As filed with the Securities and Exchange Commission on April 29, 1997
1933 Act File No. 333-23253
1940 Act File No. 811-5399
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-2
(Check appropriate box or boxes)
|_| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|X| Pre-Effective Amendment No. 1
|_| Post-Effective Amendment No. __
and
|_| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
|X| Amendment No. 22
--------------------
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. [ ]
--------------------
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>
Series C Auction Term 2,000 shares $25,000 $50,000,000 $15,152.52 (1)
Preferred Stock, $1.00 par
value
========================================================================================================================
</TABLE>
(1) Previously paid.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment 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>
PART A
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................................ Not Applicable
4. Financial Highlights.................................. Financial Highlights; Capitalization and Information
Regarding Senior Securities
5. Plan of Distribution ................................. Use of Proceeds; The Investment Adviser;
Underwriting
6. Selling Stockholders.................................. Not applicable
7. Use of Proceeds....................................... Use of Proceeds; Capitalization and Information
Regarding Senior Securities; Investment Objective and
Policies
8. General Description of the Registrant................. Cover Page; The Fund; Investment Objective and
Policies; Rating Agency Guidelines-"aaa"/AAA Rating;
Risk Factors and Special Considerations; Description of
ATP; Description of Common Stock; Appendix A -
Certain Investment Practices
9. Management............................................ The Fund; Board of Directors; The Investment
Adviser; Auction Procedures; Custodian, Auction
Agent, Registrar, Transfer Agent and Paying Agent
10. Capital Stock, Long-Term Debt
and Other Securities................................ Capitalization and Information Regarding Senior
Securities; Description of ATP; Description of
Common Stock; Taxation; Rating Agency Guidelines-
"aaa"/AAA Rating; Auction Procedures; Glossary
11. Defaults and Arrears on Senior
Securities.......................................... Not applicable
12. Legal Proceedings..................................... Not applicable
13. Table of Contents of the Statement
of Additional Information........................... Table of Contents of the Statement of Additional
Information
(i)
<PAGE>
Item Number of Form N-2 Location or Heading in Prospectus
----------------------- ---------------------------------
PART B
14. Cover Page............................................ Cover Page
15. Table of Contents..................................... Cover Page
16. General Information and History....................... Not Applicable
17. Investment Objective and Policies..................... Investment Objective and Policies; Investment
Restrictions; Investment Practices; 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................ Management of the Fund; Auction Procedures
21. Brokerage Allocation and Other Policies............... Management of the Fund; Portfolio Maturity and
Turnover; Investment Practices; Auction Procedures
22. Tax Status............................................ Taxation
23. Financial Statements.................................. Financial Statements; Notes to Financial Statements;
Report of Independent Public Accountants
</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 April 30, 1997
PROSPECTUS $50,000,000
THE NEW AMERICA HIGH INCOME FUND, INC.
Auction Term Preferred Stock
2,000 Shares Series C
Liquidation Value - $25,000 Per Share
----------------
The New America High Income Fund, Inc. (the "Fund") is a diversified,
closed-end management investment company with a leveraged capital structure. The
Board of Directors of the Fund appoints the Fund's investment adviser annually.
Currently, Wellington Management Company, LLP (the "Investment Adviser" or
"Wellington Management") 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"). The Fund invests primarily in "high yield" fixed income
securities rated in the lower categories by established rating agencies and
non-rated securities deemed by the Investment Adviser to be of comparable
quality. Such securities have predominantly speculative characteristics and
involve greater volatility of price and risk to principal and income than
securities in higher rating categories. See "Risk Factors and Special
Considerations."
The Fund's address is 10 Winthrop Square, Fifth Floor, Boston,
Massachusetts 02110 and its telephone number is (617) 350-8610. This Prospectus
sets forth concisely the information regarding the Fund that a prospective
investor should know before investing. Prospective investors should carefully
review the information set forth in this Prospectus and should retain this
Prospectus for future reference. A Statement of Additional Information dated
May, 1997 containing additional information regarding the Fund has been filed
with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety into this Prospectus. A copy of the Statement of
Additional Information, the table of contents of which appears on page 30 of
this Prospectus, may be obtained without charge by calling the Fund's
Information Agent, Corporate Investor Communications, toll free at (800)
805-9132 or by writing the Fund at the address set forth above.
(Text continued on the following page.)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE 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.
================================================================================
Proceeds
Price to Public(1) Sales Load(2) to Fund(3)
- --------------------------------------------------------------------------------
Per Share ............... $25,000 $218.75 $24,781.25
Total.................... $50,000,000 $437,500 $49,562,500
================================================================================
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before offering expenses payable by the Fund, estimated at $297,000.
----------------
The shares of ATP offered by this Prospectus are offered by the
Underwriter, subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery and acceptance by the Underwriter and
to certain further
<PAGE>
conditions. It is expected that the shares will be delivered through the
facilities of The Depository Trust Company on or about May , 1997.
----------------
LEHMAN BROTHERS
May , 1997
2
<PAGE>
The Fund currently has issued and Outstanding 1,200 shares of Auction
Term Preferred Stock Series A and 800 shares of ATP Series B. The Fund is
initially offering 2,000 shares of ATP Series C at a price per share of $25,000
(the "Offering").
The dividend rate for the initial Dividend Period for the shares of ATP
Series C issued pursuant to the Offering will be % per annum. For each
Dividend Period following the initial Dividend Period, the dividend rate on
shares of ATP Series C will be the Applicable Rate for such series in effect
from time to time as determined, except as described herein, on the basis of
Orders placed in an Auction conducted on the Business Day preceding the
commencement of such Dividend Period, as set forth herein. The Applicable Rate
that results from an Auction for any Dividend Period will not be greater than
the Maximum Applicable Rate then in effect.
Dividends on shares of ATP Series C will accumulate at the Applicable
Rate from the Date of Original Issue and shall be payable on each Dividend
Payment Date thereafter, commencing , 1997. The initial Dividend
Period for the shares of ATP Series C will be days. Dividend Periods after the
initial Dividend Period for shares of ATP Series C shall be either Standard Term
Periods or, subject to certain conditions and with notice to the holders of
shares, periods longer or shorter than 28 days and having such durations as the
Board of Directors shall specify (each, an "Alternate Term Period"). The initial
Auction Date will be June 9, 1997.
Subject to compliance with certain conditions, shares of ATP Series C
may be redeemed, in whole or in part, at the option of the Fund at a redemption
price per share equal to their Liquidation Value per share, plus accumulated and
unpaid dividends thereon 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. The ATP will, subject to certain conditions, be subject to mandatory
redemption, in whole or in part, if the Fund does not maintain the "aaa"/AAA
Credit Rating for the ATP or if the Fund, on any Valuation Date or the last
Business Day of any month, shall fail to meet the ATP Basic Maintenance Amount
or the 1940 Act ATP Asset Coverage, respectively, and in any such case such
failure is not cured on a timely basis as specified herein. It is a condition of
the Underwriter's obligation to purchase the ATP Series C that the ATP Series C
be rated "aaa" by Moody's and AAA by Fitch as of the Date of Original Issue. See
"Description of ATP--Ratings."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following data with respect to a share of Common Stock, $.01 par value
per share ("Common Stock") of the Fund outstanding during the periods indicated
has been audited (other than the three month period ended March 31, 1997, which
is unaudited) by Arthur Andersen LLP, independent public accountants, as
indicated in their report thereto included with the Fund's audited financial
statements contained in the Statement of Additional Information and should be
read in conjunction with such audited financial statements and related notes
included therein.
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31, 1997
(unaudited) For the Years Ended December 31,
-------------- -----------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(For Each Share of Common Stock
Outstanding Throughout the Period)
<S> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of period ................................................ $ 4.94 $ 4.71 $ 4.13 $ 5.15 $ 4.32
--------- ------- ------- -------- -------
Net Investment Income ............................................. .17# .69 .67 .72# .59
Net Realized and Unrealized Gain (Loss) on Investments ............ (.09)# .22 .62 (.82)# .89
--------- ------- ------- -------- - -------
Total From Investment Operations ................................. .08 .91 1.29 (.10) 1.48
Distributions:
Dividends from net investment income:
To preferred stockholders (including swap settlement payments) ... (.04) (.16) (.17) (.17) (.05)
To common stockholders .......................................... (.08) (.52) (.50) (.53) (.53)
Dividends in excess of net investment income:
To common stockholders .......................................... -- -- (.04) -- (.07)
Returns of capital:
To common stockholders .......................................... -- -- -- -- --
Total Distributions ................................................ (.12) (.68) (.71) (.70) (.65)
Effect of rights offering and related expenses; and Auction
Term Preferred Stock offering costs and sales load .............. (.11) -- -- (.22) --
Net Asset Value:
End of period ...................................................... $ 4.79 $ 4.94 $ 4.71 $ 4.13 $ 5.15
Per Share Market Value:
End of period ...................................................... $ 4.88 $ 5.13 $ 4.75 $ 4.00 $ 5.13
Total Investment Return+ .......................................... (3.32)% 19.89% 33.50% (11.88)% 40.08%
Net Assets, End of Period,
Applicable to Common Stock(b) .................................... $229,439 $176,408 $164,823 $141,590 $130,673
Net Assets, End of Period,
Applicable to Preferred Stock(b) ................................. $100,000 $100,000 $100,000 $100,000 $35,000
Net Assets, End of Period(b) ....................................... $329,439 $276,408 $264,823 $241,590 $165,673
Expense Ratios
Ratio of interest expense to average net assets** .................. -- -- -- .01% 1.42%
Ratio of preferred and other debt expenses to average net assets** .10%* .10% .11% .13% .40%
Ratio of operating expenses to average net assets** ............... .70%* .73% .84% .75% 1.56%
Ratio of litigation settlement expense to average net assets** ... -- -- .49% -- --
Ratio of Total Expenses to Average Net Assets** ..................... .80%* .83% 1.44% .89% 3.38%
Ratio of Net Investment Income to Average Net Assets** ............ 8.89%* 9.05% 8.90% 9.06% 9.21%
Portfolio Turnover Rate ............................................. 80.93%* 53.45% 62.66% 58.56% 85.76%
</TABLE>
- --------------
(a) Prior to the appointment on February 19, 1992 of Wellington Management
Company, LLP as the Fund's investment adviser, the Fund was advised by
Ostrander Capital Management, L.P.
(b) Dollars in thousands.
* 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 and March 1997
rights offerings.
+ 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.
4
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1992(a) 1991 1990 1989
----------- ----------- ------------- -------------
(For Each Share of Common Stock
Outstanding Throughout the Period)
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period ...................................................... $ 3.79 $ 3.42 $ 6.23 $ 8.60
------- ------- ---------- ----------
Net Investment Income ................................................... .57 .65 .92 1.54
Net Realized and Unrealized Gain (Loss) on Investments ..................... .57 .38 (2.82) (2.26)
------- ------- ---------- ----------
Total From Investment Operations ....................................... 1.14 1.03 (1.90) (.72)
Distributions:
Dividends from net investment income:
To preferred stockholders (including swap settlement payments) ......... (.06) (.10) (.16) (.30)
To common stockholders ................................................... (.55) (.56) (.75) (1.25)
Dividends in excess of net investment income:
To common stockholders ................................................... -- -- -- --
Returns of capital:
To common stockholders ................................................... -- -- -- (.10)
Total Distributions ...................................................... (.61) (.66) (.91) (1.65)
Effect of rights offering and related expenses; and Auction Term Preferred
Stock offering costs and sales load ....................................... -- -- -- --
Net Asset Value:
End of period ............................................................ $ 4.32 $ 3.79 $ 3.42 $ 6.23
Per Share Market Value:
End of period ............................................................ $ 4.13 $ 3.63 $ 2.50 $ 5.88
Total Investment Return+ ................................................... 29.70% 70.77% (47.94)% (30.04)%
Net Assets, End of Period, Applicable to Common Stock(b) .................. $107,897 $93,227 $ 83,813 $152,156
Net Assets, End of Period, Applicable to Preferred Stock(b) ............... $35,000 $35,000 $ 35,000 $ 58,500
Net Assets, End of Period(b) ............................................. $142,897 $128,227 $118,813 $210,656
Expense Ratios
Ratio of interest expense to average net assets** ........................ 2.95% 3.25% 4.17% 3.56%
Ratio of preferred and other debt expenses to average net assets** ...... .65% .78% .62% .24%
Ratio of operating expenses to average net assets** ..................... 1.22% 1.19% 1.10% .69%
Ratio of litigation settlement expense to average net assets** ............ -- -- -- --
Ratio of Total Expenses to Average Net Assets** ........................... 4.82% 5.22% 5.89% 4.49%
Ratio of Net Investment Income to Average Net Assets** ..................... 10.09% 12.62% 14.50% 14.48%
Portfolio Turnover Rate ................................................... 129.86% 121.15% 49.98% 65.39%
</TABLE>
<TABLE>
<CAPTION>
For the Period From
February 26, 1988
(Commencement of
Operations) to
December 31, 1988
-------------------
<S> <C>
Net Asset Value:
Beginning of period ...................................................... $ 9.25
----------
Net Investment Income ................................................... 1.42
Net Realized and Unrealized Gain (Loss) on Investments ..................... (.66)
----------
Total From Investment Operations ....................................... .76
Distributions:
Dividends from net investment income:
To preferred stockholders (including swap settlement payments) ......... (.23)
To common stockholders ................................................... (1.18)
Dividends in excess of net investment income:
To common stockholders ................................................... --
Returns of capital:
To common stockholders ................................................... --
Total Distributions ...................................................... (1.41)
Effect of rights offering and related expenses; and Auction Term Preferred
Stock offering costs and sales load ....................................... --
Net Asset Value:
End of period ............................................................ $ 8.60
Per Share Market Value:
End of period ............................................................ $ 10.00
Total Investment Return+ ................................................... 13.28%
Net Assets, End of Period, Applicable to Common Stock(b) .................. $202,363
Net Assets, End of Period, Applicable to Preferred Stock(b) ............... $ 79,000
Net Assets, End of Period(b) ............................................. $281,363
Expense Ratios
Ratio of interest expense to average net assets** ........................ 3.29%*
Ratio of preferred and other debt expenses to average net assets** ...... .23%*
Ratio of operating expenses to average net assets** ..................... .70%*
Ratio of litigation settlement expense to average net assets** ............ --
Ratio of Total Expenses to Average Net Assets** ........................... 4.22%*
Ratio of Net Investment Income to Average Net Assets** ..................... 13.56%*
Portfolio Turnover Rate ................................................... 149.00%*
</TABLE>
- ---------------
(a) Prior to the appointment on February 19, 1992 of Wellington Management
Company, LLP as the Fund's investment adviser, the Fund was advised by
Ostrander Capital Management, L.P.
(b) Dollars in thousands.
* 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 and March 1997
rights offerings.
+ 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.
5
<PAGE>
CAPITALIZATION AND INFORMATION REGARDING SENIOR SECURITIES
Capitalization
The following table of unaudited financial information sets forth the
total assets and liabilities of the Fund and the net assets of the Fund, as of
March 31, 1997 and as adjusted to give effect to the issuance of all of the
shares of ATP Series C.
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Total Assets...................................................................... $341,918 $391,184
Total Liabilities................................................................. (12,479) (12,479)
-------- --------
Net Assets........................................................................ $329,439 $378,705
======= =======
NET ASSETS REPRESENTS:
Preferred Stock, 1,000,000 shares authorized
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
Auction Term Preferred Stock Series C, $1.00 par value,
liquidation preference $25,000 per share, 2,000 shares authorized, 0
shares issued and outstanding, 2,000 shares issued and
outstanding as adjusted........................................................ $ -- $50,000
Common Stock
Common Stock, $.01 par value, 200,000,000 shares authorized,
47,862,585 shares issued and outstanding....................................... $ 479 $ 479
Capital in excess of par value.................................................... 324,677 323,943
Accumulated net realized loss from security transactions.......................... (94,085) (94,085)
Net unrealized depreciation on investments........................................ (3,982) (3,982)
Accumulated undistributed net investment income................................... 2,350 2,350
---------- ----------
NET ASSETS........................................................................ $329,439 $378,705
Less liquidation value of Auction Term Preferred Stock......................... (100,000) (150,000)
------- -------
Net assets attributable to Common Stock outstanding............................... $229,439 $228,705
======= =======
Net asset value per share of Common Stock......................................... $ 4.79 $ 4.78
========= =========
</TABLE>
6
<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 ATP offered on December 20, 1993
having an aggregate liquidation preference of $100 million. This table has been
audited by Arthur Andersen LLP, independent public accountants, and is included
with the Fund's audited financial statements contained in the Statement of
Additional Information and should be read in conjunction with such audited
financial statements and related notes included therein. See "Description of
ATP" and "The Fund" herein and "Financial Statements" in the Statement of
Additional Information.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------
1996 1995 1994 1993
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Total Amount
Outstanding:
Notes ............ $-- $-- $-- $--
Preferred Stock ... 100,000,000 100,000,000 100,000,000 35,000,000
Short-term Loan . -- -- -- 45,000,000
Asset Coverage:
Per Note (1) ......... $-- $-- $-- $--
Per Preferred
Stock
Share (2) ............ 138,204 132,411 120,795 473,351
Per $1,000 of
Short-Term
Loan (1) ............ -- -- -- 4,682
Involuntary Liquidation
Preference:
Preferred Stock
Share (3) ............ $ 50,000 $ 50,000 $ 50,000 $100,000
Approximate Market Value
Per Note ............ $-- $-- $-- $--
Per Preferred
Stock Share (3) . 50,000 50,000 50,000 100,000
Per $1,000 of
Short-Term
Loan .................. -- -- -- 1,000
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------
1992 1991 1990 1989 1988
-------------- -------------- -------------- -------------- --------------
<S> <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 ....... 35,000,000 35,000,000 35,000,000 58,500,000 79,000,000
Short-term Loan ....... -- -- -- -- --
Asset Coverage:
Per Note (1) ......... $4,141 $ 3,819 $ 3,476 $ 3,192 $ 3,680
Per Preferred
Stock
Share (2) ............ 408,277 366,363 339,466 360,096 356,156
Per $1,000 of
Short-Term
Loan (1) ............ -- -- -- -- --
Involuntary Liquidation
Preference:
Preferred Stock
Share (3) ............ $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value
Per Note ............ $1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Per Preferred
Stock Share (3) . 100,000 100,000 100,000 100,000 100,000
Per $1,000 of
Short-Term
Loan .................. -- -- -- -- --
</TABLE>
- ---------------
(1) Calculated by subtracting the Fund's total liabilities (not including senior
securities) from the Fund's total assets and dividing such amounts by the
number of Notes outstanding.
(2) Calculated by subtracting the Fund's total liabilities (including the Notes
but not including the Preferred Stock) from the Fund's total assets and
dividing such amount by the number of Preferred Shares outstanding.
(3) Plus accumulated and unpaid dividends.
7
<PAGE>
PORTFOLIO COMPOSITION
(Unaudited)
As of December 31, 1996, the Fund's portfolio included 164 holdings
issued by 132 different issuers (consolidated by affiliated companies) having an
average yield to maturity of 9.45%. The average years to maturity for the
portfolio at this date was approximately 7.42 years.
The dollar weighted average of Moody's 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. See the Statement of Additional Information hereto for a description
of the ratings system used by Moody's.
Moody's Rating Percentage of Portfolio
-------------- -----------------------
Baa..................................... 1.01%
Ba...................................... 22.05%
B....................................... 73.46%
Caa..................................... 0.80%
Ca...................................... 0.37%
C....................................... 0.04%
NR...................................... 2.27%
--------
Total........................... 100.00%
8
<PAGE>
THE FUND
The New America High Income Fund, Inc. is a diversified, closed-end
management investment company with a leveraged capital structure organized as a
corporation under the laws of Maryland. The Board of Directors of the Fund
appoints the Fund's investment adviser annually. Currently, Wellington
Management Company, LLP 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
"The Investment Adviser." No assurance can be given that the Fund will achieve
its investment objective. See "Risk Factors and Special Considerations." 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.
On February 11, 1997, the Fund issued to the holders of its Common
Stock, $.01 par value per share, transferrable rights to purchase additional
shares of Common Stock (the "Rights Offering"). As a result of the Rights
Offering, 11,982,048 shares of Common Stock were issued on March 26, 1997,
resulting in gross proceeds to the Fund of $54,039,036. As of March 31, 1997,
the Fund had total assets of $341,918,288 and total net assets applicable to
Common Stock (aggregate assets less senior securities and Fund liabilities) of
$220,438,981. After giving effect to such issuance of Common Stock, the Fund's
capital structure included 47,862,585 shares of Common Stock, 1,200 shares of
ATP Series A and 800 shares of ATP Series B. The Fund also has a five-year
interest payment swap arrangement effective through February 7, 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 March 1, 1997. 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 approximately 5.66% at April 7, 1997). See
"Investment Objective and Policies" and "Description of Capital ATP--Dividends
and Dividend Periods." After giving effect to the issuance of ATP Series C
provided for hereunder, the swap arrangement will hedge the Fund's dividend
obligations with respect to 43.3% of the ATP then outstanding. The Fund makes
dividend payments to the holders of the ATP based on the results of periodic
Auctions without regard to the swap. In light of the proposed increase in the
Fund's Outstanding ATP, the Fund will consider adjustments in its swap
arrangements. The timing and amount of any such adjustment will depend upon
market conditions.
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.
Certain capitalized terms not otherwise defined in this Prospectus have
the meanings provided in the Glossary included as part of this Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of the shares of ATP Series C offered
hereby are estimated to be approximately $49,265,500 (after deducting sales load
and estimated offering expenses of approximately $734,500). The Fund anticipates
that investment of such net proceeds in accordance with the Fund's investment
objective and policies will take up to eight weeks from their receipt by the
Fund, depending
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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.
DESCRIPTION OF ATP
General
The following is a brief description of the terms of the ATP. 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 shares of ATP Series C. A form of the Articles, including a
form of the Articles Supplementary establishing the ATP Series C, is filed as an
exhibit to the Registration Statement of which this Prospectus is a part and may
be inspected and copies thereof may be obtained as described under "Available
Information."
Pursuant to the Articles, the Fund is authorized to issue 1,000,000
shares of Preferred Stock in one or more series. The Fund has previously issued
1,200 shares of ATP Series A and 800 shares of ATP Series B. The Fund is
offering an additional 2,000 shares of ATP Series C at a price per share of
$25,000 in the Offering.
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The Liquidation Value is currently $50,000 with respect to the ATP
Series A and Series B and $25,000 with respect to the ATP Series C. At the
Fund's Annual Meeting, scheduled for May 29, 1997, Stockholders will be asked to
approve a two-for-one stock split with respect to the ATP Series A and Series B
(the "Series A and Series B Stock Split"), which would double the number of
shares of ATP Series A and Series B outstanding while reducing the Liquidation
Value of each such share by one-half, to $25,000.
Dividends and Dividend Periods
With respect to shares of ATP Series C, the initial Applicable Rate and
the first Auction Date for the initial Dividend Period will be as set forth on
the inside cover page of this Prospectus. For each subsequent Dividend Period,
subject to certain exceptions, the dividend rate will be the Applicable Rate
that the Auction Agent advises the Fund has resulted from an Auction. See
"Description of ATP--Dividends" in the Statement of Additional Information.
The initial Dividend Period for the ATP Series C shall be days.
Dividend Periods after the initial Dividend Period shall be either Standard Term
Periods 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 Sufficient
Clearing Orders exist at the Auction in respect of such Alternate Term Period
(that is, in general, the number of shares 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.
Dividends will accumulate at the Applicable Rate from the Date of
Original Issue and shall be payable on each Dividend Payment Date thereafter.
For Dividend Periods of one year or less, Dividend Payment Dates shall 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. For Dividend Periods of more
than one year, Dividend Payment Dates shall 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 will be
paid through the Securities Depository (the Depository Trust Company or a
successor securities depository) on each Dividend Payment Date. See "Description
of ATP--Dividends and Dividend Periods" in the Statement of Additional
Information. The Securities Depository's current procedures provide for it to
distribute dividends in same-day funds to Agent Members who are in turn expected
to distribute such dividends to the persons for whom they are acting as agents.
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 (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, provided that
immediately following any such increase the Fund would be in compliance with the
ATP Basic Maintenance Amount.
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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 Submitted Hold Orders) or following the failure to hold an Auction for any
reason on the Auction Date scheduled to occur (except for circumstances in which
the Dividend Rate is the Default Rate, as described below).
A Default Period will commence if the Fund fails (i) to declare in a
timely manner the full amount of any dividend due on any Dividend Payment Date,
(ii) to pay in a timely manner to the Auction Agent the full amount of any
dividends due on the ATP or the redemption price for any shares of ATP called
for redemption, and such failure is not cured in a timely manner, or (iii) to
maintain the "aaa"/AAA Credit Rating unless such failure is cured by the
Dividend Payment Date next following the date of such failure. The Applicable
Rate for a Default Period, including any Dividend Period commencing during a
Default Period, will be the Default Rate. The Default Rate is the Reference Rate
multiplied by three. Holders of two-thirds of the ATP Series C then Outstanding
may waive any Dividend Default, Redemption Default or Rating Default.
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) Submitted
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.
Prior to each Auction, Broker-Dealers will notify holders of the term
of the next succeeding Dividend Period as soon as practicable after the
Broker-Dealers have been so advised by the Fund. After each Auction, on the
Auction Date, Broker-Dealers will notify holders of the Applicable Rate for the
next succeeding Dividend Period and of the Auction Date of the next succeeding
Auction.
The Fund may enter into transactions such as swaps, caps, collars and
floors with the purpose of hedging its dividend payment obligations with respect
to the ATP. See Appendix A to this Prospectus -- "Certain Investment Practices."
Notification of Dividend Period. The Fund will designate the duration
of Dividend Periods of ATP Series C; provided, however, that no such designation
is necessary for a Standard Term Period and that such designation 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
set forth above, (iii) Sufficient Clearing Orders shall have existed in the
Auction held on the Auction Date immediately preceding the first day of any
proposed Alternate Term Period, (iv) if the Fund shall have mailed a notice of
redemption with respect to any shares, as described under "Redemption" below,
the Redemption Price with respect to such shares shall have been deposited with
the Paying Agent, and (v) the Fund 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 has consulted with the Broker-Dealers and has provided
notice and an ATP Basic Maintenance Certificate to 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.
If the Fund proposes to designate any Alternate Term Period following
the Date of Original Issuance, generally not less 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 Fund by telephonic or other means to the Auction Agent and
confirmed in writing promptly thereafter. Notwithstanding the foregoing if the
duration of the Dividend Period prior to such Alternate Term Period is fewer
than 15 days, such notice shall be given not less than two Business Days prior
to such Alternate Term Period. Each such notice shall state (A) that the Fund
proposes to exercise its option to designate a succeeding Alternate Term Period,
specifying the first and last days thereof and (B) that the Fund
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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, in which case
the Fund shall specify 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 Fund
shall deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers, either:
(i) a notice stating (A) that the Fund 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 Fund has determined not to
exercise its option to designate an Alternate Term Period.
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
set forth in clause (ii) above, thereby resulting in a Standard Term Period.
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 such Valuation Date in the case of a failure to maintain the ATP Basic
Maintenance Amount as of such Valuation Date 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, the ATP will be subject to mandatory redemption
out of funds legally available therefor to the extent necessary to result in the
Fund having sufficient Eligible Assets or to restore the 1940 Act ATP Asset
Coverage, as the case may be. If the Fund at any time fails to maintain the
"aaa"/AAA Credit Rating and the Fund is unable to restore the "aaa"/AAA Credit
Rating within 90 calendar days thereafter, all shares of ATP will be subject to
mandatory redemption out of funds legally available therefor. To maintain the
"aaa"/AAA Credit Rating, the Fund must maintain a rating for the ATP in the
highest rating category from any two nationally recognized statistical rating
organizations (as used in the rules and regulations of the Securities Exchange
Act of 1934, as amended), one of which must be Moody's or S&P. The ATP will be
rated by Moody's and Fitch on the Date of Original Issue, although the Fund
reserves the right to obtain a rating or ratings from additional and/or
substitute rating agencies, subject to the preceding sentence.
The redemption price in the event of a mandatory redemption of a share
of ATP will be the Liquidation Value of such 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 Specific Redemption
Provisions. In the event any mandatory redemption is required, the particular
shares to be redeemed shall be selected by the Fund by lot, on a pro rata basis
between each series or by such other method as the Fund shall deem fair and
equitable, subject to the terms of any Specific Redemption Provisions. The
Fund's ability to make a mandatory redemption may be limited by the provisions
of the 1940 Act or Maryland law. See "Description of ATP--Redemption--Mandatory
Redemption" in the Statement of Additional Information. Shares of ATP may be
subject to mandatory redemption in accordance with the foregoing mandatory
redemption provisions notwithstanding the terms of any Specific Redemption
Provisions.
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Optional Redemption
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 per share shall be the
Liquidation Value, 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, which may include the payment of
redemption premiums to the extent required under any applicable Specific
Redemption Provisions.
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 applicable Liquidation Value, but is under no
obligation to do so.
Ratings
It is a condition of the Underwriter's obligation to purchase the ATP
Series C offered in the Offering that the Fund obtain the "aaa"/AAA Credit
Rating from Moody's and Fitch for the ATP Series C on the Date of Original
Issue. While there is no assurance that the "aaa"/AAA Credit Rating with respect
to the ATP Series C 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.
The Discount Factors and guidelines for calculating the Discounted
Value of the Fund's portfolio for purposes of determining whether the ATP Basic
Maintenance Amount has been satisfied have been established by Moody's and Fitch
in connection with the Fund's receipt from Moody's and Fitch of the "aaa"/AAA
Credit Rating with respect to the shares of ATP Series C on their Date of
Original Issue. See "Rating Agency Guidelines" in the Statement of Additional
Information. Additional discount factors and guidelines for calculating the
discounted value of investment company portfolios have been established by other
rating agencies, such as S&P. Such guidelines, which are similar but not
identical to those established by Moody's and Fitch, as well as various other
covenants and tests such as liquidity tests, would apply in the event the Fund
determined to seek (and was successful in obtaining) a rating from one or more
of such agencies with respect to the ATP.
The Fund estimates that on the Date of Original Issue of the ATP Series
C, based on the composition of its portfolio as of March 31, 1997, the 1940 Act
ATP Asset Coverage, after giving effect to the issuance of the shares of ATP
Series C ($50 million), and the deduction of sales load and estimated offering
expenses for such shares ($734,500), will be 252.47%.
Liquidation Preference
Upon a liquidation of the Fund, whether voluntary or involuntary, the
holders of ATP then Outstanding will be entitled to receive and to be paid out
of the assets of the Fund available for distribution to its stockholders, before
any payment or distribution shall be made on the Common Stock or on any other
class of shares ranking junior to the ATP upon liquidation, an amount equal to
the liquidation preference with
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respect to the ATP. The liquidation preference shall be Liquidation Value plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) 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; 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. After the payment to the holders of ATP of the full preferential amounts
provided for as described herein, the holders of ATP as such shall have no right
or claim to any of the remaining assets of the Fund. See "Description of
ATP--Liquidation" in the Statement of Additional Information.
Voting Rights
Except as otherwise indicated herein or as otherwise required by
applicable law, holders of the ATP will have equal voting rights with holders of
Common Stock (one vote per share) and will vote together with holders of Common
Stock as a single class. The 1940 Act requires that the holders of shares of
ATP, voting as a separate class, have the right to elect at least two directors
at all times and to elect a majority of the directors at any time two years'
dividends on any shares of ATP are unpaid. The holders of shares of ATP will
vote as a separate class on certain other matters as required under the Articles
or applicable law. In addition, to the extent permitted by the 1940 Act, each
series of ATP may vote as a separate series in certain circumstances. See
"Management of the Fund--Directors and Officers" and "Description of ATP--Voting
Rights" in the Statement of Additional Information.
AUCTION PROCEDURES
Dividend Rates and Auction Dates
The Dividend Rate for each Dividend Period will be determined on the
Auction Date in respect of such Dividend Period. If Sufficient Clearing Orders
exist for an Auction, the Dividend Rate for the ensuing Dividend Period will be
the Winning Rate, or, if all shares in an Auction are the subject of Submitted
Hold Orders in respect of a Dividend Period of fewer than 93 days, the Minimum
Applicable Rate. If Sufficient Clearing Orders do not exist for any Auction, the
ensuing Dividend Period will be a Standard Term Period and the Dividend Rate for
that Dividend Period will be the Maximum Applicable Rate. Except in the case of
a Default as described above or where all shares of the ATP are subject to
Submitted Hold Orders, if there is no Auction on any Auction Date, the next
Dividend Period will be a Standard Term Period, and the Dividend Rate will be
the Maximum Applicable Rate that could have resulted from an Auction in respect
of a Standard Term Period on such Auction Date. The Fund is obligated to
exercise its best efforts to maintain an Auction Agent.
Orders by Existing Holders and Potential Holders
On or prior to each Auction Date and prior to the Submission Deadline
(initially 1:00 P.M., New York City time), each Existing Holder, with respect to
shares it then holds, may submit to a Broker-Dealer by telephone or otherwise a
Hold Order, a Hold/Sell Order or a Sell Order and each Broker-Dealer will
contact Potential Holders to determine the Buy Orders, if any, to be made by
such Potential Holders.
Submission of Orders to Auction Agent
Each Order must be submitted in writing by a Broker-Dealer to the
Auction Agent prior to the Submission Deadline on each Auction Date for the
Auction to be conducted on such Auction Date and must specify (A) the aggregate
number of shares that are the subject of such Order, (B) to the extent that such
Orders are placed by an Existing Holder, the number of shares, if any, subject
to any Hold Order, Hold/Sell Order or Sell Order, and (C) the rate, if any,
specified in each Order.
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If any rate specified in any Order contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate up to the
next higher one thousandth of 1%.
Only in the case of an Auction preceding a Dividend Period of 93 days
or fewer and following a Dividend Period of 93 days or fewer, if an Order or
Orders covering all shares held by any Existing Holder are not submitted to the
Auction Agent by the Submission Deadline, the Auction Agent will 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. In the case of all other Auctions, if a
Hold/Sell or Sell Order or Orders covering all shares held by any Existing
Holder are not submitted to the Auction Agent by the Submission Deadline, the
Auction Agent will 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.
If one or more Orders covering in the aggregate more than the number of
shares of ATP held by an Existing Holder are submitted to the Auction Agent,
such Orders will be valid in accordance with the Validity Procedures.
If more than one Order is submitted on behalf of any Existing Holder or
Potential Holder, each Order submitted will be a separate Order.
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.
In the case of any Dividend Period of more than 93 days, only Buy
Orders, Hold/Sell Orders or Sell Orders may be submitted and Hold Orders may not
be submitted.
Determination of Sufficient Clearing Orders and Applicable Rate
Not earlier than the Submission Deadline, on each Auction Date, the
Auction Agent will assemble all Submitted Orders and will determine whether
Sufficient Clearing Orders exist and the Applicable Rate.
Acceptance of 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.
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
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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 such Submitted Buy
Order will be accepted only as to the number of shares determined in
accordance with the Proration Procedures.
If Sufficient Clearing Orders do not 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.
Notification of Results; Settlement
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.
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, which now provide for payment against delivery to their Agent
Members in same-day funds.
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.
Broker-Dealers; Commissions
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after any such termination.
A Broker-Dealer may acquire shares for its own account. If a
Broker-Dealer submits an Order for its own account in an Auction, it may have an
advantage over others because it would have knowledge of other Orders placed
through it in that Auction.
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Lehman Brothers Inc. ("Lehman" or the "Underwriter"), the underwriter
in the Offering, intends to serve as the initial Broker-Dealer. Other firms may
serve as Broker-Dealers in connection with Auctions, although there is no
assurance that they will do so.
The Auction Agent after each Auction will initially pay to Lehman from
funds provided by the Fund a service charge based on the purchase price of
shares placed by Lehman at such Auction. Initially, the annual rate of such
service charge with respect to Dividend Periods of less than one year shall be
an annual rate of up to .25 of 1%, depending on the results of the Auction and,
in the case of Dividend Periods of one year or more, a percentage agreed upon
between the Fund and Lehman. For purposes of this paragraph, shares will be
placed by Lehman 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 Lehman or (ii) the subject of an Order submitted by Lehman that is (A)
an Order of an Existing Holder that resulted in such Existing Holder continuing
to hold such shares as a result of the Auction or (B) an 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. In the event an Auction scheduled to
occur on an Auction Date fails to occur for any reason, Broker-Dealers will be
entitled to service charges as if the Auction had occurred and all holders of
shares placed by them had submitted valid Hold Orders.
The Auction Agent
Bankers Trust Company will serve as Auction Agent for so long as ATP
Series C shares are Outstanding. The Auction Agent is acting solely as agent of
the Fund and is not a trustee for holders of ATP Series C. In the absence of bad
faith or gross negligence on its part, the Auction Agent will not be liable to
the Fund for any action taken, suffered or omitted or for any error of judgment
made by it in the performance of its duties as Auction Agent.
The Auction Agent may resign upon notice to the Fund, such resignation
to be effective on the earlier of the 90th day after the delivery of such notice
and the date on which a successor Auction Agent is appointed by the Fund. The
Fund may also replace the Auction Agent.
Master Purchaser's Letter
Each prospective purchaser of shares of ATP or its Broker-Dealer will
be required to sign and deliver to the Auction Agent, as a condition to such
purchaser's purchasing shares of ATP in any Auction or otherwise, a Master
Purchaser's Letter, the form of which is attached to this Prospectus, in which
such prospective purchaser or its Broker-Dealer will agree, among other things:
(a) to participate in Auctions for shares of ATP in accordance
with the Auction Procedures described in this Prospectus;
(b) to sell, transfer or otherwise dispose of shares of ATP
only pursuant to a Bid or a Sell Order in an Auction, or to or through
a Broker-Dealer or to a person that has delivered a signed Master
Purchaser's Letter to the Auction Agent, provided that in the case of
all transfers other
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than those pursuant to Auctions, the Existing Holder of the shares so
transferred, its Agent Member or its Broker-Dealer advises the Auction
Agent of such transfer; and
(c) to have the ownership of the shares of ATP as to which such
purchaser or its Broker-Dealer is the Existing Holder maintained in
book entry form by the Securities Depository for the account of its
Agent Member, which in turn will maintain records of such purchaser's
beneficial ownership, and to authorize such Agent Member to disclose to
the Auction Agent such information with respect to such purchaser's
beneficial ownership as the Auction Agent may request.
Each prospective purchaser should ask its Broker-Dealer whether such
prospective purchaser should sign a Master Purchaser's Letter. If the
Broker-Dealer submits Orders for such prospective purchaser listing the
Broker-Dealer as the Existing Holder or the Potential Holder, a Master
Purchaser's Letter signed by such prospective purchaser may not be required.
An execution copy of the Master Purchaser's Letter is included with
this Prospectus. Execution by a prospective purchaser or its Broker-Dealer of a
Master Purchaser's Letter is not a commitment to purchase shares of ATP in the
offering being made by this Prospectus or in any Auction or otherwise, but is a
condition precedent to such purchaser's purchasing shares of ATP.
RATING AGENCY GUIDELINES-"aaa"/AAA RATING
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, which are set forth in greater detail in the Statement of
Additional Information, have been developed independently by Moody's and Fitch
in 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 ATP Basic Maintenance Amount. 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
Eligible Assets included in the portfolio.
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Upon any failure to maintain the required Discounted Value, the Fund
may seek to alter the composition of its portfolio to reattain the ATP Basic
Maintenance Amount on or prior to the Asset Coverage Cure Date, thereby
incurring additional transaction costs and possible losses and/or gains on
disposition of portfolio securities. To the extent any such failure is not cured
within two (2) Business Days, the ATP will be subject to mandatory redemption
thereafter. The "ATP Basic Maintenance Amount" equals the sum of (i) the
aggregate liquidation preference of ATP then Outstanding and (ii) certain
accrued and projected payment obligations of the Fund. See "Description of
ATP-Asset Maintenance" in the Statement of Additional Information.
The Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or Fitch. Failure to
adopt any such modifications, however, may result in a change in the ratings
described above or a withdrawal of the ratings altogether. In addition, any
rating agency providing a rating for the ATP may, at any time, change or
withdraw any such rating. The Board of Directors may, without stockholder
approval, adopt, amend, alter or repeal any definitions, covenants or other
obligations of the Fund in the Articles Supplementary, provided the Board of
Directors has obtained written confirmation from any rating agency which is then
rating the ATP and which so requires that any such change would not impair the
respective rating then assigned to the ATP.
As described by Moody's and Fitch, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. Fitch has stated that its rating on the ATP does not address the
market liquidity of the ATP. The rating on the ATP are not recommendations to
purchase, hold or sell ATP, inasmuch as the ratings do not comment as to market
price or suitability for a particular investor nor do the rating agency
guidelines described above address the likelihood that a holder of ATP will be
able to sell such shares in an Auction. The ratings are based on current
information furnished to Moody's and Fitch by the Fund and the Investment
Adviser, and information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information. The Common Stock has not been rated by a nationally
recognized statistical rating organization.
TAXATION
The following discussion offers only a brief outline of the federal
income tax consequences of investing in the ATP. Investors should consult their
own tax advisors for more detailed information and for information regarding the
impact of state,
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local, foreign, and other tax consequences of such an investment and of
potential changes in applicable tax laws.
The Fund has elected to be treated as a regulated investment company (a
"RIC") under subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and intends to operate so as to meet the Code requirements for
qualification as a RIC. However, no assurance can be given that such
requirements will be met. If the Fund qualifies for taxation as a RIC, it
generally will not be subject to federal corporate income taxes on that portion
of its income that is currently distributed to its stockholders. This deduction
for dividends paid to stockholders substantially eliminates the federal "double
taxation" on earnings (once at the corporate level and once again at the
stockholder level) that generally results from investments in a corporation.
Under present law, counsel to the Fund is of the opinion that the ATP
will constitute stock of the Fund, and thus distributions with respect to the
ATP (other than distributions in redemption of the ATP subject to section 302(b)
of the Code) will constitute dividends to the extent of the Fund's current or
accumulated earnings and profits, as calculated for federal income tax purposes.
Such dividends generally will be taxable as ordinary income to the stockholders
and will not qualify for the dividends received deduction available to
corporations under section 243 of the Code. However, dividends designated by the
Fund as capital gain dividends will be treated as long-term capital gains in the
hands of the stockholders. The Internal Revenue Service (the "Service")
currently requires that a RIC that has two or more classes of shares allocate to
each such class proportionate amounts of each type of its income (such as
ordinary income and net long-term capital gains) for each tax year. In
accordance with this position of the Service, the Fund intends to designate
distributions made with respect to the ATP as capital gain dividends in
accordance with the Fund's net long-term capital gain and the ATP's
proportionate share of the total dividends paid to both the ATP and the Common
Stock. The amount of net long-term capital gain realized by the Fund is not
expected to be significant, and there can be no assurance that any such income
will be realized by the Fund in any year. Any distribution in excess of the
Fund's earnings and profits will first reduce a stockholder's adjusted basis in
his shares of the ATP and, after such adjusted basis is reduced to zero, will
constitute a capital gain to a stockholder who holds his shares of the ATP as a
capital asset.
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.
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 Rating Agency Guidelines,
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-
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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.
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). The
Fund may invest in U.S. dollar-denominated bonds sold in the United States by
non-U.S. issuers ("Yankee bonds"). 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 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 in effect as of the date
of this Prospectus.
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.
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
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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.
Certain Investment Practices
The Fund and the Investment Adviser reserve the right to engage in
certain investment practices described in Appendix A to this Prospectus in order
to help achieve the Fund's investment objective. Such strategies include the
lending of portfolio securities, the short sale of securities and the use of
futures contracts and options thereon, entering into interest rate transactions,
such as swaps, caps, tears or collars for the purpose of hedging the Fund's
exposure to interest rates (including changes in dividend payments on the ATP),
reverse repurchase agreements and repurchase agreements (other than certain
repurchase agreements with qualified depository institutions having maturities
no longer than one day). So long as the ATP is Outstanding, the Fund may not
utilize certain of the practices described in Appendix A, 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 in Appendix A) 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. See "Rating Agency Guidelines" and Appendix A in the Statement of
Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
High Yield, High Risk Investments
The 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 issuers, as well
as the condition of the general high-yield market. Although the Fund seeks to
reduce risk by portfolio diversification, 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
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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 and the
quality of the issuer's management and regulatory matters.
Some of the lower-rated securities in which the Fund invests were
issued to raise funds in connection with the acquisition of a company in a
so-called "leveraged buy-out" transaction. 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 market for "high yield," high risk securities has expanded rapidly
over the last decade. An economic downturn or an increase in interest rates
could have a negative effect on the "high yield," high risk securities market
and on the market value of the "high yield," high risk securities held by the
Fund, as well as on the ability of the issuers of such securities to repay
principal and interest on their borrowings.
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, Fitch 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 A
to the Statement of Additional Information 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.
Leverage
The Fund has a leveraged capital structure since its organization and
upon issuance of the ATP Series C in the Offering (after giving effect to sales
load estimated offering expenses) will have total net assets of approximately
$228,705,000 and ATP having an aggregate liquidation preference of approximately
$150 million.
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To the extent the Fund establishes Standard Term Periods in or other
relatively short Dividend Periods for the ATP and does not effectively hedge the
risk associated with changes in short-term interest rates, the Fund would be
vulnerable to increases in short-term interest rates. To the extent the Fund is
unable to satisfy required asset coverage requirements under the 1940 Act and
the Rating Agency Guidelines, the Fund may be required to redeem some or all of
the ATP, including possibly ATP having Dividend Periods of longer than one year.
The ATP will be rated "aaa" by Moody's and AAA by Fitch as a condition of
issuance; in the event such rating is lowered or withdrawn without timely
replacement by a rating from a suitable successor rating agency, the ATP will be
subject to mandatory redemption. As a result of various asset coverage
requirements established in connection with the rating of the ATP, the Fund may
be unable to utilize certain investment practices that it might otherwise
utilize.
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 ATP-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 "Investment Objective and
Policies" in the Statement of Additional Information), 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 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."
Risks of Investing in ATP
An investment in the ATP involves potential risks.
The ability of an investor to dispose of shares of ATP may be largely
dependent on the success of an Auction. If in an Auction Sufficient Clearing Bid
Orders do not exist, then investors that have submitted Sell orders will not be
able to sell in the Auction all, and may not be able to sell in the Auction any,
shares of ATP subject to such submitted Sell Orders. There is no assurance that
any particular Auction will be successful. Neither the Fund nor any
Broker-Dealer is obligated to ensure that an Auction will be successful or to
purchase shares of ATP in an Auction or otherwise. The Fund is not required to
redeem shares of ATP in the event of a failed Auction. Further, there is no
assurance that a secondary market outside of the Auctions for the ATP will
develop, whether or not such Auctions are successful, or if such a market does
develop, that shares of ATP will trade at or close to the Liquidation Value. In
the event the Fund establishes a Dividend Period for ATP which is longer than a
Standard Term Period, particularly if such Dividend Period exceeds one year, any
increase in interest rates will likely have an adverse affect on the secondary
market price of ATP, holders of shares may have fewer opportunities to obtain
liquidity if Auctions do not occur frequently and may not be able to sell their
shares between Auctions at a price per share equal to the Liquidation Value.
Thus, under certain circumstances, holders of ATP may not have liquidity of
investment.
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The Fund does not intend to apply for listing of the ATP Series C on a
national securities exchange, but has been advised by Lehman that it currently
intends to make a market in the ATP as permitted by applicable laws and
regulations. Lehman is not obligated to make a market in the ATP between
Auctions and, therefore, a holder of ATP may not be able to liquidate its
position in the ATP between Auctions at a price per share equal to its
liquidation preference (i.e. Liquidation Value, plus accumulated dividends). In
the event the Fund establishes a Dividend Period for any series of ATP which is
longer than a Standard Term Period, particularly if such Dividend Period exceeds
one year, any increase in interest rates will likely have an adverse affect on
the secondary market price of such series, holders of such series may have fewer
opportunities to obtain liquidity if Auctions do not occur frequently and a
holder of such series may not be able to sell their shares between Auctions at a
price per share equal to Liquidation Value.
ATP represents a perpetual equity interest in the Fund (except to the
extent redeemable by the Fund) and does not give rise to a claim for payment of
a principal amount at a particular date. As such, ATP effectively ranks behind
all indebtedness or other non-equity claims on the Fund with respect to assets
available to satisfy claims on the Fund. In addition, in the event of the
dissolution, liquidation or winding up of the affairs of the Fund, after payment
of the liquidation preference and all dividends accumulated to and unpaid
through the date of final distribution, holders of ATP will not be entitled to
any further participation in any distribution of assets of the Fund.
The credit ratings of the ATP could be reduced while an investor holds
the ATP, subject to the mandatory redemption requirements described therein.
Holders of shares of stock, including ATP, are entitled to receive
dividends only when, as and if declared by the Board of Directors and only out
of funds legally available therefor. State corporation laws generally limit the
funds out of which issuers incorporated thereunder may pay to stockholders as a
dividend. For example, under Maryland law, dividends may not be paid if after
giving effect to the dividend, the Fund would not be able to pay its debts as
they became due in the usual course of business or the Fund's total assets would
be less than the sum of its total liabilities plus the amount needed to satisfy
the preferential rights of stockholders whose preferential rights upon
dissolution are superior to those receiving the dividend. The Fund may also
incur indebtedness with the consent of the relevant rating agencies.
Private Placements
The Fund may invest up to 20% of its total assets in certain securities
acquired directly from issuers in direct placement transactions. Such direct
placement securities are generally ineligible for inclusion in the calculation
of the Discounted Value of the Fund's investment portfolio under the Rating
Agency Guidelines, unless they are Rule 144A Securities. Rule 144A Securities
may be resold under certain circumstances and
to certain qualified institutional buyers. 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.
Payment Restrictions
During any annual period when the Fund may not have funds legally
available to pay the scheduled dividends then due on the ATP, such inability
would preclude the Fund from paying dividends on the Common Stock until the
scheduled dividends on the shares of ATP have been paid or provided for. Also,
the Fund is not permitted to declare any cash dividends or distributions on its
Common Stock unless, at the time of such declaration and after deducting the
amount of such dividend, the Fund is in compliance with the 1940 Act ATP Asset
Coverage test and has Eligible Assets with an aggregate Discounted Value at
least equal to the ATP Basic Maintenance Amount. This prohibition on the payment
of dividends or distributions might
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impair the Fund's ability to maintain its qualification as a regulated
investment company for federal income tax purposes. The Fund intends, however,
to redeem shares of ATP from time to time to the extent necessary to comply with
the asset coverage requirements. There can be no assurance, however, that such
redemptions can be effected in time to permit the Fund to distribute its income
as required to maintain its qualification as a regulated investment company
under the Code. See "Taxation."
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 Board of Directors consists of Robert F. Birch, Joseph L. Bower,
Richard E. Floor, Bernard J. Korman, Franco Modigliani, and Ernest E. Monrad.
See "Management of the Fund" in the Statement of Additional Information.
THE INVESTMENT ADVISER
The Board of Directors of the Fund appoints the Fund's investment
adviser annually. 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. Wellington Management, a Massachusetts limited
liability partnership of which Robert W. Doran, Duncan M. McFarland and John R.
Ryan 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 $133.2 billion of assets, including $50.9 billion of fixed income
securities of which $4.2 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.
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.
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.
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 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
27
<PAGE>
meaning of Section 18 of the 1940 Act. For the month ended March 31, 1997, the
Fund's Average Net Assets were $193,009,135 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, 1994 through December
31, 1994, January 1, 1995 through December 31, 1995 and January 1, 1996 through
December 31, 1996 were $665,000, $782,000, and $851,000, respectively.
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.
DESCRIPTION OF COMMON STOCK
In addition to the Preferred Stock, the Fund's Articles authorize the
issuance of up to 200 million shares of Common Stock, par value $.01 per share.
All shares of Common Stock have equal rights as to voting, dividends and
liquidation. All shares of Common Stock issued and outstanding are fully paid
and nonassessable. Shares of Common Stock have no preemptive, conversion or
redemption rights and are freely transferable. On February 11, 1997, the Fund
issued one transferable right ("Right") to its common stockholders for each
share of common stock they owned entitling the holders thereof to acquire one
share of common stock for each right held (the "Rights Offering"). The Rights
Offering expired on March 18, 1997, and 11,982,048 Rights were exercised. After
giving effect to the issuance of Common Stock pursuant to the Rights Offering,
as of March 31, 1997, 47,862,585 shares of Common Stock were issued and
outstanding.
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
the ATP can elect all 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 under "Description of
ATP- Voting."
The rights of the holders of the Common Stock may not be modified by a
vote of less than a majority of the shares of Common Stock outstanding.
The Common Stock is listed on the New York Stock Exchange (the
"Exchange") under the symbol "HYB."
Under the 1940 Act, the Fund cannot declare or pay dividends or other
distributions on the Common Stock or purchase any shares of Common Stock if, at
the time of the declaration or purchase, as applicable (and after giving effect
thereto), asset coverage with respect to senior securities representing
indebtedness (as defined in the 1940 Act), if any, would be less than 300%
and/or (as applicable) asset coverage with respect to the ATP would be less
than 200%. Dividends or other distributions on or purchases of the Common Stock
also will be prohibited at any time dividends on the ATP are in arrears or the
ATP Basic Maintenance Amount is not maintained.
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.
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<PAGE>
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. 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. 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.
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,
subject to compliance with rules adopted under the 1940 Act. 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.
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<PAGE>
UNDERWRITING
Offering
Lehman Brothers Inc., the Underwriter, has agreed, subject to the terms
and conditions of the Underwriting Agreement, the form of which is filed as an
exhibit to the Registration Statement, to purchase from the Fund, and the Fund
has agreed to sell to the Underwriter, the shares of ATP Series C.
The Underwriting Agreement provides that the obligations of the
Underwriter to purchase the ATP Series C are subject to the approval of certain
legal matters by counsel and certain other conditions and that the Underwriter
is obligated to purchase all of the shares of ATP if any are purchased. The Fund
and the Investment Adviser have agreed to indemnify the Underwriter against
certain liabilities under the Securities Act of 1933, as amended, and to
contribute to payments which the Underwriter may be required to make in respect
thereof.
The Fund has been advised that the Underwriter proposes to offer shares
of ATP Series C to the public initially at the public offering price set forth
on the cover page of this Prospectus. The sales load of $218.75 per share is
equal to .875% of the initial offering price. After the initial public offering,
the public offering price may be changed by the Underwriter.
The Fund has also agreed that it will not, without the prior written
consent of the Underwriter, offer, sell, contract to sell or otherwise dispose
of any shares of ATP or any securities convertible into or exercisable or
exchangeable for Preferred Stock for a period of 90 days after the date of this
Prospectus other than the shares of ATP Series C offered in the Offering.
The Underwriter will act in Auctions as a Broker-Dealer and will be
entitled to fees for services as a Broker-Dealer as set forth under "Auction
Procedures-Broker-Dealers; Commissions."
The Fund has been advised by the Underwriter that it currently intends
to make a market in the ATP, as permitted by applicable laws and regulations.
However, the Underwriter is not obligated to make a market in the ATP between
Auctions and such market making may be discontinued at any time at the sole
discretion of the Underwriter. See "Risk Factors--Risks of Investing in ATP."
The Fund anticipates that from time to time the Underwriter may act as
broker or dealer in connection with the execution of its portfolio transactions
after it has ceased to be the Underwriter and, subject to certain restrictions,
may act as a broker while it is the Underwriter. The Underwriter is an active
underwriter of, and dealer in, securities and acts a market maker in a number of
such securities, and therefore can be expected to engage in portfolio
transactions with the Fund.
Payment by each initial purchaser of shares of ATP Series C will be
made through such purchaser's Agent Member on the date of delivery of such
shares to the Underwriter in same-day funds. On the Date of Original Issue,
the Underwriter will deposit the shares of ATP Series C placed by it in its
account at
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the Security Depository and the Security Depository will deliver the shares of
ATP Series C purchased by each purchaser from the Underwriter's account to the
account of such purchaser's Agent Member of the Security Depository against
payment to the account of the Underwriter of an amount equal to the purchase
price from the account of such purchaser's Agent Member. Under the Master
Purchaser's Letter, each purchaser will be required to have the ownership of the
shares of ATP Series C owned by it maintained in book-entry form by the
Securities Depository through such purchaser's Agent Member, which in turn will
maintain records of such purchaser's beneficial ownership.
CERTAIN LEGAL MATTERS
Certain legal matters with respect to the ATP will be passed upon for
the Fund by Goodwin, Procter & Hoar LLP, Boston, Massachusetts and for the
Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York. Richard E. Floor, a Director and
Secretary of the Fund, is a partner of Goodwin, Procter & Hoar LLP through a
professional corporation. An opinion regarding the valid issuance of the ATP
will be rendered by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
Goodwin, Procter & Hoar LLP and Simpson Thacher & Bartlett will rely as to
matters of Maryland law upon such opinion.
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 statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for the periods presented appearing in the
Fund's Annual Report and 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 incorporated herein by reference, and are
included herein upon the authority of said firm as experts in accounting and
auditing in giving said report.
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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.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, 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. The Commission also maintains
a web site that contains reports, proxy statements and other information about
the Fund filed electronically with the Commission: htt://222.sec.gov. 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 and the ATP 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.
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
----
Investment Objective and Policies..................................... B-2
Rating Agency Guidelines.............................................. B-3
Investment Restrictions............................................... B-15
Portfolio Maturity and Turnover....................................... B-16
Taxation.............................................................. B-17
Management of the Fund................................................ B-21
Determination of Net Asset Value...................................... B-27
Description of ATP.................................................... B-28
Auction Procedures.................................................... B-42
Financial Statements of the Fund, December 31, 1996................... B-46
Notes to Financial Statements of the Fund, December 31, 1996.......... B-60
Report of Independent Public Accountants.............................. B-66
Ratings of Corporate Obligations (Appendix A)......................... B-A-1
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GLOSSARY
""aaa"/AAA Credit Rating" means a credit rating in the highest category
of any two nationally recognized statistical rating organizations (as used in
the rules and regulations under the Securities Exchange Act of 1934, as
amended), one of which shall be Moody's or S&P.
"AA Composite Commercial Paper Rate" on any date means (a) 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 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 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,
(i) "Commercial Paper Dealers" shall mean (A) Lehman Brothers Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (B) in lieu
of any thereof, its respective Affiliate or successor, and (C) 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 Fund, and (ii) "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 (A) such rate expressed as a decimal, divided by (B) the difference between
(x) 1.00 and (y) a fraction, the numerator of which shall be the 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.
"Advisory Agreement" means the Investment Advisory Agreement dated
February 19, 1992 under which Wellington Management serves as investment adviser
for the Fund.
"Affiliate" means any person known to the Auction Agent to be
controlled by, in control of or under common control with the Fund; provided
that no Broker-Dealer controlled by, in control of or under common control with
the Fund 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 Fund be deemed to be an Affiliate solely because such director
or executive officer is also a director of the Fund.
"Agent Member" means a member of or participant in the Securities
Depository that will act on behalf of a person placing an Order.
"Alternate Term Period" means any Dividend Period that is not a
Standard Term Period.
"Applicable Rate" means, with respect to each series of ATP, for each
Dividend Period (A) if Sufficient Clearing Orders exist for the Auction in
respect thereof, the Winning Rate, (B) if Sufficient Clearing Orders do not
exist for the Auction in respect thereof, the Maximum Applicable Rate and (C) 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.
"Articles" means the Articles of Amendment and Restatement, as amended,
including any Articles Supplementary of the Fund.
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<PAGE>
"Asset Coverage Cure Date" has the meaning set forth on page B-33 of
the Statement of Additional Information.
"ATP" means the Series C Auction Term Preferred Stock, $1.00 par value
per share and liquidation preference $25,000 per share of the Fund or any other
series of Preferred Stock heretofore or hereinafter designated "Auction Term
Preferred Stock" by Articles Supplementary or Articles of Amendment.
"ATP Basic Maintenance Amount" has the meaning set forth on page B-3 of
the Statement of Additional Information.
"ATP Basic Maintenance Certificate" has the meaning set forth on page
B-37 of the Statement of Additional Information.
"ATP Series A" means the shares of Series A of the ATP previously
issued or any other series of Preferred Stock hereinafter designated as shares
of Series A of the ATP by Articles Supplementary or Articles of Amendment.
"ATP Series B " means the shares of Series B of the ATP previously
issued or any other series of Preferred Stock hereinafter designated as shares
of Series B of the ATP by Articles Supplementary or Articles of Amendment.
"ATP Series C " means the shares of Series C of the ATP issued hereby
or any other series of Preferred Stock hereinafter designated as shares of
Series C of the ATP by Articles Supplementary or Articles of Amendment.
"Auction" means each periodic operation of the procedures set forth
under "Auction Procedures."
"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 Fund to
follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"Auction Date" means the first Business Day next preceding the first
day of a Dividend Period for the relevant series of ATP.
"Auction Procedures" means the procedures for conducting Auctions set
forth under "Auction Procedures."
"Average Net Assets" has the meaning set forth on page 25 of this
Prospectus.
"Board of Directors" or "Board" means the Board of Directors of the
Fund or any duly authorized committee thereof as permitted by applicable law.
"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 Fund and has entered into a Broker-Dealer Agreement with the Auction Agent
that remains effective.
"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.
"Buy Order" means the communication by a Potential Holder to a
Broker-Dealer of the number of shares of ATP which such Potential Holder offers
to purchase on an Auction Date if the Applicable Rate for the next succeeding
Dividend Period therefor is not less than the rate per annum then specified by
such Potential Holder.
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"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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per share, of
the Fund.
"Date of Original Issue" means with respect to each of the ATP Series
A, ATP Series B and ATP Series C the date on which such ATP are originally
issued by the Fund.
"Default Period" has the meaning set forth on page B-37 of the
Statement of Additional Information.
"Default Rate" means the Reference Rate multiplied by three (3).
"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 optional
redemption, such obligations or securities shall be considered "Deposit
Securities" only if they are also rated at least P-1 by Moody's.
"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.
"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.
"Dividend Payment Date" for each 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.
"Dividend Period" means, with respect to the relevant series of ATP,
the period commencing on the Date of Original Issue and ending on the date
specified for such series on the Date of Original Issue 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 Fund.
"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.
"Existing Holder" means (a) a person who has signed a Master
Purchaser's Letter and beneficially owns shares of a series of ATP listed in
that person's name in the records of the Auction Agent or (b) the beneficial
owner of shares of the ATP which are listed under such person's Broker-Dealer's
name in the records of the Auction Agent, which Broker-Dealer shall have signed
a Master Purchaser's Letter.
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"Exposure Period" means the period commencing on (and including) a
given Valuation Date and ending 41 days thereafter.
"Fitch" means Fitch Investors Service, Inc. and its successors at law.
"FNBB" means The First National Bank of Boston.
"Fund" means The New America High Income Fund, Inc., a Maryland
corporation that is the issuer of each series of ATP.
"Holder" means, with respect to the Common Stock and the preferred
stock, including the ATP, of the Fund, the registered holder of shares of such
Stock as the same appears on the stock ledger or stock records books of the
Fund.
"Hold Order" means the communication by an Existing Holder to a
Broker-Dealer of the number of Outstanding shares of each series of ATP which
such Existing Holder desires to continue to hold without regard to the
Applicable Rate for the next succeeding Dividend Period therefor.
"Hold/Sell Order" means the communication by an Existing Holder to a
Broker-Dealer of the number of Outstanding shares of each series of ATP which
such Existing Holder desires to continue to hold if the Applicable Rate for the
next Dividend Period therefor is not less than the rate per annum then specified
by such Existing Holder.
"Investment Adviser" means Wellington Management Company, LLP, the
current investment adviser to the Fund, or such other future investment adviser
to the Fund.
"Lehman" means Lehman Brothers Inc.
"Liquidation Value" currently means $50,000 per share for ATP Series A
and ATP Series B, and $25,000 per share for ATP Series C. After giving effect to
the Series A and Series B Stock Split, "Liquidation Value" shall mean $25,000
per share with respect to ATP Series A and Series B.
"Mandatory Redemption Date" has the meaning set forth on page B-33 of
the Statement of Additional Information.
"Mandatory Redemption Price" has the meaning set forth on page B-34 of
the Statement of Additional Information.
"Market Value" shall mean the fair market value of an asset of the Fund
(excluding interest and dividends due on such assets) as computed based upon (i)
pricing services to be provided by Merrill Lynch Capital Markets Securities
Pricing Service, Kenny S&P Evaluation Services or such other pricing service
determined from time to time by the Board of Directors, provided that Moody's
(if Moody's is then rating ATP. Fitch (if Fitch is then rating ATP) and any
Other Rating Agency which is then rating 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.
"Master Purchaser's Letter" means a letter substantially in the form
of, or containing provisions similar to those in the form, attached hereto which
is required to be executed by each prospective purchaser of shares of ATP or the
Broker-Dealer through whom the shares will be held.
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"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 Fund would be in compliance with ATP Basic
Maintenance Amount.
"Minimum Applicable Rate" means, on any Auction Date with respect to a
Dividend Period of 93 days or fewer 80% of the AA 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.
"Moody's" means Moody's Investors Service, Inc. and its successors at
law.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"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 Fund 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.
"Notice of Redemption" has the meaning provided on page B-34 of the
Statement of Additional Information.
"Offering" means the offering of 2,000 shares of ATP Series C issued by
the Fund under its Registration Statement of which this Prospectus is a part.
"Order" means a Hold Order, a Hold/Sell Order, a Sell Order or a Buy
Order.
"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 Fund.
"Other Rating Agency Eligible Assets" means assets of the Fund
designated by any Other Rating Agency as eligible for inclusion in calculating
the discounted value of the Fund's assets in connection with such Other Rating
Agency's rating of the ATP.
"Outstanding" means, as of any date, shares of ATP theretofore issued
by the Fund except, without duplication, (i) any shares of ATP theretofore
canceled or redeemed by the Fund, or delivered to the Auction Agent for
cancellation or with respect to which the Fund has given notice of redemption
and irrevocably deposited with the Paying Agent sufficient funds to redeem such
shares of ATP, and (ii) any shares of ATP represented by any certificate in lieu
of which a new certificate has been executed and delivered by the Fund.
Notwithstanding the foregoing (A) for purposes of voting rights (including the
determination of the number of shares required to constitute a quorum), any
shares of the ATP to which the Fund or any Affiliate of the Fund shall be the
Existing Holder shall be disregarded and not deemed Outstanding; (B) in
connection with any Auction, any shares of the ATP Series C as to which the Fund
or any person known to the Auction Agent to be an Affiliate of the Fund shall be
the Existing Holder thereof shall be disregarded and deemed not to be
Outstanding; and (C) for purposes of determining the ATP Basic Maintenance
Amount, shares of ATP held by the Fund shall be disregarded and not deemed
Outstanding but shares held by any Affiliate of the Fund shall be deemed
Outstanding.
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"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 Fund to serve as paying agent which Paying Agent may be the
same as the Auction Agent.
"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 or whose shares will be listed under such
person's Broker-Dealer's name in the records of the Auction Agent, which
Broker-Dealer 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
or such person of shares of ATP, additional shares of ATP).
"Proration Procedures" means:
(A) if Sufficient Clearing Orders exist, in the case of a Submitted
Hold/Sell Order specifying a rate equal to the Winning Rate
(x) the number of shares of the relevant series of ATP to be
the subject of an accepted Hold Order will be (i) the number of shares
of such series of ATP subject to such Submitted Hold/Sell Order
multiplied by (ii) 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 (iii) the total number
of shares of Submitted Hold/Sell Orders that specified a rate equal to
the Winning Rate, and
(y) 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,
(B) if Sufficient Clearing Orders exist, in the case of a Submitted
Buy Order specifying a rate equal to the Winning Rate
(x) the number of shares of the relevant series of ATP to be
the subject of an accepted Buy Order will be (i) the number of shares
of such series of ATP subject to such Submitted Buy Order multiplied by
(ii) the difference between (1) 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
(2) the number of shares of each series of ATP that are the subject of
a Submitted Buy Order that specified a rate lower than the Winning Rate
and divided by (iii) 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
(y) such Submitted Buy Order will not be accepted as to the
remaining number of shares subject to such Submitted Buy Order, and
(C) 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
(x) the number of shares of the relevant series of ATP to be
the subject of an accepted Sell Order will be (i) the number of shares
of such series of ATP subject to such Submitted Hold/Sell Order or
Submitted Sell Order multiplied by (ii) 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 Applicable Rate
and divided by (iii) 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
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(y) 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.
"Rating Agency Guidelines" means the guidelines established by Moody's
(if Moody's is then rating the ATP) and Fitch (if Fitch is then rating the ATP)
as set forth under "Rating Agency Guidelines," in the Statement of Additional
Information, as amended from time to time, or by any Other Rating Agency that is
then rating the ATP.
"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).
"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 Potential
Holder on such Auction Date will be a number of shares of such series of ATP
evenly divisible by 1.
"Rule 144A Securities" means securities that 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.
"S&P" means Standard & Poor's Corporation and its successors at law.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Fund that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of each series of ATP.
"Sell Order" means the communication by an Existing Holder to a
Broker-Dealer of the number of Outstanding shares of the relevant series of ATP
which such Existing Holder offers to sell without regard to the Dividend Rate
for the next succeeding Dividend Period therefor.
"Series A and Series B Stock Split" means the proposed two-for-one
stock split with respect to the ATP Series A and Series B (the "Series A and
Series B Stock Split") which will be considered by the Fund's Stockholders at
their next Annual Meeting.
"Service" means the United States Internal Revenue Service.
"Specific Redemption Provisions" means with respect to any Alternate
Term Period of more than one year, either, or any combination of, 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 3(a)(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
Liquidation Value plus accumulated but unpaid dividends plus a premium expressed
as a percentage or percentages of Liquidation Value or expressed in a formula
using specified variables as determined by the Board of Directors after
consultation with the Broker-Dealers.
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"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.
"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.
"Submitted Buy Order" means each Buy Order submitted to the Auction
Agent by a Broker-Dealer.
"Submitted Hold Order" means each Hold Order submitted to the Auction
Agent by a Broker-Dealer.
"Submitted Hold/Sell Order" means each Hold/Sell Order submitted to the
Auction Agent by a Broker-Dealer.
"Submitted Order" means each Order submitted to the Auction Agent by a
Broker-Dealer.
"Submitted Sell Order" means each Sell Order submitted to the Auction
Agent by a Broker-Dealer.
"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.
"TARPS" means the Taxable Auction Rate Preferred Stock of the Fund
which were redeemed in 1994.
"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.
"Underwriter" means Lehman Brothers Inc.
"Underwriting Agreement" means the underwriting agreement among the
Underwriter, the Fund and the Investment Adviser, a form of which is filed as an
exhibit to the Fund's Registration Statement of which this Prospectus is a part.
"Validity Procedures" means the following procedures and priorities:
(A) 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
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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.
(B) 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 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.
(C) 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.
"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 Fund; provided,
further, however, that such date shall be not more than one week from the date
on which the ATP initially is issued.
"Wellington Management" means Wellington Management Company, LLP, the
Fund's current Investment Adviser.
"Winning Rate" means the lowest rate specified in the Submitted Orders
which, if (A) each Submitted Hold/Sell Order from Existing Holders specifying
such lowest rate and all other Submitted Hold/Sell Orders from Existing Holders
specifying lower rates were accepted and (B) 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 (A) 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 (B) 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.
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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
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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 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.
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 place 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.
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(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:
_______________________________________
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APPENDIX A
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, as described under "Investment Objectives and
Policies-Certain Investment Practices."
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 under "Description of ATP" in the Statement of Additional Information)
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 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
A-1
<PAGE>
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 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
A-2
<PAGE>
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 Series A and ATP Series B
Outstanding immediately prior to the original date of this Prospectus. 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 5.66% at April 7, 1997). 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." In light of the proposed increase in the Fund's Outstanding
ATP, the Fund will consider adjustments in its swap arrangements. The timing and
amount of any such adjustment will depend upon market conditions.
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 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.
A-3
<PAGE>
For purposes of valuation of the Fund's assets under the Rating
Agency Guidelines (see "Description of ATP--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
ATP--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 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
A-4
<PAGE>
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.
A-5
<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, the Investment Adviser or the
Underwriter. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof.
-------------------------------
TABLE OF CONTENTS
Page
----
Financial Highlights.................................... 3
Capitalization and Information Regarding
Senior Securities...................................... 5
Portfolio Composition................................... 7
The Fund................................................ 8
Use of Proceeds......................................... 8
Description of ATP...................................... 9
Auction Procedures..................................... 13
Rating Agency Guidelines -
"aaa"/AAA Rating..................................... 17
Taxation............................................... 18
Investment Objective and Policies...................... 19
Risk Factors and Special Considerations................ 21
Board of Directors..................................... 24
The Investment Adviser................................. 24
Description of Common Stock............................ 25
Conversion to Open-End Status and
Repurchase of Shares................................. 26
Custodian, Auction Agent, Registrar,
Transfer Agent and Paying Agent...................... 27
Underwriting........................................... 27
Certain Legal Matters.................................. 28
Experts................................................ 28
Reports to Stockholders................................ 28
Available Information.................................. 28
Table of Contents of the Statement of
Additional Information............................... 30
Glossary............................................... 31
Master Purchaser's Letter.............................. 40
Certain Investment Practices .......................... A-1
================================================================================
================================================================================
$50,000,000
The New America
High Income Fund, Inc.
Auction Term Preferred Stock
2,000 Shares Series C
Liquidation Value
$25,000 Per Share
--------------------------
PROSPECTUS
May , 1997
--------------------------
Lehman Brothers
<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 Statement of Additional Information does not constitute a
Prospectus.
SUBJECT TO COMPLETION, dated April 30, 1997
THE NEW AMERICA HIGH INCOME FUND, INC.
Auction Term Preferred Stock
2,000 Shares Series C
Liquidation Value $25,000 Per Share
STATEMENT OF ADDITIONAL INFORMATION
The New America High Income Fund, Inc. (the "Fund") is a diversified,
closed-end management investment company with a leveraged capital structure. The
Board of Directors of the Fund appoints the Fund's investment adviser annually,
subject to stockholder approval. Currently, Wellington Management Company, LLP
("Wellington Management" or the "Investment Adviser") serves as 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"). This Statement of Additional
Information is not a prospectus, but should be read in conjunction with the
Prospectus for the Fund dated , 1997 (the "Prospectus"). This Statement of
Additional Information does not include all information that a prospective
investor should consider before purchasing shares of the Fund, and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge, by calling the Fund's Information
Agent, Corporate Investor Communications, toll free at (800) 805-9132 or by
writing to the Fund, whose address is 10 Winthrop Square, Boston, Massachusetts
02110. This Statement of Additional Information incorporates by reference the
entire Prospectus.
Certain capitalized terms not otherwise defined in this Statement of
Additional Information have the meanings provided in the Glossary included as
part of the Prospectus.
TABLE OF CONTENTS
Page
----
Investment Objective and Policies................................. B-2
Rating Agency Guidelines.......................................... B-3
Investment Restrictions........................................... B-15
Portfolio Maturity and Turnover................................... B-16
Taxation.......................................................... B-17
Management of the Fund............................................ B-21
Determination of Net Asset Value.................................. B-27
Description of ATP................................................ B-28
Auction Procedures................................................ B-42
Financial Statements of the Fund, December 31, 1996............... B-46
Notes to Financial Statements of the Fund, December 31, 1996...... B-60
Report of Independent Public Accountants.......................... B-66
Ratings of Corporate Obligations (Appendix A)..................... B-A-1
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the registration statement filed with
the Securities and Exchange Commission, Washington, D.C. (the "Commission").
These items may be obtained from the Commission upon payment of the fee
prescribed, or inspected at the Commission's office at no charge.
This Statement of Additional Information is dated May , 1997
B-1
<PAGE>
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."
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. 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 cumulative total
investment returns for the one-, three-, and five-year periods ended December
31, 1996 were 19.89%, 41.04%, and 156.24%, respectively, past performance is no
guarantee of future results. See "The Fund" in the Prospectus 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.
B-2
<PAGE>
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 Moody's and Fitch, non-rated securities, private
placements (other than Rule 144A Securities), 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 or other distributions on Common Stock. See "Description of
ATP--Asset Maintenance." The effect of compliance with the Rating Agency
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 (as defined herein), and to limit or delay the
Fund's ability to reinvest cash in a rising "high-yield" market. See "The Fund"
in the Prospectus. 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 Moody's and Fitch, are frequently issued by
corporations in the growth stage of their development. Bonds 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 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 A. "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.
B-3
<PAGE>
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.
The Fund intends to maintain a Discounted Value for its portfolio 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 ATP--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").
It is a condition of the Underwriter's obligation to purchase the ATP
that the Fund obtain a rating of "aaa" from Moody's and a rating of AAA from
Fitch as of the Date of Original Issue. As described by Moody's, an issue of
preferred stock which is rated "aaa" is considered to be top-quality preferred
stock with good asset protection and the least risk of dividend impairment
within the universe of preferred stocks. As described by Fitch, a preferred
stock rating of AAA indicates strong asset
B-4
<PAGE>
protection, conservative balance sheet ratios and positive indications of
continued protection of preferred dividend requirements. A Moody's or Fitch
credit rating of preferred stock does not address the likelihood that a resale
mechanism (e.g., the Auction) will be successful.
Ratings are not recommendations to purchase, hold or sell shares of
ATP, inasmuch as the rating does not comment as to market price or suitability
for a particular investor. The rating is based on current information furnished
to Moody's and Fitch by the Fund and obtained by Moody's and Fitch from other
sources. The rating may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information. The ATP will be subject to
mandatory redemption in the event that the "aaa"/AAA Credit Rating is not
available for the ATP and the Fund is unable to obtain the "aaa"/AAA Credit
Rating for the ATP from a substitute rating agency or agencies within the time
specified herein. 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.
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 as specified
by Moody's, 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 Rule 144A Securities.
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 (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:
B-5
<PAGE>
Moody's Discount Factors --
Corporate Debt Securities+
Remaining Term
to Rating Category
Maturity Asset 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............ 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
* 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:
Maximum Maximum
Single Single Minimum
Issuer Industry Issue Size
Asset Ratings(1) (%)(2,3) (%)(3,4) ($ in millions)(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 (Caa subordinate)....... 2 5 50(5)
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.
B-6
<PAGE>
(4) Industries are determined according to industry classifications
specified by Moody's ("Moody's Industry Classification"). See below.
(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.
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
B-7
<PAGE>
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, and Distribution and Sales of the foregoing
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.
B-8
<PAGE>
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
Maintenance Amount (see "Description of ATP--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
B-9
<PAGE>
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
(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
B-10
<PAGE>
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 is the Market Value thereof determined as specified by Fitch 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 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 Rule 144A Securities; 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 Rule 144A
Securities; (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 Securities Act of 1933:
B-11
<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 1.27
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
B-12
<PAGE>
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;
"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:
B-13
<PAGE>
Maximum Maximum Minimum
Single Issuer Single 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
Healthcare & Pharmaceutical
Industrial Machinery
Media, Leisure & Entertainment
Metals & Mining
Miscellaneous
Paper & Forest Products
Retail
Sovereigns
Textiles & Furniture
Transportation
Utilities
B-14
<PAGE>
Other Fitch Eligible Assets. Other Fitch Eligible Assets include
the following:
(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 Fund has received prior written
authorization 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; and
(iii) U.S. Treasury Securities.
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
B-15
<PAGE>
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 ATP--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.
* * *
For so long as any of the ATP is Outstanding and either Moody's,
Fitch or any Other Rating Agency is rating the ATP, the Fund will not, unless it
has received written confirmation from Moody's, Fitch or any Other Rating Agency
as applicable, that any such action would not impair the respective rating then
assigned by Moody's, Fitch, or such Other Rating Agency 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
transaction; or (ii) borrow money, except that the Fund may, without 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; or (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; or (iv) engage in any short sales of securities; or (v)
lend portfolio securities; or (vi) merge or consolidate into or with any other
corporation. For purposes of valuation of Eligible Assets: (A) if the Fund
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 Fund 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 Fund buys have no value. For so long as
ATP are rated by Moody's or Fitch: (A) the Fund will not engage in options
transactions for leveraging or speculative purposes; (B) 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; (C) the
Fund will not enter into an option transaction with respect to portfolio
securities unless, after giving effect thereto, the Fund would continue to have
Eligible Assets with an aggregate Discounted Value equal to or greater than the
ATP Basic Maintenance Amount; (D) the Fund will not enter into an option
transaction with respect to portfolio securities unless after giving effect to
such transaction the Fund 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
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);
(G) where delivery may be made to the Fund with any of a class of securities,
the Fund 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 Fund
will not engage in forward contracts; and (I) there shall be a quarterly audit
made of the Fund's options transactions by the Fund's independent accountants
to confirm that the Fund is in compliance with these standards.
The Board of Directors may, without approval of any Holder of the ATP
or any other stockholder of the Fund, from time to time amend, alter or repeal
any or all of the definitions required to be contained
B-16
<PAGE>
in the Articles by Moody's, Fitch or any Other Rating Agency in the event the
Fund receives written confirmation 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 ATP--Voting
Rights."
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.
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.
B-17
<PAGE>
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 "Investment
Practices."
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 "Rating Agency Guidelines."
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
7.42 years. The weighted average maturity 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.
B-18
<PAGE>
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. For the fiscal
years ended December 31, 1994, 1995 and 1996, the Fund paid brokerage
commissions for the execution of portfolio transactions of $0, $3,000 and $0,
respectively. The Fund's portfolio turnover rates for the fiscal years ended
December 31, 1994, 1995 and 1996 were 58.6%, 62.7% and 53.5%, respectively.
B-19
<PAGE>
TAXATION
The following discussion offers only a brief outline of the federal
income tax consequences of investing in ATP. 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 of 1986, as amended (the
"Code") and intends to qualify under those provisions each year. 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 any of the following held for less than three months: (i)
stock or securities, (ii) options, futures, or forward contracts (other than
options, futures, or forward contracts on foreign currencies), or (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies)
that are not directly related to its principal business of investing in stock or
securities (or options and futures with respect to stocks or securities) (the
"30% limitation"); and (c) diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities, securities of other
regulated investment companies 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 or securities of other regulated investment
companies).
B-20
<PAGE>
As a regulated investment company, in any fiscal year with respect to
which the Fund distributes at least 90% of its net investment income (i.e., the
Fund's investment company taxable income, as that term is defined in the Code,
without regard to the deduction for dividends paid), 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 (i.e., the Fund's net long-term capital
gains in excess of the sum of net short-term capital losses and capital loss
carryovers from prior years, if any) that it distributes to stockholders.
However, the Fund will be subject under current tax rates to a federal income
tax at a maximum effective rate of 35% on any undistributed net investment
income and net capital gain. 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. For this purpose, any income or
gain retained by the Fund that is subject to corporate tax will be considered to
have been distributed by year-end. 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 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 ATP--Dividends and Dividend Periods." Such a suspension of
distributions might prevent the Fund from distributing 90% of its net investment
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 taxable 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 net
investment income, which distribution is required to qualify for taxation as a
regulated investment company. The Fund may also recognize 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 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 30% limitation discussed
above.
B-21
<PAGE>
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 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.
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 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 disqualification 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 ATP
Under present law and based, in part, on the Fund's representation
that there is no express or implied agreement between or among a Broker-Dealer
or any other party and the Fund or any owners of the ATP that the Broker-Dealer
or any other party will guarantee or otherwise arrange to ensure that an owner
of ATP will be able to sell his or her shares, counsel to the Fund is of the
opinion that ATP will constitute stock of the Fund, and thus distributions with
respect to the ATP (other than distributions in redemption of the ATP subject to
section 302(b) of the Code) will constitute dividends to the extent of the
Fund's current or accumulated earnings and profits, as calculated for federal
income tax purposes. The following discussion assumes such treatment will apply.
The Fund's income will consist of net investment income and may also
consist of net capital gains. The character of the Fund's income will not affect
the amount of dividends to which the holders of the ATP are entitled. Holders of
the ATP are entitled to receive only the amount of dividends as determined by
periodic auctions. For federal income tax purposes, however, the Internal
Revenue Service (the "Service") currently requires that a regulated investment
company that has two or more classes of shares allocate to each such class
proportionate amounts of each type of its income (such as ordinary income and
net capital gains) for each tax year. Accordingly, the Fund intends to designate
distributions made with respect to the Common Stock and the ATP as consisting of
particular types of income (net capital gains, dividend income and ordinary
income) in accordance with each class' proportionate share of the total
dividends paid to both classes. Thus, each dividend paid with respect to the ATP
during a year will be designated as ordinary income dividends and, if the Fund
designates any dividend as a capital gains dividend, capital gains in proportion
to the ATP's
B-22
<PAGE>
proportionate share of the total dividends paid on the ATP during the year to
the total distributions paid on both the ATP and the Common Stock during the
year. Each holder of the ATP during the year will be notified of the allocation
within 60 days after the end of the year. The amount of the net capital gains
realized by the Fund may not be significant, and there is no assurance that any
such income will be realized by the Fund in any year. Distributions of the
Fund's net investment income are taxable to stockholders as ordinary income.
Distributions of the Fund's net capital gains, if any, are taxable to
stockholders at rates applicable to long-term capital gains regardless of the
length of time the ATP have been held by holders. Distributions in excess of the
Fund's earnings and profits will first reduce a stockholder's adjusted tax basis
in his or her shares of ATP and, after the adjusted tax basis is reduced to
zero, will constitute capital gains to a holder of shares of ATP who holds his
or her shares of ATP as a capital asset.
Although the Fund is required to distribute annually at least 90% of
its net investment income, the Fund is not required to distribute net capital
gains to the stockholders. The Fund may retain and reinvest such gains and pay
federal income taxes on such gains (the "net undistributed capital gains").
However, it is unclear whether a portion of the net undistributed capital gains
would have to be allocated to the ATP for federal income tax purposes. Until and
unless the Fund receives acceptable guidance from the Service as to the
allocation of the net undistributed capital gains between the Common Stock and
the ATP, the Fund intends to distribute its net capital gains for any year
during which it has shares of ATP Outstanding. Such distribution will affect the
tax character but not the amount of dividends to which holders of shares of ATP
are entitled.
Although dividends generally will be treated as distributed when
paid, dividends declared on December 31, payable to stockholders of record on
December 31 and paid on the first business day in January of the following year
will be treated as having been distributed by the Fund and received by the
stockholders on the December 31. In addition, solely for the purpose of
satisfying the 90% distribution requirement and the distribution requirement for
avoiding income taxes, certain distributions made after the close of a taxable
year of the Fund may be "spilled back" and treated as paid during such taxable
year. In such case, stockholders will be treated as having received such
dividends in the taxable year in which the distribution was actually made. The
Service has ruled privately that dividends paid following the close of the
taxable year that are treated for tax purposes as derived from income from the
prior year will be treated as dividends "paid" in the prior year for purposes of
determining the proportionate share of a particular type of income for each
class. Accordingly, the Fund intends to treat any such dividends that are paid
following the close of a taxable year as "paid" in the prior year for purposes
of determining a class' proportionate share of a particular type of income.
However, the private ruling is not binding on the Service, and there can be no
assurance that the Service will respect such treatment.
Most of the Fund's net investment income is derived from
interest-bearing securities. Accordingly, dividends paid with respect to the ATP
generally will not qualify for the dividend received deduction. However, from
time to time, a portion of the Fund's net investment income may be dividends on
equity securities which are eligible for the dividends received deduction under
Section 243 of the Code. Corporate stockholders who otherwise are eligible to
claim the dividends received deduction under Section 243 of the Code can deduct
70% of the portion of the ATP dividend representing the stockholder's portion of
the Fund's eligible dividend income. The Service has ruled that corporate
stockholders of a regulated investment company must meet the 45-day holding
requirements of Section 246(c)(1)(A) of the Code with respect to the shares of
the regulated investment company to qualify
B-23
<PAGE>
for the dividends received deduction. The Fund will inform holders of shares of
ATP of the source and tax status of all distributions shortly after the close
of each calendar year.
Sale of Shares
The sale of shares of ATP (including transfers in connection with a
redemption or repurchase of such shares of ATP or a liquidation of the Fund)
will be a taxable transaction for federal income tax purposes. Selling holders
of shares of ATP will generally recognize gain or loss in an amount equal to the
difference between their basis in the ATP and the amount received in exchange
therefor. If such shares of ATP are held as a capital asset, the gain or loss
will generally be a capital gain or loss and will be long-term if such
stockholders have held the shares for more than one year. Any loss realized upon
a taxable disposition of shares of ATP held for six months or less will be
treated as a long-term capital loss to the extent of any distributions of net
capital gains received with respect to such shares.
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 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
Foreign stockholders, including stockholders who are nonresident
aliens, may be subject to U.S. withholding tax on certain distributions at a
rate of 30% or such lower rates as may be prescribed by any applicable treaty.
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 ATP.
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.
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name, Age and Address With Fund During Past 5 Years
--------------------- ------------- -------------------
<S> <C> <C>
Robert F. Birch*, 61 President and Director Mr. Birch, a private investor,
10 Winthrop Square, joined the Fund as President,
Fifth Floor Treasurer and a Director in
Boston, MA 02110 August 1992 and since May 1993 has
B-24
<PAGE>
Positions Held Principal Occupation(s)
Name, Age and Address With Fund During Past 5 Years
--------------------- ------------- -------------------
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, 58 Director Professor since 1963, Donald K.
Harvard Business School David Professor of Business
Boston, MA 02138 Administration since 1986, and
Chairman of the Doctoral Programs
and Director of Research from 1990
to 1995, 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*, 56 Secretary and Director Partner with the law firm of
Exchange Place Goodwin, Procter & Hoar LLP,
Boston, MA 02109 Boston, Massachusetts, since 1975
(individually and through his
professional corporation). Mr. Floor
also serves as a director of Town &
Country Corporation.
B-25
<PAGE>
Positions Held Principal Occupation(s)
Name, Age and Address With Fund During Past 5 Years
--------------------- ------------- -------------------
Bernard J. Korman, 65 Director Chairman of the Board of Directors
Graduate Health System, Inc. of Graduate Health System, Inc.;
22nd and Chestnut Streets President, Chief Executive Officer
Philadelphia, PA 19103 and a Director of MEDIQ
Incorporated from 1977 to 1995. Mr.
Korman is a director of Innoserv
Technologies, Inc., Kapson Senior
Quarters Corp.; Omega Healthcare
Investors, Inc., The Pep Boys, Inc.
and Today's Man, Inc.
Franco Modigliani, 78 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 Economic 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, 66 Director Trustee since 1960 and
50 Congress Street Chairman 5 of the Trustees since
Boston, MA 02109 1969, Northeast 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 Northeast Investment
Management, Inc., a registered
investment adviser, and as a
director of Century Shares Trust
and Furman Lumber, Inc.
Ellen E. Terry*, 38 Vice President and Vice President of the Fund from
10 Winthrop Square, Treasurer December 1992 to present and
Fifth Floor Treasurer from May 1993 to
Boston, MA 02110 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 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 $55,000 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 $40,000 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 $174,000 exclusive of compensation paid to Mr.
Birch for his services rendered to the Fund in his capacity as President. The
aggregate remuneration paid by the Fund to each of the Directors during its
fiscal year ended December 31, 1996, is set forth in the chart below. The Fund
does not provide remuneration in the form of pension or retirement benefits to
any of its Directors.
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total
Name of Person, Compensation as Part of Fund Benefits Upon Compensation
Position From Fund Expenses Retirement from Fund
-------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Robert F. Birch, $84,000 none none $84,000*
President and Director
Joseph L. Bower, $29,000 none none $29,000
Director
Richard E. Floor, $29,000 none none $29,000
Secretary and Director
Bernard J. Korman, $28,000 none none $28,000
Director
Franco Modigliani, $29,000 none none $29,000
Director
Ernest E. Monrad, $29,000 none none $29,000
Director
Ellen E. Terry, $98,500 none none $98,500
Vice President and
Treasurer
</TABLE>
- ------------------
*Of this amount, $55,000 was paid for service as President and
$29,000 was paid for service as Director.
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
B-26
<PAGE>
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 March 31, 1997. 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
The Board of Directors of the Fund appoints the Fund's investment
adviser annually, subject to stockholder approval.
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,
B-27
<PAGE>
Anchor Series Trust, The Arbor Fund Golden Oak Prime Obligation Money Market
Portfolio, The Arbor Fund OVB Prime Obligations Portfolio, Bishop Street Money
Market Fund, Bishop Street Treasury Money Market Fund, First Financial Fund,
First Investors Global Fund, First Investors Series Fund II; Growth and Income
Fund, First Investors Life Series Fund, Frank Russell Investment Company, Global
Utility Fund, Hartford VA Advisers Fund, Hartford VA Capital Appreciation Fund,
Hartford VA Dividend and Growth Fund, Hartford VA International Opportunities
Fund, Hartford VA Stock Fund, Hartford MF Advisers Fund, Hartford MF Capital
Appreciation Fund, Hartford MF Dividend and Growth Fund, Hartford MF
International Opportunities Fund, Hartford MF Small Company Fund, Hartford MF
Stock Fund, The High Yield Plus Fund, Horace Mann Balanced Fund, Horace Mann
Growth Fund, Horace Mann Income Fund, Horace Mann Short-Term Investment Fund,
Mentor Income and Growth Portfolio, NASL Series Trust, North American Funds,
PBHG Cash Reserves Fund, The Pillar International Growth Fund, SEI Daily Income
Trust, SEI Liquid Asset Trust, Target Portfolio Trust (Mortgage Backed
Securities Portfolio and U.S. Government Money Market Portfolio), TIFF
Investment Program (TIFF Multi-Asset Fund), Vanguard Explorer Fund, Vanguard
Fixed Income Securities Fund, Vanguard/Morgan Growth Fund, Vanguard Preferred
Stock Fund, Vanguard Specialized Portfolios (Energy Portfolio, Health Care
Portfolio, and Utilities Portfolio), Vanguard Variable Insurance Fund (Balanced
Portfolio and High Yield Bond Portfolio), Vanguard/Wellesley Income Fund,
Vanguard/Wellington Fund and Vanguard/Windsor Fund.
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.
B-28
<PAGE>
Advisory Agreement. 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 19, 1997. 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, 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 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
B-29
<PAGE>
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.
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, Moody's and Fitch;
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 $6,542 per month for the services set forth above
and her services are terminable by either party on ninety (90) days' notice. Mr.
Saidnawey receives $3,667 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.
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 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 Rating Agency Guidelines, 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
B-30
<PAGE>
valued at the mean between the most recently quoted bid and asked prices
provided by the principal market makers. The Fund also utilizes prices supplied
by its Custodian from Kenny S&P Evaluation Services and Merrill Lynch Capital
Markets Securities Pricing Service. Any security or option for which the primary
market is 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 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.
DESCRIPTION OF ATP
General
The shares of ATP have a liquidation preference equal to their
Liquidation Value per share, plus all accumulated but unpaid dividends thereon
(whether or not earned or declared) to the date of final distribution. The ATP
Series C when issued and sold through this offering (i) will be fully paid and
non-assessable, (ii) will not be convertible into Common Stock or other capital
stock
B-31
<PAGE>
of the Fund, (iii) will have no preemptive rights, and (iv) will not be subject
to any sinking fund. The ATP will be subject to optional and mandatory
redemption as described below under "Redemption."
Holders of the ATP Series C will not receive certificates
representing their ownership interest in such shares. The Depository Trust
Company will act as securities depository (together with any successor
securities depository selected by the Fund, the "Securities Depository") for the
Agent Members with respect to the ATP Series C.
In addition to serving as the Auction Agent in connection with the
Auction Procedures described below, the Auction Agent will act as the transfer
agent, registrar, and paying agent for the ATP Series C. Furthermore, the
Auction Agent will send notices to Holders of the ATP of any meeting at which
Holders of shares of ATP have the right to vote. See "Voting Rights" below.
However, the Auction Agent generally will serve merely as the agent of the Fund,
acting in accordance with the Fund's instructions.
Except in an Auction, the Fund will have the right (to the extent
permitted by applicable law) to purchase or otherwise acquire any shares of ATP,
so long as the Fund is current in the payment of dividends on the ATP and on any
other capital shares of the Fund ranking on a parity with the ATP with respect
to the payment of dividends or upon liquidation.
Dividends and Dividend Periods
The Holders of ATP will 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 below under "Determination of Dividend Rate," payable on the
respective dates set forth below. Dividends so declared and payable shall be
paid to the extent permitted under the Code and to the extent available and in
preference to and priority over any dividend declared and payable on the Common
Stock.
On the Business Day next preceding each Dividend Payment Date, the
Fund is required to deposit with the Paying Agent sufficient funds for the
payment of declared dividends. The Fund does not intend to establish any
reserves for the payment of dividends.
Each dividend will be paid to the record holder, which holder is
expected to be the nominee of the Securities Depository. The Securities
Depository will credit the accounts of the Agent Members of the beneficial
owners in accordance with the Securities Depository's normal procedures. The
Securities Depository's current procedures provide for it to distribute
dividends in same-day funds to Agent Members who are in turn expected to
distribute such dividends to the persons for whom they are acting as agents. The
Agent Member of a beneficial owner will be responsible for holding or disbursing
such payments on the applicable Dividend Payment Date to such beneficial owner
in accordance with the instructions of such beneficial owner. Dividends in
arrears for any past Dividend Period may be declared and paid at any time,
without reference to any regular
B-32
<PAGE>
Dividend Payment Date, to the nominee of the Securities Depository. Any dividend
payment shall first be credited against the earliest declared but unpaid
dividends.
Holders will not be entitled to any dividends, whether payable in
cash, property or shares, in excess of full cumulative dividends except as
described under "Determination of Dividend Rate" below. No interest will be
payable in respect of any dividend payment or payments which may be in arrears.
See "Default Period" below.
The amount of dividends per Outstanding share payable (if declared)
on each Dividend Payment Date of each Dividend Period of less than one year (or
in respect of dividends on another date in connection with a redemption during
such Dividend Period) shall be computed by multiplying the Applicable Rate (or
the Default Rate) for such Dividend Period (or a portion thereof) by a fraction,
the numerator of which will be the number of days in such Dividend Period (or
portion thereof) 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 the amount so obtained by the Liquidation Value, and rounding the
amount so obtained to the nearest cent. During any Dividend Period of one 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.
Determination of Dividend Rate. The dividend rate during the period
from and including the Date of Original Issue to and including the initial
Auction Date will be the rate per annum set forth in the table on the cover page
of the Prospectus. The first Auction Date will be as set forth on the cover page
of the Prospectus. For each subsequent Dividend Period, subject to certain
exceptions, the dividend rate will be the Applicable Rate that the Auction Agent
advises the Fund has resulted from an Auction.
Notification of Dividend Period. The Fund will designate the duration
of Dividend Periods of each series of ATP; provided, however, that no such
designation is necessary for a Standard Term Period and 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 set forth under "Default Period," (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 Fund shall have mailed a notice of redemption with respect to any
shares, as described under "Redemption" below, the Redemption Price with respect
to such shares shall have been deposited with the Paying Agent, and (v) the Fund
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 has consulted with the
Broker-Dealers and has provided notice and an ATP Basic Maintenance Certificate
(as defined below) to Moody's (if Moody's is then rating the ATP), to Fitch (if
Fitch is then rating the ATP) and any Other Rating Agency which is then rating
the ATP and so requires.
If the Fund 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 Fund by telephonic or
other means to the Auction Agent and confirmed in writing promptly thereafter.
Each such notice shall state (A) that the Fund proposes to exercise its option
to designate a succeeding Alternate Term Period, specifying the first and last
days thereof and (B) that the Fund 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, in which case the Fund may specify 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.
B-33
<PAGE>
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 Fund
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 Fund 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 the Specific
Redemption Provisions, if any; or
(ii) a notice stating that the Fund has determined not to
exercise its option to designate an Alternate Term Period.
If the Fund fails to deliver either such notice with respect to any designation
of any proposed Alternate Term Period to the Auction Agent or is unable to make
the confirmation described above 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 set forth in clause (ii)
above, thereby resulting in a Standard Term Period.
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 herein or the date on which the ATP is mandatorily
redeemed as provided herein. Holders of two-thirds of the ATP Series C 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 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 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 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
two Business Days after such Dividend Payment Date or due date, as the case may
be, provided that such amount is
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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.
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. The Fund's payment
obligation under the Swap Arrangement and rate of dividends on the 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
ATP." 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.
In light of the proposed increase in the Fund's Outstanding ATP, the Fund will
consider adjustments in its swap agreements. The time and amount of any such
adjustments will depend upon market conditions.
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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 7, 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.
In light of the proposed increase in the Fund's Outstanding ATP, the
Fund will consider adjustments in its swap arrangements. The timing and amount
of any such adjustment will depend upon market conditions.
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 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 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
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<PAGE>
per share shall be the Liquidation Value 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,
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 (i) the Fund 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 ATP on such date fixed for the redemption and (ii)
the Fund would have Eligible Assets with an aggregate Discounted Value at least
equal to the ATP Basic Maintenance Amount.
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) at the Mandatory Redemption Price (as defined
below).
The Fund 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.
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
maintain a rating for the ATP in the highest rating category from any two
nationally recognized statistical rating organizations, as used in the rules and
regulations under 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
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<PAGE>
redemption, 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 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 Paying 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 per share in the event of any mandatory
redemption will be the Liquidation Value 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) any redemption premium, if any, determined by the Board of
Directors after consultation with the Broker- Dealer and set forth in any
applicable Specific Redemption Provisions (the "Mandatory Redemption Price").
Redemption Procedure. Pursuant to Rule 23c-2 under the 1940 Act, the
Fund will file a notice of its intention to redeem with the Commission so as to
provide at least the minimum notice required by such Rule or any successor
provision (notice currently must be filed with the Commission at least 30 days
prior to the 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 Business 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 Fund). Such
telephonic notice will be confirmed promptly in writing not later than the close
of business on the third Business Day preceding the redemption date by providing
the notice sent by the Paying Agent to each Holder of record of shares of ATP
called for redemption, the Paying Agent (if different from the Auction Agent)
and the Securities Depository ("Notice of Redemption"). Notice of Redemption
will be addressed to the registered owners of the ATP at their addresses
appearing on the share records of the Fund. Such notice will set forth (i) the
redemption date, (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
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<PAGE>
on the shares to be redeemed will cease to accumulate on such redemption date,
and (v) the provision under which redemption shall be made.
If fewer than all of the shares of a series of ATP are redeemed on
any date, the shares to be redeemed on such date will be selected by the Fund on
a pro rata basis in proportion to the number of shares held by such Holders, by
lot or by such other method as is determined by the Fund to be fair and
equitable, subject to the terms of any Specific Redemption Provisions. Shares of
ATP may be subject to mandatory redemption as described herein notwithstanding
the terms of any Specific Redemption Provisions. The Auction Agent will give
notice to the Securities Depository, whose nominee will be the record holder of
all of the shares of ATP, and the Securities Depository will determine the
number of shares to be redeemed from the account of the Agent Member of each
beneficial owner. Each Agent Member will determine the number of shares to be
redeemed from the account of each beneficial owner for which it acts as agent.
An Agent Member may select for redemption shares from the accounts of some
beneficial owners without selecting for redemption any shares from the accounts
of other beneficial owners. Notwithstanding the foregoing, if neither the
Securities Depository nor its nominee is the record holder of all of the shares,
the particular shares to be redeemed shall be selected by the Fund by lot, on a
pro rata basis between each series or by such other method as the Fund shall
deem fair and equitable, as contemplated above.
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.
If Notice of Redemption has been given, then upon the deposit of
funds sufficient to effect such redemption, all rights of the owners of the
shares so called for redemption will cease, except the right of the owners of
such shares to receive the redemption price, but without interest, and such
shares will no longer be deemed to be Outstanding for any purpose. The Fund
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. The Fund will be entitled to receive,
from time to time, from the Paying Agent the interest, if any, earned on such
funds deposited with the Paying Agent and the owners of shares so redeemed will
have no claim to any such interest. Any funds so deposited which are unclaimed
two years after such redemption date will be paid by the Paying Agent to the
Fund upon its request. Thereupon the Paying Agent will be relieved of all
responsibility to the owners of such shares and such owners may look only to the
Fund for payment.
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
redemption date to the nominee of the Securities Depository. The Securities
Depository's normal procedures now provide for it to distribute the amount of
the redemption price to Agent Members who, in turn, are expected to distribute
such funds to the persons for whom they are acting as agent.
Notwithstanding the provisions for redemption described above, no
shares of 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 legal 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
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<PAGE>
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.
Restrictions on Transfer
Shares of ATP Series C 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 Fund or any Affiliate. Notwithstanding the foregoing, a transfer
other than pursuant to an Auction will not be effective unless the selling
Existing Holder or the Agent Member of such Existing Holder, in the case of an
Existing Holder whose shares are listed in its own name on the books of the
Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in
the case of a transfer between persons holding shares of ATP Series C through
different Broker-Dealers, advises the Auction Agent of such transfer. The
certificates representing the shares of ATP Series C 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. See "Auction Procedures."
The certificates representing the shares of ATP Series C 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.
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 related Asset Coverage Cure 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 sum of the products resulting from multiplying
the number of Outstanding shares of each series of ATP on such date
by the Liquidation Value per share of such series; (B) the aggregate
amount of dividends that will have accumulated at the Applicable Rate
(whether or not
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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 ATP 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 ATP 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 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
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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"
and "Rating Agency Guidelines" above.
1940 Act ATP Asset Coverage. The Fund is required under the Articles
to maintain 1940 Act ATP Asset Coverage on each Friday, or, if such day is not a
Business Day, the next preceding Business Day, 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 related Asset Coverage Cure Date, the Fund will
be required to redeem certain shares of the ATP. See "Redemption."
On March 31, 1997, the 1940 Act ATP Asset Coverage was:
Value of Fund assets less
liabilities not constituting
senior securities $329,438,981
------------------------------ ------------
Senior securities $100,000,000 = 329%
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") (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 Fund 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 than rating
the ATP) and any Other Rating Agency which is then rating the ATP and which so
requires as of (a) every fourth Valuation Date after the Date of Original Issue
for the first year following the Date of Original Issue, (b) if the Fund 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 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 (b) 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, 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 Fund'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.
The Fund is required to 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 Fund (a "1940 Act ATP Asset
Coverage Certificate") (i) as of the Business Day preceding the Date of Original
Issue with respect to ATP Series C, 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
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<PAGE>
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.
Such certificate must be accompanied by a certificate from the Fund's
accountants certifying as to the accuracy of the Fund's calculations.
On the Date of Original Issue, the Fund shall deliver to the Auction
Agent, Moody's (if Moody's is then rating the ATP Series C), Fitch (if Fitch is
then rating the ATP Series C) and any Other Rating Agency which is then rating
the ATP Series C and which so requires, a letter prepared by the Fund's
independent accountants (an "Accountant's Certificate") regarding the accuracy
of the calculations made by the Fund in the ATP Basic Maintenance Certificate
and the 1940 Act ATP Asset Coverage Certificate required to be delivered by the
Fund on the Date of Original Issue. Within eight Business Days after the last
Valuation Date of each fiscal quarter of the Fund on which an ATP Basic
Maintenance Certificate is required to be delivered, the Fund 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 Fund in such ATP Basic Maintenance Certificate and in
any other ATP Basic Maintenance Certificate randomly selected by the Fund's
independent accountants during such fiscal quarter. Within eight Business Days
after the last Valuation Date of each fiscal quarter of the Fund on which a 1940
Act ATP Asset Coverage Certificate is required to be delivered, the Fund 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 calculations made by the Fund in such 1940 Act ATP Asset Coverage
Certificate. In addition, the Fund will deliver to the relevant persons
specified in the preceding sentence an Accountant's Certificate regarding the
accuracy of the calculations made by the Fund on each ATP Basic Maintenance
Certificate and 1940 Act ATP Asset Coverage Certificate required to be delivered
as of a Business Day on or before any Asset Coverage Cure Date, 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 Fund's report with respect to such Asset Coverage Cure Date, the calculation
or determination made by the Fund's independent accountants will be conclusive
and binding on the Fund 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 Fund's independent accountants will be conclusive and
binding on the Fund; provided, however, any errors shown in the Accountant's
Certificate filed on a quarterly basis shall not be deemed to be a failure to
have Eligible Assets with an aggregate Discounted Value at least equal to the
ATP Basic Maintenance Amount on such prior Valuation Dates. 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 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 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.
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 equal to
the Liquidation Value per share of the ATP, 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
B-43
<PAGE>
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, ATP Series B,
or ATP Series C, 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.
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 the New York
Stock Exchange, the Fund is currently required to hold annual meetings of
stockholders.
In connection with the election of the Fund's Board, the holders of
Outstanding shares of preferred stock, including ATP Series C, 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 Fund, to elect two directors of the Fund, each share of preferred stock,
including ATP Series C, entitling the holder thereof to one vote. The holders of
Outstanding shares of Common Stock and preferred stock, including ATP Series C,
voting together as a single class, shall elect the balance of the directors.
Notwithstanding the foregoing, if (a) at the close of business on any Dividend
Payment Date accumulated dividends (whether or not earned or declared) on
Outstanding shares of the preferred stock, including Outstanding ATP Series C,
equal to at least two full years' dividends shall be due and unpaid; or (b) 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 Fund, 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
B-44
<PAGE>
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 affirmative vote of the Holders of a majority of the outstanding
preferred stock determined with reference to a "majority of outstanding voting
securities" as the term is defined in Section 2(a)(42) of the 1940 Act,
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 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
B-45
<PAGE>
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 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.
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 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.
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 of the
and options transactions) Articles (discussing valuation of
certain option provisions)
In addition, the Board of Directors, without the vote or consent of any
Holder of the preferred stock, including ATP, or any other stockholder of the
Fund, 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
Fund (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 ATP and any such amendment, alteration or repeal will not be deemed
to affect the preferences, rights or powers of 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)
B-46
<PAGE>
that any such amendment, alteration or repeal would not adversely affect the
rating then assigned by such rating agency.
Also, subject to compliance with applicable law, 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 ATP, or any other stockholder of the
Fund, and without receiving any confirmation from any rating agency after
consultation with the Broker-Dealers, provided that immediately following any
such increase the Fund would be in compliance with the ATP Basic Maintenance
Amount.
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 Fund fails to pay any dividends on
the shares of ATP, the exclusive remedy of the holders shall be the right to
vote for directors as discussed above.
AUCTION PROCEDURES
General
Neither the Fund nor any Affiliate shall submit an Order in any Auction.
Dividend Rates and Auction Dates
The Dividend Rate for each Dividend Period will be determined on the
Auction Date in respect of such Dividend Period. If Sufficient Clearing Orders
exist for an Auction, the Dividend Rate for the ensuing Dividend Period will be
the Winning Rate, or, if all shares in the Auction are the subject of Submitted
Hold Orders in respect of a Dividend Period of fewer than 93 days, the Minimum
Applicable Rate. If Sufficient
B-47
<PAGE>
Clearing Orders do not exist for any Auction, the ensuing Dividend Period will
be a Standard Term Period and the Dividend Rate for that Dividend Period will be
the Maximum Applicable Rate. Except in the case of a Default (as discussed
above), or where all shares of the relevant series of ATP are subject to
Submitted Holder Orders if there is no Auction on any Auction Date, the next
Dividend Period will be a Standard Term Period and the Dividend Rate will be the
Maximum Applicable Rate that could have resulted from an Auction in respect of a
Standard Term Period on such Auction Date. The Fund is obligated to exercise its
best efforts to maintain an Auction Agent.
Orders by Existing Holders and Potential Holders
On or prior to each Auction Date and prior to the Submission Deadline
(initially 1:00 P.M., New York City time), each Existing Holder, with respect to
shares it then holds, may submit to a Broker-Dealer by telephone or otherwise a
Hold Order, a Hold/Sell Order or a Sell Order and each Broker-Dealer will
contact Potential Holders to determine the Buy Orders, if any, to be made by
such Potential Holders.
Submission of Orders to Auction Agent
Each Order must be submitted in writing by a Broker-Dealer to the Auction
Agent prior to the Submission Deadline on each Auction Date for the Auction to
be conducted on such Auction Date and must specify (A) the name of the Existing
Holder or Potential Holder placing such Order, (B) the aggregate number of
shares that are the subject of such Order, (C) to the extent that such Orders
are placed by an Existing Holder, the number of shares, if any, subject to any
Hold Order, Hold/Sell Order or Sell Order, and (D) the rate, if any, specified
in each Order.
If any rate specified in any Order contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate up to the
next higher one thousandth of 1%.
If an Order or Orders covering all shares held by any Existing Holder are
not submitted to the Auction Agent by the Submission Deadline, the Auction Agent
will, 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.
If one or more Orders covering in the aggregate more than the number of
shares of the relevant series of ATP held by an Existing Holder are submitted to
the Auction Agent, such Orders will be valid in accordance with the Validity
Procedures.
If more than one Order is submitted on behalf of any Existing Holder or
Potential Holder, each Order submitted will be a separate Order.
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 in the
case of any Dividend Period of 93 days or fewer, such Order will be deemed to be
an Order specifying a rate equal to such Minimum Applicable Rate.
In the case of any Dividend Period of more than 93 days, only Buy Orders,
Hold/Sell Orders or Sell Orders may be submitted and Hold Orders may not be
submitted.
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<PAGE>
Determination of Sufficient Clearing Orders and Applicable Rate
Not earlier than the Submission Deadline, on each Auction Date, the
Auction Agent will assemble all Submitted Orders and will determine whether
Sufficient Clearing Orders exist and the Applicable Rate.
Acceptance of 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.
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 such Submitted Buy Order will be accepted only as to the number of
shares determined in accordance with the Proration Procedures.
If Sufficient Clearing Orders do not 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 the relevant
series of ATP determined in accordance with the Proration Procedures.
Notification of Results; Settlement
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.,
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<PAGE>
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 the relevant series of ATP for the next
Dividend Period.
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, which now provide for payment against delivery to their Agent
Members in same-day funds.
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.
Broker-Dealers; Commissions
Broker-Dealers which submit Orders for the account of others must be
authorized by law to perform such function. A Broker-Dealer may acquire shares
for its own account. If a Broker-Dealer submits an Order for its own account in
an Auction, it may have an advantage over others because it would have knowledge
of other Orders placed through it in that Auction.
The Auction Agent after each Auction will initially pay to Lehman, from
funds provided by the Fund a service charge based on the purchase price of
shares placed by Lehman at such Auction. Initially, the annual rate of such
service charge with respect to Dividend Periods of less than one year shall be
an annual rate of up to .25 of 1%, depending on the results of the Auction and,
in the case of Dividend Periods of one year or more, a percentage agreed upon
between the Fund and Lehman. For purposes of this paragraph, shares will be
placed by Lehman 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 Lehman or (ii) the subject of an Order submitted by Lehman 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. In the event
an Auction scheduled to occur on an Auction Date fails to occur for any reason,
the Broker-Dealer will be entitled to service charges as if the Auction had
occurred and all holders of shares placed by them submitted valid Hold Orders.
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The Auction Agent
Bankers Trust Company will serve as the Auction Agent for so long as ATP
Series C shares are Outstanding. The Auction Agent is acting solely as agent of
the Fund and is not a trustee for holders of ATP Series C. In the absence of bad
faith or gross negligence on its part, the Auction Agent will not be liable for
any action taken, suffered or omitted or for any error of judgment made by it in
the performance of its duties as Auction Agent.
The Auction Agent may resign upon notice to the Fund, such resignation to
be effective on the earlier of the 90th day after the delivery of such notice
and the date on which a successor Auction Agent is appointed by the Fund. The
Fund may also replace the Auction Agent.
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FINANCIAL STATEMENTS
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.
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<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996 (Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Moody's Value
Amount Rating (Note 1(a))
- --------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- 91.55% (e)
Aerospace and Defense -- 7.43%
$3,200 Howmet Corporation, Senior Subordinated Notes,
10%, 12/01/03 B2 $ 3,496
1,250 K&F Industries, Inc., Senior Secured Notes,
11.875%, 12/01/03 B1 1,347
2,500 K&F Industries, Inc., Senior Subordinated
Notes, Series B, 10.375%, 09/01/04 B2 2,637
3,065 Moog, Inc., Senior Subordinated Notes, Series
B, 10%, 05/01/06 B2 3,218
615 Newport News Shipbuilding Inc., Senior Notes,
8.625%, 12/01/06 (i) Ba2 630
1,460 Northrop Grumman Corporation, Debentures,
9.375%, 10/15/24 Baa3 1,614
3,000 Rohr, Inc., Senior Notes, 11.625%, 05/15/03 Ba3 3,307
4,245 Wyman-Gordon Company, Senior Notes, 10.75%,
03/15/03 Ba3 4,569
-----------
20,818
-----------
Automobile -- 5.91%
4,000 Collins & Aikman Products Co., Senior
Subordinated Notes, 11.50%, 04/15/06 B3 4,360
1,250 Delco Remy International, Inc., Senior
Subordinated Notes, 10.625%, 08/01/06 (i) B2 1,316
500 Exide Corporation, Senior Notes, 10%, 04/15/05 B1 519
1,900 Exide Corporation, Senior Notes, 10.75%,
12/15/02 B1 1,986
960 Hayes Wheels International, Inc., Senior
Subordinated Notes, 11%, 07/15/06 B3 1,048
1,000 Lear Seating Corporation, Senior Subordinated
Notes, 11.25%, 07/15/00 Ba3 1,026
750 Lear Seating Corporation, Subordinated Notes,
8.25%, 02/01/02 B1 756
$2,000 Penda Corporation, Senior Notes, Series B,
10.75%, 03/01/04 B2 $ 1,955
3,500 Walbro Corporation, Senior Notes, Series B,
9.875%, 07/15/05 Ba3 3,605
-----------
16,571
-----------
Banking -- 2.74%
500 Anchor Bancorp, Inc., Senior Notes, 8.9375%,
07/09/03 Ba3 513
510 Chevy Chase Bank, F.S.B., Subordinated
Debentures, 9.25%, 12/01/08 B1 520
1,250 Dime Bancorp, Inc., Senior Notes, 10.50%,
11/15/05 Ba3 1,377
325 First Nationwide Escrow Corp., Senior
Subordinated Notes, 10.625%, 10/01/03 (i) Ba3 351
2,000 First Nationwide (Parent) Holdings, Senior
Notes, 12.50%, 04/15/03 B2 2,240
1,500 FirstFed Financial Corp., Notes, 11.75%,
10/01/04 B2 1,530
2,064 WestFed Holdings, Inc., Split Coupon Senior
Debentures, 15.50%, 09/15/99 (a)(c) (f) 1,135
-----------
7,666
-----------
Beverages, Food and Tobacco -- .49%
1,350 GRUMA, S.A. de C.V., Notes, 9.75%, 03/09/98 (f) 1,384
-----------
Buildings and Real Estate -- 3.22%
1,170 Associated Materials Incorporated, Senior
Subordinated Notes 11.50%, 08/15/03 B3 1,193
500 Del Webb Corporation, Senior Notes, 10.875%,
03/31/00 Ba3 515
1,750 Del Webb Corporation, Senior Subordinated
Debentures, 9%, 02/15/06 B2 1,706
2,500 Kaufman and Broad Home Corporation, Senior
Subordinated Notes, 9.625%, 11/15/06 Ba3 2,506
3,000 Toll Corp., Senior Subordinated Notes, 10.50%,
03/15/02 Ba3 3,112
-----------
9,032
-----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-53
<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996-Continued
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Moody's Value
Amount Rating (Note 1(a))
- --------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
Chemicals, Plastics and Rubber -- 3.89%
$1,540 Acetex Corporation, Senior Secured Notes,
9.75%, 10/01/03 B1 $ 1,532
1,000 General Chemical, Senior Subordinated Notes,
9.25%, 08/15/03 B2 1,022
2,500 Great Lakes Carbon Corporation, Senior Secured
Notes, 10%, 01/01/06 Ba3 2,678
1,000 Harris Chemical North America, Inc., Senior
Secured Discount Notes, 10.25%, 07/15/01 B2 1,039
1,500 Rexene Corp., Senior Notes, 11.75%, 12/01/04 B1 1,684
1,350 Sterling Chemicals, Inc., Senior Subordinated
Notes, 11.75% 08/15/06 B3 1,431
535 Texas Petrochemicals Corporation, Senior
Subordinated Notes, 11.125%, 07/01/06, B3 575
825 UCAR Global Enterprises Inc., Senior
Subordinated Notes, 12%, 01/15/05 B1 951
-----------
10,912
-----------
Containers, Packaging and Glass -- 5.99%
1,250 Container Corporation of America, Senior Notes,
Series B, 10.75%, 05/01/02 B1 1,350
5,000 Container Corporation of America, Senior Notes,
9.75%, 04/01/03 B1 5,250
340 Domtar Inc., Notes, 8.75%, 08/01/06 Ba1 360
460 Grupo Industrial Durango, S.A. de C.V. Notes,
12.625%, 08/01/03 B1 501
1,500 Owens-Illinois, Inc., Senior Debentures, 11%,
12/01/03 Ba3 1,669
1,750 Rainy River Forest Products Inc., Senior
Secured Notes, 10.75%, 10/15/01 Ba1 1,886
845 Repap New Brunswick Inc., First Priority Senior
Secured Notes, 9.875%, 07/15/00 B1 862
$ 390 Repap New Brunswick, Inc., Second Priority
Senior Secured Notes, 10.625%, 04/15/05 B3 $ 406
300 Silgan Corporation, Senior Subordinated Notes,
11.75%, 06/15/02 B3 320
138 Silgan Holdings Inc., Senior Discount
Debentures, 13.25%, 12/15/02 (g) B3 139
3,000 Tembec Finance Corp., Senior Notes, 9.875%,
09/30/05 B1 2,805
1,150 S.D. Warren Company, Senior Subordinated Notes,
Series B, 12%, 12/15/04 B1 1,242
-----------
16,790
-----------
Diversified/Conglomerate Manufacturing -- 6.12%
1,750 American Standard Inc., Senior Subordinated
Discount Debentures, 10.50%, 06/01/05, (g) B1 1,628
875 Amtrol Acquisition, Inc., Senior Subordinated
Notes, 10.625%, 12/31/06 (i) B3 901
2,500 Bell & Howell Company, Senior Notes, 9.25%,
07/15/00 B1 2,544
3,915 Bell & Howell Holdings Company, Series B,
Senior Discount Debentures, 11.50%,
03/01/05, (g) B3 2,838
3,500 Essex Group, Inc., Senior Notes, 10%, 05/01/03 B1 3,588
2,290 Johnstown America Industries, Inc., Senior
Subordinated Notes, 11.75%, 08/15/05 B3 2,187
2,000 Specialty Equipment Companies, Inc., Senior
Subordinated Notes, 11.375%, 12/01/03 B3 2,185
1,250 Thermadyne Holdings Corp., Senior Notes,
10.25%, 05/01/02 B1 1,281
-----------
17,152
-----------
Diversified/Conglomerate Service -- .19%
500 Heritage Media Services, Inc., Senior Secured
Notes, 11%, 06/15/02 Ba1 531
-----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-54
<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996-Continued
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Moody's Value
Amount Rating (Note 1(a))
- --------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
Ecological -- .34%
$1,000 EnviroSource, Inc., Senior Notes, 9.75%,
06/15/03 B3 $ 941
-----------
Electronics -- 2.41%
1,500 Advanced Micro Devices, Inc. Senior Secured
Notes, 11%, 08/01/03 Ba1 1,626
2,250 Digital Equipment Corporation, Debentures,
7.75%, 04/01/23 Ba1 1,930
500 Unisys Corporation, Senior Notes, 11.75%,
10/15/04 B1 534
2,500 Unisys Corporation, Senior Notes, Series B,
12%, 04/15/03 B1 2,663
-----------
6,753
-----------
Farming and Agriculture -- 2.10%
500 Agriculture Minerals And Chemicals Inc., Senior
Notes, 10.75%, 09/30/03 Ba3 544
3,000 Arcadian Partners, L.P., Senior Notes, Series
B, 10.75%, 05/01/05 B2 3,292
2,000 PMI Acquisition Corporation, Senior
Subordinated Notes, 10.25%, 09/01/03 B2 2,040
-----------
5,876
-----------
Finance -- .64%
1,750 Imperial Credit Industries, Inc., Senior Notes,
9.75%, 01/15/04 B1 1,794
-----------
Grocery -- 1.21%
335 Bruno's, Senior Subordinated Notes, 10.50%,
08/01/05 B3 355
750 Dominick's Finer Foods, Inc., Senior
Subordinated Notes, 10.875%, 05/01/05 B2 831
2,000 Smith's Food & Drug Centers, Inc., Senior
Subordinated Notes, 11.25%, 05/15/07 B3 2,210
-----------
3,396
-----------
Healthcare, Education and Childcare -- 4.65%
750 Beverly Enterprises, Inc., Senior Notes, 9%,
02/15/06 B1 754
$ 975 Dade International Inc., Senior Subordinated
Notes, 11.125%, 05/01/06 B3 $ 1,058
1,050 Graphic Controls Corporation, Senior
Subordinated Notes, Series A, 12%, 09/15/05 B3 1,163
1,500 Integrated Health Services, Inc., Senior
Subordinated Notes, 10.25%, 04/30/06 (i) B1 1,575
3,500 OrNda Healthcorp, Senior Subordinated Notes,
11.375%, 08/15/04 B2 4,042
2,675 Owens & Minor, Inc., Senior Subordinated Notes,
10.875%, 06/01/06 B1 2,869
1,000 Quorum Health Group, Inc., Senior Subordinated
Notes, 8.75%, 11/01/05 B1 1,025
500 Tenet Healthcare Corp., Senior Notes, 9.625%,
09/01/02 Ba1 548
-----------
13,034
-----------
Hotels, Motels, Inns and Gaming -- 2.31%
1,500 GB Property Funding Corp., First Mortgage
Notes, 10.875%, 01/15/04 B3 1,260
1,000 Harrah's Operating Inc., Senior Subordinated
Notes, 10.875%, 04/15/02 Ba3 1,055
1,250 Hollywood Casino Corporation, Senior Secured
Notes, 12.75%, 11/01/03 B2 1,200
3,000 Trump Atlantic City Associates, First Mortgage
Notes, 11.25%, 05/01/06 B1 2,970
-----------
6,485
-----------
Leisure, Amusement, Pictures, Entertainment -- 1.92%
750 Cobb Theatres, Senior Secured Notes, 10.625%,
03/01/03 B2 793
2,500 Muzak Limited Partnership, Senior Notes, 10%,
10/01/03 Ba3 2,556
2,000 Plitt Theatres, Inc., Senior Subordinated
Notes, 10.875%, 06/15/04 B3 2,015
-----------
5,364
-----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-55
<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996-Continued
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Moody's Value
Amount Rating (Note 1(a))
- --------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
Machinery -- 1.23%
$ 525 IDEX Corporation, Senior Subordinated Notes,
9.75%, 09/15/02 Ba3 $ 549
1,000 The Interlake Corporation, Senior Notes, 12%,
11/15/01 B2 1,070
1,000 The Interlake Corporation, Senior Subordinated
Debentures, 12.125%, 03/01/02 B3 1,035
750 Mettler-Toledo, Inc., Senior Subordinated
Notes, 9.75%, 10/01/06 B2 788
-----------
3,442
-----------
Mining, Steel, Iron and Nonprecious Metals -- 9.81%
2,115 AK Steel Corporation, Senior Notes, 9.125%,
12/15/06 (i) Ba2 2,173
2,500 AK Steel Corporation, Senior Notes, 10.75%,
04/01/04 Ba2 2,731
4,500 Armco Inc., Senior Notes, 9.375%, 11/01/00 B2 4,523
3,000 Bethlehem Steel Corporation, Senior Notes,
10.375%, 09/01/03 B1 3,173
2,000 Companhia Vale do Rio Doce, Notes, 10%,
04/02/04 (i) (f) 2,067
725 Metalurgica Gerdau S.A., Notes, 11.125%,
05/24/04 (i) (f) 749
3,500 Northwestern Steel and Wire Company, Senior
Notes, 9.50%, 06/15/01 B1 3,430
2,000 NS Group, Inc., Senior Secured Notes, 13.50%,
07/15/03 B3 2,080
500 Oregon Steel Mills, Inc., First Mortgage Notes,
11%, 06/15/03 B1 535
1,750 Weirton Steel Corporation, Senior Notes,
10.875%, 10/15/99 B2 1,820
2,500 Weirton Steel Corporation, Senior Notes,
11.375%, 07/01/04 B2 2,538
1,685 Wheeling-Pittsburgh Corporation, Senior Notes,
9.375%, 11/15/03 B1 1,668
-----------
27,487
-----------
Oil and Gas -- 4.12%
$1,500 Energy Ventures, Inc., Senior Notes, 10.25%,
03/15/04 B1 $ 1,624
780 Flores & Rucks, Inc., Senior Subordinated
Notes, 9.75%, 10/01/06 B3 827
500 Global Marine Inc., Senior Secured Notes,
12.75%, 12/15/99 Ba1 537
625 Mesa Operating Company, Senior Subordinated
Discount Notes, 11.625%, 07/01/06 (g) B2 431
1,050 Mesa Operating Company, Senior Subordinated
Notes, 10.625%, 07/01/06 B2 1,139
2,500 Plains Resources Inc., Senior Subordinated
Notes, Series B, 10.25%, 03/15/06 B2 2,675
3,000 Santa Fe Energy Resources, Inc., Senior
Subordinated Debentures, 11%, 05/15/04 B1 3,300
1,000 Seagull Energy Corporation, Senior Subordinated
Notes, 8.625%, 08/01/05 B1 1,015
-----------
11,548
-----------
Personal and Nondurable Consumer Products -- 6.10%
1,000 American Safety Razor Company, Series B, Senior
Notes, 9.875%, 08/01/05 B1 1,063
1,700 Cabot Safety Acquisition Co., Senior
Subordinated Notes, 12.50%, 07/15/05 B3 1,895
400 Fort Howard Corp., Senior Notes, 8.25%,
02/01/02 B1 401
5,000 Fort Howard Corp., Senior Notes, 9.25%,
03/15/01 B1 5,212
1,000 Fort Howard Corp., Senior Subordinated Notes,
9%, 02/01/06 B2 1,010
5,000 Sweetheart Cup Company Inc., Guaranteed Senior
Subordinated Notes, 10.50%, 09/01/03 B3 5,200
2,250 Westpoint Stevens Inc., Senior Notes, 8.75%,
12/15/01 Ba3 2,312
-----------
17,093
-----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-56
<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996-Continued
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Moody's Value
Amount Rating (Note 1(a))
- --------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
Personal Transportation -- 0.00%
$5,000 Braniff, Inc., Senior Reset Notes, 15%,
04/01/99 (a)(b)(c)(d) (f) $ 0
-----------
Printing, Publishing and Broadcasting -- 12.40%
3,800 Benedek Communications Corporation, Senior
Subordinated Discount Notes, 13.25%, 05/15/06
(g) B3 2,185
1,500 Big Flower Press, Inc. Senior Subordinated
Notes, 10.75% 08/01/03 B2 1,586
1,000 Cablevision Systems Corporation, Senior
Subordinated Debentures, 10.75%, 04/01/04 B2 1,040
2,750 Cablevision Systems Corporation, Senior
Subordinated Notes, 9.25%, 11/01/05 B2 2,723
715 Cablevision Systems Corporation, Senior
Subordinated Notes, 9.875%, 05/15/06 B2 733
2,500 Chancellor Broadcasting Company, Senior
Subordinated Notes, 9.375%, 10/01/04 B3 2,525
1,500 Comcast Corporation, Senior Subordinated
Debentures, 9.125%, 10/15/06 B1 1,538
850 Comcast Corporation, Senior Subordinated
Debentures, 9.375%, 05/15/05 B1 882
1,000 Galaxy Telecom Capital Corp., Senior
Subordinated Notes, 12.375%, 10/01/05 B3 1,065
1,000 Granite Broadcasting Corporation, Senior
Subordinated Debentures, 12.75%, 09/01/02 B3 1,090
1,000 Granite Broadcasting Corporation, Senior
Subordinated Notes, Series B, 10.375%, 05/15/05 B3 1,025
1,525 Jacor Communications Company, Senior
Subordinated Notes, 9.75%, 12/15/06 B2 1,554
750 JCAC, Inc., Senior Subordinated Notes, 10.125%,
06/15/06 B2 773
$1,000 Lenfest Communications, Inc., Senior Notes,
8.375%, 11/01/05 Ba3 $ 966
750 Marcus Cable Company, L.P. Senior Discount
Notes, 14.25%, 12/15/05, (g) Caa 530
500 Marcus Cable Operating Company, L.P., Senior
Subordinated Guaranteed Discount Notes, 13.50%,
08/01/04 (g) B3 410
2,500 Rifkin Acquisition Partners, L.L.L.P., Senior
Subordinated Notes, 11.125%, 01/15/06 B3 2,606
1,000 Tele-Communications, Inc., Senior Debentures,
9.25%, 01/15/23 Ba1 972
3,000 Videotron Ltd., Senior Subordinated Notes,
10.25%, 10/15/02 Ba3 3,187
3,000 World Color Press, Senior Subordinated Notes,
9.125%, 03/15/03 B1 3,030
500 Young Broadcasting, Inc., Senior Subordinated
Notes, 10.125%, 02/15/05 B2 512
3,500 Young Broadcasting, Inc., Senior Subordinated
Notes, 11.75%, 11/15/04 B2 3,815
-----------
34,747
-----------
Retail Stores -- .57%
1,500 Guitar Center Management Company, Inc., Senior
Notes, 11%, 07/01/06 B2 1,584
-----------
Telecommunications -- 2.28%
4,500 MobileMedia Communications, Inc., Senior
Subordinated Notes, 9.375%, 11/01/07 (c) C 1,215
750 Paging Network, Inc., Senior Subordinated
Notes, 11.75%, 05/15/02 B2 808
1,000 Rogers Cantel Mobile Inc., Senior Subordinated
Guaranteed Notes, 11.125%, 07/15/02 B2 1,060
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-57
<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996-Continued
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Moody's Value
Amount Rating (Note 1(a))
- --------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
$3,000 Telefonica de Argentina S.A., Notes, 11.875%,
11/01/04 B1 $ 3,315
-----------
6,398
-----------
Textiles and Leather -- .59%
750 Dominion Textile (USA) Inc., Guaranteed Senior
Notes, 8.875%, 11/01/03 Ba2 752
885 Dominion Textile (USA) Inc., Guaranteed Senior
Notes, 9.25%, 04/01/06 Ba2 899
-----------
1,651
-----------
Utilities -- 2.89%
1,000 Cleveland Electric Illuminating Company, First
Mortgage Bonds, Series B, 9.50%, 05/15/05 Ba2 1,054
1,500 El Paso Electric Company, First Mortgage Bonds,
Series D, 8.90%, 02/01/06 Ba3 1,564
3,000 Texas-New Mexico Power Company, Secured
Debentures, 10.75%, 09/15/03 Ba3 3,216
1,200 Transportadora de Gas del Sur S.A., Medium Term
Notes, 7.75%, 12/23/98 (f) 1,200
1,000 Transportadora de Gas del Sur S.A., Notes,
10.25%, 04/25/01 B1 1,063
-----------
8,097
-----------
Total Corporate Debt Securities
(Total cost of $249,014) 256,546
-----------
- -------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS (FOREIGN) -- 1.87% (e)
Sovereigns -- 1.87%
2,500 Federal Republic of Brazil, Bonds, 6%, 09/15/13 B1 1,791
2,000 Republic of Argentina, Bonds, 8.375%, 12/20/03 B1 1,883
1,500 Republic of Argentina, Global Bonds, 11%,
10/09/06 B1 1,575
-----------
Total Government Obligations (Foreign) (Total
cost of $4,503) 5,249
-----------
</TABLE>
<TABLE>
<CAPTION>
Moody's Value
Shares Rating (Note 1(a))
- --------- ----------------------------------------------- -------- -----------
<S> <C> <C> <C>
PREFERRED STOCK -- 1.30% (e)
Banking -- .86%
2,200 California Federal Bank, Noncumulative
Perpetual, Series B, 10.625% b2 $ 242
41,435 Chevy Chase Preferred Capital Corporation,
Noncumulative Exchangeable, Series A, 10.375% b1 2,160
62,935 WestFed Holdings, Inc., Cumulative, Series A,
15.50% (a)(d)(h) ca 0
-----------
2,402
-----------
Printing, Publishing and Broadcasting -- .44%
12,500 Benedek Communications Corporation,
Exchangeable Redeemable, Senior, 15% b3 1,231
-----------
Total Preferred Stock
(Total cost of $8,316) 3,633
-----------
- -------------------------------------------------------------------------------
COMMON STOCK and WARRANTS -- .05% (e)
12,500 Benedek Communications Corporation, Warrants,
exp. 07/01/07 (b)(h) 38
17,431 Haynes Acquisition Corp. (b)(h) 70
42,222 Triangle Wire & Cable, Inc. (b)(h) 42
27,474 WestFed Holdings, Inc., Series B (a)(d)(h) 0
-----------
Total Common Stock and Warrants
(Total cost of $806) 150
-----------
Units
- -------------------------------------------------------------------------------
PARTNERSHIP AND TRUST INTEREST -- .00% (e)
1,000 Thompson Capital Partners, L.P. (b)(d)(h) 0
-----------
Total Partnership And Trust Interest (Total
Cost of $427) 0
-----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-58
<PAGE>
The New America High Income Fund, Inc.
Schedule of Investments-December 31, 1996-Continued
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Principal Value
Amount (Note 1(a))
------------------------------------------------------------ -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 2.79% (e)
$7,824 J.P. Morgan Securities Repurchase Agreement,
6.60%, 01/02/97, (Collateral U.S. Treasury Bonds,
12.50%, 08/15/14, $5,170 principal) $ 7,824
-----------
Total Short-Term Investments (Total cost of
$7,824) 7,824
-----------
TOTAL INVESTMENTS (Total cost of $270,890) $273,402
===========
</TABLE>
(a) Denotes issuer is in bankruptcy proceedings.
(b) Restricted as to public resale. At the date of acquisition, these
securities were valued at cost. The total value of restricted securities
owned at December 31, 1996 was $150 or 0.05% of total assets.
(c) Nonincome-producing security which is on nonaccrual and which has
defaulted on interest payments.
(d) Security is valued at fair value using methods determined by the Board of
Directors. The total value of these securities at December 31, 1996 was
$0.
(e) Percentages indicated are based on total assets of $280,227.
(f) Not rated.
(g) Security is a step interest bond. Interest on this bond accrues based
upon the effective interest rate.
(h) Nonincome-producing.
(i) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. See Note
1-a of the Notes to Financial Statements for valuation policy. Total
market value of Rule 144A securities amounted to $9,762 as of December
31, 1996.
The accompanying notes are an integral
part of these financial statements.
B-59
<PAGE>
The New America High Income Fund, Inc.
Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets: (Dollars in thousands, except per share amounts)
INVESTMENTS IN SECURITIES, at value (Identified cost of
$270,890, see Schedule of Investments and Notes 1 and 2) $273,402
RECEIVABLES:
Interest and dividends 6,287
OTHER ASSETS 13
PREPAID EXPENSES 25
DEFERRED OFFERING EXPENSES (Note 12) 500
-----------
Total assets $280,227
-----------
Liabilities:
PAYABLES:
Dividend payable on common stock $ 2,963
Other payables 104
ACCRUED EXPENSES (Note 3) 300
ACCRUED OFFERING EXPENSES (Note 12) 452
-----------
Total liabilities $ 3,819
-----------
Net Assets:
AUCTION TERM PREFERRED STOCK:
$1.00 par value, 1,000,000 shares authorized, 2,000 shares
issued and outstanding, liquidation preference of $50,000
per share
(Notes 4, 5, and 6) $100,000
-----------
COMMON STOCK:
$0.01 par value, 200,000,000 shares authorized,
35,716,882 shares issued and outstanding $ 357
CAPITAL IN EXCESS OF PAR VALUE 270,345
UNDISTRIBUTED NET INVESTMENT INCOME (Note 2) 371
ACCUMULATED NET REALIZED LOSS FROM SECURITIES TRANSACTIONS
(Note 2) (97,177)
NET UNREALIZED APPRECIATION ON INVESTMENTS 2,512
-----------
Net assets applicable to common stock (Equivalent to $4.94
per share, based on 35,716,882 shares outstanding) $176,408
-----------
Total Net Assets $276,408
===========
</TABLE>
Statement of Operations
For the Year Ended
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment Income: (Note 1) (Dollars in thousands, except per
share amounts)
Interest income $26,444
Dividend income 131
Other Income 110
-----------
Total investment income $26,685
-----------
Expenses:
Cost of Leverage:
Preferred and auction fees $ 270
-----------
Total cost of leverage $ 270
-----------
Professional services expenses:
Management fees (Note 3) $ 851
Custodian and transfer agent fees 244
Legal fees 136
Audit fees 73
Litigation fees (Note 11) 24
-----------
Total professional services expenses $ 1,328
-----------
Administrative expenses:
General administrative fees $ 271
Directors' fees 172
Miscellaneous expenses 108
Shareholder meeting expenses 93
-----------
Total administrative expenses $ 644
-----------
Total expenses $ 2,242
-----------
Net investment income $24,443
-----------
Realized and Unrealized Gain on Investments:
Realized gain on investments, net $ 3,613
Change in net unrealized depreciation on investments 3,745
-----------
Net gain on investments $ 7,358
-----------
Net increase in net assets resulting from operations $31,801
-----------
Cost of Preferred Leverage:
Distributions to preferred stockholders $(5,645)
Net swap settlement receipts (Note 7) 131
-----------
Total cost of preferred leverage $(5,514)
-----------
Net increase in net assets resulting from operations less
distributions to preferred stockholders $26,287
===========
--------------------------------------------------------------------------
Amount Available for Distribution to Common Stockholders
Net investment income $24,443
Total cost of preferred leverage (5,514)
-----------
Net amount available for distribution to common stockholders $18,929
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-60
<PAGE>
The New America High Income Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995
--------------- ----------------
<S> <C> <C>
From Operations: (Dollars in thousands, except per share amounts)
Net investment income $ 24,443 $ 22,802
Realized gain on investments 3,613 565
Change in net unrealized depreciation on investments 3,745 21,138
--------------- ----------------
Net increase in net assets resulting from operations $ 31,801 $ 44,505
--------------- ----------------
From Fund Share Transactions:
Net asset value of 738,917 shares and 705,577 shares issued to common
shareholders for reinvestment of dividends in 1996 and 1995, respectively $ 3,565 $ 3,230
--------------- ----------------
Increase in net assets resulting from fund share transactions $ 3,565 $ 3,230
--------------- ----------------
Distributions to Stockholders:
Preferred dividends ($2,823 and $3,126 per share, respectively) $ (5,645) $ (6,252)
Net swap settlement receipts 131 464
Common Dividends:
From net investment income ($.52 and $.50 per share, respectively) (18,078) (17,410)
In excess of net investment income ($0 and $.04 per share, respectively) (189) (1,304)
--------------- ----------------
Decrease in net assets resulting from distributions to stockholders $(23,781) $(24,502)
--------------- ----------------
Total net increase in net assets $ 11,585 $ 23,233
--------------- ----------------
Net Assets Applicable to Common and Preferred Stock:
Beginning of period $264,823 $241,590
--------------- ----------------
End of period (Including $398 and $(851) of undistributed net investment
income/(distributions in excess of net investment income) at
December 31, 1996 and December 31, 1995, respectively) $276,408 $264,823
=============== ================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-61
<PAGE>
The New America High Income Fund, Inc.
Financial Highlights
Selected Per Share Data and Ratios
For Each Share of Common Stock Outstanding Throughout the Period
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994 (c) 1993
--------- --------------------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 4.71 $ 4.13 $ 5.15 $ 4.32
--------- --------------------- ----------
NET INVESTMENT INCOME .69 .67 .72# .59
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS .22 .62 (.82)# .89
--------- --------------------- ----------
TOTAL FROM INVESTMENT OPERATIONS .91 1.29 (.10) 1.48
--------- --------------------- ----------
DISTRIBUTIONS:
Dividends from net investment income:
To preferred stockholders (including swap
settlement payments) (.16) (.17) (.17) (.05)
To common stockholders (.52) (.50) (.53) (.53)
Dividends in excess of net investment income:
To common stockholders -- (.04) -- (.07)
Returns of capital:
To common stockholders -- -- -- --
--------- --------------------- ----------
TOTAL DISTRIBUTIONS (.68) (.71) (.70) (.65)
--------- --------------------- ----------
Effect of rights offering and related expenses; and
Auction Term Preferred Stock offering costs and sales
load -- -- (.22) --
--------- --------------------- ----------
NET ASSET VALUE:
End of period $ 4.94 $ 4.71 $ 4.13 $ 5.15
========= ===================== ==========
PER SHARE MARKET VALUE:
End of period $ 5.13 $ 4.75 $ 4.00 $ 5.13
========= ===================== ==========
TOTAL INVESTMENT RETURN+ 19.89% 33.50% (11.88)% 40.08%
========= ===================== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Period From
February 26, 1988
(Commencement
For the Years Ended December 31, of Operations) to
1992 (a) 1991 1990 1989 December 31, 1988
----------- ------------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 3.79 $ 3.42 $ 6.23 $ 8.60 $ 9.25
----------- ------------------- ----------- ---------------------
NET INVESTMENT INCOME .57 .65 .92 1.54 1.42
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS .57 .38 (2.82) (2.26) (.66)
----------- ------------------- ----------- ---------------------
TOTAL FROM INVESTMENT OPERATIONS 1.14 1.03 (1.90) (.72) .76
----------- ------------------- ----------- ---------------------
DISTRIBUTIONS:
Dividends from net investment income:
To preferred stockholders (including swap
settlement payments) (.06) (.10) (.16) (.30) (.23)
To common stockholders (.55) (.56) (.75) (1.25) (1.18)
Dividends in excess of net investment income:
To common stockholders -- -- -- -- --
Returns of capital:
To common stockholders -- -- -- (.10) --
----------- ------------------- ----------- ---------------------
TOTAL DISTRIBUTIONS (.61) (.66) (.91) (1.65) (1.41)
----------- ------------------- ----------- ---------------------
Effect of rights offering and related expenses; and
Auction Term Preferred Stock offering costs and sales
load -- -- -- -- --
----------- ------------------- ----------- ---------------------
NET ASSET VALUE:
End of period $ 4.32 $ 3.79 $ 3.42 $ 6.23 $ 8.60
=========== =================== =========== =====================
PER SHARE MARKET VALUE:
End of period $ 4.13 $ 3.63 $ 2.50 $ 5.88 $10.00
=========== =================== =========== =====================
TOTAL INVESTMENT RETURN+ 29.70% 70.77% (47.94)% (30.04)% 13.28%
=========== =================== =========== =====================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
B-62
<PAGE>
The New America High Income Fund, Inc.
Financial Highlights
Selected Per Share Data and Ratios
For Each Share of Common Stock Outstanding Throughout the Period -- Continued
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994 (c) 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD,
APPLICABLE TO COMMON STOCK (b) $176,408 $164,823 $141,590 $130,673
=========== =========== =========== ===========
NET ASSETS, END OF PERIOD,
APPLICABLE TO PREFERRED STOCK (b) $100,000 $100,000 $100,000 $ 35,000
=========== =========== =========== ===========
TOTAL NET ASSETS, END OF PERIOD (b) $276,408 $264,823 $241,590 $165,673
=========== =========== =========== ===========
EXPENSE RATIOS:
Ratio of interest expense to
average net assets** -- -- .01% 1.42%
Ratio of preferred and other debt
expenses to average net assets** .10% .11% .13% .40%
Ratio of operating expenses to
average net assets** .73% .84% .75% 1.56%
Ratio of litigation settlement
expense to average net assets** -- .49% -- --
----------- ----------- ----------- -----------
RATIO OF TOTAL EXPENSES TO
AVERAGE NET ASSETS** .83% 1.44% .89% 3.38%
=========== =========== =========== ===========
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS** 9.05% 8.90% 9.06% 9.21%
PORTFOLIO TURNOVER RATE 53.45% 62.66% 58.56% 85.76%
</TABLE>
<TABLE>
<CAPTION>
For the Period From
February 26, 1988
(Commencement
For the Years Ended December 31, of Operations) to
1992 (a) 1991 1990 1989 December 31, 1988
----------- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD,
APPLICABLE TO COMMON STOCK (b) $107,897 $ 93,227 $ 83,813 $152,156 $202,363
=========== =========== =========== ===============================
NET ASSETS, END OF PERIOD,
APPLICABLE TO PREFERRED STOCK (b) $ 35,000 $ 35,000 $ 35,000 $ 58,500 $ 79,000
=========== =========== =========== ===============================
TOTAL NET ASSETS, END OF PERIOD (b) $142,897 $128,227 $118,813 $210,656 $281,363
=========== =========== =========== ===============================
EXPENSE RATIOS:
Ratio of interest expense to
average net assets** 2.95% 3.25% 4.17% 3.56% 3.29%*
Ratio of preferred and other debt
expenses to average net assets** .65% .78% .62% .24% .23%*
Ratio of operating expenses to
average net assets** 1.22% 1.19% 1.10% .69% .70%*
Ratio of litigation settlement
expense to average net assets** -- -- -- -- --
----------- ----------- ----------- -------------------------------
RATIO OF TOTAL EXPENSES TO
AVERAGE NET ASSETS** 4.82% 5.22% 5.89% 4.49% 4.22%*
=========== =========== =========== ===============================
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS** 10.09% 12.62% 14.50% 14.48% 13.56%*
PORTFOLIO TURNOVER RATE 129.86% 121.15% 49.98% 65.39% 149.00%*
</TABLE>
(a) Prior to the appointment on February 19, 1992 of Wellington Management
Company, LLP, the Fund was advised by Ostrander Capital Management, L.P.
(b) Dollars in thousands.
(c) As discussed in Note 4 and Note 5, 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 and preferred shares 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.
The accompanying notes are an integral
part of these financial statements.
B-63
<PAGE>
The New America High Income Fund, Inc.
Information Regarding
Senior Securities
<TABLE>
<CAPTION>
As of December 31,
1996 1995 1994 1993
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
TOTAL AMOUNT OUTSTANDING:
Notes $ - $ - $ - $ -
Preferred Stock 100,000,000 100,000,000 100,000,000 35,000,000
Short-term Loan -- -- -- 45,000,000
ASSET COVERAGE:
Per Note (1) $ - $ - $ - $ -
Per Preferred Stock Share (2) 138,204 132,411 120,795 473,351
Per $1,000 of Short-term Loan (1) -- -- -- 4,682
INVOLUNTARY LIQUIDATION PREFERENCE:
Preferred Stock Share (3) $ 50,000 $ 50,000 $ 50,000 $ 100,000
APPROXIMATE MARKET VALUE:
Per Note $ - $ - $ - $ -
Per Preferred Stock Share (3) 50,000 50,000 50,000 100,000
Per $1,000 of Short-term Loan -- -- -- 1,000
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
-------------- -------------- -------------- -------------- ---------------
<S> <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 35,000,000 35,000,000 35,000,000 58,500,000 79,000,000
Short-term Loan -- -- -- -- --
ASSET COVERAGE:
Per Note (1) $ 4,141 $ 3,819 $ 3,476 $ 3,192 $ 3,680
Per Preferred Stock Share (2) 408,277 366,363 339,466 360,096 356,156
Per $1,000 of Short-term Loan (1) -- -- -- -- --
INVOLUNTARY LIQUIDATION PREFERENCE:
Preferred Stock Share (3) $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
APPROXIMATE MARKET VALUE:
Per Note $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Per Preferred Stock Share (3) 100,000 100,000 100,000 100,000 100,000
Per $1,000 of Short-term Loan -- -- -- -- --
</TABLE>
(1) Calculated by subtracting the Fund's total liabilities (not including
senior securities) from the Fund's total assets and dividing such amounts
by the number of Notes outstanding.
(2) Calculated by subtracting the Fund's total liabilities (including the
Notes but not including the Preferred Stock) from the Fund's total assets
and dividing such amount by the number of Preferred Shares outstanding.
(3) Plus accumulated and unpaid dividends.
The accompanying notes are an integral
part of these financial statements.
B-64
<PAGE>
The New America High Income Fund, Inc.
Notes to Financial Statements
December 31, 1996
(1) Significant Accounting and Other Policies
The New America High Income Fund, Inc. (the Fund) was organized as a
corporation in the state of Maryland on November 19, 1987 and is registered
with the Securities and Exchange Commission as a diversified, closed-end
investment company under the Investment Company Act of 1940. The Fund
commenced operations on February 26, 1988. 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.
The Fund invests primarily in fixed maturity corporate debt securities
that are rated less than investment grade. Risk of loss upon default by the
issuer is significantly greater with respect to such securities compared to
investment grade securities because these securities are generally unsecured
and are often subordinated to other creditors of the issuer and because these
issuers usually have high levels of indebtedness and are more sensitive to
adverse economic conditions, such as a recession, than are investment grade
issuers. In some cases, the collection of principal and timely receipt of
interest is dependent upon the issuer attaining improved operating results,
selling assets or obtaining additional financing.
See the schedule of investments for information on individual securities
as well as industry diversification and credit quality ratings.
The Fund's financial statements have been prepared in conformity with
generally accepted accounting principles that require the management of the
Fund to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies consistently
followed by the Fund, which are in conformity with those generally accepted
in the investment company industry.
(a) Valuation of Investments--Investments for which market quotations are
readily available are stated at market value, which is determined by using
the mean of the most recently quoted bid and asked prices provided by a
principal market maker. Short-term investments having maturities of 60 days
or less are stated at amortized cost, which approximates market value.
Following procedures approved by the Board of Directors, investments for
which market quotations are not readily available (primarily fixed-income
corporate bonds and notes) are stated at fair value on the basis of
subjective valuations furnished by securities dealers and brokers.
Independent pricing services also provide market quotations based primarily
on quotations from dealers and brokers, market transactions, accessing data
from quotations services, offering sheets obtained from dealers and various
relationships between securities. Other investments, with a cost of
approximately $8,122,000 and a value of $0, are valued in good faith at fair
market value using methods determined by the Board of Directors.
(b) Interest and Dividend Income--Interest income is accrued on a daily
basis. Discount on short-term investments is amortized to investment income.
Market discounts or premiums on corporate debt securities are not amortized
for financial statement purposes. All income on original issue discount and
step interest bonds is accrued based on the effective interest method for
both financial reporting and tax reporting purposes as required by federal
income tax regulations. Dividend payments received in additional securities
are recorded on the ex-dividend date in an amount equal to the value of the
security on such date.
(c) Federal Income Taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated
B-65
<PAGE>
The New America High Income Fund, Inc.
Notes to Financial Statements-Continued
December 31, 1996
investment companies and to distribute substantially all of its taxable
income to its shareholders each year. Accordingly, no federal income tax
provision is required.
(2) Tax Matters and Distributions
At December 31, 1996, the total cost of securities (excluding temporary
cash investments) for federal income tax purposes was approximately
$263,066,000. Aggregate gross unrealized gain on securities in which there
was an excess of value over tax cost was approximately $14,833,000. Aggregate
unrealized loss on securities in which there was an excess of tax cost over
value was approximately $12,321,000. Net unrealized gain for tax purposes at
December 31, 1996 was approximately $2,512,000.
At December 31, 1996, the Fund had capital loss carryovers available to
offset future capital gain, if any, to the extent provided by regulations:
<TABLE>
<CAPTION>
Carryover Available Expiration Date
------------------------------------ ------------------------------------
<S> <C>
$3,833,267 December 31, 1997
56,935,249 December 31, 1998
34,425,546 December 31, 1999
2,226,638 December 31, 2002
------------------------------------
$97,420,700
====================================
</TABLE>
To the extent that capital loss carryovers are used to offset realized
capital gains, it is unlikely that gains so offset will be distributed to
shareholders.
Distributions on common stock are declared based upon annual projections
of the Fund's investment company taxable income. The Fund records all
dividends and distributions payable to shareholders on the ex-dividend date
and declares and distributes income dividends monthly.
In accordance with Statement of Position 93-2, the Fund has recorded
several reclassifications in the capital accounts. These reclassifications
have no impact on the net asset value of the Fund and are designed generally
to present undistributed net investment income or accumulated net realized
gains and losses on a tax basis, which is considered to be more informative
to the shareholder. As of December 31, 1996, the Fund has reclassified
approximately $587,000 primarily related to amortization of market discounts
on corporate bonds from accumulated net realized loss from securities
transactions to undistributed net investment income.
The difference between earnings for financial statement purposes and
earnings for tax purposes is primarily due to the tax treatment of the
amortization of market discounts on corporate bonds and the recognition of
interest income on corporate bonds that have defaulted on their interest
payments.
(3) Investment Advisory Agreement
Wellington Management Company, LLP, the Fund's Investment Advisor, earned
approximately $851,000 in management fees during the year ended December 31,
1996. Management fees paid by the Fund to Wellington are calculated at .50 of
1% (on an annual basis) of the average weekly value of the Fund's net assets
attributable to common stock ($176.4 million at December 31, 1996). At
December 31, 1996, the fee payable to the Investment Advisor was
approximately $75,000, which was included in accrued expenses on the
accompanying balance sheet.
(4) Repayment of Term Loan and Redemption of Taxable Auction Rate Preferred
Stock (TARPS)
The Fund completed a refinancing transaction on January 4, 1994 whereby
the Fund's existing senior securities were redeemed with the proceeds of the
offering of $100,000,000 of Auction Term Preferred Stock (ATP) Series A and B
(see Note 5). Accordingly, as of January 4, 1994, the Fund's Broker-Dealer
agreement with Bear Stearns for auctions on the TARPS was canceled, as was
the Surety Bond covering the TARPS.
In connection with the above refinancing, the Fund repaid the $45,000,000
term loan with The First National Bank of Boston (FNBB) in full, plus accrued
B-66
<PAGE>
The New America High Income Fund, Inc.
Notes to Financial Statements-Continued
December 31, 1996
interest through January 4, 1994. The Fund also redeemed the 350 shares of
TARPS outstanding at December 31, 1993 for approximately $35,094,000,
including payment of accumulated and unpaid dividends thereon through January
4, 1994.
(5) Auction Term Preferred Stock (ATP)
On January 4, 1994, the Fund issued 1,200 shares of Series A ATP and 800
shares of Series B ATP. The underwriting discount of $1,500,000 and offering
expenses of $336,000 associated with the ATP offering were recorded as a
reduction of the capital in excess of par value on common stock. The ATP's
dividends are cumulative at a rate determined at an auction, and dividend
periods will typically be 28 days unless notice is given for periods to be
longer or shorter than 28 days. Dividend rates ranged from 5.37% to 6.25% for
the year ended December 31, 1996. The ATP is redeemable, at the option of the
Fund, or subject to mandatory redemption (if the Fund is in default of
certain coverage requirements) at a redemption price equal to $50,000 per
share, plus accumulated and unpaid dividends. The ATP has a liquidation
preference of $50,000 plus accumulated and unpaid dividends. The Fund is
required to maintain certain asset coverages with respect to the ATP under
the Fund's Charter and the 1940 Act.
(6) ATP Auction-Related Matters
Bankers Trust Company (BTC) serves as the ATP's auction agent pursuant to
an agreement entered into on January 4, 1994. The term of the agreement is
unlimited and may be terminated by either party. BTC may resign upon notice
to the Fund, such resignation to be effective on the earlier of the 90th day
after the delivery of such notice and the date on which a successor auction
agent is appointed by the Fund. The Fund may also replace BTC as auction
agent at any time.
After each auction, BTC as auction agent will pay to each broker-dealer,
from funds provided by the Fund, a service charge at the annual rate of .25
of 1% or such other percentage subsequently agreed to by the Fund and the
broker-dealers, of the purchase price of shares placed by such broker-dealers
at such auction. In the event an auction scheduled to occur on an auction
date fails to occur for any reason, the broker-dealers will be entitled to
service charges as if the auction had occurred and all holders of shares
placed by them had submitted valid hold orders. The Fund incurred
approximately $250,000 for service charges earned by Bear Stearns through
December 31, 1996. This amount is included under the caption preferred and
auction fees in the accompanying statement of operations.
(7) Interest Rate Swap
On February 3, 1994, the Fund entered into an interest rate swap
transaction with FNBB for the purpose of partially hedging its dividend
payment obligations with respect to the ATP through February 7, 1999. Under
the terms of the interest rate swap agreement, the Fund makes fixed payments
to FNBB at the rate of 5.25% per annum on the notional amount of the interest
rate swap ($65 million) and receives a variable payment from FNBB equivalent
to the 30-day, AA rated commercial paper rate in respect of such notional
amounts. Interest rates on the 30-day AA rated commercial paper ranged from
5.30% to 5.87% for the year ended December 31, 1996. The interest rate swap
agreement was effective on February 7, 1994 and terminates on February 7,
1999.
The Fund follows hedge accounting (off-balance-sheet) with respect to the
swap agreement and settles the net amount receivable or payable from each
party every 30 days. For the year ended December 31, 1996, the Fund's
obligation under the swap agreement was less than the amount receivable from
FNBB by approximately $131,000 and is included in the accompanying statement
of operations.
The Fund is exposed to credit loss in the event of nonperformance by
counterparties on interest rate swaps, but the Fund does not anticipate
nonperformance by any counterparty. While notional contract amounts are used
to
B-67
<PAGE>
The New America High Income Fund, Inc.
Notes to Financial Statements-Continued
December 31, 1996
express the volume of interest rate swap agreements, the amounts potentially
subject to credit risk, in the event of nonperformance by counterparties are
substantially smaller. The estimated fair value of the interest rate swap
agreement at December 31, 1996 amounted to approximately $797,000 unrealized
gain. This value is not included in total net assets.
(8) Repurchase Agreements
At the time the Fund enters into a repurchase agreement, the value of the
underlying security, including accrued interest, will be equal to or exceed
the value of the repurchase agreement, and, in the case of repurchase
agreements exceeding one day, the value of the underlying security, including
accrued interest, is required during the term of the agreement to be equal to
or exceed the value of the repurchase agreement.
The underlying securities for all repurchase agreements are held in
safekeeping in an investment account of State Street Bank and Trust Company
(SSBT), the Fund's custodian, at the Federal Reserve Bank of Boston. In the
case of repurchase agreements exceeding one day, SSBT's Money Market
Department monitors the market value of the underlying securities by pricing
them daily, and in the event any individual repurchase agreement is not fully
collateralized, SSBT advises the Fund and additional collateral is obtained.
(9) Purchase and Sales of Securities
Purchases and proceeds of sales or maturities of long-term securities
during the year ended December 31, 1996 were as follows:
Purchases of securities $140,880,000
Sales of securities $139,371,000
(10) Certain Transactions
A partner of Goodwin, Procter & Hoar, general counsel to the Fund, serves
as a Director of the Fund. Fees earned by Goodwin, Procter & Hoar amounted to
approximately $130,000 for the year ended December 31, 1996. The Fund paid
approximately $145,000 during the year ended December 31, 1996 to two
officers of the Fund for the provision of certain administrative services.
(11) Litigation Settlement
On January 8, 1992, the United States District Court for the District of
Massachusetts dismissed, in their entirety, four separate actions filed in
each case against the Fund, its former Investment Advisor, certain of its
officers, its directors and certain other parties. The actions purported to
be class actions on behalf of the named plaintiffs and other persons
allegedly similarly situated who purchased common stock of the Fund within a
specified period. The actions alleged that the Fund and the other defendants,
including the Fund's underwriters, in connection with its February 1988
public offering, violated certain federal securities laws by reason of their
alleged failure to adequately disclose material facts in the Fund's
prospectus and/or other documents published by the Fund. Plaintiffs were
granted leave to amend their complaint, limited to certain disclosure
obligations under the Securities Act of 1933, and did so. All of the
defendants, including the Fund, jointly moved for summary judgment on July 8,
1992. By memorandum and order dated August 26, 1993, the court granted the
defendants' motion for summary judgment in favor of all defendants on all
claims and entered judgment for defendants on August 27, 1993, and the
plaintiffs appealed. On September 28, 1994, the United States Court of
Appeals for the First Circuit issued an opinion affirming the decision of the
district court in part and reversing it in part. The Court held that the
district court properly entered summary judgment for the defendants as to all
disclosure issues except one. It reversed the district court's decision with
respect to that one issue and remanded the case for further proceedings. The
one remaining issue is whether it was misleading to purchasers in the initial
public offering for the original prospectus to include certain statistics
regarding the average performance of the high yield bond market for a
ten-year period without also including different statistics, alleged by the
plaintiffs to exist and
B-68
<PAGE>
The New America High Income Fund, Inc.
Notes to Financial Statements-Continued
December 31, 1996
to be material, for the six-year period prior to the offering. The defendants
jointly moved for summary judgment on this remaining issue on March 31, 1995.
On November 16, 1995, the parties executed a Stipulation and Agreement of
Compromise, Settlement and Release providing for the settlement of the
action. The settlement was approved by the Court pursuant to a Final Order
and Judgment entered on June 13, 1996. Pursuant to the settlement, the
defendants have created a Settlement Fund amounting in the aggregate to
$2,500,000 for distribution, after deduction of certain fees and expenses, to
a class consisting of all persons who purchased shares of the Fund's common
stock between February 19, 1988 and March 26, 1990, other than the
defendants. The Fund contributed $1,250,000 to the Settlement Fund on June
21, 1996, and the balance was contributed by certain of the underwriters of
the Fund's initial public offering. In addition, the Fund contributed $7,500
to a Notice and Administration Fund, to be used for mailing notice to class
members and other administrative purposes.
The Fund established a reserve for its share of the Settlement Fund and
charged $1,250,000 to operations for the year ended December 31, 1995. The
Fund charged $7,500 to operations for the year ended December 31, 1996 for
its share of the Notice and Administration Fund.
(12) Rights Offering
On December 11, 1996, the Fund filed a Registration Statement with the
Securities and Exchange Commission regarding a transferable rights offering
to the holders of the Fund's common stock. Under the expected terms of the
offering, as described in the Registration Statement, the Fund will issue to
its common stockholders rights to subscribe for an aggregate of approximately
11,982,000 shares of the Fund's common stock. Each stockholder will be issued
one right for each three full shares of common stock owned on the record
date. The method of pricing and the record date will be determined and
announced shortly before the commencement of the offering, which the Fund
presently anticipates will occur in February 1997. Deferred offering expenses
of approximately $500,000 will be netted against the rights offering
proceeds. At December 31, 1996, the Fund had approximately $452,000 in
outstanding liabilities associated with the offering.
The rights offering will entitle shareholders, and other rightholders
purchasing rights in the market, to acquire one new share of stock for each
right held. In addition, holders of rights who subscribe for the maximum
number of shares to which they are entitled will be permitted to subscribe
for additional shares. The Fund intends to apply to list the rights for
trading on the New York Stock Exchange.
From time to time in the future, the Fund may effect redemptions and/or
repurchases of its ATP as provided in the applicable constituent instruments
or as agreed upon by the Fund and sellers. The Fund intends to effect such
redemptions and/or repurchases to the extent necessary to maintain applicable
asset coverage requirements.
B-69
<PAGE>
The New America High Income Fund, Inc.
Directors
Robert F. Birch
Joseph L. Bower
Richard E. Floor
Bernard J. Korman
Franco Modigliani
Ernest E. Monrad
Officers
Robert F. Birch - President
Ellen E. Terry - Vice President, Treasurer
Richard E. Floor - Secretary
Investment Advisor
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
Administrator
The New America High Income Fund, Inc.
Ten Winthrop Square
Boston, MA 02110
(617) 350-8610
Custodian and Transfer Agent
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
(617) 328-5000 ext. 6406
(800) 426-5523
Listed: NYSE
Symbol: HYB
Independent Public Accountants
Arthur Andersen LLP
Boston, MA
B-70
<PAGE>
The New America High Income Fund, Inc.
Report of Independent Public Accountants
To the Shareholders and Board of Directors of The New America High Income
Fund, Inc.:
We have audited the accompanying balance sheet of The New America High
Income Fund, Inc. (the Fund) (a Maryland Corporation), including the schedule
of investments, as of December 31, 1996, and the related statement of
operations for the year then ended, and the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for the periods presented. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of The New America High Income Fund, Inc. as of December 31, 1996,
and the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
Boston, Massachusetts ARTHUR ANDERSEN LLP
January 17, 1997
B-71
<PAGE>
APPENDIX A
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.
B-A-1
<PAGE>
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.
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.
B-A-2
<PAGE>
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.
B-A-3
<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.
B-A-4
<PAGE>
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.
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.
B-A-5
<PAGE>
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.
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.
B-A-6
<PAGE>
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.
B-A-7
<PAGE>
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.
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.
B-A-8
<PAGE>
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.
B-A-9
<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.
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.
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.
<PAGE>
CC The rating 'CC' is currently highly vulnerable to
nonpayment.
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.
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.
r This symbol is attached to ratings of instruments
with significant noncredit risks. It highlights
risks to principal or volatility of expected
returns which are not addressed in the credit
rating.
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 issues 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.
B-A-11
<PAGE>
Variable Rate Demand Bonds
Standard & Poor's assigns "dual" ratings to all long-term debt issues
that have as part of their provisions on a long-term rating and a variable rate
demand rating.
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+"). If the nominal maturity is short (three years
or less), a note rating 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 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:
B-A-12
<PAGE>
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.
B-A-13
<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, 1996, 1995, 1994, 1993,
1992, 1991, 1990 and 1989 and For the Period from
February 26, 1988 (Commencement of Operations) to
December 31, 1988)
Financial Statements included in PART B (Statement of
Additional Information) of this Registration Statement:
Schedule of Investments, December 31, 1996
Balance Sheet, December 31, 1996
Statement of Operations For the Year Ended
December 31, 1996
Statement of Changes in Net Assets (For the Years
Ended December 31, 1996 and December 31, 1995)
Financial Highlights For Each Share of Common
Stock outstanding Throughout the Period (For the
Years Ended December 31, 1996, December 31, 1995,
December 31, 1994, December 31, 1993, December
31, 1992, December 31, 1991, December 31, 1990
and December 31, 1989 and For the Period from
February 26, 1988 (Commencement of Operations) to
December 31, 1988)
Information regarding Senior Securities (For the
Years Ended December 31, 1996, December 31, 1995,
December 31, 1994, December 31, 1993, December
31, 1992, December 31, 1991, December 31, 1990
and December 31, 1989 and For the Period from
February 26, 1988 (Commencement of Operations) to
December 31, 1988)
Notes to Financial Statements, December 31, 1996
Report of Independent Public Accountants
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. (i)
(a)(2) Articles of Amendment of The New America High
Income Fund, Inc. dated as of June 15, 1989. (i)
(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. (i)
<PAGE>
(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 January 4,
1994 (ii)
(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. (i)
(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. (i)
(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. (i)
(a)(8) Form of Articles Supplementary of The New
America High Income Fund, Inc. Establishing and
Defining the Rights and Preferences of an
Additional Series of Shares of Auction Term
Preferred Stock, to be filed with the State
Department of Assessments and Taxation of the
State of Maryland.
(b) By-Laws, as amended as of February 19, 1997,
of the Registrant.
(c) Not applicable.
(d)(1) Specimen Certificate for shares of Common Stock
par value $.01 per share.
(d)(2) Specimen Certificate for shares of Auction Term
Preferred Stock, Series B, par value $1.00 per
share.
(d)(3) Specimen Certificate for shares of Auction Term
Preferred Stock, Series A, par value $1.00 per
share.
(d)(4) Specimen Certificate for shares of Auction Term
Preferred Stock, Series C, par value $1.00 per
share.
(e) Dividend Reinvestment Plan, as modified. (i)
(f) Not applicable.
(g) Investment Advisory Agreement dated as of
February 19, 1992 between the Registrant and
Wellington Management Company, LLP. (i)
(h) Form of Underwriting Agreement among the
Registrant, Wellington Management Company, LLP
and Lehman Brothers Inc. with respect to the
Auction Term Preferred Stock, Series C, of the
Registrant.
(i) Not applicable.
(j) Custodian Contract dated as of February 11, 1988
between the Registrant and
<PAGE>
State Street Bank and Trust Company. (i)
(k)(1) Registrar, Transfer Agency and Service Agreement
dated as of February 11, 1988 between the
Registrant and State Street Bank and Trust
Company. (i)
(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. (i)
(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. (i)
(k)(4) Broker-Dealer Agreement dated as of March 19,
1997 between Bankers Trust Company and Lehman
Brothers Inc. with respect to the Auction Term
Preferred Stock of the Registrant.
(k)(5) Form of Auction Agent Agreement with respect to
the Auction Term Preferred Stock, Series C, of
the Registrant.
(k)(6) Form of Letter of Representations Agreement
with respect to the Auction Term Preferred
Stock, Series C, of the Registrant.
(k)(7) Form of Broker-Dealer Agreement with Lehman
Brothers Inc. with respect to the Auction Term
Preferred Stock of the Registrant.
(k)(8) Interest payment swap arrangement between the
Fund and First National Bank of Boston, N.A. (i)
(k)(9) Affirmation and Undertaking dated August 13,
1990 executed by certain directors and executive
officers of the Registrant. (iii)
(k)(10) Agreement dated as of December 7, 1995 between
the Registrant and Ellen E. Terry.
(k)(11) Agreement dated as of December 7, 1995 between
the Registrant and Paul E. Saidnawey.
(k)(12) Letter Agreement between Registrant and Lehman
Brothers Inc. dated March 24, 1997 with respect
to the Auction Term Preferred Stock of the
Registrant.
(k)(13) Form of Letter Agreement between Registrant and
Lehman Brothers Inc. with respect to the Auction
Term Preferred Stock of the Registrant.
(l) Opinion of Venable, Baetjer and Howard, LLP as
to legality of securities being registered and
consent to its use.
(m) Not applicable.
(n) Consent of Arthur Andersen LLP.
<PAGE>
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Financial Data Schedule reflecting Registrant's
financial statements for the fiscal year ending
December 31, 1996.
(s) 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 incorporated by reference to the signature
pages to Registrant's Registration Statement
filed March 13, 1997.
- ---------------
Footnote
Reference Description
- --------- -----------
(i) Filed as an exhibit under Amendment No. 19 (filed December 11, 1996)
to the Registrant's Registration Statement on Form N-2, Registration
No. 33-17619, under the same exhibit number and incorporated herein
by reference.
(ii) To be filed by amendment.
(iii) 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.
(iv) 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.
Item 25: Marketing Arrangements
Not Applicable.
Item 26: Other Expenses of Issuance and Distribution
Securities and Exchange Commission fees.............. $ 15,152
Printing and engraving expenses...................... 10,000
Legal fees and expenses.............................. 175,000
Accounting fees and expenses......................... 23,500
Miscellaneous expenses............................... 73,348
---------
Total...................................... $297,000
Item 27: Persons Controlled by or under Common Control with Registrant
None.
<PAGE>
Item 28: Number of Holders of Securities
At March 31, 1997 the numbers of record holders of shares of the
Registrant were as follows:
Number of
Title of Class Record Holders
-------------- --------------
Common Shares, $.01 par value per share...................... 5,013
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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. Not applicable.
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. A copy of the Statement of Additional Information will be sent by
first class mail or other means designed to ensure equally prompt delivery,
within two business days of receipt of a written or oral request for such copy.
<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
Pre-Effective Amendment to its 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 29th day of April, 1997.
THE NEW AMERICA HIGH INCOME
FUND, INC.
By: /s/ Ellen E. Terry
-------------------
Ellen E. Terry
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the 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>
* President and Director April 29, 1997
- ------------------------------------- (Principal Executive Officer)
Robert F. Birch
/s/ Ellen E. Terry Vice President and Treasurer April 29, 1997
- ------------------------------------- (Principal Financial and
Ellen E. Terry Accounting Officer)
* Director April 29, 1997
- -------------------------------------
Joseph L. Bower
* Director April 29, 1997
- -------------------------------------
Richard E. Floor
* Director April 29, 1997
- -------------------------------------
Bernard J. Korman
* Director April 29, 1997
- -------------------------------------
Franco Modigliani
* Director April 29, 1997
- -------------------------------------
Ernest E. Monrad
*By: /s/ Ellen E. Terry
------------------
Ellen E. Terry, Attorney-in-Fact
under Powers of Attorney dated
March 13, 1997, incorporated herein
by reference to Registrant's Registration
Statement on Form N-2, Registration
No. 333-23253.
</TABLE>
<PAGE>
1933 Act File No. 33-23253
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 |_|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 22 |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>
A8 Form of Articles Supplementary of The New America High
Income Fund, Inc. Establishing and Defining the Rights
and Preferences of an Additional Series of Shares of
Auction Term Preferred Stock, to be filed with the State
Department of Assessments and Taxation of the State of
Maryland.
B By-Laws, as amended as of February 19, 1997, of the Registrant.
D1 Specimen Certificate for shares of Common Stock par value $.01
per share.
D2 Specimen Certificate for shares of Auction Term
Preferred Stock, Series B, par value $1.00 per share.
D3 Specimen Certificate for shares of Auction Term
Preferred Stock, Series A, par value $1.00 per share.
D4 Specimen Certificate for shares of Auction Term
Preferred Stock, Series C, par value $1.00 per share.
H Form of Underwriting Agreement among the Registrant, Wellington
Management company, LLP and Lehman Brothers Inc. with
respect to the Auction Term Preferred Stock, Series C, of the
Registrant.
K4 Broker-Dealer Agreement dated as of March 19, 1997 between
Bankers Trust Company and Lehman Brothers Inc. with respect to
the Auction Term Preferred Stock of the Registrant.
K5 Form of Auction Agent Agreement with respect to the
Auction Term Preferred Stock, Series C, of the
Registrant.
K6 Form of Letter of Representations Agreement with respect
to the Auction Term Preferred Stock, Series C, of the
Registrant.
K7 Form of Broker-Dealer Agreement with Lehman Brothers Inc. with
respect to the Auction Term Preferred Stock of the Registrant.
K10 Agreement dated as of December 7, 1995 between the Registrant
and Ellen E. Terry.
K11 Agreement dated as of December 7, 1995 between the Registrant and
Paul E. Saidnawey.
K12 Letter Agreement between Registrant and Lehman Brothers Inc.
dated March 24, 1997 with respect to the Auction Term Preferred
Stock of the Registrant.
K13 Form of Letter Agreement between Registrant and Lehman Brothers
Inc. with respect tot he Auction Term Preferred Stock of the Registrant.
L Opinion of Venable, Baetjer and Howard, LLP as to
legality of securities being registered and consent to
its use.
N Consent of Arthur Andersen LLP
27 Financial Data Schedule for the Registrant
</TABLE>
EXHIBIT A8
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
ESTABLISHING AND FIXING THE RIGHTS AND
PREFERENCES OF AN ADDITIONAL 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 $25,000 per share, classified as Series C Auction Term
Preferred Stock.
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 C: A series of 2,000 shares of Preferred Stock, par value
$1.00 per share, liquidation preference $25,000 per share, is hereby designated
"Series C Auction Term Preferred Stock" ("ATP Series C"). Each share of ATP
Series C shall have an Applicable Rate for its initial Dividend Period equal to
___% per annum and an initial Dividend Payment Date of ________, 1997; and each
share of ATP Series C 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
C 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 ATP Series C, 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
<PAGE>
set forth shall be as set forth in the Articles Supplementary reclassifying such
shares as ATP Series C .
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
ATP Series C is 2,000 shares. No fractional shares of ATP Series C shall be
issued.
(b) Any shares of ATP Series C 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 Series C 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 ATP Series C shall have, solely
by reason of being such a holder, any preemptive or other right to acquire,
purchase or subscribe for any shares of ATP Series C, 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 ATP Series C 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 ATP Series C
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 ATP Series C as follows:
2
<PAGE>
(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 for 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 be 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 ATP
Series C, 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 ATP Series C 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 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.
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(c) (i) The dividend rate on Outstanding shares of ATP
Series C during the period from and after the Date of Original Issue
to and including the last day of the initial Dividend Period therefor
shall be equal to the rate per annum set forth under "Designation"
above. For each subsequent Dividend Period with respect to the shares
of ATP Series C Outstanding thereafter, the dividend rate shall be
equal to the rate per annum that results from an Auction for
Outstanding shares of ATP Series C on the respective Auction Date
therefor next preceding such subsequent Dividend Period; provided,
however, that if an Auction for any subsequent Dividend Period of ATP
Series C 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 ATP Series C being the subject of Submitted Hold Orders),
then the dividend rate on the shares of ATP Series C for any such
Dividend Period shall be the Maximum Applicable Rate for such shares
on the Auction Date for such Dividend Period (except (i) during a
Default Period when the dividend rate shall be the Default Rate, as
set forth in Section 2(c)(ii) below) or (ii) after a Default Period
and prior to the beginning of the next Dividend Period when the
dividend rate shall be the Maximum Applicable Rate at the close of
business on the last of such Default Period). With respect to a
Dividend Period of 93 days or fewer, the Minimum Applicable Rate will
apply automatically following an Auction in which all of the
Outstanding shares of ATP Series C are subject (or are deemed to be
subject) to Hold Orders. The rate per annum at which dividends are
payable on shares of ATP Series C 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 ATP Series C 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
Series C 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,
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
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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 ATP Series C is mandatorily redeemed as provided herein. The
Applicable Rate for each Default Period, and each Dividend Period
commencing during a Default Period, will be equal to 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. No Auction
shall be held during a Default 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 (or in respect of dividends on another date
in connection with a redemption during such Dividend Period) shall be
computed by multiplying the Applicable Rate (or the Default Rate) for
such Dividend Period (or a portion thereof) by a fraction, the
numerator of which will be the number of days in such Dividend Period
(or portion thereof) that such share was Outstanding and for which
the Applicable Rate or the Default Rate was applicable and
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the denominator of which will be 360, multiplying the amount so
obtained by $25,000, and rounding the amount so obtained to the
nearest cent. During any Dividend Period of one (1) year or more, the
amount of dividends per share payable on any Dividend Payment Date
(or in respect of dividends on another date in connection with a
redemption during such Dividend Period) 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 ATP Series C
shall first be credited against the earliest accumulated but unpaid dividends
due with respect to ATP Series C.
(e) For so long as the shares of the ATP are Outstanding,
except as contemplated by Sections 3(j) and 7(e), 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 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 the 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
ATP Series C 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 $25,000, 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
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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 per share equal to $25,000, 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 Series C 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 Series C by reason of the redemption
of ATP Series C 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,
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 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 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 (B)
the maximum number of shares of ATP that can be redeemed out of funds
expected to be
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available therefor on the mandatory redemption date at the Mandatory
Redemption Price set forth in subparagraph (a)(iv) of this Section 3.
(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 the 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 the 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 the 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 Date 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 the 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 the 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 the 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 the 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 the
ATP are to be redeemed pursuant to this Section 3(a)(iv), the number
of shares to be redeemed shall be redeemed pro rata 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 $25,000 per share, plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared)
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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.
(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 Series C 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
ATP Series C 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 Series C 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 the ATP may be redeemed
unless all dividends in arrears on the Outstanding shares of the 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 the 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 the ATP.
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(d) Upon the deposit of funds sufficient to redeem shares
of ATP Series C 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
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 Series C
called for redemption on such date and (ii) such other amounts, if any, to which
Holders of shares of ATP Series C 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 Series C 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 Series C 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 Series C for which a Notice of Redemption has been given,
dividends may be declared and paid on shares of ATP Series C and shall include
those shares of ATP Series C 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 Series C 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 Series C 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.
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(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 Series C 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 Series
C for which Notice of Redemption has been given and the Corporation 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 Corporation
shall have no voting rights. If fewer than all the Outstanding shares of ATP
Series C 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 Series C shall be redeemed, and in the event that
any provision of the Articles would require redemption of a fractional share,
the Auction Agent shall be authorized to round up so that only whole 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 ATP Series C is as set
forth under "Designation" above. The Corporation will designate the duration of
subsequent Dividend Periods of ATP Series C; 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, ATP Series C 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
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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 than rating the ATP) and any Other Rating Agency which is
then rating the ATP and so requires.
(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
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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 Series C 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, a transfer other than pursuant to an
Auction will not be effective unless the selling Existing Holder or the Agent
Member of such Existing Holder, in the case of an Existing Holder whose shares
are listed in its own name on the books of the Auction Agent, or the
Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer
between persons holding shares of ATP Series C through different Broker-Dealers,
advises the Auction Agent of such transfer. The certificates representing the
shares of ATP Series C 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.
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
Series C shall be entitled to one vote for each share of ATP Series C held on
each matter submitted to a vote of shareholders of the Corporation, and (ii) the
holders of Outstanding shares of Preferred Stock, including ATP Series C, 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 ATP Series C, 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 ATP Series C, 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 ATP
Series C, 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 ATP Series C, 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 ATP Series C, 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
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Stock, including ATP Series C, 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 ATP Series C, 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 ATP Series C, 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 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 ATP Series C, 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) 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.
(e) 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.
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(f) So long as any of the shares of Preferred Stock,
including ATP Series C, 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, 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)
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hereof; provided, however, that transfers of assets by the Corporation 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
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.
(g) The affirmative vote of the holders of a majority of
the Outstanding shares of Preferred Stock, including ATP Series C, 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 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 ATP Series
C), Fitch (if Fitch is then rating ATP Series C) and any Other Rating Agency
which is then rating ATP Series C and which so requires that such vote is to be
taken and the nature of the action with respect to which such vote is to be
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.
(h) The affirmative vote of the holders of a majority of
the Outstanding shares of ATP Series C, 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 ATP Series C 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 Series C 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.
(i) The Board of Directors, without the vote or consent of
any Holder of the Preferred Stock, including ATP Series C, 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 ATP Series C) and Fitch (if Fitch is then rating ATP Series C) (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 ATP Series C, 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
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vote or consent of any Holder of the Preferred Stock, including ATP Series C, 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 ATP Series C, and any
such amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of ATP Series C 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.
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, subject to compliance with applicable law, 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 ATP Series C, 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.
(j) Unless otherwise required by law, holders of shares of
ATP Series C 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 Series C shall have no rights
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to cumulative voting. In the event that the Corporation fails to pay any
dividends on the shares of ATP Series C, the exclusive remedy of the holders
shall be the right to vote for directors pursuant to the provisions of this
Section 6.
(k) The foregoing voting provisions will not
apply with respect to ATP Series C 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 Series C then Outstanding, together with
holders of shares of any class of stock ranking on a parity with ATP Series C
upon dissolution, liquidation or winding up, shall be entitled to receive and to
be paid out of the assets of the Corporation (or the proceeds thereof) available
for distribution to its stockholders after 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 Series C shall be
$25,000 per share, plus an amount equal to all accumulated dividends thereon
(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. 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 Series C 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 ATP Series C 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 ATP Series C 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 ATP Series C or any shares
issuable in exchange for shares of ATP Series C in any such consolidation or
merger.
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(d) After the payment to the Holders of ATP
Series C of the full preferential amounts provided for in this Section 7, the
holders of ATP Series C 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 Series C, 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 ATP Series C
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 Series C, ratably, 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 ATP
Series C 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 Series C as provided
in paragraph (a) of this Section 7, but not prior thereto, any other series or
class or classes of stock ranking junior to ATP Series C 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 Series C shall
not be entitled to share therein.
8. Auction Agent. For so long as any shares of ATP Series C
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 Series C 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 the 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.
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10. ATP Basic Maintenance Amount. So long as shares of the
ATP are Outstanding and Moody's, Fitch or any Other Rating Agency which so
requires is then rating the shares of the 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 Series C 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 ATP
Series C), Fitch (if Fitch is then rating ATP Series C) and (if applicable) such
Other Rating Agency that any such action would not impair the rating then
assigned by such rating agency to ATP Series C, 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;
(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) except in connection with a refinancing of
the ATP (including the ATP Series C), issue any class or series of stock ranking
prior to or on a parity with ATP Series C 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 Series C 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
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option is exchange-traded and may be offset readily or if the option expires
before the earliest possible redemption of ATP Series C, 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 Series C is 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 ATP Series C) and Fitch (if Fitch is then rating ATP Series C); (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 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 Series C 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 the
ATP outside of an Auction or in the event of a failure to file a certificate 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
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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 the 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 ATP Series C), Fitch (if Fitch is then rating
ATP Series C) and any Other Rating Agency which is then rating ATP Series C 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 ATP Series C) and any Other Rating Agency which is then rating ATP Series
C 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 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 ATP Series C), Fitch (if Fitch is then rating ATP Series
C) and any Other Rating Agency which is then rating ATP Series C 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 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 ATP
Series C), Fitch (if Fitch is then rating ATP Series C) and any Other Rating
Agency which is then rating ATP Series C 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 ATP Series C), Fitch (if Fitch is then
rating ATP Series C), and any Other Rating Agency which is then rating ATP
Series C 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
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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 ATP Series C), Fitch (if Fitch is then rating ATP Series C) and any Other
Rating Agency which is then rating ATP Series C 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 ATP Series C), Fitch (if Fitch is then
rating ATP Series C) and any Other Rating Agency which is then rating ATP Series
C 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 ATP Series C), Fitch (if Fitch is then rating ATP Series
C) and any Other Rating Agency which is then rating ATP Series C and which so
requires an Accountant's 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.
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(h) The Accountant's Certificates referred to in
paragraph (g) will confirm, based upon the independent accountant's review, (i)
the mathematical accuracy of the calculations reflected in the related ATP Basic
Maintenance Amount 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.
16. Waiver. Holders of at least two-thirds of the
Outstanding shares of ATP, acting collectively, or the ATP Series C, acting as a
separate series, may waive any provision hereof intended for their respective
benefit 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 ATP Series
C 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
24
<PAGE>
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 rules and regulations under 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 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) Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Goldman Sachs & Co.; (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 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 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
25
<PAGE>
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 ATP
Series C, 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 Series C 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 $25,000 per share, Series C
of the Corporation or any other series of Preferred Stock heretofore or
hereinafter designated "Auction Term Preferred Stock" 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 sum of the
products resulting from multiplying the number of Outstanding shares
of each series of ATP on such date by the liquidation preference per
share of such series (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, 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;
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<PAGE>
(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 C" means the shares of Series C
of the ATP or any other shares of Preferred Stock hereinafter designated as
shares of Series C of the ATP by Articles Supplementary or Articles of
Amendment.
(m) "Auction" means each periodic operation of
the procedures set forth under "Auction Procedures."
(n) "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.
(o) "Auction Date" means the first Business Day
next preceding the first day of a Dividend Period for ATP Series C.
(p) "Auction Procedures" means the procedures for
conducting Auctions set forth in Part II hereof.
(q) "Board of Directors" means the Board of
Directors of the Corporation or any duly authorized committee thereof as
permitted by applicable law.
(r) "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.
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<PAGE>
(s) "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.
(t) "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.
(u) "Code" means the Internal Revenue Code of
1986, as amended.
(v) "Commercial Paper Dealers" has the meaning
set forth in the definition of AA Composite Commercial Paper Rate.
(w) "Commission" means the Securities and
Exchange Commission.
(x) "Common Stock" means the common stock, par
value $.01 per share, of the Corporation.
(y) "Corporate Bonds" means corporate debt
securities having the characteristics set forth in paragraph (iv) of the
definition of Fitch Eligible Assets.
(z) "Date of Original Issue" means the date on
which ATP Series C is originally issued by the Corporation.
(aa) "Default Period" has the meaning set forth
in Section 2(c)(ii).
(bb) "Default Rate" means the Reference Rate
multiplied by three (3).
(cc) "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.
(dd) "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.
(ee) "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
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<PAGE>
Asset that is prepayable, Discounted Value shall be equal to the quotient as
calculated above or the par value, whichever is lower.
(ff) "Dividend Default" has the meaning set forth
in Section 2(c)(iii).
(gg) "Dividend Payment Date" for ATP Series C,
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.
(hh) "Dividend Period" means, with respect to ATP
Series C, 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.
(ii) "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.
(jj) "Exposure Period" means the period
commencing on (and including) a given Valuation Date and ending 41 days
thereafter.
(kk) "Fitch" means Fitch Investors Service, Inc.
and its successors at law.
(ll) "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 and remaining term to maturity
of each 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 1.27
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
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<PAGE>
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
(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.
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<PAGE>
(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
(iv) Rule 144A Securities: 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 Securities Act.
(mm) "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 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;
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(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 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.
(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:
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Type of Corporate 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
- --------------------
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(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 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.
(nn) "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
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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.
(oo) "Holder" means, with respect to ATP Series C, the
registered holder of shares of ATP Series C as the same appears on the stock
ledger or stock records of the Corporation.
(pp) "Mandatory Redemption Date" has the meaning set forth
in Section 3(a)(iv).
(qq) "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 by Merrill Lynch
Capital Markets Securities Pricing Service, Kenny S&P Evaluation Services or
such other pricing service determined from time to time by the Board of
Directors, provided that Moody's (if Moody's is then rating the ATP Series C),
Fitch (if Fitch is then rating the ATP Series C) and any Other Rating Agency
which is then rating the ATP Series C 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 Series C 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.
(rr) "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
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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.
(ss) "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.
(tt) "Moody's" means Moody's Investors Service, Inc. and
its successors at law.
(uu) "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.
Moody's Discount Factors --
Corporate Debt Securities
Maturity Rating Category
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%.
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(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 (as defined by Moody's):
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
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(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 Securities Act.
(vv) "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(as defined by Moody's);
(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.
(v) Portfolio securities that are preferred
stocks will be included in Moody's Eligible Assets if (A) dividends
on such preferred stock are cumulative,
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(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 $5 million. In
addition, preferred stocks issued by transportation companies will
not be considered Moody's Eligible Assets.
(vi) In addition, portfolio holdings as described
below must be within the following diversification and issue size
requirements in order to be included in Moody's Eligible Assets:
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Collateral Ratings(1) (%)(2,3) (%)(3,4) millions)(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 (Caa subordinate)....... 2 5 50 (5)
See accompanying notes
- --------------------
(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.
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<PAGE>
(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 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 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.
(ww) "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
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
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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
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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 of the
foregoing
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
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<PAGE>
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.
(xx) "1940 Act" means the Investment Company Act of 1940,
as amended from time to time.
(yy) "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.
(zz) "1940 Act ATP Asset Coverage Certificate" means the
certificate required to be delivered by the Corporation pursuant to Section
13(e).
(aaa) "Notice of Redemption" means any notice with respect
to the redemption of shares of ATP pursuant to Section 3.
(bbb) "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.
(ccc) "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 ATP Series C.
(ddd) "Outstanding" means, as of any date, shares of ATP
theretofore issued by the Corporation except, without duplication, (i) any
shares of ATP theretofore canceled, 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 shares of ATP and (ii) any shares
of ATP represented by any certificate in lieu of which a new certificate has
43
<PAGE>
been executed and delivered by the Corporation. Notwithstanding the foregoing,
(A) for purposes of voting rights (including the determination of the number of
shares required to constitute a quorum), any shares of the ATP to which the
Corporation or any Affiliate of the Corporation shall be the Existing Holder
shall be disregarded and not deemed Outstanding; (B) in connection with any
Auction, any shares of the ATP Series C as to which the Corporation or any
person known to the Auction Agent to be an Affiliate of the Corporation shall be
the Existing Holder thereof shall be disregarded and deemed not to be
Outstanding; and (C) for purposes of determining the ATP Basic Maintenance
Amount, shares of ATP held by the Corporation shall be disregarded and not
deemed Outstanding but shares held by any Affiliate of the Corporation shall be
deemed Outstanding.
(eee) "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.
(fff) "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.
(ggg) "Preferred Stock" means the preferred stock of the
Corporation from time to time.
(hhh) "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 ATP Series
C to be the subject of an accepted Hold Order will be (1)
the number of shares of ATP Series C subject to such
Submitted Hold/Sell Order multiplied by (2) the total
number of shares of ATP Series C 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 ATP Series C subject to Submitted
Hold/Sell Orders that specified a rate equal to the Winning
Rate, and
(B) the number of shares of ATP Series
C to be the subject of an accepted Sell Order will be the
remaining number of shares of ATP Series C 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
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(A) the number of shares of ATP Series
C to be the subject of an accepted Buy Order will be (1)
the number of shares of ATP Series C subject to such
Submitted Buy Order multiplied by (2) the difference
between (x) the number of shares of ATP Series C 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 ATP Series C
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 ATP Series C 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 ATP Series
C to be the subject of an accepted Sell Order will be (1)
the number of shares of ATP Series C subject to such
Submitted Hold/Sell Order or Submitted Sell Order
multiplied by (2) the total number of shares of ATP Series
C that are the subject of a Submitted Buy Order specifying
a rate equal to or lower than the Maximum Applicable Rate
and divided by (3) the total number of shares of ATP Series
C 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 ATP Series
C to be the subject of an accepted Hold Order will be the
remaining number of shares of ATP Series C subject to such
Submitted Hold/Sell Order or Submitted Sell Order.
(iii) "Rating Default" has the meaning set forth in Section
3(c)(ii).
(jjj) "Rating Default Cure Date" has the meaning set forth
in Section 3(a)(iii).
(kkk) "Redemption Default" has the meaning set forth in
Section 3(c)(ii).
(lll) "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).
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(mmm) "Rule 144A Securities" means 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.
(nnn) "S&P" means Standard & Poor's Corporation and its
successors at law.
(ooo) "Securities Act" means the Securities Act of 1933, as
amended from time to time.
(ppp) "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 ATP
Series C.
(qqq) "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 ATP Series C), and (b) 180 days for purposes
of determining Fitch Eligible Assets (if Fitch is then rating ATP Series C):
(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
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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 depository
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-l+ by S&P and there is no long-term rating, and (3) the holding
company shall meet all of the foregoing credit 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.
(rrr) "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 redeemable 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 $25,000 plus accumulated
but unpaid dividends plus a premium expressed as a percentage or percentages of
$25,000 or expressed as a formula using specified variables as determined by the
Board of Directors after consultation with the Broker-Dealers.
(sss) "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.
(ttt) "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.
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(uuu) "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
Corporation by at least three recognized dealers in U.S. Government securities
selected by the Corporation.
(vvv) "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.
(www) "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.
(xxx) "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.
(yyy) "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.
(zzz) "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.
(aaaa) "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.
(bbbb) "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.
(cccc) "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
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<PAGE>
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
ATP Series C initially is issued.
(dddd) "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 of 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 a person placing an Order.
(b) "Available ATP" has the meaning specified in Section
5(a)(i).
(c) "Buy Order" has the meaning specified in Section 2(b).
(d) "Existing Holder" means (a) a person who has signed a
Master Purchaser's Letter and beneficially owns shares of ATP Series C listed in
that person's name in the records of the Auction Agent or (b) the beneficial
owner of shares of ATP Series C which are listed under such person's
Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer
shall have signed a Master Purchaser's Letter.
(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
substantially in the form of or containing provisions similar to those in the
form attached to the Corporation's Prospectus with respect to the initial
issuance of ATP Series C, which is required to be executed by (1) each
prospective purchaser of shares of ATP Series C or (2) the Broker-Dealer through
whom such shares will be held.
(h) "Order" has the meaning specified in Section 2(b).
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(i) "Potential Holder," when used with respect to shares of
ATP Series C, means any person, including any Existing Holder of shares of ATP
Series C, (i) who shall have executed a Master Purchaser's Letter or whose
shares will be listed under such person's Broker-Dealer's name on the records of
the Auction Agent, which Broker-Dealer shall have executed a Master Purchaser's
Letter and (ii) who may be interested in acquiring shares of ATP Series C (or,
in the case of an Existing Holder or such person, additional shares of ATP
Series C).
(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
ATP Series C are the subject of Submitted Hold Orders or that the number of
shares of ATP Series C 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 ATP
Series C 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 ATP Series C 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 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 ATP Series C which, when
added to the number of shares of ATP Series C to be purchased by the Potential
Holders described in clause (ii) above and the number of shares of ATP Series C
subject to Submitted Hold Orders, would be equal to the number of shares of ATP
Series C.
Section 2. Orders by Existing Holders and Potential Holders.
(a) On or prior to the Submission Deadline on each Auction
Date with respect to ATP Series C:
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(i) each Existing Holder may submit to a
Broker-Dealer information as to:
(A) the number of Outstanding shares
of ATP Series C, 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 ATP Series C, 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 ATP Series C, 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 Series C,
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) or (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 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 ATP Series C 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
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(B) a lesser number of Outstanding
shares of ATP Series C 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 ATP Series C 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 ATP Series C 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 ATP Series C 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 ATP Series C 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]
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 aggregate number of shares of ATP Series
C that are the subject of such Order;
(ii) to the extent that such Order is placed by
an Existing Holder:
(A) the number of shares of ATP Series
C, if any, subject to any Hold Order placed by such
Existing Holder;
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(B) the number of shares of ATP Series
C, if any, subject to any Hold/Sell Order placed by such
Existing Holder;
(C) the number of shares of ATP Series
C, if any, subject to any Sell Order placed by such
Existing Holder;
(iii) to the extent that such Order is placed by
an Potential Holder, the number of shares of ATP Series C subject to
such Order; 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 ATP Series
C 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 Series C 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 ATP Series C held by
such Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:
(i) If one or more Hold Orders shall be
submitted on behalf of an Existing Holder as to a number of shares of
ATP Series C greater than the number of shares of ATP Series C held
by such Existing Holder, such Hold Order or Hold Orders shall be
considered valid only as to the number of shares of ATP Series C 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
ATP Series C greater than the excess of the number of shares of ATP
Series C held by such Existing Holder over the number of shares of
such series of ATP subject to Hold Orders submitted on behalf of such
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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 Series C 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
ATP Series C greater than the excess of the number of shares of ATP
Series C held by such Existing Holder over the number of shares of
ATP Series C 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
Existing Holder or Potential Holder, each Order submitted shall be a separate
Order with the rate and shares of ATP Series C 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.
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 ATP Series C over the number of Outstanding
shares of ATP Series C that are the subject of Submitted Hold Orders
(such excess being hereinafter referred to as the "Available ATP");
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(ii) from the Submitted Orders whether the number
of Outstanding shares of ATP Series C 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 ATP Series
C 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 ATP Series
C 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 ATP Series C 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 ATP Series C 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 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.
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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:
(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 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 not exist:
(i) all Submitted Hold Orders will be accepted;
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(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 Series C 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 Series C 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 Series C 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 Series C even if such allocation results in one or more of
such Potential Holders not purchasing any shares of ATP Series C or in one or
more Existing Holders no longer holding any shares of ATP Series C.
(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 Series C, 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 Series C for purchase among Potential Holders so that
only whole shares of ATP Series C 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 Series C on such Auction Date
or in one or more Existing Holders no longer holding any shares of ATP Series C.
(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 ATP Series C to be purchased and the aggregate number of shares of ATP Series
C to be sold by such Potential Holders and Existing Holders and, to the extent
that such aggregate number of shares of ATP Series C 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 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 ATP Series C.
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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 Series C 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 Series C. Except as otherwise
required by law, an Existing Holder shall have the ownership of the shares of
ATP Series C held by it maintained in book entry form by the Securities
Depository in the account of (a) for an Existing Holder who holds shares of ATP
Series C directly, its Agent Member, which in turn will maintain records of such
Existing Holder's beneficial ownership or (b) for an Existing Holder holding
shares of ATP Series C through a Broker-Dealer, its Broker-Dealer's Agent
Member, in which case its Broker-Dealer shall 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
Series C
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to any Person other than the Corporation. All of the shares of ATP Series C
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 Series C may be registered in the share register
for the shares of ATP Series C maintained by the Auction Agent in the name of
the Existing Holder thereof or in the name of such Existing holder's
Broker-Dealer and such Existing Holder or such Existing Holder's Broker-Dealer
thereupon will be entitled to receive certificates therefor and required to
deliver certificates therefor upon transfer or exchange thereof.
59
EXHIBIT B
BY-LAWS
OF
THE NEW AMERICA HIGH INCOME FUND, INC.
A Maryland Corporation
Amended as of February 19, 1997
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 May 1 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,
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<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
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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.
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(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
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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.
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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
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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.
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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, February 15, 1996 and
February 19, 1997
24
EXHIBIT D1
COMMON STOCK
The New America High Income Fund, Inc.
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON AND NEW YORK CITY
CUSIP 641876 10 7
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
OF THE PAR VALUE OF ONE CENT EACH, OF
The New America High Income Fund, Inc. transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are subject to the laws of the State of Maryland and the
Articles of Incorporation and the By-Laws of the Corporation and amendments and
statements thereof. This Certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
THE NEW AMERICA HIGH INCOME FUND, INC.
CORPORATE SEAL, MARYLAND 1987
/s/Richard E. Floor /s/Patricia Ostrander
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
(BOSTON) TRANSFER AGENT
BY AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
STATEMENT OF PREFERENCES, LIMITATIONS AND RIGHTS
The corporation is authorized to issue two classes of stock, Taxable Auction
Rate Preferred Stock and Common Stock. The corporation will furnish a full
statement or summary of the preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and conditions of
redemption of the Taxable Auction Rate Preferred Stock and of the Common Stock
to the stockholder upon request and without charge.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT-......Custodian .........
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN-as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
so transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated----------------------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER
EXHIBIT D2
No. 365
Certificate
No.
For Shares
Issued to
Dated 19
FROM WHOM TRANSFERRED
Dated 19
No. Original No. Original No. of Shares
Certificate Shares Transferred
Received Certificate No.
For Shares
this day of 19
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND
THE NEW AMERICA HIGH INCOME FUND, INC.
The Corporation is authorized to issue 800 shares of
Auction Term Preferred Stock
Series B
$1.00 Par Value
CUSIP NO. 641876503
This Certifies that Cede & Co. is the owner of Eight Hundred (800) fully paid
and non-assessable Shares of the Auction Term Preferred Stock Series B
The New America High Income Fund, Inc.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 4th day of January A.D. 1994
Bankers Trust Company
By: ____________________________
Authorized Signature
/s/ Richard E. Floor /s/ Robert F. Birch
Secretary President
<PAGE>
RESTRICTION ON TRANSFER
This certificate is issued subject to the provisions restricting transfers of
shares of Auction Term Preferred Stock contained in Article IV of the Articles
of Incorporation, as amended and restated (the "Articles of Incorporation"), of
the Corporation and in the Master Purchaser's Letter required to be executed by
each person who acquires any of the shares represented by this certificate. A
copy of each such Master Purchaser's Letter, which also affects other rights of
each holder of these shares, is on file with the Corporation. A copy of Article
IV of the Articles of Incorporation and a copy of the Master Purchaser's Letter
setting forth the restrictions on transfer will be furnished to the stockholder
upon request and without charge.
STATEMENT OF PREFERENCES, LIMITATIONS AND RIGHTS
The Corporation is authorized to issue multiple classes and series of stock,
including the Auction Term Preferred Stock Series A and Series B and Common
Stock. The Corporation will furnish a full statement or summary of the
designations, preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of each
class and series of stock which the Corporation is authorized to issue to the
stockholder upon request and without charge.
Certificate for ______ Shares of Capital Stock issued to __________
dated __________
For Value Received, hereby sell, assign and transfer
unto _____________________________________________________
___________________________________________________ Shares
of the Capital Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________
to transfer the said Stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated____________________19_____
In presence of
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
EXHIBIT D3
No. 365
Certificate
No.
For Shares
Issued to
Dated 19
FROM WHOM TRANSFERRED
Dated 19
No. Original No. Original No. of Shares
Certificate Shares Transferred
Received Certificate No.
For Shares
this day of 19
INCORPORATED UNDER THE LAWS OF
The State of Maryland
THE NEW AMERICA HIGH INCOME FUND
The Corporation is authorized to issue 1,200 shares of
Auction Term Preferred Stock
Series A
$1.00 Par Value
CUSIP NO. 641876404
This Certifies that Cede & Co. is the owner of Twelve Hundred (1,200) fully paid
and non-assessable Shares of the Auction Term Preferred Stock Series A
The New America High Income Fund, Inc.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 4th day of January A.D. 1994
Bankers Trust Company
By: ______________________________
Authorized Signature
/s/ Richard E. Floor /s/ Robert F. Birch
Secretary President
<PAGE>
RESTRICTION ON TRANSFER
This certificate is issued subject to the provisions restricting transfers of
shares of Auction Term Preferred Stock contained in Article IV of the Articles
of Incorporation, as amended and restated (the "Articles of Incorporation"), of
the Corporation and in the Master Purchaser's Letter required to be executed by
each person who acquires any of the shares represented by this certificate. A
copy of each such Master Purchaser's Letter, which also affects other rights of
each holder of these shares, is on file with the Corporation. A copy of Article
IV of the Articles of Incorporation and a copy of the Master Purchaser's Letter
setting forth the restrictions on transfer will be furnished to the stockholder
upon request and without charge.
STATEMENT OF PREFERENCES, LIMITATIONS AND RIGHTS
The Corporation is authorized to issue multiple classes and series of stock,
including the Auction Term Preferred Stock Series A and Series B and Common
Stock. The Corporation will furnish a full statement or summary of the
designations, preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of each
class and series of stock which the Corporation is authorized to issue to the
stockholder upon request and without charge.
Certificate for __________ Shares of Capital Stock issued to __________
dated __________
For Value Received, hereby sell, assign and transfer
unto _____________________________________________________
___________________________________________________ Shares
of the Capital Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________
to transfer the said Stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated____________________19_____
In presence of
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
EXHIBIT D4
Certificate
No.
For Shares
Issued to
Dated
FROM WHOM TRANSFERRED
Dated
No. Original No. Original No. of Shares
Certificate Shares Transferred
Received Certificate No.
For Shares
this day of
INCORPORATED UNDER THE LAWS OF
The State of Maryland
THE NEW AMERICA HIGH INCOME FUND
The Corporation is authorized to issue 2,000 shares of
Auction Term Preferred Stock
Series C
$1.00 Par Value
CUSIP NO. 641876602
This Certifies that Cede & Co. is the owner of Two Thousand (2,000)
fully paid and non-assessable Shares of the Auction Term Preferred Stock
Series C
The New America High Income Fund
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this day of A.D.
Bankers Trust Company
By: ____________________________
Authorized Signature
Secretary Vice President
<PAGE>
RESTRICTION ON TRANSFER
This certificate is issued subject to the provisions restricting transfers of
shares of Series C Auction Term Preferred Stock contained in the Articles
Supplementary, as amended and restated, establishing the Series C Auction Term
Preferred Stock of the Corporation. A copy of the Articles Supplementary
establishing the Series C Auction Term Preferred Stock setting forth the
restrictions on transfer will be furnished to the stockholder upon request and
without charge.
STATEMENT OF PREFERENCES, LIMITATIONS AND RIGHTS
The Corporation is authorized to issue multiple classes and series of stock,
including Common Stock and Auction Term Preferred Stock Series A, Series B and
Series C. The Corporation will furnish a full statement or summary of the
designations, preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of each
class and series of stock which the Corporation is authorized to issue to the
stockholder upon request and without charge.
Certificate for __________ shares of Capital Stock issued to __________
dated __________
For Value Received, hereby sell, assign and transfer
unto _____________________________________________________
___________________________________________________ Shares
of the Capital Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________
to transfer the said Stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated____________________19_____
In presence of
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
EXHIBIT H
2,000 Shares Series C
THE NEW AMERICA HIGH INCOME FUND, INC.
Auction Term Preferred Stock
(Liquidation Preference $25,000 Per Share)
UNDERWRITING AGREEMENT
----------------------
April , 1997
LEHMAN BROTHERS INC.,
Three World Financial Center
New York, New York 10285
Dear Sirs:
The New America High Income Fund, Inc., a Maryland corporation (the
"Company"), proposes to issue and sell 2,000 shares of its Auction Term
Preferred Stock, Series C, par value $1.00 per share, with a liquidation
preference of $25,000 per share (the "Stock"). The Stock will be authorized by,
and subject to the terms and conditions of, the Articles Supplementary to be
adopted in connection with the issuance of the Stock (the "Articles
Supplementary") in the form filed as an exhibit to the Registration Statement
defined in Section 1(a). Wellington Management Company, LLP, a Massachusetts
limited liability partnership (the "Adviser"), is the Company's investment
adviser. This is to confirm the agreement concerning the purchase of the Stock
from the Company by you.
1. Representations and Warranties. (a) The Company represents,
warrants and agrees that:
(i) A registration statement on Form N-2 with respect to the
Stock has (A) been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder, the Investment
Company Act of 1940, as amended (the "Investment Company Act," and
together with the Securities Act, the "Acts"), and the rules and
regulations of the Commission thereunder (together with the rules and
regulations under the Securities Act, the "Rules and Regulations"),
(B) been filed with the Commission under the Acts and (C) become
effective under the Acts. Copies of such registration statement as
amended to date have been delivered by the Company to you. A
notification of registration on Form N-8A (the "Notification") has
been filed by the Company with the Commission under the Investment
Company Act. As used in this Agreement, "Effective Time" means the
date and time as of which such registration statement or the most
recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
"Effective Time"; "Preliminary Prospectus" means each prospectus or
statement of additional information included in such registration
statement, or amendments thereof, before it became effective under the
Acts and any prospectus filed with the Commission by the Company with
your consent pursuant to Rule 497 of the Rules and Regulations ("Rule
497") 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); "Registration Statement" means the registration statement
referred to in this Section 1(a), as amended at the Effective Time,
including all information contained in the final prospectus filed with
the Commission pursuant to Rule 497 and deemed to be a part thereof as
of the Effective Time pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations; and "Prospectus" means such final prospectus
and statement of additional information relating to the Stock, as
first filed pursuant to Rule 497. The Commission has not issued any
order preventing or suspending the
<PAGE>
2
use of any Preliminary Prospectus and the Company has not received any
notice from the Commission pursuant to Section 8(e) of the Investment
Company Act with respect to the Notification or the Registration
Statement.
(ii) The Registration Statement conforms and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform, in all respects to the
requirements of the Acts and the Rules and Regulations and do not and
will not, as of the Effective Date (as to the Registration Statement
and any amendment thereto) and as of the filing date (as to the
Prospectus and any amendment or supplement thereto) contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; and the Notification complied in all material
respects with the requirements of the Investment Company Act 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 to make the statements therein not misleading;
provided that no representation or warranty is made as to information
contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company by you specifically for inclusion therein.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification except where failure to do so
will not have a material adverse effect upon the Company, or on the
ability of the Company to perform its obligations under any of the
Company Agreements (as defined below), and has all power and authority
necessary to own or hold its properties and to conduct the business in
which it is engaged; and the Company has no subsidiaries.
(iv) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and nonassessable and conforms to the description thereof
contained in the Prospectus.
(v) The shares of the Stock have been duly and validly authorized
and, when issued and delivered against payment therefor as provided
herein, will be duly and validly issued, fully paid and non-assessable
and will conform to the description thereof contained in the
Prospectus.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company. The Investment Advisory Agreement (the
"Advisory Agreement") between the Company and the Adviser; the Auction
Agent Agreement, including the form of Broker-Dealer Agreement (the
"Auction Agent Agreement") between the Company and Bankers Trust
Company (the "Auction Agent"); the Letter Agreement, among the
Company, The Depository Trust Company ("DTC") and the Auction Agent;
the Custodian Agreement between the Company and State Street Bank &
Trust Company (the "Custodian"); and the Transfer Agency Agreement
between the Company and State Street Bank and Trust Company
(collectively, the "Company Agreements") have each been duly
authorized, executed and delivered by the Company; each constitutes
the valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing. The execution, delivery and performance of this
Agreement and the Company Agreements by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby and the issuance and delivery of the Stock will not result
in a breach or violation by the Company of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, or other agreement or instrument to
which the Company is a party or by which the Company is bound or to
which any of the properties or assets of the Company is subject, nor
will such actions result in a violation of the provisions of the
corporate charter, including the Articles Supplementary, or by-laws of
the Company, any statute or any order, rule or regulation of any court
or governmental agency
<PAGE>
3
or body having jurisdiction over the Company or any of its properties
or assets; and except for the registration of the Stock under the Acts
and such consents, approvals, authorizations, registrations or
qualifications as may be required under applicable state securities
laws in connection with the purchase and distribution of the Stock by
you and the rating agency confirmation required pursuant to Part I,
Section 12(c) of the Articles Supplementary, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement or the Company Agreements
and the consummation of the transactions contemplated hereby and
thereby.
(vii) Since the date of the latest audited financial statements
of the Company, there has not been any change in the capital stock of
the Company or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company, otherwise than as set forth
or contemplated in the Prospectus.
(viii) The financial statements (including the related notes
thereto) filed as part of the Registration Statement or included in
any Preliminary Prospectus or the Prospectus present fairly the
financial condition and results of operations of the Company, at the
dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(ix) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and
who have delivered the initial letter referred to in Section 7(g)
hereof, are independent public accountants as required by the Acts and
the Rules and Regulations.
(x) There are no legal or governmental proceedings pending to
which the Company is a party or of which any property or asset of the
Company is subject, which, if determined adversely to the Company
might have a material adverse effect on the financial position,
stockholders' equity, results of operations, business or prospects of
the Company; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others.
(xi) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Acts or by the Rules and Regulations
which have not been described in the Prospectus or filed as exhibits
to the Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations.
(xii) The Company is not (A) in violation of its charter or
by-laws, (B) in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject or (C) is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its properties or assets may be subject or has
failed to obtain any material license, permit, certificate, franchise
or other governmental authorization or permit necessary to the
ownership of its properties or assets or to the conduct of its
business.
(xiii) The Company is registered with the Commission under the
Investment Company Act as a closed-end, diversified management
investment company. The Company is, and at all times through the
completion of the transactions contemplated hereby, will be, in
compliance in all material respects with the terms and provisions of
the Acts. No person is serving or acting as an officer, director or
investment adviser of the Company except in accordance with the
provisions of the Investment Company Act and the Investment Advisers
Act of 1940, as amended (the "Advisers Act"), and the rules and
regulations of the Commission under such acts.
<PAGE>
4
(xiv) At all times since its inception, as required by Subchapter
M of the Internal Revenue Code of 1986, as amended, the Company has
qualified as a regulated investment company under the Code.
(xv) Any advertising, sales literature or other promotional
material prepared or authorized in writing by the Company for use in
connection with the offering or sale of the Stock (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 National
Association of Securities Dealers Regulation, Inc. 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.
(xvi) The Fund has delivered, and so long as a Prospectus is
required to be delivered with respect to transactions in the Stock,
will deliver upon request copies of the then current statement of
additional information with respect to the Stock in the manner and
within the time required by the Acts and the Rules and Regulations.
(b) The Adviser represents, warrants and agrees that:
(i) The Adviser has been duly organized and is validly existing
as a limited liability partnership under the laws of the Commonwealth
of Massachusetts, and has all power and authority necessary to own or
hold its properties and to conduct the business in which it is
engaged.
(ii) The Adviser is duly registered with the Commission under the
Advisers Act as an investment adviser, and there does not exist any
proceeding or any facts or circumstances the existence of which could
lead to any proceeding which could adversely affect the registration
of the Adviser with the Commission. The Adviser is not prohibited by
the Advisers Act or the Investment Company Act, or the rules and
regulations under such acts, from acting for the Company under the
Advisory Agreement as contemplated by the Prospectus.
(iii) The description of the Adviser 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
required to be stated therein or necessary to make the statements
therein not misleading.
(iv) This Agreement and the Advisory Agreement each have been
duly authorized, executed and delivered by the Adviser. The Advisory
Agreement constitutes the valid and binding obligation of the Adviser
enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally and general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing. The execution, delivery and performance of
this Agreement and the Advisory Agreement by the Adviser and the
consummation by the Adviser of the transactions contemplated hereby
and thereby will not result in a breach or violation by the Adviser of
any of the terms or provisions of, or constitute a default by the
Adviser under, any material indenture, mortgage, deed of trust, loan
agreement of the Adviser, other agreement or instrument to which the
Adviser is a party or by which the Adviser is bound or to which any of
the properties or assets of the Adviser is subject, nor will such
actions result in a violation of the provisions of the partnership
agreement of the Adviser (the "Partnership Agreement"), any statute or
any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Adviser or any of its properties or
assets; and except for registration of the Stock under the Acts and
such consents, approvals, authorizations, registrations or
qualifications as may be required under applicable state securities
laws, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement
or the Advisory Agreement by the Adviser and the consummation by the
Adviser of the transactions contemplated hereby and thereby.
<PAGE>
5
(v) There are no legal or governmental proceeding pending to
which the Adviser is a party or of which any property or asset of the
Adviser is subject, which, if determined adversely to the Adviser
might have a material adverse effect on the financial position,
results of operations, business or prospects of the Adviser; and to
the best of the Adviser's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others.
(vi) The Adviser is not in violation of the Partnership Agreement
or in default under any agreement, indenture or instrument.
2. Purchase of the Stock. On the basis of the representations and
warranties contained in, and subject to the terms and conditions of, this
Agreement, the Company agrees to sell to you, and you agree to purchase from the
Company, the Stock. The price to be paid by you for the Stock shall be $ per
share. The Company shall not be obligated to deliver any of the Stock to be
delivered on the Delivery Date (as hereinafter defined) except upon payment for
all the Stock to be purchased on the Delivery Date as provided herein.
3. Offering of Stock. Upon authorization by you of the release of the
Stock, you propose to offer the Stock for sale upon the terms and conditions set
forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment for
the Stock shall be made at the office of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017, at 10:00 A.M., New York City time,
on the third full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between you and the
Company. This date and time are sometimes referred to as the "Delivery Date." On
the Delivery Date, the Company shall deliver or cause to be delivered the
certificate representing the Stock to you against payment to or upon the order
of the Company of the purchase price by wire transfer of same day funds. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of your obligation hereunder. Upon
delivery, the Stock shall be represented by one certificate registered in the
name of Cede & Co., as nominee for The Depository Trust Company. The Company
shall make the certificate representing the Stock available for inspection by
you in New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To file the Prospectus pursuant to Rule 497 of the Rules and
Regulations not later than the second business day following the
earlier of the date of determination of the offering price or the date
the Prospectus is first used after the Effective Date of the
Regulation Statement; to make no further amendment or any supplement
to the Registration Statement or to the Prospectus prior to the
Delivery Date except as permitted herein; to advise you promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after
it receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal.
(b) To furnish promptly to you and to your counsel a signed copy
of the Registration Statement as originally filed with the Commission,
and each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith.
(c) To deliver promptly to you in New York City such number of
the following documents as you shall request: (i) conformed copies of
the Registration Statement as originally filed with the Commission and
each amendment thereto (in each case excluding exhibits other than
this Agreement, the Auction Agent
<PAGE>
6
Agreement, the Letter of Representations and the Articles
Supplementary), (ii) any amendment to the Notification filed with the
Commission, (iii) each Preliminary Prospectus, the Prospectus (not
later than 10:00 A.M., New York City time, on the day following the
execution and delivery of this Agreement) and any amended or
supplemented Prospectus (not later than 10:00 A.M., New York City
time, on the day following the execution and delivery of this
Agreement) and (iv) if the delivery of a prospectus is required at any
time after the Effective Time of the Registration Statement in
connection with the offering or sale of the Stock (or any other
securities relating thereto) and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Acts, to notify you and, upon
your request to prepare and furnish without charge to you and to any
dealer in securities as many copies as you may from time to time
request of an amended or supplemented Prospectus which will correct
such statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or you, be
required by the Acts or requested by the Commission.
(e) Prior to filing with the Commission (i) any amendment to the
Registration Statement or supplement to the Prospectus, or (ii) any
Prospectus pursuant to Rule 497 of the Rules and Regulations, to
furnish a copy thereof to you and your counsel and to refrain from
filing any such amendment, supplement or Prospectus to which you shall
reasonably object after being timely furnished in advance a copy
thereof.
(f) As soon as practicable after the Effective Date of the
Registration Statement, to make generally available to its security
holders and to deliver to you an earnings statement of the Company,
complying with the requirements of Section 11(a) of the Securities Act
and the Rules and Regulations (including, at the option of the
Company, Rule 158).
(g) For a period of five years from the Effective Date of the
Registration Statement, to furnish to you copies of all materials
furnished by the Company to shareholders and all public reports and
all reports and financial statements furnished by the Company to the
New York Stock Exchange, Inc. pursuant to requirements of or
agreements with such exchange or to the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any rule or regulation of the Commission thereunder.
(h) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus.
(i) Except for the shares of Stock and any shares of common stock
of the Company issued to shareholders pursuant to the Company's
Dividend Reinvestment and Cash Purchase Plan, not to offer, sell or
register any securities with the Commission or announce an offering of
any securities of the Company within 90 days after the date hereof.
(j) The Company will use its reasonable best efforts to cause the
Stock, prior to the Delivery Date, to be assigned ratings of "AAA" by
Fitch Investors Service, Inc. ("Fitch") and "aaa" by Moody's Investors
Service, Inc. ("Moody's), respectively.
6. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Acts of the Registration Statement and the Notification and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) any fees charged by securities
<PAGE>
7
rating services for rating the Stock; (e) the fees and expenses of the Auction
Agent as set forth in the Auction Agent Agreement; and (f) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; provided that, except as provided in this Section and in Section
10, you shall pay your own costs and expenses, including the fees and expenses
of your counsel and any transfer taxes on the Stock which you may sell;
7. Conditions of Your Obligations. Your obligations hereunder are
subject to the accuracy, when made and on the Delivery Date, of the
representations and warranties of the Company and the Adviser contained herein,
to performance by the Company and the Adviser of their respective obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 5(a); no stop-order suspending
the effectiveness of the Registration Statement or any part thereof or
order pursuant to Section 8(e) of the Investment Company Act shall
have been issued, and no stop-order proceeding or proceeding for an
order pursuant to Section 8(e) of the Investment Company Act shall
have been initiated or threatened by the Commission; any request of
the Commission for inclusion of additional information in the
Registration Statement or the Prospectus or otherwise shall have been
complied with.
(b) You shall not have discovered and disclosed to the Company on
or prior to the Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of your counsel, Simpson
Thacher & Bartlett, is material or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement and the Stock
and the form of the Registration Statement and the Prospectus and all
other legal matters relating to this Agreement and the transactions
contemplated hereby shall be satisfactory in all respects in the
reasonable judgment of your counsel, Simpson Thacher & Bartlett, and
the Company shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass
upon such matters.
(d) The Company 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 Delivery Date and
in form and substance satisfactory to Moody's and Fitch, as
applicable, and reasonably satisfactory to you.
(e) Goodwin, Procter & Hoar LLP shall have furnished to you on
the Delivery Date their opinion, as counsel to the Company, addressed
to you and dated the Delivery Date, in form and substance satisfactory
to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business
and is in good standing as a foreign corporation in the
Commonwealth of Massachusetts; and to the best of such counsel's
knowledge, the Company has no subsidiaries.
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus.
(iii) The shares of the Stock have been duly and validly
authorized and, when issued and delivered against payment
therefor as provided herein, will be duly and validly issued,
fully paid and non-assessable and will conform to the description
thereof contained in the Prospectus.
<PAGE>
8
(iv) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or
transfer of, any shares of the Stock pursuant to any agreement or
other outstanding instrument known to such counsel, pursuant to
the Company's corporate charter, including the Articles
Supplementary, and by-laws and any other agreement or other
instrument known to such counsel, except for the restrictions on
transfer of the shares of Stock contained in the Auction Agent
Agreement.
(v) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending to which the Company is
a party or of which any property or asset of the Company is the
subject which, if determined adversely to the Company are
reasonably likely to have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company; and, to the
best of such counsel's knowledge, no such proceedings are
threatened by governmental authorities or others.
(vi) The Registration Statement is effective under the Acts;
any required filing of the Prospectus pursuant to Rule 497 has
been made within the time period required by Rule 497; and no
stop-order suspending the effectiveness of the Registration
Statement or order pursuant to Section 8(e) of the Investment
Company Act has been issued and, to the knowledge of such
counsel, no proceeding for any such purpose is pending or
threatened by the Commission.
(vii) The Registration Statement, as of the Effective Date,
and the Prospectus, as of its date, and any further amendments or
supplements thereto, as of their respective dates, made by the
Company prior to the Delivery Date (other than the financial
statements and other financial data contained therein, as to
which such counsel need express no opinion), complied as to form
in all material respects and with the requirements of the Acts
and the Rules and Regulations.
(viii) The statements made in the Prospectus under the
captions "Description of Common Stock," "Description of ATP"
(including in the statement of additional information), "Auction
Procedures" (including in the statement of additional
information), "Rating Agency Guidelines -- 'aaa'/AAA Rating,"
"Rating Agency Guidelines" and "Conversion to Open-End Status and
Repurchase of Shares," insofar as they purport to summarize the
provisions of documents or agreements specifically referred to
therein, fairly present the information called for with respect
thereto by Form N-2.
(ix) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described
in the Prospectus or filed as exhibits to the Registration
Statement by the Acts or by the Rules and Regulations which have
not been filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Rules and
Regulations.
(x) To the best of such counsel's knowledge, the Company is
not in default under any material agreement, indenture or
instrument to which it is a party or by which its property may be
bound or in violation of its corporate charter, including the
Articles Supplementary, or by-laws.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company. The Company Agreements have each been
duly authorized, executed and delivered by the Company; each
constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally and general equitable principles (or
whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing. The issue and
sale of shares of Stock by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
Company Agreements and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation by the Company of any of the terms or provisions
<PAGE>
9
of, or constitute a default by the Company under, any material
indenture, mortgage, deed of trust, loan agreement, or other
agreement or instrument of which such counsel has knowledge and
to which the Company is a party or by which the Company is bound
or to which any of the properties or assets of the Company is
subject, nor will such actions result in any violation of the
provisions of the corporate charter, including the Articles
Supplementary, or by-laws of the Company, any Massachusetts or
Maryland statute, the Securities Act, the Exchange Act, the
Investment Company Act or any order, rule or regulation, of which
such counsel has knowledge, of any court or governmental agency
or body having jurisdiction over the Company or any of its
properties or assets; and except for the registration of the
Stock under the Acts and such consents, approvals,
authorizations, registrations or qualifications as may be
required under applicable state securities laws in connection
with the purchase and distribution of the Stock by you, and the
rating agency confirmation required pursuant to Part I, Section
12(c) of the Articles Supplementary, no consent, approval,
authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or the
Company Agreements and the consummation of the transactions
contemplated hereby and thereby.
(xii) The Company is registered with the Commission under
the Investment Company Act as a closed-end, diversified
management investment company; all required action has been taken
by the Company under the Acts to make the public offering and
consummate the sale of the Stock pursuant to this Agreement; the
provisions of the corporate charter, including the Articles
Supplementary, and by-laws of the Company comply as to form in
all material respects with the requirements of the Investment
Company Act; the provisions of the corporate charter, including
the Articles Supplementary, and by-laws of the Company and the
investment policies and restrictions described in the Prospectus
under the captions "Investment Objective and Policies" and
"Investment Restrictions" comply in all material respects with
the requirements of the Investment Company Act.
(xiii) The statements contained in the Prospectus under the
captions "Taxation" (in both the prospectus and statement of
additional information) insofar as they describe federal
statutes, rules and regulations, constitute a fair summary
thereof.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the Commonwealth of
Massachusetts and the General Corporation Law of the State of Maryland
and that such counsel is not admitted in the State of Maryland; and
(ii) rely (to the extent such counsel deems proper and specifies in
its opinion), as to matters involving the application of the laws of
the State of Maryland upon other counsel of good standing, provided
that such other counsel is satisfactory to you and furnishes a copy of
its opinion to you. Such counsel shall also have furnished to you a
statement, addressed to you and dated the Delivery Date, in form and
substance satisfactory to the you, to the effect that (x) such counsel
has acted as counsel to the Company on a regular basis and has acted
as counsel to the Company in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have
come to the attention of such counsel which lead it to believe that
the Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(f) Peter L. Curry, General Counsel of the Adviser, shall have
furnished to you on the Delivery Date his opinion, as counsel to the
Adviser, addressed to you and dated the Delivery Date, to the effect
that:
(i) The Adviser has been duly organized and is validly
existing as a limited liability partnership under the laws of the
State of Massachusetts, and has all power and authority necessary
to own or hold its properties and to conduct the business in
which it is engaged.
<PAGE>
10
(ii) This Agreement and the Advisory Agreement has been duly
authorized, executed and delivered by the Adviser. The Advisory
Agreement constitutes the valid and binding obligation of the
Adviser, enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and general equitable
principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing. The
compliance by the Adviser with all of the provisions of this
Agreement and the Advisory Agreement and the consummation by the
Adviser of the transactions contemplated hereby and thereby will
not result in a breach or violation by the Adviser of any of the
terms or provisions of, or constitute a default by the Adviser
under, any indenture, mortgage, deed of trust, loan agreement, or
other agreement or instrument to which the Adviser is a party or
by which the Adviser is bound or to which any of the properties
or assets of the Adviser is subject, nor will such actions result
in any violation of the provisions of the Partnership Agreement,
any statute, or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Adviser
or any of its properties or assets; and except for the
registration of the Stock under the Acts and such consents,
approvals, authorizations, registrations or qualifications as may
be required under applicable state securities laws in connection
with the purchase and distribution of the Stock by you, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement or the Advisory Agreement by the Adviser and the
consummation by the Adviser of the transactions contemplated
hereby and thereby.
(iii) The Adviser is duly registered with the Commission
under the Advisers Act as an investment adviser and is not
prohibited by the Advisers Act or the Investment Company Act, or
the rules and regulations under such acts, from acting under the
Advisory Agreement.
(iv) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Adviser is a party
or of which any property or asset of the Adviser is the subject
which, if determined adversely to the Adviser might have a
material adverse effect on the operations, business or prospects
of the Adviser or which could adversely affect the registration
of the Adviser with the Commission and, to the best of such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(v) To the best of such counsel's knowledge, the Adviser is
not in violation of its Partnership Agreement, or in default
under any material agreement, indenture or instrument.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of the
United States of America and the laws of the Commonwealth of
Massachusetts. Such counsel shall also have furnished to you a
statement, addressed to you and dated the Delivery Date, in form and
substance satisfactory to the you, to the effect that (x) such counsel
has acted as counsel to the Adviser on a regular basis and has acted
as counsel to the Adviser in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have
come to the attention of such counsel which lead it to believe that
the Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact 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.
(g) With respect to the letter of Arthur Andersen LLP delivered
to you concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to you a letter (the
"bring-down letter") of such accountants, addressed to you and dated
the Delivery Date, (i) confirming that they are independent public
accountants within the meaning of the Acts and are in compliance with
the
<PAGE>
11
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial letter
and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(h) The Company shall have furnished to you on the Delivery Date
a certificate, dated the Delivery Date, of its Vice President and
Treasurer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of the Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Section 7(a) have been
fulfilled.
(ii) Since the date of the latest audited financial
statements included in the Prospectus there has not been any
change in the capital stock of the Company or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders'
equity or results of operations of the Company, otherwise than as
set forth or contemplated in the Prospectus.
(iii) They have carefully examined the Registration
Statement and the Prospectus and no facts have come to their
attention which lead them to believe that (A) the Registration
Statement or the Prospectus, as of the Effective Date, included
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading or (B) since the Effective
Date, an event has occurred which should have been set forth in a
supplement or amendment to the Registration Statement or the
Prospectus which has not been set forth in such a supplement or
amendment.
(i) The Adviser shall have furnished to you on the Delivery Date
a certificate, dated the Delivery Date, of Mary Ann Tynan, Senior Vice
President and General Partner of the Adviser, stating that:
(i) The representations, warranties and agreements of the
Adviser in Section 1 are true and correct as of the Delivery Date
and the Adviser has complied with all its agreements contained
herein.
(ii) She has carefully examined the Registration Statement
and the Prospectus and, in their opinion, (A) the Registration
Statement and the Prospectus, as of the Effective Date, as to the
information contained therein or omitted therefrom with respect
to the Adviser, did not include any untrue statement of a
material fact and did not omit to state a material fact required
to be stated therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date of the
Registration Statement, no event has occurred with respect to the
Adviser which should have been set forth in a supplement, or
amendment to the Registration Statement or the Prospectus which
has not been set forth in such a supplement or amendment.
(j) The Company shall have delivered and you shall have received
evidence satisfactory to you that the shares of Stock are rated at
least "aaa" by Moody's and "AAA" by Fitch as of the Delivery Date.
(k) Since the date of the latest audited financial statements
included in the Prospectus, there shall not have been any change in
the capital stock of the Company or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company, 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
<PAGE>
12
proceed with the public offering or the delivery of the Stock on the
terms and in the manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in your judgment,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock on the terms and in the manner contemplated in
the Prospectus.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to your
counsel, Simpson Thacher & Bartlett, in the exercise of reasonable judgment.
8. Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless you, your officers and employees and each person, if any, who
controls you within the meaning of the Securities Act from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage or liability, joint or
several, or any action relating to purchases and sales of Stock), to which you,
such officer, employee or controlling person may become subject, under the Acts
or otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon (i) any untrue statement or alleged untrue statement of
a material fact contained in the Notification, any Preliminary Prospectus, the
Registration Statement, the Prospectus, any sales material, or in any amendment
or supplement thereto, or (ii) the omission or alleged omission to state in the
Notification, any Preliminary Prospectus, the Registration Statement, the
Prospectus, any sales material, or in any amendment or supplement thereto, any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse you and each such officer, employee
and controlling person promptly upon demand for any legal or other expenses
reasonably incurred by you, that officer, employee or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with the written information
furnished to the Company by you or on your behalf specifically for inclusion
therein and described in Section 8(f). The foregoing indemnity agreement is in
addition to any liability which the Company may otherwise have to you or to any
of your officers, employees or controlling persons.
(b) The Adviser shall indemnify and hold harmless you, your officers
and employees and each person, if any, who controls you within the meaning of
the Securities Act from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage or liability, joint or several, or any action relating to
purchases and sales of Stock), to which you, such officer, employee or
controlling person may become subject, under the Acts or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, any
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon any such
untrue statement or
<PAGE>
13
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with the written information furnished to the Company by
the Adviser specifically for inclusion therein, and shall reimburse you and each
such officer, employee and controlling person promptly upon demand for any legal
or other expenses reasonably incurred by you, that officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition to any
liability which the Adviser may otherwise have to you or to any of your
officers, employees or controlling persons.
(c) You shall indemnify and hold harmless the Company, the Adviser,
each of their respective directors, officers and employees, and each person, if
any, who controls the Company or the Adviser within the meaning of the
Securities Act from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company, the Adviser or
any such director, officer, employee or controlling person may become subject,
under the Acts or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement, the Prospectus or in any amendment or supplement
thereto, or (ii) the omission or alleged omission to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or the
Adviser by you or on your behalf specifically for inclusion therein and
described in Section 8(f), and shall reimburse the Company or the Adviser, and
any such director, officer, employee or controlling person for any legal and
other expenses reasonably incurred by the Company or the Adviser, and any such
director, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which you may otherwise have
to the Company, the Adviser or any of their respective directors, officers or
controlling persons.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the indemnified party shall have the right to employ counsel to represent
jointly the indemnified party, its directors, officers, employees and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the indemnified party and such
directors, officers, employees and controlling persons, under this Section 8 if
such indemnified party shall have been advised by such counsel that there may be
one or more legal defenses available to it and its directors, officers,
employees and controlling persons which are different from or additional to
those available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party and its directors, officers,
employees and controlling persons to employ separate counsel, and in that event
the fees and expenses of such separate counsel shall be paid by the indemnifying
party or parties. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 8(a), 8(b) and 8(c), shall use its best efforts
to cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an
<PAGE>
14
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld), but if settled with its written consent or if there
be a final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss of liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a), 8(b) or 8(c) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company, the Adviser and you from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, the Adviser and you with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company, the Adviser and you with respect to such
offering shall be deemed to be in the same proportion as (x) the total proceeds
from the offering of the Stock purchased under this Agreement (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company, (y) the investment advisory fee payable to the Adviser during
the preceding 12 month period and (z) the total sales load received by you,
respectively, in the case of (x) and (z) as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Adviser or you, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Adviser and you agree that it would not
be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section shall be deemed to include, for purposes of this Section, 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, you shall not be required to contribute any amount
in excess of the amount by which the total price at which the Stock underwritten
by you and distributed to the public was offered to the public exceeds that
amount of any damages which you have otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(f) You confirm that the statements with respect to the public
offering of the Stock set forth on the cover page of, and under the caption
"Underwriting" in, the Prospectus, are correct and constitute the only
information furnished in writing to the Company by you or on your behalf
specifically for inclusion in the Registration Statement and the Prospectus.
9. Termination. Your obligations hereunder may be terminated by you by
notice given to and received by the Company prior to delivery of and payment for
the Stock, if prior to that time (i) the Company or the Adviser shall have
failed, refused or been unable to perform any agreement on their part to be
performed hereunder, (ii) any of the events described in Sections 7(k) or 7(l)
have occurred or (iii) you decline to purchase the Stock for any reason
permitted under this Agreement.
10. Reimbursement of Your Expenses. If the Company shall fail to
tender the Stock for delivery to you for any reason permitted under this
Agreement, or you shall decline to purchase the Stock for any reason permitted
under this Agreement (including the termination of this Agreement pursuant to
Section 9), the Company shall reimburse you for the fees and expenses of your
counsel and for such other out-of-pocket expenses as shall have been incurred by
you in connection with this Agreement and the proposed purchase of the Stock,
and upon demand the Company shall pay the full amount thereof to you.
<PAGE>
15
11. Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(i) if to you, shall be delivered or sent by mail, telex or
facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-528-8822);
(ii) if to the Company shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Ellen E. Terry (Fax: (617)
350-8619); and
(iii) if to the Adviser shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Adviser set forth in
the Registration Statement, Attention: Mary Ann Tynan (Fax: (617) 790-
7760).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon you, the Company, the Adviser and
their respective successors. This Agreement and the terms and provisions hereof
are for the sole benefit of only those persons, except that (a) the
representations, warranties, indemnities and agreements of the Company and the
Adviser contained in this Agreement shall also be deemed to be for the benefit
of your officers and employees and the person or persons, if any, who control
you within the meaning of Section 15 of the Securities Act, and (b) your
indemnity agreement contained in Section 8(c) of this Agreement and shall be
deemed to be for the benefit of directors, officers and employees of the Company
and the Adviser and any person controlling the Company or the Adviser within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person other than the persons
referred to in this Section 12, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
13. Survival. The respective indemnities, representations, warranties
and agreements of the Company, the Adviser and you contained in this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
14. Definition of "Business Day". For purposes of this Agreement,
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
16. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be a part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
16
If the foregoing correctly sets forth the agreement among the Company,
the Adviser and you, please indicate your acceptance in the space provided for
that purpose below.
Very truly yours,
THE NEW AMERICA HIGH INCOME FUND, INC.
By:___________________________________
Title:
WELLINGTON MANAGEMENT COMPANY, LLP
By:___________________________________
Title:
Accepted:
LEHMAN BROTHERS INC.
By:________________________________
Authorized Representative
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
LEHMAN BROTHERS INC.
Relating to
AUCTION TERM PREFERRED STOCK
of
THE NEW AMERICA HIGH INCOME FUND, INC.
<PAGE>
BROKER-DEALER AGREEMENT dated as of March 19, 1997 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 LEHMAN BROTHERS INC. (together with its successors and assigns,
the "BD") .
The Fund has currently issued two series of shares of Auction Term
Preferred Stock, par value $1.00 per share, liquidation preference $50,000 per
share, pursuant to its Articles of Incorporation, as amended, and the Articles
Supplementary (the "Articles Supplementary"). In the event that the Fund
establishes one or more additional series of Auction Term Preferred Stock to
which it desires that this Agreement be applicable, the Fund shall so notify the
BD in writing. If the BD is willing to render such services on the terms
provided for herein, it shall notify the Fund in writing, whereupon such series
of Auction Term Preferred Stock (such series, together with the Auction Term
Preferred Stock then subject to this Agreement, the "ATP") shall become subject
to this Agreement.
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 the relevant series 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.
(c) "Auction Agent Agreement" shall mean any Auction Agent
Agreement between the Fund and the Auction Agent relating to the ATP.
<PAGE>
(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) "Existing Holder" shall have the meaning set forth in the
Articles Supplementary, and for purposes of this Broker-Dealer Agreement and
with respect to the Auction Procedures as referred to in this Agreement, shall
also include, as the circumstances may require, a Person who is listed as the
beneficial owner of ATP in the records of a Broker-Dealer.
(i) "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.
(j) "Potential Holder" shall have the meaning set forth in the
Articles Supplementary, and for purposes of this Broker-Dealer Agreement and
with respect to the Auction Procedures as referred to in this Agreement, shall
also include, as the circumstances may require, any other Person, including any
Existing Holder of shares of ATP, who may be interested in acquiring shares of
ATP (or, in the case of an Existing Holder, additional shares of ATP).
(k) "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.
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<PAGE>
(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 Purposes; Incorporation by Reference of 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) Before any series of the ATP becomes subject to this
Broker-Dealer Agreement, the BD shall have delivered a Master Purchaser=s Letter
executed by the BD. 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 shall act as the exclusive Broker-Dealer for the
Fund until the later of (i) January 30, 1998 and (ii) such date on which the
Fund appoints one or more additional Broker-Dealers. The BD understands that,
subject to the preceding sentence, 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
the 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 notify customers of the BD who the BD
believes are Existing Holders of shares of ATP of such change in the Auction
Date.
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<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 Order.
(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.
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
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<PAGE>
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 whom the BD believes may be
interested in participating in the Auction on such Auction Date on or prior to
such Auction Date for the purposes set forth in the Auction Procedures. To the
extent required under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder, BD shall deliver a Prospectus to each such
Potential. Holder. BD agrees, upon the request of a Potential Holder, to deliver
to such Potential Holder either (i) a Prospectus with such legends or stamps
regarding non-reliance by Potential Holders of 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 Procedure and Auction Procedures.
(c) 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.
(d) BD shall deliver to the Auction Agent (i) a written
notice, substantially in the form attached hereto as Exhibit D, of transfers of
shares of ATP made by or 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 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.
(e) 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.
(f) BD agrees to handle its customers= Orders in accordance
with its duties under applicable securities laws and rules.
(g) To the extent that pursuant to Section 6 of the Auction
Procedures, BD continues to hold, sells, or purchases a number of shares that is
fewer than the number of
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<PAGE>
shares in an Order submitted by BD to the Auction Agent on behalf of Existing or
Potential Holders whose shares are or will be held in BD=s name, BD shall make
appropriate pro rata allocations among such Existing or Potential Holders. If as
a result of such allocations, any Potential 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 on any Auction Date, BD shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
ATP to be purchased or sold on such Auction Date by any Existing Holder or
Potential Holder on whose behalf BD submitted an Order so that the number of
shares so purchased or sold by each such Existing Holder or Potential Holder on
such Auction Date shall be whole shares of ATP.
2.4 Notices of Auction Results.
(a) On each Auction Date for ATP, the Auction Agent shall
notify BD by telephone of he 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.
(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.
(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.
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<PAGE>
(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% unless otherwise advised by the Fund in writing 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 360, times (c) the liquidation
preference per share for such series 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).
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 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
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<PAGE>
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 therefor, (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(d)(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 of liability with respect to the failure of an Existing Holder or
a Potential Holder or its 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.
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.
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<PAGE>
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 of adequacy of this Agreement, the Auction
Agent Agreement or the shares of ATP of any series.
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. 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).
4.3 Communications. Except (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:
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If to BD, addressed: Lehman Brothers, Inc.
3 World Financial Center
200 Vesey Street 9th floor
New York, NY 10285-0900
If to the Auction Agent,
addressed: Bankers Trust Company
Four Albany Street
New York, New York10006
Attention: Auction Rate/Remarketed
Securities
Telecopier No.: (212) 250-6688
Telephone No.: (212) 250-6850
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 respective
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, canceled 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 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
10
<PAGE>
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/ Robert Hegermiller
------------------------------
Name: Robert Hegermiller
Title: Vice President
LEHMAN BROTHERS INC.
By: /s/ Neil Sherman
------------------------------
Name: Neil Sherman
Title: Managing Director
11
<PAGE>
EXHIBIT C
SETTLEMENT PROCEDURES
Capitalized terms used herein shall have the respective meanings
specified in the forepart of this Prospectus for the ATP 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.
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<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.
13
<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.
14
<PAGE>
EXHIBIT C
(Submit only one Order on this Order Form)
THE NEW AMERICA HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK, SERIES ____ ("ATP")
ORDER FORM
To: ___________________ Date of Auction
___________________
___________________
New York, New York
The undersigned Broker-Dealer submits the following Order 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 an Existing Holder are submitted,
such Orders shall be considered valid in the order of priority set forth in the
Auction Procedures.
15
<PAGE>
EXHIBIT D
(To be used only for transfers made
other than pursuant to in Auction)
THE NEW AMERICAN HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK,
SERIES ____ ("ATP") TRANSFER FORM
We are (check one):
____ The Existing Holder named below;
____ The Broker-Dealer for such Existing Holding; 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:
16
<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 ____ ("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:
- --------------------------------------------------------------------------------
AUCTION AGENT AGREEMENT
between
THE NEW AMERICA HIGH INCOME FUND, INC.
and
BANKERS TRUST COMPANY
Dated as of May __, 1997
Relating to
Auction Term Preferred Stock
of
THE NEW AMERICA HIGH INCOME FUND, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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...................................................................2
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...............3
2.3 Information Concerning Rates............................................................5
2.4 Auction Schedule........................................................................6
2.5 Designation of Dividend Period..........................................................7
2.6 Notice of Auction Results...............................................................8
2.7 Broker-Dealers..........................................................................8
2.8 Ownership of ATP........................................................................8
2.9 Access to and Maintenance of Auction Records............................................8
2.10 Dividend and Redemption Price Deposit...................................................9
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent..............................9
4. The Auction Agent as Transfer Agent and Registrar................................................9
4.1 Issue of Share Certificates.............................................................9
4.2 Registration of Transfer of Shares......................................................9
4.3 Removal of Legend on Restricted Shares..................................................9
4.4 Lost Share Certificates................................................................10
4.5 Disposition of Canceled Certificates; Record Retention.................................10
4.6 Share Transfer Books...................................................................10
4.7 Return of Funds........................................................................10
5. Representations and Warranties of the Fund......................................................11
6. The Auction Agent...............................................................................12
6.1 Duties and Responsibilities............................................................12
6.2 Rights of the Auction Agent............................................................12
6.3 Auction Agent's Disclaimer.............................................................13
(i)
<PAGE>
Page
----
6.4 Compensation, Expenses and Indemnification.............................................13
7. Miscellaneous...................................................................................13
7.1 Term of Agreement......................................................................13
7.2 Communications.........................................................................14
7.3 Entire Agreement.......................................................................15
7.4 Benefits...............................................................................15
7.5 Amendment; Waiver......................................................................15
7.6 Successors and Assigns.................................................................15
7.7 Severability...........................................................................15
7.8 Execution in Counterparts..............................................................15
7.9 Governing Law..........................................................................16
</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 May __, 1997 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 has issued 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"); proposes to issue an additional series of
preferred stock, par value $1.00 per share, liquidation preference $25,000,
designated Auction Term Preferred Stock, Series C ("ATP Series C") and may in
the future designate additional series of Auction Term Preferred Stock (together
with the ATP Series A, ATP Series B, and ATP Series C, referred to as 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, ATP Series B, ATP Series C, and any additional
series of Auction Term Preferred Stock as may be designated at some future time,
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 Agent designated as an "Authorized officer" for purposes hereof in a
communication to the Fund.
<PAGE>
(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" means (a) a person who has signed a
Master Purchaser's Letter and beneficially owns shares of a series of ATP listed
in that person's name in the records of the Auction Agent or (b) the beneficial
owner of shares of a series of ATP which are listed under such person's
Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer
shall have signed a Master Purchaser's Letter.
(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" means a letter substantially
in the form of or containing provisions similar to those in the form attached
hereto as Exhibit B which is required to be executed by (1) each prospective
purchaser of shares of a series of the ATP or (2) the Broker-Dealer through whom
such shares will be held.
(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 a
series of the ATP, means any person, including any Existing Holder of shares of
such series, (i) who shall have executed a Master Purchaser's Letter or whose
shares will be listed under such person's Broker-Dealer in the records of the
Auction Agent, which Broker-Dealer shall have executed a Master Purchaser's
Letter, and (ii) who may be interested in acquiring shares of such series (or,
in the case of an Existing Holder or such person, additional shares of such
series).
(m) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit C.
(n) "Underwriter" shall mean Lehman Brothers Inc. and any
other person named as an underwriter of the ATP in the Underwriting Agreement or
any schedule thereto.
2
<PAGE>
(o) "Underwriting Agreement" shall mean the Underwriting
Agreement dated May __, 1997 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 Bankers 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.
(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
3
<PAGE>
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.
(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 Existing 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.
4
<PAGE>
(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 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.
(d) 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.
5
<PAGE>
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 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.
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.
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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 1:00 P.M. Auction Agent makes determination pursuant to
Section 5(a) of the Auction Procedures.
By approximately 3:00 P.M. 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 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 is 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
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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.
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
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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 also a Director of the Fund. The Auction Agent shall have no
duty or liability with respect to enforcement of this Section 2.8.
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) an 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 to
redeem 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.
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4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Share Certificates. Upon the Date of original Issue of
each series or 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 Canceled 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.
4.6 Share Transfer Books. For so long as the Auction Agent, Bankers
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
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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;
(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 or the issuance of
the shares of the ATP; and
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(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.
(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
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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).
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 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.
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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 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:
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If to the Company, addressed: The New America High Income 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 LLP
Exchange Place
Boston, Massachusetts 02109
Telephone No.: (617) 570-1000
Telecopier No.: (617) 523-1231
If to the Auction Agent, addressed: Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
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 and 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 hereof, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or inferred, between the parties. This Agreement supersedes terminates
all prior agreements between the parties including without limitation the
Auction Agent Agreement dated January 4, 1994.
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.
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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.
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.
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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: ________________________________
Name:
Title:
BANKERS TRUST COMPANY
By: _______________________________
Name:
Title:
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EXHIBIT A
FORM OF BROKER-DEALER AGREEMENT
BROKER-DEALER AGREEMENT dated as of May __, 1997 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 LEHMAN BROTHERS INC. (together with its successors and assigns,
the "BD") .
The Fund has currently issued two series of shares of Auction Term
Preferred Stock, par value $1.00 per share, liquidation preference $50,000 per
share, and proposes to designate a third series of shares of Auction Term
Preferred Stock, par value $1.00 per share, liquidation preference $25,000 per
share, pursuant to its Articles of Incorporation, as amended, and the Articles
Supplementary establishing each such series. In the event that the Fund
establishes one or more additional series of Auction Term Preferred Stock to
which it desires that this Agreement be applicable, the Fund shall so notify the
BD in writing. If the BD is willing to render such services on the terms
provided for herein, it shall notify the Fund in writing, whereupon such series
of Auction Term Preferred Stock (such series, together with the Auction Term
Preferred Stock then subject to this Agreement, the "ATP") shall become subject
to this Agreement.
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:
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(a) "Articles Supplementary" shall mean the Articles
Supplementary authorizing the issuance of the relevant series 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.
(c) "Auction Agent Agreement" shall mean any Auction Agent
Agreement 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) "Existing Holder" shall have the meaning set forth in the
Articles Supplementary, and for purposes of this Broker-Dealer Agreement and
with respect to the Auction Procedures as referred to in this Agreement, shall
also include, as the circumstances may require, a Person who is listed as the
beneficial owner of ATP in the records of a Broker-Dealer.
(i) "Master Purchaser's Letter" means a letter substantially
in the form of or containing provisions similar to those in the form attached
hereto as Exhibit A, which is required to be executed by (1) each prospective
purchaser of shares of ATP or (2) the Broker- Dealer through whom such shares
will be held.
(j) "Potential Holder" shall have the meaning set forth in the
Articles Supplementary, and for purposes of this Broker-Dealer Agreement and
with respect to the Auction Procedures as referred to in this Agreement, shall
also include, as the circumstances may require, any other Person, including any
Existing Holder of shares of ATP, who may be interested in acquiring shares of
ATP (or, in the case of an Existing Holder, additional shares of ATP).
(k) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit B.
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8.3 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. The Auction.
2.1 Purposes; Incorporation by Reference of 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) Before any series of the ATP becomes subject to this
Broker-Dealer Agreement, the BD shall have delivered a Master Purchaser's Letter
executed by the BD. 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 shall act as the exclusive Broker-Dealer for the
Fund until the later of (i) January 30, 1998 and (ii) such date on which the
Fund appoints one or more additional Broker-Dealers. The BD understands that,
subject to the preceding sentence, 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
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<PAGE>
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 the 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 notify customers of the BD who the BD
believes are Existing Holders of shares of ATP of such change in the Auction
Date.
(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 Order.
(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 the relevant series of ATP.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as provided
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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.
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 whom the BD believes may be
interested in participating in the Auction on such Auction Date on or prior to
such Auction Date for the purposes set forth in the Auction Procedures. To the
extent required under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder, BD shall deliver a Prospectus to each such
Potential Holder. BD agrees, upon the request of a Potential Holder, to deliver
to such Potential Holder either (i) a Prospectus with such legends or stamps
regarding non-reliance by Potential Holders of 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 Procedure and Auction Procedures.
(c) 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.
(d) BD shall deliver to the Auction Agent (i) a written
notice, substantially in the form attached hereto as Exhibit D, of transfers of
shares of ATP made by or 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 will be
listed as the holder of such shares on the books of the Auction Agent and 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 sold shares of ATP through BD pursuant to an Auction if such
Person's shares were to be or were listed in the Person's name on the books of
the Auction Agent. The Auction Agent is not required to accept any such
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notice for an Auction unless it is received by the Auction Agent by 3:00 p.m.
on the Business Day preceding such Auction.
(e) 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.
(f) BD agrees to handle its customers' Orders in accordance
with its duties under applicable securities laws and rules.
(g) To the extent that pursuant to Section 6 of the Auction
Procedures, BD continues to hold, sells, or purchases a number of shares that is
fewer than the number of shares in an Order submitted by BD to the Auction Agent
on behalf of Existing or Potential Holders whose shares are or will be held in
BD's name, BD shall make appropriate pro rata allocations among such Existing or
Potential Holders. If as a result of such allocations, any Potential 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 on any Auction Date, BD
shall, in such manner as it shall determine in its sole discretion, round up or
down the number of shares of ATP to be purchased or sold on such Auction Date by
any Existing Holder or Potential Holder on whose behalf BD submitted an Order so
that the number of shares so purchased or sold by each such Existing Holder or
Potential Holder on such Auction Date shall be whole shares of ATP.
2.4 Notices of Auction Results.
(a) On each Auction Date for ATP, the Auction Agent shall
notify BD by telephone of he 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.
(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.
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(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.
(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% unless otherwise advised by the Fund in writing 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 360, times (c) the liquidation
preference per share for such series 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).
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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 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
therefor, (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(d)(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 of liability with respect to the failure of an Existing Holder or
a Potential Holder or its 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.
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.
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(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 of adequacy of this Agreement, the Auction
Agent Agreement or the shares of ATP of any series.
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. 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).
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4.3 Communications. Except (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, addressed: Lehman Brothers Inc.
3 World Financial Center
200 Vesey Street 9th floor
New York, NY 10285-0900
If to the Auction Agent,
addressed: Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Auction Rate/Remarketed
Securities
Telecopier No.: (212) 250-6688
Telephone No.: (212) 250-6850
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
respective 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, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged.
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(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 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: _____________________________
Name:
Title:
LEHMAN BROTHERS INC.
By: _____________________________
Name:
Title:
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<PAGE>
EXHIBIT A
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 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 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
<PAGE>
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 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.
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.
2
<PAGE>
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 place 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
instructions 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
3
<PAGE>
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:
__________________________________
__________________________________
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EXHIBIT B
SETTLEMENT PROCEDURES
Capitalized terms used herein shall have the respective meanings
specified in the Articles Supplementary 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.
5
<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.
6
<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.
7
<PAGE>
EXHIBIT C
(Submit only one Order on this Order Form)
THE NEW AMERICA HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK, SERIES ____ ("ATP")
ORDER FORM
To: ___________________ Date of Auction
___________________
___________________
New York, New York
The undersigned Broker-Dealer submits the following Order 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 an Existing Holder are submitted,
such Orders shall be considered valid in the order of priority set forth in the
Auction Procedures.
8
<PAGE>
EXHIBIT D
(To be used only for transfers made
other than pursuant to in Auction)
THE NEW AMERICAN HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK,
SERIES ____ ("ATP") TRANSFER FORM
We are (check one):
____ The Existing Holder named below;
____ The Broker-Dealer for such Existing Holding; 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:
9
<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 ____ ("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:
10
<PAGE>
EXHIBIT B
FORM OF MASTER PURCHASER'S LETTER
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 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
11
<PAGE>
order with respect to Securities owned by us with a broker-dealer on any Auction
or 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 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
12
<PAGE>
such information concerning our beneficial ownership of Securities as such
auction agent or remarketing agent shall request.
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 place 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:
(e) 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.
(f) 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
13
<PAGE>
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
instructions and will be able and prepared to bear the economic risk of
investing in and holding such Securities.
(g) 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.
(h) 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:
_____________________________________
_____________________________________
14
<PAGE>
EXHIBIT C
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 ATP Provisions 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
15
<PAGE>
(vi) the scheduled Auction Date of the next succeeding Auction
with respect to such series of ATP.
(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
16
<PAGE>
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.
(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.
17
<PAGE>
EXHIBIT D
FORM OF ATP PROVISIONS
18
<PAGE>
EXHIBIT E
THE NEW AMERICAN HIGH INCOME FUND, INC.
NOTICE OF AUCTION DATE FOR
AUCTION TERM PREFERRED STOCK ("ATP")
NOTICE IS HEREBY GIVEN that the Auction Date of the next Auction for
the ATP Series ___ of THE NEW AMERICA HIGH INCOME FUND, INC. (the "Fund") is
scheduled to be ________ and the next Dividend Payment Date for the Fund's ATP
Series ___ will be ___________.
THE NEW AMERICAN HIGH INCOME FUND, INC.
19
<PAGE>
EXHIBIT F
THE NEW AMERICAN HIGH INCOME FUND, INC.
NOTICE OF PROPOSED DESIGNATION OF
ALTERNATE TERM PERIOD FOR
AUCTION TERM PREFERRED STOCK
NOTICE IS HEREBY GIVEN that THE NEW AMERICA HIGH INCOME FUND, INC. (the
"Fund") proposes to exercise its option to designate the Dividend Period of its
Series Auction Term Preferred Stock ("ATP") commencing [the first day of the
proposed Alternate Term Period] and ending (the last day of the proposed
Alternate Term Period] as an Alternate Term Period.
By 9:00 A.M., New York City time, on the Business Day next preceding
the first day of such proposed Alternate Term Period, the Fund will notify the
Auction Agent for the ATP of either (a) its determination to exercise such
option, designating the length of such Alternate Term Period and the terms of
the Specific Redemption Provisions, if any, or (b) its determination not to
exercise such option.
THE NEW AMERICA HIGH INCOME FUND, INC.
Dated: ___________
20
<PAGE>
EXHIBIT G
THE NEW AMERICAN HIGH INCOME FUND, INC.
NOTICE OF DESIGNATION OF ALTERNATE TERM PERIOD OF
AUCTION TERM PREFERRED STOCK
NOTICE IS HEREBY GIVEN that THE NEW AMERICA HIGH INCOME FUND,
INC. (the "Fund") has determined to designate the Dividend Period of its Series
Auction Term Preferred Stock ("ATP") commencing on (the first day of the
Alternate Term Period] and ending on (the last day of the Alternate Term Period]
as an Alternate Term Period.
The Alternate Term Period will be ___ (days] [year(s]].
The Auction Date for the Alternate Term Period is (the Business Day
next preceding the first day of such Alternate Term Period].
The scheduled Dividend Payment Dates for such series of ATP during such
Alternate Term Period will be __________________.
[Specific Redemption Provisions, if applicable.]
[The Alternate Term Period shall not commence if on such Auction Date
Sufficient Clearing Orders shall not exist.]
THE NEW AMERICA HIGH INCOME FUND, INC.
Dated: ______________
21
<PAGE>
EXHIBIT H
THE NEW AMERICAN HIGH INCOME FUND, INC.
NOTICE OF DETERMINATION NOT TO DESIGNATION
ALTERNATE TERM PERIOD OF
AUCTION TERM PREFERRED STOCK
NOTICE IS HEREBY GIVEN that THE NEW AMERICA HIGH INCOME FUND, INC. (the
"Fund") has determined not to exercise its option to designate an Alternate Term
Period of its Series Auction Term Preferred Stock. Accordingly, the next
succeeding Dividend Period of such series will be a Standard Term Period.
THE NEW AMERICA HIGH INCOME FUND, INC.
Dated: ______________
22
[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]
-------------------
(Date)
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: Auction Term Preferred Stock, 2,000 Shares Series C
--------------------------------------------------------------
CUSIP No. 641876402
--------------------------------------------------------------
--------------------------------------------------------------
(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 __________, 1997 (the "Document"). Lehman
Brothers 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 ________________, 1997 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) 709-6870. Notices to DTC pursuant to this Paragraph by mail
or by any other means shall be sent to DTC's Reorganization Department as
indicated in Paragraph 4.
3. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to be
mailed to Security holders or published (the "Publication Date"). Such notice
shall be sent to DTC by a secure means (e.g., legible telecopy, registered or
certified mail, overnight delivery) in a timely manner designed to assure that
such notice is in DTC's possession no later than the close of business on the
business day before or, if possible, two business days before the Publication
Date. Issuer or Trust Company shall forward such notice either in a separate
secure transmission for each CUSIP number or in a secure transmission for
multiple CUSIP numbers (if applicable) which includes a manifest or list of each
CUSIP number submitted in that transmission. (The party sending such notice
shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30 days
nor more than 60 days prior to the redemption date. Notices to DTC pursuant to
this Paragraph by telecopy shall be sent to DTC's Call Notification Department
at (516) 227-4039 or (516) 227-4190. If the party sending the notice does not
receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice by Issuer
or Trust Company to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions (including mandatory
-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 payments advices sent to DTC shall contain the CUSIP
number of the Securities.
6. The Document indicates that the dividend rate for the Securities may
vary from time to time. Absent other existing arrangements with DTC, Issuer or
Trust Company shall give DTC notice of each such change in the dividend rate, on
the same day that the new rate is determined, by telephoning the Supervisor of
DTC's Dividend Announcement Section at (212) 709-1270, or by telecopy sent to
(212) 709-1723. Such verbal or telecopy notice shall be followed by prompt
written confirmation sent by a secure means in the manner set forth in Paragraph
3 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
7. The Document indicates that each purchaser of Securities must sign a
purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full amount
of all dividends, liquidation proceeds, and redemption proceeds payable with
respect to the Securities, even if the credits of Securities to the DTC accounts
of any DTC Participant ("Participant") result from transfers or failures to
transfer in violation of the provisions of the purchaser's letter. Issuer and
Trust Company acknowledge that DTC shall treat any Participant having Securities
credited to its DTC accounts as entitled to the full benefits of ownership of
such Securities. Without limiting the generality of the preceding sentence,
Issuer and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 11 and 12, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The treatment by DTC of the effects of the crediting by it of
Securities to the 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 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.
Very truly yours,
The New America High Income Fund, Inc.
---------------------------------------------------------
(Issuer)
By: /s/
---------------------------------------------------------
(Authorized Officer's Signature)
Bankers Trust Company
---------------------------------------------------------
(Trust Company)
By: /s/
---------------------------------------------------------
(Authorized Officer's Signature)
Notes:
A. If there is a Trust Company (as defined in this Letter of Representations),
Trust Company as well as Issuer must sign this Letter. If there is no Trust
Company, in signing this Letter Issuer itself undertakes to perform all of the
obligations set forth herein.
B. Schedule A contains statements that DTC believes accurately describe DTC, the
method of effecting book-entry transfers of securities distributed through DTC,
and certain related matters.
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: /s/
--------------------------------------------------
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 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's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6. Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
<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 in 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-
- --------------------------------------------------------------------------------
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
LEHMAN BROTHERS INC.
Relating to
AUCTION TERM PREFERRED STOCK
of
THE NEW AMERICA HIGH INCOME FUND, INC.
- --------------------------------------------------------------------------------
<PAGE>
BROKER-DEALER AGREEMENT dated as of May __, 1997 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 LEHMAN BROTHERS INC. (together with its successors and assigns,
the "BD") .
The Fund has currently issued two series of shares of Auction Term
Preferred Stock, par value $1.00 per share, liquidation preference $50,000 per
share, and proposes to designate a third series of shares of Auction Term
Preferred Stock, par value $1.00 per share, liquidation preference $25,000 per
share, pursuant to its Articles of Incorporation, as amended, and the Articles
Supplementary establishing each such series. In the event that the Fund
establishes one or more additional series of Auction Term Preferred Stock to
which it desires that this Agreement be applicable, the Fund shall so notify the
BD in writing. If the BD is willing to render such services on the terms
provided for herein, it shall notify the Fund in writing, whereupon such series
of Auction Term Preferred Stock (such series, together with the Auction Term
Preferred Stock then subject to this Agreement, the "ATP") shall become subject
to this Agreement.
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 the relevant series 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 any Auction Agent
Agreement 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) "Existing Holder" shall have the meaning set forth in
the Articles Supplementary, and for purposes of this Broker-Dealer Agreement and
with respect to the Auction Procedures as referred to in this Agreement, shall
also include, as the circumstances may require, a Person who is listed as the
beneficial owner of ATP in the records of a Broker-Dealer.
(i) "Master Purchaser's Letter" means a letter
substantially in the form of or containing provisions similar to those in the
form attached hereto as Exhibit A, which is required to be executed by (1) each
prospective purchaser of shares of ATP or (2) the Broker- Dealer through whom
such shares will be held.
(j) "Potential Holder" shall have the meaning set forth in
the Articles Supplementary, and for purposes of this Broker-Dealer Agreement and
with respect to the Auction Procedures as referred to in this Agreement, shall
also include, as the circumstances may require, any other Person, including any
Existing Holder of shares of ATP, who may be interested in acquiring shares of
ATP (or, in the case of an Existing Holder, additional shares of ATP).
(k) "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.
2
<PAGE>
(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. The Auction.
2.1 Purposes; Incorporation by Reference of 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) Before any series of the ATP becomes subject to this
Broker-Dealer Agreement, the BD shall have delivered a Master Purchaser's Letter
executed by the BD. 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 shall act as the exclusive Broker-Dealer for the
Fund until the later of (i) January 30, 1998 and (ii) such date on which the
Fund appoints one or more additional Broker-Dealers. The BD understands that,
subject to the preceding sentence, 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 the 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,
3
<PAGE>
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 notify customers of the BD who the BD believes are Existing Holders of
shares of ATP of such change in the Auction Date.
(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 Order.
(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 the
relevant 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 whom the BD believes may be
interested in participating in the Auction on such Auction Date on or prior to
such Auction Date for the purposes set forth in the Auction Procedures. To the
extent required under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder, BD shall deliver a Prospectus to each such
Potential Holder. BD agrees, upon the request of a Potential Holder, to deliver
to such Potential Holder either (i) a Prospectus with such legends or stamps
regarding non-reliance by Potential Holders of 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 Procedure and Auction Procedures.
(c) 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.
(d) BD shall deliver to the Auction Agent (i) a written
notice, substantially in the form attached hereto as Exhibit D, of transfers of
shares of ATP made by or 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 will be
listed as the holder of such shares on the books of the Auction Agent and 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 sold shares of ATP through BD pursuant to an Auction if such
Person's shares were to be or were listed in the Person's name on the books of
the Auction Agent. 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.
(e) 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
5
<PAGE>
which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for
their own accounts.
(f) BD agrees to handle its customers' Orders in accordance
with its duties under applicable securities laws and rules.
(g) To the extent that pursuant to Section 6 of the Auction
Procedures, BD continues to hold, sells, or purchases a number of shares that is
fewer than the number of shares in an Order submitted by BD to the Auction Agent
on behalf of Existing or Potential Holders whose shares are or will be held in
BD's name, BD shall make appropriate pro rata allocations among such Existing or
Potential Holders. If as a result of such allocations, any Potential 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 on any Auction Date, BD
shall, in such manner as it shall determine in its sole discretion, round up or
down the number of shares of ATP to be purchased or sold on such Auction Date by
any Existing Holder or Potential Holder on whose behalf BD submitted an Order so
that the number of shares so purchased or sold by each such Existing Holder or
Potential Holder on such Auction Date shall be whole shares of ATP.
2.4 Notices of Auction Results.
(a) On each Auction Date for ATP, the Auction Agent shall
notify BD by telephone of he 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.
(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% unless otherwise advised by the Fund in writing
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 360, times (c) the
liquidation preference per share for such series 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).
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.
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2.7 Settlement.
(a) If any Existing Holder on whose behalf the BD 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
therefor, (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(d)(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 of liability with respect to the failure of an Existing Holder or
a Potential Holder or its 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.
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
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<PAGE>
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 of adequacy of this Agreement, the Auction
Agent Agreement or the shares of ATP of any series.
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. 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).
4.3 Communications. Except (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:
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<PAGE>
If to BD, addressed: Lehman Brothers Inc.
3 World Financial Center
200 Vesey Street 9th floor
New York, NY 10285-0900
If to the Auction Agent,
addressed: Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Auction Rate/Remarketed
Securities
Telecopier No.: (212) 250-6688
Telephone No.: (212) 250-6850
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
respective 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, canceled 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 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
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<PAGE>
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: ______________________________
Name:
Title:
LEHMAN BROTHERS INC.
By: ______________________________
Name:
Title:
11
<PAGE>
EXHIBIT A
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 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 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
<PAGE>
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 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.
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.
2
<PAGE>
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 place 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 instructions 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
3
<PAGE>
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:
_______________________________________
_______________________________________
4
<PAGE>
EXHIBIT B
SETTLEMENT PROCEDURES
Capitalized terms used herein shall have the respective meanings specified in
the Articles Supplementary 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.
5
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(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.
6
<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.
7
<PAGE>
EXHIBIT C
(Submit only one Order on this Order Form)
THE NEW AMERICA HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK, SERIES ____ ("ATP")
ORDER FORM
To: ___________________ Date of Auction
___________________
___________________
New York, New York
The undersigned Broker-Dealer submits the following Order 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 an Existing Holder are submitted,
such Orders shall be considered valid in the order of priority set forth in the
Auction Procedures.
8
<PAGE>
EXHIBIT D
(To be used only for transfers made
other than pursuant to in Auction)
THE NEW AMERICAN HIGH INCOME FUND, INC.
AUCTION TERM PREFERRED STOCK,
SERIES ____ ("ATP") TRANSFER FORM
We are (check one):
____ The Existing Holder named below;
____ The Broker-Dealer for such Existing Holding; 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:
9
<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 ____ ("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:
As of December 7, 1995
Ms. Ellen E. Terry
Ten Winthrop Square
Boston, MA 02110
Dear Ms. Terry:
This letter agreement confirms your engagement by The New America High
Income Fund, Inc. (the "Fund") to provide the administrative services set forth
below, subject to the overall supervision of the President of the Fund for the
term and on the terms set forth in this Agreement. You hereby accept such
engagement and agree during such period to render the services herein described
and to assume the obligations herein set forth, for the compensation herein
provided.
1. Duties
(a) Subject to the supervision of the President of the Fund, you shall
perform the following services:
a. Review the determination of the Fund's net asset value
based on data provided to you and transmit the same to appropriate
sources for publication;
b. Coordinate the maintenance of the books and records
required to be maintained by the Fund by the Fund's various service
providers and maintain on behalf of the Fund such books and records as
may be mutually agreed upon;
c. Monitor Fund expenses and accruals for expenses and arrange
for payment of the Fund's expenses, including instructing the custodian
as to the payment of bills;
d. Coordinate the preparation of the Fund's semi-annual,
annual and other periodic reports, proxy statements and other
communications with shareholders required or otherwise to be sent to
Fund shareholders (including overseeing the Fund's accountants and
other service providers in the preparation of financial statements),
arrange for the printing and dissemination of such reports and
communications to
<PAGE>
Ms. Ellen E. Terry
As of December 7, 1995
Page 2
shareholders and coordinate the preparation of materials for meetings
of the Board of Directors;
e. Oversee in the preparation of the Fund's periodic reports
required to be filed with the Securities and Exchange Commission on
Form N-SAR and Form N-2 and such other reports, forms or filings, as
may be mutually agreed upon;
f. Prepare analysis and forecasts of dividends based on
information provided to you;
g. Prepare such information and reports as may be required by
the New York Stock Exchange (the "NYSE") on which the Fund's shares of
Common Stock are listed, act as liaison with the NYSE and assist in
connection with the dissemination of Fund press releases;
h. Monitor/interface with lenders, auction agents,
broker-dealers and insurers and instruct the custodian to make payments
of interest, dividends and commissions and in respect of the Fund's
senior securities, if any, undertake such other activities as may be
required;
i. Assist in responding to shareholder/retail broker inquiries
and disseminating information to the same based on information provided
to you;
j. Oversee and review calculations of fees paid to the
investment adviser and the custodian;
k. Consult with the Fund's officers, independent accountants,
legal counsel, custodian, and transfer and dividend disbursing agent in
establishing the accounting policies of the Fund and generally oversee
the financial and accounting services provided by the Fund's
accountants, custodian and transfer agent;
l. Instruct the transfer agent with respect to the payment of
dividends;
m. Assist the Fund in obtaining and maintaining any fidelity
bond required under the Investment Company Act of 1940; and
<PAGE>
Ms. Ellen E. Terry
As of December 7, 1995
Page 3
n. Prepare reports relating to the business and affairs of the
Fund as may be mutually agreed upon and not otherwise appropriately
prepared by the Fund's investment adviser, custodian, counsel or
auditors.
It is agreed that your services as administrator of the Fund hereunder
shall be your primary responsibility but shall not be exclusive with respect to
the Fund. You shall be entitled to take reasonable vacations on reasonable
advance notice and agree to cooperate with the Fund in arranging for coverage of
the functions described herein during your absence.
(b) In addition to the services provided pursuant to the foregoing
paragraph (a), you shall, subject to the supervision of the President of the
Fund, oversee Paul E. Saidnawey or any successor to him appointed by the Fund in
the performance by him or such successor of the services listed below (it being
understood that the Fund shall be responsible for the fees and expenses
associated with the provision of such services):
i. Assistance in the preparation and filing of the Fund's
federal, state and local income tax returns and any other required tax
returns;
ii. Preparation and distribution of all compliance reports
relating to the Fund's senior securities, if any;
iii. Maintenance of the Fund's compliance model and work with
the Fund's accountants on the quarterly review of the model; and
iv. Assistance in the preparation of the Fund's financial
statements and Form N-SAR.
(c) Without the prior written consent of the Fund, you will not, at any
time, either during or subsequent to employment by the Fund, use any
Confidential Information for the benefit of anyone other than the Fund, or
disclose any Confidential Information to anyone except in furtherance of the
Fund's interests. The term "Confidential Information" includes all information,
not generally known or available to the public or the trade, which is acquired
by you from the Fund, its affiliates, or service providers and which relates to
the Fund or its operations.
<PAGE>
Ms. Ellen E. Terry
As of December 7, 1995
Page 4
2. Fee
The Fund will pay you at an annual rate of $78,500 for your services
described herein. Such fee shall be payable in prorated monthly installments on
the first business day of each month commencing in December 1995, subject to
proration for partial months.
3. Expenses
You shall bear your own expenses incurred in connection with this
Agreement; provided, however, that the Fund shall provide for you at its own
cost the facilities, equipment (including telephone, fax and computer
facilities), personnel, support services and supplies at the offices of the Fund
or at such other offices as the Fund may occupy from time to time.
4. Term
This Agreement shall continue in effect until terminated as provided
herein. This Agreement may be terminated at any time without the payment of any
penalty by the Fund on 90 days' written notice to you or by you at any time
without the payment of any penalty on 90 days' written notice to the Fund.
5. Responsibility; Indemnification
You assume no responsibility under this Agreement other than to render
the services called for hereunder, and specifically you assume no responsibility
for investment advice or the investment or reinvestment of the Fund's assets.
You shall not be liable to the Fund for any action taken or omitted to be taken
by you in connection with the performance of any of your duties or obligations
under this Agreement, and the Fund shall indemnify you and hold you harmless
from and against all damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid in settlement, provided
the Fund has consented to such settlement and had an opportunity to defend the
relevant matter at its own expense) incurred by you in or by reason of any
pending, threatened or contemplated action, suit, investigation or other
proceeding (including an action or suit by or in the right of the Fund or its
security holders) arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by you in connection with the performance
of any of your duties or obligations under this Agreement; provided, however,
that nothing contained herein shall protect or be deemed to protect you against
or entitle or be deemed to entitle you to indemnification in respect of any
liability to the Fund or its security holders to which you would otherwise be
subject by reason of (a) willful misfeasance, bad faith or gross negligence
<PAGE>
Ms. Ellen E. Terry
As of December 7, 1995
Page 5
in the performance of your duties, (b) your receipt of an improper personal
benefit in money, property or service, or (c) in the case of any criminal
proceeding, your having reasonable cause to believe the act or omission was
unlawful.
6. 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 Investment Company
Act of 1940 which are maintained by the undersigned, if any, are property of the
Fund and will be surrendered promptly to the Fund on request.
7. Miscellaneous
This Agreement may be amended by mutual written consent. This Agreement
sets forth the entire agreement and understanding of the parties hereto solely
with respect to the matters covered hereby and the relationship between the Fund
and you, and supersedes and terminates any prior agreements between us. This
Agreement may not be assigned by you, except that your rights and duties under
this Agreement may be assigned to a corporation of which you are the sole
officer, director and stockholder with the written consent of the Fund, which
consent shall not be unreasonably withheld. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts
without reference to choice of law principles thereof and in accordance with the
Investment Company Act of 1940. In the case of any conflict the Investment
Company Act of 1940 shall control.
<PAGE>
Ms. Ellen E. Terry
As of December 7, 1995
Page 6
Please indicate your acceptance of the terms set forth herein by
signing the enclosed copy of this letter in the space provided below and
returning it to the Fund, whereupon this letter shall become a binding
agreement.
Very truly yours,
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Robert F. Birch
------------------------------------
Robert F. Birch, President
ACCEPTED AND AGREED TO
AS OF DECEMBER 7, 1995
/s/ Ellen E. Terry
- -------------------------------
Ellen E. Terry
As of December 7, 1995
Mr. Paul E. Saidnawey
Ten Winthrop Square
Boston, MA 02110
Dear Mr. Saidnawey:
This letter agreement confirms your engagement by The New America High
Income Fund, Inc. (the "Fund") to provide the services set forth below, subject
to the overall supervision of the President of the Fund for the term and on the
terms set forth in this Agreement. You hereby accept such engagement and agree
during such period to render the services herein described and to assume the
obligations herein set forth, for the compensation herein provided.
1. Duties
(a) Subject to the supervision of the President of the Fund, you shall
perform the following services:
a. Assist in the preparation and filing of the Fund's federal,
state and local income tax returns and any other required tax returns;
b. Prepare and distribute all required compliance reports
relating to the Fund's senior securities, if any, based on information
provided or such other similar functions as may be required as a result
of any other capital structure adopted by the Fund;
c. Maintain the Fund's compliance model and work with the
Fund's accountants on the quarterly review of the model;
d. Assist in the preparation of the Fund's financial
statements and Form N-SAR; and
e. Perform any other analysis requested from time to time by
the Fund.
It is agreed that your services hereunder shall be your primary
responsibility but shall not be exclusive with respect to the Fund. You shall be
entitled to take reasonable vacations
<PAGE>
Paul E. Saidnawey
As of December 7, 1995
Page 2
on reasonable advance notice and agree to cooperate with the Fund and Ms. Terry
in arranging for coverage of the functions described herein during your absence.
(b) Without the prior written consent of the Fund, you will not, at any
time, either during or subsequent to employment by the Fund, use any
Confidential Information for the benefit of anyone other than the Fund, or
disclose any Confidential Information to anyone except in furtherance of the
Fund's interests. The term "Confidential Information" includes all information,
not generally known or available to the public or the trade, which is acquired
by you from the Fund, its affiliates, or service providers and which relates to
the Fund or its operations.
2. Fee
The Fund will pay you at an annual rate of $44,000 for your services
described herein. Such fee shall be payable in prorated monthly installments on
the first business day of each month commencing in December 1995, subject to
proration for partial months.
3. Expenses
You shall bear your own expenses incurred in connection with this
Agreement; provided, however, that the Fund shall provide for you at its own
cost the facilities, equipment (including telephone, fax and computer
facilities), personnel, support services and supplies at the offices of the Fund
or at such other offices as the Fund may occupy from time to time.
4. Term
This Agreement shall continue in effect until terminated as provided
herein. This Agreement may be terminated at any time without the payment of any
penalty by the Fund on 90 days' written notice to you or by you at any time
without the payment of any penalty on 90 days' written notice to the Fund.
5. Responsibility; Indemnification
You assume no responsibility under this Agreement other than to render
the services called for hereunder, and specifically you assume no responsibility
for investment advice or the investment or reinvestment of the Fund's assets.
You shall not be liable to the Fund for any action taken or omitted to be taken
by you in connection with the performance of any of your duties or obligations
under this Agreement, and the Fund shall indemnify you and hold
<PAGE>
Paul E. Saidnawey
As of December 7, 1995
Page 3
you harmless from and against all damages, liabilities, costs and expenses
(including reasonable attorneys' fees and amounts reasonably paid in settlement,
provided the Fund has consented to such settlement and had an opportunity to
defend the relevant matter at its own expense) incurred by you in or by reason
of any pending, threatened or contemplated action, suit, investigation or other
proceeding (including an action or suit by or in the right of the Fund or its
security holders) arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by you in connection with the performance
of any of your duties or obligations under this Agreement; provided, however,
that nothing contained herein shall protect or be deemed to protect you against
or entitle or be deemed to entitle you to indemnification in respect of any
liability to the Fund or its security holders to which you would otherwise be
subject by reason of (a) willful misfeasance, bad faith or gross negligence in
the performance of your duties, (b) your receipt of an improper personal benefit
in money, property or service, or (c) in the case of any criminal proceeding,
your having reasonable cause to believe the act or omission was unlawful.
6. Miscellaneous
This Agreement may be amended by mutual written consent. This Agreement
sets forth the entire agreement and understanding of the parties hereto solely
with respect to the matters covered hereby and the relationship between the Fund
and you, and supersedes and terminates any prior agreement between us. This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts without reference to choice of law principles
thereof and in accordance with the Investment Company Act of 1940. In the case
of any conflict the Investment Company Act of 1940 shall control.
<PAGE>
Paul E. Saidnawey
As of December 7, 1995
Page 4
Please indicate your acceptance of the terms set forth herein by
signing the enclosed copy of this letter in the space provided below and
returning it to the Fund, whereupon this letter shall become a binding
agreement.
Very truly yours,
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Robert F. Birch
----------------------------------
Robert F. Birch, President
ACCEPTED AND AGREED TO
AS OF DECEMBER 7, 1995
/s/ Paul E. Saidnawey
- ------------------------------
Paul E. Saidnawey
EXHIBIT K12
LEHMAN BROTHERS INC.
200 Vesey Street
3 World Financial Center
New York, New York 10285
March 24, 1997
Re: The New America High Income Fund, Inc.
--------------------------------------
The New America High Income Fund, Inc.
10 Winthrop Square, Fifth Floor
Boston, Massachusetts 02110
Ladies and Gentlemen:
Reference is made to Section 2.6 of the Broker-Dealer Agreement dated
as of March 19, 1997 (the "Broker-Dealer Agreement") between Bankers Trust
Company and Lehman Brothers Inc. relating to certain series of auction term
preferred stock (the "ATP") of The New America High Income Fund, Inc. (the
"Fund"). Capitalized terms not defined herein shall have the meanings given to
such terms in the Broker-Dealer Agreement.
Under the Broker-Dealer Agreement, the Auction Agent pays BD a fee for
its services in connection with an Auction out of moneys received from the Fund,
which fee is calculated in accordance with the terms of Section 2.6 of the
Broker-Dealer Agreement and is payable on the Business Day next succeeding the
Auction Date for a series of ATP (the "Paid Fee"). With respect to each Auction
subject to the Broker-Dealer Agreement relating to a Dividend Period consisting
of less than one year, it is hereby agreed between BD and the Fund that:
(a) if the Agreed Fee (as defined below) is greater than
the Paid Fee for that Auction, the Fund shall pay BD an amount
equal to the difference between the Agreed Fee and the Paid Fee;
(b) if the Agreed Fee is less than the Paid Fee for that
Auction, BD shall pay the Fund an amount equal to the difference
between the Agreed Fee and the Paid Fee (each such payment
pursuant to (a) and (b), the "Adjustment"); and
<PAGE>
The New America High
Income Fund, Inc. -2- March 24, 1997
(c) any Adjustment with respect to an Auction shall be
payable on the Business Day next succeeding the Auction Date.
For purposes of calculating the Adjustment:
(x) The "BD Multiplier" for an Auction shall be (i) .15 of 1% if
the Applicable Rate for that Auction is greater than one-month
LIBOR (as defined below), (ii) .20 of 1% if the Applicable Rate
for that Auction is greater than one-month LIBOR less .20%, but
less than or equal to one-month LIBOR, and (iii) .25 of 1% if the
Applicable Rate for that Auction is equal to or less than
one-month LIBOR less .20%.
(y) The "Agreed Fee" for an Auction relating to a Dividend Period
of less than one year for a series of the ATP shall be (a) the BD
Multiplier times (b) a fraction, the numerator of which is the
number of days in the Dividend Period of such series beginning on
the Business Day succeeding the Auction Date and the denominator
of which is 360, times (c) the liquidation preference per share
for such series 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 in such Auction 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. For purposes of
subclause (d)(i), 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 the transferee is, a
Broker Dealer other than BD.
(z) "One-month LIBOR"on any Auction Date, means the rate for
deposits in U.S. dollars, commencing on the second London Banking
Day after such Auction Date, that appears on page 3750 of the Dow
Jones Telerate Service as of 11:00 A.M., London time, on such
Auction Date and (ii) "London Banking Day" means any day on which
dealings in deposits in U.S. dollars are transacted in the London
interbank market.
<PAGE>
The New America High
Income Fund, Inc. -3- March 24, 1997
Very truly yours,
LEHMAN BROTHERS INC.
By: /s/ signature illegible
------------------------------
Name:
Title:
<PAGE>
The New America High
Income Fund, Inc. -4- March 24, 1997
Accepted and agreed to as of
the date above written:
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Ellen E. Terry
---------------------------------
Name: Ellen E. Terry
Title: Vice President
EXHIBIT K13
LEHMAN BROTHERS INC.
200 Vesey Street
3 World Financial Center
New York, New York 10285
May __, 1997
Re: The New America High Income Fund, Inc.
The New America High Income Fund, Inc.
10 Winthrop Square, Fifth Floor
Boston, Massachusetts 02110
Ladies and Gentlemen:
Reference is made to Section 2.6 of the Broker-Dealer Agreement dated
as of May __, 1997 (the "Broker-Dealer Agreement") between Bankers Trust Company
and Lehman Brothers Inc. relating to certain series of auction term preferred
stock (the "ATP") of The New America High Income Fund, Inc. (the "Fund").
Capitalized terms not defined herein shall have the meanings given to such terms
in the Broker-Dealer Agreement.
Under the Broker-Dealer Agreement, the Auction Agent pays BD a fee
for its services in connection with an Auction out of moneys received from the
Fund, which fee is calculated in accordance with the terms of Section 2.6 of the
Broker-Dealer Agreement and is payable on the Business Day next succeeding the
Auction Date for a series of ATP (the "Paid Fee"). With respect to each Auction
subject to the Broker-Dealer Agreement relating to a Dividend Period consisting
of less than one year, it is hereby agreed between BD and the Fund that:
(a) if the Agreed Fee (as defined below) is greater than
the Paid Fee for that Auction, the Fund shall pay BD an amount equal
to the difference between the Agreed Fee and the Paid Fee;
(b) if the Agreed Fee is less than the Paid Fee for that
Auction, BD shall pay the Fund an amount equal to the difference
between the Agreed Fee and the Paid Fee (each such payment pursuant
to (a) and (b), the "Adjustment"); and
<PAGE>
The New America High
Income Fund, Inc. -2- May __, 1997
(c) any Adjustment with respect to an Auction shall be
payable on the Business Day next succeeding the Auction Date.
For purposes of calculating the Adjustment:
(x) The "BD Multiplier" for an Auction shall be (i) .15 of 1% if the
Applicable Rate for that Auction is greater than one-month LIBOR (as
defined below), (ii) .20 of 1% if the Applicable Rate for that
Auction is greater than one-month LIBOR less .20%, but less than or
equal to one-month LIBOR, and (iii) .25 of 1% if the Applicable Rate
for that Auction is equal to or less than one-month LIBOR less .20%.
(y) The "Agreed Fee" for an Auction relating to a Dividend Period of
less than one year for a series of the ATP shall be (a) the BD
Multiplier times (b) a fraction, the numerator of which is the number
of days in the Dividend Period of such series beginning on the
Business Day succeeding the Auction Date and the denominator of which
is 360, times (c) the liquidation preference per share for such
series 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 in such Auction 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. For purposes of subclause (d)(i), 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 the transferee is, a
Broker Dealer other than BD.
(z) "One-month LIBOR"on any Auction Date, means the rate for deposits
in U.S. dollars, commencing on the second London Banking Day after
such Auction Date, that appears on page 3750 of the Dow Jones
Telerate Service as of 11:00 A.M., London time, on such Auction Date
and (ii) "London Banking Day" means any day on which dealings in
deposits in U.S. dollars are transacted in the London interbank
market.
This agreement supersedes the agreement between BD and the Fund dated
March 24, 1997.
<PAGE>
The New America High
Income Fund, Inc. -3- May __, 1997
Very truly yours,
LEHMAN BROTHERS INC.
By: ________________________
Name:
Title:
<PAGE>
The New America High
Income Fund, Inc. -4- May __, 1997
Accepted and agreed to as of the date above written:
THE NEW AMERICA HIGH INCOME FUND, INC.
By: ________________________
Name:
Title:
EXHIBIT L
[Venable, Baetjer and Howard, LLP Letterhead]
April 29, 1997
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Ladies and Gentlemen:
We have acted as special Maryland counsel for The New America High
Income Fund, Inc., a Maryland corporation (the "Company"), in connection with
the issuance of 2,000 shares of the Fund's Series C Auction Term Preferred
Stock, par value $1.00 per share (the "Series C Preferred Stock") as described
in Pre-Effective Amendment No. 1 to the Company's Registration Statement filed
with the Securities and Exchange Commission on Form N-2, Securities Act File No.
333-23253 and Investment Company Act File No. 811-5399 (the "Registration
Statement"). All capitalized terms not otherwise herein defined shall have the
meaning set forth in the Registration Statement.
As special Maryland counsel for the Company, we are familiar with its
Charter and Bylaws, as amended. We have examined the prospectus included in its
Registration Statement, substantially in the form it is to become effective (the
"Prospectus"). We have further examined and relied upon a certificate of the
State Department of Assessments and Taxation of Maryland to the effect that the
Company is duly incorporated and existing under the laws of the State of
Maryland and is in good standing and duly authorized to transact business in the
State of Maryland.
We have also examined and relied upon such corporate records of the
Company and other documents and certificates with respect to factual matters as
we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that when, if
applicable, (a) the minimum price to be paid for the Series C Preferred Stock
has been properly authorized by the Pricing Committee of the Board of Directors;
(b) the execution and delivery of the Underwriting Agreement among the Company,
Wellington Management Company, LLP and
<PAGE>
Goodwin, Procter & Hoar LLP
April 29, 1997
Page 2
Lehman Brothers, Inc. has been further authorized by the Pricing Committee of
the Board of Directors and the price to the Underwriters of the Series C
Preferred Stock has been determined; and (c) Articles Supplementary classifying
the Series C Preferred Stock have been filed with the State Department of
Assessments and Taxation of Maryland:
1. The Company has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of the State of Maryland.
2. The issuance and sale of the Series C Preferred Stock
pursuant to the Prospectus have been duly authorized
by all necessary corporate actions on the part of the
Company.
3. Upon the issuance and sale of the Series C Preferred
Stock pursuant to the Prospectus the Series C
Preferred Stock will be validly issued, fully paid
and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock. It does not extend to the securities or "blue sky" laws
of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to
the Company that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this Opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Certain Legal Matters"
in the Prospectus. We do not thereby admit that we are "experts" as that term is
used in the Securities Act of 1933, as amended, and the regulations thereunder.
This opinion may not be relied upon by any other person or used for any other
purpose without our prior written consent.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
EXHIBIT N
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report for The New America High Income Fund, Inc. dated January
17, 1997 (and to all references to our firm) included in or incorporated by
reference to Pre-Effective Amendment No. 1 and Amendment No. 22 to Registration
Statement File Nos. 333-23253 and 811-5399, respectively.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 28, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000825345
<NAME> New America Hi Income Fund
<MULTIPLIER> 1000
<CURRENCY> U.S.-Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 337,317
<INVESTMENTS-AT-VALUE> 333,335
<RECEIVABLES> 8,180
<ASSETS-OTHER> 403
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 341,918
<PAYABLE-FOR-SECURITIES> 10,914
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,565
<TOTAL-LIABILITIES> 12,479
<SENIOR-EQUITY> 100,000
<PAID-IN-CAPITAL-COMMON> 324,677
<SHARES-COMMON-STOCK> 47,863
<SHARES-COMMON-PRIOR> 35,717
<ACCUMULATED-NII-CURRENT> 2,350
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (94,085)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,982)
<NET-ASSETS> 329,439
<DIVIDEND-INCOME> 59
<INTEREST-INCOME> 6,605
<OTHER-INCOME> 97
<EXPENSES-NET> 555
<NET-INVESTMENT-INCOME> 6,206
<REALIZED-GAINS-CURRENT> 3,092
<APPREC-INCREASE-CURRENT> (6,494)
<NET-CHANGE-FROM-OPS> 2,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,260
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (33)
<NUMBER-OF-SHARES-SOLD> 11,982
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 164
<NET-CHANGE-IN-ASSETS> 53,031
<ACCUMULATED-NII-PRIOR> 398
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 227
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 555
<AVERAGE-NET-ASSETS> 283,064
<PER-SHARE-NAV-BEGIN> 4.94
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> (.07)
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .13
<PER-SHARE-NAV-END> 4.79
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
