an independent public accountant or a
firm of independent public accountants of national reputation to examine the
accounts of the Corporation and to sign and certify financial statements filed
by the Corporation. Such independent public accountant or firm of independent
public accountants is referred to herein as the "Accountant." The Accountant's
certificates and reports shall be addressed both to the Board of Directors and
to the stockholders. 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.
(b) A majority of the members of the Board of Directors who are not
"interested persons" as that term is defined in the 1940 Act of the Corporation
shall select the Accountant at any meeting held within thirty (30) days before
or after the beginning of the fiscal year of the Corporation or before the
annual stockholders' meeting in that year. Such selection shall be submitted for
ratification or rejection at the next succeeding annual stockholders' meeting,
if any. If such meeting shall reject such selection, the Accountant shall be
selected by majority vote of the Corporation's outstanding voting securities,
either at the meeting at which the rejection occurred or at a subsequent meeting
of stockholders called for that purpose.
(c) Any vacancy occurring between annual meetings, due to the
resignation of the Accountant, may be filled by the vote of a majority of the
members of the Board of
22
<PAGE>
Directors who are not "interested persons" of the Corporation, as that term is
defined in the 1940 Act, at a meeting called for the purpose of voting on such
action.
ARTICLE VIII - CUSTODY OF SECURITIES
SECTION 1. Employment of a Custodian. The Corporation shall place and at all
times maintain in the custody of a custodian (including any sub-custodian for
the custodian) (herein the "Custodian") all funds, securities and similar
investments owned by the Corporation, except to the extent that margin for
futures transactions are held by a futures commission merchant, as permitted by
the Securities and Exchange Commission's Division of Investment Management. The
Custodian (and any sub-custodian) shall be an institution conforming to the
requirements of Section 17(f) of the 1940 Act and the rules of the Securities
and Exchange Commission thereunder. The Custodian shall be appointed from time
to time by the Board of Directors, which shall fix its remuneration.
SECTION 2. Termination of Custodian Agreement. Upon termination of the
Custodian Agreement or inability of the Custodian to continue to serve, the
Board of Directors shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a Custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
entitled to vote of the Corporation, the Custodian shall deliver and pay over
all property of the Corporation held by it as specified in such vote.
23
<PAGE>
ARTICLE IX - AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the 1940 Act.
Adopted, November 19, 1987,
as amended on January 27,
1988, February 7, 1989,
March 21, 1989 and February
15, 1996
24
Exhibit E
The New
America
High Income
Fund, Inc.
Dividend
Reinvestment
and Cash
Purchase Plan
<PAGE>
We are pleased that you have chosen to invest in The New America High Income
Fund, Inc. We are sending you this brochure to answer questions you may have
regarding the Fund's automatic dividend reinvestment plan and cash purchase
plan (the "Plan"). Sources of information on the Fund that are available to
investors are described on page 5.
All shareholders are automatically participants in the Fund's dividend
reinvestment plan. State Street Bank and Trust Company will act as Agent for
shareholders in reinvesting all dividends and distributions in additional
shares of the Fund for individual accounts. The Plan benefits shareholders in
several ways. Specifically, the Plan provides shareholders a convenient way
to compound the dividend earned by the Fund's shares. Another advantage to
the Plan is that shareholders pay no brokerage commission on additional
shares issued directly by the Fund. The cash purchase plan allows you to make
optional cash investments in Fund shares through State Street Bank and Trust
Company, the Plan Agent.
If your shares are held in the name of a brokerage firm, bank, or other
nominee, you should contact your nominee to see if it will participate in the
Plan on your behalf. If your nominee can participate in the Plan on your
behalf, you will see dividends and distributions credited to your account. If
your nominee is unable to participate in the Plan on your behalf, you should
request that your shares be re-registered in your name so you may participate
in the Plan.
We hope that the information in this brochure answers questions you may have
concerning the dividend reinvestment and cash purchase plan. For answers to
other questions, please refer to the phone numbers listed at the end of this
brochure.
2
<PAGE>
What is The Automatic Dividend Reinvestment and Cash Purchase Plan?
The automatic dividend reinvestment plan offers shareholders in The New
America High Income Fund, Inc. a simple and low-cost way to reinvest monthly
dividends and annual capital distributions in additional Fund shares. The
Plan also allows you to make optional cash investments in Fund shares.
State Street Bank and Trust Company ('State Street Bank' or 'Plan Agent')
acts as Plan Agent for shareholders in administering the Plan. The complete
Terms and Conditions of the Plan are detailed at the end of this brochure.
Who Can Participate In The Plan?
All shareholders who own shares in their own names are automatically dividend
reinvestment plan participants. Dividend reinvestment plan participants may
also participate directly in the cash purchase plan. Shareholders who do not
hold shares in their own names, but want to participate in the Plan should
contact their brokerage firm, bank, or other nominee to ask their nominees to
participate on their behalf.
If a brokerage firm, bank, or other nominee is unable to participate on a
shareholder's behalf, he should request his nominee to re-register the shares
in his own name so he may take advantage of the Plan.
To receive distributions in cash rather than in additional shares,
shareholders that hold shares in their own names must notify State Street
Bank in writing that they wish to withdraw from the Plan. Written notice must
be received by State Street Bank at least ten days before the record date of
a distribution in order for the change to be made. It is anticipated that
record dates will generally occur in mid-month.
3
<PAGE>
What Are the Benefits of Plan Participation?
There are two components to the Plan: reinvestment of distributions and an
optional cash purchase program. The Plan offers a convenient, low cost way
for shareholders to compound the Fund's dividends. Through participation in
the Plan, investors' holdings will grow faster as monthly distributions of
additional shares are made. Dividends and distributions will be reinvested at
the lower of market price or net asset value (but never more than a 5%
discount from market price). If the market price of shares on the valuation
date equals or exceeds the net asset value, the Fund will issue new shares at
net asset value, except that the Fund will not issue new shares at a discount
of more than 5% from the then current market price. Investors will increase
holdings at either no brokerage cost (if the shares are newly issued by the
Fund), or at reduced costs (if the Plan Agent makes open market purchases of
shares trading below net asset value). If shares for dividend reinvestment
are purchased in the market, each investor will pay a pro rata share of the
brokerage commissions incurred. However, the commissions should be lower than
what the individual investor would pay since the Plan Agent would be buying
in large blocks.
Plan participants have the option of making quarterly investments in Fund
shares through the Plan Agent. You may invest any amount from $100 to $500
per quarter. The Plan Agent will purchase shares for you on the New York
Stock Exchange or otherwise on the open market on or about March 31, June 30,
September 30, and December 31. If you hold shares in your own name, you
should deal directly with State Street Bank. Please send your check, made out
to State Street Bank and Trust Company, to the following address:
State Street Bank and Trust Company
PO Box 8200
Boston, MA 02266-8200
4
<PAGE>
Please write the name of the Fund and your account number on the check.
Each participant will receive a detailed account statement from State Street
Bank and Trust Company, the Plan Agent, showing all distributions, dates of
investments, shares acquired, price per share, and total shares of record
held in his own possession and by the Plan Agent. Shareholder proxies will
include shares purchased by the Plan Agent.
Participants in the plan also enjoy the safekeeping services provided by the
Plan Agent for all shares purchased on their behalf by the Agent. This
service helps protect against theft and loss of certificates.
Other Sources of Shareholder Information
Investors holding shares in their own names should direct all correspondence
regarding the Plan or their accounts to:
State Street Bank and Trust Company
PO Box 8200
Boston, MA 02266-8200
617-328-5000 ext. 6406 or 800-426-5523
Shareholders who have shares registered in the name of nominees should
contact their nominees for more information and request that the nominees
participate in the dividend reinvestment plan on their behalf.
The New America High Income Fund, Inc. has an information line with a
prerecorded message regarding the Fund's net asset value and dividend. The
message, which is updated weekly, can be heard by dialing 800-358-3343.
Plan Participants will receive a minimum of 90 days notice of any change to
be made in the dividend reinvestment plan. The terms of the Plan may be
altered by The New America High Income Fund, Inc. or State Street Bank and
Trust Company.
5
<PAGE>
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
1. State Street Bank and Trust Company (the "Agent") will act as agent for
each holder of shares (a "Stockholder") of Common Stock, $.01 par value
("Common Stock"), of The New America High Income Fund, Inc. (the "Fund"), and
will open an account for each Stockholder under the Fund's Dividend
Reinvestment Plan (the "Plan") in the same name in which such Stockholder's
shares of Common Stock are registered. The Agent will open an account for
each Stockholder who elects to participate in the Cash Purchase Plan in the
same name in which such Stockholder's shares of common stock are registered.
2. Whenever the Fund declares a capital gains distribution, each
Stockholder's distribution will be invested by the Agent in additional shares
of Common Stock of the Fund ("Fund Shares") unless the Stockholder has
elected to receive the distribution in cash and (subject to paragraph 4) the
Agent shall automatically receive newly issued Fund shares, including
fractions, for such Stockholder's account. Except in the circumstances
described in paragraph 4 below, the number of additional Fund shares to be
credited to such Stockholder's account shall be determined by dividing the
dollar amount of the capital gains distribution payable to a Stockholder by
the net asset value per share of the Common Stock on the valuation date. The
valuation date will be the payment date for such distribution.
3. Whenever the Fund declares an income dividend, each Stockholder's dividend
will be invested by the Agent in additional Fund shares unless the
Stockholder has elected to receive the dividend in cash and (subject to
paragraph 4) the Agent shall automatically receive newly issued Fund shares,
including fractions, for such Stockholder's account. Except in the
circumstances described in paragraph 4 below, the number of additional Fund
shares to be credited to such
6
<PAGE>
Stockholder's account shall be determined by dividing the dollar amount of
the dividend payable to such Stockholder by the net asset value per share of
the Common Stock on the valuation date; provided that the maximum discount
from the then current market price per share shall not exceed 5%. The
valuation date will be the payment date for the dividend.
4. Should the net asset value per share of the Common Stock exceed the market
price per share on the valuation date for an income dividend or capital gains
distribution, the Agent shall apply the amount of such dividend or
distribution payable to Stockholders (other than Stockholders who have
elected to receive such dividend or distribution in cash) in Fund shares
(less each such Stockholder's pro rata share of brokerage commissions
incurred with respect to open-market purchases in connection with the
reinvestment of such dividend or distribution) to the purchase on the open
market of Fund shares for each such Stockholder's account. Such purchases
will be made as expeditiously as possible on or shortly after the payment
date for such dividend or distribution, and in no event more than 30 days
after such date except where temporary curtailment or suspension of purchase
is necessary to comply with applicable provisions of federal securities law.
If, before the Agent has completed its purchases, the market price exceeds
the net asset value of the Common Stock, the average per share purchase price
paid by the Agent may exceed the net asset value of the Common Stock,
resulting in the acquisition of fewer shares than if the dividend or capital
gains distribution had been paid in Common Stock issued by the Fund.
5. For all purposes of the Plan: (a) the market price of the Common Stock on
a particular date shall be the last sales price on the New York Stock
Exchange on that date, or, if there is no sale on such Exchange on that date,
then the mean between the closing bid and asked quotations for such Common
Stock on such Exchange
7
<PAGE>
on such date 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.
6. Each quarter each Stockholder shall have the option of sending additional
funds, in any amount from $100 to $500, for the purchase on the open market
of the Fund's Common Stock for each such Stockholder's account. Voluntary
payments will be invested on or shortly after the last business day of each
calendar quarter, and in no event more than 45 days after such dates except
where temporary curtailment or suspension of purchases is necessary to comply
with applicable provisions of federal securities law. Funds received more
than 30 business days before the investment date or less than five business
days prior to the investment date will be returned uninvested. A Stockholder
may withdraw such Stockholder's entire voluntary cash payment by written
notice received by you not less than 48 hours before such payment is to be
invested.
7. Investments of voluntary cash payments and other open market purchases
provided for above may be made on any securities exchange where the Common
Stock is traded, in the over-the-counter market or in negotiated
transactions, and may be on such terms as to price, delivery and otherwise as
the Agent shall determine. A Stockholder's funds held by the Agent uninvested
will not bear interest, and it is understood that, in any event, the Agent
shall have no liability in connection with any inability to purchase shares
within 45 days after the initial date of such purchase as herein provided, or
with the timing of any purchases effected. The Agent shall have no
responsibility as to the value of the Fund's Common Stock acquired for a
Stockholder's account. For the purposes of cash investments, the Agent may
commingle a Stockholder's funds with those of other Stockholders of the Fund
for whom the Agent similarly acts as agent, and the average price
8
<PAGE>
(including brokerage commissions) of all shares purchased by the Agent shall
be the price per share allocable to each such Stockholder in connection
therewith.
8. The Agent may hold a Stockholder's shares acquired pursuant to this Plan,
together with the shares of other Stockholders of the Fund acquired pursuant
to this Plan, in non-certificated form in the name of the Agent or that of a
nominee. The Agent will forward to each Stockholder any proxy solicitation
material and will vote any shares so held, as directed by each Stockholder.
Upon a Stockholder's written request, the Agent will deliver to such
Stockholder, without charge, a certificate or certificates for the full
shares.
9. The Agent will confirm to a Stockholder each acquisition made for such
Stockholder's account as soon as practicable but not later than 30 days after
the date thereof. Although a Stockholder may from time to time have an
undivided fractional interest (computed to three decimal places) in a share
of the Fund, no certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be credited to a
Stockholder's account.
10. Any stock dividends or split shares distributed by the Fund on shares of
Common Stock held by the Agent for a Stockholder will be credited to such
Stockholder's account. In the event that the Fund makes available to its
Stockholders rights to purchase additional shares or other securities, the
shares held for a Stockholder under the Plan will be added to other shares
held by a Stockholder in calculating the number of rights to be issued to
such Stockholder.
11. The Agent's service fee for handling capital gains distributions or
income dividends will be paid by the Fund. Each shareholder will be charged a
pro rata share of brokerage commissions on all open market purchases.
12. A Stockholder may terminate his or her account under the Plan by
notifying the Agent in writing, accompanied by a signature guaranteed by a
commercial bank or trust company or a
9
<PAGE>
member of a national securities exchange. Such termination will be effective
immediately if such notice is received by the Agent not less than ten (10)
days prior to any dividend or distribution record date; otherwise, such
termination will be effective as soon as possible after the payment date for
such dividend or distribution with respect to any subsequent dividend or
distribution. The Plan may be terminated by the Agent or the Fund upon notice
in writing mailed to each Stockholder at least 90 days prior to any record
date for the payment of any dividend or distribution by the Fund. Upon any
termination, the Agent will cause a certificate or certificates for the full
shares held for each Stockholder under the Plan and cash adjustment for any
fraction (calculated at the market value of the Common Stock at time of
termination) to be delivered to each Stockholder without charge. If a
Stockholder elects by notice to the Agent in writing in advance of such
termination to have the Agent sell part or all of such Stockholder's shares
and remit the proceeds to the Stockholder, the Agent is authorized to deduct
a $2.50 fee plus brokerage commissions for this transaction from the
proceeds.
A Shareholder will be charged a $.75 service fee for each voluntary cash
investment and a pro rata share of brokerage commissions on all open market
purchases.
13. These terms and conditions may be amended or supplemented by the Agent or
the Fund at any time or times, 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
10
<PAGE>
Stockholder participating in the Plan appropriate written notice at least 90
days prior to the effective date thereof. The amendment or supplement shall
be deemed to be accepted by a Stockholder unless, prior to the effective date
thereof, the Agent receives written notice of the termination of the
Stockholder's account under the Plan. Any such amendment may include an
appointment by the Agent of a successor agent in Agent's place and stead
under these terms and conditions, with full power and authority to perform
all or any of the acts to be performed by the Agent under these terms and
conditions. Upon any such appointment of an agent for the purpose of
receiving dividends and distributions, the Fund will be authorized to pay to
such successor agent, for a Stockholder's account all dividends and
distributions payable on the Common Stock held in the Stockholder's name or
under the Plan for retention or application by such successor agent as
provided in these terms and conditions.
14. The Agent shall at all times act in good faith and agree to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Plan and to comply with applicable law, but the Agent
shall assume no responsibility and shall not be liable for loss or damage due
to errors unless such error is caused by its negligence, bad faith, or
willful misconduct or that of its employees.
15. These terms and conditions shall be governed by the laws of the
Commonwealth of Massachusetts.
Dated: June 1, 1992
11
<PAGE>
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Exhibit G
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 19th day of February, 1992, by and between The New
America High Income Fund, Inc., a Maryland corporation (the "Fund"), and
Wellington Management Company, a Massachusetts partnership (the "Investment
Adviser").
WHEREAS, the Fund is a closed-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Investment Adviser to render
investment management services to the Fund and the Investment Adviser is
willing to render such services;
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of the Investment Adviser.
The Investment Adviser shall manage the investment and reinvestment of the
Fund's assets; continuously review, supervise, and administer the investment
program of the Fund; determine in its discretion the securities to be
purchased, retained, sold, pledged or loaned (and implement those
decisions); determine in its discretion when, to what extent and under what
terms the Fund shall engage in bank or other borrowings, to the extent
permitted by law and authorized by the Fund's Board of Directors (and,
together with the Fund's Administrator, if and to the extent one shall be
appointed by the Fund, or such other parties as the Investment Adviser may
select with the approval of the Fund, implement those determinations);
provide the Fund with records concerning the Investment Adviser and its
activities that the Fund is required to maintain; render regular reports to
the Fund's officers and Directors concerning the Investment Adviser's
discharge of the foregoing responsibilities; and supply the Fund's officers
and Directors with all statistical information and reports reasonably
required by them and reasonably available to the Investment Adviser,
including, without limitation, all information required under Section 15(c)
of the 1940 Act).
The Investment Adviser shall discharge the foregoing responsibilities
subject to the control of the officers and Directors of the Fund and in
compliance with such policies as the Directors may from time to time
establish, and in compliance with the objectives, policies, and limitations
of the Fund set forth in the Fund's prospectus, Registration Statement on
Form N-2, charter and relevant arrangements and agreements with respect to
the Fund's senior securities, if any, in each case as amended from time to
time, and with all applicable laws and regulations. The Investment Adviser
agrees, at its own expense, to render the services described herein and to
provide the office space, furnishings and equipment, and personnel required
by it to perform those services on the terms and for the compensation
provided herein; provided, however, that expenses for necessary services of
parties other than the Investment Adviser rendered in connection with the
<PAGE>
activities described above shall be borne by those parties, or by the Fund,
as appropriate. The Investment Adviser shall authorize and permit any of its
officers, partners and employees, who may be elected as officers or
Directors of the Fund, to serve in the capacities in which they are elected.
2. Portfolio Transactions.
The Investment Adviser is authorized to arrange for the execution of the
Fund's portfolio transactions by selecting the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and is
directed to use its best efforts to obtain the best net results, taking into
account such factors as price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. The Investment Adviser may, in its
discretion, purchase and sell portfolio securities through brokers who
provide the Investment Adviser or the Fund with research, analysis, advice
and similar services, and the Investment Adviser may pay to these brokers,
in return for research and analysis, a higher commission than may be charged
by other brokers, provided that the Investment Adviser determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of the Investment Adviser and
the Investment Adviser's other clients and that the total commission paid by
the Fund will be reasonable in relation to the benefits to the Fund over the
long term.
On occasions when the Investment Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients,
the Investment Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction will be made by the Investment Adviser in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.
3. Compensation of the Investment Adviser.
For the services to be rendered by the Investment Adviser as provided in
Sections 1 and 2 of this Agreement, the Fund shall pay to the Investment
Adviser, as promptly as possible after the last day of each month, an
investment advisory fee at the annual rate of .50% of the Fund's "Average
Net Assets," based on the average weekly net asset value; provided, however,
that during the period beginning on the effective date of this Agreement and
ending on the date on which this Agreement is approved by the vote of a
majority of the outstanding voting securities of the Fund, but not later
than 120 days after such effective date (except as the Securities and
Exchange Commission may otherwise permit, and subject to the provisions of
Section 11 hereof), the investment advisory fee payable to the Investment
Adviser shall not exceed the annual rate of .25% of the average weekly value
of the total assets of the Fund minus (a) accrued liabilities of the Fund
(other than the principal amount of the Fund's Senior
2
<PAGE>
Extendible Notes) and (b) accumulated dividends on the Fund's Taxable
Auction Rate Preferred Stock. For purposes of this Agreement, the Fund's
"Average Net Assets" shall mean the Fund's total assets minus (a) the Fund's
accrued liabilities (including the aggregate principal amount of and the
amount of the accrued interest on any senior securities of the Fund
constituting debt within the meaning of Section 18 of the 1940 Act or under
any credit facility with any bank or other lender) and, without duplication
of (a), (b) the aggregate liquidation preference of and the amount of
accumulated dividends on any senior securities of the Fund constituting
stock within the meaning of Section 18 of the 1940 Act. Notwithstanding
anything herein to the contrary, the Investment Adviser agrees to waive the
first $300,000 of investment advisory fee that would otherwise be payable
under the terms of this Section 3.
The first payment of the investment advisory fee shall be made as promptly
as possible at the end of the month next succeeding the effective date of
this Agreement, and shall constitute a full payment of the fee due the
Investment Adviser for all services rendered pursuant to this Agreement
prior to that date. In the event that the Investment Adviser's right to such
fee commences to accrue on a date other than the first day of the month, the
fee provided in this Section 3 shall be computed on the basis of the period
beginning on the first business day on which this Agreement is in effect,
subject to a pro rata adjustment based on the number of days in that period
as a percentage of the total number of days in such month. In the event of
termination of this Agreement, the fee provided in this Section 3 shall be
computed on the basis of the period ending on the last business day on which
this Agreement is in effect, subject to a pro rata adjustment based on the
number of days elapsed in the current fiscal month as a percentage of the
total number of days in such month. The average weekly net asset value of
the Fund shall in all cases be based only on those days when the New York
Stock Exchange is open for business, and shall be computed as of the time of
the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Fund's Board of Directors. Each fee payment
to the Investment Adviser shall be accompanied by a report of the Fund which
shall show the amount properly payable to the Investment Adviser under this
Agreement and the detailed computation thereof.
4. Other Services.
At the request of the Fund, the Investment Adviser shall, subject to
availability, make available to the Fund office facilities, equipment,
personnel and services other than as set forth in Sections 1 and 2 of this
Agreement. Such office facilities, equipment, personnel and services shall
be provided for or rendered by the Investment Adviser and billed to the Fund
at the Investment Adviser's cost.
5. Reports.
The Fund and the Investment Adviser agree to furnish to each other, if
applicable, current prospectuses, registration statements, proxy statements,
reports to shareholders, certified copies of their financial statements, and
such other information with regard to their affairs as each may reasonably
request.
3
<PAGE>
6. Status of the Investment Adviser.
The services of the Investment Adviser to the Fund are not to be deemed
exclusive, and the Investment Adviser shall be free to render similar
services to others so long as its services to the Fund are not impaired
thereby. The Investment Adviser shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized,
have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. Nothing in this Agreement shall limit or
restrict the right of any partner, officer or employee of the Fund, to
engage in any other business or to devote his or her time and attention in
part to the management or other aspects of any other business, whether of a
similar nature or a dissimilar nature.
7. Certain Records.
Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 promulgated under the 1940 Act which
are prepared or maintained by the Investment Adviser on behalf of the Fund
are property of the Fund and will be surrendered promptly to the Fund on
request.
8. Liability of the Investment Adviser.
The Investment Adviser shall not be liable for any error of judgment or for
any loss suffered by the Fund in connection with performance of its
obligations under this Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance
of, or from reckless disregard by it of its obligations and duties under,
this Agreement, or damages resulting from a breach of fiduciary duty with
respect to receipt of compensation for services.
9. Indemnification.
The Fund will indemnify the Investment Adviser for all liabilities and
expenses, including defense costs, in connection with any litigation
pertaining to the period prior to the Investment Adviser's relationship with
the Fund under this Agreement, other than liabilities resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Adviser.
10. Permissible Interests.
Directors, officers, agents and shareholders of the Fund are or may be
interested in the Investment Adviser (or any successor thereof) as partners,
officers or otherwise; partners, officers and agents of the Investment
Adviser are or may be interested in the Fund as Directors, officers,
shareholders or otherwise; and the Investment Adviser (or any successor
thereof) is or may be interested in the Fund as a shareholder or otherwise.
4
<PAGE>
11. Duration and Termination.
If approved by holders of a majority of the outstanding voting securities of
the Fund at the first shareholders' meeting following the date of this
Agreement, and unless sooner terminated as provided herein, this Agreement
shall continue until February 19, 1994, and thereafter for periods of one
year, so long as such continuance thereafter is specifically approved at
least annually (a) by the vote of a majority of those Directors of the Fund
who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Directors of the Fund or by the vote of a majority
of the outstanding voting securities of the Fund; provided, however, that if
the shareholders of the Fund fail to approve the Agreement as provided
herein, the Investment Adviser may continue to serve hereunder in the manner
and to the extent permitted by the 1940 Act and the rules and regulations
thereunder until such time as such approval has been obtained, whereupon the
provisions of Section 3 hereof shall apply. The foregoing requirement that
continuance of this Agreement be "specifically approved at least annually"
shall be construed in a manner consistent with the 1940 Act and the rules
and regulations thereunder. This Agreement may be terminated at any time
without the payment of any penalty by the vote of a majority of Directors of
the Fund or by the vote of a majority of the outstanding voting securities
of the Fund on 60 days' written notice to the Investment Adviser or by the
Investment Adviser at any time without the payment of any penalty on 60
days' written notice to the Fund. This Agreement will automatically and
immediately terminate in the event of its assignment. Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed
postpaid, to the other party at any office of such party. As used in this
Section 11, the terms "assignment," "interested person," and "vote of a
majority of the outstanding voting securities" shall have the respective
meanings set forth in the 1940 Act and the rules and regulations thereunder,
subject to such exceptions as may be granted by the Securities and Exchange
Commission under the 1940 Act.
12. Amendment; Waiver.
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved
by the vote of the majority of the outstanding voting securities of the
Fund.
13. Governing Law; Severability; Counterparts.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts. 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 may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLINGTON MANAGEMENT COMPANY THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Duncan M. McFarlane By: /s/ Richard E. Floor
6
Exhibit H1
THE NEW AMERICA HIGH INCOME FUND, INC.
Auction Term
Preferred Stock
Underwriting Agreement
December 20, 1993
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
Dear Sirs:
The New America High Income Fund, Inc., a Maryland corporation (the "Fund"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you (the "Underwriter") an aggregate of 1,200 shares of Series A Auction Term
Preferred Stock of the Fund ("Series A Preferred Stock") and an aggregate of 800
shares of Series B Auction Term Preferred Stock of the Fund ("Series B Preferred
Stock"), each par value $1.00 per share and liquidation preference $50,000 per
share (collectively, the "Preferred Shares"). The Preferred Shares are more
fully described in the Registration Statement referred to below. Prior to the
purchase and public offering of the Preferred Shares by the Underwriter, the
Fund and you shall enter into an agreement substantially in the form of Annex I
hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an
exchange of any standard form of written telecommunication between the Fund and
you and shall specify such applicable information as is indicated in Annex I
hereto. The offering of the Preferred Shares will be governed by this Agreement,
as supplemented by the Pricing Agreement. From and after the date of the
execution and delivery of the Pricing
<PAGE>
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
1. Representations and Warranties of the Fund.
The Fund represents and warrants to, and agrees with, the
Underwriter that:
(a) The Fund meets the requirements for use of Form N-2 under
the Securities Act of 1933, as amended (the "Securities Act"), and the
Investment Company Act of 1940, as amended (the "Investment Company Act", and
together with the Securities Act, the "Acts") and the published rules and
regulations ("Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") under the Acts; a notification of registration on Form N-8A
(the "Notification") has been filed by the Fund with the Commission under the
Investment Company Act; a registration statement on Form N-2 (File No. 33-61674)
in respect of the Preferred Shares has been filed with the Commission; and no
other document with respect to such registration statement (other than any which
has previously been furnished to you) has heretofore been filed with the
Commission. Such registration statement, including the prospectus, statement of
additional information, financial statements and schedules, exhibits and all
other documents filed as a part thereof or incorporated therein, as amended at
the time of effectiveness of the registration statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A of the Rules and Regulations, is herein called the
"Registration Statement" and the prospectus and statement of additional
information, in the forms first filed after the effective date of the
Registration Statement with the Commission pursuant to Rule 497 of the Rules and
Regulations are herein collectively called the "Prospectus". The term
"preliminary prospectus" as used herein means any preliminary prospectus or
statement of additional information included in such registration statement or
filed prior to the effective date of the Registration Statement with the
Commission pursuant to Rule 497 of the Rules and Regulations or any document
required to be filed pursuant to Rule 482 of the Rules and Regulations (whether
or not filed pursuant to Rule 497 thereunder) or any prospectus or statement of
additional information omitted from such registration statement. The term "Part
A Prospectus" as used herein means the prospectus included in Part A of
2
<PAGE>
the Registration Statement in the form filed pursuant to Rule 497(c) or Rule
497(h) of the Rules and Regulations.
(b) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement (except any post-effective amendment required by Rule 8b-
16 of the Rules and Regulations or which is filed with the Commission after the
later of (x) one year from the date of this Agreement or (y) the date on which
the distribution of the Preferred Shares is completed), when the Prospectus is
first filed with the Commission pursuant to Rule 497 of the Rules and
Regulations, when any supplement to or amendment of the Prospectus is filed with
the Commission and at the Closing Date (as hereinafter defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply, as the case may be, in all material
respects with the applicable provisions of the Acts and the Rules and
Regulations and do not or will not, as the case may be, contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading (in the case of the Prospectus, in light of the circumstances in
which they were made). When any preliminary prospectus was first filed with the
Commission (whether filed as part of the registration statement or any amendment
thereto or pursuant to Rule 497(a) of the Rules and Regulations) and when any
amendment thereof or Supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
(except for the financial statements and notes thereto, schedules and other
financial or statistical data included therein or omitted therefrom) complied in
all material respects with the applicable provisions of the Acts and the Rules
and Regulations and did 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
the were made, not misleading. At the time of filing thereof with the Commission
and at the Closing Date, the Notification and any amendments thereto and
supplements thereof complied and will comply in all material respects with the
applicable provisions of the Investment Company Act and did not and will not
contain any untrue statement of a material fact or omit
3
<PAGE>
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto in reliance upon and
in conformity with information furnished in writing to the Fund by or on behalf
of the Underwriter as herein stated expressly for use in connection with the
preparation thereof. No order preventing or suspending the use of any
preliminary prospectus or the Prospectus has been issued by the Commission and
no stop order suspending the effectiveness of the Registration Statement has
been issued and, to the knowledge of the Fund, no proceeding for that purpose
has been initiated or threatened by the Commission.
(c) Arthur Andersen & Co., who have certified certain
financial statements of the Fund, are independent public accountants as required
by the Acts and the Rules and Regulations.
(d) The Fund has been incorporated and is validly existing as
a corporation in good standing under the laws of the State of Maryland. The Fund
is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which such qualification is required, except for those failures
to be so qualified or in good standing which will not in the aggregate have a
material adverse effect on the condition, financial or otherwise, of the Fund,
or on the earnings or business affairs of the Fund or on the ability of the Fund
to perform its obligations under any of this Agreement, the Pricing Agreement,
the Investment Advisory Agreement, dated as of February 19, 1992 (the "Advisory
Agreement"), between the Fund and Wellington Management Company (the "Adviser"),
the Auction Agent Agreement to be dated as of the Closing Date (the "Auction
Agent Agreement"), between the Fund and Bankers Trust Company (the "Auction
Agent"), the Custodian Agreement, dated as of February 11, 1988 (the "Custodian
Agreement"), between the Fund and State Street Bank and Trust Company (the
"Custodian"), the Transfer Agency Agreement, dated as of February 11, 1988 (the
"Transfer Agency Agreement") between the Fund and State Street Bank and Trust
Company, the Letter Agreement to be dated as of the Closing Date (the "Letter
Agree-
4
<PAGE>
ment"), among the Fund, the Depository Trust Company, ("DTC") and the Auction
Agent and the Broker-Dealer Agreement to be dated as of the Closing Date (the
"Broker-Dealer Agreement") between Bear, Stearns & Co., Inc., as
broker-dealer, and the Auction Agent (collectively, the "Fund Agreements"). The
Fund has no subsidiaries. The Articles of Amendment and Restatement, dated as of
February 19, 1988, as amended or restated (the "Amended Articles"), and the
Articles of Amendment and the Articles Supplementary, to be adopted in
connection with the issuance of the Preferred Shares (collectively, the
"Articles Supplementary" and, together with the Amended Articles, the "Restated
Articles") confer and as of the Closing Date will confer on the Fund full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Prospectus. The Fund has all requisite
corporate power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits of
and from all public, governmental or regulatory agencies and bodies (other than
those required under state securities or Blue Sky laws), to own, lease and
operate its properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, except for those
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits the failure of which to obtain would not individually or in
the aggregate have a material adverse effect on the ability of the Fund to own,
lease and operate its properties and conduct its business as described in the
Registration Statement and Prospectus or on the ability of the Fund to perform
its obligations under any of the Fund Agreements, and no such consent, approval,
authorization, order, registration, qualification, license or permit contains a
materially burdensome restriction not adequately disclosed in the Registration
Statement and Prospectus. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Fund or any of its properties or assets is or was required, as the case may
be, for the execution, delivery and performance of any of the Fund Agreements
and the consummation of the transactions contemplated thereby, including the
issuance, sale and the delivery of the Preferred Shares to be issued, sold and
delivered by the Fund hereunder, except such as have
5
<PAGE>
been obtained and currently are maintained, except such consents, approvals,
authorizations, registrations or qualifications as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Preferred Shares by the Underwriter and except for those consents,
approvals, authorizations, orders, registrations, filings, qualifications,
licenses or permits the failure of which to obtain would not individually or in
the aggregate have a material adverse effect on the ability of the Fund to duly
execute, deliver and perform any of the Fund Agreements or to consummate any of
the transactions contemplated thereby.
(e) All of the outstanding shares of common stock, par value
$.01 per share, of the Fund (the "Common Stock") and Taxable Auction Rate
Preferred Stock, no par value, of the Fund (the "TARPS") are duly and validly
authorized and issued, fully paid and non-assessable and were not issued in
violation of or subject to any preemptive rights. The Preferred Shares when
issued, delivered and sold in accordance with this Agreement and the Pricing
Agreement against payment of the consideration set forth herein and in the
Pricing Agreement will be duly and validly issued and outstanding, fully paid
and nonassessable, and will not have been issued in violation of or subject to
any preemptive rights. The Fund had, at October 31, 1993, an authorized and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus. The Preferred Shares, the TARPS, the shares of Common Stock and the
Fund's Bank Debt (as herein defined) conform in all material respects to the
descriptions thereof contained in the Prospectus and the Registration Statement.
The Fund's Bank Debt has been duly and validly authorized.
(f) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Fund and this Agreement has been
duly and validly executed and delivered by the Fund and is a valid and binding
obligation of the Fund, enforceable against the Fund in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors
rights and to general principles of equity and except to the extent that rights
to indemnity
6
<PAGE>
hereunder may be limited by federal or state securities laws or the public
policy underlying such laws. Each of the other Fund Agreements and the
transactions contemplated thereby have been or, if not yet required to be
executed as of the Closing Date shall be, duly and validly authorized by the
Fund and shall have been or will be duly and validly executed and delivered by
the Fund and is or will be a valid and binding obligation of the Fund,
enforceable against the Fund in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights and to general
principles of equity and except to the extent that rights to indemnity hereunder
may be limited by federal or state securities laws or the public policy
underlying such laws.
(g) The execution, delivery and performance of the Fund
Agreements and the consummation of the transactions contemplated thereby,
including the issuance, sale and delivery of the Preferred Shares pursuant
hereto and the redemption, repurchase or repayment of the TARPS and the Bank
Debt with the proceeds therefrom, do not and will not (i) conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
(with notice or the lapse of time, or both, would constitute a default) or
require consent under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Fund, pursuant to the
terms of any agreement, instrument, franchise, license or permit to which the
Fund is a party or by which the Fund is bound or by which any of the property or
assets of the Fund may be bound or (ii) violate or conflict with any provision
of the Restated Articles or the by-laws of the Fund or any judgment, decree,
order, law, statute, rule or regulation of any court or public, governmental or
regulatory agency or body having jurisdiction over the Fund or any of its
properties or assets except for any violations or conflicts with judgments,
decrees, orders, laws, statutes, rules or regulations which would not
individually or in the aggregate have a material adverse effect on the Fund to
duly execute, deliver and perform any of the Fund Agreements or to contemplate
any of the transactions contemplated thereby and except to the extent that
rights to indemnity hereunder may be limited by federal or state
7
<PAGE>
securities laws or the public policy underlying such 1aws.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
set forth in the Registration Statement and the Prospectus there has been no
material adverse change or, to the knowledge of the Fund, any development
involving a prospective material adverse change in the business, properties,
operations, condition (financial or other) or results of operations of the Fund
whether or not arising from transactions in the ordinary course of business, and
since the date of the latest balance sheet presented in the Registration
Statement and the Prospectus, the Fund has not incurred or undertaken any
liabilities or obligations, direct or contingent, which are material to the
Fund, except for liabilities or obligations which are reflected in the
Registration Statement and the Prospectus.
(i) Except as described in the Prospectus, there is no
litigation or governmental proceeding to which the Fund is a party or to which
any property of the Fund is subject which is pending or, to the knowledge of the
Fund, contemplated against the Fund, which reasonably might result in any
material adverse change or any development involving a material adverse change
in the business, assets, operations, condition (financial or other) or results
of operations of the Fund or which is required to be disclosed in the
Prospectus.
(j) The financial statements, including the notes thereto,
and supporting schedules included in the Registration Statement and the
Prospectus present fairly in all material respects the financial condition of
the Fund as of the dates indicated and the results of its operations for the
periods specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and the supporting
schedules included in the Registration Statement present fairly in all material
respects the information required to be stated therein.
(k) There are no contracts or documents of or relating to the
Fund or any of its assets that are
8
<PAGE>
required by the Acts or by the Rules and Regulations to be filed as exhibits to
the Registration Statement or described in the Registration Statement or
Prospectus that have not been so filed or described.
(l) The Fund is registered with the Commission under the
Investment Company Act as a closed-end, diversified management investment
company.
(m) The Fund owns or possesses, or can acquire on reasonable
terms, adequate trademarks, service marks and trade names (if any) necessary to
conduct the business now operated by it, and the Fund has not received any
notice of infringement of or conflict with asserted rights of others with
respect to any trademarks, service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the conduct of the business, operations, financial
condition or income of the Fund.
(n) The shares of Common Stock are listed on the New York
Stock Exchange, Inc.
(o) All advertising, sales literature or other promotional
material prepared or authorized in writing by the Fund for use in connection
with the offering or sale of the Preferred Shares (collectively, "sales
material") when used in accordance with its intended use complied and complies
with the requirements of the Acts, the Rules and Regulations and the rules and
interpretations of the NASD and no such sales material when used in accordance
with its intended use contained or contains any untrue statement of a material
fact or omitted or omits 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.
(p) Each of Proposals One and Two described in the Fund's
Proxy Statement dated April 23, 1993 (the "Proxy Statement") and submitted to
holders of the outstanding TARPS and Common Stock at the 1993 Annual Meeting of
Stockholders of the Fund (the "Annual Meeting"), has been approved by such
holders in accordance with the provisions of the Amended Articles and applicable
law, and no further approval of any holders of out-
9
<PAGE>
standing securities of the Fund is required in connection with the consummation
of the transactions contemplated by this Agreement. The Proxy Statement complied
in all material respects with the provisions of the Securities Exchange Act of
1934, as amended ("the Exchange Act"), and the Investment Company Act, and did
not contain any statement which, at the time and in light of the circumstances
under which it was made, was false or misleading with respect to any material
fact nor did the Proxy Statement omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not false or
misleading or necessary in order to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Annual Meeting
or subject matter which became false or misleading prior to the Annual Meeting.
(q) The offering, issuance and sale of the Preferred Shares
in accordance with this Agreement and the Pricing Agreement against payment of
the consideration set forth herein and in the Pricing Agreement and application
of the proceeds thereof as set forth in the Prospectus complies with and will
not result in a violation of Section 18 of the Investment Company Act.
(r) The Fund has delivered and, so long as a Prospectus is
required to be delivered with respect to transactions in the Preferred Shares,
will deliver upon request copies of the then current statement of additional
information with respect to the Preferred Shares in the manner and within the
time required by the Acts and the Rules and Regulations.
2. Representations and Warranties of the Adviser. The Adviser
represents and warrants to, and agrees with, the Underwriter that:
(a) It has been duly organized and is validly existing as a
general partnership under the laws of the Commonwealth of Massachusetts with
full power and authority to conduct its business as described in the
Registration Statement and Prospectus.
(b) It is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). It is not
prohibited by the Advisers Act or the Investment Company Act, or the
10
<PAGE>
rules and regulations under such acts, from performing its obligations under the
Advisory Agreement or from acting as an investment adviser for the Fund as
contemplated by the Registration Statement and the Prospectus.
(c) The description of it in the Prospectus is true and
correct in all material respects and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) Each of this Agreement and the Advisory Agreement has been
duly and validly authorized by the Adviser, and each of this Agreement and the
Advisory Agreement has been duly and validly executed and delivered by the
Adviser and the Advisory Agreement is a valid and binding obligation of the
Adviser, enforceable against the Adviser in accordance with its terms except,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general principles of equity.
(e) The execution, delivery and performance of this Agreement
and the Advisory Agreement and the consummation of the transactions contemplated
hereby or thereby, will not (i) conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an event which, with
notice or the lapse of time, or both, would constitute a default) or require
consent under or result in the creation or imposition of any lien, charge or
encumbrance upon any of its property or assets, pursuant to the terms of, any
agreement, instrument, franchise, license or permit to which it is a party or by
which it is bound or by which any of its property may be bound, or (ii) violate
or conflict with any provision of its partnership agreement, or any judgment,
decree, order, statute, rule or regulation of any court or public, governmental
or regulatory agency or body (including any stock exchange or securities
association) having jurisdiction over it or its properties or operations. No
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any public, governmental or regulatory agency or
body is required for the execution, delivery and performance of this Agreement
and the Advisory Agreement and
11
<PAGE>
the consummation by the Adviser of the transactions contemplated hereby and
thereby, except such as may be required under the Acts or state securities or
Blue Sky 1aws.
(f) There is no litigation or governmental proceeding to
which the Adviser is a party or to which the property of the Adviser is subject
which is pending or, to the knowledge of the Adviser, contemplated against the
Adviser, except for any litigation or proceeding of which the Adviser has
informed the Underwriter in writing prior to the date hereof, which might result
in any material adverse change or any development involving a material adverse
change in the business, prospects, assets, operations, condition (financial or
other) or results of operations of the Adviser, or which otherwise is required
to be described under Item 12 to Part A of Form N-2.
3. Purchase, Sale and Delivery of Shares. (a) On the basis of
the representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Fund agrees to sell to
the Underwriter, and the Underwriter agrees to purchase from the Fund, such
number of Preferred Shares and at a purchase price per share as set forth in the
Pricing Agreement follows:
(i) If the Fund has elected not to rely upon Rule 430A of
the Rules and Regulations, the initial public offering price and the
purchase price per share to be paid by the Underwriter for the Preferred
Shares have each been determined and set forth in the Pricing Agreement,
dated the date hereof, and an amendment to the Registration Statement and
the Prospectus will be filed before the Registration Statement becomes
effective.
(ii) If the Fund has elected to rely upon Rule 430A of
the Rules and Regulations, the initial public offering price and the
purchase price per share to be paid by the Underwriter for the Preferred
Shares shall be set forth in the Pricing Agreement.
12
<PAGE>
(b) Payment of the purchase price for, and delivery of
certificates for, the Preferred Shares shall be made at the office of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York, or at such
other place as shall be agreed upon by you and the Fund, at 9:00 A.M. on the
fifth business day following the date of the effectiveness of the Registration
Statement (or, if the Fund has elected to rely upon Rule 430A of the Rules and
Regulations, the fifth business day after execution of the Pricing Agreement),
or such other time not later than ten business days after such date as shall be
agreed upon by you and the Fund (such time and date of payment and delivery
being herein called the "Closing Date"). Payment shall be made to the Fund by
Federal funds check or checks or similar same-day funds payable to the order of
the Fund, against delivery by or on behalf of the Fund to DTC for the account of
the Underwriter of certificates in definitive form representing each series of
the Preferred Shares to be purchased by the Underwriter hereunder registered in
the name of Cede & Co. ("Cede"), as nominee for DTC. The Fund will permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.
4. Offering. Upon the Fund's authorization of the release of
the Preferred Shares, the Underwriter proposes to offer the Preferred Shares
for sale to the public upon the terms and conditions set forth in the
Prospectus.
5. Covenants of the Fund. The Fund covenants and agrees with
the Underwriter that:
(a) If the registration statement has not yet been declared
effective, the Fund will use its best efforts to cause the registration
statement and any amendments thereto to become effective as promptly as
possible. If the Registration Statement has become effective and the Prospectus
contained therein omits certain information at the time of effectiveness
pursuant to Rule 430A of the Rules and Regulations, the Fund will file a 430A
Prospectus pursuant to Rule 497(h) of the Rules and Regulations as promptly as
practicable, but no later than the second business day following the date of the
determination of the offering price of the Preferred Shares or the date the
Prospectus first is used after the effective date of the Registration Statement.
If the
13
<PAGE>
Registration Statement has become effective and the Prospectus contained therein
does not so omit such information, the Fund will file a Prospectus pursuant to
Rule 497(c) of the Rules and Regulations as promptly as practicable, but no
later than the fifth business day following the date of the later of the
effective date of the Registration Statement or the commencement of the public
offering of the Preferred Shares.
(b) The Fund will notify you immediately (and, if requested
by you, will confirm such notice in writing) (i) when the Registration Statement
and any amendments thereto become effective, (ii) of any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for any additional information, (iii) of the mailing or the
delivery to the Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto or of the initiation, or the threatening,
of which the Fund has knowledge, of any proceedings therefor, (v) of the receipt
of any comments from the Commission, and (vi) of the receipt by the Fund of any
notification with respect to the suspension of the qualification of the
Preferred Shares for sale in any jurisdiction or the initiation or threatening,
of which the Fund has knowledge, of any proceeding for that purpose. If the
Commission shall propose or enter a stop order at any time, the Fund will make
every reasonable effort to prevent the issuance of any such stop order and, if
issued, to obtain the lifting of such order as soon as possible. The Fund will
not file any amendment to the Registration Statement (except any post-effective
amendment required solely by Rule 8b-16 of the Rules and Regulations or which
is filed with the Commission after the later of (x) one year from the date of
this Agreement or (y) the date on which distribution of the Preferred Shares is
completed) or any amendment of or supplement to the Prospectus (including the
prospectus required to be filed pursuant to Rule 497) that differs from the
prospectus on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement, to
which you shall reasonably object after being timely furnished in advance a copy
thereof.
14
<PAGE>
(c) If at any time when a prospectus relating to the
Preferred Shares is required to be delivered under the Securities Act or the
Rules and Regulations any event shall have occurred as a result of which the
Prospectus as then amended or supplemented includes an untrue statement of a
material fact or omits 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, or if it shall be necessary at any
time to amend or supplement the Prospectus or Registration Statement to comply
with the Acts or the Rules and Regulations, the Fund will notify you promptly
and prepare and file with the Commission an appropriate and responsive amendment
or supplement (in form and substance satisfactory to you) which, if applicable,
will correct such statement or omission and will use its best efforts to have
any such amendment to the Registration Statement declared effective as soon as
possible.
(d) The Fund will promptly deliver to you two signed copies
of the Registration Statement, including exhibits and all amendments thereto,
and the Fund will promptly deliver to you such number of copies of any
preliminary prospectus, the Prospectus, the Registration Statement, and all
amendments of and supplements to such documents, if any, as you may reasonably
request.
(e) The Fund will endeavor in good faith, in cooperation with
you, at or prior to the time of the effectiveness of the Registration Statement,
to qualify the Preferred Shares for offering and sale under the securities laws
relating to the offering and sale of the Preferred Shares in such jurisdictions
as you may designate and to maintain such qualification in effect for as long as
required for the distribution thereof; except that in no event shall the Fund be
obligated in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process.
(f) The Fund will make generally available (within the
meaning of Section ll(a) of the Securities Act) to its security holders and to
you as soon as practicable, but not 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) covering a period of at
least
15
<PAGE>
twelve consecutive months beginning after the effective date of the Registration
Statement.
(g) During the period of 90 days from the date of the
Prospectus, the Fund will not, without your prior written consent, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of any Preferred Shares or any securities convertible into or exercisable or
exchangeable for Preferred Stock of the Fund other than the Preferred Shares
offered hereby.
(h) The Fund will furnish to its shareholders as soon as
practicable after the end of each fiscal year such annual report and periodic
reports as are required by the Exchange Act and the Investment Company Act and
the rules and regulations under such acts.
(i) During a period of five years from the effective date of
the Registration Statement, the Fund will furnish to you copies of (i) all
reports to its shareholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Fund with the Commission or any
national securities exchange.
(j) The Fund will utilize the proceeds of the offering of the
Preferred Shares as set forth under the caption "Use of Proceeds" in the
Prospectus and will direct the investment of the proceeds of the offering of the
Preferred Shares in such a manner as to comply with the requirements of
Subchapter M of the Internal Revenue Code of 1986. as-amended (the "Code").
(k) The Fund will use its best efforts to cause the Preferred
Shares, prior to the Closing Date, to be assigned ratings of "AAA" by Fitch
Investors Service, Inc. ("Fitch") and "aaa" by Moody's Investors Service, Inc.
("Moody's"), respectively.
(l) The Fund shall use its best efforts to comply with the
terms of the Term Loan Agreement dated January 15, 1993 (the "Loan Agreement")
by and between the Fund and The First National Bank of Boston ("Bank of Boston")
pursuant to which the maturity of all indebtedness of the Fund (the "Bank Debt")
outstanding under
16
<PAGE>
the Loan Agreement shall be repaid prior to or at the Closing Date.
(m) The Fund shall take all such action as may be required
under the Restated Articles, the Investment Company Act, Maryland law and
otherwise in order as of the Closing Date to redeem, repurchase, retire or
otherwise cause not to be outstanding within the meaning of the Investment
Company Act all TARPS issued and outstanding immediately prior thereto and all
outstanding Bank Debt and other senior securities (within the meaning of the
Investment Company Act) of the Fund.
6. Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Fund hereby
agrees to pay all costs and expenses incident to the performance of the
obligations of the Fund hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
thereof or supplements thereto (including, without limitation, fees and expenses
of the Fund's accountants and counsel), the underwriting documents (including
this Agreement, the Pricing Agreement and the Selected Dealer Agreement) and all
other documents related to the public offering of the Preferred Shares
(including those supplied to the Underwriter in quantities as hereinabove
stated); (ii) the issuance, transfer and delivery of the Preferred Shares to the
Underwriter, including any transfer or other taxes payable thereon; (iii) the
qualification of the Preferred Shares under state or foreign securities or Blue
Sky laws, including the costs of printing and mailing a preliminary and final
"Blue Sky Survey" and the reasonable fees of counsel for the Underwriter and
such counsel's disbursements in relation thereto; (iv) filing fees of the
Commission and the National Association of Securities Dealers, Inc.; (v) the
cost of printing certificates representing the Preferred Shares; (vi) the cost
and charges of any transfer agent or registrar; (vii) the expenses (including,
but not limited to, travel, hotels and other accommodations) incurred by the
Fund's or the Adviser's directors, partners, officers, employees and other
personnel in connection with meetings held with registered brokers in connection
with the
17
<PAGE>
offering of the Preferred Shares, the preparing to market and the marketing of
the Preferred Shares; (viii) any fees charged by securities rating services
requested by the Fund to provide a rating for the Preferred Shares; (ix) the
fees and expenses of the Auction Agent (including the fees and disbursements of
counsel to the Auction Agent in connection with the Auction Agent Agreement) the
Custodian and the Depository; and (x) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section.
7. Conditions of Underwriter's Obligations. The obligations
of the Underwriter to purchase and pay for the Preferred Shares as provided
herein, shall be subject to the accuracy of the representations and warranties
of the Fund and the Adviser herein contained, as of the date hereof and as of
the Closing Date, to the absence from any certificates, opinions, written
statements or letters furnished to you or to Skadden, Arps, Slate, Meagher &
Flom or Reid & Priest (collectively "Underwriter's Counsel") pursuant to this
Section 7 of any misstatement or omission, to the performance by the Fund of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 4:00 P.M., New York time, on the date of this Agreement, or at
such later time and date as shall have been consented to in writing by you; the
Prospectus shall have been filed with the Commission in a timely fashion in
accordance with Section 5(a) hereof; and, at or prior to the Closing Date no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof shall have been issued and no proceedings
therefor shall have been initiated or threatened by the Commission.
(b) The Fund shall have furnished to you and to Moody's and
Fitch, as applicable, a 1940 Act ATP Asset Coverage Certificate, an ATP Basic
Maintenance Certificate and an Accountant's Certificate (each as defined in the
Prospectus) each dated the Closing Date and in form and substance satisfactory
to Moody's and Fitch, as applicable, and reasonably satisfactory to you.
18
<PAGE>
(c) At the Closing Date, you shall have received the opinion
of Goodwin, Procter & Hoar, counsel for the Fund, dated the Closing Date
addressed to you and in form and substance satisfactory to Underwriter's
Counsel, to the effect that:
(i) The Fund has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Maryland with all requisite corporate authority under the Maryland General
Corporation Law to own and operate its properties and conduct its business
as described in the Registration Statement and the Prospectus. The Fund is
qualified to do business and is in good standing in each jurisdiction in
which the character or location of its properties (owned or leased) or
conduct of its business makes such qualification necessary, the Fund having
informed us that the only jurisdiction in which it owns or leases
properties or conducts business operations is The Commonwealth of Massa-
chusetts. The Fund has an authorized capitalization as set forth in the
Registration Statement and the Prospectus. All of the issued and
outstanding shares of Common Stock and TARPS are duly and validly
authorized and issued, are fully paid and nonassessable and were not issued
in violation of or subject to any preemptive rights under the Restated
Articles or the Maryland General Corporation Law; the Bank Loan is duly and
validly authorized; the Common Stock, TARPS and Bank Loan conform in all
material respects to the descriptions thereof contained in the Prospectus
insofar as such descriptions relate to legal matters.
(ii) The Preferred Shares have been duly and validly
authorized for issuance and sale and, when certificates therefor have been
duly authorized, executed and delivered by the Fund in accordance with this
Agreement against payment of the consideration set forth herein and in the
Pricing Agreement, will be duly and validly issued, fully paid and
non-assessable and will not have been issued in violation of or subject to
any preemptive
19
<PAGE>
rights under the Restated Articles or the Maryland General Corporation
Law. The Preferred Shares conform in all material respects to the
description thereof contained in the Prospectus insofar as such description
relates to legal matters. No holder of any presently outstanding shares of
capital stock of the Fund has any preemptive or other rights to subscribe
for or purchase any of the Preferred Shares provided for by Maryland law or
the Restated Articles.
(iii) Each of the Fund Agreements has been duly and
validly authorized, executed and delivered by the Fund, and each of the
Fund Agreements other than this Agreement is a valid and binding obligation
of the Fund, enforceable against the Fund in accordance with its terms,
subject as to enforcement to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors rights and to general principles of
equity and except to the extent that rights to indemnity thereunder may be
limited by federal or state securities laws or the public policy underlying
such laws; and each of the Fund Agreements complies in all material
respects with the applicable provisions of the Acts and the Rules and
Regulations.
(iv) There are no contracts or other documents of a
character required to be described or referred to in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described, referred to and filed as required, and
the descriptions thereof or references thereto are correct in all material
respects.
(v) To the best of such counsel's knowledge and
information, the execution and delivery of this Agreement, the Pricing
Agreement, the Auction Agent Agreement and the Letter Agreement,
performance of the Fund Agreements and the consummation of the transactions
contemplated by this Agreement, the Pric-
20
<PAGE>
ing Agreement, the Auction Agent Agreement and the Letter Agreement, including
the issuance and sale by the Fund of the Preferred Shares on the Closing Date
and the redemption, repurchase or repayment of the TARPS and the Bank Debt with
the proceeds therefrom, by the Fund do not and, subject only to the passage of
time, will not (A) result in the violation of or default under or require
consent under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Fund pursuant to the terms of any
agreement, instrument, franchise, license or permit to which the Fund is subject
and which has been specifically identified to such counsel by the Fund and set
forth on a schedule attached to such opinion as one of such documents, which
violation or default would have a material adverse effect on the Fund or its
business or financial condition or (B) violate or conflict with any provision of
the Restated Articles or by-laws of the Fund, or any judgment, decree, order,
law, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Fund or any of its
properties or assets. Such counsel need express no opinion, however, as to any
such consent, approval, authorization, or order which may be required as a
result of the involvement of the other parties to such agreements in the
transactions contemplated by such agreements because of their legal or
regulatory status or because of any other facts specifically pertaining to them.
No consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental, or
regulatory agency or body having jurisdiction over the Fund or any of its
properties or assets is required under the laws of The Commonwealth of
Massachusetts, the State of Maryland or the laws of the United States for the
execution, delivery and performance of the Fund Agreements and the consummation
of the transactions contemplated hereby, except for (1) such as may be required
by the NASD or under state securities or Blue Sky laws in connection with the
pur-
21
<PAGE>
chase and distribution of the Preferred Shares by the Underwriter (as to which
such counsel need express no opinion) and (2) such as have been made or
obtained.
The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications or orders required under (i) laws
which are specifically referred to in the opinion, (ii) laws of The Commonwealth
of Massachusetts, the state of Maryland and the United States of America which,
in such counsel's experience, are normally applicable to transactions of the
type provided for in this Agreement, and (iii) court orders, judgments and
decrees of any Maryland, Massachusetts or federal court disclosed to such
counsel by the Fund in connection with such opinion.
(vi) The Registration Statement at the time it became effective and the
Prospectus as of its date and the Closing Date and any amendments thereof or
supplements thereto as of their respective dates and the Closing Date (other
than the financial statements and schedules and other financial or statistical
data included or incorporated by reference therein or information furnished to
the Fund in writing by the Underwriter, as to which no opinion need be rendered)
complied and comply as to form in all material respects with the requirements of
the Acts and the Rules and Regulations.
(vii) The Registration Statement has become effective under the Securities
Act, and, to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof has been issued and no proceedings therefor have been initiated or
threatened by the Commission and all filings required by Rule 497 of the Rules
and Regulations have been made in the manner and within the time required by
such rule.
22
<PAGE>
(viii) No approval of the outstanding security holders of
the Fund under the terms of the Restated Articles and the Maryland General
Corporation Law is required in connection with the consummation of the
transactions contemplated hereby other than such as have been obtained.
(ix) The Proxy Statement on lts face was appropriately
responsive in all material respects to all items of Schedule 14A of the
rules and regulations under the Exchange Act and complied as to form in all
material respects with the requirements of the Exchange Act and the
Investment Company Act.
(x) The Fund is registered with the Commission under the
Investment Company Act as a closed-end, diversified management investment
company, and all necessary action has been taken by the Fund under the Acts
and the Rules and Regulations to make the public offering and consummate the
sale of the Preferred Shares pursuant to this Agreement; the provisions of
the Restated Articles and the by-laws of the Fund comply as to form in all
material respects with the requirements of the Investment Company Act; and
(xi) The statements contained in the Prospectus under the
caption "Taxation," to the extent that such statements constitute matters of
law or legal conclusions, provide a fair summary of such law or legal
conclusions.
In addition, such counsel shall state that such counsel has
participated in (i) the preparation of the Registration Statement and Prospectus
and in conferences with officers and representatives of the Fund and the Adviser
and with representatives of Arthur Andersen & Co., and your representatives and
your counsel at which the contents of the Registration Statement, the Prospectus
and related matters were discussed, and (ii) in the preparation of the Proxy
Statement and in conferences with officers and representatives of the Fund at
which the contents of the Proxy Statement were discussed, and although there can
be no assurance that all possible
23
<PAGE>
material facts as to the Fund were discussed in such meetings, and although such
counsel has not independently verified and necessarily assumes the correctness
and completeness of and is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, the Prospectus or the Proxy Statement,
except as set forth in opinions (i), the second sentence of (ii), (iv) and (ix)
above, on the basis of and subject to the foregoing, no facts have come to the
attention of the lawyers in such counsel's office that have had active
involvement in the above-mentioned conferences and conversations to lead such
lawyers to believe that (A) the Registration Statement (including the
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A of the Rules and Regulations) or any amendment thereto (except for the
financial statements and notes thereto, supporting schedules and other financial
or statistical data included or incorporated by reference therein or omitted
therefrom or information furnished to the Fund in writing by the Underwriter, as
to which such counsel need make no statement), at the time the Registration
Statement became effective or the date of any such amendment, contained an
untrue statement of material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(B) the Prospectus or any amendment or supplement thereto (except for the
financial statements and notes thereto, supporting schedules and other financial
or statistical data included therein or omitted therefrom or information
furnished to the Fund in writing by the Underwriter, as to which such counsel
need make no statement), at the time the Prospectus was issued, at the time any
such amended or supplemented prospectus was issued or at the Closing Date,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
(C) the Proxy Statement or any amendment or supplement thereto (except for the
financial statements and notes thereto, supporting schedules and other financial
or statistical data included therein or omitted therefrom, as to which such
counsel need make no statement), contained any statement which, at its date and
at the date of the Meeting, and in light of the circumstances under which they
were made, was false or misleading with respect to
24
<PAGE>
any material fact, or omitted to state a material fact necessary in order to
make the statements therein not false or misleading or necessary in order to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Annual Meeting or subject matter which becomes
false or misleading prior to the Annual Meeting.
(d) At the Closing Date, you shall have received the opinion
of Peter L. Curry, Esq., General Counsel of the Adviser, counsel for the
Adviser, dated the Closing Date addressed to you and in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
(i) The Adviser has been duly organized and is validly
existing as a general partnership under the laws of the Commonwealth of
Massachusetts with full power and authority to conduct its business as
described in the Reqistration Statement and the Prospectus:
(ii) The Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and regulations under such acts,
from performing its obligations under the Advisory Agreement or from acting
as investment adviser for the Fund as contemplated by the Registration
Statement and the Prospectus;
(iii) Each of this Agreement and the Advisory Agreement
has been duly and validly authorized, executed and delivered by the Adviser
and the Advisory Agreement is a valid and binding obligation of the Adviser,
enforceable against the Adviser in accordance with its terms, except,
subject as to enforcement to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors rights and to general principles of
equity;
(iv) To the best of such counsel's knowledge, there is no
litigation or
25
<PAGE>
governmental or other action, suit, proceeding or investigation before any court
or before or by any public, regulatory or governmental agency or body pending or
threatened against, or involving the properties or business of, the Adviser,
which, if resolved against the Adviser, individually or, to the extent involving
related claims or issues, in the aggregate, is of a character required to be
disclosed in the Registration Statement and the Prospectus which has not been
properly disclosed therein.
(v) The execution, delivery, and performance of this
Agreement and the Advisory Agreement and the consummation of the transactions
contemplated hereby by the Adviser will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
or require consent under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Adviser pursuant to the
terms of any agreement, instrument, franchise, license or permit known to such
counsel to which the Adviser is a party or by which it or its properties or
assets may be bound or (B) violate or conflict with any provision of the
partnership agreement of the Adviser, or, to the best knowledge of such counsel,
any judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over the
Adviser or any of its properties or assets. To the best knowledge of such
counsel, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental, or regulatory agency or body having jurisdiction over the Adviser
or any of its properties or assets is required for the execution, delivery and
performance of this Agreement and the Advisory Agreement and the consummation by
the Adviser of the transactions contemplated hereby and thereby, except for (1)
such as may be required by state securities
26
<PAGE>
laws or Blue Sky laws or (2) such as have been made or obtained.
Such counsel shall also state that no facts have come to
the attention of such counsel which would lead such counsel to believe that,
as to information contained therein or omitted therefrom with respect to the
Adviser, either the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A(b), if applicable), or
any amendment thereof made prior to the Closing Date as of the date of such
amendment, with respect to information concerning the Adviser, contained an
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
not misleading or that the Prospectus as of the date thereof (or any
amendment thereof or supplement thereto made prior to the Closing Date as of
the date of such amendment or supplement) and as of the Closing Date
contained an 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 light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
belief or opinion with respect to the financial statements and schedules).
Underwriter's Counsel, Goodwin, Procter & Hoar and Peter L.
Curry, Esq., counsel to the Adviser, in giving their opinions required by
subsections (c), (d) and (g), respectively, may rely (i) as to the qualification
of the Fund and the Adviser to do business in any state or jurisdiction, upon
certificates of appropriate government officials, and (ii) as to matters of
fact, upon certificates and written statements of officers and employees of and
accountants for the Fund and the Adviser. References to the Prospectus in
subsections (c), (d) and (g) include any supplement thereto. In rendering such
opinion, such counsel may rely (A) as to matters involving the application of
laws other than the laws of the United States and jurisdictions in which they
are admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an
27
<PAGE>
opinion or opinions (in form and substance reasonably
satisfactory to Underwriter's Counsel) of other counsel
reasonably acceptable to Underwriter's Counsel, familiar with
the applicable laws; (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of
the Fund and certificates or other written statements of
officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or
good standing of the Fund and its subsidiaries, provided that
copies of any such statements or certificates shall be
delivered to Underwriters' Counsel. The opinion of such
counsel for the Fund shall state that the opinion of any such
other counsel is in form satisfactory to such counsel for the
Fund and, in their opinion, you and they are justified in
relying thereon.
(e) At the Closing you shall have received a
certificate of the President and Treasurer of the Fund, dated
the Closing Date, to the effect that (i) the condition set
forth in subsection (a) of this Section 7 has been satisfied,
(ii) as of the date hereof and as of the Closing Date the
representations and warranties of the Fund set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date
the obligations of the Fund to be performed hereunder on or
prior thereto have been duly performed and (iv) subsequent to
the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Fund has not
sustained any material loss or interference with its
businesses or properties and there has not been any material
adverse change, or to his knowledge after reasonable
investigation any development involving a material adverse
change, in the business prospects, properties, operations,
condition (financial or otherwise), or results of operations
of the Fund except in each case as described in or
contemplated by the Prospectus.
(f) At the time this Agreement is executed and at
the Closing Date, you shall have received a letter, from
Arthur Andersen & Co., independent public accountants for the
Fund, dated, respectively, as of the date of this Agreement
and as of the Closing Date addressed to the Underwriter and in
form and substance satisfactory to you, to the effect that:
(i) they are independent certified public accountants with
respect to the Fund within the meaning of the Acts and the
Rules and
28
<PAGE>
Regulations (ii) stating that, in their opinion, the financial statements and
schedules of the Fund included in the Registration Statement and the Prospectus
and covered by their opinion therein comply as to form in all material respects
with the applicable accounting requirements of the Acts and the applicable
published rules and regulations of the Commission thereunder; (iii) on the basis
of procedures (but not an examination made in accordance with generally accepted
auditing standards) consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Fund, a reading of the minutes
of meetings and consents of the shareholders and board of directors of the Fund
and the committees of such board subsequent to December 31, 1992, inquiries of
officers and other employees of the Fund who have responsibility for financial
and accounting matters of the Fund with respect to transactions and events
subsequent to December 31, 1992 and other specified procedures and inquiries to
a date not more than five days prior to the date of such letter, nothing has
come to their attention that would cause them to believe that: (A) the unaudited
financial statements and schedules of the Fund presented in the Registration
Statement and the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Acts and the applicable
published Rules and Regulations or that such unaudited financial statements are
not fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement and the Prospectus; or (B)
with respect to the period subsequent to December 31, 1992 there were, as of
the date of the most recent available unaudited financial statements of the
Fund, and as of a specified date not more than five days prior to the date of
such letter, any changes in the capital stock or long term indebtedness of the
Fund or any decrease in the net current assets or shareholders equity of the
Fund, in each case as compared with the amounts shown in the most recent balance
sheet presented in the Registration Statement and the Prospectus, except for
changes or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such letter; and
(iv) stating that they have compared specific dollar amounts, numbers of shares,
percentages of revenues and earnings, and other financial information
Pertaining to the Fund set forth in
29
<PAGE>
the Registration Statement and the Prospectus, which have been specified by you
prior to the date of this Agreement, to the extent that such amounts, numbers,
percentages, and information may be derived from the general accounting and
financial records of the Fund or from schedules furnished by the Fund, and
excluding any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries, and
other appropriate procedures specified by you (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in such letter, and found them to be in agreement.
(g) All proceedings taken in connection with the sale of the
Preferred Shares as herein contemplated shall be satisfactory in form and
substance to you and to Underwriter's Counsel, and the Underwriter shall have
received from said Underwriter's Counsel a favorable opinion, dated as of the
Closing Date with respect to the issuance and sale of the Preferred Shares, the
Registration Statement and the Prospectus and such other related matters as you
may reasonably require, and the Fund shall have furnished to Underwriter's
Counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(h) Prior to the Closing Date the Fund shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
(i) Since the date as of which information is given in the
Prospectus there shall not have been any change in the Common Stock or the
Preferred Shares (other than by reason of the issuance of any shares of Common
Stock in connection with the reinvestment of dividends or other distributions
paid by the Fund) or any material adverse change in the net assets of the Fund
or any change, or any development involving a prospective change, in or
affecting the condition (financial or other), business, financial position, net
assets, shareholders' equity or results of operations or the property or assets
of the Fund, otherwise than as set forth or contemplated in the Prospectus, the
effect of which is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Preferred Shares
30
<PAGE>
being delivered at the Closing Date on the terms and in the
manner contemplated in the Prospectus.
(j) The Preferred Shares to be sold by the Fund at
the Closing Date shall have been accorded the ratings of "aaa"
by Moody's and AAA by Fitch and letters to that effect, dated
the Closing Date, shall have been received from Moody's and
Fitch.
(k) At the Closing Date you shall have received a
certificate of a general partner of the Adviser dated the
Closing Date to the effect that (i) the representations and
warranties of the Adviser in Section 2 are accurate and (ii)
as of the Closing Date the obligations to be performed on or
prior thereto have been duly performed.
(l) At the Closing Date and assuming the receipt
of the net proceeds from the sale of the Preferred Shares, the
1940 Act ATP Asset Coverage and the ATP Basic Maintenance
Amount (each as defined in the Prospectus) each will be met.
(m) If required pursuant to the Loan Agreement,
the Fund and Bank of Boston shall have executed and delivered
an amendment to the Loan Agreement extending the maturity of
the Bank Debt to a date no earlier than the Closing Date.
(n) The Preferred Shares shall constitute as of
the Closing Date the only class of outstanding senior
securities of the Fund (as such term is used in the Investment
Company Act).
If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as required by this Agreement, or
if any of the certificates, opinions, written statements or
letters furnished to you or to Underwriter's Counsel pursuant
to this Section 7 shall not be in all material respects
reasonably satisfactory in form and substance to you and to
Underwriter's Counsel, all obligations of the Underwriter
hereunder may be cancelled by you at, or at any time prior to,
the Closing Date. Notice of such cancellation shall be given
to the Fund in writing, or by telephone, telex or telegraph,
confirmed in writing.
31
<PAGE>
8. Indemnification. (a) The Fund will indemnify and hold
harmless the Underwriter, the directors, officers, employees and agents of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Securities Act against any losses, liabilities,
claims, damages and expenses whatsoever, (including but not limited to
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which the Underwriter may become subject,
under the Securities Act, the Exchange Act, the Investment Company Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus, any sales material or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse the Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Fund will not be liable in any such case to the extent that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information furnished
to the Fund by the Underwriter expressly for use therein. This indemnity
agreement will be in addition to any liability which the Fund may otherwise
have, including under this Agreement provided, further, that the Fund and the
Adviser will not be liable to any Underwriter with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus which is corrected in the Part A Prospectus, or any
amendment or supplement thereto, if the Fund and the Adviser sustain the burden
of proving that the Underwriter sold Preferred Shares to the person asserting
any such loss, claim, damage or liability without sending or giving, at or
32
<PAGE>
prior to the written confirmation of the sale of such Preferred Shares to such
person, a copy of the Part A Prospectus, or any amendment or supplement thereto,
where such delivery is required by the Securities Act if the Fund had previously
furnished copies thereof to the Underwriter.
(b) The Adviser agrees to indemnify and hold harmless the
Underwriter and the Fund, the directors, officers, employees and agents of each
of the Underwriter and the Fund, and each person, if any, who controls the
Underwriter or the Fund within the meaning of Section 15 of the Securities Act
against any losses, liabilities, claims, damages or expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), jointly or severally, to
which the Underwriter or the Fund may become subject, under the Securities Act,
the Exchange Act, the Investment Company Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with information furnished to the
Fund by the Adviser, expressly for use therein.
(c) The Underwriter agrees to indemnify and hold harmless the
Fund and the Adviser, the directors, officers, employees, general partners and
agents of each of the Fund and the Adviser, and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15 of the
Securities Act against any losses, liabilities, claims, damages and expenses
whatso-
33
<PAGE>
ever reasonably incurred (including but not limited to attorneys' fees and any
and all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), jointly or severally, to which the Fund or the Adviser may become
subject, under the Securities Act, the Exchange Act, the Investment Company Act
or otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement or the Prospectus or
any such amendment or supplement in reliance upon and in conformity with written
information furnished to the Fund and the Adviser by the Underwriter, expressly
for use therein; provided, however, that in no case shall the Underwriter be
liable or responsible for any amount in excess of the underwriting discount
applicable to the Preferred Shares purchased by the Underwriter hereunder. The
Fund and the Adviser acknowledge that the statements in the third paragraph
under the caption "Underwriting" constitute the only information furnished in
writing by or on behalf of the Underwriter expressly for use in any such
document.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve it
from any liability which it may have under this Section 8). In case any such
action shall be brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the
34
<PAGE>
indemnifying party will be entitled to participate therein and, to the extent
that it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties have the right
to employ its or their own counsel in any such case, but the fees and expenses
of such counsel will be at the expense of such indemnified party or parties
unless (i) the employment of counsel by the indemnified party shall have been
authorized in writing by one of the indemnifying parties, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of the commencement of the action,
or (iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties) in any of
which events such fees and expenses shall be borne by the indemnifying party or
parties. Anything in this subsection to the contrary notwithstanding, an
indemnifying party or parties shall not be liable for any settlement of any
claim or action effected without its or their written consent; provided,
however, that such consent was not unreasonably withheld.
9. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 8 hereof is
for any reason held to be unavailable in whole or in part from any indemnifying
party, the Fund, the Adviser and the Underwriter shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Fund or the Adviser any contribution received by the Fund or the
Adviser from persons, other than the Underwriter, who may also be liable for
contribution, including persons who cnntrol the Fund or the Adviser within the
meaning of
35
<PAGE>
Section 15 of the Securities Act, officers of the Fund who signed the
Registration Statement and directors of the Fund) to which the Fund or the
Adviser and the Underwriter may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Fund and the
Adviser and the Underwriter from the offering of the Preferred Shares or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 8 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Fund, the Adviser and the Underwriter in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Fund, the Adviser and the Underwriter shall be deemed
to be in the same proportion as (x) the total proceeds from the offering (net of
sales load but before deducting expenses) received by the Fund, (y) the
investment advisory fee payable to the Adviser during the preceding 12 month
period and (z) the total sales load received by the Underwriter, respectively,
in the case of (x) and (z) as set forth in the table on the cover page of the
Prospectus. The relative fault of the Fund, the Adviser and the Underwriter
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state any material fact relates to information supplied by the Fund, the
Adviser or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Fund, the Adviser and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this Section 9 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, (i) in no
case shall the Underwriter be liable or responsible
36
<PAGE>
for any amount in excess of the sales load applicable to the Shares purchased by
the Underwriter hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section ll(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 9,
the Underwriter shall not be required to contribute any amount in excess of the
amount by which the total price at which the Preferred Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages that the Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 9, each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Fund within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act, each officer of the
Fund who shall have signed the Registration Statement and each director of
the Fund shall have the same rights to contribution as the Fund and Adviser
control persons, subject in each case to clauses (i) and (ii) of this Section
9. Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have under this Section 9 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its consent; provided, however, that such consent was
not unreasonably withheld.
10. Survival of Representations and Warranties. All
representations and warranties, covenants and agreements of the Underwriter, the
Fund and the Adviser contained in this Agreement, including the agreements
contained in Section 6, the indemnity agreements contained in Section 8 and the
contribution agreements contained in Section 9, shall remain operative and shall
remain in full force and effect, regardless of any inves-
37
<PAGE>
tigation made by or on behalf of the Underwriter or any controlling person
thereof or by or on behalf of the Fund or the Adviser, any of their respective
officers and directors or controlling persons, and shall survive delivery of and
payment for the Preferred Shares to and by the Underwriter. The representations
contained in Section l and 2 and the agreements contained in Sections 6, 8 and 9
hereof shall survive any termination of this Agreement, including termination
pursuant to Section 12 hereof
11. Effective Date: Termination. (a) This Agreement shall
become effective, upon the later of the time when either (i) you and the Fund
shall have received notification of the effectiveness of the Registration
Statement or (ii) the execution of the Pricing Agreement. If either the initial
public offering price or the purchase price per Share has not been agreed upon
prior to 5:00 P.M., New York time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Fund or the Underwriter except as
herein expressly provided. Until this Agreement becomes effective as aforesaid,
it may be terminated by the Fund by notifying you or by you notifying the Fund.
Notwithstanding the foregoing, the provisions of this Section 11 and of Sections
6, 8 and 9 hereof shall at all times be in full force and effect.
(b) You shall have the right to terminate this Agreement at
any time prior to the Closing Date if any domestic or international event or act
or occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, securities markets; or if trading on the New York or
American Stock Exchanges shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required, on the New York or American Stock Exchanges by the New
York or American Stock Exchanges or by order of the Commission or any other
governmental authority having jurisdiction; or if the United States becomes
engaged in hostilities or there~is an escalation of hostilities involving the
United States or there is a declaration of a national emergency or war by the
United States; or if a banking moratorium has been declared by a New York state
or federal authority or if any new restriction materially
38
<PAGE>
adversely affecting the distribution of the Preferred Shares shall have become
effective; or if there shall have been such change in the market for the Fund's
securities or securities in general or in political, financial or economic
conditions as in your judgment makes it impracticable or inadvisable to proceed
with the offering, sale and delivery of the Preferred Shares on the terms
contemplated by the Prospectus.
12. Notice. A11 communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing, and if to the
Underwriter shall be mailed, delivered or telexed or facsimile transmitted to
Bear Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention:
Joseph Fichera, Managing Director; and if to the Fund shall be delivered or sent
by mail to the address of the Fund set forth in the Registration Statement,
Attention: Robert F. Birch, President, or if the Adviser shall be delivered or
sent by mail to Wellington Management Company, Attention: Peter L. Curry, Esq.
Any such statements, requests, notices or agreements shall take effect upon
receipt thereof.
13. Parties. This Agreement shall inure solely to the benefit
of, and be binding upon, the Underwriter, the Adviser and the Fund and the
controlling persons, directors, officers, employees and agents referred to in
Sections 8 and 9 and their respective successors and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of the Preferred Shares from the
Underwriter.
14. Time of the Essence. Time shall be of the essence of this
Agreement. As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without reference
to the principles of conflicts of laws thereof.
39
<PAGE>
If the foregoing is in accordance with your understanding,
please sign and return to us two counterparts hereof, and upon the acceptance
hereof by you, this letter and such acceptance hereof shall constitute a binding
agreement between you, the Fund and the Adviser.
Very truly yours,
THE NEW AMERICA HIGH INCOME
FUND, INC.
By: /s/ Ellen E. Terry
------------------------
Name: Ellen E. Terry
Title: Vice President
WELLINGTON MANAGEMENT COMPANY
By: /s/ Duncan McFarland
------------------------
General Partner
Accepted as of the date hereof:
BEAR, STEARNS & CO. INC.
BY: /s/ Joseph Fichera
- -----------------------
Title: ?????????
40
Exhibit H2
______Shares of Series A Auction Term Preferred Shares
______Shares of Series B Auction Term Preferred Shares
THE NEW AMERICA HIGH INCOME FUND, INC.
SELLING AGREEMENT
[Date]
Dear Sirs:
The Underwriter (the "Underwriter") named in the prospectus mentioned below
has agreed, subject to the terms and conditions of the Underwriting Agreement
dated _________________ (the "Underwriting Agreement"), to purchase from The New
America High Income Fund, Inc., a Maryland corporation (the "Fund"), shares of
Series A Auction Term Preferred Shares (the "Series A ATP") and shares of Series
B Auction Term Preferred Shares (the "Series B ATP") (the Series A ATP and the
Series B ATP are referred to collectively herein as the "ATP") of the Fund, at
the purchase price set forth on the cover of such prospectus. The Shares are
more particularly described in the enclosed prospectus (the "Prospectus"),
additional copies of which will be supplied in reasonable quantities upon
request.
The Underwriter is offering a part of the ATP for sale to selected dealers
(the "Selected Dealers"), among whom they are pleased to include you, at the
public offering price, less a concession in the amount set forth in the
Prospectus under "Underwriting." This offering is made subject to delivery of
the ATP and their acceptance by the Underwriters, to the approval of all legal
matters by counsel, and to the terms and conditions herein set forth any may be
made on the basis of the reservation of ATP or an allotment against
subscription.
We have advised you by telegraph or telex of the method and terms of the
offering. Acceptances should be sent to Bear, Stearns & Co., 55 Water Street,
New York, New York 10041. We reserve the right to reject any acceptances in
whole or in part.
Any of the ATP purchased by you hereunder are to be offered by you to the
public at the public offering price, except as herein otherwise provided and
except
1
<PAGE>
that a reallowance from such public offering price of not in excess of the
amount set forth in the Prospectus under "Underwriting" may be allowed only
to dealers who are actually engaged in the investment banking or securities
business, who execute the written agreement prescribed by Section 24(c) of
the Article III of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and who are members in good standing of the National
Association of Securities Dealers, Inc. and who are members in good standing
of the National Association of Securities Dealers, Inc., or to foreign
dealers or institutions not eligible for membership in such Association who
agree to abide by the conditions with respect to foreign dealers and
institutions set forth in your confirmation below.
We, acting as Underwriter, may buy Shares from, or sell ATP to, any Selected
Dealers and any Selected Dealers may buy ATP from, or sell ATP to, any other
Selected Dealer at the public offering price less all or any part of the
concession. We, acting as Underwriter, after the initial public offering may
change the initial public offering price, the concession and the reallowance.
In the event that prior to the termination of this Agreement, we purchase or
contract to purchase for our account any ATP purchased by you hereunder or any
ATP [or any shares of Common Stock] which may have been issued in exchange for
[or upon conversion of] such ATP [or in exchange for other such shares of Common
Stock], you agree to pay us on demand for an amount equal to the concession on
such ATP. In addition, we may charge you with any transfer taxes and broker's
commission or dealer's mark-up paid in connection with such purchase or contract
to purchase.
ATP purchased by you hereunder shall be paid for on such date as we shall
determine, on one day's notice to you, by certified or official bank check
payable in New York Clearing House funds to the order of Bear, Stearns & Co., 55
Water Street, New York, New York 10041 against delivery of the ATP.
Notwithstanding the foregoing, if transactions in the ATP can be settled
throughout the facilities of The Depository Trust Company, payment for and
delivery of Shares purchased by you hereunder will be made through the
facilities of The Depository Trust Company, if you are a member, unless you have
otherwise
2
<PAGE>
notified us prior to the date specified in our telex or telegram to you, or,
if you are not a member, settlement may be made through a correspondent who
is a member pursuant to instructions you may send to us prior to such
specified date.
The Underwriter has been advised by the Fund that a registration statement
for the ATP, filed under the Securities Act of 1933, has become effective. You
agree that in selling Shares purchased pursuant hereto (which agreement shall
also be for the benefit of the Fund) you will comply with the applicable
requirements of the Securities Act of 1933 and of the Securities Exchange Act of
1934 and of the Investment Company Act of 1940, as amended. No person is
authorized by the Fund or by the Underwriter to give any information or to make
any representations not contained in the Prospectus, in connection with the sale
of ATP. You are not authorized to act as agent for the Fund or of the
Underwriter in offering ATP to the public or otherwise. Nothing contained herein
shall constitute the Selected Dealers partners with the Underwriter or with one
another.
Upon your application to us, we will inform you as to the advice we have
received from counsel concerning the jurisdictions in which ATP have been
qualified for sale or are exempt under the respective securities or blue sky
laws of such jurisdictions, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealers to sell
Shares in any such jurisdiction.
We shall have full authority to take such action as we may deem advisable in
respect of all matters pertaining to the offering or arising thereunder. We
shall not be under any obligation to you except for obligations expressly
assumed by us in this Agreement.
The Underwriter may over-allot in arranging for sales of the ATP to the
Selected Dealers and to purchase and sell ATP [and shares of Common Stock of the
Fund and any other securities convertible into or exercisable for Common Stock
of the Fund] for long or short account and may also stabilize or maintain the
market prices of the ATP.
3
<PAGE>
You agree, upon our request, at any time or times prior to the termination
of this Agreement, to report to us the number of ATP purchased by you
pursuant to the provisions hereof which then remain unsold.
You agree that, except as otherwise provided herein, until the termination
of this Agreement or until we notify you that you are released from this
restriction, you will not without our consent buy, sell, deal or trade in ATP
[or in the Common Stock of the Fund or in other securities convertible into or
exercisable for Common Stock of the Fund] (or, if requested by us by telex or
otherwise, in any other securities of the Fund) for your account or for the
accounts of customers except on unsolicited brokerage orders therefor.
Selected Dealers will be governed by the conditions herein set forth until
this Agreement is terminated. This Agreement will terminate at the close of
business on the 30th day after the date hereof but, in our discretion, may be
extended by us for a further period not exceeding 30 days and in our discretion,
whether or not extended, may be terminated at any earlier time. Notwithstanding
the termination of this Agreement, you shall remain liable for your
proportionate amount of any claim, demand or liability which may be asserted
against you alone, or against you together with other dealers purchasing Shares
upon the terms hereof, or against us, based upon the claim that the Selected
Dealers, or any of them, constitute an association, an unincorporated business
or other entity.
In the event that you agree to purchase ATP in accordance with the terms
hereof, kindly confirm such agreement by completing and signing the form
provided for that purpose on the enclosed duplicate hereon and returning it to
us promptly.
All communications from you shall be addressed to Bear, Stearns & Co., at 55
Water Street, New York, New York 10041. Any notice from us to you shall be
deemed to have been fully authorized by the Underwriters and to
4
<PAGE>
have been duly given if mailed, telegraphed or telexed to you at the address
to which this letter is mailed.
Very truly yours,
BEAR, STEARNS & CO.
By _____________________
General Partner
5
<PAGE>
BEAR, STEARNS & CO.
[]
[c/o Bear, Stearns & Co.]
55 Water Street
New York, N.Y. 10041
Dear Sirs:
We hereby confirm our agreement to purchase the ATP allotted to us subject
to the terms and conditions of the foregoing Agreement and your telegram or
telex to us referred to therein. We hereby acknowledge receipt of the definitive
Prospectus [including the documents incorporated by reference therein] relating
to the Shares [and the documents required to be delivered with any preliminary
prospectus or the definitive Prospectus by Item of Form N-2], and we confirm
that in purchasing ATP we have relied upon no statements in such Prospectus. We
have made a record of our distribution of preliminary prospectuses and, when
furnished with copies of any revised preliminary prospectus, we have, upon your
request, promptly forwarded copies thereof [including the documents incorporated
by reference therein] to each person to whom we had theretofore distributed
preliminary prospectuses. [We have delivered and will deliver with any
preliminary prospectus and the definitive Prospectus all documents required to
be so delivered by Item of Form N-2]. We represent that we are actually engaged
in the investment banking or securities business and that we are a member in
good standing of the National Association of Securities Dealers, Inc., who
agrees to comply with all the applicable rules of such Association, including,
without limitation, its Interpretation with Respect to Free-Riding and
Withholding and Section 24 of Article III of its Rules of Fair Practice, or, if
we are not such a member, we are a foreign dealer or institution that is not
eligible for membership in such Association which hereby agrees not to make any
sales within the United States, its territories or its possessions or to persons
who are citizens thereof or residents therein, and in making sales to comply
with such Association's above-mentioned Interpretation with Respect to
Free-Riding and Withholding and Sections 8, 24 and 36 of the above-mentioned
Article III as if we were a member of such Associ-
6
<PAGE>
ation and Section 25 of such Article III as it applies to a non-member broker
or dealer in a foreign country.
If for Federal income tax purposes the Selected Dealers, among themselves or
with the Underwriter, are deemed to constitute a partnership, then we elect
to be excluded from the application of Subchapter K, Chapter 1, Subtitle A of
the Internal Revenue Code of 1954, as amended, and we agree not to take any
position inconsistent with such election. We authorize you, in your
discretion, on our behalf, to execute such evidence of such election as may
be required by the Internal Revenue Service.
Name of Selected Dealer
.........................................
(Authorized Signature)
.........................................
7
<PAGE>
[Bear, Stearns Letterhead]
[Date]
[Name of Company]
[Address of Company]
Attention:
Gentlemen:
This will confirm our discussions relating to the proposed public offering
of approximately 1000 shares of Series A Auction Term Preferred Shares and 1000
Shares of Series B Auction Term Preferred Shares (collectively, the "ATP") of
The New America High Income Fund, Inc. (the "Fund") by the Company. [Certain of
the terms of the ATP are set forth in Schedule I hereto.]
The procedure proposed for the offering is as follows:
1. The Fund will complete, file and, as appropriate, amend from time to time
its registration statement under the Securities Act of 1933 (the '33 Act")
and under the Investment Company Act of 1940 (the '40 Act"), covering the
offering of the ATP. As proposed underwriter of the offering, we will be given
the opportunity to make such review and investigation in connection with the
registration statement, as amended, as we deem desirable.
2. The registration statement filing will include a proposed form of
underwriting agreement between the Fund and the underwriter. Such form will
include cross-indemnity and contribution provisions of the type usually found in
underwriting agreements. The Fund agrees to pay all expenses and fees related to
the process of (i) registering the ATP under the '33 Act and '40 Act, (ii)
obtaining or confirming exemptions, qualifications or approvals or other
registrations of the ATP or the offering under state securities laws and
National Association of Securities Dealers, Inc. (the "NASD")
8
<PAGE>
policies, and (iv) obtaining the rating of the Shares by one or more rating
agencies, including filing fees, the fees and expenses of counsel for the
underwriter in connection with state securities law and legal investment law
matters, and printing costs (including, without limitation, the costs of
printing the registration statement and all amendments thereto, including all
documents incorporated by reference therein and all exhibits thereto, the
underwriting documents, the blue sky surveys and legal investment memoranda
and all other documents related to the offering) and, upon our request, to
provide funds in advance for filing fees. However, except for the fees and
expenses of counsel for the underwriter in connecting with state securities
and legal investment laws, and except as otherwise described herein, the
underwriter will be responsible for the fees and expenses of their counsel.
3. Concurrently with or immediately after the filing of the registration
statement with the Commission, the necessary filings will be made and approvals
sought under and with respect to state securities laws, [and] the NASD in
connection with the ATP and the proposed offering, including, without
limitation, the filing of a certificate of designation with respect to the ATP
with the Secretary of State of the State of Maryland, and the Fund and we will
cooperate in making such filings and obtaining such approvals are desirable.
4. At such time as the Fund and the underwriter are mutually satisfied that
it is appropriate to commence the offering, the terms of ATP will be determined
and the final terms of the underwriting agreement will be negotiated in light of
market conditions prevailing at the time; the underwriting agreement will be
signed; and the Fund and we will request that the Commission make the
registration statement effective.
5. The Fund will immediately prior to the offering agree not to sell or
dispose of any shares of Preferred Stock of the Fund without our prior written
consent for a period of 180 days after the first date on which the ATP are bona
fide offered to the public.
It is understood that this letter does not constitute a commitment on the
part of the Fund or us to proceed with a public offering unless and until a
defini-
9
<PAGE>
tive underwriting agreement has been executed. Until the underwriting
agreement has been finally negotiated and signed, the Fund or we may at any
time terminate further participation in the proposed offering, in which event
no party shall have any liability hereunder except that the Fund will (a)
reimburse us for, or otherwise pay and bear, the expenses and fees to be paid
and borne by the Fund as provided in the next-to-last sentence of paragraph 2
hereof; and (b) in the event the Fund terminates the proposed offering, or we
terminate our participation in the offering because, in our reasonable
judgment, there has occurred a material adverse change in the business,
operations, prospects or condition (financial or other) of the Fund, then, in
addition to the payment referred to in (a) above, the Fund shall also
reimburse us for our reasonable out-of-pocket expenses, including legal fees,
incurred in connection with the proposed offering.
Please confirm your agreement to the foregoing by signing and returning to
us the enclosed copy of this letter.
Very truly yours,
BEAR, STEARNS & CO.
By ________________________
General Partner
Confirmed:
[Name of Company]
By ______________________
Date: ___________________
10
Exhibit J
CUSTODIAN CONTRACT
Between
THE NEW AMERICA HIGH INCOME FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be
Held By It 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States 2
2.1 Holding Securities 2
2.2 Delivery of Securities 3
2.3 Registration of Securities 7
2.4 Bank Accounts 8
2.5 Availability of Federal Funds 9
2.6 Collection of Income 9
2.7 Payment of Fund Monies 10
Liability for Payment in Advance of
2.8 Receipt of Securities Purchased 12
2.9 Appointment of Agents 13
2.10 Deposit of Securities in Securities System 13
Fund Assets Held in the Custodians'
2.10A Direct Paper System 16
2.11 Segregated Account 18
2.12 Ownership Certificates for Tax Purposes 19
2.13 Proxies 19
Communications Relating to Fund
2.14 Portfolio Securities 20
Reports to Fund by Independent Public
2.15 Accountants 20
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ............... 21
3.1 Appointment of Foreign Sub-Custodians 21
3.2 Assets to be Held 22
3.3 Foreign Securities Depositories 22
3.4 Segregation of Securities 22
3.5 Agreements with Foreign Banking Institutions 23
Access of Independent Accountants of the
3.6 Fund 23
3.7 Reports by Custodian 24
3.8 Transactions in Foreign Custody Account 24
3.9 Liability of Foreign Sub-Custodians 25
3.10 Liability of Custodian 26
3.11 Reimbursement of Advances 27
3.12 Monitoring Responsibilities 27
3.13 Branches of U.S. Banks 28
4. Proper Instructions 29
5. Actions Permitted Without Express Authority 29
6. Evidence of Authority 30
7. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income 31
<PAGE>
8. Records 32
9. Opinion of Fund's Independent Accountant 32
10. Compensation of Custodian 33
11. Responsibility of Custodian 33
12. Effective Period, Termination and Amendment 35
13. Successor Custodian 36
14. Interpretive and Additional Provisions 38
15. Massachusetts Law to Apply 38
16. Prior Contracts 38
<PAGE>
CUSTODIAN CONTRACT
This Contract between The New America High Income Fund, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 99 Bedford Street, Boston, Massachusetts
02111, hereinafter called the "Fund," and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian."
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the
Articles of Incorporation. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock or debt
securities (collectively, "Shares") of the Fund as may be issued or sold from
time to time. The Custodian shall not be responsible for any
1
<PAGE>
property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 4),
the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote
by the Board of Directors of the Fund, and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as
sub-custodians for the Fund's securities and other assets the foreign banking
institutions and foreign securities depositories designated in Schedule "A"
hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other
than securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and
paying
2
<PAGE>
agent ("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian pursuant to Section 2.10.A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
3
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation,
4
<PAGE>
recapitalization, reorganization or readjustment of the securities
of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund, which may be
in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be credited to
the Custodian's account in the book-entry system authorized by the
U.S.
5
<PAGE>
Department of the Treasury, the Custodian will not be held liable
or responsible for the delivery of securities owned by the Fund
prior to the receipt of such collateral except to the extent that
it has been negligent or acted with willful misconduct in
connection therewith;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission
6
<PAGE>
Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization
or organizations, regarding account deposits in connection with
transactions by the Fund;
14) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless
the Fund has authorized in writing the appointment of a nominee to be
used in common with other registered
7
<PAGE>
investment companies having the same investment adviser as the Fund, or
in the name or nominee name of any agent appointed pursuant to Section
2.9 or in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the Custodian on behalf
of the Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Fund, other than cash maintained by the Fund in a bank account
established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for the Fund may be
deposited by it to its credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a custodian under
the Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of Directors
of the Fund. Such funds shall be deposited by the
8
<PAGE>
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund and
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to Untied States registered
securities held hereunder to which the Fund shall be entitled either by
law or pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to United
States bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items
requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due to the Fund on
United States securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund. The Custodian will have
9
<PAGE>
no duty or responsibility in connection therewith, other than to provide
the Fund with such information or data as may be necessary to assist the
Fund in arranging for the timely delivery to the Custodian of the income
to which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title to
such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian
and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the
10
<PAGE>
conditions set forth in Section 2.10 hereof or (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; or (d) in the case of
repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a member of
NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery
of the receipt evidencing purchase by the Fund of securities owned
by the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 thereof;
3) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
for the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be
11
<PAGE>
in whole or part capitalized or treated as deferred expenses;
4) For the payment of any dividends declared pursuant to the governing
documents of the Fund or interest on outstanding debt securities of
the Fund;
5) For payment of the amount of dividends received in respect of
securities sold short;
6) For the payment of the applicable redemption price in connection
with the redemption of senior extendible notes and taxable auctions
rate preferred stock;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee of the Fund signed
by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring
such purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities for
the account of the
12
<PAGE>
Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund
to so pay in advance, the Custodian shall be absolutely liable to the
Fund for such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
13
<PAGE>
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities of
the Fund which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The
Custodian shall transfer domestic securities sold for the account of
the Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the
14
<PAGE>
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of
transfers of domestic securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian and
be provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transactions sheets
reflecting each day's transactions in the Securities System for the
account of the Fund;
4) The Custodian shall provide the Fund with any report obtained by the
custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding domestic
securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 12 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities
15
<PAGE>
System by reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their employees
or from failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the Securities
System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made whole for any such
loss or damage.
2.10.A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets
16
<PAGE>
held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of payment for
the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice
or notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Securities System
for the account of the Fund;
17
<PAGE>
6) The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance by
the Fund with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release
18
<PAGE>
or releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the board of Directors or of the
Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
19
<PAGE>
2.14 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Fund all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and notices
of exercise of call and put options written by the Fund and the maturity
of futures contracts purchased or sold by the Fund) received by the
Custodian from issuers of the domestic securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the tender
or exchange offer. If the Fund desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the
Fund shall notify the Custodian at least three business days prior to
the date on which the Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a Securities System,
20
<PAGE>
relating to the services provided by the Custodian under this Contract;
such reports shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Fund, to provide reasonable assurance
that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States.
3.1 Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions," as defined in
Section 4 of this Contract, together with a certified resolution of the
Fund's Board of Directors, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct
the Custodian to cease the employment of any one or more such sub-
custodians for maintaining custody of the Fund's assets.
21
<PAGE>
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities," as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian
employs a foreign banking institution shall require that such institution
establish a custody account for the Custodian on behalf of the Fund and
physically segregate in that account, securities and other assets of the
Fund, and, in the event that such institution deposits the Fund's
securities in a foreign securities
22
<PAGE>
depository, that it shall identify on its books as belonging to the
Custodian, as agent for the Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the Fund's assets will
not be subject to any right, charge, security interest, lien or claim of
any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the Fund's assets will be
freely transferable without the payment of money or value other than for
custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accountants for the Fund, will be given access to the books and
record of the foreign banking institution relating to its actions under
its agreement with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the
23
<PAGE>
Fund to be afforded access to the books and records of any foreign
banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities
and other assets of the Fund held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Fund's securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by a
foreign banking institution for the Custodian on behalf of the Fund
indicating, as to securities acquired for the Fund, the identity of the
entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in
24
<PAGE>
accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of
such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to
25
<PAGE>
the extent that the Fund has not been made whole for any such loss,
damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or otherwise resulting from a bank or a
securities depository failure to exercise reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss due
to such delegation, except such loss as may result from (a) political
risk (including, but not limited to, exchange control restrictions,
confiscation, expropriation, nationalization, insurrection, civil strife
or armed hostilities) or (b) other risk of loss (excluding a bankruptcy
or insolvency of State Street London Ltd. not caused by political risk)
for which neither the Custodian nor State Street London Ltd. would be
liable (including,
26
<PAGE>
but not limited to, losses due to Acts of God, nuclear incident or other
losses under circumstances where the Custodian and State Street London
Ltd. have exercised reasonable care).
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in the
event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to
utilized available cash and to dispose of the Fund assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
27
<PAGE>
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders' equity has declined
below $200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this contract, the provisions
hereof shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment if any such branch as a sub-custodian shall be governed
by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
28
<PAGE>
4. Proper Instructions
Proper Instructions as used herein means a writing signed or initialed by
one or more person or persons as the Board of Directors shall have from time
to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement
of the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to
have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the
Board of Directors, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Board of Directors and the Custodian are satisfied that such procedures
afford adequate safeguards for the Fund's assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
29
<PAGE>
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided, that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Fund except as otherwise directed by
the Board of Directors of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to
be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board
of Directors of the Fund as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be considered as
in full force and effect until receipt by the Custodian of written notice to
the contrary.
30
<PAGE>
7. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of the Fund and/or compute the net asset value per share
of the outstanding shares of the common stock of the Fund or, if directed in
writing to do so by the Fund, shall itself keep such books of account and/or
compute such net asset value per share of the common stock. If so directed,
the Custodian shall also calculate weekly the net income of the Fund as
described in the Fund's currently effective prospectus and shall advise the
Fund and the Transfer Agent weekly of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall
advice the Transfer Agent periodically of the division of such net income
among its various components. The calculations of the net asset value per
share of the common stock and the weekly income of the Fund shall be made at
the time or times described from time to time in the Fund's currently
effective prospectus.
The Custodian shall provide the Fund with such evidence of bid quotations
and related data as are required by the Fund for the purpose of determining
the "Market Value" of any item of "Eligible Portfolio Property" in connection
with the determination of the discounted value of the Fund's portfolio
pursuant to (i) Section 4.13 of the Indenture date as of February 15, 1988
between the Fund and Shawmut Bank, N.A., as Trustee, with respect to the
Fund's Senior Extendible Notes (the
31
<PAGE>
"Indenture") and (ii) paragraph 7(a) of Article IV (C) of the Corporations's
Articles of Amendment and Restatement dated as of February , 1988, copies
of which Articles and Indenture are attached hereof as Exhibit 2 and 3
respectively. The Custodian shall also provide the reports set forth in
paragraph 7(b)(ii) of Article IV (C) of the Articles.
8. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund
and held by the Custodian and shall, when requested to do so by the Fund and
for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulation.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year
32
<PAGE>
favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's
Form N-2, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
10. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
11. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper party
or parties, including any futures commission merchant acting pursuant to the
terms of a three-party futures or options agreement. The Custodian shall be
held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without
liability to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
33
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by paragraph 3.11
hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody or any securities or cash of
the Fund in a foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may,
in the opinion of the Custodian, result in the Custodian or its nominee
assigned to the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise
from
34
<PAGE>
its or its nominee's own negligent action, negligent failure to act or
willful misconduct, any property at any time held for the account of the Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
12. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however, that the Custodian shall not act under Section 2.10 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed the use by the Fund of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940,
as amended, and that the Custodian shall not act under Section 2.10.A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors has approved the initial use
of the Direct Paper System and the receipt of an
35
<PAGE>
annual certificate of the Secretary or an Assistant Secretary that the Board
of Directors has reviewed the use by the Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal of state regulations, or
any provision of the Articles of Incorporation, and further provided, that
the Fund may at any time by action of its Board of Directors (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
13. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
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<PAGE>
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian and all instruments held by the
Custodian relative thereto and all other property held by it under this
Contract and to transfer to an account of such successor custodian all of the
Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Directors to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such
37
<PAGE>
period as the Custodian retains possession of such securities, funds and
other properties and the provision of this Contract relating to the duties
and obligations of the Custodian shall remain in full force and effect.
14. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall
be annexed hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state regulations or
any provision of the Articles of Incorporation of the Fund. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
15. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
16. Prior Contracts
The Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 11th day of February, 1988.
ATTEST THE NEW AMERICA HIGH INCOME FUND, INC.
By
-------------------------- -------------------------
Secretary President
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ---------------------------- --------------------------
Assistant Secretary Vice President
39
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of The New America
High Income Fund, Inc. for use as sub-custodians for the Fund's securities
and other assets:
(Insert banks and securities depositories)
40
<PAGE>
EXHIBIT 1
CUSTODIAN AGREEMENT
To:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the Bank)
establish a custody account and a cash account for each custodian/employee
benefit plan identified in the Schedule attached to this Agreement and each
additional account which is identified to this Agreement. Each such custody
or cash account as applicable will be referred to herein as the "Account" and
will be subject to the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares,
bonds, debentures, notes and other securities and other property which
is delivered to the Bank for that State Street Account (the
"Property").
2. a. Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing
agency, incorporated or organized under the laws of a country other
than the United States, unless such depository or clearing house
operates the central system for handling of securities or
equivalent book-entries in that country or operates a transnational
system for the central handling of securities or equivalent
book-entries;
b. When securities held for an Account are deposited in a securities
depository or clearing agency by the Bank, the Bank shall identify
on its books as belonging to State Street as agent for such
Account, the securities so deposited.
3. The Bank represents that either:
a. It currently has stockholders' equity in excess of $200 million
(U.S. dollars or the equivalent of U.S. dollars computed in
accordance with generally accepted U.S. accounting principles) and
will promptly inform State Street in the event that there appears
to be a substantial likelihood that its stockholders' equity will
decline below $200 million, or in any event, at such time as its
stockholders' equity in fact decline below $200 million; or
b. It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission, which such order permits State
Street to employ the Bank as a subcustodian, notwithstanding the
fact that the Bank's stockholders' equity is currently below $200
million due to currency fluctuation.
41
<PAGE>
4. Upon the written instructions of State Street, as permitted by
Paragraph 8, the Bank is authorized to pay cash from the Account and
to sell, assign, transfer, deliver or exchange, or to purchase for the
Account, any and all stocks, shares, bonds, debentures, notes and
other securities ("Securities"), bullion, coin and any other property,
but only as provided in such written instructions. The bank shall not
be held liable for any act or omission to act on instructions given or
purported to be given should there be any error in such instructions.
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the Account;
b. To promptly exchange securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for
the securities themselves);
c. To promptly surrender securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the Bank will
endeavor to obtain State Street Bank's instructions, but should
these not be received in time for the Bank to take timely action,
the Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the
Bank deems it appropriate, such ownership and other certificates as
may be required to obtain the payment of income from the Property;
and
g. To pay or cause to be paid, from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority and shall use reasonable efforts, to
promptly reclaim any foreign withholding tax relating to the
Account.
6. If the Bank shall receive any proxies, notices, reports or other
communications relative to any of the Securities of the Account in
connection with tender offers, reorganization, mergers,
consolidations, or similar events which may have an impact upon the
issuer thereof, the Bank shall promptly transmit any such
communication to State Street Bank by means as will permit State
Street Bank to take timely action with respect thereto.
42
<PAGE>
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the
Property provided that any such appointment shall not relieve the Bank
of any of its responsibilities or liabilities hereunder.
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by State Street; (ii)
telex or tested telex instructions of State Street; (iii) other forms
of instructions in computer readable form as shall be customarily
utilized for the transmission of like information; and (iv) such other
forms of communication as from time to time shall be agreed upon by
State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this agreement. The content of such reports
shall include but not be limited to any transfer to or from any
account held by the Bank hereunder and such other information as State
Street may reasonably request.
10. In addition to its obligations under Section 2B hereof, the Bank shall
maintain such other records as may be necessary to identify the assets
hereunder as belonging to each custodian/employee benefit plan
identified in our Schedule attached to this agreement and each
additional account which is identified to this agreement.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises
inspection and audit at reasonable times by officers of, auditors
employed by or other representatives of State Street (including to the
extent permitted under law the independent public accountants
for any entity whose Property is being held hereunder) and shall be
retained for such period as shall be agreed by State Street and the
Bank.
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from
time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties, as are set forth or contemplated herein or contained in
instructions given to the Bank which are not contrary to this
Agreement, shall maintain adequate insurance and agrees to indemnify
and hold harmless, State Street and each Account from and against any
loss, damage, cost, expense, liability or claim arising out of or in
connection with the Bank's performance of its obligations hereunder.
14. The Bank agrees (i) the property held hereunder is not subject to any
right, charge, security interest, lien or claim of any kind in favor
of the Bank or any of its agents or its creditors except a claim of
payment for their safe custody and administration and (ii) the
beneficial ownership of the property shall be freely transferable
without the payment of money or other value other than for safe
custody or administration.
15. The Bank agrees to meet State Street Operating Requirements (See
Exhibit A).
43
<PAGE>
16. This Agreement may be terminated by the Bank or State Street by 60
days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminates pursuant to
notice which has been given in a timely fashion, shall deliver the
Property to the beneficial owner unless the Bank has received from the
beneficial owner 60 days' prior to the date on which this Agreement is
to be terminated written instructions of State Street specifying the
name(s) of the person(s) to whom the Property shall be delivered.
17. The Bank and State Street shall each use its best efforts to maintain
the confidentiality of the Property in each Account, subject, however,
to the provisions of any laws requiring the disclosure of the
Property.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given
when received in writing or by confirmed telex by the Bank or State
Street at their respective addresses set forth below, or at such other
address as be specified in each case in a notice similarly given:
To State Street Master Trust Division, Global Custody
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
To the Bank
19. This Agreement shall be governed by and construed in accordance with
the laws of except to the extent that such laws are preempted by
the laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy of
this letter.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------
Vice President
Date:
------------------------------
Agreed to by:
By:
- --------------------------
Date:
- ---------------------------
0043k/4
Exhibit K1
REGISTRAR,
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE NEW AMERICA HIGH INCOME FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank 1
Article 2 Fees of Expenses 3
Article 3 Representations and Warranties of the Bank 4
Article 4 Representations and Warranties of the Fund 4
Article 5 Indemnification 5
Article 6 Convenants of the Fund and the Bank 8
Article 7 Termination of Agreement 9
Article 8 Assignment 10
Article 9 Amendment 10
Article 10 Massachusetts Law to Apply 11
Article 11 Merger of Agreement 11
<PAGE>
REGISTRAR, TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 11th day of February, 1988, by and between The
New America High Income Fund, Inc., a Maryland corporation, having its principal
office and place of business at 99 Bedford Street, Boston, Massachusetts 02111,
(the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its registrar,
transfer agent, dividend disbursing agent and agent in connection with certain
other activities and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual convenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Bank to act as, and the Bank agrees to
act as registrar, transfer agent for the Fund's authorized and issued shares of
its common stock ("Shares"), dividend disbursing agent and agent in connection
with any dividend reinvestment as set out in the prospectus of the Fund.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
<PAGE>
(i) issue and record the appropriate number of Shares as authorized
and hold such Shares in the appropriate account for shareholders
of the Fund ("Shareholders");
(ii) effect transfers of Shares by the registered owners thereof
upon receipt of appropriate documentation;
(iii) prepare and transmit payments for dividends and
distributions declared by the Fund; and
(iv) act as agent for Shareholders pursuant to the dividend
reinvestment plan as amended from time to time in accordance with
the terms of the agreement to be entered into between the
Shareholders and the Bank in substantially the form attached as
Exhibit A hereto.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), the Bank shall perform all of the customary services of a
registrar, transfer agent, dividend disbursing agent and agent of the dividend
reinvestment plan as described in Article 1 consistent with those requirements
in effect as at the date of this Agreement including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, receiving and tabulating proxies and mailing Shareholder
reports to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts where applicable, preparing and filing U.S. Treasury
-2-
<PAGE>
Department Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all registered
Shareholders, preparing and mailing confirmation forms and statements of account
to Shareholders and providing Shareholder account information. The detailed
definition, frequency limitations and associated costs (if any) are set out in
the attached fee schedule.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the
Fund agrees to pay the Bank an annual maintenance fee as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Bank for reasonable out-of-pocket expenses or advances
incurred by the Bank for the items set out in the fee schedule attached hereto.
In addition, any other expenses incurred by the Bank at the request or with the
consent of the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within
five days following the mailing of the respective billing notice. Postage and
the cost of materials for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to the Bank by the Fund
at least seven (7) days prior to the mailing date of such materials.
-3-
<PAGE>
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is a closed-end, diversified investment company registered
under the Investment Company Act of 1940.
4.05 A registration statement under the Securities
-4-
<PAGE>
Act of 1933 is currently effective and appropriate state securities law filings
have been made with respect to all Shares of the Fund being offered for sale in
all states in which offers are being made; information to the contrary will
result in immediate notification to the Bank.
4.06 It shall make all required filings under federal and state
securities laws.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records and documents which (i) are received by the Bank or its
agents or subcontractors and furnished to it by or on behalf of the Fund, and
(ii) have been prepared and/or maintained by the fund or any other person or
-5-
<PAGE>
firm on behalf of the Fund. Such other person or firm shall include any former
transfer agent or former registrar, or co-transfer agent or co-registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund's representative;
provided the Bank shall not have acted negligently or with willful misconduct in
connection therewith.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank or its agents or subcontractors as a result of
lack of good faith, negligence or willful misconduct or arising out of the
breach of any representation or warranty hereunder.
5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
-6-
<PAGE>
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank or
its agents or subcontractors by telephone, in person, machine readable input,
telex, CRT data entry or other similar means authorized by the Fund, and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
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 former registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision
-7-
<PAGE>
of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, hte 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. 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 or to assume the
defense hereof at its own expense. No party shall confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the restated Articles of Incorporation and By-Laws
of the Fund and all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
-8-
<PAGE>
6.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negoation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
-9-
<PAGE>
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, The Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge equivalent
to the average of three (3) month's fees.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts Corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934 ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered as a transfer
agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate; provided,
however, that the Bank 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.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or
-10-
<PAGE>
approved by a resolution of the Board of Directors of the Fund.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
THE NEW AMERICA HIGH INCOME FUND, INC.
BY: /s/ Patricia Ostrander
ATTEST:
/s/ Richard E. Floor
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Edward Hawkes
Vice President
ATTEST:
/s/ Illegible Signature
Assistant Secretary
-12-
<PAGE>
Exhibit A
TERMS AND CONDITIONS OF
DIVIDEND REINVESTMENT PLAN
1. State Street Bank and Trust Company (the "Agent") will act as agent
for each holder of shares (a "Stockholder") of Common Stock, $.01 par value
("Common Stock"), of The New America High Income Fund, Inc. (the "Fund"), and
will open an account for each Stockholder under the Fund's Dividend Reinvestment
Plan (the "Plan") in the same name in which such Stockholder's shares of Common
Stock are registered. The Agent will open an account for each Stockholder who
elects to participate in the Cash Purchase Plan in the same name in which such
Stockholder's shares of common stock are registered.
2. Whenever the Fund declares a capital gains distribution, each
Stockholder's distribution will be invested by the Agent in additional shares of
Common Stock of the Fund ("Fund Shares") unless the Stockholder has elected to
receive the distribution in cash and (subject to paragraph 4) the Agent shall
automatically receive newly issued Fund shares, including fractions, for such
Stockholder's account. Except in the circumstances described in paragraph 4
below, the number of additional Fund shares to be credited to such Stockholder's
account shall be determined by dividing the dollar amount of the capital gains
distribution payable to a Stockholder by the net asset value per share of the
Common Stock on the valuation date. The valuation date will be the payment date
for such distribution.
3. Whenever the Fund declares an income dividend, each Stockholder's
dividend will be invested by the Agent in additional Fund shares unless the
Stockholder has elected to receive the dividend in cash and (subject to
paragraph 4) the Agent shall automatically receive newly issued Fund shares,
including fractions, for such Stockholder's account. Except in the circumstances
described in paragraph 4 below, the number of additional Fund shares to be
credited to such Stockholder's account shall be determined by dividing the
dollar amount of the dividend payable to such Stockholder by the net asset value
per share of the Common Stock on the valuation date; provided that the maximum
discount from the then current market price per share shall not exceed 5%. The
valuation date will be the payment date for the dividend.
4. Should the net asset value per share of the Common Stock exceed the
market price per share on the valuation date for an income dividend or capital
gains distribution, the Agent shall apply the amount of such dividend or
distribution payable to Stockholders (other than Stockholders who have elected
to receive such dividend or distribution in cash) in Fund shares (less each such
Stockholder's pro rata share of brokerage commissions incurred with respect to
open-market purchases in connection with the reinvestment of such dividend or
distribution) to the purchase on the open market of Fund shares for each such
Stockholder's account. Such purchases will be made as expeditiously as possible
on or shortly after the payment date for such dividend or distribution, and in
no event more than 30 days after such date except where temporary curtailment or
suspension of purchase is necessary to comply with applicable provisions of
federal securities law. If, before the Agent has completed its purchases, the
market price exceeds the net asset value of the Common Stock, the average per
share purchase price paid by the Agent may exceed the net asset value of the
Common Stock, resulting in the acquisition of fewer shares than if the dividend
or capital gains distribution had been paid in Common Stock issued by the Fund.
5. For all purposes of the Plan: (a) the market price of the Common
Stock on a particular date shall be the last sales price on the New York Stock
Exchange on that date, or, if there is no sale on such Exchange on that date,
then the mean between the closing bid and asked quotations for such Common Stock
on such Exchange
<PAGE>
on such date 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.
6. Each quarter each Stockholder shall have the option of sending
additional funds, in any amount from $100 to $500, for the purchase on the open
market of the Fund's Common Stock for each such Stockholder's account. Voluntary
payments will be invested on or shortly after the last business day of each
calendar quarter, and in no event more than 45 days after such dates except
where temporary curtailment or suspension of purchases is necessary to comply
with applicable provisions of federal securities law. Funds received more than
30 business days before the investment date or less than five business days
prior to the investment date will be returned uninvested. A Stockholder may
withdraw such Stockholder's entire voluntary cash payment by written notice
received by you not less than 48 hours before such payment is to be invested.
7. Investments of voluntary cash payments and other open market
purchases provided for above may be made on any securities exchange where the
Common Stock is traded, in the over-the-counter market or in negotiated
transactions, and may be on such terms as to price, delivery and otherwise as
the Agent shall determine. A Stockholder's funds held by the Agent uninvested
will not bear interest, and it is understood that, in any event, the Agent shall
have no liability in connection with any inability to purchase shares within 45
days after the initial date of such purchase as herein provided, or with the
timing of any purchases effected. The Agent shall have no responsibility as to
the value of the Fund's Common Stock acquired for a Stockholder's account. For
the purposes of cash investments, the Agent may commingle a Stockholder's funds
with those of other Stockholders of the Fund for whom the Agent similarly acts
as agent, and the average price (including brokerage commissions) of all shares
purchased by the Agent shall be the price per share allocable to each such
Stockholder in connection therewith.
8. The Agent may hold a Stockholder's shares acquired pursuant to this
Plan, together with the shares of other Stockholders of the Fund acquired
pursuant to this Plan, in non-certificated form in the name of the Agent or that
of a nominee. The Agent will forward to each Stockholder any proxy solicitation
material and will vote any shares so held, as directed by each Stockholder. Upon
a Stockholder's written request, the Agent will deliver to such Stockholder,
without charge, a certificate or certificates for the full shares.
9. The Agent will confirm to a Stockholder each acquisition made for
such Stockholder's account as soon as practicable but not later than 30 days
after the date thereof. Although a Stockholder may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
the Fund, no certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be credited to a
Stockholder's account.
10. Any stock dividends or split shares distributed by the Fund on
shares of Common Stock held by the Agent for a Stockholder will be credited to
such Stockholder's account. In the event that the Fund makes available to its
Stockholders rights to purchase additional shares or other securities, the
shares held for a Stockholder under the Plan will be added to other shares held
by a Stockholder in calculating the number of rights to be issued to such
Stockholder.
11. The Agent's service fee for handling capital gains distributions or
income dividends will be paid by the Fund. Each shareholder will be charged a
pro rata share of brokerage commissions on all open market purchases.
12. A Stockholder may terminate his or her account under the Plan by
notifying the Agent in writing, accompanied by a signature guaranteed by a
commercial bank or trust company or a
<PAGE>
member of a national securities exchange. Such termination will be effective
immediately if such notice is received by the Agent not less than ten (10)
days prior to any dividend or distribution record date; otherwise, such
termination will be effective as soon as possible after the payment date for
such dividend or distribution with respect to any subsequent dividend or
distribution. The Plan may be terminated by the Agent or the Fund upon notice
in writing mailed to each Stockholder at least 90 days prior to any record
date for the payment of any dividend or distribution by the Fund. Upon any
termination, the Agent will cause a certificate or certificates for the full
shares held for each Stockholder under the Plan and cash adjustment for any
fraction (calculated at the market value of the Common Stock at time of
termination) to be delivered to each Stockholder without charge. If a
Stockholder elects by notice to the Agent in writing in advance of such
termination to have the Agent sell part or all of such Stockholder's shares
and remit the proceeds to the Stockholder, the Agent is authorized to deduct
a $2.50 fee plus brokerage commissions for this transaction from the
proceeds.
A Shareholder will be charged a $.75 service fee for each voluntary
cash investment and a pro rata share of brokerage commissions on all open market
purchases.
13. These terms and conditions may be amended or supplemented by the
Agent or the Fund at any time or times, 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 Stockholder participating in the Plan appropriate written notice
at least 90 days prior to the effective date thereof. The amendment or
supplement shall be deemed to be accepted by a Stockholder unless, prior to the
effective date thereof, the Agent receives written notice of the termination of
the Stockholder's account under the Plan. Any such amendment may include an
appointment by the Agent of a successor agent in Agent's place and stead under
these terms and conditions, with full power and authority to perform all or any
of the acts to be performed by the Agent under these terms and conditions. Upon
any such appointment of an agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor agent, for a
Stockholder's account all dividends and distributions payable on the Common
Stock held in the Stockholder's name or under the Plan for retention or
application by such successor agent as provided in these terms and conditions.
14. The Agent shall at all times act in good faith and agree to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Plan and to comply with applicable law, but the Agent shall
assume no responsibility and shall not be liable for loss or damage due to
errors unless such error is caused by its negligence, bad faith, or willful
misconduct or that of its employees.
15. These terms and conditions shall be governed by the laws of the
Commonwealth of Massachusetts.
Dated: June 1, 1992
<PAGE>
[State Street Logo]
STATE STREET BANK AND TRUST COMPANY
Fee Schedule for
Transfer Agent With Dividend Disbursing Services
THE NEW AMERICA HIGH INCOME FUND, INC.
Account Maintenance
Per Shareholder Account Per Annum $8.00
All of the basic support functions involved with servicing shareholder accounts,
including:
--Maintenance of all shareholder records, including the registration,
address, tax identification number, certificate numbers, shares and
dates of issue and specific geographical and statistical coding.
- --Preparation, enclosing and mailing to shareholders of record:
--Three quarterly or interim reports
--The annual report or financial statement
--Annual proxy, notice of meeting and statement
--One stockholders list
- --Normal activity for:
--Shareholder changes of address
--Recording and maintenance of stop transfers
--Processing of irregular and legal transfers
--Processing of bonds and/or affidavits to replace lost or stolen
certificates
--Maintenance of social security and tax identification numbers
New Account Set-up
Per Shareholder Account $2.00
Include all the basic support functions involved with establishing a new
shareholder account, including:
--Preparation and signing of the new certificates
--Inventory control
--Posting debits and credits to shareholder records
--Preparation and mailing of one set of transfer sheets
<PAGE>
Dividend Services
Calculation, preparation and mailing of four quarterly checks relative to
dividend payments, establishing and funding the dividend account, paying and
reconciling the paid checks. This includes filing the required tax reports of
Form 1099 with the Internal Revenue Services.
For all of the above services, a minimum fee will be billed at the rate of
$1,000.00 per month. Unusually high activity could be subject to additional
fees.
Dividend Reinvestment
If you have established a dividend reinvestment plan your fees are:
--Per Dividend Reinvestment $.75
--Per Cash Infusion $.75
Proxy Service
Receiving and inspecting proxies, recording daily shares votes, tabulating
proxies received and providing a letter showing shares voted by proposal
together with an affidavit of mailing and preparation of list of voted
shareholders. State Street will also act as Teller or Inspector of Election at
your shareholders meeting for a nominal fee:
One person per day plus out-of-pockets $100.00
Other Services
Prices for the following are available upon request:
Reports
A wide range of optional analytical reports are available which are
based on your requirements.
Miscellaneous
Services such as payment of stock dividends or splits, maintenance of
mailing lists, taxpayer ID solicitation and verification, state and
foreign tax information, special processing of restricted securities,
shareholder search for lost shareholders and abandoned property reports
are available.
<PAGE>
Other Charges
All out-of-pocket expenses such as postage, telephone, microfiche, New York
office deliveries, stationery, supplies, legal fees, insurance and delivery
charges will be billed at cost. Any expenses incurred in traveling to and from
Annual Meetings or Closings will also be billed at cost. In the event of
termination, an appropriate termination fee shall be imposed.
This fee schedule is valid for one (1) year from its execution date as signed
below.
THE NEW AMERICAN HIGH INCOME FUND, INC. STATE STREET BANK AND TRUST CO.
By /s/ Patricia Ostrander By /s/ Edward Hawkes
Title President Title Vice President
Date February 24, 1988 Date February 22, 1988
<PAGE>
[State Street Logo]
STATE STREET BANK AND TRUST COMPANY
Fee Schedule
As Registrar (If Applicable)
1. For the registration of 500 certificates, or any part thereof, per
year.
Minimum Charge $1,200.00
--Exchange reports of certificates registered with Co-Registrars,
per agency, per year
--Posting out certificates when stock is retired, per certificate
2. For the registration of additional certificates in excess of 500 in any
one year
Per certificate $.15
THE NEW AMERICAN HIGH INCOME FUND, INC. STATE STREET BANK AND TRUST CO.
By /s/ Patricia Ostrander By /s/ Edward Hawkes
Title President Title Vice President
Date February 24, 1988 Date February 22, 1988
1655q
<PAGE>
AMENDMENT TO
REGISTRAR, TRANSFER AGENCY
AND SERVICE AGREEMENT
AMENDMENT made as of the 25th day of February, 1988 to the Registrar,
Transfer Agency and Service Agreement (the "Agreement"), dated as of February
11, 1988, by and between THE NEW AMERICA HIGH INCOME FUND, INC., a Maryland
corporation (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company (the "Bank").
WHEREAS, the Fund and the Bank have fuly entered into the agreement and
desire to amend such Agreement in order to clarify the scope of the Bank's
duties thereunder;
NOW THEREFORE, in consideration fo the mutual covenants contained in
the Agreement, the parties thereto and hereto agree as follows:
FIRST: Section 1.02 of the Agreement shall be amended to add the
following paragraph (b):
"(b) In accordance with procedures set forth on Schedule A hereto (as
amended or supplemented from time to time by agreement between the Bank and
Drexel Burnham Lambert Incorporated ("Drexel")), (i) assist Drexel in
determining which Shareholders are initially eligible for volume purchase
discounts as described in the Prospectus dated February 19, 1988 relating to the
public offering of Shares and (ii) monitor and keep a record of any transfers of
Shares made by such Shareholders through May 20, 1988."
SECOND: Section 1.02 of the Agreement shall be further amended by
redesignating the existing paragraph (b) to be paragraph (c) and by
replacing the reference to "paragraph (a)" in the second line of such new
paragraph (c) with a reference to "paragraphs (a) and (b)."
THIRD: The Agreement shall be amended by adding the attached
Schedule A as Schedule A thereto.
FOURTH: Except as specifically modified by this Amendment, the
Agreement shall remain in full force and effect in accordance with its
terms.
FIFTH: This Amendment shall be construed and the provisions hereof
interpreted under in accordance with the laws of the Commonwealth of
Massachusetts.
<PAGE>
SIXTH: The parties hereto may sign any number of copies of this
Amendment. Each signed copy shall be an original, but all of them together
represent the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
THE NEW AMERICA HIGH INCOME FUND, INC.
BY: /s/ Patricia Ostrander
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Laura Welch
Authorized Officer
SVS-3861/D
<PAGE>
SCHEDULE A
Procedures Relating to Volume Purchase Discounts
1. The Bank will collect and retain all Volume Discount Notices ("Notices")(a)
received by it from Shareholders claiming to be eligible for volume
purchase discounts with respect to the initial public offering of the
Shares and (b) deliver copies thereof to Drexel, One Federal Street,
Boston, Massachusetts, Attention: John Chapman.
2. On March 4, 1988, the Bank will (a) collect all reports received by it
through such date from The Depository Trust Company ("DTC Reports")
relating to transfers of Shares out of CEDE & CO., (b) segregate all DTC
Reports relating to transfers (i) to Shareholders named in any Notice or
(ii) of at least 50,000 shares of Common Stock registered in a Shareholder
name other than a nominee name, and (c) deliver copies of all such DTC
Reports referred to in clause (b) to Drexel at the address set forth above.
3. After receipt of copies of the Notices and DTC Reports referred to above,
Drexel will inform the Bank of the names of Shareholders eligible for
volume purchase discounts ("Eligible Shareholders").
4. Through May 20, 1988, the Bank shall monitor the accounts of Eligible
Shareholders by collecting all requests for transfer or exchange by
Eligible Shareholders received by it and shall report any such transfers or
exchanges by Eligible Shareholders to Drexel at the address set forth
above.
SVS-3870/D
2/24/88
Exhibit K2
AUCTION AGENT AGREEMENT
between
THE NEW AMERICA HIGH INCOME FUND, INC.
and
BANKERS TRUST COMPANY
Dated as of January 4, 1994
Relating to
Auction Term Preferred Stock, Series A and Series B
of
THE NEW AMERICA HIGH INCOME FUND, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
SECTION 1 DEFINITIONS AND RULES OF CONSTRUCTION 1
1.1 Terms Defined by Reference to
ATP Provisions 1
1.2 Terms Defined Herein 1
1.3 Rules of Construction 3
SECTION 2 THE AUCTION 3
2.1 Purpose; Incorporation by Reference of
Auction Procedures and Settlement
Procedures 3
2.2 Preparation of Each Auction; Maintenance
of Registry of Beneficial Owners 4
2.3 Information Concerning Rates 6
2.4 Auction Schedule 7
2.5 Designation of Dividend Period 8
2.6 Notice of Auction Results 10
2.7 Broker-Dealers 10
2.8 Ownership of ATP 10
2.9 Access to and Maintenance
of Auction Records 11
2.10 Dividend and Redemption Price Deposit 11
SECTION 3 THE AUCTION AGENT AS DIVIDEND
AND REDEMPTION PRICE DISBURSING AGENT 11
SECTION 4 THE AUCTION AGENT AS TRANSFER
AGENT AND REGISTRAR 12
4.1 Issue of Share Certificates 12
4.2 Registration of Transfer of Shares 12
4.3 Removal of Legend on Restricted Shares 12
(i)
<PAGE>
PAGE
4.4 Lost Share Certificates 12
4.5 Disposition of Cancelled
Certificates; Record Retention 12
4.6 Share Transfer Books 13
4.7 Return of Funds 13
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE FUND 13
SECTION 6 THE AUCTION AGENT 14
6.1 Duties and Responsibilities 14
6.2 Rights of the Auction Agent 15
6.3 Auction Agent's Disclaimer 16
6.4 Compensation, Expenses and
Indemnification 16
SECTION 7 MISCELLANEOUS 16
7.1 Term of Agreement 16
7.2 Communications 17
7.3 Entire Agreement 18
7.4 Benefits 18
7.5 Amendment; Waiver 18
7.6 Successors and Assigns 19
7.7 Severability 19
7.8 Execution in Counterparts 19
7.9 Governing Law 19
</TABLE>
(ii)
<PAGE>
EXHIBITS
EXHIBIT A - Form of Broker-Dealer Agreement
EXHIBIT B - Form of Master Purchaser's Letter
EXHIBIT C - Settlement Procedures
EXHIBIT D - Form of ATP Provisions
EXHIBIT E - Form of Notice of Auction Dates
EXHIBIT F - Form of Notice of Proposed Designation of Alternate Term
Period
EXHIBIT G - Form of Notice of Designation of Alternate Term Period
EXHIBIT H - Form of Notice of Determination Not to Designate
Alternate Term Period
(iii)
<PAGE>
AUCTION AGENT AGREEMENT dated as of January 4, 1994 between THE NEW
AMERICA HIGH INCOME FUND, INC., a Maryland corporation (the "Fund"), and BANKERS
TRUST COMPANY, a New York banking corporation (the "Auction Agent").
WHEREAS, the Fund proposes to issue two series of preferred stock, par
value $1.00 per share, liquidation preference $50,000 per share, designated
Auction Term Preferred Stock, Series A ("ATP Series A"), and Auction Term
Preferred Stock, Series B ("ATP Series B") (together the ATP Series A and ATP
Series B, the "ATP") pursuant to the ATP provisions (as hereinafter defined),
and desires that the Auction Agent perform certain duties in connection with the
ATP upon the terms and subject to the conditions of this Agreement, and hereby
appoints the Auction Agent to act in the capacities set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Fund and the Auction Agent agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to ATP Provisions. Capitalized terms not
defined herein shall have the respective meanings specified in the ATP
Provisions.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures, the following terms shall have the following meanings, unless
the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or
participant in, the Securities Depository.
(b) "ATP Provisions" shall mean the Articles Supplementary designating
the ATP Series A and the ATP Series B and establishing the rights and
preferences thereof pursuant to the Articles of Incorporation, as amended,
attached hereto as Exhibit D.
(c) "Auction" shall have the meaning specified in Section 2.1
hereof.
(d) "Auction Procedures" shall mean the auction procedures constituting
Part II of the ATP Provisions.
(e) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Assistant Treasurer and Assistant Secretary
of the Auction Agent and every other officer or employee of the Auction
<PAGE>
Agent designated as an "Authorized Officer" for purposes hereof in a
communication to the Fund.
(f) "Broker-Dealer" shall mean any broker-dealer, commercial bank or
other entity permitted by law to perform the functions of a Broker-Dealer that
is a member of or a participant in, the Securities Depository or is an affiliate
of such member or participant, has been selected by the Fund and has entered
into a Broker-Dealer Agreement that remains effective.
(g) "Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent as agent for the Fund and a Broker-Dealer substantially in the
form attached hereto as Exhibit A.
(h) "Existing Holder," when used with respect to shares of any series
of ATP, shall mean a Person who has signed a Master Purchaser's Letter and is
listed as the beneficial owner of such shares of ATP in the records of the
Auction Agent.
(i) "Fund Officer" shall mean the Chairman of the Board of Directors of
the Fund, the President, each Vice President (whether or not designated by a
number or word or words added before or after the title "Vice President"), the
Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer
of the Fund and every other officer or employee of the Fund designated as a
"Fund Officer" for purposes hereof in a notice to the Auction Agent.
(j) "Master Purchaser's Letter" shall mean a letter addressed to the
Fund, the Auction Agent, a Broker-dealer and an Agent Member, substantially in
the form attached hereto as Exhibit B.
(k) "Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
(l) "Potential Holder," when used with respect to shares of any series
of ATP, shall mean any Person, including any Exhibiting Holder of shares of such
series of ATP, (i) who shall have executed a Master Purchaser's Letter and (ii)
who may be interested in acquiring shares of such series of ATP (or, in the case
of an Existing Holder of shares of such series of ATP, additional shares of such
series of ATP).
(m) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit C.
2
<PAGE>
(n) "Underwriter" shall mean Bear, Stearns & Co. Inc. and any
other person named as an underwriter of the ATP in the Underwriting
Agreement or any schedule thereto.
(o) "Underwriting Agreement" shall mean the Underwriting Agreement
dated December 20, 1993 among the Fund, the Underwriter and the Adviser.
1.3 Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural number
and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto" and other words of similar
import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The ATP Provisions provide that the Applicable Rate per annum for
each series of ATP for each Dividend Period after the Initial Dividend Period
with respect to each series of ATP shall, except under certain conditions, be
equal to the rate per annum that a bank or trust company appointed by the Fund
advises has resulted on the Business Day preceding the first day of such
Dividend Period from implementation of the Auction Procedures for such series.
Each periodic implementation of the Auction Procedures is hereinafter referred
to as an "Auction." The Board of Directors has adopted a resolution appointing
Banks Trust Company as Auction Agent for purposes of the Auction Procedures for
each series of the ATP. The Auction Agent accepts such appointment and agrees to
follow the procedures set forth in this Section 2 and the Auction Procedures for
the purpose of determining the Applicable Rate for each series of ATP for each
Dividend Period thereof for which the Applicable Rate is to be determined by an
Auction.
3
<PAGE>
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.
2.2 Preparation of Each Auction; Maintenance of Registry of
Beneficial Owners.
(a) Not later than seven days prior to the first Auction Date for any
series of ATP, the Fund shall provide the Auction Agent with a list of the
Broker-Dealers and a manually signed copy of each Broker-Dealer Agreement for
execution by the Auction Agent. Not later than seven days prior to any Auction
Date for any series of ATP for which any change in such list of Broker-Dealers
is to be effective, the Fund will notify the Auction Agent in writing of such
change and, if any such change involves the addition of a Broker-Dealer to such
list, shall cause to be delivered to the Auction Agent for execution by the
Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer; provided,
however, that if the Fund proposes to designate any Alternate Term Period of any
series of ATP pursuant to Section 4 of Part I of the ATP Provisions, not later
than 11:00 A.M., New York City time, on the Business Day next preceding the
Auction next preceding the first day of such Alternate Term Period, upon the
written request of the Auction Agent, the Fund shall provide the Auction Agent
with a list of the Broker-Dealers for such series and a manually signed copy of
each Broker-Dealer Agreement or a new Schedule A to the Broker-Dealer Agreement
(which Schedule A shall replace and supersede any previous Schedule A to such
Broker-Dealer Agreement) with each Broker-Dealer for such series. The Auction
Agent and the Fund shall have entered into a Broker-Dealer Agreement with each
Broker-Dealer prior to the participation of any such Broker-Dealer in any
Auction.
(b) In the event that any Auction Date for any series of ATP shall be
changed after the Auction Agent shall have given the notice referred to in
clause (vii) of paragraph (a) of the Settlement Procedures, or after the notice
referred to in Section 2.5(a) hereof, if applicable, the Auction Agent, by such
means as the Auction Agent deems practicable, shall give notice of such change
to the Broker-Dealers for such series not later than the earlier of 9:15 A.M. on
the new Auction Date or 9:15 A.M. on the old Auction Date.
4
<PAGE>
(c) (i) The Auction Agent shall maintain a registry of the beneficial
owners of the shares of each series of ATP who shall constitute Existing Holders
of shares of such series of ATP for purposes of Auctions and shall indicate
thereon the identity of the respective Broker-Dealer of each Existing Holder, if
any, on whose behalf such Broker-Dealer submitted the most recent Order in any
Auction which resulted in such Existing Holder continuing to hold or purchasing
shares of such series of ATP. The Auction Agent shall keep such registry current
and accurate. The Fund shall provide or cause to be provided to the Auction
Agent at or prior to the Date of Original Issue of each series of ATP a list of
the initial Existing Holders of the shares of each such series, the number of
shares purchased by each such Existing Holder and the respective Broker-Dealer
of each such Existing Holder or the affiliate thereof through which each such
Existing Holder purchased such shares. At the request of the Fund, the Auction
Agent shall advise the Fund in writing as to whether the number of Existing
Holders is 500 or more or any Exhisting Holder owns 5% or more of the
outstanding shares of any series of ATP. The Auction Agent may rely upon, as
conclusive evidence of the identities of the Existing Holders of shares of any
series of ATP, (A) such list, (B) the results of Auctions and (C) notices from
any Existing Holder, the Agent Member of any Existing Holder or the
Broker-Dealer of any Existing Holder as described in the first sentence of
Section 2.2(c)(iii) hereof.
(ii) In the event of any partial redemption of any series of ATP, the
Auction Agent shall, at least two Business Days prior to the next Auction for
such series, request the Agent Member of each Existing Holder of shares of ATP
of such series to disclose to the Auction Agent (upon selection by such Agent
Member of the Existing Holders whose shares of ATP of such series are to be
redeemed) the number of shares of ATP of such series, if any, of such Existing
Holder which are subject to such redemption, provided the Auction Agent has been
furnished with the name and telephone number of a person or department at such
Agent Member from which it shall request such information. Upon any refusal of
an Agent Member to release such information, the Auction Agent shall deliver to
such Agent Member a facsimile copy of the Existing Holder's Master Purchaser's
Letter, which authorizes and instructs such Agent Member to release such
information to the Auction Agent. In the absence of receiving any such
information with respect to an
5
<PAGE>
Existing Holder, from such Existing Holder's Agent Member or otherwise, the
Auction Agent may continue to treat such Existing Holder as the beneficial owner
of the number of shares of ATP of such series shown in the Auction Agent's
registry.
(iii) The Auction Agent shall be required to register a transfer of
shares of ATP of any series from an Existing Holder of such shares of ATP to
another Person only if such transfer is made to a Person that has delivered, or
on whose behalf has been delivered, a signed Master Purchaser's Letter to the
Auction Agent and if (A) such transfer is pursuant to an Auction or (B) the
Auction Agent has been notified in writing (I) in a notice substantially in the
form of Exhibit D to the Broker-Dealer Agreement by such Existing Holder, the
Agent Member of such Existing Holder or the Broker-Dealer of such Existing
Holder of such transfer or (II) in a notice substantially in the form of Exhibit
E to the Broker-Dealer Agreement by the Broker-Dealer of any Person that
purchased or sold such ATP in an Auction of the failure of such shares of ATP to
be transferred as a result of such Auction. The Auction Agent is not required to
accept any such notice for an Auction unless it is received by the Auction Agent
by 3:00 P.M. on the Business Day preceding such Auction.
(iv) The Auction Agent is not required to accept the Master Purchaser's
Letter of any Potential Holder who wishes to submit a Buy Order for the first
time in an Auction or of any Potential Holder or Existing Holder who wishes to
amend its Master Purchaser's Letter unless such letter or amendment is received
by the Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
(b) The Auction Agent may request the Broker-Dealers, as set forth in
the Broker-Dealer Agreement, to provide the Auction Agent with a list of their
respective customers that such Broker-Dealers believe are Existing Holders of
shares of any series of ATP. The Auction Agent shall keep confidential such
registry of Existing Holders and shall not disclose the identities of the
Existing Holders of such shares of ATP to any Person other than the Fund and the
Broker-Dealer that provided such information.
2.3 Information Concerning Rates.
(a) On each Auction Date, the Auction Agent shall determine the AA
Composite Commercial Paper Rate or the Treasury Index Rate, as the case may be,
and the Maximum
6
<PAGE>
Applicable Rate. If the AA Composite Commercial Paper Rate or the Treasury Index
Rate, as the case may be, is not quoted on an interest basis, if the rate
obtained by the Auction Agent is quoted on a discount basis, or if the rate
obtained by the Auction Agent is quoted on another basis the Auction Agent shall
convert the quoted rate to an interest rate after consultation with the Fund as
to the method of such conversion. Not later than 9:30 A.M. on each Auction Date
the Auction Agent shall notify the Fund and the Broker-Dealers of the Maximum
Applicable Rate so determined and the AA Composite Commercial Paper Rate or the
Treasury Index Rate, as the case may be, used to make such determination.
(b) If any AA Composite Commercial Paper Rate is to be based on rates
supplied by Commercial Paper Dealers and one or more of the Commercial Paper
Dealers shall not provide a quotation for the determination of such AA Composite
Commercial Paper Rate, the Auction Agent shall immediately notify the Fund so
that the Fund can determine whether to subject a Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Fund shall promptly advise the Auction Agent of any such selection.
(c) If any Treasury Index Rate is to be based on rates supplied by U.S.
Government Securities Dealers and one or more of the U.S. Government Securities
Dealers shall not provide a quotation for the determination of such Treasury
Rate, the Auction Agent shall immediately notify the Fund so that the Fund can
determine whether to select a Substitute U.S. Government Securities Dealer or
Substitute U.S. Government Securities Dealers to provide the quotation or
quotations not being supplied by any U.S. Government Securities Dealers. The
Fund shall promptly advise the Auction Agent of any such selection.
2.4 Auction Schedule. The Auction Agent shall conduct Auctions for each
series of ATP in accordance with the schedule set forth below. Such schedule may
be changed by the Auction Agent with the consent of the Fund, which consent
shall not be unreasonably withheld or delayed. The Auction Agent shall give
written notice of any such change to each Broker-Dealer. Such notice shall be
given prior to the close of business on the Business Day next preceding the
first Auction Date on which any such change shall be effective.
7
<PAGE>
Time Event
By 9:30 A.M. Auction Agent advises the Fund and
Broker-Dealers of the Maximum
Applicable Rate and the Reference
Rate(s), used in determining such
Maximum Applicable Rate as set
forth in Section 2.3(a) hereof,
with respect to each series of ATP.
9:30 A.M. - 1:00 P.M. Auction Agent assembles
information communicated to it by
Broker-Dealers as provided in
Section 4(a) of the Auction
Procedures. Submission Deadline
1:00 P.M.
Not earlier than Auction Agent makes determination
1:00 P.M. pursuant to Section 5(a) of the
Auction Procedures.
By approximately Auction Agent advises Fund of
results of Auction as provided in
Section 5(b) of the Auction Procedures.
Submitted Orders are accepted and rejected
and shares of ATP of the respective Series
allocated as provided in Section 6 of the
Auction Procedures. Auction Agent gives
notice of Auction results as set forth in
Paragraph (a) of the Settlement Procedures.
2.5 Designation of Dividend Period.
(a) The ATP Provisions provide that, subject to the Fund's option to
designate an Alternate Term Period as referred to in paragraph (b) of this
Section 2.5, (i) the Dividend Period (other than the initial Dividend Period)
for each series of ATP will be a Standard Term Period. Any such designation of
an Alternate Term Period shall be effective only if (i) notice thereof shall
have been given as provided herein, (ii) any failure to pay in a timely manner
to the Auction Agent the full amount of any dividend on, or the redemption price
of, the ATP shall have been cured, (iii) Sufficient Clearing Orders shall have
existed in an Auction held on the Auction Date immediately preceding the first
day of such proposed Dividend Period other than a Standard Term Period, (iv) if
the Fund shall have mailed a Notice of Redemption with respect to any
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<PAGE>
shares, the Redemption Price with respect to such shares shall have been
deposited with the Auction Agent, and (v) in the case of an Alternate Term
Period, the Fund has provided notice and an ATP Basic Maintenance Report to
Fitch (if Fitch is then rating the ATP) and Moody's (if Moody's i then rating
the ATP).
(b) Pursuant to the ATP provisions, the Fund may, at its option,
designate an Alternate Term Period for any series of ATP in the manner described
below and in Section 4 of Part I of the ATP Provisions. If the Fund proposes to
designate any succeeding Alternate Term Period the Fund shall deliver to the
Auction Agent:
(i) A notice of such proposed Alternate Term Period in the form of
Exhibit F hereto not less than 15 nor more than 30 days prior to the first
day of such proposed Alternate Term Period. The Auction Agent on behalf of
the Fund shall deliver such notice by first-class mail, postage prepaid, to
each Existing Holder of shares of such series of ATP at the address
specified in such Existing Holder's Master Purchaser's Letter and to the
Broker-Dealers for such series as promptly as practicable after its receipt
of such notice from the Fund.
(ii) A notice in the form of Exhibit G hereto not later than 3:00 P.M.
on the second Business Day next preceding the first day of such proposed
Alternate Term Period, of either (x) its determination, subject to certain
conditions, to proceed with such Alternate Term Period, in which case the
Fund shall specify the terms of the Specific Redemption Provisions, if any,
or (y) its determination not to proceed with such Alternate Period in which
latter event the succeeding Dividend Period shall be a Standard Term
Period. The Auction Agent shall promptly deliver such notice to the
Broker-Dealers, but in no event later than 3:00 P.M. on the date of such
notice.
(iii) If the Fund fails to deliver either such notice with respect to
any designation of any proposed Alternate Term Period to the Auction Agent
by 3:00 P.M., New York City time, on the second Business Day next preceding
the first day of such proposed Alternate Term Period, the Fund shall be
deemed to have delivered a notice to the auction Agent with respect to such
Dividend Period to the effect that it has determined not to proceed with
the designation of an Alternate Term Period, thereby resulting in a
Standard Term Period.
9
<PAGE>
2.6 Notice of Auction Results. On each Auction Date for any series of
ATP, the Auction Agent shall notify Broker-Dealers of the results of the Auction
held on such date by telephone as set forth in paragraph (a) of the Settlement
Procedures.
2.7 Broker-Dealers.
(a) Not later than 12:00 Noon on each Auction Date for any series of
ATP, the Fund shall pay to the Auction Agent an amount in cash equal to the
aggregate fees payable to the Broker-Dealers for such series pursuant to
Section 2.8 of the Broker-Dealer Agreement for such series. The Auction
Agent shall apply such moneys as set forth in Section 2.8 of each such
Broker-Dealer Agreement.
(b) The Fund shall obtain the consent of the Auction Agent prior to
selecting any Person to act as a Broker-Dealer, which consent shall not be
unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein if so directed by the Fund.
(d) Subject to the Auction Agent's having consented to the selection
of the relevant Broker-Dealer pursuant to Section 2.8(b) hereof, the
Auction Agent shall from time to time enter into such Broker-Dealer
Agreements with one or more Broker-Dealers as the Fund shall request, and
shall enter into such schedules to any such Broker-Dealer Agreements as the
Fund shall request, which schedules, among other things, shall set forth
the series of ATP to which such Broker-Dealer Agreement relates.
2.8 Ownership of ATP. The Fund shall notify the Auction Agent if the
Fund or any affiliate of the Fund acquires any shares of ATP of any series.
Neither the Fund nor any affiliate of the Fund shall submit any Order in any
Auction for ATP, except as set forth in the next sentence. Any Broker-Dealer
that is an affiliate of the Fund may submit Orders in Auctions, but only if such
Orders are not for its own account. For purposes of this Section 2.8, a
Broker-Dealer shall not be deemed to be an affiliate of the Fund solely because
one or more of the directors or executive officers of such Broker-Dealer or of
any Person controlled by, in control of or under common control with such
Broker-Dealer is alsoa Director of the fund. The Auction Agent shall have no
duty or liability with respect to enforcement of this Section 2.8.
10
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2.9 Access to and Maintenance of Auction Records. The Auction Agent
shall, upon the receipt of prior written notice from the Fund, afford to the
Fund access at reasonable times during normal business hours to all books,
records, documents and other information concerning the conduct and results of
Auctions. The Auction Agent shall maintain records relating to an Auction for a
period of six years after such Auction and such records shall, in reasonable
detail, accurately and fairly reflect the actions taken by the Auction Agent
hereunder.
2.10 Dividend and Redemption Price Deposit. The Fund shall pay to the
Auction Agent, not later than 12:00 noon, New York City time, (A) on the
Business Day next preceding any Dividend Payment Date for any series of ATP, in
funds available on such Dividend Payment Date in The City of New York, New York,
the full amount of any dividends to be paid on such Dividend Payment Date on any
share of such series, and (B) on the Business Day next preceding any redemption
date for any series of ATP in funds available on such redemption date for such
series in The City of New York, New York, the Redemption Price to be paid on
such redemption date for the shares of any such series after notice of
redemption is given as set forth in the ATP Provisions.
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent. The
Auction Agent, as dividend and redemption price disbursing agent, shall pay to
the Holders of shares of ATP of any series (i) on each Dividend Payment Date for
such series, dividends on the shares of ATP of such series, (ii) on any date
fixed for redemption of shares of ATP of any series, the Redemption Price of any
shares of such series called for redemption and (iii) any late charge related to
any payment of dividends or Redemption Price, in each case after receipt of the
necessary funds from the Fund with which to pay such dividends, Redemption Price
or late charge. The amount of dividends for any Dividend Period for any series
of ATP to be paid by the Auction Agent to the Holders of such shares of such
series will be determined by the Fund as set forth in Section 2 of Part I of the
ATP Provisions with respect to such series. The Redemption Price of any shares
to be paid by the Auction Agent to the Holders will be determined by the Fund as
set forth in Section 3 of Part I of the ATP Provisions with respect to such
series. The Fund shall notify the Auction Agent in writing of a decision
toredeem shares of any series of ATP at least five days prior to the date a
notice of redemption is required to be mailed to the Holders of the shares to
be redeemed by paragraph (b) of Section 3 of Part I of the ATP Provisions. Such
notice by the Fund to the Auction Agent shall contain the information required
by paragraph (b) of Section 3 of Part I of the ATP Provisions to be stated in
the notice of redemption required to be mailed by the Auction Agent to such
Holders.
11
<PAGE>
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Share Certificates. Upon the Date of Original Issue of
each series of ATP, one certificate representing all of the shares of each
series issued on such date shall be issued by the Fund and, at the request of
the Fund, registered in the name of Cede & Co. and countersigned by the Auction
Agent.
4.2 Registration of Transfer of Shares. Shares of each series of ATP
shall be registered solely in the name of the Securities Depository or its
nominee.
4.3 Removal of Legend on Restricted Shares. All requests for removal of
legends on shares of any series of ATP indicating restrictions on transfer shall
be accompanied by an opinion of counsel stating that such legends may be removed
and such shares freely transferred, such opinion to be delivered under cover of
a letter from a Fund Officer authorizing the Auction Agent to remove the legend
on the basis of said opinion.
4.4 Lost Share Certificates. The Auction Agent shall issue and register
replacement certificates for certificates represented to have been lost, stolen
or destroyed upon the fulfillment of such requirements as shall be deemed
appropriate by the Fund and the Auction Agent, subject at all times to
provisions of law, the By-Laws of the Fund governing such matters and
resolutions adopted by the Fund with respect to lost securities. The Auction
Agent may issue new certificates in exchange for and upon the cancellation of
mutilated certificates. Any request by the Fund to the Auction Agent to issue a
replacement or new certificate pursuant to this Section 4.4 shall be deemed to
be a representation and warranty by the Fund to the Auction Agent that such
issuance will comply with such provisions of law and the By-Laws and resolutions
of the Fund.
4.5 Disposition of Cancelled Certificates; Record Retention. The
Auction Agent shall retain all share certificates which have been cancelled in
transfer or exchange and all accompanying documentation in accordance with
applicable rules and regulations of the Securities and Exchange Commission for
two calendar years. Upon the expiration of this two-year period, the Auction
Agent shall deliver to the Fund the cancelled certificates and accompanying
documentation. The Fund also shall undertake to furnish to the Securities and
Exchange Commission and to the Board of Governors of the Federal Reserve System,
upon demand, at either the principal office or at any regional office, complete,
correct and current hard copies of any and all such records. Thereafter such
records shall not be destroyed by the Fund without the concurrence of the
Auction Agent.
12
<PAGE>
4.6 Share Transfer Books. For so long as the Auction Agent, Banks Trust Company,
is acting as the transfer agent for any series of ATP pursuant to this
Agreement, it shall maintain a share transfer book containing a list of the
Holders of the shares of each series of ATP, the number of shares of each series
held by such Holders and the address of each Holder. The Auction Agent shall
record in such share transfer books any change of address of a Holder upon
notice by such Holder. In case of any request or demand for the inspection of
the share transfer books of the Fund or any other books in the possession of the
Auction Agent, the Auction Agent will notify the Fund and secure instructions as
to permitting or refusing such inspection. The Auction Agent reserves the right,
however, to exhibit the share transfer books or other books to any Person in
case it is advised by its counsel that its failure to do so would be unlawful.
4.7 Return of Funds. Any funds deposited with the Auction Agent
hereunder by the Fund for any reason, including but not limited to redemption of
shares of ATP of any series, the remain unpaid after 90 days shall be repaid to
the Fund upon the written request of the Fund, together with interest, if any,
earned thereon.
5. Representations and Warranties of the Fund. The Fund represents and
warrants to the Auction Agent that:
(a) the Fund has been duly organized and is validly existing as a
corporation under the laws of the State of Maryland and has all necessary
corporate power and authority to execute and deliver this Agreement and to
authorize, create and issue the shares of each series of ATP;
(b) this Agreement has been duly and validly authorized, executed and
delivered by the Fund and, assuming due authorization, execution and
delivery by the Auction Agent, constitutes the legal, valid and binding
obligation of the Fund subject, as to enforceability, to bankruptcy,
insolvency, reorganization, moratorium, receivership or similar laws,
whether statutory or decisional, relating to or affecting creditors' rights
and to general equitable principles (regardless of whether enforcement is
sought in equity or at law);
(c) the form of the certificate evidencing the shares of ATP complies
with all applicable laws of the State of Maryland;
13
<PAGE>
(d) the shares of AtP, when issued, delivered and paid for on the Date
of Original Issue as contemplated by the Underwriting Agreement, will have
been duly authorized, validly issued, fully paid and nonassessable, except
as provided under Maryland law;
(e) assuming the Underwriter complies with its obligations under the
Underwriting Agreement and that the purchasers of the ATP comply with their
obligations in the Master Purchaser's Letters, no consent, authorization or
order of, or filing or registration with, any court, governmental agency or
official (except such as have been obtained and such as may be required
under the Securities Act of 1933, as amended, or the Investment Company Act
of 1940, as amended, or under the blue sky or state securities laws) is
required in connection with the execution and delivery of this Agreement of
the issuance of the shares of the ATP; and
(f) the issuance and sale of the ATP, the execution, delivery and
performance of this Agreement, the compliance by the Fund with all
provisions hereof, and the consummation of the transactions contemplated
hereby or by the Underwriting Agreement or the Broker-Dealer Agreements,
will not conflict with, constitute a breach of any of the terms or
provisions of, or a default under, or result in the creation or imposition
of any material lien, charge or encumbrance upon any of the assets of the
Fund pursuant to the terms of any agreement, indenture or instrument to
which the Fund is a party or by which the Fund is bound, or result in a
violation of the Articles of Incorporation, ATP Provisions or By-Laws of
the Fund or of any order, rule or regulation of any court or governmental
agency having jurisdiction over the Fund or its property which conflict,
breach, default, lien or violation, individually or in the aggregate, would
have a material adverse effect on the business, financial position or
results of operations of the Fund.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund hereunder
and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement and the
Broker-Dealer Agreements, and no implied covenants or obligations shall be
read into this Agreement against the Auction Agent.
14
<PAGE>
(c) In the absence of bad faith or gross negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered, or
omitted or for any effort of judgment made by it in the performance of its
duties under this Agreement except that the Auction Agent shall be liable
for any effort of judgment made in good faith if the Auction Agent shall
have been grossly negligent in ascertaining the pertinent facts.
(d) Any funds deposited with the Auction Agent hereunder by the Fund
for any reason, including the payment of dividends or the redemption of
shares of ATP of any series, that remain with the Auction Agent after 90
days shall be repaid to the Fund as provided in Section 4.7 hereof.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon
any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for
acting upon any telephone communication authorized hereby which the Auction
Agent believes in good faith to have been given by the Fund or by any
Broker-Dealer. The Auction Agent may record telephone communications with
the Fund or with Any Broker-Dealer.
(b) The Auction Agent may consult with counsel reasonably acceptable
to the Fund and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct on the part of any agent or attorney
appointed by it with due care hereunder except as set forth above in
Section 6.1(c).
15
<PAGE>
6.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement (except as to
the valdity or adequacy of this Agreement (except as to the Auction Agent's
duties hereunder and as to the due authorization, execution and delivery of this
Agreement), the Broker-Dealer Agreements (except as to the Auction Agent's
duties thereunder) or the shares of any series of ATP.
6.4 Compensation, Expenses and Indemnification.
(a) The Fund shall pay the Auction Agent from time to time reasonable
compensation for all services rendered by it under this Agreement and the
Broker-Dealer Agreements in such amounts as may be agreed to by the Fund
and the Auction Agent from time to time.
(b) The Fund shall reimburse the Auction Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of this Agreement and the
Broker-Dealer Agreements (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any expense
or disbursement attributable to its gross negligence or bad faith.
(c) The Fund shall indemnify the Auction Agent for and hold it
harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on its part, arising out of or in connection with
its agency under this Agreement and the Broker-Dealer Agreements, including
the costs and expenses of defending itself against any claim or liability
in connection with its exercise or performance of its duties hereunder and
thereunder for which indemnification is provided by this subsection.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate this
Agreement any time by so notifying the Auction Agent in writing, provided
that the Fund has entered into an agreement in substantially the form of
this Agreement with a successor auction agent. The Auction Agent may
terminate this Agreement upon written notice to the Fund, such termination
to be effective on the earlier of (i) the date specified in such notice
which shall not be earlier than 90 days after the giving of such notice or
(ii) the date on which a successor trust company is
16
<PAGE>
appointed by the Fund pursuant to an agreement containing
substantially the same terms and conditions as this Agreement.
(b) Except as otherwise provided in this paragraph (b), the respective
rights and duties of the Fund and the Auction Agent under this Agreement
shall cease upon termination of this Agreement. The Fund's obligations
under Section 6.4 hereof and its representations and warranties contained
in Section 5 hereof and the Auction Agent's obligations and liabilities
under Sections 2.9 and 4.5 hereof shall survive the termination hereof.
Upon termination of this Agreement, the Auction Agent shall, at the Fund's
request, promptly deliver to the Fund copies of all books and records
maintained by it in connection with its duties hereunder.
7.2 Communications. Except for (a) communications authorized to be by
telephone pursuant to this Agreement or the Auction Procedures and (b)
communications in connection with Auctions (other than those expressly required
to be in writing) and unless otherwise specified by the terms of this Agreement
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) given to such person at its
address or telecopy number set forth below:
If to the Company, The New America High Income
addressed: Fund, Inc.
10 Winthrop Square, Fifth Floor
Boston, Massachusetts 02110
Attention: President
Telephone No.: (617) 350-8610
Telecopier No.: (617) 550-8619
With a copy sent to:
John R. LeClaire, P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Telephone No.: (617) 570-1000
Telecopier No.: (617) 523-1231
17
<PAGE>
If to the Auction Bankers Trust Company
Agent, addressed: Four Albany Street
New York, New York 10006
Attention: Auction Rate
Securities
Telecopier No.: (212) 250-6856
Telephone No.: (212) 250-6766
or to such other address as the party to whom the communication is addressed
shall have previously communicated to the other party. Communications shall be
given on behalf of the Fund by a Fund Officer nad on behalf of the Auction Agent
by an Authorized Officer. Communications shall be effective when received at the
proper address.
7.3 Entire Agreement. This Agreement contains the entire agreement
among the parties relating to the subject matter heroef, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or inferred, between the parties. This Agreement supersedes and
terminates all prior agreements between the parties including without limitation
the Auction Agent Agreement dated as of June 15, 1990 (the "TARPS Auction Agent
Agreement"); provided, however, that the Fund shall provide and the Auction
Agent shall disburse funds to redeem the Fund's Taxable Auction Rate Preferred
Stock pursuant to Sections 3.2 and 3.3 of the TARPS Auction Agent Agreement.
7.4 Benefits. Nothing herein, express or implied, shall give to any
Person, other than the Fund, the Auction Agent and their respective successors
and assigns, any benefit of any legal or equitable right, remedy or claim
hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party
to be charged. The Fund shall notify the Auction Agent and each
Broker-Dealer of any change in the Fund's Articles, prior to the effective
date of any such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such rights or remedies with respect to any
subsequent breach.
18
<PAGE>
7.6 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors of
each of the Fund and the Auction Agent.
7.7 Severability. If any clause, provision or section hereof shall be
ruled invalid or unenforceable by any court of competent jurisdiction, the
invalidity or unenforceability of such clause, provision or section shall not
affect any of the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Auction Agent
Agreement to be duly executed and delivered by their proper authorized officers
as of the date first above written.
THE NEW AMERICA HIGH INCOME
FUND, INC.
By /s/ Robert F. Birch
Name: Robert F. Birch
Title: President
BANKERS TRUST COMPANY
By /s/ Michelle Adler
Name: Michelle Adler
Title: Assistant Vice President
DP-4207/d
19
Exhibit K3
[Depository Trust Company logo]
BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFERRED/AND
REMARKETED PREFERRED SECURITIES
Letter of Representations
[To be Completed by Issuer and Trust Company]
The New America High Income Fund, Inc.
--------------------------------------
[Name of Issuer]
Bankers Trust Company
---------------------
[Name of Trust Company]
January 4, 1994
---------------
Attention: General Counsel's Office (Date)
The Depository Trust Company
55 Water Street, 49th Floor
New York, NY 10041-0099
Re: Auction Term Preferred Stock, 1,200 Shares Series A
- --------------------------------------------------------------------------------
CUSIP No. 641876404
- --------------------------------------------------------------------------------
(Issue Description, including CUSIP number)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"). Trust Company will
act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated December 20, 1993 (the "Document"). Bear,
Stearns & Co. Inc. ("Underwriter") is distributing the Securities through The
Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and
to act in accordance with its Rules with respect to the Securities, Issuer and
Trust Company make the following representations to DTC:
1. Prior to closing on the Securities on January 4, 1994, there shall be
deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., which
<PAGE>
represents the total number of Securities issued. Said certificate shall
remain in DTC's custody as provided in the Document. If, however, the
aggregate principal amount of the Securities exceeds $150 million, one
certificate will be issued with respect to each $150 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount. Each $150 million Securities certificate shall
bear the following legend:
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by holders of
the Securities, Issuer shall establish a record date for such purposes (with no
provision for revocation of consents or votes by subsequent holders) and shall,
to the extent possible, send notice of such record date to DTC not less than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's Reorganization Department at (212)
709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed by
telephoning (212) 790-6870. Notices to DTC pursuant to this Paragraph by mail or
by other means shall be sent to DTC's Reorganization Department as indicated in
Paragraph 4.
3. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to be
mailed to Security holders or published (the "Publication Date"). Such notice
shall be sent to DTC by a secure means (e.g., legible telecopy, registered or
certified mail, overnight delivery) in a timely manner designed to assure that
such notice is in DTC's possession no later than the close of business on the
business day before or, if possible, two business days before the Publication
Date. Issuer or Trust Company shall forward such notice either in a separate
secure transmission for each CUSIP number or in a secure transmission for
multiple CUSIP numbers (if applicable) which includes a manifest or list of each
CUSIP number submitted in that transmission. (The party sending such notice
shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30 days
nor more than 60 days prior to the redemption date. Notices to DTC pursuant to
this Paragraph by telecopy shall be sent to DTC's Call Notification Department
at (516) 227-4039 or (516) 227-4190. If the party sending the notice does not
receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice by Issuer
or Trust Company to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions (including mandatory
2
<PAGE>
tenders, exchanges, and capital changes) by telecopy shall be sent to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt of
such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
5. All notices and payment advises sent to DTC shall contain the CUSIP
number of the Securities.
6. The Document indicates that the dividend rate for the Securities may vary
from time to time. Absent other existing arrangements with DTC, Issuer or Trust
Company shall give DTC notice of each such change in the dividend rate, on the
same day that the new rate is determined, by telephoning the Supervisor of DTC's
Dividend Announcement Section at (212) 709-1270, or by telecopy sent to (212)
709-1723. Such verbal or telecopy notice shall be followed by prompt written
confirmation sent by a secure means in the manner set forth in Paragraph 3 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
7. The Document indicates that each purchaser of Securities must sign a
purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full amount
of all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities, even if the credits of Securities to the DTC accounts
of any DTC Participant ("Participant") result from transfers or failures to
transfer in violation of the provisions of the purchaser's letter. Issuer and
Trust Company acknowledge that DTC shall treat any Participant having Securities
credited to its DTC accounts as entitled to the full benefits of ownership of
such Securities. Without limiting the generality of the preceding sentence,
Issuer and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 11 and 12, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.) DTC shall not have any responsibility to ascertain
whether any transfer of Securities is made in accordance with the provisions of
the purchaser's letter.
8. Transactions in the Securities shall be eligible for same-day funds
settlement in DTC's Same-Day Funds Settlement ("SDFS") system.
A. Dividend payments shall be received by Cede & Co., as nominee of DTC, or
its registered assigns in same-day funds on each payment date (or the
equivalent in accordance with existing arrangements between Issuer or Trust
Company and DTC). Such payments shall
3
<PAGE>
be made payable to the order of Cede & Co. Absent any other existing
arrangements, such payments shall be addressed as follows:
Manager; Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, NY 10004-2695
B. Redemption payments shall be made in same-day funds by Trust Company in
the manner set forth in the SDFS Paying Agent Operating Procedures, a copy of
which previously has been furnished to Trust Company.
9. DTC may direct Issuer or Trust Company to use any other number or address
as the number or address to which notices, payments of dividends, or redemption
proceeds may be sent.
10. In the event of a redemption necessitating a reduction in the number of
Securities outstanding, DTC, in its discretion: (a) may request Issuer or Trust
Company to issue and authenticate a new Security certificate; or (b) may make an
appropriate notation on the Security certificate indicating the date and amount
of such reduction in the number of Securities outstanding, except in the case of
final redemption, in which case the certificate will be presented to Issuer or
Trust Company prior to payment, if required.
11. In the event that Issuer determines that beneficial owners of Securities
shall be able to obtain certificated Securities, Issuer or Trust Company shall
notify DTC of the availability of certificates. In such event, Issuer or Trust
Company shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
12. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to Issuer or
Trust Company (at which time DTC will confirm with Issuer or Trust Company the
aggregate principal amount of Securities outstanding). Under such circumstances,
at DTC's request Issuer and Trust Company shall cooperate fully with DTC by
taking appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
13. Issuer hereby authorizes DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 4.
4
<PAGE>
This authorization, unless revoked by Issuer, shall continue with respect to
the Securities while any Securities are on deposit at DTC, until and unless
Trust Company shall no longer be acting. In such event, Issuer shall provide
DTC with similar evidence, satisfactory to DTC, of the authorization of any
successor thereto so to act.
14. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
15. Nothing herein shall be deemed to require Trust Company to advance funds
on behalf of Issuer.
Notes: A. If there is a Trust Very truly yours,
Company (as defined in this
Letter of Representations), The New America High Income Fund, Inc.
Trust Company as well as (Issuer)
Issuer must sign this Letter.
If there is no Trust Company, By: /s/ R Birch, President
in signing this Letter, Issuer (Authorized Officer's Signature)
itself undertakes to perform
all of the obligations set Bankers Trust Company
forth herein. (Trust Company)
B. Schedule A contains
statements that DTC believes By: /s/ Michelle Adler
accurately describe DTC, the (Authorized Officer's Signature)
method of effecting book-
entry transfers of securities [stamp of MICHELLE ADLER
distributed through DTC, ASSISTANT VICE PRESIDENT]
and certain related matters.
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: /s/ Illegible Signature
cc: Underwriter
Underwriter's Counsel
5
<PAGE>
SCHEDULE A
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $150 million, one certificate
will be issued with respect to each $150 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6. Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
<PAGE>
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Securities are credited on the record date (identified in a listing attached
to the Omnibus Proxy).
8. Principal and interest payments on the Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Agent, or the Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to DTC is the responsibility of
the Issuer or the Agent, disbursement of such payments to Direct Participants
shall be the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to the [Tender/Remarketing]
Agent, and shall effect delivery of such Securities by causing the Direct
Participant to transfer the Participant's interest in the Securities, on DTC's
records, to the [Tender/Remarketing] Agent. The requirement for physical
delivery of Securities in connection with a demand for purchase or a mandatory
purchase will be deemed satisfied when the ownership rights in the Securities
are transferred by Direct Participants on DTC's records.]
10. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Issuer
or the Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
11. The Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Issuer believes to be reliable,
but the Issuer takes no responsibility for the accuracy thereof.
ii
Exhibit K4
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
BEAR, STEARNS & CO. INC.
Dated as of January 4, 1994
Relating to
AUCTION TERM PREFERRED STOCK
of
THE NEW AMERICA HIGH INCOME FUND, INC.
<PAGE>
BROKER-DEALER AGREEMENT dated as of January 4, 1994 between BANKERS
TRUST COMPANY (the "Auction Agent"), a New York banking corporation (not in its
individual capacity but solely as agent of The New America High Income Fund,
Inc. (the "Fund") pursuant to authority granted it in the Auction Agent
agreement, and BEAR, STEARNS & CO. INC. (together with its successors and
assigns, the "BD").
The Fund has issued two series of shares of Auction Term Preferred
Stock, par value $1.00 per share, liquidation preference $50,000 per share (the
"ATP") pursuant to its Articles of Incorporation, as amended, and the Articles
Supplementary (the "Articles Supplementary").
The Articles Supplementary will provide that, for each Dividend Period
of any series of ATP then outstanding, the Applicable Rate for such series for
such Dividend Period shall, under certain conditions, be the rate per annum that
a bank or trust company appointed by the Fund advises results from
implementation of the Auction Procedures for such series. The Board of Directors
has adopted a resolution appointing Bankers Trust Company as Auction Agent for
purposes of the Auction Procedures for each series of ATP.
The Auction Procedures contemplate the participation of one or more
Broker-Dealers for each series of ATP.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, the following terms
shall have the following meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles Supplementary
authorizing the issuance of ATP filed by the Fund with the Office of the
Secretary of the State of Maryland.
(b) "Auction" shall have the meaning specified in Section 2.1
hereof.
<PAGE>
(c) "Auction Agent Agreement" shall mean the Auction Agent Agreement,
dated as of January 4, 1994, between the Fund and the Auction Agent relating
to the ATP.
(d) "Auction Procedures" shall mean the auction procedures constituting
Part II of the Articles Supplementary.
(e) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Trust Officer, Assistant Treasurer and
Assistant Secretary of the Auction Agent assigned to its Corporate Trust and
Agency Group and every other officer or employee of the Auction Agent designated
as an "Authorized Officer" for purposes of this Agreement in a communication to
the BD.
(f) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.
(g) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(h) "Master Purchaser's Letter" shall mean a letter addressed to the
Fund, the Auction Agent, a Broker-Dealer and an Agent Member, substantially in
the form attached hereto as Exhibit A.
(i) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit B.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural number
and vice versa.
(b) The captions and headings herein are solely for the convenience of
reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto", and other words of similar
import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
2
<PAGE>
2. The Auction.
2.1 Purposes: Incorporation by Reference or Auction Procedures and
Settlement Procedures.
(a) The provisions of the Auction Procedures will be followed by the
Auction Agent for the purposes of determining the Applicable Rate for any
Dividend Period of any series of ATP for which the Applicable Rate is to be
determined by an Auction. Each periodic operation of such procedures is
hereinafter referred to as an "Auction".
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.
(c) The BD is delivering herewith a Master Purchaser's Letter executed
by the BD and a list of Persons to whom the BD will initially sell the ATP, the
number of shares of ATP the BD will sell to each such Person and the number of
shares of ATP the BD will hold for its own account. The BD agrees to act as, and
assumes the obligations of, and limitations and restrictions placed upon, a
Broker-Dealer under this Agreement for each series of ATP. The BD understands
that other Persons meeting the requirements specified in the definition of
"Broker-Dealer" contained in the Auction Procedures may execute Broker-Dealer
Agreements and Master Purchaser's Letters and participate as Broker-Dealers in
Auctions.
2.2 Preparation of Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the ATP, the
Auction Agent shall advise the Broker-Dealers for such series by telephone of
the Maximum Applicable Rate therefor and the AA Composite Commercial Paper
Rate(s) and the Treasury Index Rate(s), as the case may be, used in determining
such Maximum Applicable Rate.
(b) In the event that any Auction Date for the ATP shall be changed
after the Auction Agent has given the notice referred to in clause (vi) of
paragraph (a) of the Settlement Procedures, or after the notice referred to in
Section 2.5(a) hereof, if applicable, the Auction Agent, by such means as the
Auction Agent deems practicable, shall give notice of such change to the BD not
later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the
old Auction Date. Thereafter, the BD shall promptly notify customers of the BD
who the BD believes are Existing Holders of shares of ATP of such change in the
Auction Date.
3
<PAGE>
(c) the Auction Agent from time to time may request the Broker-Dealers
to provide the Auction Agent with a list of their respective customers that such
Broker-Dealers believe are Existing Holders of shares of ATP. BD shall comply
with any such request, and the Auction Agent shall keep confidential any such
information so provided by BD and shall not disclose any information so provided
by BD to any Person other than the Fund and BD.
(d) The Auction Agent is not required to accept the Master Purchaser's
Letter of any Potential Holder who wishes to submit an Order for the first time
in an Auction or of any Potential Holder or Existing Holder who wishes to amend
its Master Purchaser's Letter unless such letter or amendment is received by the
Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
2.3 Auction Schedule; Method of Submission of Orders.
(a) The Fund and the Auction Agent shall conduct Auctions for ATP in
accordance with the schedule set forth below. Such schedule may be changed by
the Auction Agent with the consent of the Fund, which consent shall not be
unreasonably withheld or delayed. The Auction Agent shall give written notice of
any such change to each Broker-Dealer. Such notice shall be given prior to the
close of business on the Business Day preceding the first Auction Date on which
such change shall be effective.
Time Event
By 9:30 A.M. Auction Agent advises Fund and
the Broker-Dealers of the Maximum
Applicable Rate and the AA Composite
Commercial Paper Rate(s) and the Treasury
Index Rate(s), as the case may be, used in
determining such Maximum Applicable Rate as
set forth in Section 2.2(a) hereof, with
respect to each series of ATP.
9:30 A.M.-1:00 P.M. Auction Agent assembles
information communicated to it by
Broker-Dealers as provided in Section 4(a)
of the Auction Procedures. Submission
Deadline is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determination pursuant
to Section 5(a) of the Auction Procedures.
4
<PAGE>
By approximately 3:00 P.M. Auction Agent advises the Fund of
results of Auction as provided in
Section 5(b) of the Auction
Procedures. Submitted Orders are
accepted and rejected and shares
of ATP of the respective series
allocated as provided in
Section 6 of the Auction
Procedures. Auction Agent gives
notice of Auction results as set
forth in Section 2.4(a) hereof.
(b) BD agrees to maintain a list of Potential Holders and to contact
the Potential Holders on such list on or prior to each Auction Date for the
purposes set forth in the Auction Procedures. Until January 29, 1994, BD shall
deliver a Prospectus to each such Potential Holder, if required under the
Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder. After January 29, 1994, BD agrees, upon the request of a Potential
Holder, to delivery to such Potential Holder either (i) a Prospectus with such
legends or stamps regarding non-reliance by Potential Holders on certain
information therein (other than with respect to information concerning the ATP
and Settlement and Auction Procedures) as BD deems appropriate or (ii) the
Fund's summary description of the ATP and the Settlement Procedures and Auction
Procedures.
(c) BD agrees not to sell, assign or dispose of any shares of ATP to
any Person who has not delivered, or on whose behalf a Broker-Dealer has not
delivered, a signed Master Purchaser's Letter to the Auction Agent.
(d) BD shall submit Orders to the Auction Agent in writing
substantially in the form attached hereto as Exhibit C. BD shall submit a
separate Order to the Auction Agent for each Potential Holder or Existing Holder
on whose behalf BD is submitting an Order and shall not net or aggregate the
Orders of different Potential Holders or Existing Holders on whose behalf BD is
submitting Orders.
(e) BD shall deliver to the Auction Agent (i) a written notice in
substantially the form attached hereto as Exhibit D of transfers of shares of
ATP made through BD by an Existing Holder to another Person other than pursuant
to an Auction and shall deliver or cause to be delivered the related Master
Purchaser's Letter executed by such Person if such Person has not previously so
delivered a Master Purchaser's Letter and (ii) a written notice substantially in
the form attached hereto as Exhibit E, of the failure of any shares of ATP to be
transferred to or by any Person that purchased or
5
<PAGE>
sold shares of ATP through BD pursuant to an Auction. The Auction Agent is not
required to accept any such notice for an Auction unless it is received by the
Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
(f) BD has delivered to the Auction Agent its executed Master
Purchaser's Letter. BD and other Broker-Dealers which have delivered duly
executed Master Purchaser's Letters may submit Orders in Auctions for their own
accounts unless the Fund shall have notified BD and all other Broker-Dealers
that they may no longer do so, in which case Broker-Dealers may continue to
submit Hold Orders and Sell Orders for their own accounts.
(g) BD agrees to handle its customers' Orders in accordance with its
duties under applicable securities laws and rules.
2.4 Notices of Auction Results.
(a) On each Auction Date for ATP, the Auction Agent shall notify BD by
telephone of the results of the Auction as set forth in paragraph (a) of the
Settlement Procedures. As soon as reasonably practicable, the Auction Agent
shall confirm to BD in writing the disposition of all Orders submitted by BD in
such Auction if so requested by BD.
(b) BD shall notify each Existing Holder or Potential Holder on whose
behalf BD has submitted an Order as set forth in paragraph (a) of the Settlement
Procedures and take such other action as is required of BD pursuant to the
Settlement Procedures.
2.5 Designation of Alternate Term Period.
(a) If the Fund delivers to the Auction Agent a notice of the Auction
Date for any series of ATP for a Dividend Period thereof that next succeeds a
Dividend Period that is not a Standard Term Period in the form of Exhibit E to
the Auction Agent Agreement, the Auction Agent shall deliver such notice to BD
as promptly as practicable after its receipt of such notice from the Fund.
(b) If the Board of Directors proposes to designate any succeeding
Dividend Period of any series of ATP as an Alternate Term Period and the Fund
delivers to the Auction Agent a notice of such proposed Alternate Term Period in
the form of Exhibit F to the Auction Agent Agreement, the Auction Agent shall
deliver such notice to BD as promptly as practicable after its receipt of such
notice from the Fund.
6
<PAGE>
(c) If the Board of Directors determines to designate such succeeding
Dividend Period as an Alternate Term Period and the Fund delivers to the Auction
Agent a notice of such Period in the form of Exhibit G to the Auction Agent
Agreement not later than 3:00 P.M. on the second Business Day next preceding the
first day of such proposed Alternate Term Period, the Auction Agent shall
deliver such notice to BD not later than 3:00 P.M. on such Business Day.
(d) If the Fund shall deliver to the Auction Agent a notice not later
than 3:00 P.M. on the second Business Day next preceding the first day of any
Dividend Period stating that the fund has determined not to exercise its option
to designate such succeeding Dividend Period as an Alternate Term Period, in the
form of Exhibit H to the Auction Agent Agreement, or shall fail to timely
deliver either such notice or a notice in the form of Exhibit G to the Auction
Agent Agreement, the Auction Agent shall deliver a notice in the form of Exhibit
H to the Auction Agent Agreement to BD not later than 3:00 P.M. on such Business
Day.
2.6 Service Charge to be Paid to BD.
On the Business Day next succeeding each Auction Date for any series of
ATP, the Auction Agent shall pay to BD from moneys received from the Fund an
amount equal to (a) (i) in the case of any Auction Date for any series of ATP
immediately preceding a Dividend Period of such series consisting of less than
one year, 1/4 of 1%, or (ii) in the case of any Auction Date immediately
preceding a Dividend Period of such series consisting of one year or more, a
percentage agreed upon in writing by the Fund and the Broker-Dealers times (b) a
fraction, the numerator of which is the number of days in the Dividend Period
for such series beginning on such Business Day and the denominator of which is
365 if such Dividend Period is less than one year and 360 for all other Dividend
Periods for such series, times (c) $50,000 times (d) the aggregate number of
Outstanding shares of such series placed by BD in such Auction (for this purpose
shares will be deemed placed by BD if such shares were (i) the subject of Hold
Orders deemed to have been made by Existing Holders and were acquired by such
Existing Holders through BD or (ii) the subject of an Order submitted by BD that
is (A) a Submitted Order of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (B) a
Submitted Order of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (C) a Valid Hold Order;
provided that in the event an Auction scheduled to occur on an Auction Date
fails to occur for any reason while the ATP remains Outstanding, BD will be
entitled to service charges as if the Auction had occurred and all Holders of
shares placed by them submitted valid Hold Orders).
7
<PAGE>
For purposes of subclause (d)(i) of the foregoing paragraph, if any
Existing Holder who acquired shares of any series of ATP through BD transfers
those shares to another Person other than pursuant to an Auction, then such
Existing Holder shall be deemed to have acquired such shares through BD unless
the transfer was affected by or transferee is, a Broker-Dealer other than BD.
2.7 Settlement.
(a) If any Existing Holder on whose behalf the BD has submitted a
Hold/Sell Order that was accepted as a Sell Order or a Sell Order that was
accepted, in either case, in whole or in part, fails to instruct its Agent
Member to deliver the shares of ATP with respect to which such Order was
accepted against payment therefor, the BD shall instruct such Agent Member to
deliver such shares against payment therefor. If (i) any Existing Holder on
whose behalf a Broker Dealer other than the BD has submitted a Hold/Sell Order
that was accepted as a Sell Order or a Sell Order that was accepted, in either
case, in whole or in part, fails to instruct its Agent Member to so deliver the
shares of ATP with respect to which such Order was accepted against payment
therefore, (ii) such other Broker Dealer fails to instruct such Existing
Holder's Agent Member to deliver such shares and (iii) such Existing Holder is
identified to BD by the Auction Agent as provided in Section (a)(v) of the
Settlement Procedures as an Existing Holder from whom a Potential Holder on
whose behalf BD submitted a Buy Order is to purchase such shares, BD may deliver
to such Potential Holder a number of shares of ATP that is less than the number
of shares of ATP to be purchased by such Potential Holder by the number of
shares to be purchased from such Existing Holder. Notwithstanding, the foregoing
terms of this Section 2.7, any delivery or non-delivery of shares of ATP which
represents any departure from the results of an Auction for such series, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the terms of Section 2.3(e)(ii) hereof. The Auction Agent shall
have no duty or liability with respect to enforcement of this Section 2.7.
(b) Neither the Auction Agent nor the Fund shall have any
responsibility or liability with respect to the failure of an Existing Holder, a
Potential Holder or its respective Agent Member to deliver shares of ATP of any
series or to pay for shares of ATP of any series sold or purchased pursuant to
the Auction Procedures or otherwise.
8
<PAGE>
3. The Auction Agent
3.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund hereunder
and owes no fiduciary duties to any other Person, other than the Fund, by reason
of this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for any error or judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
the pertinent facts.
3.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document believed in good faith
by it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized by this Agreement which the Auction Agent
believes in good faith to have been given by the Fund or by a Broker-Dealer. The
Auction Agent may record telephone communications with the Broker-Dealers.
(b) The Auction Agent may consult with counsel of its choice and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
3.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or
adequacy of this Agreement, the Auction Agent Agreement or the shares of ATP of
any series.
9
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4. Miscellaneous.
4.1 Termination.
Either party may terminate this Agreement at any time on five (5) days'
notice to the other party, provided that neither BD nor the Auction Agent may
terminate this Agreement without first obtaining prior written consent of the
Fund to such termination, which consent shall not be unreasonably withheld. This
Agreement shall automatically terminate upon the termination of the Auction
Agent Agreement.
4.2 Participant in Securities Depository; Payment of Dividends in
Same Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a member
of, or participant in, the Securities Depository (or an affiliate of such a
member participant).
(b) BD represents that it (or if such BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the ATP available in
same-day funds on each Dividend Payment Date, to the extent that such dividend
payments are timely paid by the Fund to customers that use such BD or affiliate
as Agent Member.
4.3 Communications.
Except as (i) communications authorized to be by telephone by this
Agreement or the Auction Procedures and (ii) communications in connection with
Auctions (other than those expressly required to be in writing), all notices,
requests and other communications to any party hereunder shall be in writing
(including telecopy or similar writing) and shall be given to such party,
addressed to it, at its addressed or telecopy number set forth below:
If to BD, Bear, Stearns & Co. Inc.
addressed: Preferred Stock Sales and Trading Desk
245 Park Avenue
New York, New York 10167
Attention:
Telecopier No.: (212) 272-5098
Telephone No.: (212) 272-8151
10
<PAGE>
If to the Auction Bankers Trust Company
Agent, addressed: Four Albany Street
New York, New York 10006
Attention: Auction Rate/Remarketed Securities
Telecopier No.: (212) 250-6856
Telephone No.: (212) 250-6766
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other parties. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
4.4 Entire Agreement.
This Agreement contains the entire agreement among the parties hereto
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
among the parties hereto relating to the subject matter hereof. This Agreement
supersedes and terminates all prior Broker-Dealer Agreements between the
parties.
4.5 Benefits.
Nothing in this Agreement, express or implied, shall give to any
person, other than the Fund, the Auction Agent, BD and their respect successors
and assigns, any benefit of any legal or equitable right, remedy or claim
hereunder.
4.6 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged.
(b) Failure of any party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by any other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
4.7 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors and assigns of each of
the Auction Agent and BD. This Agreement
11
<PAGE>
may not be assigned by either party hereto absent the prior written consent of
the other party; provided, however, that this Agreement may be assigned by the
Auction Agent to a successor Auction Agent selected by the Fund without the
consent of BD.
4.8 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections thereof.
4.9 Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
4.10 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
BANKERS TRUST COMPANY
By /s/ Michelle Adler
Name: Michelle Adler
Title: Assistant Vice President
BEAR, STEARNS & CO. INC.
By /s/ Joseph S. Fichera
Name: Joseph S. Fichera
Title: Managing Director
12
<PAGE>
EXHIBIT A
FORM OF MASTER PURCHASER'S LETTER
13
<PAGE>
TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL THEN
DELIVER COPIES ON YOUR BEHALF TO THE
AUCTION OR REMARKETING AGENT
MASTER PURCHASER'S LETTER
Relating to
Securities Involving Rate Settings
Through Auctions or Remarketings
THE COMPANY
A REMARKETING AGENT
THE AUCTION AGENT
A BROKER-DEALER
AN AGENT MEMBER
OTHER PERSONS
Dear Sirs:
1. This letter is designed to apply to publicly or privately offered
debt or equity securities ("Securities") of any issuer ("Company") which are
described in any final prospectus or other offering materials relating to such
Securities as the same may be amended or supplemented (collectively, with
respect to the particular Securities concerned, the "Prospectus") and which
involve periodic rate settings through auctions ("Auctions") or remarketing
procedures ("Remarketings"). This letter shall be for the benefit of any Company
and of any auction agent, paying agent (collectively, "auction agent"),
remarketing agent, broker-dealer, agent member, securities depository or other
interested person in connection with any Securities and related Auctions or
Remarketings (it being understood that such persons may be required to execute
specified agreements and nothing herein shall alter such requirements). The
terminology used herein is intended to be general in its application and not to
exclude any Securities in respect of which (in the Prospectus or otherwise)
alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to sell
and/or sell Securities of any Company as described in the Prospectus relating
thereto. We agree that this letter shall apply to all such purchases, sales and
offers and to Securities owned by us. We understand that the dividend/interest
rate on Securities may be based from time to time on the results of Auctions or
Remarketings as set forth in the Prospectus.
3. We agree that any bid or sell order placed by us in an Auction or a
Remarketing shall constitute an irrevocable offer (except as otherwise described
in the Prospectus) by us to purchase or sell Securities subject to such bid or
sell order, or such lesser amount of Securities as we shall be required to sell
or purchase as a result of such Auction or Remarketing, at the applicable price,
all as set forth in the Prospectus, and that if we fail to place a bid or sell
order with respect to Securities owned by us with a broker-dealer on any Auction
or Remarketing Date, or a broker-dealer to which we communicate a bid or sell
order fails to submit such bid or sell order to the auction agent or remarketing
agent concerned, we shall be deemed to have placed a hold or a sell order with
respect to such Securities as described in the Prospectus. We authorize any
broker-dealer that submits a bid or sell order as our agent in Auctions or
Remarketings to execute contracts for the sale of Securities by such bid or sell
order. We recognize that the payment of such broker-dealer for Securities
purchased on our behalf shall not relieve us of any liability to such
broker-dealer for payment for such Securities.
4. We understand that in a Remarketing, the dividend or interest rate
or rates on the Securities and the allocation of Securities tendered for sale
between dividend or interest periods of different lengths will be based from
time to time on the determinations of one or more remarketing agent(s), and we
agree to be conclusively bound by such determinations. We further agree to the
payment of different dividend or interest rates to different holders of
Securities depending on the length of the dividend or interest period elected by
such holders. We agree that any notice given by us to a remarketing agent (or a
broker-dealer for transmission to a remarketing agent) of our desire to tender
Securities in a Remarketing shall constitute an irrevocable (except to the
limited extent set forth in the Prospectus) offer by us to sell the securities
specified in such Notice, or such lesser number of Securities as we shall be
required to sell as a result of such Remarketing, in accordance with the terms
set forth in the Prospectus, and we authorize the remarketing agent to sell,
transfer or
35
<PAGE>
otherwise dispose of such Securities as set forth in the Prospectus.
5. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the denominations set
forth in the Prospectus and we will sell, transfer or otherwise dispose of any
Securities held by us from time to time only pursuant to a bid or sell order
placed in an Auction, in a Remarketing, to or through a broker-dealer or, when
permitted in the Prospectus, to a person that has signed and delivered to the
applicable auction agent or a remarketing agent a letter substantially in the
form of this letter (or other applicable purchaser's letter), provided that in
the case of all transfers other than pursuant to Auctions or Remarketings we or
our broker-dealer or our agent member shall advise such auction agent or a
remarketing agent of such transfer. We understand that a restrictive legend will
be placed on certificates representing the Securities and stop-transfer
instructions will be issued to the transfer agent and/or registrar, all as set
forth in the Prospectus.
6. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by one or more global
certificates registered in the name of the applicable securities depository or
its nominee, that we will not be entitled to receive any certificate
representing the Securities and that our ownership of any Securities will be
maintained in book-entry form by the securities depository for the account of
our agent member, which in turn will maintain records of our beneficial
ownership. We authorize and instruct our agent member to disclose to the
applicable auction agent or remarketing agent such information concerning our
beneficial ownership of Securities as such auction agent or remarketing agent
shall request.
35
<PAGE>
7. We acknowledge that partial deliveries of Securities purchased in
Auctions or Remarketings may be made to us and such deliveries shall constitute
good delivery as set forth in the Prospectus.
8. This letter is not a commitment by us to purchase any
Securities.
9. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior to post-dated purchaser's letter
specific to any particular Securities, and this letter may only be revoked by a
signed writing delivered to the original recipients hereof.
10. The descriptions of Auction or Remarketing procedures set forth in
each applicable Prospectus are incorporated by reference herein and in case of
any conflict between this letter, any purchaser's letter specific to particular
Securities and any such description, such description shall control.
11. Any xerographic or other copy of this letter shall be deemed
of equal effect as a signed original.
12. Our agent member of The Depository Trust company currently is
13. Our personnel authorized to placed orders with broker-dealers
for the purposes set forth in the Prospectus in Auctions or Remarketings
currently is/are , telephone number ( ) .
14. Our taxpayer identification number is .
15. In the case of each offer to purchase, purchase, offer to sell or
sale by us of Securities not registered under the Securities Act of 1933, as
amended (the "Act"), we represent and agree as follows:
(A) We understand and expressly acknowledge that the Securities have
not been and will not be registered under the Act and, accordingly, that the
Securities may not be reoffered, resold or otherwise pledged, hypothecated or
transferred unless an applicable exemption from the registration requirements of
the Act is available.
(B) We hereby confirm that any purchase of Securities made by us will
be for our own account, or for the account of one or more parties for which we
are acting as trustee or agent with complete investment discretion and with
authority to bind such parties, and not with a view to any public resale or
distribution thereof. We and each other party for which we are acting which will
acquire Securities will be "accredited investors" within the meaning of
Regulation D under the Act with respect to the Securities to be purchased by us
or such party, as the case may be, will have previously invested in similar
types of instruments and will be able and prepared to bear the economic risk of
investing in and holding such Securities.
(C) We acknowledge that prior to purchasing any Securities we shall
have received a Prospectus (or private placement memorandum) with respect
thereto and acknowledge that we will have had access to such financial and other
information, and have been afforded the opportunity to ask such questions or
representatives of the Company and receive answers thereto, as we deem necessary
in connection with our decision to purchase Securities.
(D) We recognize that the Company and broker-dealers will rely upon the
truth and accuracy of the foregoing investment representations and agreements,
and we agree that each of our purchases of Securities now or in the future shall
be deemed to constitute our concurrence in all of the foregoing which shall be
binding on us and each party for which we are acting as set forth in
Subparagraph B above.
Dated:__________________________ _______________________________
(Name of Purchaser)
Mailing Address of Purchaser
_______________________________ By:____________________________
Printed Name:
_______________________________ Title:
_______________________________
36
<PAGE>
EXHIBIT B
SETTLEMENT PROCEDURES
14
<PAGE>
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of each
Auction and will be incorporated by reference in the Auction Agent Agreement and
each Broker-Dealer Agreement. Nothing contained herein constitutes a
representation by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the forepart of this Prospectus or herein, as the case may be.
(a) On each Auction Date for any series of ATP, the Auction Agent shall
notify by telephone or telecopy the Broker-Dealers that participated in the
Auction held for such series on such Auction Date and submitted an Order on
behalf of any Existing Holder or Potential Holder of:
(i) the Applicable Rate fixed for the subsequent Dividend Period
and the Dividend Payment Date therefor;
(ii) whether Sufficient Clearing Orders existed for the
determination of the Applicable Rate;
(iii) if such Broker-Dealer submitted a Hold/Sell Order or a Sell
Order for such series on behalf of an Existing Holder, whether such
Hold/Sell Order or Sell Order was accepted or rejected, in whole or in
part, and the number of shares, if any, of such series of ATP then
outstanding to be sold by such Existing Holder;
(iv) if such Broker-Dealer submitted a Buy Order on behalf of a
Potential Holder, whether such Buy Order was accepted or rejected, in
whole or in part, and the number of shares, if any, of such series of
ATP to be purchased by such Potential Holder;
(v) if the aggregate number of shares of such series of ATP to be
sold by all Existing Holders on whose behalf such Broker-Dealer
submitted Hold/Sell Orders or Sell Orders for such series is different
than the aggregate number of shares of such series of ATP to be
purchased by all Potential Holders on whose behalf such Broker-Dealer
submitted Buy Orders, the name or names of one or more other
Broker-Dealers (and the name of the Agent Member, if any, of each such
other Broker-Dealer) and the number of shares of such series of ATP to
be (x) purchased from one or more Existing Holders on whose behalf
such other Broker-Dealer submitted Hold/Sell Orders or Sell Orders for
such series, or (y) sold to one or more Potential Holders on whose
behalf such other Broker-Dealers submitted Buy Orders for such series;
and
(vi) the scheduled Auction Date of the next succeeding Auction
with respect to such series of ATP.
<PAGE>
(b) On each Auction Date for any series of ATP, each Broker-Dealer that
submitted an Order for such series on behalf of any Existing Holder or Potential
Holder shall:
(i) as soon as practicable, advise each Existing Holder and
Potential Holder on whose behalf such Broker-Dealer submitted a Buy
Order, Hold/Sell Order or Sell Order for such series whether such Buy
Order, Hold/Sell Order or Sell Order was accepted or rejected, in
whole or in part;
(ii) instruct each Potential Holder on whose behalf such Broker-
Dealer submitted a Buy Order for such series that was accepted, in
whole or in part, to instruct such Potential Holder's Agent Member to
pay to such Broker-Dealer (or its Agent Member) through the Securities
Depository the amount necessary to purchase the number of shares of
such series of ATP to be purchased pursuant to such Buy Order against
receipt of such shares;
(iii) instruct each Existing Holder on whose behalf such Broker-
Dealer submitted a Hold/Sell Order for such series that was accepted,
in whole or in part, as a Sell Order or a Sell Order for such series
that was accepted, in whole or in part, to instruct such Existing
Holder's Agent Member to deliver to such Broker-Dealer (or its Agent
Member) through the Securities Depository the number of shares of such
series of ATP to be sold pursuant to such Order against payment
therefor;
(iv) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order for such series that will continue to hold
shares of ATP of such series and each Potential Holder on whose behalf
such Broker-Dealer submitted a Buy Order for such series that was
accepted, in whole or in part, of the Applicable Rate for such series
for the next succeeding Dividend Period for such series;
(v) advise each Existing Holder on whose behalf such
Broker-Dealer submitted an Order for such series of the Auction Date
of the next succeeding Auction for such series; and
(vi) advise each Potential Holder on whose behalf such Broker-
Dealer submitted a Buy Order for such series that was accepted, in
whole or in part, of the Auction Date of the next succeeding Auction
for such series.
(c) On the basis of the information provided to it pursuant to (a)
above, each Broker-Dealer that submitted a Buy Order, a Hold/Sell Order or a
Sell Order for any series of ATP shall allocate any funds received by it in
respect of such series pursuant to (b)(ii) above, and any shares of such series
of ATP received by it pursuant to (b)(iii) above, among the Potential Holders,
if any, on whose behalf such Broker-Dealer submitted Buy Orders for such series,
the Existing Holders, if any, on whose behalf such Broker-Dealer submitted Buy
Orders, Hold/Sell Orders or Sell Orders for such series, and any Broker-Dealers
identified to it by the Auction Agent pursuant to (a)(v) above.
2
<PAGE>
(d) On the Business Day after the Auction Date, the Securities
Depository shall execute the transactions described above, debiting and
crediting the accounts of the respective Agent Members as necessary to effect
the purchases and sales of shares of any series of ATP as determined in the
Auction for such series.
33716.c1
3
<PAGE>
EXHIBIT C
(Submit only one Order on this Order Form)
THE NEW AMERICA HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK, SERIES [A] [B] ("ATP")
ORDER FORM
To:_______________________ Date of Auction
_______________________
_______________________
New York, New York_____
Attention: ____________
The undersigned Broker-Dealer submits the following Order on behalf of
the Person listed below:
Name of Person placing Order ("Bidder"):_________________________
Bidder places the Order listed below covering the number of shares indicated
(complete only one blank):
__________________ shares now held by Bidder (an Existing Holder),
and the Order is a (check one):
_______ Hold Order; or
_______ Hold/Sell Order at a rate of ______%; or
_______ Sell Order;
-or-
_______ shares not now held by Bidder (a Potential Holder), and the
Order is a Buy Order at a rate of _____%.
Notes:
(1) If submitting more than one Order for one Bidder, use additional Order
forms.
(2) If one or more Orders covering in the aggregate more than the number
of outstanding shares of ATP held by any Existing Holder are
submitted, such Orders shall be considered valid in the order of
priority set forth in the Auction Procedures.
15
<PAGE>
(3) A Hold Order may be placed only by an Existing Holder covering a
number of shares of ATP not greater than the number of shares of ATP
currently held by such Existing Holder.
(4) Potential Holders may make only Buy Orders, each of which must specify
a rate. If more than one Buy Order is submitted on behalf of any
Potential Holder, each Buy Order submitted shall be a separate Buy
Order with the rate specified.
(5) Orders may contain no more than three figures to the right of the
decimal point (.001 of 1%).
Name of Broker-Dealer:
By: ____________________________
16
<PAGE>
EXHIBIT D
(To be used only for transfers made
other than pursuant to an Auction)
THE NEW AMERICA HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK, SERIES [A] [B] ("ATP")
TRANSFER FORM
We are (check one):
____ the Existing Holder named below;
____ the Broker-Dealer for such Existing Holder; or
____ The Agent Member for such Existing Holder.
We hereby notify you that such Existing Holder has transferred ____
shares of the above series of ATP to __________________________.
------------------------------
(Name of Existing Holder)
------------------------------
(Name of Broker-Dealer)
------------------------------
(Name of Agent Member)
By:___________________________
Printed Name:
Title:
17
<PAGE>
EXHIBIT E
(To be used only for failures to
deliver shares of Auction Term Preferred
Stock sold pursuant to an Auction)
THE NEW AMERICA HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK, SERIES [A] [B] ("ATP")
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for _____________ (the "Purchaser"), which
purchased ___ shares of the above series of ATP in the Auction held on
____________________ from the seller of such shares. We hereby notify you that
the Seller failed to deliver such shares of Auction Term Preferred Stock to the
Purchaser.
II. We are a Broker-Dealer for __________________ (the "Seller"), which
sold ___ shares of the above series of ATP in the Auction held on _____ to the
purchaser of such shares. We hereby notify you that the Purchaser failed to make
payment to the Seller upon delivery of such shares of Auction Term Preferred
Stock.
Name: _________________________
(Name of Broker-Dealer)
By: ___________________________
Printed Name:
Title:
DP-4196/d
18
Exhibit K8
(Multicurrency--Cross Border)
ISDA [R]
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of February 3, 1994
THE FIRST NATIONAL BANK OF BOSTON and THE NEW AMERICA HIGH INCOME FUND, INC.
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other
confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows:
Interpretation
(a) Definitions. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the
Schedule will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Master Agreement (including the
Schedule), such Confirmation will prevail for the purpose of the relevant
Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value on
that date in the place of the account specified in the relevant Confirmation
or otherwise pursuant to this Agreement, in freely transferable funds and in
the manner customary for payments in the required currency. Where settlement
is by delivery (that is, other than by payment), such delivery will be made
for receipt on the due date in the manner customary for the relevant
obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3) each
other applicable condition precedent specified in this Agreement.
Copyright [c] 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to
which such change applies unless such other party gives timely notice of a
reasonable objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to
make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have
been payable by the other party, replaced by an obligation upon the party by
whom the larger aggregate amount would have been payable to pay to the other
party the excess of the larger aggregate amount over the smaller aggregate
amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date
in the same currency in respect of such Transactions, regardless of whether
such amounts are payable in respect of the same Transaction. The election may
be made in the Schedule or a Confirmation by specifying that subparagraph
(ii) above will not apply to the Transactions identified as being subject to
the election, together with the starting date (in which case subparagraph
(ii) above will not, or will cease to, apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of Offices through
which the parties make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, then in effect. If a party is
so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be deducted
or withheld (including the full amount required to be deducted or withheld
from any additional amount paid by X to Y under this Section 2(d)) promptly
upon the earlier of determining that such deduction or withholding is
required or receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or other
documentation reasonably acceptable to Y, evidencing such payment to such
authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment
to which Y is otherwise entitled under this Agreement, such additional amount
as is necessary to ensure that the net amount actually received by Y (free
and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal
the full amount Y would have received had no such deduction or withholding
been required. However, X will not be required to pay any additional amount
to Y to the extent that it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement contained in
Section 4(a)(i), 4(a)(iii) or (4)(d); or
(B) the failure of a representation made by Y pursuant to Section 3(f) to be
accurate and true unless such failure would not have occurred but for (i) any
action taken by a taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a
party to this Agreement) or (ii) a Change in Tax Law.
2
<PAGE>
(ii) Liability. If:--
(1) X is required by any applicable law, as modified by the practice of any
relevant governmental revenue authority, to make any deduction or withholding
in respect of which X would not be required to pay an additional amount to Y
under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section 6(c),
be required to pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as such overdue
amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment, at the Default Rate. Such
interest will be calculated on the basis of daily compounding and the actual
number of days elapsed. If, prior to the occurrence or effective designation
of an Early Termination Date in respect of the relevant Transaction, a party
defaults in the performance of any obligation required to be settled by
delivery, it will compensate the other party on demand if and to the extent
provided for in the relevant Confirmation or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be
deemed to be repeated by each party on each date on which a Transaction is
entered into and, in the case of the representations in Section 3(f), at all
times until the termination of this Agreement) that:--
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the laws of the
jurisdiction of its organization or incorporation and, if relevant under such
laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that it
is required by this Agreement to deliver and to perform its obligations under
this Agreement and any obligations it has under any Credit Support Document
to which it is a party and has taken all necessary action to authorize such
execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other agency
of government applicable to it or any of its assets or any contractual
restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to have
been obtained by it with respect to this Agreement or any Credit Support
Document to which it is a party have been obtained and are in full force and
effect and all conditions of any such consents have been complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any Credit
Support Document to which it is a party constitute its legal, valid and
binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)).
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(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as a
result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency
or official or any arbitrator that is likely to affect the legality, validity
or enforceability against it of this Agreement or any Credit Support Document
to which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of the
date of this information, true, accurate and complete in every material
respect.
(e) Payer Tax Representation. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate and
true.
(f) Payee Tax Representation. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(f) is accurate and
true.
4. Agreements
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support Document
to which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that
may be required or reasonably requested in writing in order to allow such
other party or its Credit Support Provider to make a payment under this
Agreement or any applicable Credit Support Document without any deduction or
withholding for or on account of any Tax or with such deduction or
withholding at a reduced rate (so long as the completion, execution or
submission of such form or document would not materially prejudice the legal
or commercial position of the party in receipt of such demand), with any such
form or document to be accurate and completed in a manner reasonably
satisfactory to such other party and to be executed and to be delivered with
any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning
of such failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated,
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organised, managed and controlled, or considered to have its seat, or in
which a branch or office through which it is acting for the purpose of this
Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other
party against any Stamp Tax levied or imposed upon the other party or in
respect of the other party's execution or performance of this Agreement by
any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction
with respect to the other party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any
agreement or obligation (other than an obligation to make any payment under
this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of
a Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in
accordance with this Agreement if such failure is not remedied on or before
the thirtieth day after notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to
comply with or perform any agreement or obligation to be complied with or
performed by it in accordance with any Credit Support Document if such
failure is continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or the
failing or ceasing of such Credit Support Document to be in full force and
effect for the purpose of this Agreement (in either case other than in
accordance with its terms) prior to the satisfaction of all obligations of
such party under each Transaction to which such Credit Support Document
relates without the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the validity of,
such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation under
Section 3(e) or (f)) made or repeated or deemed to have been made or repeated
by the party or any Credit Support Provider of such party in this Agreement
or any Credit Support Document proves to have been incorrect or misleading in
any material respect when made or repeated or deemed to have been made or
repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation of,
an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due on
the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice requirement
or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in
whole or in part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event of
default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) in an aggregate amount of not less than the
applicable Threshold Amount (as specified in the Schedule) which has resulted
in such Specified Indebtedness becoming, or becoming capable at such time of
being declared, due and payable under such agreements or instruments, before
it would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under such
agreements or instruments (after giving effect to any applicable notice
requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any
applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation, amalgamation or
merger); (2) becomes insolvent or is unable to pay its debts or fails or
admits in writing its inability generally to pay its debts as they become
due; (3) makes a general assignment, arrangement or composition with or for
the benefit of its creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting
creditors' rights, or a petition is presented for its winding-up or
liquidation, and, in the case of any such proceeding or petition instituted
or presented against it, such proceeding or petition (A) results in a
judgment of insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case within 30 days of
the institution or presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject to the
appointment of an administrator, provisional liquidator, conservator,
receiver, trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take possession of all
or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against
all or substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged, stayed or
restrained, in each case within 30 days thereafter; (8) causes or is subject
to any event with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified in
clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider of
such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at the
time of such consolidation, amalgamation, merger or transfer:
(1) the resulting, surviving or transferee entity fails to assume all the
obligations of such party or such Credit Support Provider under this
Agreement or any Credit Support Document to which it or its predecessor was a
party by operation of law or pursuant to an agreement reasonably satisfactory
to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the
consent of the other party) to the performance by such resulting, surviving
or transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an illegality
if the event is specified in (i) below, a Tax Event if the event is specified
in (ii) below or a Tax Event Upon Merger if the event is specified in (iii)
below, and, if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in, any applicable law
after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court, tribunal
or regulatory authority with competent jurisdiction of any applicable law
after such date, it becomes unlawful (other than as a result of a breach by
the party of Section 4(b)) for such party (which will be the Affected
Party):--
(1) to perform any absolute or contingent obligation to make a payment or
delivery or to receive a payment or delivery in respect of such Transaction
or to comply with any other material provision of this Agreement relating to
such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform,
any contingent or other obligation which the party (or such Credit Support
Provider) has under any Credit Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought
in a court of competent jurisdiction, on or after the date on which a
Transaction is entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (y) a Change in Tax
Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled Payment
Date (1) be required to pay to the other party an additional amount in
respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect
of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment
from which an amount is required to be deducted or withheld for or on account
of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e))
and no additional amount is required to be paid in respect of such Tax under
Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4)
(except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2)
receive a payment from which an amount has been deducted or withheld for or
on account of any Indemnifiable Tax in respect of which the other party is
not required to pay an additional amount (other than by reason of Section
2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or
substantially all its assets to, another entity (which will be the Affected
Party) where such action does not constitute an event described in Section
5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in
the Schedule as applying to the party, such party ("X"), any Credit Support
Provider of X or any applicable Specified Entity of X consolidates or
amalgamates with, or merges with or into, or transfers all or substantially
all its assets to, another entity and such action does not constitute an
event described in Section 5(a)(viii) but the creditworthiness of the
resulting, surviving or transferee entity is materially weaker than that of
X, such Credit Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its successor or
transferee, as appropriate, will be the Affected Party); or
(v) Additional Termination Event. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence of
such event (and, in such event, the Affected Party or Affected Parties shall
be as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
illegality, it will be treated as an illegality and will not constitute an
Event of Default.
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6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not
more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect of
all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in Section
5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as
of the time immediately preceding the institution of the relevant proceeding
or the presentation of the relevant petition upon the occurrence with respect
to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to
the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly
upon becoming aware of it, notify the other party, specifying the nature of
that Termination Event and each Affected Transaction and will also give such
other information about that Termination Event as the other party may
reasonably require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice
to the other party to that effect within such 20 day period, whereupon the
other party may effect such a transfer within 30 days after the notice is
given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at such
time would permit it to enter into transactions with the transferee on the
terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a
Tax Event occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof is
given under Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(b)(iii), as the case may be, has not been effected with respect to all
Affected Transactions within 30 days after an Affected Party gives notice
under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an
Additional Termination Event occurs, or a Tax Event Upon Merger occurs and
the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of
a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party, or the
party which is not the Affected Party in the case of a Credit Event Upon
Merger or an Additional Termination Event if there is only one Affected Party
may, by not more than 20 days notice to the other party and provided that the
relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is effective
as an Early Termination Date in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so designated,
whether or not the relevant Event of Default or Termination Event is then
continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining a
Market Quotation, the records of the party obtaining such quotation will be
conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early
Termination Date under Section 6(e) will be payable on the day that notice of
the amount payable is effective (in the case of an Early Termination Date
which is designated or occurs as a result of an Event of Default) and on the
day which is two Local Business Days after the day on which notice of the
amount payable is effective (in the case of an Early Termination Date which
is designated as a result of a Termination Event). Such amount will be paid
together with (to the extent permitted under applicable law) interest thereon
(before as well as after judgment) in the Termination Currency, from (and
including) the relevant Early Termination Date to (but excluding) the date
such amount is paid, at the Applicable Rate. Such interest will be calculated
on the basis of daily compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the
Schedule, it will be deemed that "Market Quotation" or the "Second Method",
as the case may be, shall apply. The amount, if any, payable in respect of an
Early Termination Date and determined pursuant to this Section will be
subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an Event of
Default:--
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting Party
the excess, if a positive number, of (A) the sum of the Settlement Amount
(determined by the Non-defaulting Party) in respect of the Terminated
Transactions and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party over (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the Defaulting
Party will pay to the Non-defaulting Party, if a positive number, the
Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market
Quotation apply, an amount will be payable equal to (A) the sum of the
Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party less (B) the Termination Currency Equivalent of the
Unpaid Amounts owing to the Defaulting Party. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting Party; if it
is a negative number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount
will be payable equal to the Non-defaulting Party's Loss in respect of this
Agreement. If that amount is a positive number, the Defaulting Party will pay
it to the Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount to the
Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount payable
will be determined in accordance with Section 6(e)(i)(3), if Market Quotation
applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case,
references to the Defaulting Party and to the Non-defaulting Party will be
deemed to be references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a Settlement
Amount in respect of the Terminated Transactions, and an amount will be
payable equal to (I) the sum of (a) one-half of the difference between the
Settlement Amount of the party with the higher Settlement Amount ("X") and
the Settlement Amount of the party with the lower Settlement Amount ("Y") and
(b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less
(II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y;
and
(B) if Loss applies, each party will determine its Loss in respect of this
Agreement (or, if fewer than all the Transactions are being terminated, in
respect of all Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party with the higher
Loss ("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a
party, the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments
or deliveries made by one party to the other under this Agreement (and
retained by such other party) during the period from the relevant Early
Termination Date to the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise provided
in this Agreement neither party will be entitled to recover any additional
damages as a consequence of such losses.
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7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of
the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without prejudice
to any other right or remedy under this Agreement); and
(B) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable
law, any obligation to make payments under this Agreement in the Contractual
Currency will not be discharged or satisfied by any tender in any currency
other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in a
reasonable manner and in good faith in converting the currency so tendered
into the Contractual Currency, of the full amount in the Contractual Currency
of all amounts payable in respect of this Agreement. If for any reason the
amount in the Contractual Currency so received falls short of the amount in
the Contractual Currency payable in respect of this Agreement, the party
required to make the payment will, to the extent permitted by applicable law,
immediately pay such additional amount in the Contractual Currency as may be
necessary to compensate for the shortfall. If for any reason the amount in
the Contractual Currency so received exceeds the amount in the Contractual
Currency payable in respect of this Agreement, the party receiving the
payment will refund promptly the amount of such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of
this Agreement or (iii) in respect of a judgment or order of another court
for the payment of any amount described in (i) or (ii) above, the party
seeking recovery, after recovery in full of the aggregate amount to which
such party is entitled pursuant to the judgment or order, will be entitled to
receive immediately from the other party the amount of any shortfall of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency and will refund promptly to the other party any excess of
the Contractual Currency received by such party as a consequence of sums paid
in such other currency if such shortfall or such excess arises or results
from any variation between the rate of exchange at which the Contractual
Currency is converted into the currency of the judgment or order for the
purposes of such judgment or order and the rate of exchange at which such
party is able, acting in a reasonable manner and in good faith in converting
the currency received into the Contractual Currency, to purchase the
Contractual Currency with the amount of the currency of the judgment or order
actually received by such party. The term "rate of exchange" includes,
without limitation, any premiums and costs of exchange payable in connection
with the purchase of or conversion into the Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence
granted by the party to which any payment is owed and will not be affected by
judgment being obtained or claim or proof being made for any other sums
payable in respect of this Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had
an actual exchange or purchase been made.
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9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced
by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or electronic messages on an electronic messaging
system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive
the termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect of
it) may be executed and delivered in counterparts (including by facsimile
transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to this
Agreement. The parties will specify therein or through another effective
means that any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege
will not be presumed to preclude any subsequent or further exercise, of that
right, power or privilege or the exercise of any other right, power or
privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of
booking office or jurisdiction of incorporation or organisation of such
party, the obligations of such party are the same as if it had entered into
the Transaction through its head or home office. This representation will be
deemed to be repeated by such party on each date on which a Transaction is
entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a
Transaction will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including legal
fees and Stamp Tax, incurred by such other party by reason of the enforcement
and protection of its rights under this Agreement or any Credit Support
Document
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<PAGE>
to which the Defaulting Party is a party or by reason of the early
termination of any Transaction, including, but not limited to, costs of
collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it being
agreed that the burden of proving receipt will be on the sender and will not
be met by a transmission report generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered or
its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered
(or attempted) or received, as applicable, after the close of business on a
Local Business Day, in which case that communication shall be deemed given
and effective on the first following day that is a Local Business Day.
(b) Change of Address. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive jurisdiction
of the courts of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City, if this Agreement is
expressed to be governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such court
does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be
governed by English law, the Contracting States, as defined in Section I(3)
of the Civil Jurisdiction and Judgments Act 1982 or any modification,
extension or re-enactment thereof for the time being in force) nor will the
bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings, if for any
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<PAGE>
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute
process agent acceptable to the other party. The parties irrevocably consent
to service of process given in the manner provided for notices in Section 12.
Nothing in this Agreement will affect the right of either party to serve
process in any other manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues
and assets (irrespective of their use or intended use), all immunity on the
grounds of sovereignty or other similar grounds from (i) suit, (ii)
jurisdiction of any court, (iii) relief by way of injunction, order for
specific performance or for recovery of property, (iv) attachment of its
assets (whether before or after judgment) and (v) execution or enforcement of
any judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and irrevocably
agrees, to the extent permitted by applicable law, that it will not claim any
such immunity in any Proceedings.
14. Definitions
As used in this Agreement:
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b)
with respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control"
of any entity or person means ownership of a majority of the voting power of
the entity or person.
"Applicable Rate" means:
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after
the date on which the relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified
as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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<PAGE>
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed
in respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to
such recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of
such jurisdiction, or being or having been organised, present or engaged in a
trade or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding
a connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case
of tax matters, by the practice of any relevant governmental revenue
authority) and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
exchange and foreign currency deposits) (a) in relation to any obligation
under Section 2(a)(i), in the place(s) specified in the relevant Confirmation
or, if not so specified, as otherwise agreed by the parties in writing or
determined pursuant to provisions contained, or incorporated by reference, in
this Agreement, (b) in relation to any other payment, in the place where the
relevant account is located and, if different, in the principal financial
centre, if any, of the currency of such payment, (c) in relation to any
notice or other communication, including notice contemplated under Section
5(a)(i), in the city specified in the address for notice provided by the
recipient and, in the case of a notice contemplated by Section 2(b), in the
place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading
position (or any gain resulting from any of them). Loss includes losses and
costs (or gains) in respect of any payment or delivery required to have been
made (assuming satisfaction of each applicable condition precedent) on or
before the relevant Early Termination Date and not made, except, so as to
avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies.
Loss does not include a party's legal fees and out-of-pocket expenses
referred to under Section 11. A party will determine its Loss as of the
relevant Early Termination Date, or, if that is not reasonably practicable,
as of the earliest date thereafter as is reasonably practicable. A party may
(but need not) determine its Loss by reference to quotations of relevant
rates or prices from one or more leading dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an
amount, if any, that would be paid to such party (expressed as a negative
number) or by such party (expressed as a positive number) in consideration of
an agreement between such party (taking into account any existing Credit
Support Document with respect to the obligations of such party) and the
quoting Reference Market-maker to enter into a transaction (the "Replacement
Transaction") that would have the effect of preserving for such party the
economic equivalent of any payment or delivery (whether the underlying
obligation was absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section 2(a)(i) in
respect of such Terminated Transaction or group of Terminated Transactions
that would, but for the occurrence of the relevant Early Termination Date,
have
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<PAGE>
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming
satisfaction of each applicable condition precedent) after that Early
Termination Date is to be included. The Replacement Transaction would be
subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the
extent reasonably practicable as of the same day and time (without regard to
different time zones) on or as soon as reasonably practicable after the
relevant Early Termination Date. The day and time as of which those
quotations are to be obtained will be selected in good faith by the party
obliged to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three quotations are
provided, the Market Quotation will be the arithmetic mean of the quotations,
without regard to the quotations having the highest and lowest values. If
exactly three such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest quotations. For
this purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head
or home office.
"Potential Event of Default" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or
to make an extension of credit and (b) to the extent practicable, from among
such dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organised, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention
or withholding or similar right or requirement to which the payer of an
amount under Section 6 is entitled or subject (whether arising under this
Agreement, another contract, applicable law or otherwise) that is exercised
by, or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not
(in the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
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<PAGE>
"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety
or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and
the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is
a rate swap transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c) any other
transaction identified as a Specified Transaction in this Agreement or the
relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation, or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto)
that is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation
or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date
(a) if resulting from a Termination Event, all Affected Transactions and (b)
if resulting from an Event of Default, all Transactions (in either case) in
effect immediately before the effectiveness of the notice designating that
Early Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated
in the Termination Currency, such Termination Currency amount and, in respect
of any amount denominated in a currency other than the Termination Currency
(the "Other Currency"), the amount in the Termination Currency determined by
the party making the relevant determination as being required to purchase
such amount of such Other Currency as at the relevant Early Termination Date,
or, if the relevant Market Quotation or Loss (as the case may be), is
determined as of a later date, that later date, with the Termination Currency
at the rate equal to the spot exchange rate of the foreign exchange agent
(selected as provided below) for the purchase of such Other Currency with the
Termination Currency at or about 11:00 a.m. (in the city in which such
foreign exchange agent is located) on such date as would be customary for the
determination of such a rate for the purchase of such Other Currency for
value on the relevant Early Termination Date or that later date. The foreign
exchange agent will, if only one party is obliged to make a determination
under Section 6(e), be selected in good faith by that party and otherwise
will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon
Merger or, if specified to be applicable, a Credit Event Upon Merger or an
Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become
payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or
prior to such Early Termination Date and which remain unpaid as at such Early
Termination Date and (b) in respect of each Terminated Transaction, for each
obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii)) required to be settled by delivery to such party on or
prior to such Early Termination Date and which has not been so settled as at
such Early Termination Date, an amount equal to the fair market
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<PAGE>
value of that which was (or would have been) required to be delivered as of
the originally scheduled date for delivery, in each case together with (to
the extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of interest
will be calculated on the basis of daily compounding and the actual number of
days elapsed. The fair market value of any obligation referred to in clause
(b) above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page
of this document.
THE FIRST NATIONAL BANK OF BOSTON
(Name of Party)
By: /s/ William K. LePard
Name: William K. LePard
Title: Director
Date:
By: /s/ John T. Daley
Name: John T. Daley
Title: Vice President
THE NEW AMERICA HIGH INCOME FUND, INC.
(Name of Party)
By: /s/ R. Birch
Name: R. Birch
Title: President
Date: 2/3/94
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<PAGE>
[Bank of Boston logo]
SAMPLE FORM OF CONFIRMATION
EXHIBIT 1
DATE:
TO:
ATTN:
FAX:
FROM: The First National Bank of Boston ("FNBB")
FAX: (617) 434-6795
RE: SWAP TRANSACTION
[Our Ref: SW / ]
The purpose of this letter agreement is to confirm the terms and conditions
of the Swap Transaction entered into between us on the Trade Date specified
below (the "Swap Transaction"). This letter constitutes a "Confirmation" as
referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency
between those definitions and provisions in this Confirmation, this
Confirmation will govern.
1. This Confirmation evidences a complete binding agreement between you and
us as to the terms of the Swap Transaction to which this Confirmation
relates. In addition, if you and we are not yet party to a Master Agreement,
upon the execution by you and us of a Master Agreement (the "Agreement"), in
the form published by the International Swaps and Derivatives Association,
Inc. ("ISDA"), with such modifications as you and we shall in good faith
agree, this Confirmation will supplement, form a part of, and be subject to
the Agreement. All provisions contained or incorporated by reference in such
Agreement upon its execution shall govern this Confirmation except as
expressly modified below.
2. The terms of the particular Swap Transaction to which this Confirmation
relates are as follows:-
NOTIONAL AMOUNT:
TRADE DATE:
EFFECTIVE DATE:
TERMINATION DATE:
FIXED AMOUNTS:
FIXED RATE PAYER:
FIXED RATE:
THE FIRST NATIONAL BANK OF BOSTON, Boston, Massachusetts 02106
<PAGE>
2
FIXED RATE:
FIXED RATE
PAYMENT DATES The of in each year
beginning and ending on the
Termination Date, subject to adjustment in
accordance with the Modified Following
Business Day convention.
FIXED RATE DAY
COUNT FRACTION:
[OR FIXED AMOUNT:]
FLOATING AMOUNTS:
FLOATING PAYOR:
FLOATING RATE
PAYMENT DATES: The of in each year beginning
and ending on the Termination Date, subject
to adjustment in accordance with the
Modified Following Business Day
convention.
FLOATING RATE FOR
INITIAL CALCULATION
PERIOD:
FLOATING RATE DAY
COUNT FRACTION:
FLOATING RATE
OPTION:
DESIGNATED MATURITY:
METHOD OF AVERAGING:
SPREAD: None OR [Plus/Minus] %
RESET DATES:
COMPOUNDING: Inapplicable/Applicable
COMPOUNDING DATES:
[DISCOUNTING:
DISCOUNTING RATE:
DISCOUNT RATE DAY
COUNT FRACTION:]
<PAGE>
3
INITIAL EXCHANGE:
INITIAL EXCHANGE DATE:
FIXED RATE PAYER
INITIAL EXCHANGE
AMOUNT:
FLOATING RATE
PAYER INITIAL
EXCHANGE AMOUNT:
FINAL EXCHANGE:
FINAL EXCHANGE DATE:
FIXED RATE PAYER
FINAL EXCHANGE
AMOUNT:
FLOATING RATE
PAYER FINAL
EXCHANGE AMOUNT:
BUSINESS DAYS FOR
FIRST CURRENCY:
BUSINESS DAYS FOR
SECOND CURRENCY:
BUSINESS DAYS: New York and London
BUSINESS DAY CONVENTION: Modified Following.
CALCULATION AGENT: FNBB
INCLUDE FOR TRADES UNDER UNEXECUTED AGREEMENTS:
GOVERNING LAW: New York law.
DOCUMENTATION: ISDA's Master Agreement to
be provided by FNBB.
3. OFFICES: [USE ONLY IF MULTIBRANCH PARTIES]
The Office of the Fixed Rate Payer for the Swap Transaction is:
The Office of the Floating Rate Payer for the Swap Transaction is:
<PAGE>
4
4. ACCOUNT DETAILS:
PAYMENTS TO FNBB: Through the Federal Reserve Bank,
Boston, Routing No. ABA 011000390,
for A/C FNB, Boston, for credit to
Arbitrage Settlement Account #009-7647,
Attn: Swap Desk, 01-10-06.
PAYMENTS TO : PLEASE ADVISE
5. CONTACT INSTRUCTIONS:
FNBB: Operations (Swap Desk): Tel: (617) 434-0775
FAX: (617) 434-6795
Documentation: Tel: (617) 434-7789
FAX: (617) 434-6795
_________________________: PLEASE ADVISE
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
Traded by:
By: ______________________ By: _____________________
Name: Name: William K. LePard
Title: Director
PLEASE COUNTERSIGN BELOW AND FAX IMMEDIATELY TO (617) 434-6795,
OR REQUEST CORRECTION TO TEL: (617) 434-7789.
Agreed and accepted as of the date first above written:
[COUNTERPARTY NAME]
By: ____________________________
Name:
Title:
<PAGE>
(Multicurrency-Cross Border)
ISDA(R)
International Swap Dealers Association, Inc.
SCHEDULE
to the
Master Agreement
dated as of February 3, 1994
between
THE FIRST NATIONAL BANK OF BOSTON
("Party A")
and
THE NEW AMERICA HIGH INCOME FUND, INC.
("Party B")
Part 1. Termination Provisions.
(a) "Specified Entity" means in relation to Party A for the purpose of:-
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv): Not Applicable.
and in relation to Party B for the purpose of:-
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv): Not Applicable.
(b) "Specified Transaction" will have the meaning specified in Section 14.
(c) The "Cross Default" provisions of Section 5(a)(vi)
will not apply to Party A
will apply to Party B
If such provisions apply:-
<PAGE>
"Specified Indebtedness" will have the meaning specified in Section 14.
"Threshold Amount" means an amount equal to US$1,000,000.00
(d) The "Credit Event Upon Merger" provisions of Section 5(b)(iv)
will apply to Party A
will apply to Party B
(e) The "Automatic Early Termination" provision of Section 6(a)
will apply to Party A
will apply to Party B
(f) Payments on Early Termination. For the purpose of Section 6(e) of this
Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "Termination Currency" means United States Dollars.
(h) Additional Termination Event will apply.
The following shall constitute Additional Termination Events:-
Section 6(f)--Additional Termination Event Based on Asset Coverage
Upon any failure of Party B to satisfy any applicable discounted asset
coverage requirement and failure to cure such failure within the time
period specified in its charter documents under the circumstances
contemplated by the attached agreements with Fitch Investors Services, Inc.
and Moody's Investors Service, Inc., then if so required by agreements,
Party B will give notice thereof to Party A and Party B shall thereupon
have the right, exercisable one Business Day following such notice, to
terminate any and all outstanding Swap Transactions (or such Notional
Amount thereof as Party B shall determine) based on the mark-to-market
quotation provided by Party A upon its receipt of Party B's notice, and
otherwise with the same effect as if a Termination Event occurred on the
date of such notice (but only to the extent of the Notional Amount
designated by Party B).
Section 6(g)--Exposure
For purposes hereof, the "Exposure" on any day shall mean such amount, if
any, estimated in good faith by Party B based on customary "mark-to-market"
calculations in accordance with past practices, as would be payable by
Party B to Party A or by Party A to Party B, as applicable, hereunder upon
the occurrence of a Termination Event on such day, taking into account any
and all Swap Transactions then existing between Party A and Party B as well
as (without duplication) any Unpaid Amounts owing by Party B to Party A
hereunder. The Exposure shall be a positive number at any time it
represents an obligation owed by Party B to Party A, and shall be a
negative number at any time it represents an obligation owed by Party A to
Party B. Party A agrees to provide mark-to-market quotations with respect
to the Swap Transaction covered by this Agreement and information regarding
Unpaid Amounts to Party B to enable Party B to determine the Exposure at
any time upon request by Party B.
2
<PAGE>
(i) Additional Event of Default.
Breach of the following provisions from page 11 of the Prospectus by Party
B shall constitute an additional Event of Default with respect to Party B:
"Ratings
It is a condition of the Underwriter's obligation to purchase the ATP
offered hereby that the Fund obtain the "aaa"/AAA Credit Rating from
Moody's and Fitch for the ATP on the Date of Original Issue. While there is
no assurance that the "aaa"/AAA Credit Rating with respect to the ATP will
not be changed, suspended or withdrawn, the Fund will endeavor to maintain
such rating and any failure to maintain such rating would, subject to cure
and certain exceptions, result in mandatory redemption of the ATP. See
"Mandatory Redemption" above. While the Fund does not presently intend to
seek a rating from a rating agency other than Moody's and Fitch, it
reserves the right to do so."
"Asset Maintenance.
Under the Fund's Articles, the Fund must maintain (i) as of each Valuation
Date, Eligible Assets having, in the aggregate, a Discounted Value at least
equal to the ATP Basic Maintenance Amount, and (ii) as of the last Business
Day of each month, 1940 Act ATP Asset Coverage of at least 200%. See
"Description of ATP-Asset Maintenance" in the Statement of Additional
Information."
For purposes of this Part 1(i) "Prospectus" shall mean the $100,000,000 The
New America High Income Fund, Inc. Auction Term Preferred Stock 1,200
Shares Series A, 800 Shares Series B, Liquidation Preference--$50,000 Per
Share Prospectus dated December 20, 1993.
Part 2. Tax Representations.
(a) Payer Representations. For the purpose of Section 3(e), Party A and
Party B will make the following representation:-
It is not required by any applicable law, as modified by the practice of
any relevant governmental revenue authority of any Relevant Jurisdiction to
make any deduction or withholding for or on account of any tax from any
payment (other than interest under Sections 2(e), 6(d)(ii) or 6(e) of this
Agreement) to be made by it to the other party under this Agreement. In
making this representation, it may rely on:
(i) the accuracy of any representation made by the other party pursuant
to Section 3(f);
(ii) the satisfaction of the agreement of the other party contained in
Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness of
any document provided by the other party pursuant to Section 4(a)(i)
or 4(a)(iii); and
3
<PAGE>
(iii) the satisfaction of the agreement of the other party contained in
Section 4(d), provided that it shall not be a breach of this
representation where reliance is placed on clause (ii) and the other
party does not deliver a form or document under Section 4(a)(iii) by
reason of material prejudice to its legal or commercial position.
(b) Payee Representations. For the purpose of Section 3(f) of this
Agreement, Party A and Party B make the representations specified below, if
any:
(i) The following representation
will not apply to Party A, and
will not apply to Party B
It is fully eligible for the benefits of the "Business Profits" or
"Industrial and Commercial Profits" provision, as the case may be, the
"Interest" provision or the "Other Income" provision (if any) of the
Specified Treaty with respect to any payment described in such provisions
and received or to be received by it in connection with this Agreement and
no such payment is attributable to a trade or business carried on by it
through a permanent establishment in the Specified Jurisdiction.
If such representation applies, then:-
"Specified Treaty" means with respect to Party A N/A
"Specified Jurisdiction" means with respect to Party A N/A
"Specified Treaty" means with respect to Party B N/A
"Specified Jurisdiction" means with respect to Party B N/A
(ii) The following representation
will not apply to Party A, and
will not apply to Party B
Each payment received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a trade or
business in the Specified Jurisdiction.
If such representation applies, then:-
"Specified Jurisdiction" means with respect to Party A N/A
"Specified Jurisdiction" means with respect to Party B N/A
(iii) The following representation
will not apply to Party A, and
will not apply to Party B
(A) It is entering into each Transaction in the ordinary course of its
trade as, and is, either (1) a recognized U.K. bank or (2) a recognized
U.K. swaps dealer (in either case (1) or (2), for purposes of the United
Kingdom Inland Revenue extra statutory concession C17 on interest and
currency swaps dated March 14, 1989), and (B) it will bring into account
payments made and received in respect of each Transaction in computing its
income for United Kingdom tax purposes.
4
<PAGE>
(iv) Other Payee Representation: None.
Part 3. Agreement to Deliver Documents.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:-
(a) In order to assist any party which is required to make a payment under any
Swap Transaction (the "Payer") to secure the benefit of any available
exemption from deduction or withholding for or on account of Taxes, the
other party (the "Payee") shall, if requested to do so in writing by the
Payer, as soon as reasonably practicable after such request, from time to
time, furnish the Payer or the appropriate governmental or other authority
with duly completed copies of such certificates and documents as are
necessary for such purpose.
(b) Other documents to be delivered are:-
Covered by
Party required to Form/Document/ Date by which to be Section 3(d)
Deliver Document Certificate Delivered Representation
- ------------------ -------------- ------------------- --------------
Party A Certificate of Concurrent with Yes
and Incumbency Execution of this
Party B Agreement
Part 4. Miscellaneous.
(a) Address for Notices. For the purpose of Section 12(a) of this Agreement:-
Address for notices or communications to Party A:-
Address: 100 Federal Street
Boston, Massachusetts 02106
Attention: Arbitrage Operations, Swap Desk, 01-10-06
Facsimile No: (617) 434-6795
Address for notices or communications to Party B:-
Address: 10 Winthrop Square
Boston, Massachusetts 02110
Attention: Ellen Terry, Vice President
Facsimile No: (617) 350-8619
(b) Process Agent. For the purpose of Section 13(c) of this Agreement:-
Party B appoints as its Process Agent N/A
5
<PAGE>
(c) Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) Calculation Agent. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) Credit Support Document. Details of any Credit Support Document:-
None
(g) Credit Support Provider. Credit Support Provider means in relation to
Party B:-
Not Applicable
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to
choice of law doctrine).
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to any Transactions under this Agreement.
(j) "Affiliate" will have the meaning specified in Section 14.
Part 5. Other Provisions.
(a) Definitions.
This Agreement, each Confirmation and each Transaction are subject to the
1991 ISDA Definitions (as published by the International Swap Dealers
Association, Inc.) (the "Definitions"), and will be governed in all
respects by the provisions set forth in the Definitions. The provisions of
the Definitions are incorporated by reference in, and shall be deemed to be
part of, this Agreement and each Confirmation, as if set forth in full in
this Agreement or in that Confirmation. In the event of any inconsistency
between the provisions of this Agreement and the Definitions, this
Agreement will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Agreement, such Confirmation will
prevail for the purpose of the relevant Transaction.
(b) Procedures for Entering into Transactions.
With respect too each Transaction entered into pursuant hereto, Party A
shall, on or promptly after the Trade Date thereof, send Party B a
Confirmation substantially in the form of Exhibit I confirming such
Transaction, and Party B shall promptly thereafter confirm the accuracy of
or request the correction of such Confirmation.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this document as of the date
specified on the first page hereof.
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ William K. LePard
Name: William K. LePard
Title: Director
By: /s/ John T. Daley
Name: John T. Daley
Title: Vice President
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ R. Birch
Name: R. Birch
Title: 2/3/94
7
Exhibit K9
November 14, 1996
Board of Directors
The New America High Income Fund, Inc.
Ten Winthrop Square
Boston, Massachusetts 02110
Attention: Mr. Robert F. Birch
President
Gentlemen:
First Albany Corporation ("First Albany") is pleased to act as
exclusive financial advisor to the New America High Income Fund, Inc. (the
"Fund") in connection with a best efforts offering (the "Offering") of
approximately 11,800,000 shares of the Fund's common stock (the "Common Stock"),
pursuant to transferable subscription rights (the "Rights"). This letter
agreement is to confirm our understanding with respect to our engagement.
In connection with First Albany's engagement hereunder, we anticipate
that our activities would include, as appropriate, the following:
(1) Assisting the Fund in structuring the Offering;
(2) Performing analysis and providing recommendations to the
Fund relative to the pricing of the Offering;
(3) Coordinating the process and activities of members of the
working group;
(4) Reviewing the business and financial characteristics of the
Fund, including, among other things a review of its investment
philosophy, absolute and relative investment performance,
litigation and regulatory background, dividend policy,
management changes, fee structure, financial results and
portfolio composition;
(5) Assisting the Fund with the preparation of a Prospectus,
Registration Statement on Form N-2, other regulatory filings,
order forms, sales materials and other documentation for use
in connection with the Offering; and
(6) Working with the Fund and its proxy solicitor to develop and
execute a communications process designed to ensure maximum
contact with current prospective Fund shareholders.
<PAGE>
The New America High Income Fund, Inc.
November 14, 1996
Page 2
The Fund agrees to pay First Albany for its investment banking services
a $125,000 non-refundable advisory fee, $25,000 of which is due as of the date
hereof and $100,000 if which is due upon the expiration date of the Offering, in
each case payable in cash. In addition to any fees that may be payable to First
Albany under this letter agreement, the Fund agrees to reimburse First Albany,
upon request from time to time, for its out-of-pocket expenses incurred in
connection with First Albany's activities under this letter agreement, subject
to a limit of $5,000 in the aggregate, which may be revised under the mutual
written agreement of the Fund and First Albany.
The Fund will furnish First Albany with such information as First
Albany believes appropriate to its assignment and all other information material
to an investment decision to purchase or exercise rights (all such information
so furnished being the "Information"). The Fund recognizes and confirms that
First Albany (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this letter agreement without having independently
verified the same, (b) does not assume responsibility for the accuracy or
completeness of the Information and such other information and (c) will not make
an appraisal of any assets of the Fund
The Fund agrees to indemnify First Albany and its affiliates and its
and their respective directors, officers, employees, agents and controlling
persons (First Albany and each person being an "Indemnified Party") from and
against any and all losses, claims, damages and liabilities, joint or several to
which such an Indemnified Party may become subject under any applicable federal
or state law, or otherwise, and related to or arising out of the Offering
contemplated by this letter agreement or the engagement of First Albany pursuant
to, and the performance by First Albany of the services contemplated by, this
letter agreement and will reimburse any Indemnified Party for all expenses
(including without limitation counsel fees and expenses) promptly as they are
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party and whether or not such claim,
action or proceeding is initiate or brought by or on behalf of the Fund. The
Fund also agrees than no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Fund or its
security holders or creditors related to or arising out the engagement of First
Albany pursuant to, or the performance by First Albany of the services
contemplated by, this letter agreement except to the extent that any loss,
claim, damage or liability is found in a final judgment by a court to have
resulted form First Albany's bad faith or gross negligence.
If the indemnification of an Indemnified Party provided for in this
letter agreement is for any reason held unenforceable, the Fund agrees to
contribute to the losses, claims, damages and liabilities for which such
indemnification is held unenforceable (i) in such proportion as is appropriate
to reflect the relative benefits to the Fund, on the one hand, and First Albany
on the other hand, of the Offering contemplated hereby (whether or not any such
Offering is consummated) or (ii) if (but only if) the allocation provided for in
clause (i) is for any reason
<PAGE>
The New America High Income Fund, Inc.
November 14, 1996
Page 3
held unenforceable, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) but also the relative fault of
the Fund, on the one hand, and First Albany, on the other hand, as well as any
other relevant equitable considerations. The Fund agrees that for the purpose of
this paragraph the relative benefits to the Fund and First Albany of the
offering contemplated hereby shall be deemed to be in the same proportion that
the total value received by the Fund as a result of or in connection with such
Offering bears to the solicitation fees paid to First Albany under this letter
agreement; provided, however, that, in no event shall the indemnified parties be
required to contribute an aggregate amount in excess of the aggregate
solicitation fees actually paid to First Albany under this agreement.
The Fund agrees that, without First Albany's prior written consent, it
will not settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding in respect of which
indemnification could be sought under the indemnification provision of the
letter agreement (whether or not First Albany or any other Indemnified Party is
an actual or potential party to such claim, action or proceeding), unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party form all liability arising out of such claim, action or
proceeding.
The Fund acknowledges and agrees that First Albany has been retained to
act solely as financial advisor. In such capacity, First Albany shall act as an
independent contractor, and any duties of First Albany arising out of its
engagement pursuant to this letter agreement shall be owed solely to the Fund.
Notwithstanding any of the foregoing terms, First Albany's engagement
hereunder will commence as of the date hereof and may be terminated by either
the Fund or First Albany at any time commencing eight months after the date of
this letter upon thirty days' prior written notice to that effect to the other
party, it being understood that the provisions relating to the payment of fees
and expenses, indemnification, limitations on the liability of Indemnified
Parties, contribution, settlements, the status of First Albany as an independent
contractor, the limitation on to whom First Albany shall owe any duties and
waiver of the right to trial by jury will survive any such termination.
In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or on behalf of or against the Fund
in which such Indemnified Party is not named as a defendant, the Fund agrees to
reimburse First Albany and such Indemnified Parties promptly for all expenses
incurred by it in connection with such Indemnified Party's appearing and
preparing to appear as such a witness, including, without limitation, the fees
and disbursements if its legal counsel, and to compensate First Albany in an
amount to be mutually agreed upon.
No waiver, amendment or other modifications of this letter agreement
shall be effective unless in writing and signed by each party to be bound
thereby.
<PAGE>
The New America High Income Fund, Inc.
November 14, 1996
Page 4
The letter agreement shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to contracts executed in and
to be performed in that state. The Fund hereby consents to the jurisdiction of
the New York courts.
Each of First Albany and the Fund (in its own behalf and, to the extent
permitted by applicable law, on behalf of its shareholders) waives all right to
trial by jury in any action, proceeding or counterclaim (whether based upon
contract, tort or otherwise) related to or arising out of the engagement of
First Albany pursuant to, or the performance by First Albany of the services
contemplated by, this letter agreement.
<PAGE>
The New America High Income Fund, Inc.
November 14, 1996
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to First Albany the duplicate copy of this letter
agreement enclosed herewith.
Very truly yours,
FIRST ALBANY CORPORATION
By: /s/ Michael S. Burd
-----------------------
Michael S. Burd
Senior Vice President
Accepted and agreed to as of the date first written above:
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Robert F. Birch
------------------------------
Its: President
Exhibit N
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report for The New America High Income Fund, Inc. dated January 26, 1996 (and to
all references to our firm) included in or made a part of Registration Statement
File No. 33-77298 and Amendment No. 19 to Registration Statement File No.
811-5399.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Boston, Massachusetts
December 9, 1996
