As filed with the Securities and Exchange Commission on May 11, 1998
1933 Act File No. 333-49043
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. 26
--------------------
THE NEW AMERICA HIGH INCOME FUND, INC.
Exact Name of Registrant as Specified in Charter
33 Broad Street, Boston, Massachusetts 02109
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(617) 263-6400
Registrant's Telephone Number, including Area Code
Richard E. Floor, Secretary
The New America High Income Fund, Inc.
33 Broad Street
Boston, Massachusetts 02109
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
With a copy to:
Geoffrey R.T. Kenyon, Esq. Frank P. Bruno, Esq.
Goodwin, Procter & Hoar LLP Brown & Wood LLP
Exchange Place One World Trade Center
Boston, Massachusetts 02109 New York, New York 10048
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. |_|
--------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [X]
--------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
============================================================================================================
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>
Auction Term Preferred Stock, 2,400 shares (1) $25,000 $60,000,000 $17,700 (1)
$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
----------------------- ---------------------------------
PART A
<S> <C>
1. Outside Front Cover.......... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Page.............. Inside Front Cover Page; Outside Back Cover Page
3. Fee Table and Synopsis....... 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 Cover Page; The Fund; Investment Objective and
Registrant .................. 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
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Item Number of Form N-2 Location or Heading in Prospectus
----------------------- ---------------------------------
PART B
<S> <C>
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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 11, 1998
PROSPECTUS
- ----------
$60,000,000
The New America High Income Fund, Inc.
Auction Term Preferred Stock ("ATP")
2,400 Shares, Series D
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 33 Broad Street, Boston, Massachusetts 02109 and its
telephone number is (617) 263-6400. 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 , 1998 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 29 of this Prospectus, may be
obtained without charge by contacting the Fund at the address or phone number
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
================================================================================
<TABLE>
<CAPTION>
Price to Proceeds to
Public(1) Sales Load(2) Fund(1)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ......... $ 25,000 $ $
- --------------------------------------------------------------------------------
Total ............. $60,000,000 $ $
</TABLE>
================================================================================
(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 under the Securities Act of 1933.
See "Underwriting."
(3) Before deducting offering expenses payable by the Fund, estimated at
$210,000.
---------------
The shares of ATP are offered by the Underwriter, subject to prior sale,
when, as and if issued by the Fund and accepted by the Underwriter, subject to
approval of certain legal matters by counsel for the Underwriter and certain
other conditions. It is expected that the one certificate for the ATP will be
delivered to the nominee of The Depository Trust Company on or about May ,
1998.
---------------
Merrill Lynch & Co.
---------------
The date of this Prospectus is May , 1998.
[red herring]
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.
<PAGE>
The Fund currently has issued and Outstanding 2,400 shares of Auction Term
Preferred Stock Series A, 1,600 shares of Auction Term Preferred Stock Series
B, and 2,000 shares of Auction Term Preferred Stock Series C. The Fund is
initially offering 2,400 shares of ATP Series D at a price per share of $25,000
(the "Offering").
The dividend rate for the initial Dividend Period for the shares of ATP
Series D 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 D 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 D will accumulate at the Applicable Rate
from the Date of Original Issue and shall be payable on each Dividend Payment
Date thereafter, commencing June , 1998. The initial Dividend Period for the
shares of ATP Series D will be days. Dividend Periods after the initial
Dividend Period for shares of ATP Series D 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 , 1998.
Subject to compliance with certain conditions, shares of ATP Series D 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 D
that the ATP Series D be rated "aaa" by Moody's and AAA by Fitch as of the Date
of Original Issue. See "Description of ATP--Ratings."
Certain capitalized terms not otherwise defined in this Prospectus have
the meanings provided in the Glossary included as part of this Prospectus.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following data with respect to a share of Common Stock of the Fund
outstanding during the periods indicated has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report thereto
included with the Fund's audited financial statements herein and should be read
in conjunction with the audited financial statements and related notes included
therein.
Financial Highlights
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------
1997(d) 1996 1995 1994(c) 1993
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value: (For Each Share of Common Stock Outstanding Throughout the Period)
Beginning of period $4.94 $4.71 $4.13 $5.15 $4.32
--------- -------- -------- -------- --------
Net Investment Income ....... .70# .69 .67 .72# .59
Net Realized and
Unrealized Gain (Loss)
on Investments and
Forward Foreign
Currency Contracts ......... .25# .22 .62 (.82)# .89
--------- -------- -------- ----------- --------
Total From Investment
Operations ................. .95 .91 1.29 (.10 ) 1.48
Distributions:
Dividends from net investment income:
To preferred stockholders
(including net swap
settlement receipts/
payments) ................ (.16) (.16) (.17) (.17) (.05)
To common
stockholders ............. (.53) (.52) (.50) (.53) (.53)
Dividends in excess of net investment income:
To common
stockholders ............. (.01) -- (.04) -- (.07)
Returns of capital:
To common
stockholders ............. -- -- -- -- --
--------- -------- -------- ----------- --------
Total Distributions ........ (.70) (.68) (.71) (.70) (.65)
--------- -------- -------- ----------- --------
Effect of rights offering
and related expenses;
and Auction Term
Preferred Stock offering
costs and sales load ....... (.16) -- -- (.22) --
--------- -------- -------- ----------- --------
Net Asset Value:
End of period .............. $5.03 $4.94 $4.71 $4.13 $5.15
Per Share Market Value:
End of period .............. $5.63 $5.13 $4.75 $4.00 $5.13
Total Investment Return+..... 21.97% 19.89% 33.50% (11.88)% 40.08%
Net Assets, End of Period,
Applicable to Common
Stock(b) ................... $243,625 $176,408 $164,823 $141,590 $130,673
Net Assets, End of Period,
Applicable to Preferred
Stock(b) ................... $150,000 $100,000 $100,000 $100,000 $35,000
Total Net Assets, End of
Period(b) .................. $393,625 $276,408 $264,823 $241,590 $165,673
<CAPTION>
Period From
February 26, 1988
For the Years Ended December 31, (Commencement
----------------------------------------------------- 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 and
Forward Foreign
Currency Contracts ......... .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 net swap
settlement receipts/
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%
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
</TABLE>
3
<PAGE>
Financial Highlights (continued)
<TABLE>
<S> <C> <C> <C> <C> <C>
Expense Ratios
Ratio of interest
expense to average
net assets** .............. -- -- -- .01% 1.42%
Ratio of preferred and
other debt expenses
to average net
assets** .................. .08% .10% .11% .13% .40%
Ratio of operating
expenses to average
net assets** .............. .58% .73% .84% .75% 1.56%
Ratio of litigation
settlement expense to
average net assets**....... -- -- .49% -- --
------- ----- ----- ----- -----
Ratio of Total Expenses to
Average Net Assets** ....... .66% .83% 1.44% .89% 3.38%
======= ===== ===== ===== =====
Ratio of Net Investment
Income to Average Net
Assets** ................... 8.75% 9.05% 8.90% 9.06% 9.21%
Portfolio Turnover Rate ..... 108.84% 53.45% 62.66% 58.56% 85.76%
<CAPTION>
<S> <C> <C> <C> <C> <C>
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 as the Fund's investment adviser, the Fund was advised by
Ostrander Capital Management, L.P.
(b) Dollars in thousands.
(c) The Fund entered into a refinancing transaction on January 4, 1994, and the
per share data and ratios for the year ended December 31, 1994 reflect
this transaction.
(d) The Fund issued Series C ATP on May 6, 1997 and the per share data and
ratios for the year ended December 31, 1997 reflect this transaction.
* Annualized.
** Ratios calculated on the basis of expenses and net investment income
applicable to both the Common Stock and preferred stock relative to the
average net assets of both the common and preferred stockholders. The
expense ratio and net investment income ratio do not reflect the effect of
dividend payments (including net swap settlement receipts/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>
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, 1998 and as adjusted to give effect to the issuance of all of the
shares of ATP Series D.
<TABLE>
<CAPTION>
Actual As Adjusted
-------------- --------------
(in thousands)
<S> <C> <C>
Total Assets ................................................................... $487,702 $ 546,982
Total Liabilities Including Liquidation Value of Auction Term Preferred Stock .. (155,978) (215,978)
--------- ---------
Net Assets Attributable to Common Stock Outstanding ............................ $331,724 $ 331,004
========= =========
NET ASSETS REPRESENTS:
Preferred Stock, 1,000,000 shares authorized ....................................
Auction Term Preferred Stock Series A, $1.00 par value, liquidation preference
$25,000 per share, 2,400 shares authorized, 2,400 shares issued and
outstanding .................................................................. $ 60,000 $ 60,000
Auction Term Preferred Stock Series B, $1.00 par value, liquidation preference
$25,000 per share, 1,600 shares authorized, 1,600 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, 2,000 shares issued and
outstanding as adjusted ...................................................... $ 50,000 $ 50,000
Auction Term Preferred Stock Series D, $1.00 par value, liquidation preference
$25,000 per share, 2,400 shares authorized, 0 shares issued and outstanding,
2,400 shares issued and outstanding as adjusted .............................. $ -- $ 60,000
Common Stock
Common Stock, $.01 par value, 200,000,000 shares authorized, 64,967,074
shares issued and outstanding ................................................ $ 650 $ 650
Capital in excess of par value ................................................. 404,518 403,798
Accumulated net realized loss from security transactions ....................... (78,294) (78,294)
Net unrealized appreciation on investments ..................................... 1,826 1,826
Accumulated undistributed net investment income ................................ 3,024 3,024
--------- ---------
NET ASSETS ...................................................................... $481,724 $ 541,004
Less liquidation value of Auction Term Preferred Stock ........................ (150,000) (210,000)
--------- ---------
Net assets attributable to Common Stock outstanding ............................ $331,724 $ 331,004
========= =========
Net asset value per share of Common Stock ...................................... $ 5.11 $ 5.09
========= =========
</TABLE>
5
<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 BankBoston, N.A. (the "Credit Facility") in the aggregate principal amount
of $45.5 million. The Credit Facility was repaid and the outstanding TARPS were
redeemed in January 1994 with the proceeds from an offering of two series of
newly authorized Auction Term Preferred Stock having an aggregate liquidation
preference of $150 million plus accumulated and unpaid dividends. See
"Description of ATP," "The Fund" and "Financial Statements." In May 1997, an
additional series of newly authorized Auction Term Preferred Stock having an
aggregate liquidation preference of $50 million plus accumulated and unpaid
dividends was issued.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------
1997 1996 1995 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total Amount Outstanding
Notes .................... $ -- $ -- $ -- $ --
Preferred Stock .......... 150,000,000 100,000,000 100,000,000 100,000,000
Short-Term Loan .......... -- -- -- --
Asset Coverage
Per $1,000 of
Note (1) ................ $ -- $ -- $ -- $ --
Per Preferred Stock
Share (2) ............... 65,604 69,102 66,206 60,398
Per $1,000 of
Short-Term
Loan (1) ................ $ -- -- -- --
Involuntary Liquidation
Preference
Preferred Stock
Share(3) ............... $ 25,000 $ 25,000 $ 25,000 $ 25,000
Approximate Market Value
Per Note ................. $ -- $ -- $ -- $ --
Per Preferred
Stock Share(3) .......... 25,000 25,000 25,000 25,000
Per $1,000 of
Short-Term Loan ......... $ -- -- -- --
<CAPTION>
As of December 31,
------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
-------------- -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total Amount Outstanding
Notes .................... $ -- $45,490,000 $45,490,000 $47,990,000 $96,100,000 $105,000,000
Preferred Stock .......... 35,000,000 35,000,000 35,000,000 35,000,000 58,500,000 79,000,000
Short-Term Loan .......... 45,000,000 -- -- -- -- --
Asset Coverage
Per $1,000 of
Note (1) ................ -- $ 4,141 $ 3,819 $ 3,476 $ 3,192 $ 3,680
Per Preferred Stock
Share (2) ............... 473,351 408,277 366,363 339,466 360,096 356,156
Per $1,000 of
Short-Term
Loan (1) ................ 4,682 -- -- -- -- --
Involuntary Liquidation
Preference
Preferred Stock
Share(3) ............... $ 100,000 $ 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) .......... 100,000 100,000 100,000 100,000 100,000 100,000
Per $1,000 of
Short-Term Loan ......... 1,000 -- -- -- -- --
</TABLE>
- ------------
(1) Calculated by subtracting the Fund's total liabilities (not including
senior securities) from the Fund's total assets and dividing such amount
by the number of notes outstanding.
(2) Calculated by subtracting the Fund's total liabilities (including senior
securities constituting debt but not including Preferred Stock) from the
Fund's total assets and dividing such amount by the number of Preferred
Shares outstanding.
(3) Plus accumulated and unpaid dividends.
6
<PAGE>
PORTFOLIO COMPOSITION
(Unaudited)
As of December 31, 1997, the Fund's portfolio included 156 holdings issued
by 139 different issuers (consolidated by affiliated companies) having an
average yield to maturity of 9.45%. The weighted average maturity of the
portfolio at this date was approximately 7.50 years.
The dollar weighted average of Moody's ratings of all bonds held by the
Fund during the year ended December 31, 1997, 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, 1997 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.
<TABLE>
<CAPTION>
Moody's Percentage
Rating of Portfolio
- ------ ------------
<S> <C>
Baa ....................... 0.68%
Ba ........................ 17.37%
B ......................... 76.69%
Caa ....................... 1.55%
Ca ........................ 0.00%
C ......................... 0.32%
NR ........................ 3.39%
------
Total ................. 100.00%
</TABLE>
7
<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 10, 1998, 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,
16,241,851 shares of Common Stock were issued on March 25, 1998, resulting in
gross proceeds to the Fund of $76,661,537. As of March 31, 1998, the Fund had
total assets of $481,724,318 and total net assets applicable to Common Stock
(aggregate assets less senior securities and Fund liabilities) of $331,724,318.
After giving effect to such issuance of Common Stock, the Fund's capital
structure included 64,967,074 shares of Common Stock, 2,400 shares of ATP
Series A, 1,600 shares of ATP Series B and 2,000 shares of ATP Series C. The
Fund has entered into three interest payment swap arrangements (the "Swap
Arrangements") with BankBoston, N.A. ("BankBoston"). Pursuant to each of the
Swap Arrangements the Fund makes payments to BankBoston on a monthly basis at
fixed annual rates. In exchange for such payments BankBoston makes payments to
the Fund on a monthly basis at a variable rate determined with reference to the
level of short-term interest rates from time to time. The effect of the Swap
Arrangement is to hedge the Fund's dividend payment obligations with respect to
$95 million of the ATP, 63% of the ATP outstanding as of March 31, 1998. See
"Investment Objective and Policies" and "Description of Capital ATP--Dividends
and Dividend Periods." After giving effect to the issuance of ATP Series D
provided for hereunder, the swap arrangement will hedge the Fund's dividend
obligations with respect to 45% 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 33 Broad Street, Boston, Massachusetts 02109, and its
telephone number is (617) 263-6400. The Investment Adviser's address is 75
State Street, Boston, Massachusetts 02109, and its telephone number is (617)
951-5000.
USE OF PROCEEDS
The net proceeds from the sale of the shares of ATP Series D offered
hereby are estimated to be approximately $59,280,000 (after deducting sales
load and estimated offering expenses of approximately $720,000). 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 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.
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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 D. A form of the Articles,
including a form of the Articles Supplementary establishing the ATP Series D,
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 2,400
shares of ATP Series A, 1,600 shares of ATP Series B and 2,000 shares of ATP
Series C. The Fund is offering an additional 2,400 shares of ATP Series D at a
price per share of $25,000 in the Offering.
The Liquidation Value is currently $25,000 with respect to the ATP Series
A, Series B, Series C and Series D.
Dividends and Dividend Periods
With respect to shares of ATP Series D, 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 D 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,
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provided that immediately following any such increase the Fund would be in
compliance with the ATP Basic Maintenance Amount.
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 D 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 "The Fund" and Appendix A to this Prospectus-- "Certain
Investment Practices."
Notification of Dividend Period. The Fund will designate the duration of
Dividend Periods of ATP Series D; 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 will
by 3:00 p.m., New York City time, on the second Business Day next preceding the
first
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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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<PAGE>
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 D offered in the Offering that the Fund obtain the "aaa"/AAA Credit
Rating from Moody's and Fitch for the ATP Series D on the Date of Original
Issue. While there is no assurance that the "aaa"/AAA Credit Rating with
respect to the ATP Series D 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 D 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 D,
based on the composition of its portfolio as of March 31, 1998, the 1940 Act
ATP Asset Coverage, after giving effect to the issuance of the shares of ATP
Series D ($60 million), and the deduction of sales load and estimated offering
expenses for such shares ($720,000), will be 258%.
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 respect to the ATP. The liquidation
preference shall be Liquidation Value plus an amount equal to accumulated but
unpaid dividends thereon (whether
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<PAGE>
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.
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
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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 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.
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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.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch" or the
"Underwriter"), the underwriter in the Offering, intends to serve as the
initial Broker-Dealer for the ATP Series D. 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 each
Broker-Dealer from funds provided by the Fund a service charge based on the
purchase price of shares placed by the Broker-Dealer 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
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rate of .25%, 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 the Broker-Dealer. For purposes of this paragraph, shares will be placed by
a Broker-Dealer 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 the Broker-Dealer or (ii) the subject of an Order submitted by the
Broker-Dealer 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, a Broker-Dealer 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 D shares are Outstanding. The Auction Agent is acting solely as agent of
the Fund and is not a trustee for holders of ATP Series D. 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 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.
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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.
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
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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, 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 capital gains) for each tax year.
Accordingly, the Fund intends to designate distributions made with respect to
the ATP as capital gain dividends in proportion to the ATP's share of the total
dividends paid to both the ATP and the Common Stock during the year. 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 whose shares of the ATP are held 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
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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-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 with the Rating Agency
Guidelines) unrated commercial paper of domestic and foreign corporations,
certificates of deposit, bankers' acceptances and other
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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 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
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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 had a leveraged capital structure since its organization and
assuming issuance of the ATP Series D in the Offering (after giving effect to
the sales load and estimated offering expenses) at March 31, 1998, the Fund
would have had total net assets of approximately $541 million consisting of ATP
having an aggregate liquidation preference of approximately $210 million and
net assets attributable to Common Stock of approximately $331 million.
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
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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.
The Fund does not intend to apply for listing of the ATP Series D on a
national securities exchange, but has been advised by Merrill Lynch that it
currently intends to make a market in the ATP Series D as permitted by
applicable laws and regulations. Merrill Lynch is not obligated to make a
market in the ATP Series D between Auctions and, therefore, a holder of ATP
Series D may not be able to liquidate its position in the ATP Series D 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
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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 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."
Systems-Year 2000
Like other mutual funds and organizations around the world, the Fund could
be adversely affected if its computer systems or those of its service providers
do not properly process dates beginning with January 1, 2000 and information
related to those dates (the "Year 2000 Problem"). The Fund has taken and is
taking steps with respect to its computer systems that it believes are
reasonably designed to address the Year 2000 Problem and does not currently
expect its computer systems to experience a Year 2000 Problem which would have
a material adverse
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impact on the Fund. In addition, the Fund has sought and received assurances
from its service providers, including Wellington Management and State Street
Bank and Trust Company, that they have taken similar measures and do not
currently expect their computer systems or those of their service providers to
experience a Year 2000 Problem which would have a material adverse impact on
the Fund. Because of the highly complex nature of the Year 2000 Problem and the
extent to which the Fund cannot effect or control remedial measures by entities
on which it must directly or indirectly rely for its operation, there can,
however, be no assurance that the Year 2000 Problem will not have a material
adverse impact on 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 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,
1997, Wellington Management held discretionary authority over approximately
$174.6 billion of assets, including $70.2 billion of fixed income securities of
which $5.5 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 .45% (on an annual basis) of the Fund's
"Average Net Assets," based on the average weekly net asset value of the Fund.
Prior to an amendment to the Advisory Agreement which was effective as of
August 1, 1997, the Investment Adviser received 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 the investment advisory 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
24
<PAGE>
amount of accumulated dividends on any senior securities of the Fund
constituting stock within the meaning of Section 18 of the 1940 Act. At
December 31, 1997, the Fund's Average Net Assets were $247,435,625 under this
definition. The aggregate dollar amount paid by the Fund to Wellington
Management under the terms of the Advisory Agreement for the periods January 1,
1995 through December 31, 1995, January 1, 1996 through December 31, 1996 and
January 1, 1997 through December 31, 1997 were $782,000, $851,000, and
$1,087,000, 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 10, 1998, 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, 1998, and 16,241,851 Rights were exercised. After
giving effect to the issuance of Common Stock pursuant to the Rights Offering,
as of March 31, 1998, 64,967,074 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.
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
25
<PAGE>
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.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Purchase Agreement with the Fund and the Investment Adviser, to purchase from
the Fund all of the shares of ATP offered hereby. The Underwriter is committed
to purchase all such shares if any are purchased.
The Underwriter has advised the Fund that it proposes initially to offer
the shares of ATP to the public at the public offering price set forth on the
cover page of the Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriter may allow, and such
dealers may reallow, a discount not in excess of $ per share on sale to
certain other dealers. After the initial public offering, the public offering
26
<PAGE>
price, concession and discount may be changed. The sales load of $ per share
is equal to % of the initial public offering price. Investors must pay for
any shares of ATP purchased in the initial public offering on or before May ,
1998.
The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933.
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 senior security of the Fund, as defined in the 1940 Act, for a period of
90 days after the date of this Prospectus. However, this restriction shall not
apply to the ATP Series D or any swap arrangements with respect to the ATP as
contemplated above under "The Fund".
The Underwriter will act in Auctions for the ATP Series D 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 D 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 D placed by it in its account
at the Security Depository and the Security Depository will deliver the shares
of ATP Series D 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 D 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 Brown & Wood LLP, 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 Brown & Wood LLP 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, 1997,
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 public
accountants, 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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<PAGE>
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: http://www.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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<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Investment Objective and Policies ..................... B-2
Rating Agency Guidelines .............................. B-3
Investment Restrictions ............................... B-15
Portfolio Maturity and Turnover ....................... B-17
Taxation .............................................. B-18
Management of the Fund ................................ B-22
Determination of Net Asset Value ...................... B-28
Description of ATP .................................... B-29
Auction Procedures .................................... B-44
Financial Statements .................................. B-48
Appendix A--Ratings of Corporate Obligations .......... B-A-1
</TABLE>
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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, as amended August 1, 1997, 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.
"Asset Coverage Cure Date" has the meaning set forth under "Description of
ATP--Redemption" in the Statement of Additional Information.
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<PAGE>
"ATP" means the Series D 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 under "Rating
Agency Guidelines" in the Statement of Additional Information.
"ATP Basic Maintenance Certificate" has the meaning set forth under
"Description of ATP--Asset Maintenance" in 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 previously issued
or any other series of Preferred Stock hereinafter designated as shares of
Series C of the ATP by Articles Supplementary or Articles of Amendment.
"ATP Series D" means the shares of Series D of the ATP issued hereby or
any other series of Preferred Stock hereinafter designated as shares of Series
D 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 under "The Investment
Adviser" in this Prospectus.
"BankBoston" means BankBoston, N.A.
"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.
"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.
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<PAGE>
"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, ATP Series C and ATP Series D the date on which such ATP are
originally issued by the Fund.
"Default Period" has the meaning set forth under "Description of
ATP--Dividends and Dividend Periods" in 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.
"Exposure Period" means the period commencing on (and including) a given
Valuation Date and ending 41 days thereafter.
"Fitch" means Fitch IBCA, Inc. and its successors at law.
"Fund" means The New America High Income Fund, Inc., a Maryland
corporation that is the issuer of each series of ATP.
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"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.
"Liquidation Value" means $25,000 per share for ATP Series A, ATP Series
B, ATP Series C and ATP Series D.
"Mandatory Redemption Date" has the meaning set forth under "Description
of ATP--Redemption" in the Statement of Additional Information.
"Mandatory Redemption Price" has the meaning set forth under "Description
of ATP--Redemption" in 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.
"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
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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 under "Description of
ATP--Redemption" in the Statement of Additional Information.
"Offering" means the offering of 2,400 shares of ATP Series D 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 D 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.
"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
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(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
(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.
"Purchase Agreement" means the purchase 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.
"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.
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"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., 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.
"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.
"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
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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 Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"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 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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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 is 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 or is
limited with respect to certain practices such as engaging in options
transactions for leveraging or speculative purposes.
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
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obligation, including the interest factor. The Fund receives payment for such
securities only upon physical delivery or evidence of book entry transfer by
its custodian. Securities sold by the Fund under a reverse repurchase agreement
must be either segregated pending repurchase or the proceeds must be segregated
on the Fund's books and records pending repurchase. Reverse repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. An additional risk is that the
market value of securities sold by the Fund under a reverse repurchase
agreement could decline below the price at which the Fund is obligated to
repurchase them. The Fund will not hold more than 5% of the value of its total
assets in reverse repurchase agreements.
When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Fund may purchase securities on a when-issued
or delayed delivery basis (i.e, delivery and payment can take place a month or
more after the date of the transaction). The purchase price and the interest
rate payable on the securities are fixed on the transaction date. The
securities so purchased are subject to market fluctuation, and no interest
accrues to the Fund until delivery and payment take place. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction and thereafter reflect the value
of such securities in determining its net asset value. The Fund will make
commitments for such when-issued transactions only with the intention of
actually acquiring the securities. To facilitate such acquisitions, the Fund's
custodian bank will maintain, in a separate account of the Fund, liquid assets
from its portfolio, marked to market daily and having value equal to or greater
than such commitments. On the delivery dates for such transactions, the Fund
will meet its obligations from maturities or sales of the securities held in
the separate account and/or from then available cash flow. If the Fund chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of other portfolio obligations,
incur a gain or loss due to market fluctuation.
Permitted Investments in Direct Placement Securities. The Fund is
permitted by its investment objective and policies to invest without limitation
in direct placement securities. Direct placement securities are restricted
securities and therefore are subject to certain of the following risks which
would not apply to securities that were free for immediate public sale. In a
private sale of restricted securities, which may involve protracted
negotiations and a limited number of purchasers, the possibility of delay and
the necessity of obtaining a commitment of investment intent from the
purchasers might adversely affect the price of the securities. In a public
offering, the delay resulting from registration may make it impossible for the
Fund to sell securities at the most desirable time, and the price of the
securities may decline between the time of the decision to sell and the time
when the sale is accomplished. Since only the issuer of the securities can
prepare and file a registration statement under the Securities Act of 1933, as
amended, the Fund may not be able to obtain registration at the most desirable
time.
In view of the above risks, the proceeds to the Fund from the sale of
restricted securities acquired by direct placement could be less than the
proceeds from the sale of similar securities which were free for immediate
public resale. If the Fund is required to liquidate portfolio investments to
satisfy applicable asset coverage requirements, it may be required to dispose
of direct placement securities at times or prices which are disadvantageous to
the Fund.
Direct placement securities, unless eligible for resale under Rule 144A,
are generally ineligible for inclusion in the calculation of the discounted
value of the Fund's investment portfolio under the Rating Agency Guidelines
with which the Fund will be required to comply for so long as the shares of ATP
remain Outstanding. The guidelines require the Fund to maintain portfolio
assets eligible for inclusion in such calculation which have an aggregate
discounted value in excess of the specified asset coverage levels and may
therefore limit the Fund's ability to invest in direct placement securities.
Foreign Investments. The Fund may invest up to 10% of the value of its
total assets in securities principally traded in foreign markets. In addition,
subject to the Fund's basic investment strategy, the Fund may also purchase
Eurodollar certificates of deposit issued by branches of U.S. banks. Foreign
investments may involve risks not present to the same degree in domestic
investments, such as future political and economic developments, the imposition
of withholding taxes on interest income, seizure or nationalization of foreign
deposits, the establishment of exchange controls and the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal of and interest on such obligations. Foreign securities may be less
liquid and more volatile
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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.
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.
The Fund has entered into three interest payment swap arrangements (the
"Swap Arrangements") with BankBoston--(a) an arrangement with a notional amount
of $65 million at a fixed annual rate of 5.25% maturing on February 7, 1999;
(b) an arrangement with a notional amount of $20 million at a fixed annual rate
of 6.07% maturing on October 7, 2002; and (c) an arrangement with a notional
amount of $10 million at a fixed annual rate of 6.225% maturing in October 2,
2002. Pursuant to each of the Swap Arrangements the Fund makes payments to
BankBoston on a monthly basis at fixed annual rates. In exchange for such
payments BankBoston makes payments to the Fund on a monthly basis at a variable
rate determined with reference to the level of short-term interest rates from
time to time. The effect of the Swap Arrangement is to hedge the Fund's
dividend payment obligations with respect to $95 million of the ATP, 63% of the
ATP outstanding as of March 31, 1998. 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
A-3
<PAGE>
in the Fund's portfolio turnover rate, especially during periods when market
prices of the underlying securities appreciate.
For purposes of valuation of the Fund's assets under the Rating Agency
Guidelines (see "Description of 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
A-4
<PAGE>
losses on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may not be liquid in
all circumstances and certain over-the-counter options may have no markets. As
a result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts and the sale of options thereon would create
a greater ongoing potential financial risk than would purchases of options,
where the exposure is limited to the cost of the initial premium.
Incurrence of Indebtedness. For so long as any of the ATP are Outstanding,
the Fund will not borrow money or issue senior securities representing
indebtedness unless it has received written notice from Moody's (if Moody's is
then rating the ATP) and Fitch (if Fitch is then rating the ATP) and any Other
Rating Agency which is then rating the ATP which so requires that such action
would not impair the "aaa"/AAA Credit Rating. For so long as any of the Fund's
preferred stock, including the ATP, is Outstanding, the lesser of (a) 67% of
the shares of the Fund's preferred stock, voting as a separate class, present
at a meeting at which more than 50% of the outstanding shares of preferred
stock entitled to vote is present or (b) more than 50% of the outstanding
shares of preferred stock, must approve any Fund borrowing. Preferred
stockholder approval is not, however, required if the Fund borrows for
temporary or emergency purposes in accordance with its investment policies and
restrictions or for the purpose of clearing transactions. To the extent that
the Fund does incur any borrowings, such borrowings would typically be senior
in right of payment to the ATP and the Common Stock upon liquidation of the
Fund.
Securities Loans. The Fund reserves the right to make secured loans of its
portfolio securities amounting to not more than one-third of the value of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delays in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. As a matter of policy
securities loans are made to unaffiliated broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or
short-term debt obligations at least equal at all times to the value of the
securities subject to the loan. The borrower pays to the Fund an amount equal
to any interest or dividends received on the securities subject to the loan.
The Fund retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved.
A-5
<PAGE>
(This page intentionally left blank)
<PAGE>
TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL THEN
DELIVER COPIES ON YOUR BEHALF TO THE
AUCTION OR REMARKETING AGENT
MASTER PURCHASER'S LETTER
Relating to
Securities Involving Rate Settings
Through Auctions or Remarketings
THE COMPANY
A REMARKETING AGENT
THE AUCTION AGENT
A BROKER-DEALER
AN AGENT MEMBER
OTHER PERSONS
Dear Sirs:
1. This letter is designed to apply to publicly or privately offered debt
or equity securities ("Securities") of any issuer ("Company") which are
described in any final prospectus or other offering materials relating to such
Securities as the same may be amended or supplemented (collectively, with
respect to the particular Securities concerned, the "Prospectus") and which
involve periodic rate settings through auctions ("Auctions") or remarketing
procedures ("Remarketings"). This letter shall be for the benefit of any
Company and of any auction agent, paying agent (collectively, "auction agent"),
remarketing agent, broker-dealer, agent member, securities depository or other
interested person in connection with any Securities and related Auctions or
Remarketings (it being understood that such persons may be required to execute
specified agreements and nothing herein shall alter such requirements). The
terminology used herein is intended to be general in its application and not to
exclude any Securities in respect of which (in the Prospectus or otherwise)
alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to sell
and/or sell Securities of any Company as described in the Prospectus relating
thereto. We agree that this letter shall apply to all such purchases, sales and
offers and to Securities owned by us. We understand that the dividend/interest
rate on Securities may be based from time to time on the results of Auctions or
Remarketings as set forth in the Prospectus.
3. We agree that any bid or sell order placed by us in an Auction or a
Remarketing shall constitute an irrevocable offer (except as otherwise
described in the Prospectus) by us to purchase or sell Securities subject to
such bid or sell order, or such lesser amount of Securities as we shall be
required to sell or purchase as a result of such Auction or Remarketing, at the
applicable price, all as set forth in the Prospectus, and that if we fail to
place a bid or sell order with respect to Securities owned by us with a
broker-dealer on any Auction or Remarketing Date, or a broker-dealer to which
we communicate a bid or sell order fails to submit such bid or sell order to
the auction agent or remarketing agent concerned, we shall be deemed to have
placed a hold or a sell order with respect to such Securities as described in
the Prospectus. We authorize any broker-dealer that submits a bid or sell order
as our agent in Auctions or Remarketings to execute contracts for the sale of
Securities by such bid or sell order. We recognize that the payment of such
broker-dealer for Securities purchased on our behalf shall not relieve us of
any liability to such broker-dealer for payment for such Securities.
4. We understand that in a Remarketing, the dividend or interest rate or
rates on the Securities and the allocation of Securities tendered for sale
between dividend or interest periods of different lengths will be based from
time to time on the determinations of one or more remarketing agent(s), and we
agree to be conclusively bound by such determinations. We further agree to the
payment of different dividend or interest rates to different holders of
Securities depending on the length of the dividend or interest period elected
by such holders. We agree that any notice given by us to a remarketing agent
(or a broker-dealer for transmission to a remarketing agent) of our desire to
tender Securities in a Remarketing shall constitute an irrevocable (except to
the limited extent set forth in the Prospectus) offer by us to sell the
securities specified in such Notice, or such lesser number of Securities as we
shall be required to sell as a result of such Remarketing, in accordance with
the terms set forth in the Prospectus, and we authorize the remarketing agent
to sell, transfer or 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.
B-1
<PAGE>
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.
(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.
<TABLE>
<S> <C>
Dated: ____________________________________ ____________________________________________
(Name of Purchaser)
Mailing Address of Purchaser
___________________________________________ By: _______________________________________
Printed Name:
___________________________________________ Title:
___________________________________________
</TABLE>
B-2
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 ............. 18
Risk Factors and Special Considerations ....... 20
Board of Directors ............................ 24
The Investment Adviser ........................ 24
Description of Common Stock ................... 25
Conversion to Open-End Status and
Repurchase of Shares ....................... 25
Custodian, Auction Agent, Registrar,
Transfer Agent and paying Agent ............ 26
Underwriting .................................. 26
Certain Legal Matters ......................... 27
Experts ....................................... 27
Reports to Stockholders ....................... 28
Available Information ......................... 28
Table of Contents of the Statement of
Additional Information ..................... 29
Glossary ...................................... 30
Certain Investment Practices ..................A-1
Master Purchaser's Letter .....................B-1
</TABLE>
================================================================================
================================================================================
$60,000,000
The New America
High Income Fund, Inc.
Auction Term Preferred Stock
2,400 Shares, Series D
-----------------------------------------
PROSPECTUS
-----------------------------------------
Merrill Lynch & Co.
May , 1998
================================================================================
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 11, 1998
The New America High Income Fund, Inc.
Auction Term Preferred Stock
2,400 Shares, Series D
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 May , 1998 (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 writing to the Fund, whose address is 33 Broad Street, Boston, Massachusetts
02109. 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
<TABLE>
<CAPTION>
Page
------
<S> <C>
Investment Objective and Policies ..................... B-2
Rating Agency Guidelines .............................. B-3
Investment Restrictions ............................... B-15
Portfolio Maturity and Turnover ....................... B-17
Taxation .............................................. B-18
Management of the Fund ................................ B-22
Determination of Net Asset Value ...................... B-28
Description of ATP .................................... B-29
Auction Procedures .................................... B-44
Financial Statements .................................. B-48
Appendix A--Ratings of Corporate Obligations .......... B-A-1
</TABLE>
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 , 1998.
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.
<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 on the Fund's Common Stock for the
one-, three-, and five-year periods ended December 31, 1997 were 21.97%, 95.22%
and 140.97%, 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.
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.
B-2
<PAGE>
"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.
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 AIt 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
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.
B-3
<PAGE>
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. Rule 144A Securities will qualify as
Moody's Eligible Assets only up to a maximum of 25% of the aggregate Market
Value of all assets constituting Moody's Eligible Assets.
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:
Moody's Discount Factors --
Corporate Debt Securities+
<TABLE>
<CAPTION>
Remaining Term
to Rating Category
Maturity Asset Aaa Aa A Baa Ba B* Caa
- -------------- --- -- - --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year................. 112% 118% 123% 128% 139% 150% 260%
2 Years................ 118 124 130 135 147 158 260
3 Years................ 123 129 135 141 153 165 260
4 Years................ 139 135 141 148 160 172 260
5 Years................ 134 141 147 154 166 179 260
7 Years................ 142 149 155 162 176 189 260
10 Years................ 148 156 163 170 184 198 260
15 Years................ 153 161 168 175 190 205 260
20 Years................ 161 169 177 184 200 215 260
30 Years................ 162 170 178 185 201 216 260
</TABLE>
- -------------
* Senior debt securities of an issuer rated B3 shall be deemed to be Caa
rated securities for purposes of determining the applicable Moody's
Discount Factor.
+ The Moody's Discount Factor applied to Rule 144A Securities is 130% 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
B-4
<PAGE>
described below must be within the following diversification and issue size
requirements in order to constitute Moody's Eligible Assets includable within
the calculation of Discounted Value:
<TABLE>
<CAPTION>
Maximum Maximum
Single Single Minimum
Issuer Industry Issue Size
Asset Ratings(1) (%)(2,3) (%)(3,4) ($ in millions)(6)
---------------- -------- -------- ------------------
<S> <C> <C> <C>
"aaa", Aaa............................. 100 100 100
"aa", Aa............................... 20 60 100
"a", A, P-1............................ 10 40 100
"baa", Baa............................. 6 20 100
Ba..................................... 4 12 50(5)
B1-B2.................................. 3 8 50(5)
B3 (Caa subordinate)................... 2 5 50(5)
</TABLE>
See accompanying notes
- ---------------------
(1) Refers to the senior debt rating of asset.
(2) Companies subject to common ownership of 25% or more are considered as
one name.
(3) Percentages represent a portion of the aggregate Market Value of
corporate securities.
(4) Industries are determined according to industry classifications
specified by Moody's ("Moody's Industry Classification"). See below.
(5) 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
B-5
<PAGE>
Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate,
Real Estate Development, REITs, Land Development
Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial
Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings,
Paints, Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood, or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste
Disposal
Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVS, Tape Machines, Speakers, Printers,
Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
Farming and Agriculture: Livestock, Grains, Produce; Agricultural
Chemicals, Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment
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
B-6
<PAGE>
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-car builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national
Agencies
Where the Fund sells an asset and agrees to repurchase such asset in
the future, the Discounted Value of such asset will constitute a Moody's
Eligible Asset and the amount the Fund is required to pay upon repurchase of
such asset will count as a liability for the purposes of the ATP Basic
Maintenance Amount. Where the Fund purchases an asset and agrees to sell it to a
third party in the future, cash receivable by the Fund thereby will constitute a
Moody's Eligible Asset if the long-term debt of such other party is rated at
least A2 by Moody's and such agreement has a term of 30 days or less; otherwise
the Discounted Value of such asset will constitute a Moody's Eligible Asset. For
the purposes of calculation of Moody's Eligible Assets, portfolio securities
which have been called for redemption by the issuer thereof are valued at the
lower of Market Value or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent that it has been irrevocably deposited for
the payment of (i)(A) through (i)(F) under the definition of ATP Basic
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
B-7
<PAGE>
thereon in cash in U.S. dollars and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity capital
at any time over the respective lives of such securities, (c) the issuer of such
a preferred stock has common stock listed on either the New York Stock Exchange
or the American Stock Exchange, (d) the issuer of such a preferred stock has a
senior debt rating from Moody's of Baa1 or higher or a preferred stock rating
from Moody's of "baa3" or higher and (e) such preferred stock has paid
consistent cash dividends in U.S. dollars over the last three years or has a
minimum rating of "al" (if the issuer of such preferred stock has other
preferred issues outstanding that have been paying dividends consistently for
the last three years, then a preferred stock without such a dividend history
would also be eligible). In addition, the preferred stocks must have the
following diversification requirements: (x) the preferred stock issue must be
greater than $50 million and (y) the minimum holding by the Fund of each issue
of preferred stock is $500,000 and the maximum holding of preferred stock of
each issue is $5 million. In addition, preferred stocks issued by transportation
companies will not be considered as Moody's Eligible Assets.
The Moody's Discount Factors for Moody's Eligible Assets that are
preferred stock are (a) 152% for utility preferred stocks, (b) 197% for
industrial/financial preferred stocks and (c) 350% for auction rate preferred
stocks.
Other Moody's Eligible Assets. In addition to corporate debt securities
and preferred stocks which satisfy the above requirements, Moody's Eligible
Assets also include the following:
(i) cash (including, for this purpose, interest and
dividends due on assets rated (A) Baa3 or higher by Moody's if the
payment date is within five Business Days of the date on which the
value of the portfolio is being determined for purposes of determining
compliance with Moody's or Fitch's investment guidelines (a "Valuation
Date"), (B) A2 or higher if the payment date is within thirty days of
the Valuation Date, and (C) A1 or higher if the payment date is within
the Exposure Period) and receivables for Moody's Eligible Assets sold
if the receivable is due within five Business Days of the Valuation
Date, and if the trades which generated such receivables are (A)
settled through clearing house firms with respect to which the Fund has
received prior written authorization from Moody's or (B)(1) with
counterparties having a Moody's long-term debt rating of at least Baa3
or (2) with counterparties having a Moody's short-term money market
instrument rating of at least P-1;
(ii) short-term money market instruments (as defined
by Moody's), so long as (A) such securities are rated at least P-1, (B)
in the case of demand deposits, time deposits and overnight funds, the
supporting entity is rated at least A2, or (C) in all other cases, the
supporting entity (1) is rated A2 and the security matures within one
month, (2) is rated A1 and the security matures within three months, or
(3) is rated at least Aa3 and the security matures within six months;
provided, however, that for purposes of this definition, such
instruments (other than commercial paper rated by S&P and not rated by
Moody's) need not meet any otherwise applicable S&P rating criteria;
and
(iii) U.S. Treasury Securities and Treasury Strips
(as defined by Moody's).
(iv) financial contracts, as such term is defined in
Section 3(c)(2)(B)(ii) of the Investment Company of Act of 1940, as
amended, may be included in Moody's Eligible Assets, but, with respect
to any financial contract, only upon receipt by the Fund of a writing
from Moody's specifying any conditions on including such financial
contract in Moody's Eligible Assets and assuring the Fund that
including such financial contract in the manner so specified would not
affect the credit rating assigned by Moody's to the ATP.
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
B-8
<PAGE>
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:
<TABLE>
<CAPTION>
Discount
Remaining Term to Maturity Factor
-------------------------- --------
<S> <C>
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
</TABLE>
U.S. Treasury Strips:
<TABLE>
<CAPTION>
Discount
Remaining Term to Maturity Factor
-------------------------- --------
<S> <C>
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
</TABLE>
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.
Debt Securities. Under current Fitch guidelines, securities will not be
deemed "Debt Securities" includable in the calculation of the Discounted Value
of the Fund's portfolio unless (a) such securities are rated CCC or higher by
Fitch or, if unrated by Fitch, rated Caa or higher by Moody's and CCC or higher
by S&P; (b) such securities provide for the periodic payment of interest in cash
in U.S. dollars; (c) such securities do not provide for conversion or exchange
into equity capital at any time over their lives; (d) such securities have been
registered under the Securities Act of 1933, as amended, (the "Securities Act")
or are
B-9
<PAGE>
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; (e) such securities are issued by (1) a U.S. corporation, (2) a
corporation domiciled in Argentina, Australia, Brazil, Chile, France, Germany,
Italy, Japan, Korea, Mexico, Spain, or the United Kingdom (the "Approved Foreign
Nations"), (3) the government of any Approved Foreign Nation or any of its
agencies, instrumentalities or political subdivisions (the debt securities of
Approved Foreign Nation issuers being referred to collectively as "Foreign
Bonds"), (4) a corporation domiciled in Canada or (5) the Canadian government or
any of its agencies, instrumentalities or political subdivisions (the debt
securities of Canadian issuers being referred to collectively as "Canadian
Bonds"); and (f) in the case of Foreign and Canadian Bonds, such securities are
denominated in U.S. dollars. Foreign Bonds held by the Fund will qualify as
Fitch Eligible Assets only up to a maximum of 20% of the aggregate Market Value
of all assets constituting Fitch Eligible Assets. Similarly, Canadian Bonds held
by the Fund will qualify as Fitch Eligible Assets only up to a maximum of 20% of
the aggregate Market Value of all assets constituting Fitch Eligible Assets.
Notwithstanding the limitations in the two preceding sentences, Foreign Bonds
and Canadian Bonds held by the Fund will qualify as Fitch Eligible Assets only
up to a maximum of 30% of the aggregate Market Value of all assets constituting
Fitch Eligible Assets. In addition, bonds which are issued in connection with a
reorganization under U.S. federal bankruptcy law ("Reorganization Bonds") will
be considered Debt Securities 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 Debt Securities 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 (A) the Fitch Discount Factor applied to Rule 144A Securities will be 110%
of the Fitch Discount Factor which would apply were the securities registered
under the 1933 Act and (B) the Fitch Discount Factor applied to Foreign Bonds
will be 120% of the Fitch Discount Factor which would apply were the securities
issued by a U.S. corporation:
Type I Debt Securities 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
B-10
<PAGE>
Type II Debt Securities 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 Debt Securities 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 Debt Securities 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 Debt Securities 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 Debt Securities 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 Debt Securities 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
B-11
<PAGE>
For purposes of the foregoing:
"Type I Debt Securities" means Debt Securities (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 Debt Securities" means Debt Securities 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 Debt Securities;
"Type III Debt Securities" means Debt Securities 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 Debt Securities;
"Type IV Debt Securities" means Debt Securities 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 Debt
Securities;
"Type V Debt Securities" means Debt Securities 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 Debt
Securities;
"Type VI Debt Securities" means Debt Securities 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
Debt Securities; and
"Type VII Debt Securities" means Debt Securities 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 Debt Securities.
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:
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Issuer Single Industry Issue in Size
Type of Debt Security (%) (1,2) (%) (2,3) ($ in millions)
- --------------------- --------- --------- ---------------
<S> <C> <C> <C>
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)
</TABLE>
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 Debt
Securities.
(3) Industries are determined according to industry classifications
specified by Fitch ("Fitch Industry Classifications") (see below).
B-12
<PAGE>
(4) Includes Short Term Money Market Instruments which do not constitute
Type I or Type II Debt Securities 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.
(6) Foreign and Canadian Bonds issued by governments of the Approved
Foreign Nations and Canada or any of their agencies, instrumentalities,
or political subdivisions assigned to the "Sovereigns" industry
classification are not subject to any maximum single industry
concentration limitation."
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
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
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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.
Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii)
of the Investment Company of Act of 1940, as amended, may be included in Fitch
Eligible Assets, but, with respect to any financial contract, only upon receipt
by the Fund of a writing from Fitch specifying any conditions on including such
financial contract in Fitch Eligible Assets and assuring the Fund that including
such financial contract in the manner so specified would not affect the credit
rating assigned by Fitch to the ATP.
Under Fitch's current guidelines, portfolio securities that are
preferred stocks will not be deemed Fitch Eligible Assets.
When the Fund sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Fitch Eligible
Asset and the amount the Fund is required to pay upon repurchase of such asset
will count as a liability for the purposes of the ATP Basic Maintenance Amount.
Where the Fund purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Fund thereby will constitute a Fitch's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and A by S&P and such agreement has a term of 30 days or less; otherwise the
Discounted Value of such asset will constitute a Fitch Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Fitch
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic Maintenance
Amount (see "Description of 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.
* * *
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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 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
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<PAGE>
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.
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
B-16
<PAGE>
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, 1997, the
weighted average maturity of the Fund's portfolio holdings was approximately
7.50 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. 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, 1995, 1996 and 1997, the Fund paid brokerage
commissions for the execution of portfolio transactions of $3,000, $0 and
$1,499, respectively. The Fund's portfolio
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<PAGE>
turnover rates for the fiscal years ended December 31, 1995, 1996 and 1997 were
62.7%, 53.5% and 108.85%, respectively.
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, 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;
and (b) 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).
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.
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<PAGE>
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.
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 Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) are 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
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ATP that the Broker-Dealer or any other party will guarantee or otherwise
arrange to ensure that an owner of the 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 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 four series of 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 all 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 proportionate share of the total dividends paid on the
ATP during the year to the total dividends paid on the four series of ATP and
the Common Stock during the year. The amount of the net capital gains realized
by the Fund is not expected to 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.
Subject to the discussion below regarding changes to the capital gains tax
rates, 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 in October, November or December, payable to stockholders of
record in one of such months and paid in January of the following year will be
treated as having been distributed by the Fund and received by the stockholders
on 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.
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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 for the dividends received
deduction.
The Taxpayer Relief Act of 1997 (the "Relief Act") has altered the
taxation of certain long-term capital gain income. Under the Relief Act,
individuals, trusts and estates that hold certain investments for more than 18
months may be taxed at a maximum rate of 20% on gain from the sale or exchange
of those investments. Individuals, trusts and estates that hold certain assets
for more than one year but not more than 18 months may be taxed at a maximum
rate of 28% on the gain from the sale or exchange of those investments. The
Relief Act also provides a maximum rate of 25% for "unrecaptured section 1250
gain" for individuals, trusts and estates, special rules for "qualified 5-year
gain," as well as other changes to prior law. The Relief Act allows the Service
to prescribe regulations on how the Relief Act's new capital gain rates will
apply to sales of assets by, and sales of interests in, "pass-thru entities,"
which include regulated investment companies such as the Fund. Pursuant to this
grant of regulatory authority, the Service has announced that it will issue
temporary regulations providing that a regulated investment company such as the
Fund may designate a capital gain dividend as a 20% rate gain distribution, an
unrecaptured section 1250 gain distribution, or a 28% rate gain distribution. If
no such designation is made regarding a capital gain dividend, it is a 28% rate
gain distribution. In general, a regulated investment company determines the
maximum amounts which may be designated in each class of capital gain dividends
as if the regulated investment company were an individual whose ordinary income
is subject to a marginal rate of at least 28 percent. The Fund will notify
shareholders after the close of its taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income
(including any portion thereof qualifying for the dividends received deduction
generally available to corporations), return of capital, and capital gain (and,
with respect to capital gain dividends, the portions constituting 20% rate gain
distributions, unrecaptured section 1250 gain distributions, and 28% rate gain
distributions).
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, subject to the
discussion relating to changes in capital gains tax rates above. 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. All or a portion of
any loss realized upon a taxable disposition of shares of ATP may be disallowed
if other shares of ATP are purchased by the shareholder within 30 days before or
after the disposition.
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
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.
B-21
<PAGE>
Other Taxation
In general, federal withholding taxes at a 30% rate or a lesser rate
established by treaty may apply to distributions to stockholders (except to
those distributions designated by the Fund as capital gains dividends) that are
nonresident aliens or foreign partnerships, trusts or corporations. 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*, 62 President and Director Mr. Birch, a private investor,
33 Broad Street, joined the Fund as President,
Boston, MA 02109 Treasurer and a Director in
August 1992 and since May 1993 has served as
President and a Director. Mr. Birch served as
Chairman and Chief Executive Officer of
Memtek Corporation, a manufacturer of capital
equipment utilized in the treatment of liquid
toxic waste, from 1990 to July 1991, and was
associated with Finn Wishengrad Warnke &
Geyton, a consulting firm specializing in
work-outs of financially distressed
companies, from 1988 through 1989. Prior to
that time, Mr. Birch was President and Chief
Executive Officer of Gardner and Preston
Moss, Inc., a Boston-based investment
management firm.
B-22
<PAGE>
Positions Held Principal Occupation(s)
Name, Age and Address With Fund During Past 5 Years
- --------------------- ------------- -------------------
Joseph L. Bower, 59 Director Professor since 1963, Donald K.
Harvard Business School David Professor of Business
Boston, MA 02163 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
Anika Research, Inc., Sonesta International
Hotels Corporation and Brown Group, Inc. and
a general partner of ML-Lee Acquisition Fund,
L.P.
Richard E. Floor*, 57 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 and Affiliated
Managers Group.
Bernard J. Korman, 66 Director Chairman of the Board of Directors
Graduate Health System, Inc. of Graduate Health System, Inc. and
22nd and Chestnut Streets Nutramax Products, Inc.; President,
Philadelphia, PA 19103 Chief Executive Officer and a
Director of MEDIQ Incorporated from 1977 to
1995. Mr. Korman is a director of Innoserv
Technologies, Inc., Kapson Senior Quarters
Corp.; Kranzco Realty Trust, Omega Healthcare
Investors, Inc., The Pep Boys, Inc. and
Today's Man, Inc.
Franco Modigliani, 79 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
B-23
<PAGE>
Positions Held Principal Occupation(s)
Name, Age and Address With Fund During Past 5 Years
- --------------------- ------------- -------------------
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, 67 Director Trustee since 1960 and Chairman
50 Congress Street of the Trustees since 1969,
Boston, MA 02109 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 Guild, Monrad & Oates, Inc., a
registered investment adviser, and as a
director of Century Shares Trust and Furman
Lumber, Inc.
Ellen E. Terry*, 39 Vice President and Vice President of the Fund from
33 Broad Street, Treasurer December 1992 to present and
Boston, MA 02109 Treasurer from May 1993 to
present; Acting President and Treasurer of
the Fund from October 1991 through February
1992; and Vice President of the Fund from
February 1988 through February 1992. From
1987 to February 1992, Ms. Terry was employed
by Ostrander Capital Management, L.P., the
former investment adviser of the Fund.
</TABLE>
- ---------------------
* Directors and officers who are "interested persons" of the Fund, as
defined in the 1940 Act.
The Fund's Board of Directors consists of six members. Under the Fund's
Articles and the 1940 Act, holders of the ATP are entitled to elect two
Directors with the other four Directors elected by the holders of the Common
Stock and the ATP voting as a single class, except in certain circumstances. In
the event the Fund has no outstanding preferred stock, all of the Directors will
be elected by the holders of the Common Stock. Since the Fund's inception,
Messrs. Bower and Korman have been nominated for election as Directors by, and
have been elected as Directors by the holders of, the Fund's outstanding
preferred stock. Election of Directors 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.
B-24
<PAGE>
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 $56,667 for his services rendered to the Fund in his capacity
as President for the calendar year ended December 31, 1997, and currently
receives an annual retainer of $50,000 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,
1997 aggregate remuneration of $198,000 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, 1997, 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, $89,667 none none $89,667*
President and Director
Joseph L. Bower, $33,000 none none $33,000
Director
Richard E. Floor, $33,000 none none $33,000
Secretary and Director
Bernard J. Korman, $33,000 none none $33,000
Director
Franco Modigliani, $33,000 none none $33,000
Director
Ernest E. Monrad, $33,000 none none $33,000
Director
Ellen E. Terry, $104,588 none none $104,588
Vice President and
Treasurer
</TABLE>
- ----------------
*Of this amount, $56,667 was paid for service as President and $33,000
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 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
B-25
<PAGE>
(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, 1998. 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.
In addition to the Fund, Wellington Management served as investment
adviser or sub-adviser to 126 other investment company portfolios as of December
31, 1997.
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
B-26
<PAGE>
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.
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 11, 1998. 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
B-27
<PAGE>
contracts, arbitrage skills, administrative ability, or provision of market
information relating to the security. Wellington Management will make periodic
evaluations of the quality of these brokerage services as provided by various
firms and measure these services against its own standards of execution.
Brokerage services will be obtained only from those firms which meet its
standards, maintain a reasonable capital position and can be expected to
reliably and continuously supply these services.
On occasions when Wellington Management deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients,
Wellington Management, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction will be made by Wellington Management in the manner it considers to
be the most equitable and consistent with its fiduciary obligations to the Fund
and to such other clients. In some instances, this procedure may affect the
price and size of the positions obtainable for the Fund. Research services
furnished by brokers through which the Fund effects securities transactions may
be used by Wellington Management in servicing all of its clients, and not all
such services may be used by Wellington Management in connection with the Fund.
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 $7,083 per month for the services set forth above
and her services are terminable by either party on ninety (90) days' notice. Mr.
Saidnawey receives $4,167 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 valued at the most recently quoted bid price provided
by the principal market makers. The Fund also utilizes prices supplied by its
Custodian from Bridge Fixed-Income Services. 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,
B-28
<PAGE>
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 D 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 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 D 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 D.
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 D. 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
B-29
<PAGE>
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 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 on the inside 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.
B-30
<PAGE>
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.
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
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<PAGE>
the date on which the ATP is mandatorily redeemed as provided herein. Holders of
two-thirds of the ATP Series D 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 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 Arrangements. The Fund has entered into three interest payment
swap arrangements (the "Swap Arrangements") with BankBoston. Pursuant to each of
the Swap Arrangements the Fund makes payments to BankBoston on a monthly basis
at fixed annual rates. In exchange for such payments BankBoston makes payments
to the Fund on a monthly basis at a variable rate determined with reference to
the level of short-term interest rates from time to time. The notional amount,
maturity, and fixed rates of the swaps are as follows:
<TABLE>
<CAPTION>
Notional Amount Maturity Fixed Annual Rate
<S> <C> <C>
$65 million February 7, 1999 5.25%
$20 million October 7, 2002 6.07%
$10 million October 2, 2002 6.225%
</TABLE>
The effect of the Swap Arrangement is to hedge the Fund's dividend
payment obligations with respect to $95 million of the ATP. For example, with
respect to the swap having the notional amount of $65 million, if the dividend
rate on the ATP and the short-term interest rate used to determine the Fund's
payment obligation under the Swap Arrangement were 8%, the Fund would (i)
receive a payment from
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<PAGE>
BankBoston in an amount equal to 8% (per annum) of the $65 million notional
amount of the Swap Arrangement, (ii) make a payment to BankBoston in an amount
equal to 5.25% (per annum) of the $65 million notional amount of the Swap
Arrangement, and (iii) pay dividends to the holders of the outstanding ATP in an
amount equal to 8% (per annum) of the $150 million aggregate liquidation
preference of the ATP. Conversely, if the dividend rate on the ATP and the
short-term interest rate used to determine the Fund's payment obligation under
the Swap Arrangement were 4%, the Fund would (i) receive a payment from
BankBoston in an amount equal to 4% (per annum) of the $65 million notional
amount of the Swap Arrangement, (ii) make a payment to BankBoston in an amount
equal to 5.25% (per annum) of the $65 million notional amount of the Swap
Arrangement, and (iii) pay dividends to the holders of the outstanding ATP in an
amount equal to 4% (per annum) of the $150 million dollar aggregate liquidation
preference of the ATP. It should be noted that the relationship between the Swap
Arrangement and the ATP has been simplified in the foregoing examples for
purposes of illustration. The Fund's payment obligation under the Swap
Arrangement and rate of dividends on the three series of ATP are likely to
differ, particularly if the Fund elects to establish a dividend period for the
ATP which is longer than 28 days, although each generally should be determined
with reference to short-term interest rates (except to the extent the Fund
establishes relatively long ATP dividend periods). See "Description of Capital
Stock." The Fund makes dividend payments to the holders of ATP on the basis of
the results of periodic auctions in accordance with its terms without regard to
the Swap Arrangement and will continue to do so in the event the Swap
Arrangement is terminated. The Fund is subject to the risk that BankBoston will
not make its required payments under the Swap Arrangement. In such event, the
Fund will have contractual remedies pursuant to the agreements related to the
Swap Arrangement.
The Fund obtained consents from Moody's and Fitch to enter into the
Swap Arrangements. In connection with obtaining such consent, the Fund agreed to
an increase in its discounted asset coverage requirement as described below
under "Asset Maintenance." Each Swap Arrangement will remain in effect through
the maturity date specified above, 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,
BankBoston, 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 a Swap Arrangement to the extent the
notional amount of such 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.
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<PAGE>
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 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
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<PAGE>
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 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 on the shares to be redeemed will cease
to accumulate on such redemption date, and (v) the provision under which
redemption shall be made.
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<PAGE>
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 earned or
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 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
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<PAGE>
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 D 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 D through different
Broker-Dealers, advises the Auction Agent of such transfer. The certificates
representing the shares of ATP Series D 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 D 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 Bridge Fixed-Income 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 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
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<PAGE>
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 the Fund has
agreed upon a methodology for adjusting the Basic Maintenance Amount in light of
the Swap Arrangements. On any Valuation Date, the Fund will determine the net
amount that would be payable to or payable by the Fund pursuant to each Swap
Arrangement as if the Swap were being terminated as of such Valuation Date (the
"Termination Value"). The Termination Value will be determined using the average
of two market quotations provided by two dealers. If the Termination Value would
be payable by the Fund, the Fund will treat the sum of the Termination Value and
1.5% of the notional amount of the Swap outstanding (the "Adjusted Notional
Amount") as a liability of the Fund in calculating the Basic Maintenance Amount.
If the Termination Value would be payable to the Fund, the Fund will treat the
Discounted Termination Value as Eligible Assets in calculating the Basic
Maintenance Amount. The Discounted Termination Value shall be the difference
between the Termination Value and the Adjusted Notional Amount adjusted by a
Discount Factor which shall be determined by treating (a) the Swap as if it were
a Debt Security, (b) the Swap counterparty as the issuer of such Debt Security
and (c) the time remaining until the Swap's expiration date as the remaining
maturity of such Debt Security.
Solely for purposes of calculating the ATP Basic Maintenance Amount,
interest on borrowed funds outstanding as of any date will be treated as
dividend payments, at a deemed dividend rate equal to the interest rate payable
on such funds on the relevant date, but shall be subject to multiplication by
the larger of the factors that the Fund has been informed by Moody's (if Moody's
is then rating the ATP) or Fitch (if Fitch is then rating the ATP) are
applicable (as described in 1(C) above) only in the event that interest on such
borrowed funds is payable on the basis of a variable rate of interest, and the
interest rate is subject to change within the relevant 43-day period.
The discount factors, the criteria used to determine whether the assets
held in the Fund's portfolio are Eligible Assets and guidelines for determining
the market value of the Fund's portfolio holdings have been based on criteria
established in connection with rating the ATP. These factors include, but are
not limited to, the sensitivity of the market value of the relevant asset to
changes in interest rates, the liquidity and depth of the market for the
relevant asset, the credit quality of the relevant asset (for example, the lower
the rating of a debt obligation, the higher the related discount factor) and the
frequency with which the relevant asset is marked to market. In no event shall
the Discounted Value of any asset of the Fund exceed its unpaid principal
balance or face amount as of the date of calculation. The Discount Factor
relating to any asset of the Fund, the ATP Basic Maintenance Amount, the assets
eligible for inclusion in the calculation of the Discounted Value of the Fund's
portfolio and certain definitions and methods of calculation relating thereto
may be changed from time to time by the Fund, without stockholder approval, but
only in the event that the Fund receives written confirmation from Moody's (if
Moody's is then rating the ATP), Fitch (if Fitch is then rating the ATP) and any
Other Rating Agency which is then rating the ATP and which so requires that any
such changes would not impair the "aaa"/AAA Credit Rating. If the Fund fails to
maintain the "aaa"/AAA Credit Rating and is unable to restore the "aaa"/AAA
Credit Rating by the Rating Default Cure Date, the Fund will be required to
redeem the ATP. See "Redemption" and "Rating Agency Guidelines" above.
B-38
<PAGE>
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."
The Fund estimates that on the Date of Original Issue of the ATP Series
D, based on the composition of its portfolio as of March 31, 1998, the 1940 Act
ATP Asset Coverage, after giving effect to the issuance of the shares of ATP
Series D ($60 million) and the deduction of sales load and estimated offering
expenses for such shares ($720,000), will be computed as follows:
Value of Fund assets less
liabilities not constituting
senior securities $541,004,318
---------------------------- ------------ = 258%
Senior securities $210,000,000
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 D, and (ii) as of (a) the last Valuation Date
of each quarter thereafter, and (b) as of the Business Day on or before the
Asset Coverage Cure Date relating to the failure to satisfy the 1940 Act Asset
Coverage. Such 1940 Act ATP Asset Coverage Certificate shall be delivered in the
case of clause (i) on the Date of Original Issue and in the case of clause (ii)
on or before the third Business Day after the relevant Valuation Date or the
Asset Coverage
B-39
<PAGE>
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 D), Fitch (if Fitch is
then rating the ATP Series D) and any Other Rating Agency which is then rating
the ATP Series D 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 distribution, the owners of the ATP will not be entitled to any
further participation in any distribution of assets of the Fund.
B-40
<PAGE>
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,
ATP Series C or ATP Series D, 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 D, 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 D, entitling the holder thereof to one vote. The holders of
Outstanding shares of Common Stock and preferred stock, including ATP Series D,
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 D,
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 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
B-41
<PAGE>
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 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
B-42
<PAGE>
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.
<TABLE>
<S> <C>
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 Articles
and options transactions) (discussing valuation of certain option
provisions)
</TABLE>
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) 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
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<PAGE>
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 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.
B-44
<PAGE>
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.
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;
B-45
<PAGE>
(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., 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 each
Broker-Dealer, from funds provided by the Fund a service charge based on the
purchase price of shares placed by the Broker-Dealer 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 .25%, 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 the Broker-Dealer. For purposes of this
paragraph, shares will be placed by a Broker-Dealer 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 the Broker-Dealer or (ii) the subject
of an Order submitted by the Broker-Dealer 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
B-46
<PAGE>
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 submitted
valid Hold Orders.
The Auction Agent
Bankers Trust Company will serve as the Auction Agent for so long as ATP
Series D shares are Outstanding. The Auction Agent is acting solely as agent of
the Fund and is not a trustee for holders of ATP Series D. 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.
B-47
<PAGE>
FINANCIAL STATEMENTS
The Fund will furnish, without charge, a copy of its Annual Report, upon
written request to the Fund at 33 Broad Street, Fifth Floor, Boston,
Massachusetts or request by phone at (617) 263-6400.
B-48
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 (Dollar Amounts in Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- 91.13% (e)
- --------------------------------------------------------------------------------
Aerospace and Defense -- 2.96%
$ 5,000 Argo-Tech Corporation, Senior
Subordinated Notes, 8.625%,
10/01/07 (i) .......................... B3 $ 4,988
3,500 K&F Industries, Inc., Senior
Subordinated Notes, 9.25%,
10/15/07 (i) .......................... B3 3,596
3,065 Moog, Inc., Senior Subordinated
Notes, 10%, 05/01/06 .................. B2 3,310
------
11,894
------
Automobile -- 3.90%
2,500 Collins & Aikman Products Co.,
Senior Subordinated Notes,
11.50%, 04/15/06 ...................... B3 2,809
2,500 Federal-Mogul Corporation, Senior
Notes, 8.80%, 04/15/07 ................ Ba2 2,638
960 Hayes Wheels International, Inc.,
Senior Subordinated Notes,
11%, 07/15/06 ......................... B3 1,032
4,000 Key Plastics, Inc., Senior
Subordinated Notes, 10.25%,
03/15/07 B3 4,240
3,000 LDM Technologies, Inc., Senior
Subordinated Notes, 10.75%,
01/15/07 .............................. B3 3,270
1,500 Lear Corporation, Subordinated
Notes, 9.50%, 07/15/06 ................ Ba3 1,650
------
15,639
------
Banking -- 3.99%
1,250 Dime Bancorp, Inc., Senior Notes,
10.50%, 11/15/05 ...................... Ba1 1,343
2,500 First Nationwide (Parent) Holdings,
Inc., Senior Notes, 12.50%,
04/15/03 .............................. B3 2,844
1,500 FirstFed Financial Corp., Notes,
11.75%, 10/01/04 ...................... B2 1,620
3,500 Hawthorne Financial Corporation,
Notes, 12.50%, 12/31/04 (i) ........... (f) 3,500
5,000 Western Financial Bank,
Subordinated Capital
Debentures, 8.875%, 08/01/07 .......... B1 4,800
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,064 WestFed Holdings, Inc., Split
Coupon Senior Debentures,
15.50%, 09/15/99 (a)(c) ............... (f) $ 1,899
------
16,006
------
Beverage, Food and Tobacco -- 0.54%
810 Aurora Foods Inc., Series C,
Senior Subordinated Notes,
9.875%, 02/15/07 ...................... B3 855
2,325 Del Monte Foods Company,
Senior Discount Notes, 12.50%,
12/15/07 (g)(i) ....................... Caa1 1,331
------
2,186
------
Buildings and Real Estate -- 2.54%
1,000 Associated Materials Incorporated,
Senior Subordinated Notes,
11.50%, 08/15/03 ...................... B3 1,070
3,000 Kaufman and Broad Home
Corporation, Senior
Subordinated Notes, 9.625%,
11/15/06 .............................. Ba3 3,165
4,000 Standard Pacific Corp., Senior
Notes, 8.50%, 06/15/07 ................ Ba2 4,000
2,000 Toll Corp., Senior Subordinated
Notes, 7.75%, 09/15/07 ................ Ba3 1,980
------
10,215
------
Chemicals, Plastics and Rubber -- 6.82%
5,000 Acetex Corporation, Senior
Secured Notes, 9.75%,
10/01/03 .............................. B1 5,150
1,000 Borden Chemicals and Plastics
Operating Limited Partnership,
Notes, 9.50%, 05/01/05 ................ Ba2 1,070
1,500 Buckeye Cellulose Corporation,
Senior Subordinated Notes,
8.50%, 12/15/05 ....................... Ba3 1,522
3,500 Freedom Chemical Company,
Senior Subordinated Notes,
10.625%, 10/15/06 ..................... B3 3,859
1,000 General Chemical Corporation,
Senior Subordinated Notes,
9.25%, 08/15/03 ....................... B2 1,035
2,500 Great Lakes Carbon Corporation,
Senior Secured Notes, 10%,
01/01/06 .............................. Ba3 2,687
The accompanying notes are an integral
part of these financial statements.
</TABLE>
3
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 -- Continued (Dollar Amounts in
Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
- --------------------------------------------------------------------------------
$ 2,500 Huntsman Polymers Corp., Senior
Notes, 11.75%, 12/01/04 ............ B1 $ 2,788
1,100 PCI Chemicals Canada Inc.,
Senior Secured Notes, 9.25%,
10/15/07 (i) ....................... B2 1,105
2,000 Pioneer Americas Acquisition
Corp., Senior Secured Notes,
9.25%, 06/15/07 .................... B2 2,020
3,500 Sovereign Specialty Chemicals,
Inc., Senior Subordinated Notes,
9.50%, 08/01/07 (i) ................ B3 3,596
1,500 Texas Petrochemicals Corporation,
Senior Subordinated Notes,
11.125%, 07/01/06 .................. B3 1,613
825 UCAR Global Enterprises Inc.,
Senior Subordinated Notes,
12%, 01/15/05 ...................... B1 923
------
27,368
------
Containers, Packaging and Glass -- 10.32%
2,000 BWAY Corporation, Senior
Subordinated Notes, 10.25%,
04/15/07 (i) ....................... B2 2,180
2,500 Calmar Inc., Senior Subordinated
Notes, 11.50%, 08/15/05 ............ B3 2,650
1,805 Container Corporation of America,
Senior Notes, Series B, 10.75%,
05/01/02 ........................... B1 1,994
6,195 Container Corporation of America,
Senior Notes, 9.75%, 04/01/03 ...... B1 6,690
4,000 Doman Industries Limited, Senior
Notes, 8.75%, 03/15/04 ............. B1 3,860
1,000 Grupo Industrial Durango, S.A. de
C.V., Notes, 12.625%, 08/01/03...... B1 1,120
1,500 Paperboard Industries International
Inc., Senior Notes, 8.375%,
09/15/07 (i) ....................... Ba3 1,523
2,750 Repap New Brunswick Inc.,
Second Priority Senior Secured
Notes, 10.625%, 04/15/05 ........... Caa1 2,612
7,000 Silgan Corporation, Senior
Subordinated Debentures, 9%,
06/01/09 ........................... B1 7,175
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 4,000 Tembec Finance Corp., Senior
Notes, 9.875%, 09/30/05 ............ B1 $ 4,110
4,000 S.D. Warren Company, Senior
Subordinated Notes, 12%,
12/15/04 ........................... B1 4,460
3,000 Zeta Consumer Products Corp.,
Senior Notes, 11.25%,
11/30/07 (i) ....................... B3 3,060
------
41,434
------
Diversified/Conglomerate Manufacturing -- 4.68%
1,735 AMTROL Inc., Senior
Subordinated Notes, 10.625%,
12/31/06 ........................... B3 1,787
690 Falcon Building Products, Inc.,
Senior Subordinated Notes,
9.50%, 06/15/07 .................... B3 704
4,000 International Wire Group, Inc.,
Senior Subordinated Notes,
Series B, 11.75%, 06/01/05 ......... B3 4,380
1,000 International Wire Group, Inc.,
Senior Subordinated Notes,
11.75%, 06/01/05 ................... B3 1,095
3,500 Johnstown America Industries,
Inc., Senior Subordinated Notes,
11.75%, 08/15/05 ................... B3 3,832
825 Johnstown America Industries,
Inc., Senior Subordinated Notes,
Series C, 11.75%, 08/15/05 ......... B3 903
1,385 Nortek, Inc., Senior Notes, 9.25%,
03/15/07 ........................... B1 1,413
1,190 Scotsman Group Inc., Senior
Subordinated Notes, 8.625%,
12/15/07 ........................... B1 1,194
2,000 Specialty Equipment Companies,
Inc., Senior Subordinated Notes,
11.375%, 12/01/03 .................. B3 2,165
1,250 Thermadyne Holdings Corporation,
Senior Notes, 10.25%, 05/01/02 B1 1,300
------
18,773
------
Diversified/Conglomerate Service -- 1.45%
515 Concentric Network Corporation,
Units, Senior Notes, 12.75%,
12/15/07, Warrants, exp.
12/15/07 (i) ....................... (f) 528
The accompanying notes are an integral
part of these financial statements.
</TABLE>
4
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 -- Continued (Dollar Amounts in
Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
- -----------------------------------------------------------------------------------
$ 335 DecisionOne Holdings Corp.,
Units, Senior Discount
Debentures, 11.50%,
08/01/08, Warrants, exp.
08/01/07 (g) ....................... Caa1 $ 220
500 Heritage Media Services, Inc.,
Senior Secured Notes, 11%,
06/15/02 ........................... Ba1 522
2,000 Pierce Leahy Corp., Senior
Subordinated Notes, 9.125%,
07/15/07 ........................... B3 2,070
2,500 UNICCO Service Company, Senior
Subordinated Notes, 9.875%,
10/15/07 (i) ....................... B3 2,500
------
5,840
------
Electronics -- 4.03%
5,000 Advanced Micro Devices, Inc.,
Senior Secured Notes, 11%,
08/01/03 ........................... Ba1 5,363
7,000 Fairchild Semiconductor
Corporation, Senior
Subordinated Notes, 10.125%,
03/15/07 ........................... B2 7,403
3,000 Unisys Corporation, Senior Notes,
12%, 04/15/03 ...................... B1 3,398
------
16,164
------
Farming and Agriculture -- 1.51%
500 Agricultural Minerals and
Chemicals Inc., Senior Notes,
10.75%, 09/30/03 ................... Ba3 536
250 Aracruz Celulose S.A., Notes,
10.375%, 01/31/02 (i) .............. (f) 254
2,580 Aracruz Celulose S.A., Notes,
10.375%, 01/31/02 (i) .............. (f) 2,619
1,000 PMI Acquisition Corporation,
Senior Subordinated Notes,
10.25%, 09/01/03 ................... B2 1,063
1,500 Terra Industries Inc., Senior Notes,
10.50%, 06/15/05 ................... Ba3 1,609
------
6,081
------
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance -- 3.77%
$1,000 Arcadia Financial Ltd., Senior
Notes, 11.50%, 03/15/07, ........... B2 $ 980
2,500 Navistar Financial Corporation,
Senior Subordinated Notes, 9%,
06/01/02 ........................... B1 2,594
4,000 Olympic Financial Ltd., Units,
Senior Notes, 11.50%, 03/15/07,
Warrants, exp. 03/15/07 ............ B2 4,000
4,000 Resource America, Inc., Senior
Notes, 12%, 08/01/04 (i) ........... Caa1 4,080
3,500 Southern Pacific Funding
Corporation, Senior Notes,
11.50%, 11/01/04 ................... B2 3,491
------
15,145
------
Grocery -- 0.90%
4,000 Homeland Stores, Inc., Senior
Subordinated Notes, 10%,
08/01/03 ........................... (f) 3,600
------
Healthcare, Education and Childcare -- 2.25%
975 Dade International Inc., Senior
Subordinated Notes, 11.125%,
05/01/06 ........................... B3 1,077
1,050 Graphic Controls Corporation,
Senior Subordinated Notes,
12%, 09/15/05 ...................... B3 1,171
3,000 Owens & Minor, Inc., Senior
Subordinated Notes, 10.875%,
06/01/06 ........................... B1 3,307
3,500 Vencor, Inc., Senior Subordinated
Notes, 8.625%, 07/15/07 ............ B1 3,491
------
9,046
------
Hotels, Motels, Inns and Gaming -- 5.07%
1,850 Argosy Gaming Company, First
Mortgage Notes, 13.25%,
06/01/04 ........................... B2 1,929
3,500 CapStar Hotel Company, Senior
Subordinated Notes, 8.75%,
08/15/07 ........................... B1 3,614
1,475 Fitzgeralds Gaming Corporation,
Senior Secured Notes, 12.25%,
12/15/04 (i) ....................... B3 1,497
The accompanying notes are an integral
part of these financial statements.
</TABLE>
5
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 -- Continued (Dollar Amounts in
Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
- --------------------------------------------------------------------------------
$ 2,000 GB Property Funding Corp., First
Mortgage Notes, 10.875%,
01/15/04 (a)(c) ...................... B3 $ 1,660
7,500 John Q. Hammons Hotels, L.P.,
First Mortgage Notes, 8.875%,
02/15/04 ............................. B1 7,659
3,000 Hollywood Casino Corporation,
Senior Secured Notes, 12.75%,
11/01/03 ............................. B2 3,225
750 Lady Luck Gaming Finance
Corporation, First Mortgage
Notes, 11.875%, 03/01/01 ............. B2 761
------
20,345
------
Leisure, Amusement, Motion Pictures and
Entertainment -- 2.10%
2,275 EchoStar DBS Corporation, Senior
Secured Notes, 12.50%,
07/01/02 ............................. Caa1 2,468
2,500 Muzak Limited Partnership, Senior
Notes, 10%, 10/01/03 ................. Ba3 2,625
3,085 Plitt Theatres, Inc., Senior
Subordinated Notes, 10.875%,
06/15/04 ............................. B3 3,332
------
8,425
------
Machinery -- 0.14%
525 IDEX Corporation, Senior
Subordinated Notes, 9.75%,
09/15/02 ............................. Ba3 545
------
Mining, Steel, Iron and Non-Precious Metals -- 7.41%
4,500 ACINDAR Industria Argentina de
Aceros S.A., Notes, 11.25%,
02/15/04 ............................. B2 4,433
2,500 AK Steel Corporation, Senior
Notes, 9.125%, 12/15/06 .............. Ba2 2,562
1,000 AK Steel Corporation, Senior
Notes, 10.75%, 04/01/04 .............. Ba2 1,066
500 Armco Inc., Senior Notes, 9%,
09/15/07 ............................. B2 493
1,500 Armco Inc., Senior Notes, 9.375%,
11/01/00 ............................. B2 1,545
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3,000 Bethlehem Steel Corporation,
Senior Notes, 10.375%,
09/01/03 ............................. B1 $ 3,195
2,000 Companhia Vale do Rio Doce,
Notes, 10%, 04/02/04 (i) ............. (f) 2,000
2,500 CSN Iron, S.A., Guaranteed
Notes, 9.125%, 06/01/07 (i) .......... B1 2,125
1,500 GS Technologies Operating Co.,
Inc., Senior Notes, 12.25%,
10/01/05 ............................. B2 1,676
3,500 Neenah Corporation, Senior
Subordinated Notes, 11.125%,
05/01/07 ............................. B3 3,841
1,200 NS Group, Inc., Senior Secured
Notes, 13.50%, 07/15/03 .............. Ba2 1,389
1,750 Weirton Steel Corporation, Senior
Notes, 10.875%, 10/15/99 ............. B2 1,794
3,500 Weirton Steel Corporation, Senior
Notes, 11.375%, 07/01/04 ............. B2 3,649
------
29,768
------
Oil and Gas -- 6.48%
7,000 Cross Timbers Oil Company,
Senior Subordinated Notes,
9.25%, 04/01/07 ...................... B2 7,298
3,000 Energy Corporation of America,
Senior Subordinated Notes,
9.50%, 05/15/07 ...................... B2 3,000
1,995 Flores & Rucks, Inc., Senior
Subordinated Notes, 9.75%,
10/01/06 ............................. B3 2,195
5,000 Petroleos Mexicanos, Global
Guaranteed Notes, 8.85%,
09/15/07 ............................. Ba2 4,950
5,000 Plains Resources Inc., Senior
Subordinated Notes, 10.25%,
03/15/06 ............................. B2 5,375
2,000 Pride Petroleum Services, Inc.,
Senior Notes, 9.375%,
05/01/07 ............................. Ba3 2,150
1,000 Seagull Energy Corporation,
Senior Subordinated Notes,
8.625%, 08/01/05 ..................... Ba3 1,041
------
26,009
------
The accompanying notes are an integral
part of these financial statements.
</TABLE>
6
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 -- Continued (Dollar Amounts in
Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
- --------------------------------------------------------------------------------
Personal and Non-Durable Consumer Products -- 2.00%
$ 3,500 Cabot Safety Acquisition
Corporation, Senior
Subordinated Notes, 12.50%,
07/15/05 ............................. B3 $ 3,920
4,000 The Fonda Group, Inc., Senior
Subordinated Notes, 9.50%,
03/01/07 ............................. B3 3,800
310 Playtex Products, Inc., Senior
Notes, 8.875%, 07/15/04 .............. B1 316
-------
8,036
-------
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 -- 9.79%
1,830 Big Flower Press Holdings, Inc.,
Senior Subordinated Notes,
8.875%, 07/01/07 ..................... B2 1,844
3,170 Big Flower Press Holdings, Inc.
Senior Subordinated Notes,
8.875%, 07/01/07 (i) ................. B2 3,193
2,250 Cablevision Systems Corporation,
Senior Debentures, 8.125%,
08/15/09 ............................. Ba2 2,317
2,750 Cablevision Systems Corporation,
Senior Subordinated Notes,
9.25%, 11/01/05 ...................... B1 2,915
715 Cablevision Systems Corporation,
Senior Subordinated Notes,
9.875%, 05/15/06 ..................... B1 783
4,000 Chancellor Media Corporation,
Senior Subordinated Notes,
9.375%, 10/01/04 ..................... B2 4,150
500 Comcast Corporation, Senior
Subordinated Debentures,
9.375%, 05/15/05 ..................... Ba3 531
2,500 FrontierVision Holdings, L.P.,
Senior Discount Notes,
11.875%, 09/15/07 (g) ................ (f) 1,838
1,735 Jacor Communications Company,
Senior Subordinated Notes,
9.75%, 12/15/06 ...................... B2 1,865
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 750 JCAC, Inc., Senior Subordinated
Notes, 10.125%, 06/15/06 ............. B2 $ 823
2,150 Marcus Cable Company, L.P.,
Senior Discount Notes, 14.25%,
12/15/05, (g) ........................ Caa1 1,854
3,500 Rifkin Acquisition Partners,
L.L.L.P., Senior Subordinated
Notes, 11.125%, 01/15/06 ............. B3 3,868
2,500 Sullivan Graphics, Inc., Senior
Subordinated Exchange Notes,
12.75%, 08/01/05 ..................... Caa1 2,525
3,500 Sun Media Corporation, Senior
Subordinated Notes, 9.50%,
02/15/07 ............................. B3 3,762
1,500 Videotron Ltee., Senior
Subordinated Notes, 10.25%,
10/15/02 ............................. Ba3 1,590
1,500 World Color Press, Inc., Senior
Subordinated Notes, 9.125%,
03/15/03 ............................. B1 1,567
3,500 Young Broadcasting Inc., Senior
Subordinated Notes, 11.75%,
11/15/04 ............................. B2 3,876
-------
39,301
-------
Retail Stores -- 0.33%
1,167 Guitar Center Management
Company, Inc., Senior Notes,
11%, 07/01/06 ........................ B1 1,319
-------
Telecommunications -- 6.32%
750 American Communications
Services, Inc., Senior Discount
Notes, 12.75%, 04/01/06 (g) .......... (f) 578
3,500 Globalstar, L.P., Senior Notes,
10.75%, 11/01/04 (i) ................. B3 3,404
1,265 GST Telecommunications, Inc.,
Senior Subordinated Accrual
Notes, 12.75%, 11/15/07 (g) .......... (f) 1,322
1,790 Hyperion Telecommunications,
Inc., Senior Secured Notes,
12.25%, 09/01/04 ..................... (f) 1,987
2,000 Intermedia Communications Inc.,
Senior Notes, 8.875%,
11/01/07 (i) ......................... B2 2,050
The accompanying notes are an integral
part of these financial statements.
</TABLE>
7
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 -- Continued (Dollar Amounts in
Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- continued
- --------------------------------------------------------------------------------
$ 1,500 Intermedia Communications Inc.,
Senior Notes, 8.50%,
01/15/08 (i) .......................... B2 $ 1,500
3,000 Iridium LLC, Senior Notes, Series
C, 11.25%, 07/15/05 (i) ............... B3 2,955
2,500 McLeodUSA, Incorporated, Senior
Notes, 9.25%, 07/15/07 (i) ............ B3 2,606
2,400 Microcell Telecommunications Inc.,
Senior Discount Notes,
11.125%, 10/15/07 (g)(i)(j) ........... B3 932
4,500 MobileMedia Communications,
Inc., Senior Subordinated Notes,
9.375%, 11/01/07 (a)(c) ............... C 450
2,000 Rogers Cantel Inc., Senior
Secured Notes, 8.30%, 10/01/07 Ba3 1,985
2,000 Telefonica de Argentina S.A.,
Notes, 11.875%, 11/01/04 .............. Ba3 2,320
4,000 Teleport Communications Group
Inc., Senior Discount Notes,
11.125%, 07/01/07 (g) ................. B1 3,285
-------
25,374
-------
Textiles and Leather -- 0.75%
2,790 Clark-Schwebel, Inc., Senior
Notes, 10.50%, 04/15/06 ............... B2 3,027
-------
Utilities -- 1.08%
3,000 Texas-New Mexico Power
Company, Secured Debentures,
10.75%, 09/15/03 ...................... Ba3 3,273
1,000 Transportadora de Gas del Sur
S.A., Notes 10.25%, 04/25/01 .......... Ba3 1,048
-------
4,321
-------
Total Corporate Debt Securities
(Total cost of $359,840) .............. 365,861
-------
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT OBLIGATIONS (FOREIGN) -- 1.57% (e)
- --------------------------------------------------------------------------------
Sovereigns -- 1.57%
$ 2,500 Federal Republic of Brazil, Bonds,
6%, 09/15/13 .......................... B1 $ 1,975
1,500 Republic of Argentina, Bonds,
11.375%, 01/30/17 ..................... Ba3 1,642
2,500 Republic of Argentina, Global
Bonds, 11%, 10/09/06 .................. Ba3 2,675
------
Total Government Obligations
(Foreign) (Total cost of $5,352) 6,292
------
</TABLE>
<TABLE>
<CAPTION>
Principal Moody's Value
Amount/Units Rating (Note 1(a))
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK -- 1.38% (e)
- --------------------------------------------------------------------------------
Banking--0.00%
62,935 WestFed Holdings, Inc., Cumulative,
Series A, 15.50% (a)(d)(h) .......... (f) 0
------
Insurance -- 0.73%
2,850 Superior National Capital Trust I,
Trust Preferred Securities,
10.75% (i) .......................... b1 2,921
------
Machinery -- 0.36%
1,350 Fairfield Manufacturing Company,
Inc., Cumulative Exchangeable,
11.25% (f) 1,445
------
Printing, Publishing and Broadcasting -- 0.29%
1,063 Granite Broadcasting Corporation,
Cumulative Exchangeable,
12.75% (f) 1,180
------
Total Preferred Stock
(Total cost of $10,213).............. 5,546
------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schedule of Investments -- December 31, 1997 -- Continued (Dollar Amounts in
Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1(a))
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCK and WARRANTS -- .01% (e)
- ---------------------------------------------------------------
12,500 Benedek Communications
Corporation, Warrants, exp.
07/01/07 (b)(h) ................ $ 25
27,474 WestFed Holdings, Inc., Series B
(a)(d)(h) ...................... 0
--------
Total Common Stock and Warra
(Total cost of $188) ......... 25
--------
</TABLE>
<TABLE>
<CAPTION>
Principal Value
Amount (Note 1(a))
- ---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT -- 3.58% (e)
- ---------------------------------------------------------------
$ 14,378 Swiss Bank Repurchase
Agreement, 6.55%, 01/02/98,
(Collateral: U.S. Treasury
Bonds, 11.25%, 02/15/15,
$7,952 principal; U.S. Treasury
Bonds, 8.75%, 11/15/08, $1,626
principal) ...................... 14,378
--------
Total Short-Term Investment
(Total cost of $14,378).......... 14,378
--------
TOTAL INVESTMENTS (Total cost of $389,971) $392,102
========
</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, 1997 was $25 or 0.01% 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, 1997 was $0.
(e) Percentages indicated are based on total assets of $401,475.
(f) Not rated.
(g) Security is a step interest or accrual bond. Interest on these bonds accrue
based upon the effective interest rate.
(h) Nonincome producing.
(i) Securities are exempt from registration under Rule 144A or Regulation S 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 vaulation policy.
Total market value of Rule 144A or Regulation S securities amounted to
$60,043 as of December 31, 1997.
(j) Bond's par value and coupon rate are denominated in a foreign currency.
Market value is in US Dollars based on the Canadian Dollar foreign
exchange rate at December 31, 1997.
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
Assets: (Dollars in thousands, except per share amounts)
INVESTMENTS IN SECURITIES, at value (Identified
cost of $389,971, see Schedule of Investments
and Notes 1 and 2)............................... $392,102
RECEIVABLES:
Interest and dividends ........................... 8,970
Forward foreign currency portfolio hedge contract,
open (Note 4) .................................. 50
OTHER ASSETS ...................................... 17
PREPAID EXPENSES .................................. 26
DEFERRED OFFERING EXPENSES (Note 11) 310
--------
Total assets ................................... $401,475
--------
Liabilities:
PAYABLES:
Investment securities purchased ................. $ 2,615
Dividend payable on common stock ................ 4,475
Dividend payable on preferred stock ............. 204
ACCRUED EXPENSES (Note 3) ........................ 288
ACCRUED OFFERING EXPENSES (Note 11) 268
--------
Total liabilities .............................. $ 7,850
--------
Net Assets:
AUCTION TERM PREFERRED STOCK:
$1.00 par value, 1,000,000 shares authorized,
6,000 shares issued and outstanding,
liquidation preference of $25,000 per share
(Notes 5 and 6) ............................... $150,000
--------
COMMON STOCK:
$0.01 par value, 200,000,000 shares authorized,
48,453,316 shares issued and outstanding ...... $ 485
CAPITAL IN EXCESS OF PAR VALUE ................... 326,908
UNDISTRIBUTED NET INVESTMENT INCOME
(Note 2) ....................................... 370
ACCUMULATED NET REALIZED LOSS FROM
SECURITIES TRANSACTIONS (Note 2) ............... (86,319)
NET UNREALIZED APPRECIATION ON
INVESTMENTS AND FORWARD FOREIGN
CURRENCY CONTRACTS ............................. 2,181
--------
Net assets applicable to common stock
(Equivalent to $5.03 per share, based on
48,453,316 shares outstanding) ................ $243,625
--------
Total Net Assets ................................. $393,625
========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
Investment Income: (Note 1) (Dollars in thousands, except per
share amounts)
Interest income ................................. $33,307
Dividend income ................................. 244
Other Income .................................... 366
--------
Total investment income ........................ $33,917
--------
Expenses:
Cost of Leverage:
Preferred and auction fees ...................... $ 296
--------
Total cost of leverage ......................... $ 296
--------
Professional services expenses:
Management fees (Note 3) ........................ $ 1,087
Custodian and transfer agent fees ............... 237
Legal fees ...................................... 102
Audit fees ...................................... 73
--------
Total professional services expenses ........... $ 1,499
--------
Administrative expenses:
General administrative fees ..................... $ 262
Directors' fees ................................. 200
NYSE fees ....................................... 46
Miscellaneous expenses ......................... 41
Shareholder meeting expenses .................... 34
--------
Total administrative expenses .................. $ 583
--------
Total expenses ................................. $ 2,378
--------
Net investment income .......................... $31,539
--------
Realized and Unrealized Gain on Investments:
Realized gain on investments, net ............... $11,676
Change in net unrealized appreciation on
investments and forward foreign currency
contracts .................................... (331)
--------
Net gain on investments ........................ $11,345
--------
Net increase in net assets resulting from operations $42,884
--------
Cost of Preferred Leverage:
Distributions to preferred stockholders ......... $(7,588)
Net swap settlement receipts (Note 7) ........... 174
--------
Total cost of preferred leverage ............... $(7,414)
--------
Net increase in net assets resulting from operations
less cost of preferred leverage .............. $35,470
========
- ---------------------------------------------------------------------
Amount Available for Distribution to Common Stockholders
Net investment income ........................... $31,539
Total cost of preferred leverage ............... (7,414)
--------
Net amount available for distribution to common
stockholders ................................ $24,125
========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December
31,
1997 1996
--------- ---------
<S> <C> <C>
From Operations: (Dollars in thousands, except per share amounts)
Net investment income .......................................................... $ 31,539 $ 24,443
Realized gain on investments ................................................... 11,676 3,613
Change in net unrealized appreciation on investments and forward foreign
currency contracts ............................................................ (331) 3,745
--------- ---------
Net increase in net assets resulting from operations .......................... $ 42,884 $ 31,801
--------- ---------
From Fund Share Transactions:
Proceeds from sale of Auction Term Preferred Stock (2,000 shares), net of $734
of offering costs and sales load (Note 5) ..................................... $ 49,266 $ --
Proceeds from rights offering (11,982,048 shares), net of $400 of offering costs
(Note 11) ..................................................................... 53,639 --
Net asset value of 754,386 shares and 738,917 shares issued to common
stockholders for reinvestment of dividends in 1997 and 1996, respectively ..... 3,786 3,565
--------- ---------
Increase in net assets resulting from fund share transactions ................. $ 106,691 $ 3,565
--------- ---------
Distributions to Stockholders:
Preferred dividends ($1,265 and $1,411 per share, respectively) ................ $ (7,588) $ (5,645)
Net swap settlement receipts ................................................... 174 131
Common Dividends:
From net investment income ($.53 and $.52 per share, respectively) ............ (24,496) (18,078)
In excess of net investment income ($.01 and $0 per share, respectively) ...... (448) (189)
--------- ---------
Decrease in net assets resulting from distributions to stockholders ........... $ (32,358) $ (23,781)
--------- ---------
Total net increase in net assets ................................................ $ 117,217 $ 11,585
--------- ---------
Net Assets Applicable to Common and Preferred Stock:
Beginning of period ............................................................ $ 276,408 $ 264,823
--------- ---------
End of period (Including $370 and $371 of undistributed net investment
income at December 31, 1997 and December 31, 1996, respectively) .............. $ 393,625 $ 276,408
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
11
<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,
1997 (d) 1996 1995 1994 (c) 1993
---------- ---------- ---------- ------------- ----------
<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 .70# .69 .67 .72# .59
NET REALIZED AND
UNREALIZED
GAIN (LOSS) ON
INVESTMENTS AND
FORWARD FOREIGN
CURRENCY CONTRACTS .25# .22 .62 (.82)# .89
------- ------- ------- --------- -------
TOTAL FROM
INVESTMENT
OPERATIONS ................. .95 .91 1.29 (.10) 1.48
------- ------- ------- --------- -------
DISTRIBUTIONS:
Dividends from net
investment income:
To preferred
stockholders
(including
net swap settlement
receipts/payments) ......... (.16) (.16) (.17) (.17) (.05)
To common
stockholders ............... (.53) (.52) (.50) (.53) (.53)
Dividends in excess of
net investment income:
To common
stockholders ................ (.01) -- (.04) -- (.07)
Returns of capital:
To common
stockholders ................ -- -- -- -- --
------- -------- -------- --------- --------
TOTAL
DISTRIBUTIONS .............. (.70) (.68) (.71) (.70) (.65)
------- -------- -------- --------- --------
Effect of rights offering and
related expenses; and
Auction Term Preferred
Stock offering costs and
sales load ................... (.16) -- -- (.22) --
------- -------- -------- --------- --------
NET ASSET VALUE:
End of period ................ $ 5.03 $ 4.94 $ 4.71 $ 4.13 $ 5.15
======= ======== ======== ========= ========
PER SHARE MARKET VALUE:
End of period ................ $ 5.63 $ 5.13 $ 4.75 $ 4.00 $ 5.13
======= ======== ======== ========= ========
TOTAL INVESTMENT RETURN+ 21.97% 19.89% 33.50% (11.88)% 40.08%
======= ======== ======== ========= ========
<CAPTION>
For the Period From
February 26, 1988
(Commencement
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 AND
FORWARD FOREIGN
CURRENCY CONTRACTS .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
net swap settlement
receipts/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.
12
<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,
1997 (d) 1996 1995 1994 (c) 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF
PERIOD, APPLICABLE
TO COMMON STOCK (b) $ 243,625 $ 176,408 $ 164,823 $ 141,590 $ 130,673
========= ========= ========= ========= =========
NET ASSETS, END OF
PERIOD, APPLICABLE
TO PREFERRED
STOCK (b) ........................ $ 150,000 $ 100,000 $ 100,000 $ 100,000 $ 35,000
========= ========= ========= ========= =========
TOTAL NET ASSETS, END
OF PERIOD (b) .................... $ 393,625 $ 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** ............ .08% .10% .11% .13% .40%
Ratio of operating
expenses to average
net assets** .................... .58% .73% .84% .75% 1.56%
Ratio of litigation settlement
expense to average net
assets** ........................ -- -- .49% -- --
--------- --------- --------- --------- ---------
RATIO OF TOTAL EXPENSES
TO AVERAGE NET ASSETS** .66% .83% 1.44% .89% 3.38%
========= ========= ========= ========= =========
RATIO OF NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS** ..................... 8.75% 9.05% 8.90% 9.06% 9.21%
PORTFOLIO TURNOVER
RATE ............................. 108.84% 53.45% 62.66% 58.56% 85.76%
<CAPTION>
For the Period From
February 26, 1988
(Commencement
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) 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.
(d) As discussed in Note 5, the Fund issued Series C ATP on May 6, 1997 and the
per share data and ratios for the year ended December 31, 1997 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 net swap settlement receipts/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.
The accompanying notes are an integral
part of these financial statements.
13
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Information Regarding
Senior Securities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31,
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
TOTAL AMOUNT OUTSTANDING:
Notes ..................................... $ -- $ -- $ -- $ -- $ --
Preferred Stock ........................... 150,000,000 100,000,000 100,000,000 100,000,000 35,000,000
Short-term Loan ........................... -- -- -- -- 45,000,000
ASSET COVERAGE:
Per Note (1) .............................. $ -- $ -- $ -- $ -- $ --
Per Preferred Stock Share (2) ............. 65,604 69,102 66,206 60,398 473,351
Per $1,000 of Short-term Loan (1) ......... -- -- -- -- 4,682
INVOLUNTARY LIQUIDATION PREFERENCE:
Preferred Stock Share (3) ................. $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 100,000
APPROXIMATE MARKET VALUE:
Per Note .................................. $ -- $ -- $ -- $ -- $ --
Per Preferred Stock Share (3) ............. 25,000 25,000 25,000 25,000 100,000
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.
The accompanying notes are an integral
part of these financial statements.
14
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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
most recently quoted bid price provided by an independent pricing service or
principal market maker. Independent pricing services 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. 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. Other
investments, with a cost of approximately $7,695,000 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
15
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--Continued
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997, the total cost of securities (excluding temporary
cash investments) for federal income tax purposes was approximately
$375,593,000. Aggregate gross unrealized gain on securities in which there was
an excess of value over tax cost was approximately $15,202,000. Aggregate
unrealized loss on securities in which there was an excess of tax cost over
value was approximately $13,071,000. Net unrealized gain for tax purposes at
December 31, 1997 was approximately $2,131,000.
At December 31, 1997, the Fund had approximate 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>
$49,666,000 December 31, 1998
34,426,000 December 31, 1999
2,227,000 December 31, 2002
- -----------
$86,319,000
===========
</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, 1997, the Fund has reclassified approximately
$818,000 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 $1,087,000 in management fees during the year ended December 31,
1997. Management fees paid by the Fund to Wellington Management are calculated
at .45 of 1% (on an annual basis) of the average weekly value of the Fund's net
assets attributable to common stock ($243.6 million at December 31, 1997). At
December 31, 1997, the fee payable to the Investment Advisor was approximately
$95,000, which was included in accrued expenses on the accompanying balance
sheet.
(4) Forward Foreign Currency Contract
The Fund may enter into forward foreign currency contracts in connection
with the purchase and sale of foreign investments. All commitments are marked
to market at the applicable translation rates and any unrealized gains or
losses are recorded in the Fund's financial statements. The aggregate principal
amounts of the contracts are not recorded in the financial statements. The Fund
records realized gains or losses at the time the forward contract is offset by
entry into a closing transaction or by delivery of the currency. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
16
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--Continued
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 1997 the Fund had outstanding a forward foreign currency
contract as follows:
<TABLE>
<CAPTION>
Foreign
Currency Value on Current Unrealized
Sale Contract Settlement Date Value Gain
- --------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Canadian Dollar
Expiring 10/16/98 $1,033,131 $983,576 $49,555
</TABLE>
(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. On May 6,
1997, the Fund issued 2,000 shares of Series C ATP. The underwriting discount
of $437,500 and offering expenses of $297,000 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 5.39% to 6.14% for the year ended
December 31, 1997.
At the May 29, 1997 Annual Meeting, the shareholders of the Fund's common
and preferred stock voted to split the Fund's ATP Series A and Series B 2:1.
Effective June 3, 1997, the liquidation preference of the Fund's Series B ATP
was reduced from $50,000 per share to $25,000 per share and the number of
shares outstanding doubled from 800 to 1,600 shares. Effective June 17, 1997,
the liquidation preference of the Fund's Series A ATP was reduced from $50,000
to $25,000 per share and the number of shares outstanding doubled from 1,200 to
2,400 shares.
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 $25,000 per share plus accumulated and unpaid
dividends. The ATP has a liquidation preference of $25,000 per share 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 maximum 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 $270,000 for
service charges earned by Bear Stearns and Lehman Brothers through December 31,
1997. This amount is included under the caption preferred and auction fees in
the accompanying statement of operations.
(7) Interest Rate Swaps
On February 3, 1994, the Fund entered into an interest rate swap
transaction with BankBoston, N.A. (BBNA) 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 BBNA at the rate of 5.25% per annum on the notional amount of the
interest rate swap ($65 million) and
17
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--Continued
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
receives a variable payment from BBNA 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 5.41% to 5.73% for the year
ended December 31, 1997. The interest rate swap agreement was effective on
February 7, 1994 and terminates on February 7, 1999.
The Fund entered into two additional interest rate swap transactions with
BBNA for the purpose of partially hedging its dividend payment obligations with
respect to the ATP. Under the terms of these interest rate swap agreements, the
Fund makes fixed payments to BBNA and receives a variable payment from BBNA
equivalent to one month LIBOR. The first interest rate swap agreement was
effective on October 2, 1997 and terminates on October 2, 2002. The fixed
payment rate is 6.225% per annum on the notional amount ($10 million). The
variable payment from BBNA ranged from 5.64% to 5.97% for the year ended
December 31, 1997. The second interest rate swap agreement was effective on
October 7, 1997 and terminates on October 7, 2002. The fixed payment rate is
6.07% per annum on the notional amount ($20 million). The variable payment from
BBNA ranged from 5.63% to 6.00% for the year ended December 31, 1997.
The Fund follows hedge accounting (off-balance-sheet) with respect to the
swap agreements and settles the net amount receivable or payable from each party
every 30 days. For the year ended December 31, 1997, the Fund's obligations
under the swap agreements were less than the amount receivable from BBNA by
approximately $174,000 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
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
agreements at December 31,1997 amounted to approximately $38,000 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, 1997 were as follows:
Purchases of securities $465,029,000
Sales of securities $365,069,000
(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 $311,000 for the year ended December 31, 1997. The Fund paid
approximately $161,000 during the year ended December 31, 1997 to two officers
of the Fund for the provision of certain administrative services.
18
<PAGE>
The New America High Income Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--Continued
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(11) Rights Offering
The Fund issued to stockholders of record as of the close of business on
February 11, 1997, rights to subscribe for an aggregate of 11,982,048 shares of
common stock, $.01 par value per share, of the Fund. One right was issued for
each three full shares of common stock beneficially held on the record date.
The rights entitled a stockholder to acquire at the subscription price of $4.51
per share one share for each right held. The subscription price was 90% of the
net asset value per share as of the close of business on March 18, 1997, the
expiration date. On March 26, 1997, the Fund completed its rights offering.
Proceeds of approximately $54,039,000 and shares of 11,982,048 were recorded.
In addition, the deferred offering expense balance of $400,000 was netted
against the rights offering proceeds.
On December 24, 1997, 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
16,242,000 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 1998. Total expenses of approximately
$410,000 are expected to be incurred in connection with the rights offering. As
an accommodation to the Fund and based on the Board's determination that the
offer is in the best interest of the stockholders, Wellington Management has
agreed to voluntarily waive $100,000 of its fees. Net deferred offering
expenses of approximately $310,000 will be netted against the rights offering
proceeds. At December 31, 1997, the Fund had approximately $268,000 in net
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.
19
<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
20
<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, 1997, 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, 1997, by correspondence with the custodian and brokers. 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, 1997, 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 23, 1998
21
<PAGE>
APPENDIX A
RATINGS OF CORPORATE OBLIGATIONS
MOODY'S INVESTORS SERVICE
Long-Term Ratings
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.
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
B-A-1
<PAGE>
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 Ratings
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.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Preferred Stock Ratings
Preferred stock rating symbols and their definitions are as follows:
aaa An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
B-A-2
<PAGE>
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.
Note Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. 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.
B-A-3
<PAGE>
FITCH IBCA
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in cases of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. 'A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This
is the lowest investment grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to
allow financial commitments to be met. Securities rated in this category
are not investment grade.
B Highly speculative. 'B' ratings indicate that significant credit risk is
present but a limited margin of safety remains. Financial commitments are
currently being met; however, capital for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC,
CC and C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A 'CC' rating indicates
that default of some kind appears probable. 'C' ratings signal
imminent default.
DDD, DD,
and D Default. Securities are not meeting current obligations and are
extremely speculative. 'DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, 'DD' indicates expected recovery of 50% - of
such outstandings , and 'D' the lowest recovery potential.
Short-Term Credit Ratings
A short-term credit rating has a time horizon of less than 12 months for
most obligations, or up to three years for U.S. public finance securities, and
thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments and may have an added "+" to denote an exceptionally
strong credit feature.
B-A-4
<PAGE>
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as the case of the higher
ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risks. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
Notes to Long-term and Short-term ratings:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the 'AAA' rating category, to
categories below 'CCC', or to short-term ratings other than 'F1'.
'NR' indicates that Fitch IBCA does not rate the issuer or issue in question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
RatingWatch: Ratings are placed on RatingWatch to notify investors that there is
a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingWatch is typically dissolved over a relatively
short period.
Claims-Paying Ability Ratings
Fitch IBCA 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 is stated using the
same rating scale as international long-term credit ratings, although the
claims-paying rating does not apply to non-policy obligations of the insurer,
such as debt, nor does it address the suitability or terms of any individual
policy or contract.
AAA Exceptionally strong claims-paying ability. Insurers assigned this
highest rating have an exceptionally strong capacity to meet policyholder
obligations and provide policyholder benefits. The impact of any adverse
business and economic factors on the claims-paying ability of these
insurers is expected to be minimal.
AA Very strong claims-paying ability. Insurers rated 'AA' have a very strong
capacity to meet policyholder obligations and provide policyholder
benefits. The impact of any adverse business and economic factors on the
claims-paying ability of these insurers is expected to be very small.
A Strong claims-paying ability. Insurers rated 'A' have a strong capacity
to meet policyholder obligations and provide policyholder benefits.
Although adverse business and economic factors may have an impact on the
claims-paying ability of these insurers, the effect of such factors is
expected to be small.
B-A-5
<PAGE>
BBB Good claims-paying ability. Insurers rated 'BBB' have a god capacity to
meet policyholder obligations and provide policyholder benefits. However,
their claims-paying ability may be more susceptible than that of higher
rated insurers to the impact of adverse business and economic factors.
BB Speculative claims-paying ability. Insurers rated 'BB' have a capacity to
meet policyholder obligations and provide policyholder benefits which is
regarded as speculative. The impact of adverse business and economic
factors on their claims-paying ability is considered likely to be
significant.
B Vulnerable claims-paying ability. Insurers rated 'B' have a vulnerable
capacity to meet policyholder obligations and provide policyholder
benefits. The impact of adverse business and economic factors on their
claim-paying ability is considered likely to be significant.
CCC, CC,
and C
Highly vulnerable claims-paying ability. Insurance companies assigned one
of these ratings are considered very weak with respect to their capacity to meet
policyholder obligations and provide policyholder benefits. The insurer may be
under the supervision of an insurance regulator and already may not be making
all payments in a timely fashion.
D Insurers which have been placed in liquidation by insurance regulators and
for which policy or claims payments are being controlled, delayed or
reduced.
Notes:
"+" or "-" may be appended to a rating to indicate the relative position
of a credit within the rating category. Such suffixes are not added to the
'AAA' and 'D' categories.
Servicer Ratings
Master servicers service performing multifamily and commercial mortgage
loans. The servicer's responsibilities typically include: collecting monthly
principal, interest, and escrow payments from individual mortgagors and, in some
instances, subservicers; remitting funds to the trustees; investor reporting;
performing property inspections; gathering and reviewing property financial
statements; and monitoring and managing delinquencies and problem loan
resolutions. If the transaction requires a special servicer, the master servicer
must interact with it to facilitate the transfer and ultimate disposition of
problem loans. Master servicers also are responsible for providing liquidity to
a transaction by advancing principal and interest, as well as certain property
protection expenses, on delinquent loans.
Acceptable. Servicer possesses a solid management team, proven experience
servicing multifamily and commercial mortgage loans, effective in-place
policies, procedures and controls, and thorough systems and reporting
capabilities.
Unacceptable. Servicer seriously deficient in any of the aforementioned
categories and unacceptable to FITCH IBCA. Use of such a servicer most likely
would preclude FITCH IBCA rating the transaction's debt securities at 'BBB' or
higher levels.
Special servicers are key to maintaining the credit quality of a pool containing
nonperforming multifamily and commercial mortgages and real estate owned assets.
In assessing and analyzing a special servicer's capabilities, FITCH IBCA reviews
several key factors, including its management team, organizational structure,
track record, and workout and asset disposition experience and strategies.
Superior. A special servicer in this category possesses a strong, seasoned
management team, extensive workout and disposition experience with a variety of
asset types, and significant financial resources.
B-A-6
<PAGE>
Above Average. A special servicer in this category possesses a strong management
team, with good workout and disposition experience, and may have significant
financial resources.
Average. A special servicer in this category possesses adequate workout and
disposition experience but may lack significant financial resources.
Below Average. A special servicer in this category is acceptable but of subpar
quality. Senior management is relatively unseasoned, workout experience is
minimal, and the servicer typically lacks significant financial resources.
Unacceptable. A special servicer in this category is unacceptable to FITCH IBCA.
Use of such a servicer would probably preclude FITCH IBCA rating the
transaction's debt securities at 'BBB' or higher levels.
B-A-7
<PAGE>
STANDARD & POOR'S
Long-Term Issue Credit Ratings
AAA An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment is
EXTREMELY STRONG.
AA An obligation rated 'AA' differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is VERY STRONG.
A An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
the higher rated categories. However, the obligor's capacity to meet its
financial commitment is still STRONG.
BBB An obligation rated 'BBB' exhibits ADEQUATE protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to meet its financial commitment on
the obligation.
Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB An obligation rated 'BB' is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated 'B' is MORE VULNERABLE to nonpayment than obligations
rated 'BB,' but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated 'CCC' is CURRENTLY VULNERABLE to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment.
CC An obligation rated 'CC' is CURRENTLY HIGHLY VULNERABLE to nonpayment.
C The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on
this obligation are being continued.
D An obligation 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 or the taking of a similar action if payments on an
obligation 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.
B-A-8
<PAGE>
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.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these obligations is
extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces major
ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
C A short-term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation 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
or the taking of a similar action if payments on an obligation are
jeopardized.
Dual Rating Definitions
Standard & Poor's assigns "dual" ratings to all debt issues that have a
put option or demand feature as part of their structure. The first rating
addresses the likelihood of repayment of principal and interest as due, and the
second rating addressed 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 for the put option (for example, AAA/A-1+). With short-term
demand debt, Standard & Poor's note rating symbols are used with the commercial
paper rating symbols (for example, SP-1+/A-1+).
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1") or if the nominal maturity is short, a rating of
"SP-1+/AAA" is assigned.
Municipal Notes
A Standard & Poor's note ratings reflects the liquidity factors 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:
B-A-9
<PAGE>
-- 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 with some
vulnerability to adverse financial and economic changes over the term
of the notes.
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:
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
B-A-10
<PAGE>
CCC 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. '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-11
<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, 1997, 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, 1997
Balance Sheet, December 31, 1997
Statement of Operations For the Year Ended December
31, 1997
Statement of Changes in Net Assets (For the Years
Ended December 31, 1997 and December 31, 1996)
Financial Highlights For Each Share of Common Stock
outstanding Throughout the Period (For the Years
Ended December 31, 1997, 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, 1997, 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, 1997
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)
1
<PAGE>
(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)
(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 (i)
(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) 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, as filed
with the State Department of Assessments and
Taxation of the State of Maryland on May 2, 1997.
(ii)
(a)(9) 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 May 30, 1997. (ii)
(a)(10) 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 May 30, 1997. (ii)
(a)(11) 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 June 18, 1997. (ii)
(a)(12) 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 June 18, 1997. (ii)
(a)(13) 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 September 11, 1997. (ii)
(a)(14) 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 September 11, 1997. (ii)
2
<PAGE>
(a)(15) 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 23, 1997. (ii)
(a)(16) 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 23, 1997. (ii)
(a)(17) 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. (v)
(c) Not applicable.
(d)(1) Specimen Certificate for shares of Common Stock par
value $.01 per share filed as an Exhibit D to
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-2, Registration
No. 333-23253 (filed April 30, 1997).
(d)(2) Specimen Certificate for shares of Auction Term
Preferred Stock, Series B, par values $1.00 per
share. (v)
(d)(3) Specimen Certificate for shares of Auction Term
Preferred Stock, Series A, par values $1.00 per
share. (v)
(d)(4) Specimen Certificate for shares of Auction Term
Preferred Stock, Series C, par values $1.00 per
share. (v)
(d)(5) Specimen Certificate for shares of Auction Term
Preferred Stock, Series D, par values $1.00 per
share.
(e)(1) Dividend Reinvestment Plan, as modified through
June 1, 1992 filed as an Exhibit E to the
Registrant's Registration Statement on Form N-2,
Registration No. 333-17619 (filed December 11,
1996).
(e)(2) Amendment to Dividend Reinvestment Plan effective
March 17, 1998. (vi)
(f) Not applicable.
(g)(1) Investment Advisory Agreement dated as of February
19, 1992 between the Registrant and Wellington
Management Company, LLP filed as Exhibit G to the
Registrant's Registration Statement on Form N-2,
Registration No. 333-17619 (filed December 11,
1996).
(g)(2) August 1, 1997 Amendment to Investment Advisory
Agreement dated as of February 19, 1992 between the
Registrant and Wellington Management Company, LLP.
(vi)
3
<PAGE>
(h)(1) Underwriting Agreement dated December 20, 1993
between the Registrant and Bear, Stearns & Co. Inc.
with respect to the Auction Term Preferred Stock,
Series A and Series B, of the Registrant. (i)
(h)(2) Form of Merrill Lynch Standard Dealer Agreement.
(h)(3) Underwriting Agreement dated May 1, 1997 between
the Registrant, Wellington Management Company, LLP
and Lehman Brothers Inc. with respect to the
Auction Term Preferred Stock, Series C, of the
Registrant.
(h)(4) Form of Underwriting Agreement among the
Registrant, Wellington Management Company, LLP and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated with respect to the Auction
Term Preferred Stock, Series D, of the Registrant.
(i) Not applicable.
(j) Custodian Contract dated as of February 11, 1988
between the Registrant and 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 May 6, 1997, between
the Registrant and Bankers Trust Company with
respect to the Auction Term Preferred Stock of the
Registrant.
(k)(3) Letter of Representations Agreement dated May 6,
1997, among the Registrant, Bankers Trust Company
and The Depository Trust Company with respect to
the Auction Term Preferred Stock, Series C, of the
Registrant.
(k)(4) Broker-Dealer Agreement dated May 6, 1997, between
Bankers Trust Company and Lehman Brothers Inc. with
respect to the Auction Term Preferred Stock of the
Registrant.
(k)(5) Form of Letter of Representations Agreement with
respect to the Auction Term Preferred Stock, Series
D, of the Registrant.
(k)(6) Form of Broker-Dealer Agreement between Bankers
Trust Company and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated with
respect to the Auction Term Preferred Stock of the
Registrant.
(k)(7) Letter Agreement between Registrant and Lehman
Brothers Inc. dated May 6, 1997 with respect to the
Auction Term Preferred Stock of the Registrant.
(k)(8) Interest payment swap arrangement between the
Registrant and BankBoston, N.A.
(k)(9) Affirmation and Undertaking dated August 13, 1990
executed by certain directors and executive
officers of the Registrant. (iii)
4
<PAGE>
(k)(10) Agreement dated as of October 29, 1997 between the
Registrant and Ellen E. Terry. (ii)
(k)(11) Agreement dated as of October 29, 1997 between the
Registrant and Paul E. Saidnawey. (ii)
(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.
(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, 1997.
(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 (File No.
333-49043) filed April 1, 1998.
- ---------------
Footnote
Reference Description
- --------- -----------
(i) Filed as an exhibit to the Registrant's Registration Statement
on Form N-2, Registration No. 333-17619, (filed December 11,
1996) under the same exhibit number and incorporated herein by
reference.
(ii) Filed as an exhibit to the Registrant's Registration Statement
on Form N-2, Registration No. 333-43315 (filed December 24,
1997) under the same exhibit number and incorporated herein by
reference.
(iii) Filed as an exhibit to the Registrant's Registration Statement
on Form N-2, Registration No. 33-18664, (filed June 21, 1990)
under the same exhibit number and incorporated herein by
reference.
(iv) Filed as an exhibit to the Registrant's Registration Statement
on Form N-2, Registration No. 33-61674, (filed December 7,
1993) under the same exhibit number and incorporated herein by
reference.
(v) Filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-2, Registration
No. 333-23253, (filed April 30, 1997) under the same exhibit
number and incorporated herein by reference.
5
<PAGE>
(vi) Filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-2, Registration
No. 333-43315 (filed February 4, 1998) under the same exhibit
number and incorporated herein by reference.
Item 25: Marketing Arrangements
Not Applicable.
Item 26: Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission fees.................................... $ 17,700
Printing and engraving expenses............................................ 16,500
Legal fees and expenses ................................................... 100,000
Accounting fees and expenses............................................... 24,000
Miscellaneous expenses .................................................... 51,800
--------
Total............................................................. $210,000
</TABLE>
Item 27: Persons Controlled by or under Common Control with Registrant
None.
Item 28: Number of Holders of Securities
At February 28, 1998 the numbers of record holders of shares of the
Registrant were as follows:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Common Shares, $.01 par value per share ................................ 4,779
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
Series C Auction Term Preferred Stock, $1.00 par value per share ....... 1
</TABLE>
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
6
<PAGE>
corporation, subject to certain limitations, to indemnify its directors against
judgments, penalties, fines, settlements, and reasonable expenses (including
attorneys' fees) actually incurred by the director in connection with any suit
or proceeding to which they are a party unless it is established that the
director's act or omission was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty, the director received an improper personal benefit in
money, property or services or, in a criminal proceeding, the director had
reasonable cause to believe the act or omission was unlawful.
The Registrant's By-Laws further provide that the Registrant shall
indemnify its directors and officers who while serving as directors or officers
also serve at the request of the Registrant as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights provided by the
Registrant's By-Laws continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person, and do not protect any such person against any
liability to the Registrant or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct").
Under the Registrant's By-Laws, any current or former director or
officer of the Registrant seeking indemnification within the scope of the
By-Laws shall be entitled to advances from the Registrant for payment of the
reasonable expenses incurred by him in connection with the matter as to which he
is seeking indemnification in the manner and to the fullest extent permissible
under the Maryland General Corporation Law. The person seeking indemnification
must provide to the Registrant a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Registrant has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (i)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Registrant for his undertaking; (ii) the Registrant is insured
against losses arising by reason of the advance; or (iii) a majority of a quorum
of directors of the Registrant who are neither "interested persons" as defined
in Section 2(a)(19) of the 1940 Act nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel in a written
opinion, shall have determined, based on a review of the facts readily available
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
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
7
<PAGE>
has agreed to repay to the Registrant all amounts advanced for expenses
(including attorneys' fees) on his or her behalf if it is ultimately determined
that the director or executive officer is not entitled to indemnification.
In addition to the foregoing, Article V(E) to Registrant's charter
provides as follows:
"(E) To the fullest extent that limitations on the liability
of directors and officers are permitted by the Maryland General
Corporation Law, as from time to time amended, no director or officer
of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer
at the time of any proceeding in which liability is asserted. No
provision of this Article V(E) shall be effective to protect or purport
to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. No future amendment to this Article V(E)
shall affect any right of any person under this Article V(E) based on
any event, omission or proceeding prior to such amendment."
Section 2-405.2 of the Maryland General Corporation Law together with
Section 5-349 of the Courts and Judicial Proceedings Article of the Maryland
Code provides that a charter provision limiting the liability of a director or
officer may not include a provision which limits or restricts the liability of a
director or officer to the corporation's stockholders to the extent it is proved
that the person actually received an improper personal benefit to the extent of
the value of such benefit or an adverse final adjudication is entered in a
proceeding based on a finding that the person's act or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated.
As permitted by Section 2-418(k) of the Maryland General Corporation
Law, Article V, Section 3 of the Registrant's By-Laws provides that the
Registrant shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Registrant or who, while a director, officer, employee or agent of the
Registrant, is or was serving at the request of the Registrant as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's positions.
The Investment Advisory Agreement between the Registrant and Wellington
Management Company, LLP provides that the Registrant will indemnify Wellington
Management Company, LLP for all liabilities and expenses, including defense
costs, in connection with any litigation pertaining to the period prior to
Wellington Management's relationship with the Registrant under such agreement,
other than liabilities resulting from willful misfeasance, bad faith or gross
negligence on the part of Wellington Management Company, LLP.
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
8
<PAGE>
whether such indemnification by it is against public policy as expressed in the
1940 Act and will be governed by the final adjudication of such issues.
Item 30: Business and Other Connections of Investment Adviser
Wellington Management Company, LLP (the Registrant's investment
adviser), a Massachusetts limited liability partnership, is a registered
investment adviser primarily engaged in the investment advisory business.
Information as to the general partners of Wellington Management Company, LLP is
included in its Form ADV, as amended, filed with the Securities and Exchange
Commission (File No. 801-15908), and is incorporated herein by reference thereto
together with all amendments thereto subsequently filed, which amendments shall
be deemed to be incorporated by reference in this registration statement and be
a part hereof from the date of filing of such amendments to the extent permitted
by the applicable rules and regulations of the Securities and Exchange
Commission.
Item 31: Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
(17 CFR 270.31a-1 to 31a-3) promulgated thereunder are maintained at the offices
of the custodian of the Registrant at One Heritage Drive, North Quincy,
Massachusetts 02171, except that the corporate records of the Registrant
(including its Articles of Incorporation and By-Laws) are maintained at the
offices of the Registrant at 10 Winthrop Square, Fifth Floor, Boston,
Massachusetts 02110.
Item 32: Management Services
Not applicable.
Item 33: Undertakings
1. The Registrant undertakes to suspend the offering of its shares
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. 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
9
<PAGE>
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.
10
<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 8th day of May, 1998.
THE NEW AMERICA HIGH INCOME
FUND, INC.
By: /s/ Robert F. Birch
--------------------------
Robert F. Birch
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>
/s/ Robert F. Birch President and Director
- ------------------------------- (Principal Executive Officer) May 8, 1998
Robert F. Birch
/s/ Ellen E. Terry Vice President and Treasurer
- ------------------------------- (Principal Financial and
Ellen E. Terry Accounting Officer) May 8, 1998
* Director May 8, 1998
- -------------------------------
Joseph L. Bower
* Director May 8, 1998
- -------------------------------
Richard E. Floor
* Director May 8, 1998
- -------------------------------
Bernard J. Korman
* Director May 8, 1998
- -------------------------------
Franco Modigliani
* Director May 8, 1998
- -------------------------------
Ernest E. Monrad
*By: /s/ Robert F. Birch
----------------------------------
Robert F. Birch, Attorney-in-Fact
under Powers of Attorney dated
March 31, 1998, incorporated herein
by reference to Registrant's Registration
Statement on Form N-2, Registration
No. 333-49043, filed April 1, 1998.
</TABLE>
11
<PAGE>
1933 Act File No.333-49043
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. 26 [X]
--------------------
THE NEW AMERICA HIGH INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
--------------------
EXHIBITS
===============================================================================
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Number Exhibit: Numbered Page:
- ------- -------- --------------
A17 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.
D5 Specimen Certificate for Shares of Auction Term Preferred Stock,
Series D, par value, $1.00 per share.
H2 Form of Merrill Lynch Standard Dealer Agreement.
H3 Underwriting Agreement dated May 1, 1997 between the Registrant,
Wellington Management Company, LLP and Lehman Brothers Inc. with
respect to the Auction Term Preferred Stock, Series C, of the
Registrant.
H4 Form of Purchase Agreement among the Registrant, Wellington
Management Company, LLP and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated with respect to the Auction
Term Preferred Stock, Series D, of the Registrant.
K2 Auction Agent Agreement dated May 6, 1997, between the Registrant
and Bankers Trust Company with respect to the Auction Term
Preferred Stock of the Registrant.
K3 Letter of Representations Agreement dated May 6, 1997, among the
Registrant, Bankers Trust Company and the Depository Trust Company
with respect to the Auction Term Preferred Stock, Series C, of the
Registrant.
K4 Broker-Dealer Agreement dated May 6, 1997, between Bankers Trust
Company and Lehman Brothers Inc. with respect to the Auction Term
Preferred Stock of the Registrant.
K5 Form of Letter of Representations Agreement with respect to the
Auction Term Preferred Stock, Series D, of the Registrant.
K6 Form of Broker-Dealer Agreement between Bankers Trust Company and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated with respect to the Auction Term Preferred Stock of
the Registrant.
K7 Letter Agreement between Registrant and Lehman Brothers Inc. dated
May 6, 1997 with respect to the Auction Term Preferred Stock of the
Registrant.
K8 Interest payment swap arrangement between the Registrant and
BankBoston, N.A.
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.
R Financial Data Schedule for the Registrant.
13
Exhibit A-17
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 2,400 shares of its
Preferred Stock, par value $1.00 per share, liquidation preference
$25,000 per share, classified as Series D 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 D: A series of 2,400 shares of Preferred Stock, par value $1.00
per share, liquidation preference $25,000 per share, is hereby designated
"Series D Auction Term Preferred Stock" ("ATP Series D"). Each share of ATP
Series D shall have an Applicable Rate for its initial Dividend Period equal to
[_____]% per annum and an initial Dividend Payment Date of __, 1998; and each
share of ATP Series D 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
D 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 D, 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 D.
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 D is 2,400 shares. No fractional shares of ATP Series D shall be issued.
(b) Any shares of ATP Series D 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 D 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 D 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 D, 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 D 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 D
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 D 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 D, 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 D shall be paid on
the Dividend Payment Date therefor to the Holders of that 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.
3
<PAGE>
(c) (i) The dividend rate on Outstanding shares of ATP Series
D 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 D Outstanding thereafter, the dividend rate shall be equal to
the rate per annum that results from an Auction for Outstanding shares
of ATP Series D 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 D 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 D being the
subject of Submitted Hold Orders), then the dividend rate on the shares
of ATP Series D 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 D 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 D 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 D 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 D 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
4
<PAGE>
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 D 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
5
<PAGE>
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 D shall
first be credited against the earliest accumulated but unpaid dividends due with
respect to ATP Series D.
(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 D 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
6
<PAGE>
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 D 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 D by
reason of the redemption of ATP Series D 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
7
<PAGE>
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)
8
<PAGE>
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 D 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 D 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 D 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.
9
<PAGE>
(d) Upon the deposit of funds sufficient to redeem shares of
ATP Series D 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 D
called for redemption on such date and (ii) such other amounts, if any, to which
Holders of shares of ATP Series D 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 D 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 D 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 D for which a Notice of Redemption has been given,
dividends may be declared and paid on shares of ATP Series D and shall include
those shares of ATP Series D 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 D 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 D 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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<PAGE>
(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 D 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
D 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 D 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 D 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 D is as set
forth under "Designation" above. The Corporation will designate the duration of
subsequent Dividend Periods of ATP Series D; 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 D 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
11
<PAGE>
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 respect
12
<PAGE>
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 D 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 D through different Broker-Dealers, advises the Auction
Agent of such transfer. The certificates representing the shares of ATP Series D
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
D shall be entitled to one vote for each share of ATP Series D 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 D, 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 D, 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 D, 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 D, 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 D, 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 D, 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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<PAGE>
Stock, including ATP Series D, 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 D, 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 D, 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 D, 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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<PAGE>
(f) So long as any of the shares of Preferred Stock, including
ATP Series D, 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) hereof;
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<PAGE>
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 D, 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
D), Fitch (if Fitch is then rating ATP Series D) and any Other Rating Agency
which is then rating ATP Series D 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 D, 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 D 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 D 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 D, 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 D) and Fitch (if Fitch is then rating ATP Series D) (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 D, 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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<PAGE>
vote or consent of any Holder of the Preferred Stock, including ATP Series D, 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 D, and any
such amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of ATP Series D 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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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 D, 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 D 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 D shall have no rights
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<PAGE>
to cumulative voting. In the event that the Corporation fails to pay
any dividends on the shares of ATP Series D, 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 D 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 D then Outstanding, together with holders
of shares of any class of stock ranking on a parity with ATP Series D 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 D 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 D 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 D 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 D 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 D or any
shares issuable in exchange for shares of ATP Series D in any such consolidation
or merger.
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(d) After the payment to the Holders of ATP
Series D of the full preferential amounts provided for in this Section 7, the
holders of ATP Series D 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 D,
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
D 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 D, 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 D 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 D 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 D 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 D shall
not be entitled to share therein.
8. Auction Agent. For so long as any shares of ATP Series D
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 D 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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<PAGE>
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 D 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
D), Fitch (if Fitch is then rating ATP Series D) 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 D, 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 D), issue any class or series of stock ranking
prior to or on a parity with ATP Series D 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 D 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
20
<PAGE>
option is exchange-traded and may be offset readily or if the option expires
before the earliest possible redemption of ATP Series D, 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 D 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 D) and Fitch (if Fitch is then rating ATP Series D); (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 D 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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<PAGE>
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 D), Fitch (if Fitch is then rating
ATP Series D) and any Other Rating Agency which is then rating ATP Series D 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 D) and any Other Rating Agency which is then rating ATP Series
D 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 D), Fitch (if Fitch is then rating ATP Series
D) and any Other Rating Agency which is then rating ATP Series D 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 D), Fitch (if Fitch is then rating ATP Series D) and any Other Rating
Agency which is then rating ATP Series D 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 D), Fitch (if Fitch
is then rating ATP Series D), and any Other Rating Agency which is then rating
ATP Series D 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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<PAGE>
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 D), Fitch (if Fitch is then rating ATP Series D) and any Other
Rating Agency which is then rating ATP Series D 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 D), Fitch (if Fitch is then
rating ATP Series D) and any Other Rating Agency which is then rating ATP Series
D 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 D), Fitch (if Fitch is then rating ATP Series
D) and any Other Rating Agency which is then rating ATP Series D 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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<PAGE>
(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 D, 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 D are Outstanding, all rights and preferences of such shares established
and designated hereunder shall cease and terminate, and all obligations of the
Corporation under these Articles Supplementary shall terminate.
18. Definitions. As used in Part I and Part II of these
Articles Supplementary, the following terms shall have the following meanings
(with terms defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:
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<PAGE>
(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 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.
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<PAGE>
(e) "Alternate Term Period" means a Dividend
Period that is not a Standard Term Period.
(f) "Applicable Rate" means, with respect to
ATP Series D, 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 D 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 D 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; (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
26
<PAGE>
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 D" means the shares of Series D
of the ATP or any other shares of Preferred Stock hereinafter designated as
shares of Series D 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 D.
(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.
(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.
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<PAGE>
(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) "Debt Securities" means 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 D 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 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).
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<PAGE>
(gg) "Dividend Payment Date" for ATP Series D,
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 D, 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 IBCA, 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) Debt Securities: The percentage
determined by reference to the type of debt security in accordance
with the table set forth below.
Type I Debt Securities with remaining maturities of:
<TABLE>
<CAPTION>
<S> <C>
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
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<PAGE>
Type II Debt Securities 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 Debt Securities 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 Debt Securities 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 Debt Securities 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
30
<PAGE>
Type VI Debt Securities 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 Debt Securities 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
</TABLE>
(ii) Short Term Money Market Instruments: The
Fitch Discount Factor applied to short-term portfolio securities will
be (A) 100%, so long as such portfolio securities mature or have a
demand feature at par exercisable within the Exposure Period and, (B)
125%, so long as such portfolio securities neither mature nor have a
demand feature at par exercisable within the Exposure Period. A Fitch
Discount Factor of 100% will be applied to cash.
(iii) U.S. Treasury Securities with remaining
maturities of:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
(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.
(v) Foreign Bonds: The Fitch Discount Factor
which would otherwise apply to Foreign Bonds shall be multiplied by an
adjustment factor of 1.2.
31
<PAGE>
(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;
(iv) debt securities constituting Debt Securities 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 Corporation's adviser acting subject to the supervision of the
Corporation's Board of Directors; (E) such securities are issued by a
(1) a U.S. corporation, (2) a corporation domiciled in Argentina,
Australia, Brazil, Chile, France, Germany, Italy, Japan, Korea, Mexico,
Spain or the United Kingdom (the "Approved Foreign Nations"), (3) the
government of any Approved Foreign Nation or any of its agencies,
instrumentalities or political subdivisions (the debt
32
<PAGE>
securities of Approved Foreign Nation issuers being referred to
collectively as "Foreign Bonds"), (4) a corporation domiciled in Canada
or (5) the Canadian government or any of its agencies,
instrumentalities or political subdivisions (the debt securities of
Canadian issuers being referred to collectively as "Canadian Bonds");
and (F) in the case of Foreign and Canadian Bonds, such securities are
denominated in U.S. dollars. Foreign Bonds held by the Corporation will
qualify as Fitch Eligible Assets only up to a maximum of 20% of the
aggregate Market Value of all assets constituting Fitch Eligible
Assets. Similarly, Canadian Bonds held by the Corporation will qualify
as Fitch Eligible Assets only up to a maximum of 20% of the aggregate
Market Value of all assets constituting Fitch Eligible Assets.
Notwithstanding the limitations in the two preceding sentences, Foreign
Bonds and Canadian Bonds held by the Corporation will qualify as Fitch
Eligible Assets only up to a maximum of 30% of the aggregate Market
Value of all assets constituting Fitch Eligible Assets. In addition,
bonds which are issued in connection with a reorganization under U.S.
federal bankruptcy law ("Reorganization Bonds") will be considered Debt
Securities 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 Corporation's adviser acting subject to the
supervision of the Corporation'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 Debt Securities 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:
33
<PAGE>
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Type of Debt Security.............................. (%)(1,2) (%)(2,3,6) millions)
--------------------- -------- --------- ---------
<S> <C> <C> <C>
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)
</TABLE>
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 Debt
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 Debt Securities 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.
(6) Foreign and Canadian Bonds issued by governments of the Approved Foreign
Nations and Canada or any of their agencies, instrumentalities, or
political subdivisions assigned to the "Sovereigns" industry
classification are not subject to any maximum single industry
concentration limitation."
(vii) Financial contracts, as such term is defined in Section
3(c)(2)(B)(ii) of the Investment Company Act of 1940, as amended, may be
included in Fitch Eligible Assets, but, with respect to any financial contract,
only upon receipt by the Corporation of a writing from Fitch specifying any
conditions on including such financial contract in Fitch Eligible Assets and
assuring the Corporation that including such financial contract in the manner so
specified would not affect the credit rating assigned by Fitch to the ATP.
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
34
<PAGE>
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
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
35
<PAGE>
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 D, the
registered holder of shares of ATP Series D 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 Bridge
Fixed-Income Service 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 D), Fitch (if Fitch is then rating the ATP Series D) and any Other
Rating Agency which is then rating the ATP Series D 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 D 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 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.
36
<PAGE>
(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.
<TABLE>
<CAPTION>
Moody's Discount Factors --
Corporate Debt Securities
Rating Category
Maturity ---------------------------------------------------------
of Collateral Aaa Aa A Baa Ba B* Caa
-------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year.............. 112% 118% 123% 128% 139% 150% 260%
2 Years............. 118 124 130 135 147 158 260
3 Years............. 123 129 135 141 153 165 260
4 Years............. 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
</TABLE>
* Senior debt securities of an issuer rated B3 shall be deemed to be Caa rated
securities for purposes of determining the applicable Moody's Discount
Factor.
(ii) Preferred Stock: For (A) utility preferred
stocks, 152%, (B) industrial/financial preferred stocks, 197%, and (C)
auction rate preferred stocks, 350%.
(iii) Short Term Money Market Instruments: The
Moody's Discount Factor applied to short-term portfolio securities will
be (A) 100%, so long as such portfolio securities mature or have a
demand feature at par exercisable within the Exposure Period, (B) 115%,
so long as such portfolio securities mature or have a demand feature at
par not exercisable within the Exposure Period, and (C) 125%, if such
securities are not rated by Moody's, so long as such portfolio
securities are rated at least A-1+/AA or SP-1+/AA by S&P and mature or
have a demand feature at par exercisable within the Exposure Period. A
Moody's Discount Factor of 100% will be applied to cash.
37
<PAGE>
(iv) U.S. Treasury Securities and Treasury
Strips (as defined by Moody's):
<TABLE>
<CAPTION>
U.S. Treasury Securities:
Discount
Remaining Term to Maturity Factor
-------------------------- ---------
<S> <C>
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
</TABLE>
(v) Rule 144A Securities: The Moody's Discount
Factor applied to Rule 144A Securities will be 130% 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
38
<PAGE>
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 Corporation's
adviser acting subject to the supervision of the Corporation's Board of
Directors. Rule 144A Securities held by the Corporation will qualify as
Moody's Eligible Assets only up to a maximum of 25% of the aggregate
Market Value of all assets constituting Moody's Eligible Assets.
(v) Portfolio securities that are preferred stocks
will be included in Moody's Eligible Assets if (A) dividends on such
preferred stock are cumulative, (B) such securities provide for the
periodic payment of dividends thereon in cash in U.S. dollars and do
not provide for conversion or exchange into, or have warrants attached
entitling the holder to receive, equity capital at any time over the
respective lives of such securities, (C) the issuer of such a preferred
stock has common stock listed on either the New York Stock Exchange or
the American Stock Exchange, (D) the issuer of such a preferred stock
has a senior debt rating from Moody's of Baa1 or higher or a preferred
stock rating from Moody's of "baa3" or higher and (E) such preferred
stock has paid consistent cash dividends in U.S. dollars over the last
three
39
<PAGE>
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 $5 million. In addition, preferred stocks issued by
transportation companies will not be considered Moody's Eligible
Assets.
(vi) In addition, portfolio holdings as described
below must be within the following diversification and issue size
requirements in order to be included in Moody's Eligible Assets:
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Collateral Ratings(1) (%)(2,3) (%)(3,4) millions)(6)
--------------------- -------- -------- ------------
<S> <C> <C> <C>
"aaa", Aaa......................................... 100% 100% $100
"aa", Aa........................................... 20 60 100
"a", A, P-1........................................ 10 40 100
"baa", Baa......................................... 6 20 100
Ba................................................ 4 12 50(5)
B1-B2............................................. 3 8 50(5)
B3 (Caa subordinate).............................. 2 5 50(5)
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.
(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.
</TABLE>
40
<PAGE>
(vii) Financial contracts, as such term is
defined in Section 3(c)(2)(B)(ii) of the Investment Company Act of 1940, as
amended, may be included in Moody's Eligible Assets, but, with respect to any
financial contract, only upon receipt by the Corporation of a writing from
Moody's specifying any conditions on including such financial contract in
Moody's Eligible Assets and assuring the Corporation that including such
financial contract in the manner so specified would not affect the credit rating
assigned by Moody's to the ATP.
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
41
<PAGE>
Banking: Bank Holding, Savings and Loans, Consumer Credit,
Small Loan, Agency, Factoring, Receivables
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines
and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery,
Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat
Products, Poultry Products, Snacks, Packaged Foods,
Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes,
Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest
Products (building-related only), Plumbing, Roofing,
Wallboard, Real Estate, Real Estate Development, REITs, Land
Development
Chemicals, Plastics and Rubber: Chemicals (non-agriculture),
Industrial Gases, Sulphur, Plastics, Plastic Products,
Abrasives, Coatings, Paints, Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass,
Containers made of: Glass, Metal, Paper, Plastic, Wood, or
Fiberglass
Personal and Non Durable Consumer Products (Manufacturing
Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning
Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
Ecological: Pollution Control, Waste Removal,
Waste Treatment, Waste Disposal
Electronics: Computer Hardware, Electric Equipment,
Components, Controllers, Motors, Household Appliances,
Information Service Communication Systems, Radios, TVS, Tape
Machines, Speakers, Printers, Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication,
Securities
Farming and Agriculture: Livestock, Grains, Produce;
Agricultural Chemicals, Agricultural Equipment, Fertilizers
42
<PAGE>
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs,
Proprietary Drugs, Research, Health Care Centers, Nursing
Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment
Home and Office Furnishings, Housewares and Durable Consumer
Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agent, Surety
Leisure, Amusement, Motion Pictures, Entertainment: Boating,
Bowling, Billiards, Musical Instruments, Fishing, Photo
Equipment, Records, Tapes, Sports, Outdoor Equipment
(Camping), Tourism, Resorts, Games, Toy Manufacturing), Motion
Picture Production Theaters, Motion Picture Distribution
Machinery (Non-Agriculture, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper,
Lead, Uranium, Zinc, Aluminum, Stainless Steel Integrated
Steel, Ore Production, Refractories, Steel Mill Machinery,
Mini-mills, Fabricating, Distribution and Sales 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
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Telecommunications: Local, Long Distance, Independent,
Telephone, Telegraph, Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel
Manufacturer, Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces,
Supra-national Agencies
The Corporation shall use its discretion in determining which industry
classification is applicable to a particular investment.
(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 D.
(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
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<PAGE>
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 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 D 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 D to
be the subject of an accepted Hold Order will be (1) the
number of shares of ATP Series D subject to such Submitted
Hold/Sell Order multiplied by (2) the total number of shares
of ATP Series D 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 D subject to Submitted Hold/Sell Orders that
specified a rate equal to the Winning Rate, and
(B) the number of shares of ATP Series D to
be the subject of an accepted Sell Order will be the remaining
number of shares of ATP Series D subject to such Submitted
Hold/Sell Order,
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(ii) if Sufficient Clearing Orders exist, in
the case of a Submitted Buy Order specifying a rate equal to the
Winning Rate
(A) the number of shares of ATP Series D to
be the subject of an accepted Buy Order will be (1) the number
of shares of ATP Series D subject to such Submitted Buy Order
multiplied by (2) the difference between (x) the number of
shares of ATP Series D 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 D 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 D 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 D to
be the subject of an accepted Sell Order will be (1) the
number of shares of ATP Series D subject to such Submitted
Hold/Sell Order or Submitted Sell Order multiplied by (2) the
total number of shares of ATP Series D 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 D 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 D to
be the subject of an accepted Hold Order will be the remaining
number of shares of ATP Series D 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
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<PAGE>
Dividend Period of fewer than 184 days) or the applicable Treasury Index Rate
for a Dividend Period of 184 days or more).
(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
Corporation's adviser acting subject to the supervision of the Corporation'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 D.
(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 D), and (b) 180 days for purposes
of determining Fitch Eligible Assets (if Fitch is then rating ATP Series D):
(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
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Corporation, all of the foregoing requirements shall be applicable
except that the required long-term unsecured debt credit rating of such
depository institution or trust company from Moody's, Fitch and S&P
shall be at least A2, A and A, respectively; and provided further,
however, that the foregoing credit rating requirements shall be deemed
to be met with respect to a depository institution or trust company if
(1) such depository institution or trust company is the principal
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 Debt Securities" means Debt Securities rated
either AAA by Fitch or, if not rated by Fitch, rated AAA by S&P and Aaa by
Moody's.
(www) "Type II Debt Securities" means Debt Securities 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 Debt Securities.
(xxx) "Type III Debt Securities" means Debt Securities 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 Debt
Securities.
(yyy) "Type IV Debt Securities" means Debt Securities 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 Debt Securities.
(zzz) "Type V Debt Securities" means Debt Securities 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 Debt Securities.
(aaaa) "Type VI Debt Securities" means Debt Securities 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 Debt Securities.
(bbbb) "Type VII Debt Securities" means Debt Securities 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 Debt Securities."
(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 D 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 D listed in
that person's name in the records of the Auction Agent or (b) the beneficial
owner of shares of ATP Series D 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
D, which is required to be executed by (1) each prospective purchaser of shares
of ATP Series D 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 D, means any person, including any Existing Holder of shares of ATP
Series D, (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 D (or,
in the case of an Existing Holder or such person, additional shares of ATP
Series D).
(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 D are the subject of Submitted Hold Orders or that the number of shares
of ATP Series D 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 D 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 D 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 D which, when
added to the number of shares of ATP Series D to be purchased by the Potential
Holders described in clause (ii) above and the number of shares of ATP Series D
subject to Submitted Hold Orders, would be equal to the number of shares of ATP
Series D.
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 D:
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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 D, 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 D, 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 D, 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 D, 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 D 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 D 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 D 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 D 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 D 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 D 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 D 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
D, if any, subject to any Hold Order placed by such Existing
Holder;
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(B) the number of shares of ATP Series
D, if any, subject to any Hold/Sell Order placed by such
Existing Holder;
(C) the number of shares of ATP Series
D, 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 D 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 D
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 D 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 D 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 D
greater than the number of shares of ATP Series D 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 D 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 D greater than the excess of the number of shares of ATP
Series D 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 D 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
D greater than the excess of the number of shares of ATP Series D held
by such Existing Holder over the number of shares of ATP Series D
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 D 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 D over the number of Outstanding shares of ATP
Series D that are the subject of Submitted Hold Orders (such excess
being hereinafter referred to as the "Available ATP");
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<PAGE>
(ii) from the Submitted Orders whether the number of
Outstanding shares of ATP Series D 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 D
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 D
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 D 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 D 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.
56
<PAGE>
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;
57
<PAGE>
(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 D 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 D 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 D 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 D even if such allocation results in one or more of
such Potential Holders not purchasing any shares of ATP Series D or in one or
more Existing Holders no longer holding any shares of ATP Series D.
(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 D, 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 D for purchase among Potential Holders so that
only whole shares of ATP Series D 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 D on such Auction Date
or in one or more Existing Holders no longer holding any shares of ATP Series D.
(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 D to be purchased and the aggregate number of shares of ATP Series
D to be sold by such Potential Holders and Existing Holders and, to the extent
that such aggregate number of shares of ATP Series D 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 D.
58
<PAGE>
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 D 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 D. Except as otherwise
required by law, an Existing Holder shall have the ownership of the shares of
ATP Series D 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 D 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 D 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 D
59
<PAGE>
to any Person other than the Corporation. All of the shares of ATP
Series D 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 D may be registered in the share register
for the shares of ATP Series D 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.
60
<PAGE>
IN WITNESS WHEREOF, THE NEW AMERICA HIGH INCOME FUND, INC. has caused
these presents to be signed in its name and on its behalf by its Vice-President,
and its corporate seal to be hereunto affixed and attested by its Assistant
Secretary, and the said officers of the Corporation further acknowledge said
instrument to be the corporate act of the Corporation, and state under the
penalties of perjury that to the best of their knowledge, information and belief
the matters and facts therein set forth with respect to approval are true in all
material respects.
THE NEW AMERICA HIGH INCOME
FUND, INC.
By: -------------------------------
Ellen E. Terry, Vice President
ATTEST:
- ------------------------------------------
Jackson B.R. Galloway, Assistant Secretary
DOCSC\619059.2
4/10/98
61
EXHIBIT D5
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 2,400 shares of
Auction Term Preferred Stock
Series D
$1.00 Par Value
CUSIP NO. 641876701
This Certifies that Cede & Co. is the owner of Two Thousand Four Hundred (2,400)
fully paid and non-assessable Shares of the Auction Term Preferred Stock Series
D
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 D Auction Term Preferred Stock contained in the Articles
Supplementary, as amended and restated, establishing the Series D Auction Term
Preferred Stock of the Corporation. A copy of the Articles Supplementary
establishing the Series D 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,
Series C and Series D. 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
Revised October 29, 1990
[LOGO] EXHIBIT H2
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MERRILL LYNCH WORLD HEADQUARTERS
NORTH TOWER WORLD FINANCIAL CENTER
NEW YORK, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
-------------------------
Dear Sirs:
In connection with public offerings of securities underwritten by us, or by
a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute your
reaffirmation of this Agreement.
1. When you are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for securities will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part.
Upon release by us, you may reoffer such securities at the offering price fixed
by us. With our consent, you may allow a discount, not in excess of the
reallowance fixed by us, in selling such securities to other dealers, provided
that in doing so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will
advise us of the identity of any dealer to whom you allow such a discount and
any Underwriter or dealer from whom you receive such a discount. After the
securities are released for sale to the public, we may vary the offering price
and other selling terms.
2. You represent that you are a dealer actually engaged in the investment
banking or securities business and that you are either (i) a member in good
standing of the NASD or (ii) a dealer with its principal place of business
located outside the United States, its territories or possessions and not
registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If you are a
non-member foreign dealer, you agree to make no sales of securities within the
United States, its
<PAGE>
territories or its possessions or to persons who are nationals thereof or
residents therein. Non-member foreign dealers and banks agree, in making any
sales, to comply with the NASD's interpretation with respect to free-riding and
withholding. In accepting a selling concession where we are acting as
Representative of the Underwriters, in accepting a reallowance from us whether
or not we are acting as such Representative, and in allowing a discount to any
other person, you agree to comply with the provisions of Section 24 of Article
III of the Rules of Fair Practice of the NASD, and, in addition, if you are a
non-member foreign dealer or bank, you agree to comply, as though you were a
member of the NASD, with the provisions of Sections 8 and 36 of Article III of
such Rules of Fair Practice and to comply with Section 25 of Article III thereof
as that Section applies to a non-member foreign dealer or bank. You represent
that you are fully familiar with the above provisions of the Rules of Fair
Practice of the NASD.
3. If the securities have been registered under the Securities Act of 1933
(the "1933 Act"), in offering and selling such securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating thereto. You confirm that you are familiar with the
rules and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and you agree that you will
comply therewith in any offering covered by this Agreement. If we are acting as
Representative of the Underwriters, we will make available to you, to the extent
made available to us by the issuer of the securities, such number of copies of
the prospectus or offering documents, for securities not registered under the
1933 Act, as you may reasonably request.
4. If we are acting as Representative of the Underwriters of securities of
an issuer that is not required to file reports under the Securities Exchange Act
of 1934 (the "1934 Act"), you agree that you will not sell any of the securities
to any account over which you have discretionary authority.
5. Payment for securities purchased by you is to be made at our office,
Merrill Lynch World Headquarters North Tower World financial Center New York,
N.Y. 10281-1305 (or at such other place as we may advise), at the offering price
less the concession allowed to you, on such date as we may advise, by certified
or official bank check in New York Clearing House funds (or such other funds as
we may advise), payable to our order, against delivery of the securities to be
purchased by you. We shall have authority to make appropriate arrangements for
payment for and/or delivery through the facility of The Depository Trust Company
or any such other depository or similar facility for the securities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative of
the Underwriters, you agree to repay to us for the accounts of the Underwriters
the amount of the concession allowed to you plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of securities
covered by this Agreement you will, upon our request as Representative of the
Underwriters, report to us the amount of securities purchased by you which then
remains unsold and will, upon our request, sell to us for the account of one or
more of the Underwriters such amount of such unsold
2
<PAGE>
securities as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as Representative of the Underwriters, upon application
to us, we will inform you of the states and other jurisdictions of the United
States in which it is believed that the securities being offered are qualified
for sale under, or are exempt from the requirements of, their respective
securities laws, but we assume no responsibility with respect to your right to
sell securities in any jurisdiction. We shall have authority to file with the
Department of State of the State of New York a Further State Notice with respect
to the securities, if necessary.
9. You agree that in connection with any offering of securities covered by
this Agreement you will comply with the applicable provisions of the 1933 Act
and the 1934 Act and the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, and the applicable rules of any securities exchange having jurisdiction
over the offering.
10. We shall have full authority to take such actions as we deem advisable
in respect of all matters pertaining to any offering covered by this Agreement.
We shall be under no liability to you except for our lack of good faith and for
obligations assumed by us in this Agreement, except that you do not waive any
rights that you may have under the 1933 Act or the rules and regulations
thereunder.
11. Any notice from us shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunications to you at the
above address or at such other address as you shall specify to us in writing.
12. With respect to any offering of securities covered by this Agreement,
the price restrictions contained in Paragraph 1 hereof and the provisions of
Paragraphs 6 and 7 hereof shall terminate as to such offering at the close of
business on the 45th day after the securities are released for sale or, as to
any or all such provisions, at such earlier time as we may advise. All other
provisions of this Agreement shall remain operative and in full force and effect
with respect to such offering.
13. This Agreement shall be governed by the laws of the State of New York.
Please confirm your agreement hereto by signing the enclosed duplicate copy
hereof in the place provided below and returning such signed duplicate copy to
us at World Headquarters, North Tower, World Financial Center, New York, N.Y.
10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred Hessinger
--------------------------------
Name: Fred F. Hessinger
3
<PAGE>
Confirmed and accepted as of the
day of ,19
--------------------------------
Name of Dealer
--------------------------------
Authorized Officer or Partner
(if not Officer or Partner, attach
copy of Instrument of Authorization)
4
EXHIBIT H3
2,000 Shares Series C
THE NEW AMERICA HIGH INCOME FUND, INC.
Auction Term Preferred Stock
(Liquidation Preference $25,000 Per Share)
UNDERWRITING AGREEMENT
----------------------
May 1, 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: /s/ Ellen E. Terry
__________________________________
Title: Vice President
WELLINGTON MANAGEMENT COMPANY, LLP
By: /s/ [illegible]
___________________________________
Title: Senior Vice President
Accepted:
LEHMAN BROTHERS INC.
By: /s/ Neil Sherman
________________________________
Authorized Representative
$60,000,000
THE NEW AMERICA HIGH INCOME FUND, INC.
(a Maryland corporation)
AUCTION TERM PREFERRED STOCK
2,400 Series D Shares
Liquidation Preference $25,000 Per Share
PURCHASE AGREEMENT
May __, 1998
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1305
Dear Sirs and Mesdames:
The New America High Income Fund, Inc., a Maryland corporation (the
"Fund"), and Wellington Management Company, LLP, a Massachusetts limited
liability partnership, (the "Adviser"), each confirms its agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Underwriter"), with respect to the sale by the Fund and the purchase by the
Underwriter of 2,400 shares of Auction Term Preferred Stock, Series D, with a
par value of $1.00 per share and a liquidation preference of $25,000 per share
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) (the "Shares").
<PAGE>
Prior to the purchase and public offering of the Shares by the
Underwriter, the Fund and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Fund and the Underwriter and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering of
the Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), a registration statement on Form N-2 (No. 333-49043),
and a related preliminary prospectus and preliminary statement of additional
information for the registration of the Shares under the Securities Act of 1933,
as amended (the "Securities Act"), the Investment Company Act, and the rules and
regulations of the Commission under the Securities Act and the Investment
Company Act (together, the "Rules and Regulations"), and the Fund has filed such
amendments to such registration statement on Form N-2, if any, and such amended
preliminary prospectuses and preliminary statements of additional information as
may have been required to the date hereof. The Fund will prepare and file such
additional amendments thereto and such amended prospectuses and statements of
additional information as hereafter may be required. Such registration statement
(as amended at the time it becomes effective, if applicable) and the prospectus
and statement of additional information constituting a part thereof (including
in each case the information, if any, deemed to be a part thereof pursuant to
Rule 430A(b) or Rule 434 of the Rules and Regulations), as from time to time
amended or supplemented pursuant to the Securities Act, are referred to
hereinafter as the "Registration Statement" and the "Prospectus", respectively;
except that if any revised prospectus and statement of additional information
shall be provided to the Underwriter by the Fund for use in connection with the
offering of the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective (whether
such revised prospectus is required to be filed by the Fund pursuant to Rule
497(c) or Rule 497(h) of the Rules and Regulations), the term "Prospectus" shall
refer to each such revised prospectus and statement of additional information
from and after the time it is first provided to the Underwriter for such use. If
the Fund elects to rely on Rule 434 under the Rules and Regulations, all
references to the Prospectus shall be deemed to include, without limitation, the
form of prospectus, statement of additional information and the term sheet,
taken together, provided to the Underwriter by the Fund in reliance on Rule 434
under the Securities Act (the "Rule 434 Prospectus"). If the Fund files a
registration statement to register a portion of the Shares and relies on Rule
462(b) for such registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference to
"Registration Statement" herein shall be deemed to include both the registration
statement referred to above (No. 333-49043) and the Rule 462 Registration
Statement, as each such registration statement may be amended pursuant to the
Securities Act.
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
2
<PAGE>
SECTION 1. Representations and Warranties. (a) The Fund represents and
warrants to the Underwriter as of the date hereof, as of the date of the Pricing
Agreement (such later date hereinafter being referred to as the "Representation
Date") and as of the Closing Time referred to in Section 2 hereof, as follows:
(i) At the time the Registration Statement becomes effective and at the
Representation Date, the Registration Statement will comply in all material
respects with the requirements of the Securities Act, the Investment Company Act
and the Rules and Regulations and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. At the time the
Registration Statement becomes effective, at the Representation Date and at
Closing Time referred to in Section 2 hereof, the Prospectus (unless the term
"Prospectus" refers to a prospectus and statement of additional information
which has been provided to the Underwriter by the Fund for use in connection
with the offering of the Shares which differs from the Prospectus on file with
the Commission at the time the Registration Statement becomes effective, in
which case at the time such prospectus and statement of additional information
first is provided to the Underwriter for such use) will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Fund in writing by the Underwriter
or the Adviser expressly for use in the Registration Statement or in the
Prospectus.
(ii) The accountants who certified the financial statement included or
incorporated by reference in the Registration Statement are independent public
accountants as required by the Securities Act and the Rules and Regulations.
(iii) The financial statements included or incorporated by reference in
the Registration Statement present fairly the financial position of the Fund as
at the date indicated and the results of its operations for the period
specified; such financial statements have been prepared in conformity with
generally accepted accounting principles; and the information in the Prospectus
under the heading "Capitalization and Information Regarding Senior Securities"
sets forth the capitalization of the Fund as of its date and after giving effect
to the sale of the Shares as if they were sold as of such date and the
information under the heading "Portfolio Composition" sets forth the composition
of the investment portfolio of the Fund as of its date.
(iv) Since the respective dates as of which information is given in the
Registration Statement and in the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, of the Fund, or in the earnings, business affairs or
business prospects of the Fund, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Fund which are material to the Fund other than those in the
ordinary course of business and (C) except for (i) regular monthly dividends and
special year end distributions related to the Fund's qualification as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended ("Subchapter M of the Code"), on the outstanding shares of
common
3
<PAGE>
stock, par value $1.00 per share (the "Common Stock") of the Fund, and
(ii) dividends paid on the Fund's outstanding shares of Auction Term Preferred
Stock Series A, B and C (the "Other ATP") in accordance with the terms thereof,
there has been no dividend or distribution of any kind declared, paid or made by
the Fund on any class of its capital stock.
(v) The Fund has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland with
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement; the Fund is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, except
where the failure to so qualify would not have a Material Adverse Effect on the
Fund; and the Fund has no subsidiaries.
(vi) The Fund is registered with the Commission under the Investment
Company Act as a closed-end, non-diversified, management investment company, and
no order of suspension or revocation of such registration has been issued or
proceedings therefor initiated or threatened by the Commission.
(vii) The authorized, issued and outstanding capital stock of the Fund
is as set forth in the Prospectus under the captions "Description of ATP" and
"Description of Common Stock"; the outstanding Common Stock and the Other ATP
have been duly authorized and validly issued and are fully paid and
nonassessable; the Shares have been duly authorized for issuance and sale to the
Underwriter pursuant to this Agreement and, when issued and delivered by the
Fund pursuant to this Agreement against payment of the consideration set forth
in the Pricing Agreement, will be validly issued and fully paid and
nonassessable; the Common Stock, the Other ATP and the Shares conform in all
material respects to all statements relating thereto contained in the
Registration Statement; and the issuance of the Shares to be purchased by the
Underwriter is not subject to pre-emptive rights.
(viii) The Fund is not in violation of its articles of incorporation,
as amended (the "Charter"), or its by-laws, as amended (the "By-Laws"), or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which it is a party or by
which it or its properties may be bound; and the execution and delivery of this
Agreement, the Pricing Agreement and the Investment Advisory Agreement, the
Custodian Agreement, the Auction Agent Agreement and the Letter of
Representations referred to in the Registration Statement (as used herein, the
"Advisory Agreement," the "Auction Agreement," the "Custodian Agreement" and the
"Letter of Representations," respectively), and the consummation of the
transactions contemplated herein and therein, have been duly authorized by all
necessary corporate action and will not conflict with or constitute a breach of,
or a default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Fund pursuant to any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Fund is a party or by which it may be bound or to which any of the
property or assets of the Fund is subject, nor will such action result in any
violation of the provisions of the Charter or the By-Laws of the Fund, or, to
the best knowledge of the Fund, any law, administrative regulation or
administrative or court decree; and
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<PAGE>
no consent, approval, authorization or order of any court or governmental
authority or agency is required for the consummation by the Fund of the
transactions contemplated by this Agreement, the Pricing Agreement, the Advisory
Agreement, the Custodian Agreement, the Auction Agreement and the Letter of
Representations, except such as has been obtained under the Investment Company
Act or as may be required under the Securities Act or state securities or Blue
Sky laws in connection with the purchase and distribution of the Shares by the
Underwriter.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to operate its
properties and to carry on its businesses as contemplated in the Prospectus and
the Fund has not received any notice of proceedings relating to the revocation
or modification of any such licenses, permits, covenants, orders, approvals or
authorizations.
(x) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Fund or the Adviser, threatened against or affecting the Fund,
which might result in any Material Adverse Effect in the condition, financial or
otherwise, business affairs or business prospects of the Fund, or might
materially and adversely affect the properties or assets of the Fund; and there
are no material contracts or documents of the Fund which are required to be
filed as exhibits to the Registration Statement by the Securities Act, the
Investment Company Act or the Rules and Regulations which have not been so
filed.
(xi) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(xii) The Fund owns or possesses, or can acquire on reasonable terms,
adequate trademarks, service marks and trade names necessary to conduct its
business as described in the Registration Statement, and the Fund has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any trademarks, service marks or trade names which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the conduct of the business,
operations, financial condition or income of the Fund.
(xiii) The Fund intends to, and will, direct the investment of the
proceeds of the offering described in the Registration Statement in such a
manner as to comply with the requirements of Subchapter M of the Code, and
intends to qualify as a regulated investment company under Subchapter M of the
Code.
(xiv) Each of this Agreement, the Advisory Agreement and the Custodian
Agreement has been duly authorized, executed and delivered by the Fund, and each
complies with all applicable provisions of the Investment Company Act.
(xv) Each of the Auction Agreement and the Letter of Representations
has been duly authorized for execution and delivery by the Fund and, when
executed and delivered by the Fund, will constitute a valid and binding
obligation of the Fund, enforceable in accordance with its
5
<PAGE>
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or
other laws relating to or affecting creditors' rights and to general equitable
principles.
(b) The Adviser represents and warrants to the Underwriter as of the
date hereof, as of the Representation Date and as of the Closing Time referred
to in Section 2 hereof, as follows:
(i) The Adviser has been duly organized as a limited liability
partnership under the laws of the Commonwealth of Massachusetts with power and
authority to conduct its business as described in the Registration Statement and
in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"), and
is not prohibited by the Investment Advisers Act or the Investment Company Act,
or the rules and regulations under such acts, from acting under the Advisory
Agreement for the Fund as contemplated by the Prospectus.
(iii) The Adviser has the financial resources available to it necessary
for the performance of its services and obligations as contemplated in the
Prospectus.
(iv) The description of the Adviser in the Registration Statement and
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.
(v) 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 Shares 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.
6
<PAGE>
(vi) 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
subject, which are likely to 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.
(vii) The Adviser is not in violation of the Partnership Agreement or
in default under any agreement, indenture or instrument.
(c) Any certificate signed by any officer of the Fund or the Adviser
and delivered to the Underwriter or to counsel to the Underwriter shall be
deemed a representation and warranty by the Fund or the Adviser, as the case may
be, to the Underwriter, as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriter; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Fund
agrees to sell the Shares to the Underwriter, and the Underwriter agrees to
purchase the Shares from the Fund, at the price per share set forth in the
Pricing Agreement.
(i) If the Fund has elected not to rely upon Rule 430A under the Rules
and Regulations, the initial public offering prices and the purchase price per
share to be paid by the Underwriter for the Shares have been determined and set
forth in the Pricing Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectus will be filed before the Registration
Statement becomes effective.
(ii) If the Fund has elected to rely upon Rule 430A under the Rules and
Regulations, the purchase price per share to be paid by the Underwriter for the
Shares shall be an amount equal to the applicable initial public offering price,
less an amount per share to be determined by agreement between the Underwriter
and the Fund. The initial public offering price per share shall be a fixed price
based upon the number of shares purchased in a single transaction to be
determined by agreement between the Underwriter and the Fund. The initial public
offering price and the purchase price, when so determined, shall be set forth in
the Pricing Agreement. In the event that such prices have not been agreed upon
and the Pricing Agreement has not been executed and delivered by all parties
thereto by the close of business on the fourth business day following the date
of this Agreement, this Agreement shall terminate forthwith, without liability
of any party to any other party, except as provided in Section 5 hereof, unless
otherwise agreed to by the Fund, the Adviser and the Underwriter.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Brown & Wood LLP, One World Trade
Center, New York, New York 10048-0557, or at such other place as shall be agreed
upon by the Underwriter and the Fund, at 9:00 A.M. on the third business day
following the date the Registration Statement becomes effective or, if the Fund
has elected to rely upon Rule 430A under the Rules and Regulations, the third
business day after execution of the Pricing Agreement (or, if pricing takes
place after 4:30
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<PAGE>
P.M. on either the date the Registration Statement becomes effective or the date
of execution of the Pricing Agreement, as applicable, the fourth business day
after such applicable date), or such other time not later than ten business days
after such date as shall be agreed upon by the Underwriter and the Fund (such
time and date of payment and delivery herein being referred to as "Closing
Time"). Payment shall be made to the Fund by a Federal Funds wire transfer or
similar same-day funds, against delivery to the Underwriter of the certificates
for the Shares to be purchased by it. The Shares shall be represented by a
certificate registered in the name of Cede & Co., as nominee for The Depository
Trust Company. The certificate for the Shares will be made available for
examination by the Underwriter not later than 10:00 A.M. on the last business
day prior to Closing Time.
SECTION 3. Covenants of the Fund. The Fund covenants with the
Underwriter as follows:
(a) The Fund will use its best efforts (i) to cause the Registration
Statement to become effective under the Securities Act, and will advise the
Underwriter promptly as to the time at which the Registration Statement and any
amendments thereto (including any post-effective amendment) becomes so effective
and (ii) if required, to cause the issuance of any orders exempting the Fund
from any provisions of the Investment Company Act, and the Fund will advise the
Underwriter promptly as to the time at which any such orders are granted.
(b) The Fund will notify the Underwriter immediately, and will confirm
the notice in writing, (i) of the effectiveness of the Registration Statement
and any amendments thereto (including any post-effective amendment), (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose,
and (v) of the issuance by the Commission of an order of suspension or
revocation of the notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act or the initiation of any
proceeding for that purpose. The Fund will make every reasonable effort to
prevent the issuance of any stop order described in subsection (iv) hereunder or
any order of suspension or revocation described in subsection (v) hereunder and,
if any such stop order or order of suspension or revocation is issued, to obtain
the lifting thereof at the earliest possible moment. If the Fund elects to rely
on Rule 434 under the Rules and Regulations, the Fund will prepare a term sheet
that complies with the requirements of Rule 434 under the Rules and Regulations
and the Fund will provide the Underwriter with copies of the form of Rule 434
Prospectus, in such number as the Underwriter may reasonably request by the
close of business in New York on the business day immediately succeeding the
date of the Pricing Agreement.
(c) The Fund will give the Underwriter notice of its intention to file
any amendment to the Registration Statement (including any post-effective
amendment) or any amendment or supplement to the Prospectus (including any
revised prospectus or statement of
8
<PAGE>
additional information which the Fund proposes for use by the Underwriter in
connection with the offering of the Shares, which differs from the prospectus on
file at the Commission at the time the Registration Statement becomes effective,
whether such revised prospectus or statement of additional information is
required to be filed pursuant to Rule 497(c) or Rule 497(h) of the Rules and
Regulations or any term sheet prepared in reliance on Rule 434 of the Rules and
Regulations), whether pursuant to the Investment Company Act, the Securities
Act, or otherwise, and will furnish the Underwriter with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement to which the Underwriter reasonably shall object.
(d) The Fund will deliver to the Underwriter, as soon as practicable,
two signed copies of the notification of registration and registration statement
as originally filed and of each amendment thereto, in each case with two sets of
the exhibits filed therewith.
(e) The Fund will furnish to the Underwriter, from time to time during
the period when the Prospectus is required to be delivered under the Securities
Act, such number of copies of the Prospectus (as amended or supplemented) as the
Underwriter reasonably may request for the purposes contemplated by the
Securities Act, or the Rules and Regulations.
(f) If any event shall occur as a result of which it is necessary, in
the opinion of counsel to the Fund and the Underwriter, to amend or supplement
the Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, the Fund
forthwith will amend or supplement the Prospectus by preparing and furnishing to
the Underwriter a reasonable number of copies of an amendment or amendments of
or a supplement or supplements to, the Prospectus (in form and substance
satisfactory to counsel to the Fund and the Underwriter), so that, as so amended
or supplemented, the Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the Underwriter, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Underwriter may
designate, and will maintain such qualifications in effect for a period of not
less than one year after the date hereof. The Fund will file such statements and
reports as may be required by the laws of each jurisdiction in which the Shares
have been qualified as above provided.
(h) The Fund will make generally available to its security holders as
soon as practicable, but no later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the Rules and Regulations) covering a twelve-month period beginning
not later than the first day of the Fund's fiscal quarter next following the
"effective" date (as defined in said Rule 158) of the Registration Statement.
(i) During a period of 90 days from the date of the Prospectus, the
Fund will not, without the prior written consent of Merrill Lynch, (i) directly
or indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any senior
security of the Fund, as defined in Section 18 of the Investment Company Act, or
file any registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into
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<PAGE>
any swap or any other agreement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership of senior
securities, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of senior securities, cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder and
(B) swap arrangements with respect to the Shares and the Other ATP as
contemplated by the Registration Statement.
(j) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A of
the Rules and Regulations, then immediately following the execution of the
Pricing Agreement, the Fund will prepare, and file or transmit for filing with
the Commission in accordance with such Rule 430A and Rule 497(h) of the Rules
and Regulations, copies of the amended Prospectus, or, if required by such Rule
430A, a post-effective amendment to the Registration Statement (including an
amended Prospectus), containing all information so omitted.
(k) The Fund will use its best efforts to maintain its qualification as
a regulated investment company under Subchapter M of the Code.
SECTION 4. Covenants of the Underwriter. The Underwriter covenants and
agrees with the Fund that no later than the second business day succeeding
Closing Time, it will provide the Fund and the Auction Agent (as defined in the
Prospectus) with a list of Existing Holders (as defined in the Prospectus) of
Shares or their Broker-Dealers (as defined in the Prospectus), the number of
Shares held by each such Existing Holder or Broker-Dealer and the number of
Shares it is holding as Underwriter as of the date of such notice.
SECTION 5. Payment of Expenses. The Fund will pay all expenses incident
to the performance of its obligations under this Agreement, including, but not
limited to, expenses relating to (i) the printing and filing of the registration
statement as originally filed and of each amendment thereto, (ii) the
preparation, issuance and delivery of the certificate for the Shares to the
Underwriter, (iii) the fees and disbursements of the Fund's counsel and
accountants, (iv) the printing and delivery to the Underwriter of copies of the
registration statement as originally filed and of each amendment thereto, of the
preliminary prospectus, and of the Prospectus and any amendments or supplements
thereto, (v) the fees charged by rating agencies for the rating of the Shares.
If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 6 or Section 10(a)(i) hereof, the Fund shall reimburse
the Underwriter for all of its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel to the Underwriter, except if
termination results from (a) inaccuracy of the Adviser's representations and
warranties, (b) failure of the Adviser to perform its obligations hereunder, (c)
failure of the condition set forth in Section 6(b)(2), (d) any Material Adverse
Effect in the condition, financial or otherwise, of the Advisers or in its
earnings, business affairs or business prospects, whether or not arising in the
ordinary course of business, (e) failure of the condition set forth in Section
6(c)(iii), (f) failure of the condition set forth in Section 6(c)(iv) because of
proceedings pending or threatened against the Adviser, (g) failure of the
condition set forth in Section 6(c)(i) relating to disclosure in the
Registration Statement and Prospectus of any suit or proceeding at law or in
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<PAGE>
equity pending or, to the knowledge of the Adviser, threatened against Adviser
because Adviser failed to disclose accurately and completely such suit or
proceeding to the Fund and the Underwriter and their respective counsel during
the preparation of the Registration Statement and Prospectus, (h) failure of the
Adviser to provide the certificate referred to in Section 6(c)(vi), or (i)
failure of the Adviser to provide the certificate required by Section 6(d), then
the Adviser shall reimburse the Underwriter for all of its reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel
to the Underwriter. In the event the transactions contemplated hereunder are not
consummated, the Fund agrees to pay all of the costs and expenses set forth in
the first paragraph of this Section 5 which the Fund would have paid if such
transactions had been consummated.
SECTION 6. Conditions of Underwriter's Obligations. The obligations of
the Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Fund and the Adviser herein contained, to the performance by
the Fund and the Adviser of their respective obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on the date of this Agreement, or with the
consent of the Underwriter, at a later time and date not later, however, than
5:30 p.m. on the first business day following the date hereof, or at such later
time and date as may be approved by the Underwriter, and at Closing Time no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the Securities Act, and no order of suspension or revocation of the
Fund's notification of registration shall have been issued under the Investment
Company Act and no proceedings for either such purpose shall have been initiated
or threatened by the Commission. If the Fund has elected to rely upon Rule 430A
of the Rules and Regulations, the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 497(h) of the Rules and Regulations within the
prescribed time period, and prior to Closing Time the Fund shall have provided
evidence satisfactory to the Underwriter of such timely filing, or a
post-effective amendment providing such information shall have been filed
promptly and declared effective in accordance with the requirements of Rule 430A
of the Rules and Regulations.
(b) At Closing Time, the Underwriter shall have received:
(1) The favorable opinion, dated as of Closing Time, of
Goodwin, Procter & Hoar LLP, counsel to the Fund, in form and
substance satisfactory to counsel to the Underwriter, to the
effect that:
(i) The Fund has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Maryland.
(ii) The Fund has corporate power and authority to
own, lease and operate its properties and conduct its business
as described in the Registration Statement and in the
Prospectus.
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<PAGE>
(iii) The Fund is duly qualified as a foreign
corporation to transact business and is in good standing under
the laws of the Commonwealth of Massachusetts.
(iv) The outstanding shares of Common Stock and
Outstanding ATP have been duly authorized and validly issued
and are fully paid and nonassessable.
(v) The Shares have been duly authorized for issuance
and sale to the Underwriter pursuant to this Agreement and,
when issued and delivered by the Fund pursuant to this
Agreement against payment of the consideration set forth in
the Pricing Agreement, will be validly issued and fully paid
and nonassessable; the issuance of the Shares is not subject
to pre-emptive or other similar rights; and the authorized
capital stock conforms as to legal matters in all material
respects to the description thereof in the Registration
Statement under the captions "Description of ATP" and
"Description of Common Stock".
(vi) Each of this Agreement and the Pricing Agreement
has been duly authorized, executed and delivered by the Fund
and each complies with all applicable provisions of the
Investment Company Act.
(vii) The Registration Statement is effective under
the Securities Act and, to the best of their knowledge and
information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the Securities
Act or proceedings therefor initiated or threatened by the
Commission.
(viii) At the time the Registration Statement became
effective and at the Representation Date, the Registration
Statement (other than the financial statements included
therein, as to which no opinion need be rendered) complied as
to form in all material respects with the requirements of the
Securities Act and the Investment Company Act and the Rules
and Regulations. The Rule 434 Prospectus conforms to the
requirements of Rule 434 in all material respects.
(ix) There are no legal or governmental proceedings
pending or, to the best of their knowledge and information,
threatened against the Fund which are required to be disclosed
in the Registration Statement, other than those disclosed
therein.
(x) To the best of their knowledge and information,
there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments of the Fund
required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed as exhibits thereto,
the descriptions thereof are correct in all material respects,
references thereto are correct, and no default exists in the
due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument so described, referred to or filed.
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<PAGE>
(xi) No consent, approval, authorization or order of
any court or governmental authority or agency is required in
connection with the sale of the Shares to the Underwriter,
except such as has been obtained under the Securities Act, the
Investment Company Act or the Rules and Regulations or such as
may be required under state securities laws and, the execution
and delivery of this Agreement, the Pricing Agreement, the
Advisory Agreement, the Custodian Agreement, the Auction
Agreement and the Letter of Representations and the
consummation of the transactions contemplated herein and
therein will not conflict with or constitute a breach of, or a
default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the
Fund pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Fund
is a party or by which it may be bound or to which any of the
property or assets of the Fund is subject, nor will such
action result in any violation of the provisions of the
Charter or the By-Laws of the Fund, or any law or
administrative regulation, or, to the best of their knowledge
and information, administrative or court decree.
(xii) Each of the Advisory Agreement and the
Custodian Agreement has been duly authorized and approved by
the Fund and complies as to form in all material respects with
all applicable provisions of the Investment Company Act, and
each has been duly executed by the Fund.
(xiii) The Fund is registered with the Commission
under the Investment Company Act as a closed-end, diversified,
management investment company, and all required action has
been taken by the Fund under the Securities Act, the
Investment Company Act and the Rules and Regulations to make
the public offering and consummate the sale of the Shares
pursuant to this Agreement; the provisions of the Charter and
the By-Laws of the Fund comply as to form in all material
respects with the requirements of the Investment Company Act;
and, to the best of their knowledge and information, no order
of suspension or revocation of such registration under the
Investment Company Act, pursuant to Section 8(e) of the
Investment Company Act, has been issued or proceedings
therefor initiated or threatened by the Commission.
(xiv) The information in the Prospectus under the
captions "Taxation", to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by them and is
correct in all material respects.
(xv) Each of the Auction Agreement and the Letter of
Representations has been duly authorized, executed and
delivered by the Fund, and each constitutes a valid and
binding obligation of the Fund, enforceable in accordance with
its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or
affecting creditors' rights and to general equitable
principles.
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<PAGE>
(2) The favorable opinion, dated as of Closing Time, of Peter
L. Curry, Esq. General Counsel of the Adviser, in form and substance
satisfactory to counsel to the Underwriters, to the effect that:
(i) The Adviser has been duly organized as a limited
liability partnership under the laws of the Commonwealth of
Massachusetts, with power and authority to conduct its
business as described in the Registration Statement and in the
Prospectus.
(ii) The Adviser is duly registered as an investment
adviser under the Investment Advisers Act and is not
prohibited by the Investment Advisers Act or the Investment
Company Act, or the rules and regulations under such Acts,
from acting under the Advisory Agreement for the Fund as
contemplated by the Prospectus.
(iii) This Agreement and the Advisory Agreement have
been duly authorized, executed and delivered by the Adviser,
and the Advisory Agreement constitutes a valid and binding
obligation of the Adviser, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting
creditors' rights and to general equity principles; and, to
the best of his knowledge and information, neither the
execution and delivery of this Agreement or the Advisory
Agreement nor the performance by the Adviser of its
obligations hereunder or thereunder will conflict with, or
result in a breach of, any of the terms and provisions of, or
constitute, with or without the giving of notice or the lapse
of time or both, a default under, any agreement or instrument
to which the Adviser is a party or by which the Adviser is
bound, or any law, order, rule or regulation applicable to the
Adviser of any jurisdiction, court, Federal or state
regulatory body, administrative agency or other governmental
body, stock exchange or securities association having
jurisdiction over the Adviser or its properties or operations.
(iv) The description of the Adviser in the
Registration Statement and in the Prospectus does not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(3) The favorable opinion, dated as of Closing Time, of Brown
& Wood LLP, counsel to the Underwriter, with respect to the matters set
forth in (i), (v) to (viii) inclusive, and (xiii) of subsection (b)(1)
of this Section 6.
(4) In giving their opinions required by subsections (b)(1)
and (3) of this Section 6, Goodwin, Procter & Hoar LLP and Brown & Wood
LLP additionally shall state that nothing has come to their attention
that would lead them to believe that the Registration Statement (other
than the financial statements included therein, as to which no opinion
need be rendered), at the time it became effective or at the
Representation Date, contained any untrue statement of a material fact
or omitted to state a material fact
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<PAGE>
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (other than the financial
statements included therein, as to which no opinion need be rendered),
at the Representation Date (unless the term "Prospectus" refers to a
prospectus and statement of additional information which has been
provided to the Underwriter by the Fund for use in connection with the
offering of the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective, in
which case at the time it first is provided to the Underwriter for such
use) or at Closing Time, contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made not misleading. In giving its opinion, Goodwin, Procter &
Hoar LLP may 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. In giving their opinions, Goodwin, Procter & Hoar LLP and
Brown & Wood LLP may rely as to matters of Maryland law, on the opinion
of Venable, Baejer and Howard LLP, dated Closing Time, provided that
Goodwin, Procter & Hoar LLP and Brown & Wood LLP each shall state that
such opinion is satisfactory in form and substance to such counsel.
Goodwin, Procter & Hoar LLP, Peter L. Curry, Esq. and Brown & Wood LLP
may rely, as to matters of fact, upon certificates and written
statements of officers and employees of and accountants for the Fund
and the Adviser and of public officials.
(c) At Closing Time, (i) the Registration Statement and the Prospectus
shall contain all statements which are required to be stated therein in
accordance with the Securities Act, the Investment Company Act and the Rules and
Regulations and in all material respects shall conform to the requirements of
the Securities Act, the Investment Company Act and the Rules and Regulations,
and neither the Registration Statement nor the Prospectus shall contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that this Section 6(c)(i) shall not apply
to statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information furnished to the Fund
in writing by the Underwriter expressly for use in the Registration Statement or
in the Prospectus; no action, suit or proceeding at law or in equity shall be
pending or, to the knowledge of the Fund or the Adviser, threatened against the
Fund or the Adviser which would be required to be set forth in the Prospectus
other than as set forth therein; and no stop order suspending the effectiveness
of the Registration Statement has been issued under the Securities Act, and no
proceedings therefor have been initiated or are threatened by the Commission,
(ii) there shall not have been, since the date as of which information is given
in the Prospectus, any Material Adverse Effect in the condition, financial or
otherwise, of the Fund, the Adviser or in their earnings, business affairs or
business prospects, whether or not arising in the ordinary course of business,
from that set forth in the Prospectus, (iii) the Adviser shall have the
financial resources available to it necessary for the performance of its
services and obligations as contemplated in the Registration Statement and the
Prospectus, (iv) no proceedings shall be pending or, to the knowledge of the
Fund or the Adviser, threatened against the Fund or the Adviser before or by any
Federal, state or other commission, board or administrative agency wherein an
unfavorable
15
<PAGE>
decision, ruling or finding would materially and adversely affect the business,
property, financial condition or income of either the Fund or the Adviser other
than as set forth in the Prospectus, (v) Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's ("S&P") shall have confirmed that the Shares
have been rated "aaa" and AAA, respectively, by such agencies, and since the
date of this Agreement, there shall not have occurred a downgrading in the
rating assigned to the Shares or any of the Fund's other securities; and (vi)
the Underwriter shall have received, at Closing Time, a certificate of the
President or the Treasurer of the Fund and of the President or a Vice President
of the Adviser dated as of Closing Time, evidencing compliance with this
subsection (c) except that the Fund's certificate need not address compliance
with respect to (A) actions, suits or proceedings at law or in equity pending or
threatened against the Adviser, (B) Section 6(c)(ii) as it concerns the Adviser,
(C) Section 6(c)(iii) or (D) statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in conformity with information
furnished to the Fund by the Underwriter or the Adviser expressly for use in the
Registration Statement or Prospectus, together with true and correct copies of
letters from Moody's and S&P confirming their rating.
(d) At Closing Time, the Underwriter shall have received certificates,
dated as of Closing Time, (i) of the President or the Treasurer of the Fund to
the effect that the representations and warranties of the Fund contained in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time and, (ii) of the President or a
Vice President of the Adviser to the effect that the representations and
warranties of the Adviser contained in Section 1(b) hereof are true and correct
with the same force and effect as though expressly made at and as of Closing
Time.
(e) At the time of execution of this Agreement, the Underwriter shall
have received from Arthur Anderson LLP a letter, dated such date in form and
substance satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respect to the Fund
within the meaning of the Securities Act and the Rules and Regulations;
(ii) in their opinion, the financial statements included or
incorporated by reference in the Registration Statement and audited by
them comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Investment
Company Act and the Rules and Regulations;
(iii) they have performed specified procedures, not constituting an
audit, including a reading of the latest available interim financial
statements of the Fund, a reading of the minute books of the Fund,
inquiries of officials of the Fund responsible for financial accounting
matters and such other inquiries and procedures as may be specified in
such letter, and on the basis of such inquiries and procedures nothing
came to their attention that caused them to believe that during the
period from December 31 1997 to a specified date not more than three
days prior to the date of this Agreement, there was any change in the
capital stock or net assets of the Fund (other than by reason of the
issuance of Common Stock in connection with the Fund's dividend
reinvestment plan, as specified in such letter) or any increase in the
long-term debt of the Fund, as compared with amounts
16
<PAGE>
shown on the unaudited financial statements included in the
Registration Statement, except for changes which the Registration
Statement discloses have occurred or may occur; and
(iv) in addition to the procedures referred to in clause (iii)
above, they have performed other specified procedures, not constituting
an audit, with respect to certain amounts, percentages, numerical data,
financial information and financial statements appearing in the
Registration Statement, which previously have been specified by such
accountants and which shall be specified in such letter, and have
compared certain of such items with, and have found such items to be in
agreement with, the accounting and financial records of the Fund.
(f) At Closing Time, the Underwriter shall have received from Arthur
Anderson LLP a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (e)
of this Section 6, except that the "specified date" referred to shall be a date
not more than three days prior to Closing Time.
(g) At Closing Time, counsel to the Underwriter shall have been
furnished with such documents and opinions as they reasonably may require for
the purpose of enabling them to pass upon the issuance and sale of the Shares as
herein contemplated and to pass upon related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund and the Adviser in connection with the organization and
registration of the Fund under the Investment Company Act and the issuance and
sale of the Shares as herein contemplated shall be satisfactory in form and
substance to counsel to the Underwriter.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriter by notice to the Fund at any time at or prior to Closing
Time, and such termination shall be without liability of any party to any other
party, except as provided in Section 5 hereof and except that Sections 1, 7, 8
and 9 hereof shall survive any such termination and remain in full force and
effect.
SECTION 7. Indemnification. (a) The Fund agrees to indemnify and hold
harmless the Underwriter and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Securities Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the information deemed to be part of the
Registration Statement pursuant to Rule 430A or Rule 434 of the Rules and
Regulations, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
preliminary statement of additional information or the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission therefrom
of a material fact necessary in
17
<PAGE>
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, provided that (subject to
Section 7(d) below) any such settlement is effected with the written consent of
the indemnifying party; and
(iii) against any and all expenses whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Underwriter) reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter or the Adviser expressly for use in the Registration Statement (or
any amendment thereto), including the information deemed to be a part of the
Registration Statement pursuant to Rule 430A or Rule 434 of the Rules and
Regulations, or any preliminary prospectus or in the Prospectus (or any
amendment or supplement thereto).
(b) The Adviser agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Securities Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section 7, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or in any amendment or supplement thereto) or in any preliminary
prospectus or statement of additional information or in the Prospectus (or in
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Fund by the Adviser expressly for use in
the Registration Statement (or in any amendment or supplement thereto),
including the information deemed to be a part of the Registration Statement
pursuant to Rule 430A or Rule 434 of the Rules and Regulations, or any
preliminary prospectus or preliminary statement of additional information or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Fund by the Adviser
expressly for use in the Registration Statement (or any amendment thereto) or
any preliminary prospectus or preliminary statement of additional information or
the Prospectus (or any amendment or supplement thereto).
(c) The Underwriter agrees to indemnify and hold harmless the Fund and
the Adviser, their respective directors, each of the Fund's officers who signed
the Registration Statement, and each person, if any, who controls the Fund or
the Adviser within the meaning of Section 15 of the Securities Act, against any
and all loss, liability, claim, damage and expense described in the
18
<PAGE>
indemnity contained in subsection (a) of this Section 7, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or in any amendment or supplement
thereto) or in any preliminary prospectus or preliminary statement of additional
information or in the Prospectus (or in any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the Fund
by the Underwriter expressly for use in the Registration Statement (or in any
amendment or supplement thereto), including the information deemed to be a part
of the Registration Statement pursuant to Rule 430A or Rule 434 of the Rules and
Regulations, or any preliminary prospectus or preliminary statement of
additional information or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Fund by the Underwriter expressly for use in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or preliminary
statement of additional information or the Prospectus (or any amendment or
supplement thereto).
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudicial as a result thereof and
in no event shall relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In the case of parties indemnified
pursuant to Sections 7(a) and 7(b) above, counsel to the indemnified parties
shall be selected by the Underwriter, and, in the case of parties indemnified
pursuant to Section 7(c) above, counsel to the indemnified parties shall be
selected by the Fund and the Adviser. An indemnifying party may participate at
its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(e) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7 (a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement
19
<PAGE>
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 8. Contribution. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses incurred by such indemnified party, as incurred, (i) in such proportion
as is appropriate to reflect the relative benefits received by the Fund, the
Adviser and the Underwriter from the offering of the Shares pursuant to this
Agreement or (ii) if the allocation provided by clause (i) 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 Fund, the Adviser and of the Underwriter in connection with the statements
or omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Fund, the Adviser and the
Underwriter in connection with the offering of the Shares pursuant to this
Agreement shall be deemed to be in the same respective proportions as (x) the
total net proceeds from the offering of the Shares pursuant to this Agreement (
net of underwriting discounts and commissions but before deducting expenses)
received by the Fund, (y) the investment advisory fee payable to the Adviser
during the 12 month period preceding the date of this Agreement, and (z) the
total underwriting discount received by the Underwriter, in the case of (x) and
(z) as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the term sheet, bear to the aggregate initial public
offering price of the Shares as set forth on such cover plus (y) above.
The relative fault of the Fund, the Adviser and the Underwriter shall
be determined by reference to, among other things, whether any such 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 Fund, the Adviser
or the Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Fund, the Adviser and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
20
<PAGE>
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Securities Exchange Act of 1934, as amended shall have the same rights to
contribution as the Underwriter, and each officer or director of the Fund and
the Adviser, respectively, each director of the Fund who signed the Registration
Statement, and each person, if any, who controls the Fund and the Adviser within
the meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended shall have the same rights to contribution as
the Fund and the Adviser, respectively.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in the Pricing Agreement, or contained in certificates of officers
of the Fund or of the Adviser submitted pursuant hereto, shall remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or controlling person, or by or on behalf of the Fund
or the Adviser and shall survive delivery of the Shares to the Underwriter.
SECTION 10. Termination of Agreement. (a) The Underwriter may terminate
this Agreement by written notice to the Fund, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus,
any Material Adverse Effect in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any Material Adverse Effect in the financial markets in the United
States or elsewhere, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Underwriter impracticable to market the Shares or enforce contracts for the sale
of the Shares, or (iii) if trading in the Common Stock has been suspended or
materially limited by the Commission or if trading generally on either the New
York Stock Exchange or the American Stock Exchange or in the NASDAQ National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices for securities have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
Federal, New York, Maryland or Massachusetts authorities.
(b) If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party except as
provided in Section 5 hereof, and provided further that Sections 1, 7, 8 and 9
hereof shall survive such termination and remain in full force and effect.
21
<PAGE>
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated at Merrill Lynch World Headquarters, World Financial
Center, North Tower, New York, New York 10281-1201, Attention: Lee Whitley, Vice
President; notices to the Fund shall be directed to The New America High Income
Fund, Inc. at 33 Broad Street, Boston, Massachusetts 02109. Attention: Ellen E.
Terry; and notices to the Adviser shall be directed to Wellington Management
Company, LLP at 75 State Street, Boston, Massachusetts 02109, Attention: Mary
Ann Tynan.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall
inure to the benefit of and be binding upon the Underwriter, the Fund, the
Adviser and their respective successors. Nothing expressed or mentioned in this
Agreement or in the Pricing Agreement is intended or shall be construed to give
any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 7 and 8 hereof and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
the Pricing Agreement and all conditions and provisions hereof are intended to
be for the sole and exclusive benefit of the parties hereto and thereto and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Shares from the Underwriter
shall be deemed to be a successor merely by reason of such purchase.
SECTION 13. Governing Law and Time. This Agreement and the Pricing
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. Specified times of day refer to New York City time.
22
<PAGE>
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a single binding agreement
between the Underwriter and the Fund and the Adviser in accordance with its
terms.
Very truly yours,
THE NEW AMERICA HIGH INCOME FUND, INC.
By:
-------------------------------
Name:
Title:
WELLINGTON MANAGEMENT COMPANY, LLP
By:
-------------------------------
Name:
Title:
Confirmed and Accepted,
as of the date
first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------
Authorized Signatory
23
<PAGE>
Exhibit A
$60,000,000
THE NEW AMERICA HIGH INCOME FUND, INC.
(a Maryland corporation)
AUCTION TERM PREFERRED STOCK
2,400 Series D Shares
Liquidation Preference $ 25,000 Per Share
PRICING AGREEMENT
May __, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs and Mesdames:
Reference is made to the Purchase Agreement, dated May _, 1998
(the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") of 2,400
shares of Auction Term Preferred Stock, Series D, with a par value of $1.00 per
share and a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) (the
"Shares") of The New America High Income Fund, Inc. (the "Fund").
Pursuant to Section 2 of the Purchase Agreement, the Fund
agrees with the Underwriter as follows:
1. The initial public offering price per share for the Shares,
determined as provided in said Section 2, shall be $25,000
plus accumulated dividends, if any, from the date of original
issue.
<PAGE>
2. The purchase price per share for the Shares to be paid by
the Underwriter shall be $______ plus accumulated dividends,
if any, from the date of original issue, being an amount equal
to the initial public offering price set forth above less $___
per share.
3. The dividend rate for the Shares for the initial dividend
period ending __________, 1998 will be __%.
2
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Fund a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a single
binding agreement between the Underwriter and the Fund in accordance with its
terms.
Very truly yours,
THE NEW AMERICA HIGH INCOME FUND, INC.
By:
-------------------------------
Name:
Title:
Confirmed and Accepted,
as of the date
first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------
Authorized Signatory
3
Exhibit K2
- -------------------------------------------------------------------------------
AUCTION AGENT AGREEMENT
between
THE NEW AMERICA HIGH INCOME FUND, INC.
and
BANKERS TRUST COMPANY
Dated as of May 6, 1997
Relating to
Auction Term Preferred Stock
of
THE NEW AMERICA HIGH INCOME FUND, INC.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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...........................................................................3
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....................................................................6
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....................................................9
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.......................................................10
4.1 Issue of Share Certificates....................................................................10
4.2 Registration of Transfer of Shares.............................................................10
4.3 Removal of Legend on Restricted Shares.........................................................10
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................................................................................11
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
(i)
<PAGE>
Page
6.3 Auction Agent's Disclaimer.....................................................................13
6.4 Compensation, Expenses and Indemnification.....................................................13
7. Miscellaneous...........................................................................................14
7.1 Term of Agreement..............................................................................14
7.2 Communications.................................................................................14
7.3 Entire Agreement...............................................................................15
7.4 Benefits.......................................................................................15
7.5 Amendment; Waiver..............................................................................16
7.6 Successors and Assigns.........................................................................16
7.7 Severability...................................................................................16
7.8 Execution in Counterparts......................................................................16
7.9 Governing Law..................................................................................16
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
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
</TABLE>
(iii)
<PAGE>
AUCTION AGENT AGREEMENT dated as of May 6, 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.
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(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.
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(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
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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.
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(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.
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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.
<TABLE>
<CAPTION>
Time Event
<S> <C>
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.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
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
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Alternate Term Period, in which case the Fund shall specify the terms of the
Specific Redemption Provisions, if any, or (y) its determination not to proceed
with such Alternate Period in which latter event the succeeding Dividend Period
shall be a Standard Term Period. The Auction Agent shall promptly deliver such
notice to the Broker-Dealers, but in no event later than 3:00 P.M. on the date
of such notice.
(iii) If the Fund fails to deliver either such
notice with respect to any designation of any proposed Alternate Term Period to
the Auction Agent by 3:00 P.M., New York City time, on the second Business Day
next preceding the first day of such proposed Alternate Term Period, the Fund
shall be deemed to have delivered a notice to the Auction Agent with respect to
such Dividend Period to the effect that it has determined not to proceed with
the designation of an Alternate Term Period, thereby resulting in a Standard
Term Period.
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
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2.8 a Broker-Dealer shall not be deemed to be an affiliate of the Fund solely
because one or more of the directors or executive officers of such Broker-Dealer
or of any Person controlled by, in control of or under common control with such
Broker-Dealer is 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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<PAGE>
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Share Certificates. Upon the Date of original Issue of
each series 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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<PAGE>
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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<PAGE>
(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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<PAGE>
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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<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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.
15
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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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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Auction Agent
Agreement to be duly executed and delivered by their proper authorized officers
as of the date first above written.
THE NEW AMERICA HIGH INCOME FUND,
INC.
By: /s/ Ellen E. Terry
----------------------
Name: Ellen E. Terry
Title: Vice President
COMPANY
By: /s/ Melissa Reynolds
----------------------
Name: Melissa Reynolds
Title: AT
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<PAGE>
EXHIBIT A
FORM OF BROKER-DEALER AGREEMENT
BROKER-DEALER AGREEMENT dated as of May 6, 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:
<PAGE>
(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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1.3 Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include
the plural number and vice versa.
(b) The captions and headings herein are solely for the
convenience of reference and shall not constitute a part of this Agreement nor
shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto", and other words of
similar import refer to this agreement as a whole.
(d) All references herein to a particular time of day
shall be to New York City time.
2. 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.
<TABLE>
<CAPTION>
Time Event
<S> <C>
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
4
<PAGE>
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.
</TABLE>
(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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<PAGE>
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.
6
<PAGE>
(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).
7
<PAGE>
For purposes of subclause (d)(i) of the foregoing paragraph, if any
Existing Holder who acquired shares of any series of ATP through BD transfers
those shares to another Person other than pursuant to an Auction, then such
Existing Holder shall be deemed to have acquired such shares through BD unless
the transfer was affected by, or transferee is, a Broker-Dealer other than BD.
2.7 Settlement.
(a) If any Existing Holder on whose behalf the BD 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.
8
<PAGE>
(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).
9
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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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<PAGE>
(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:
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.
(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:
<PAGE>
(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.
(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
2
<PAGE>
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.
3
<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.
<PAGE>
EXHIBIT D
(To be used only for transfers made
other than pursuant to in Auction)
THE NEW AMERICA 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:
<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:
<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
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
<PAGE>
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 such information concerning our
beneficial ownership of Securities as such auction agent or remarketing agent
shall request.
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<PAGE>
7. We acknowledge that partial deliveries of Securities purchased in
Auctions or Remarketings may be made to us and such deliveries shall constitute
good delivery as set forth in the Prospectus.
8. This letter is not a commitment by us to purchase any
Securities.
9. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior to post-dated purchaser's letter
specific to any particular Securities, and this letter may only be revoked by a
signed writing delivered to the original recipients hereof.
10. The descriptions of Auction or Remarketing procedures set forth in
each applicable Prospectus are incorporated by reference herein and in case of
any conflict between this letter, any purchaser's letter specific to particular
Securities and any such description, such description shall control.
11. Any xerographic or other copy of this letter shall be deemed
of equal effect as a signed original.
12. Our agent member of The Depository Trust company currently
is __________.
13. Our personnel authorized to 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 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
3
<PAGE>
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:
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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
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(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
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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.
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EXHIBIT D
FORM OF ATP PROVISIONS
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THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
ESTABLISHING AND FIXING THE RIGHTS AND
PREFERENCES OF TWO SERIES OF SHARES OF PREFERRED STOCK
The New America High Income Fund, Inc., a Maryland corporation (the
"Corporation"), certifies to the Secretary of State of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article IV of its Articles of Amendment and
Restatement, as heretofore amended (which, as hereafter restated or amended
from time to time, are together with these Articles Supplementary herein
called the "Articles"), the Board of Directors has, by resolution,
authorized the issuance of 2,000 shares of its Preferred Stock, par value
$1.00 per share, liquidation preference $50,000 per share, classified into
two series designated respectively: Series A Auction Term Preferred Stock
and Series B Auction Term Preferred Stock (collectively the "ATP").
SECOND: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the shares of such series of ATP are as follows:
DESIGNATION
Series A: A series of 1,200 shares of Preferred Stock, par value $1.00 per
share, liquidation preference $50,000 per share, is hereby designated "Series A
Auction Term Preferred Stock" ("ATP Series A"). Each share of ATP Series A shall
have an Applicable Rate for its initial dividend Period equal to 3.43% per annum
and an initial Dividend Payment Date of February 1, 1994; and each share of ATP
Series A shall have such other preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption, in addition to those required by applicable law or set forth in the
Articles applicable to preferred stock of the Corporation, as are set forth in
Part I and Part II of these Articles Supplementary. The ATP Series A shall
constitute a separate series of Preferred Stock of the Corporation.
Series B: A series of 800 shares of Preferred Stock, par value $1.00 per
share, liquidation preference $50,000 per share, is hereby designated "Series B
Auction Term Preferred Stock" ("ATP Series B"). Each share of ATP Series B shall
have an Applicable Rate for its initial Dividend Period equal to 3.46% per annum
and have an initial Dividend Payment Date of February 15, 1994; and each share
of ATP Series B shall have such other
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preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Articles applicable to preferred
stock of the Corporation, as are set forth in Part I and Part II of these
Articles Supplementary. The ATP Series B shall constitute a separate series of
Preferred Stock of the Corporation.
Subject to the provisions of Section 12(c) of Part I hereof, the Board of
Directors of the Corporation may, in the future, reclassify additional shares of
the Corporation's Preferred Stock as Series A or Series B ATP, with the same
preferences, rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption and other terms of the
respective series herein described, except that the Applicable Rate for its
initial Dividend Period, its initial Dividend Payment Date and any other changes
in the l terms herein set forth shall be as set forth in the Articles
Supplementary reclassifying such shares as ATP.
As used in Part I and Part II of these Articles Supplementary, capitalized
terms shall have the meanings provided in Section 18 of Part I and Section 1 of
Part II.
PART I
1. Number of Shares: Ranking.
(a) The initial number of authorized shares constituting each series of ATP
is 1,200 shares for ATP Series A and 800 shares for ATP Series B. No fractional
shares of ATP shall be issued.
(b) Any shares of ATP which at any time have been redeemed or purchased by
the Corporation shall, after such redemption or purchase, have the status of
authorized but unissued shares of Preferred Stock.
(c) The shares of ATP shall rank on a parity with shares of any other
series of Preferred Stock (including any other shares of ATP) as to the payment
of dividends to which such shares are entitled and the distribution of assets
upon dissolution, liquidation or winding up of the affairs of the Corporation.
(d) No holder of shares of any series of ATP shall have, solely by reason
of being such a holder of any series, any preemptive or other right to acquire,
purchase or subscribe for any shares of ATP, shares of Common Stock of the
Corporation or other securities of the Corporation which it may hereafter issue
or sell.
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2. Dividends.
(a) The Holders of shares of any series of ATP shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends on their shares at the
Applicable Rate, determined as set forth in paragraph (c) of this Section 2, and
no more, payable on the respective dates determined as set forth in paragraph
(b) of this Section 2. Dividends on the Outstanding shares of any series of ATP
issued on the Date of Original Issue shall accumulate from the Date of Original
Issue.
(b) (i) Dividends shall be payable when, as and if declared by the Board
of Directors following the initial Dividend Payment Date, subject to
subparagraph (b)(ii) of this Section 2, on the shares of each series of ATP as
follows:
(A) with respect to any Dividend Period of one year or less, on
the Business Day next succeeding the last day thereof and, if any, on
the 91st, 181st and 271st days thereof; and
(B) with respect to any Dividend Period of more than one year, on
a quarterly basis on each January 1, April 1, July 1 and October 1
within such Dividend Period and on the Business Day following the last
day of such Dividend Period.
(ii) If a day 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 the relevant series of ATP, an aggregate amount
of funds available on the next Business Day in the City of New York, New York,
equal to the dividends to be paid to all Holders of such shares on such Dividend
Payment Date. The Corporation shall not be required to establish any reserves
for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of dividends
shall be held in trust for the payment of such dividends by the Paying Agent for
the benefit of the Holders specified in subparagraph (b)(v) of this Section 2.
Any
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<PAGE>
moneys paid to the Paying Agent in accordance with the foregoing but not applied
by the Paying Agent to the payment of dividends, including interest earned on
such moneys, will, to the extent permitted by law, be repaid to the Corporation
at the end of 90 days from the date on which such moneys were to have been so
applied.
(v) Each dividend on the ATP shall be paid on the Dividend Payment
Date therefor to the Holders of the relevant series as their names appear on the
stock ledger or stock records of the Corporation on the Business Day next
preceding such Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as their names appear on the stock ledger
or stock records of the Corporation on such date, not exceeding 15 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(c) (i) The dividend rate on Outstanding shares of each series of ATP
during the period from and after the Date of Original Issue to and including the
last day of the initial Dividend Period therefor shall be equal to the rate per
annum set forth under "Designation" above. For each subsequent Dividend Period
with respect to the Outstanding shares of any series of ATP outstanding
thereafter, the dividend rate shall be equal to the rate per annum that results
from an Auction for Outstanding shares of the relevant series of ATP on the
respective Auction Date therefor next preceding such subsequent Dividend Period;
provided, however, that if an Auction for any subsequent Dividend Period of such
series of ATP is not held for any reason or if Sufficient Clearing Orders have
not been made in an Auction (other than as a result of all shares of such series
of ATP being the subject of Submitted Hold Orders or Submitted Hold/Sell
Orders), then the dividend rate on the shares of such series of ATP for any such
Dividend Period shall be the Maximum Applicable Rate for such shares on the
Auction Date for such Dividend Period (except during a Default Period when the
dividend rate shall be the Default Rate, as set forth in Section 2(c)(ii)
below). The Minimum Applicable Rate, if any, will apply automatically following
an Auction in which all of the Outstanding shares of the relevant series of ATP
are subject (or are deemed to be subject) to Hold Orders or Hold/Sell Orders.
The rate per annum at which dividends are payable on shares of any series of ATP
as determined pursuant to this Section 2(c)(i) shall be the "Applicable Rate."
(ii) A "Default Period" will commence on the applicable date set forth
below if the Corporation fails to (A) declare prior to the close of business on
the second Business Day preceding any Dividend Payment Date, for payment on or
(to the extent permitted as described below) within two Business Days after such
Dividend Payment Date to the persons who held shares as of 12:00 noon, New York
City time, on the Business Day preceding such Dividend Payment Date, the full
amount of any dividend payable on such Dividend Payment Date, (B) deposit,
irrevocably in trust, in same-day funds, with the Paying Agent by 12:00 noon,
New York City time, (I) on or
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(to the extent permitted as described below) within two Business Days after any
Dividend Payment Date the full amount of any declared dividend on the relevant
series of ATP payable on such Dividend Payment Date (together with the failure
to timely declare dividends described in (A) above, hereinafter referred to as a
"Dividend Default") or (II) on or (to the extent permitted as described below)
within two Business Days after any date fixed for redemption of shares of ATP
called for redemption, the applicable redemption price (a "Redemption Default")
or (C) maintain the "aaa"/AAA Credit Rating unless the "aaa"/AAA Credit Rating
is restored by the Dividend Payment Date next following the date on which the
Corporation fails to maintain the "aaa"/AAA Credit Rating (a "Rating Default"
and, together with a Dividend Default and a Redemption Default, hereinafter
referred to as a "Default"). A Default Period with respect to a Dividend
Default or a Redemption Default will consist of the period commencing on and
including the aforementioned Dividend Payment Date or redemption date, as the
case may be, and ending on and including the Business Day on which, by 12:00
noon, New York city time, all unpaid dividends and unpaid redemption price shall
have been so deposited or shall have otherwise been made available to the
applicable holders in same-day funds. A Default Period with respect to a Rating
Default shall commence as of the date on which the Corporation fails to maintain
the "aaa"/AAA Credit Rating (provided that such Rating Default shall be deemed
not to have occurred and such Default Period shall not commence if such Rating
Default is cured by the next succeeding Dividend Payment Date) and shall end on
the earlier of the date on which such default is cured as provided herein or the
date on which the ATP is mandatorily redeemed as provided herein. The Applicable
Rate for each Default Period, including each Dividend Period commencing during a
Default Period, will be equal to the Default Rate; and each subsequent Dividend
Period 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 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
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any payment made after 12:00 noon, New York city time, on any Business Day shall
be considered to have been made instead in the same form of funds and to the
same person before 12:00 noon, New York City time, on the next Business Day. The
Default Rate is equal to the Reference Rate multiplied by three (3).
(iii) The amount of dividends per share payable (if declared) on each
Dividend Payment Date of each Dividend Period of less than one (1) year shall be
computed by multiplying the Applicable Rate (or the Default Rate) for such
Dividend Period by a fraction, the numerator of which will be the number of days
in such Dividend Period such share was Outstanding and for which the Applicable
Rate or the Default Rate was applicable and the denominator of which will be
360, multiplying the amount so obtained by S50,000, and rounding the amount so
obtained to the nearest cent. During any Dividend Period of one (1) year or
more, the amount of dividends per share payable on any Dividend Payment Date
shall be computed as described in the preceding sentence, except that it will be
determined on the basis of a year consisting of twelve 30-day months.
(d) Any dividend payment made on shares of any series of ATP shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such series of ATP.
(e) For so long as the shares of ATP are Outstanding, except as
contemplated by Sections 3(j) and 7(e) or in connection with the redemption or
repurchase of the Corporation's Taxable Auction Rate Preferred Stock in
connection with the issuance of the ATP, the Corporation will not declare, pay
or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or options, warrants or rights to
subscribe for or purchase, Common Stock or other shares, if any, ranking junior
to the ATP as to dividends or upon liquidation) in respect to Common Stock or
any other shares of the Corporation ranking junior to or on a parity with the
ATP as to dividends or upon liquidation, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Stock or any other
such junior shares (except by conversion into or exchange for shares of the
Corporation ranking junior to the ATP as to dividends and upon liquidation) or
any such parity shares (except by conversion into or exchange for shares of the
Corporation ranking junior to or on a parity with the ATP as to dividends and
upon liquidation), unless (i) immediately after such transaction, the
Corporation would have Eligible Assets with an aggregate Discounted Value at
least equal to the ATP Basic Maintenance Amount and the 1940 Act ATP Asset
Coverage would be achieved, (ii) full cumulative dividends on the ATP due on or
prior to the date of the transaction have been declared and paid and (iii) the
Corporation has redeemed the full number of shares of ATP required to be
redeemed by any provision for mandatory redemption contained in Section
3(a)(ii).
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3. Redemption.
(a) (i) After the initial Dividend Period, subject to the provisions
of this Section 3 and to the extent permitted under the 1940 Act and Maryland
law, the Corporation may, at its option, redeem in whole or in part out of funds
legally available therefor shares of any series of ATP herein designated as (A)
having a Dividend Period of one year or less, on the Business Day after the last
day of such Dividend Period by delivering a notice of redemption not less than
15 days and not more than 40 days prior to such redemption, at a redemption
price per share equal to $50,000, plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to the date fixed for
redemption, or (B) having a Dividend Period of more than one year, on any
Business Day prior to the end of the relevant Dividend Period by delivering a
notice of redemption not less than 15 days and not more than 40 days prior to
the date fixed for such redemption, at a redemption price per share equal to
$50,000, plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to the date fixed for redemption, plus a
redemption premium, if any, determined by the Board of Directors after
consultation with the Broker-Dealers and set forth in any applicable Specific
Redemption Provisions at the time of the designation of such Dividend Period as
set forth in Section 4 of these Articles Supplementary; provided, however, that
during a Dividend Period of more than one year no shares of ATP will be subject
to optional redemption except in accordance with any Specific Redemption
Provisions approved by the Board of Directors after consultation with the
Broker-Dealers at the time of the designation of such Dividend Period.
Notwithstanding the foregoing, the Corporation shall not give a notice of or
effect any redemption pursuant to this Section 3(a)(i) unless, on the date on
which the Corporation intends to give such notice and on the date of redemption
(a) the Corporation has available certain Deposit Securities with maturity or
tender dates not later than the day preceding the applicable redemption date and
having a value not less than the amount (including any applicable premium) due
to Holders of ATP by reason of the redemption of such ATP on such date fixed for
the redemption and (b) the Corporation would have Eligible Assets with an
aggregate Discounted Value at least equal the ATP Basic Maintenance Amount
immediately subsequent to such redemption, if such redemption were to occur on
such date, it being understood that the provisions of paragraph (d) of this
Section 3 shall be applicable in such circumstances in the event the Corporation
makes the deposit and takes the other action required thereby.
(ii) If the Corporation fails to maintain, as of any Valuation Date,
Eligible Assets with an aggregate Discounted Value at least equal to the ATP
Basic Maintenance Amount or, as of the last Business Day of any month, the 1940
Act ATP Asset Coverage, 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
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"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 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 ATP will be subject to mandatory redemption out of funds legally
available therefor, on the Mandatory Redemption Date at the Mandatory Redemption
Price set forth in subparagraph (a)(iv) of this Section 3.
(iv) In determining the shares of ATP required to be redeemed in
accordance with the foregoing Section 3(a)(ii), the Corporation shall allocate
the number of shares required to be redeemed to satisfy the ATP Basic
Maintenance Amount or the 1940 Act ATP Asset Coverage, as the case may be, pro
rata among the Holders of shares of ATP in proportion to the number of shares
they hold and shares of other Preferred Stock subject to mandatory redemption
provisions similar to those contained in this Section 3, subject to the further
provisions of this subparagraph (iv). The Corporation shall effect any required
mandatory redemption pursuant to subparagraph (a)(ii) or (a)(iii) of this
Section 3 no later than 30 days after the Asset Coverage Cure or the Rating
Default Cure Date, as the case may be (the "Mandatory Redemption Date"), except
that if the Corporation does not have funds legally available for the redemption
of, or is not otherwise legally permitted to redeem, the number of shares of ATP
which would be required to be redeemed by the Corporation under clause (A) of
subparagraph (a)(ii) or subparagraph (a)(iii) of this Section 3 if sufficient
funds were available, together with shares of other Preferred Stock which are
subject to mandatory redemption under provisions similar to those contained in
this Section 3, or the Corporation otherwise is unable to effect such redemption
on or prior to such Mandatory Redemption Date, the Corporation shall redeem
those shares of ATP, and shares of other Preferred Stock which it was unable to
redeem, on the earliest practicable date on which the Corporation will have such
funds available, upon notice pursuant to Section 3(b) to record owners of shares
of ATP to be redeemed and the Paying Agent. The Corporation will deposit with
the Paying Agent funds sufficient to
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redeem the specified number of shares of ATP with respect to a redemption
required under subparagraph (a)(ii) or subparagraph (a)(iii) of this Section 3,
by 1:00 p.m., New York City time, of the Business Day immediately preceding the
Mandatory Redemption Date. If fewer than all of the Outstanding shares of ATP
are to be redeemed pursuant to this Section 3(a)(iv), the number of shares to be
redeemed shall be redeemed pro 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 $50,000 per share, plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to the date
fixed for redemption, plus (in the case of a Dividend Period of one year or more
only) a redemption premium, if any, determined by the Board of Directors after
consultation with the Broker-Dealers and set forth in any applicable Specific
Redemption Provisions.
(b) In the event of a redemption pursuant to Section 3(a), the
Corporation will file a notice of its intention to redeem with the Securities
and Exchange Commission so as to provide at least the minimum notice required
under Rule 23c-2 under the 1940 Act or any successor provision. In addition, the
Corporation shall deliver a notice of redemption to the Auction Agent (the
"Notice of Redemption") containing the information set forth below (i) in the
case of an optional redemption pursuant to subparagraph (a)(i) above, one
Business Day prior to the giving of notice to the Holders, (ii) in the case of a
mandatory redemption pursuant to subparagraph (a)(ii) or subparagraph (a)(iii)
above, on or prior to the 30th day preceding the Mandatory Redemption Date. The
Auction Agent will use its reasonable efforts to provide telephonic notice to
each Holder of shares of ATP called for redemption not later than the close of
business on the Business Day immediately following the day on which the Auction
Agent determines the shares to be redeemed (or, during a Default Period with
respect to such shares, not later than the close of business on the Business
Day immediately following the day on which the Auction Agent receives Notice of
Redemption from the Corporation). The Auction Agent shall confirm such
telephonic notice in writing not later than the close of business on the third
Business Day preceding the date fixed for redemption by providing the Notice of
Redemption to each Holder of shares called for redemption, the Paying Agent (if
different from the Auction Agent) and the Securities Depository. Notice of
Redemption will be addressed to the registered owners of the ATP at their
addresses appearing on the share records of the Corporation. Such Notice of
Redemption will set forth (i) the date fixed for redemption, (ii) the number and
identity of shares of ATP to be redeemed, (iii) the redemption price (specifying
the amount of accumulated dividends to be included therein), (iv) that dividends
on the shares to be redeemed will cease to accumulate on such date fixed for
redemption, and (v) the provision under which redemption shall be made. No
defect in the Notice of Redemption or in the transmittal or mailing thereof will
affect the validity of the redemption proceedings, except as required by
applicable law. If fewer than all shares held by any Holder are to be redeemed,
the Notice of Redemption mailed to such Holder shall also specify the number of
shares to be redeemed from such Holder.
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<PAGE>
(c) Notwithstanding the provisions of paragraph (a) of this Section 3, but
subject to Section 7(e), no shares of ATP may be redeemed unless all dividends
in arrears on the Outstanding shares of ATP and all capital stock of the
Corporation ranking on a parity with the ATP with respect to payment of
dividends or upon liquidation, have been or are being contemporaneously paid or
set aside for payment; provided, however, that the foregoing shall not prevent
a purchase or acquisition of all Outstanding shares of ATP pursuant to the
successful completion of an otherwise lawful purchase or exchange offer made on
the same terms to, and accepted by, Holders of all Outstanding shares of ATP.
(d) Upon the deposit of funds sufficient to redeem shares of ATP with the
Paying Agent and the giving of the Notice of Redemption to the Auction Agent
under paragraph (b) of this Section 3, dividends on such shares shall cease to
accumulate and such shares shall no longer be deemed to be Outstanding for any
purpose (including, without limitation, for purposes of calculating whether the
Corporation has maintained the requisite ATP Basic Maintenance Amount or the
1940 Act ATP Asset Coverage), and all rights of the holder of the shares so
called for redemption shall cease and terminate, except the right of such holder
to receive the redemption price specified herein, but without any interest or
other additional amount. Such redemption price shall be paid by the Paying Agent
to the nominee of the Securities Depository. The Corporation shall be entitled
to receive from the Paying Agent, promptly after the date fixed for redemption,
any cash deposited with the Paying Agent in excess of (i) the aggregate
redemption price of the shares of ATP called for redemption on such date and
(ii) such other amounts, if any, to which Holders of shares of ATP called for
redemption may be entitled. Any funds so deposited that are unclaimed at the end
of two years from such redemption date shall, to the extent permitted by law, be
paid to the Corporation, after which time the Holders of shares of ATP so called
for redemption may look only to the Corporation for payment of the redemption
price and all other amounts, if any, to which they may be entitled. The
Corporation shall be entitled to receive, from time to time after the date fixed
for redemption, any interest earned on the funds so deposited.
(e) To the extent that any redemption for which Notice of Redemption has
been given is not made by reason of the absence of legally available funds
therefor, or is otherwise prohibited, such redemption shall be made as soon as
practicable to the extent such funds become legally available or such redemption
is no longer otherwise prohibited. Failure to redeem shares of ATP shall be
deemed to exist at any time after the date specified for redemption in a Notice
of Redemption when the Corporation shall have failed, for any reason whatsoever,
to deposit in trust with the Paying Agent the redemption price with respect to
any shares for which such Notice of Redemption has been given. Notwithstanding
the fact that the Corporation may not have redeemed shares of ATP for which a
Notice of Redemption has been given, dividends may be declared and paid on
shares of ATP and shall include those shares of ATP for which Notice of
Redemption has been given but for which deposit of funds has not been made.
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<PAGE>
(f) All moneys paid to the Paying Agent for payment of the redemption price
of shares of ATP called for redemption shall be held in trust by the Paying
Agent for the benefit of holders of shares so to be redeemed.
(g) So long as any shares of ATP are held of record by the nominee of the
Securities Depository, the redemption price for such shares will be paid on the
date fixed for redemption to the nominee of the Securities Depository for
distribution to Agent Members for distribution to the persons for whom they are
acting as agent.
(h) Except for the provisions described above, nothing contained in these
Articles Supplementary limits any right of the Corporation to purchase or
otherwise acquire any shares of ATP outside of an Auction at any price, whether
higher or lower than the price that would be paid in connection with an optional
or mandatory redemption, so long as, at the time of any such purchase, there is
no arrearage in the payment of dividends on, or the mandatory or optional
redemption price with respect to, any shares of ATP for which Notice of
Redemption has been given and the Corporation is in compliance with the 1940 Act
ATP Asset Coverage and has 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 are redeemed or otherwise
acquired by the Corporation, the Corporation shall give notice of such
transaction to the Auction Agent, in accordance with the procedures agreed upon
by the Board of Directors.
(i) In the case of any redemption pursuant to this Section 3, only whole
shares of ATP shall be redeemed, and in the event that 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.
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<PAGE>
4. Designation of Dividend Period.
(a) The initial Dividend Period for each series of the ATP is as set forth
under "Designation" above. The Corporation will designate the duration of
subsequent Dividend Periods of each series of ATP; provided, however, that no
such designation is necessary for a Standard Term Period and, provided further,
that any designation of an Alternate Term Period shall be effective only if (i)
notice thereof shall have been given as provided herein, (ii) any failure to pay
in a timely manner to the Auction Agent the full amount of any dividend on, or
the redemption price of, the ATP shall have been cured as provided above, (iii)
Sufficient Clearing Orders shall have existed in an Auction held on the Auction
Date immediately preceding the first day of such proposed Alternate Term Period,
(iv) if the Corporation shall have mailed a Notice of Redemption with respect to
any shares, the redemption price with respect to such shares shall have been
deposited with the Paying Agent, and (v) in the case of the designation of an
Alternate Term Period, the Corporation has confirmed that as of the Auction Date
next preceding the first day of such Alternate Term Period, it has Eligible
Assets with an aggregate Discounted Value at least equal to the ATP Basic
Maintenance Amount, and the Corporation has consulted with the Broker-Dealers
and has provided notice of such designation and an ATP Basic Maintenance Report
to Fitch (if Fitch is then rating the ATP), Moody's (if Moody's is 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
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<PAGE>
the first and last days thereof and (B) the terms of any Specific
Redemption Provisions; or
(ii) a notice stating that the Corporation has determined not to
exercise its option to designate an Alternate Term Period.
If the Corporation fails to deliver either such notice with respect to any
designation of any proposed Alternative Term Period to the Auction Agent or is
unable to make the confirmation provided in clause (v) of Paragraph (a) of this
Section 4 by 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of such proposed Alternate Term Period, the Corporation
shall be deemed to have delivered a notice to the Auction Agent with respect to
such Dividend Period to the effect set forth in clause (ii) above, thereby
resulting in a Standard Term Period.
5. Restrictions on Transfer. Shares of ATP may be transferred only (a)
pursuant to an Order placed in an Auction, (b) to or through a Broker-Dealer,
(c) to a Person that has delivered a signed Master Purchaser's Letter to the
Auction Agent or (d) to the Corporation or any Affiliate. Notwithstanding the
foregoing, no transfers other than those transfers made pursuant to Auctions
will be effective unless the selling Existing Holder or the Broker-Dealer or
Agent Member of such Existing Holder advises the Auction Agent of such transfer.
The certificates representing the shares of ATP issued to the Securities
Depository will bear legends with respect to the restrictions described above
and stop-transfer instructions will be issued to the Transfer Agent and/or
Registrar.
6. Voting Rights. (a) Except as otherwise provided in the Articles or as
otherwise required by applicable law, (i) each Holder of shares of ATP shall be
entitled to one vote for each share of ATP held on each matter submitted to a
vote of shareholders of the Corporation, and (ii) the holders of outstanding
shares of Preferred Stock, including the ATP, and shares of Common Stock shall
vote together as a single class; provided, however, that, at any meeting of the
stockholders of the Corporation held for the election of directors, the holders
of outstanding shares of Preferred Stock, including the ATP, represented in
person or by proxy at said meeting, shall be entitled, as a class, to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation, to elect two directors of the Corporation, each share of
Preferred Stock, including the ATP, entitling the holder thereof to one vote.
Subject to paragraph (b) of this Section 6, the holders of outstanding shares of
Common Stock and Preferred Stock, including the ATP, voting together as a single
class, shall elect the balance of the directors.
(b) During any period in which any one or more of the conditions
described below shall exist (such period being referred to herein as a "Voting
Period"), the number of directors constituting the Board of Directors shall be
automatically increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock,
including the ATP, would constitute a majority of the Board of Directors as
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<PAGE>
so increased by such smallest number; and the holders of shares of Preferred
Stock, including the ATP, shall be entitled, voting as a class on a
one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation), to elect such
smallest number of additional directors, together with the two directors that
such holders are in any event entitled to elect. A Voting Period shall commence:
(i) if at the close of business on any Dividend Payment Date
accumulated dividends (whether or not earned or declared) on shares of the
Preferred Stock, including the ATP, equal to at least two full years'
dividends shall be due and unpaid; or
(ii) if at any time holders of any other shares of Preferred Stock are
entitled under the 1940 Act to elect a majority of the directors of the
Corporation.
Upon the termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 6 shall cease, subject always, however, to the
revesting of such voting rights in the Holders of shares of Preferred Stock,
including the ATP, upon the further occurrence of any of the events described in
this paragraph (b) of Section 6.
(c) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock, including the ATP, to elect additional
directors as described in paragraph (b) of this Section 6, the Corporation shall
notify the Auction Agent, and the Auction Agent shall call a special meeting of
such holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 30 days after the date of
mailing of such notice. If the Corporation fails to send such notice to the
Auction Agent or if the Auction Agent does not call such a special meeting, it
may be called by any such holder on like notice. The record date for determining
the holders entitled to notice of and to vote at such special meeting shall be
the close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders of
shares of Preferred Stock, including the ATP, held during a Voting Period at
which directors are to be elected, such holders, voting together as a class (to
the exclusion of the holders of all other securities and classes of capital
stock of the Corporation), shall be entitled to elect the number of directors
prescribed in paragraph (b) of this Section 6 on a one-vote-per-share basis.
(d) For purposes of determining any rights of the Holders to vote on
any matter, whether such right is created by the Articles, by statute or
otherwise, no Holder shall be entitled to vote and no share of ATP shall be
deemed to be "Outstanding" for the purpose of voting or determining the number
of shares required to constitute a quorum if, prior to or concurrently with the
time of determination of shares entitled to vote or shares deemed Outstanding
for quorum purposes, as the case may be, the redemption price for the redemption
of such shares has been deposited in trust with the Paying Agent for that
purpose and the requisite Notice of Redemption with respect to such shares shall
have been given as provided
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<PAGE>
in Section 3. No share of ATP held by the Corporation or any Affiliate of the
Corporation shall have any voting rights or be deemed to be Outstanding for
voting or other purposes, except that shares of ATP held by any Affiliate of the
Corporation are deemed Outstanding for purposes of determining the ATP Basic
Maintenance Amount.
(e) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of the ATP and holders
of other Preferred Stock to elect directors shall continue, notwithstanding the
election at such meeting by the holders and such other holders of the number of
directors that they are entitled to elect, and the persons so elected by such
holders, together with the two incumbent directors elected by such holders and
the remaining incumbent directors elected by the holders of the Common Stock and
Preferred Stock, shall constitute the duly elected directors of the Corporation.
(f) Simultaneously with the termination of a Voting Period, the terms
of office of the additional directors elected by the Holders of the ATP and
holders of other Preferred Stock pursuant to paragraph (b) of this Section 6
shall terminate, the remaining directors shall constitute the directors of the
Corporation and the voting rights of such holders to elect additional directors
pursuant to paragraph (b) of this Section 6 shall cease, subject to the
provisions of the last sentence of paragraph (b) of this Section 6.
(g) So long as any of the shares of Preferred Stock, including the
ATP, are Outstanding, the Corporation will not, without the affirmative vote of
the holders of a majority of the Outstanding shares of Preferred Stock
determined with reference to a "majority of outstanding voting securities" as
that term is defined in Section 2(a)(42) of the 1940 Act, voting as a separate
class, (i) amend, alter or repeal any of the preferences, rights or powers of
such class so as to affect materially and adversely such preferences, rights or
powers; (ii) increase the authorized number of shares of Preferred Stock; (iii)
create, 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 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
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any applicable federal or state law relating to bankruptcy or insolvency, or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Corporation or a substantial
part of its property, or make any assignment for the benefit of creditors, or,
except as may be required by applicable law, admit in writing its inability to
pay its debts generally as they become due or take any corporate action in
furtherance of any such action; (v) create, incur or suffer to exist, or agree
to create, incur or suffer to exist, or consent to cause or permit in the future
(upon the happening of a contingency or otherwise) the creation, incurrence or
existence of any material lien, mortgage, pledge, charge, security interest,
security agreement, conditional sale or trust receipt or other material
encumbrance of any kind upon any of the Corporation's assets as a whole, except
(A) liens the validity of which are being contested in good faith by appropriate
proceedings, (B) liens for taxes that are not then due and payable or that can
be paid thereafter without penalty, (C) liens, pledges, charges, security
interests, security agreements or other encumbrances arising in connection with
any indebtedness permitted under clause (vi) below and (D) liens to secure
payment for services rendered including, without limitation, services rendered
by the Corporation's custodian and the Auction Agent; or (vi) create, authorize,
issue, incur or suffer to exist any indebtedness for borrowed money or any
direct or indirect guarantee of such indebtedness for borrowed money or any
direct or indirect guarantee of such indebtedness, except the Corporation may
borrow for temporary or emergency purposes as may be permitted by the
Corporation's investment restrictions or as permitted under the proviso to
Section 12(b) hereof; provided, however, that transfers of assets by the
Corporation subject to 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.
(h) The affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including the ATP, voting as a separate
class, shall be required to approve any plan of reorganization (as such term is
used in the 1940 Act) adversely affecting such shares or any action requiring a
vote of security holders of the Corporation under Section 13(a) of the 1940 Act.
In the event a vote of holders of shares of Preferred Stock is required pursuant
to the provisions of Section 13(a) of the 1940 Act, the Corporation shall, not
later than ten Business Days prior to the date on which such vote is to be
taken, notify Moody's (if Moody's is then rating the ATP), Fitch (if Fitch is
then rating the ATP) and any Other Rating Agency which is then rating the ATP
and which so requires that such vote is to be taken and the nature of the action
with respect to which such vote is 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.
(i) The affirmative vote of the holders of a majority of the
Outstanding shares of each series of ATP, voting separately from any other
series, shall be required with respect to any matter that materially and
adversely affects the rights, preferences, or powers of such series in a manner
different from that of other series of classes of the Corporation's
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shares of capital stock. For purposes of the foregoing, no matter shall be
deemed to adversely affect any right, preference or power unless such matter (i)
alters or abolishes any preferential right of such series; (ii) creates, alters
or abolishes any right in respect of redemption of such series; or (iii) creates
or alters (other than to abolish) any restriction on transfer applicable to such
series. The vote of holders of ATP described in this Section 6(i) will in each
case be in addition to a separate vote of the requisite percentage of Common
Stock and/or ATP necessary to authorize the action in question.
(j) The Board of Directors, without the vote or consent of any holder
of the Preferred Stock, including the ATP, or any other stockholder of the
Corporation, may from time to time amend, alter or repeal any or all of the
definitions of the terms or provisions listed below in connection with obtaining
or maintaining one or more ratings with respect to the ATP, and any such
amendment, alteration or repeal will not be deemed to affect the preferences,
rights or powers of shares of ATP or the Holders thereof, provided that the
Board of Directors receives written confirmation from Moody's (if Moody's is
then rating the ATP) and Fitch (if Fitch is then rating the ATP) (with such
confirmation in no event being required to be obtained from a particular rating
agency in the case of the definitions relevant only to and adopted in connection
with the rating of the ATP, if any, by any other rating agency) that such
amendment, alteration or repeal would not impair the rating then assigned by
Moody's or Fitch, respectively. In addition, the Board of Directors, without the
vote or consent of any Holder of the Preferred Stock, including the ATP, or any
other stockholder of the Corporation, may from time to time adopt, amend, alter
or repeal any or all of any additional or other definitions or add covenants and
other obligations of the Corporation (e.g., maintenance of minimum liquidity
level) or confirm the applicability of covenants and other obligations set forth
herein in connection with obtaining or maintaining the rating of Moody's, Fitch
or any Other Rating Agency with respect to the ATP, and any such amendment,
alteration or repeal will not be deemed to affect the preferences, rights or
powers of the ATP or the Holders thereof, provided the Board of Directors
receives written confirmation from the relevant rating agency (such confirmation
in no event being required to be obtained from a particular rating agency with
respect to definitions or other provisions 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.
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Definitions and Provisions Subject to Change by Director Action:
<TABLE>
<S> <C>
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
</TABLE>
In addition, the Board of Directors may amend the definition of Maximum
Applicable Rate to increase the percentage amount by which the Reference Rate is
multiplied to determine the Maximum Applicable Rate shown therein without the
vote or consent of the holders of the shares of the Preferred Stock, including
the ATP, or any other stockholder of the Corporation, and without receiving any
confirmation from any rating agency after consultation with the Broker-Dealers,
provided that immediately following any such increase the Corporation would be
in compliance with the ATP Basic Maintenance Amount.
(k) Unless otherwise required by law, holders of shares of ATP shall
not have any relative rights or preferences or other special rights other than
those specifically set forth herein. The holders of shares of ATP shall have no
rights to cumulative voting. In the event that the Corporation fails to pay any
dividends on the shares of ATP, the exclusive remedy of the holders shall be the
right to vote for directors pursuant to the provisions of this Section 6.
(l) The foregoing voting provisions will not apply with respect to the
ATP if, at or prior to the time when a vote is required, such shares have been
(i) redeemed or (ii) called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
7. Liquidation Rights. (a) Upon the dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or involuntary, the holders
of ATP then Outstanding, together with holders of shares of any class of stock
ranking on a parity with the ATP upon dissolution, liquidation or winding up,
shall be entitled to receive and to be paid out of the assets of the Corporation
available for distribution to its stockholders after satisfaction of claims of
creditors of the Corporation an amount equal to the liquidation preference with
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respect to such shares. The liquidation preference for shares of ATP shall be
$50,000 per share, plus an amount equal to all accumulated dividends thereon
(whether or not earned or declared) to the date payment of such 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 of the liquidation distribution to which they are entitled,
no dividend or other distribution shall be made to the holders of shares of
Common Stock or any other class of stock of the Corporation ranking junior to
the ATP upon dissolution, liquidation or winding up and no purchase, redemption
or other acquisition for any consideration by the Corporation shall be made in
respect of the shares of Common Stock or any other class of stock of the
Corporation ranking junior to the ATP upon dissolution, liquidation or winding
up.
(c) A consolidation or merger of the Corporation with or into any
other company or companies, or a sale, lease or exchange of all or substantially
all of the assets of the Corporation in consideration for the issuance of equity
securities of another company shall not be deemed to be a liquidation,
dissolution or winding up, whether voluntary or involuntary, for the purposes of
this Section 7; provided, however, that the consolidation, merger, sale, lease
or exchange does not materially adversely affect any designation, right,
preference or limitation of the ATP or any shares issuable in exchange for
shares of the ATP in any such consolidation or merger.
(d) After the payment to the Holders of ATP of the full preferential
amounts provided for in this Section 7, the holders of ATP as such shall have no
right or claim to any of the remaining assets of the Corporation.
(e) In the event the assets of the Corporation or proceeds thereof
available for distribution to the Holders of ATP, upon any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to paragraph (a) of this Section 7, no such
distribution shall be made on account of any shares of any other class or series
of Preferred Stock ranking on a parity with the ATP with respect to the
distribution of assets upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
ATP, 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 the ATP with respect to the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Corporation, after payment
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shall have been made in full to the holders of the shares of ATP 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 the ATP with respect to the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Corporation shall, subject to any respective terms and provisions
(if any) applying thereto, be entitled to receive any and all assets remaining
to be paid or distributed, and the holders of the shares of ATP shall not be
entitled to share therein.
8. Auction Agent. For so long as any shares of ATP are Outstanding, the
Auction Agent, duly appointed by the Corporation to so act, shall be in each
case a commercial bank, trust company or other financial institution independent
of the Corporation and its Affiliates (which, however, may engage or have
engaged in business transactions with the Corporation or its Affiliates) and at
no time shall the Corporation or any of its Affiliates act as the Auction Agent
in connection with the Auction Procedures. If the Auction Agent resigns or for
any reason its appointment is terminated during any period that any shares of
ATP are Outstanding, the Corporation shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
9. 1940 Act ATP Asset Coverage. The Corporation shall maintain, as of each
Valuation Date on which any share of ATP is Outstanding, asset coverage with
respect to the ATP which is equal to or greater than the 1940 Act ATP Asset
Coverage; provided, however, that Section 3(a)(ii) shall be the sole remedy in
the event the Corporation fails to do so.
10. ATP Basic Maintenance Amount. So long as shares of ATP are Outstanding
and Moody's, Fitch or any Other Rating Agency which so requires is then rating
the shares of ATP, the Corporation shall maintain, as of each Valuation Date,
Moody's Eligible Assets (if Moody's is then rating the ATP), Fitch Eligible
Assets (if Fitch is then rating the ATP) and (if applicable) Other Rating Agency
Eligible Assets having an aggregate Discounted Value equal to or greater than
the ATP Basic Maintenance Amount; provided, however, that Section 3(a)(ii) shall
be the sole remedy in the event the Corporation fails to do so.
11. [Reserved]
12. Certain Other Restrictions. For so long as any shares of ATP are
Outstanding and Moody's, Fitch or any Other Rating Agency which so requires is
then rating such shares, the Corporation will not, unless it has received
written confirmation from Moody's (if Moody's is then rating the ATP), Fitch (if
Fitch is then rating the ATP) and (if applicable) such Other Rating Agency that
any such action would not impair the rating then assigned by such rating agency
to the ATP, engage in any one or more of the following transactions:
(a) purchase or sell futures contracts or options thereon with respect
to portfolio securities or write unsecured put or uncovered call options on
portfolio securities, engage in options transactions involving cross-hedging, or
enter into any swap transaction;
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(b) borrow money, except that the Corporation may, without obtaining
the written confirmation described above, borrow money for the purpose of
clearing securities transactions; provided that the ATP Basic Maintenance Amount
would continue to be satisfied after giving effect to such borrowing and if the
borrowing matures in not more than 60 days and is non-redeemable;
(c) issue any class or series of stock ranking prior to or on a parity
with the ATP with respect to the payment of dividends or the distribution of
assets upon dissolution, liquidation or winding up of the Corporation, or
reissue any shares of ATP previously purchased or redeemed by the Corporation;
(d) engage in any short sales of securities;
(e) lend portfolio securities; or
(f) merge or consolidate into or with any other corporation.
For purposes of valuation of Moody's Eligible Assets and Fitch Eligible
Assets: (A) if the Corporation writes a call option, the underlying asset will
be valued as follows: (1) if the option is exchange-traded and may be offset,
readily or if the option expires before the earliest possible redemption of the
ATP, at the lower of the Discounted Value of the underlying security of the
option and the exercise price of the option or (2) otherwise, it has no value;
(B) if the Corporation writes a put option, the underlying asset will be valued
as follows: the lesser of (1) exercise price and (2) the Discounted Value of the
underlying security; and (C) call or put option contracts which the Corporation
buys have no value. For so long as ATP are rated by Moody's or Fitch: (A) the
Corporation will not engage in options transactions for leveraging or
speculative purposes; (B) the Corporation will not write or sell any
anticipatory contracts pursuant to which the Corporation hedges the anticipated
purchase of an asset prior to completion of such purchase; (C) the Corporation
will not enter into an option transaction with respect to portfolio securities
unless, after giving effect thereto, the Corporation would continue to have
Eligible Assets with an aggregate Discounted Value equal to or greater than the
ATP Basic Maintenance Amount; (D) the Corporation will not enter into an option
transaction with respect to portfolio securities unless after giving effect to
such transaction the Corporation would continue to be in compliance with the
provisions relating to the ATP Basic Maintenance Amount; (E) for purposes of the
ATP Basic Maintenance Amount assets in margin accounts are not Eligible Assets;
(F) the Corporation shall write only exchange-traded options on exchanges
approved by Moody's (if Moody's is then rating the ATP) and Fitch (if Fitch is
then rating the ATP); (G) where delivery may be made to the Corporation with any
of a class of securities, the Corporation shall assume for purposes of the ATP
Basic Maintenance Amount that it takes delivery of that security which yields it
the least
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value; (H) the Corporation will not engage in forward contracts; and (I) there
shall be a quarterly audit made of the Corporation's options
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transactions by the Corporation's independent accountants to confirm that the
Corporation is in compliance with these standards.
13. Compliance Procedures for Asset Maintenance Tests. For so long as any
shares of ATP are Outstanding and Moody's, Fitch or any Other Rating Agency
which so requires is then rating such shares:
(a) As of each Valuation Date, the Corporation shall determine in
accordance with the procedures specified herein (i) the Market Value of each
Eligible Asset owned by the Corporation on that date, (ii) the Discounted Value
of each such Eligible Asset using the Discount Factors, (iii) whether the ATP
Basic Maintenance Amount is met as of that date, (iv) the value of the total
assets of the Corporation, less all liabilities, and (v) whether the 1940 Act
ATP Asset Coverage is met as of that date.
(b) Upon any failure to maintain the required ATP Basic Maintenance
Amount or 1940 Act ATP Asset Coverage on any Valuation Date, the Corporation may
use reasonable commercial efforts (including, without limitation, altering the
composition of its portfolio, purchasing shares of ATP outside of an Auction or
in the event of a failure to file 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 Amount or 1940 Act
ATP Asset Coverage on or prior to the ATP Basic Maintenance Cure Date or 1940
Act ATP Cure Date, as the case may be.
(c) Compliance with the ATP Basic Maintenance Amount and 1940 Act
Asset Coverage Tests shall be determined with reference to those shares of ATP
which are deemed to be Outstanding hereunder.
(d) The Corporation shall deliver a certificate which sets forth a
determination of items (i) - (iii) of paragraph (a) of this Section 13 (an "ATP
Basic Maintenance Certificate") (i) to the Auction Agent, Moody's (if Moody's is
then rating the ATP), Fitch (if Fitch is then rating the ATP) and any Other
Rating Agency which is then rating the ATP and which so requires as of (A) the
Business Day preceding the Date of Original Issue and (B) any Valuation Date on
which the Corporation fails to have Eligible Assets with an aggregate Discounted
Value at least equal to 125% of the ATP Basic Maintenance Amount, (ii) to the
Auction Agent, Fitch (if Fitch is then rating the ATP) and any Other Rating
Agency which is then rating the ATP and which so requires (A) as of every fourth
Valuation Date after the Date of Original Issue for the first year following the
Date of Original Issue, (B) if the Corporation fails to have Eligible Assets
with an aggregate Discounted Value at least equal to the ATP Basic Maintenance
Amount, and (C) on request by Fitch or such Other Rating Agency, as applicable,
(iii) to the Auction Agent, Moody's (if Moody's is then rating the ATP), Fitch
(if Fitch is then rating the ATP) and any Other Rating Agency which is then
rating the ATP and which so requires as of (A) the Valuation Date next
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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 the ATP), Fitch (if Fitch is then rating the ATP) and
any Other Rating Agency which is then rating the ATP and which so requires as of
a Business Day on or before any Asset Coverage Cure Date relating to the
Corporation's cure of a failure to have Eligible Assets with an aggregate
Discounted Value at least equal to the ATP Basic Maintenance Amount. Such ATP
Basic Maintenance Certificate shall be delivered in the case of clause (i)(A) on
the Date of Original Issue and in the case of clauses (i)(B), (ii), (iii) and
(iv) above on or before the third Business Day after the relevant Valuation Date
or Asset Coverage Cure Date.
(e) The Corporation shall deliver to the Auction Agent, Moody's (if
Moody's is then rating the ATP), Fitch (if Fitch is then rating the ATP), and
any Other Rating Agency which is then rating the ATP and which so requires a
certificate with respect to the calculation of the 1940 Act ATP Asset Coverage
and the value of the portfolio holdings of the Corporation (a "1940 Act ATP
Asset Coverage Certificate") (i) as of the Business Day preceding the Date of
Original Issue, and (ii) as of (A) the last Valuation Date of each quarter
thereafter, and (B) as of the Business Day on or before the Asset Coverage Cure
Date relating to the failure to satisfy the 1940 Act Asset Coverage. Such 1940
Act ATP Asset Coverage Certificate shall be delivered in the case of clause
(i) on the Date of Original Issue and in the case of clause (ii) on or before
the third Business Day after the relevant Valuation Date or the Asset Coverage
Cure Date.
(f) [Reserved]
(g) On the Date of Original Issue, the Corporation shall deliver to
the Auction Agent, Moody's (if Moody's is then rating the ATP), Fitch (if Fitch
is then rating the ATP) and any Other Rating Agency which is then rating the ATP
and which so requires a letter prepared by the Corporation's independent
accountants (an "Accountant's Certificate") regarding the accuracy of the
calculations made by the Corporation in the ATP Basic Maintenance Certificate
and the 1940 Act ATP Asset Coverage Certificate required to be delivered by the
Corporation as of the Date of Original Issue. Within eight Business Days after
the last Valuation Date of each fiscal quarter of the Corporation on which an
ATP Basic Maintenance Certificate is required to be delivered, the Corporation
(x) will deliver to the Auction Agent, Moody's (if Moody's is then rating the
ATP), Fitch (if Fitch is then rating the ATP) and any Other Rating Agency which
is then rating the ATP and which so requires an Accountant's Certificate
regarding the accuracy of the calculations made by the Corporation in such ATP
Basic Maintenance Certificate and in any other ATP Basic Maintenance Certificate
randomly selected by the Corporation's independent accountants during such
fiscal quarter. Within eight Business Days after the last Valuation Date of each
fiscal quarter of the
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Corporation on which a 1940 Act ATP Asset Coverage Certificate is required to be
delivered, the Corporation will deliver to the Auction Agent, Moody's (if
Moody's is then rating the ATP), Fitch (if Fitch is then rating the ATP) and any
Other Rating Agency which is then rating the ATP and which so requires an
Accountant's Certificate regarding the accuracy of the calculations made by the
Corporation in such 1940 Act ATP Asset Coverage Certificate. In addition, the
Corporation will deliver to the relevant persons specified in the preceding
sentence an Accountant's Certificate regarding the accuracy of the calculations
made by the Corporation on each ATP Basic Maintenance Certificate and 1940 Act
ATP Asset Coverage Certificate delivered pursuant to clause (iv) of paragraph
(d) or clause (ii)(B) of paragraph (e) of this Section 13, as the case may be,
within five days after the relevant Asset Coverage Cure Date. If an Accountant's
Certificate delivered with respect to an Asset Coverage Cure Date shows an error
was made in the Corporation's report with respect to such Asset Coverage Cure
Date, the calculation or determination made by the Corporation's independent
accountants will be conclusive and binding on the Corporation with respect to
such reports. If any other Accountant's Certificate shows that an error was made
in any such report, the calculation or determination made by the Corporation's
independent accountants will be conclusive and binding on the Corporation;
provided, however, any errors shown in the Accountant's Certificate filed on a
quarterly basis shall not be deemed to be a failure to maintain the ATP Basic
Maintenance Amount on any prior Valuation Dates.
(h) The Accountant's Certificates referred to in paragraph (g) will
confirm, based 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]
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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 shares of ATP then
Outstanding may waive any provision hereof intended for the benefit of the
Holders of the ATP in accordance with such procedures as may from time to time
be established by the Board of Directors.
17. Termination. In the event that no shares of either series of ATP are
Outstanding, all rights and preferences of such shares established and
designated hereunder shall cease and terminate, and all obligations of the
Corporation under these Articles Supplementary shall terminate.
18. Definitions. As used in Part I and Part II of these Articles
Supplementary, the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in the plural and
vice versa), unless the context otherwise requires:
(a) " "aaa"/AAA Credit Rating" means a credit rating in the highest
category of any two nationally recognized statistical rating organizations (as
used in the Securities Exchange Act of 1934), one of which shall be Moody's or
S&P.
(b) "AA Composite Commercial Paper Rate" on any date means (i) the
interest equivalent of the 30-day rate, in the case of a Dividend Period which
is a Standard Term Period or shorter, or the 180-day rate, in the case of all
other Dividend Periods, on commercial paper on behalf of issuers whose corporate
bonds are rated AA by S&P, or Aa2 by Moody's, or the equivalent of such rating
by another nationally recognized rating agency, as announced by the Federal
Reserve Bank of New York for the close of business on the Business Day
immediately preceding such date; or (ii) if the Federal Reserve Bank of New York
does not make available such a rate, then the arithmetic average of the interest
equivalent of such rates on commercial paper placed on behalf of such issuers,
as quoted on a discount basis or otherwise by the Commercial Paper Dealers to
the Auction Agent for the close of business on the Business Day immediately
preceding such date (rounded to the next highest .001 of 1%). If any Commercial
Paper Dealer does not quote a rate required to determine the AA Composite
Commercial Paper Rate, such rate shall be determined on the basis of the
quotations (or quotation) furnished by the remaining Commercial Paper Dealers
(or Dealer), if any, or, if there are no such Commercial Paper Dealers, by the
Auction Agent. For purposes of this definition, (A) "Commercial Paper Dealers"
shall mean (1) J.P. Morgan Securities, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Smith Barney Shearson Inc.; (2) in lieu of any thereof,
its respective affiliate or successor, and (3) in the event that any of
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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 known to the Auction Agent to be
controlled by, in control of or under common control with the Corporation;
provided that no Broker-Dealer controlled by, in control of or under common
control with the Corporation shall be deemed to be an Affiliate nor shall any
corporation or any person controlled by, in control of or under common control
with such corporation one of the directors or executive officers of which is
also a director of the Corporation be deemed to be an Affiliate solely because
such director or executive officer is also a director of the Corporation.
(e) "Alternate Term Period" means a Dividend Period that is not a
Standard Term Period.
(f) "Applicable Rate" means, with respect to each series of ATP, for
each Dividend Period (i) if Sufficient Clearing Orders exist for the Auction in
respect thereof, the Winning Rate, (ii) if Sufficient Clearing Orders do not
exist for the Auction in respect thereof, the Maximum Applicable Rate and (iii)
in the case of any Dividend Period of 93 days or fewer if all the shares of ATP
are the subject of Submitted Hold Orders for the Auction in respect thereof, the
Minimum Applicable Rate.
(g) "Articles" means the Articles of Amendment and Restatement, as
amended including any Articles Supplementary, of the Corporation.
(h) "Asset Coverage Cure Date" has the meaning set forth in Section
3(a)(ii).
(i) "ATP" means the Auction Term Preferred Stock, S1.00 par value per
share and liquidation preference $50,000 per share, Series A and Series B of the
Corporation or any other series of Preferred Stock hereinafter designated "ATP"
by Articles Supplementary or Articles of Amendment.
(j) "ATP Basic Maintenance Amount" as of any Valuation Date means the
dollar amount equal to the sum of
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(i) (A) the product of the number of Outstanding shares of ATP on
such date multiplied by $50,000; (B) the aggregate amount of dividends that
will have accumulated at the Applicable Rate (whether or not earned or
declared) to and including the first following Dividend Payment Date for
each share of ATP Outstanding that follows such Valuation Date (or to the
42nd day after such Valuation Date, if such 42nd day occurs before the
first following Dividend Payment Date); (C) the aggregate amount of
dividends that would accumulate at the then current Maximum Applicable Rate
for a Standard Term Period multiplied by the Volatility Factor on any
shares of ATP Outstanding from the first day following the Dividend Payment
Date referred to in (B) above through the 42nd day after such Valuation
Date, only if such 42nd day occurs after the first day following the
Dividend Payment Date, except that if such Valuation Date occurs during a
Default Period, the dividend for purposes of the calculation would
accumulate at the Default Rate; (D) the amount of anticipated Corporation
expenses for the 90 days subsequent to such Valuation Date; (E) any current
liabilities, including, without limitation, indebtedness due within one
year and any redemption premium due with respect to shares of ATP for which
a Notice of Redemption has been given, as of such Valuation Date to the
extent not reflected in any of (i)(A) through (i)(D); and (F) without
duplication, 10% of the exercise price of any call option written by the
Corporation and the exercise price of any put option written by the
Corporation; less
(ii) the sum of any cash or the value of any Corporation assets
irrevocably deposited by the Corporation for the payment of any of (i)(B)
through (i)(F) ("value" for purposes of this clause (ii) shall mean the
Discounted Value of the security, except that if the security matures prior
to the relevant redemption payment date and is either fully guaranteed by
the U.S. Government or is rated P1 by Moody's and A1 + by S&P, it will be
valued at its face value).
(k) "ATP Basic Maintenance Certificate" has the meaning set forth in
Section 13(d).
(1) "ATP Series A" means the shares of Series A of the ATP or any
other series of Preferred Stock hereinafter designated as shares of Series A of
the ATP by Articles Supplementary or Articles of Amendment.
(m) "ATP Series B" means the shares of Series B of the ATP or any
other series of Preferred Stock hereinafter designated as shares of Series B of
the ATP by Articles Supplementary or Articles of Amendment.
(n) "Auction" means each periodic operation of the procedures set
forth under "Auction Procedures."
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(o) "Auction Agent" means Bankers Trust Company unless and until
another commercial bank, trust company, or other financial institution appointed
by a resolution of the Board of Directors enters into an agreement with the
Corporation to follow the Auction Procedures for the purpose of determining the
Applicable Rate.
(p) "Auction Date" means the first Business Day next preceding the
first day of a Dividend Period for the relevant series of ATP.
(q) "Auction Procedures" means the procedures for conducting Auctions
set forth in Part II hereof.
(r) "Board of Directors" means the Board of Directors of the
Corporation or any duly authorized committee thereof as permitted by applicable
law.
(s) "Broker-Dealer" or "Broker-Dealers" means any broker-dealer or
broker-dealers, or other entity permitted by law to perform the functions
required of a Broker-Dealer by the Auction Procedures, that has been selected by
the Corporation and has entered into a Broker-Dealer Agreement with the Auction
Agent that remains effective.
(t) "Broker-Dealer Agreement" means an agreement entered into by the
Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees
to follow the Auction Procedures.
(u) "Business Day" means a day on which the New York Stock Exchange is
open for trading and which is not a Saturday, Sunday or other day on which banks
in the city of New York, New York are authorized or obligated by law to close.
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(w) "Commercial Paper Dealers" has the meaning set forth in the
definition of AA Composite Commercial Paper Rate.
(x) "Commission" means the Securities and Exchange Commission.
(y) "Common Stock" means the common stock, par value $.01 per share,
of the Corporation.
(z) "Corporate Bonds" means corporate debt securities having the
characteristics set forth in paragraph (iv) of the definition of Fitch Eligible
Assets.
(aa) "Date of Original Issue" means with respect to each of the ATP
Series A and the ATP Series B the date on which such ATP are originally issued
by the Corporation.
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(bb) "Default Period" has the meaning set forth in Section 2(c)(ii).
(cc) "Default Rate" means the Reference Rate multiplied by three (3).
(dd) "Depository" means Bankers Trust Company or a successor
organization which has agreed to perform the duties of the depository as
described herein.
(ee) "Deposit Securities" means cash and any obligations or
securities, including Short Term Money Market Instruments that are Eligible
Assets, rated at least AAA, A-1 + or SP-l + 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.
(ff) "Discount Factor" means the Moody's Discount Factor (if Moody's
is then rating the ATP), the Fitch Discount Factor (if Fitch is then rating the
ATP) or the discount factor established by any Other Rating Agency which is then
rating the ATP and which so requires, whichever is applicable.
(gg) "Discounted Value" means the quotient of the Market Value of an
Eligible Asset divided by the applicable Discount Factor provided that with
respect to an Eligible Asset that is currently callable, Discounted Value shall
be equal to the quotient as calculated above or the call price, whichever is
lower, and that with respect to an Eligible Asset that is prepayable, Discounted
Value shall be equal to the quotient as calculated above or the par value,
whichever is lower.
(hh) "Dividend Default" has the meaning set forth in Section
2(c)(iii).
(ii) "Dividend Payment Date" for either series of ATP, means (i) with
respect to any Dividend Period of one year or less, the Business Day next
succeeding the last day thereof and, if any, the 91st, 181st and 271st days
thereof, and (ii) with respect to any Dividend Period of more than one year, on
a quarterly basis on each January 1, April 1, July 1 and October 1 and on the
Business Day following the last day of such Dividend Period.
(jj) "Dividend Period" means, with respect to the relevant series of
ATP, the period commencing on the Date of Original Issue thereof and ending on
the date specified for such series on the Date of Original Issue thereof and
thereafter, as to such series, the period commencing on the day following each
Dividend Period for such series and ending on the day established for such
series by the Corporation.
(kk) "Eligible Assets" means Moody's Eligible Assets (if Moody's is
then rating the ATP), Fitch Eligible Assets (if Fitch is then rating the ATP)
and/or Other Rating Agency Eligible Assets if any Other Rating Agency is then
rating the ATP, whichever is applicable.
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(11) "Exposure Period" means the period commencing on (and including)
a given Valuation Date and ending 41 days thereafter.
(mm) "Fitch" means Fitch Investors Service, Inc. and its successors at
law.
(nn) "Fitch Discount Factor" means, for purposes of determining the
Discounted Value of any Fitch Eligible Asset, the percentage determined as
follows. The Fitch Discount Factor for any Fitch Eligible Asset other than the
securities set forth below will be the percentage provided in writing by Fitch.
(i) Corporate Bonds: The percentage determined by reference to
the type of corporate bond in accordance with the table set forth below.
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
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Type IV Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.22
greater than 2 years, but less than or equal to 4 years 1.32
greater than 4 years, but less than or equal to 7 years 1.52
greater than 7 years, but less than or equal to 12 years 1.57
greater than 12 years, but less than or equal to 25 years 1.63
greater than 25 years, but less than or equal to 30 years 1.69
Type V Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.32
greater than 2 years, but less than or equal to 4 years 1.36
greater than 4 years, but less than or equal to 7 years 1.59
greater than 7 years, but less than or equal to 12 years 1.65
greater than 12 years, but less than or equal to 25 years 1.72
greater than 25 years, but less than or equal to 30 years 1.80
Type VI Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.40
greater than 4 years, but less than or equal to 7 years 1.67
greater than 7 years, but less than or equal to 12 years 1.74
greater than 12 years, but less than or equal to 25 years 1.82
greater than 25 years, but less than or equal to 30 years 1.91
Type VII Corporate Bonds with remaining maturities of:
less than or equal to 2 years 1.37
greater than 2 years, but less than or equal to 4 years 1.64
greater than 4 years, but less than or equal to 7 years 2.28
greater than 7 years, but less than or equal to 12 years 2.49
greater than 12 years, but less than or equal to 25 years 2.74
greater than 25 years, but less than or equal to 30 years 3.06
(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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(iii) U.S. Treasury Securities with remaining maturities of:
less than or equal to 1 year 1.06
greater than 1 year, but less than or equal to 2 years 1.11
greater than 2 years, but less than or equal to 5 years 1.16
greater than 5 years, but less than or equal to 15 years 1 24
greater than 25 years, but less than or equal to 30 years 1.26
(oo) "Fitch Eligible Assets" means
(i) cash (including, for this purpose, interest and dividends due
on assets rated (A) Baa3 or higher by Moody's, BBB or higher by S&P or BBB
or higher by Fitch if the payment date is within five Business Days of the
Valuation Date. (B) A2 or higher by Moody's and either A or higher by S&P
or A or higher by Fitch if the payment date is within thirty days of the
Valuation Date, and (C) A1 or higher by Moody's and either A+ or higher by
S&P or A+ or higher by Fitch if the payment date is within the Exposure
Period) and receivables for Fitch Eligible Assets sold if the receivable is
due within five Business Days of the Valuation Date, and if the trades
which generated such receivables are (A) settled through clearing house
firms with respect to which the Corporation has received prior written
authorization from Fitch or (B) (1) with counterparties having a Fitch
long-term debt rating of at least BBB- by Fitch, if rated by Fitch or, if
not rated by Fitch, then rated at least BBB- by S&P and rated at least Baa3
by Moody's or (2) with counterparties having a Fitch Short-Term Money
Market Instrument rating of at least F-1+ by Fitch, if rated by Fitch or,
if not rated by Fitch, then rated at least A-1 by S&P and rated at least
P-1 by Moody's;
(ii) Short-Term Money Market Instruments so long as (A) such
securities are rated at least P-1 by Moody's and either at least A-1+ by
S&P or F1+ by Fitch, (B) in the case of demand deposits, time deposits and
overnight funds, the supporting entity is rated at least A2 by Moody's and
either at least A by S&P or A by Fitch, or (C) in all other cases, the
supporting entity (1) is rated at least A2 by Moody's and at least A by S&P
and the security matures within one month, (2) is rated at least A1 by
Moody's and either at least A+ by S&P or at least A by Fitch and the
security matures within three months or (3) is rated at least Aa3 by
Moody's and either at least AA by S&P or at least AA by Fitch and the
security matures within six months;
(iii) U.S. Treasury Securities;
(iv) debt securities constituting Corporate Bonds if (A) such
securities are rated either CCC or higher by Fitch or Caa or higher by
Moody's and CCC or higher by S&P; (B) such securities provide for the
periodic payment of interest in cash in U.S. dollars; (C) such securities
do not provide for conversion or exchange into equity capital at any time
over their lives; (D) such securities have been registered
33
<PAGE>
under the Securities Act of 1933, as amended; and (E) such securities are
issued by a U.S. corporation. In addition, bonds which are issued in
connection with a reorganization under U.S. federal bankruptcy law will be
considered Corporate Bonds constituting Fitch Eligible Assets, so long as
such bonds are rated by Fitch.
(v) In addition, portfolio holdings as described below must be
within the following diversification and issue size requirements in order
to be included in Fitch Eligible Assets:
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Type of Corporate Bond (%)(1,2) (%)(2,3) millions)
---------------------- -------- -------- ----------
<S> <C> <C> <C>
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)
</TABLE>
See accompanying notes
- ----------
(1) Companies subject to common ownership of 25% or more are considered as one
name.
(2) Percentages represent a portion of the aggregate Market Value of corporate
securities.
(3) Industries are determined according to Fitch Industry Classifications.
(4) Includes Short Term Money Market Instruments which do not constitute Type I
or Type II Corporate Bonds and which have a maturity greater than the
Exposure Period.
(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.
Where the Corporation sells an asset and agrees to repurchase such asset in
the future, the Discounted Value of such asset will constitute a Fitch Eligible
Asset and the amount the Corporation is required to pay upon repurchase of such
asset will count as a liability for the purposes of the ATP Basic Maintenance
Amount. Where the Corporation purchases an asset and agrees to sell it to a
third party in the future, cash receivable by the Corporation thereby will
constitute a Fitch Eligible Asset if the long-term debt of such other party is
rated at least
34
<PAGE>
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.
(pp) "Fitch Industry Classifications" means, for the purposes of
determining Fitch Eligible Assets, each of the following industry
classifications:
Aerospace & Defense
Automobiles
Banking, Finance & Insurance
Building & Materials
Chemicals
Computers & Electronics
Consumer Products
Energy
Environmental Services
Farming & Agriculture
Food, Beverage & Tobacco
Healthcare & Pharmaceuticals
Industrial Machinery
Media, Leisure & Entertainment
Metals & Mining
Miscellaneous
Paper & Forest Products
Retail
Sovereigns
Textiles & Furniture
Transportation
Utilities
The Corporation shall use its discretion in determining which industry
classification is applicable to a particular investment.
35
<PAGE>
(qq) "Holder" means, with respect to any series of ATP, the registered
holder of shares of such series of ATP as the same appears on the stock ledger
or stock records of the Corporation.
(rr) "Mandatory Redemption Date" has the meaning set forth in Section
3(a)(iv).
(ss) "Market Value" shall mean the fair market value of an asset of
the Corporation (excluding interest and dividends due on such assets) as
computed based upon (i) pricing services to be provided pursuant to a pricing
services agreement entered into between the Corporation and Merrill Lynch
Capital Markets Securities Pricing Service, Kenny S&P Evaluation Services or
such other pricing service determined from time to time by the Board of
Directors, provided that Moody's (if Moody's is then rating the ATP), Fitch (if
Fitch is then rating the ATP) and any Other Rating Agency which is then rating
the ATP and so requires have informed the Corporation in writing that use of
such pricing service will not adversely affect such rating agency's then current
rating of the shares of ATP or (ii) the lower of the value set forth in bids
from two independent dealers that are members or affiliates of members of the
National Association of Securities Dealers, Inc. and that make markets in such
security, one of which bids shall be in writing.
(tt) "Maximum Applicable Rate" means, on any date on which the
Applicable Rate is determined, the rate equal to 150% of the applicable
Reference Rate, subject to upward but not downward adjustment in the discretion
of the Board of Directors after consultation with the Broker-Dealers, provided
that immediately following any such increase the Corporation would be in
compliance with the ATP Basic Maintenance Amount.
(uu) "Minimum Applicable Rate" means, on any Auction Date with respect
to a Dividend Period of 93 days or fewer, 99% of the AA Composite Commercial
Paper Rate at the close of business on the Business Day next preceding such
Auction Date. There shall be no Minimum Applicable Rate on any Auction Date with
respect to a Dividend Period of more than 93 days.
(vv) "Moody's" means Moody's Investors Service, Inc. and its
successors at law.
(ww) "Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined as
follows. The Moody's Discount Factor for any Moody's Eligible Asset other than
the securities set forth below will be the percentage provided in writing by
Moody's.
(i) Corporate Debt Securities: The percentage determined by
reference to the rating on such asset (which percentage is based upon the
Exposure
36
<PAGE>
Period) with reference to the remaining term to maturity of such assets, in
accordance with the table set forth below.
<TABLE>
<CAPTION>
Moody's Discount Factors --
Corporate Debt Securities
Rating Category
Maturity ------------------------------------------------------------------------------------
of Collateral Aaa Aa A Baa Ba B* Caa
- ------------- --- -- - --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year ........ 112% 118% 123% 128% 139% 150% 260%
2 Years ....... 118 124 130 135 147 158 260
3 Years ....... 123 129 135 141 153 165 260
4 Years ....... 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
</TABLE>
- ----------
* Senior debt securities of an issuer rated B3 shall be deemed to be Caa rated
securities for purposes of determining the applicable Moody's Discount Factor.
(ii) Preferred Stock: For (A) utility preferred stocks, 152%, (B)
industrial/financial preferred stocks, 197%, and (C) auction rate preferred
stocks, 350%.
(iii) Short Term Money Market Instruments: The Moody's Discount
Factor applied to short-term portfolio securities will be (A) 100%, so long
as such portfolio securities mature or have a demand feature at par
exercisable within the Exposure Period, (B) 115%, so long as such portfolio
securities mature or have a demand feature at par not exercisable within
the Exposure Period, and (C) 125%, if such securities are not rated by
Moody's, so long as such portfolio securities are rated at least A-1+/AA
or SP-1+/AA by S&P and mature or have a demand feature at par exercisable
within the Exposure Period. A Moody's Discount Factor of 100% will be
applied to cash.
37
<PAGE>
(iv) U.S. Treasury Securities and Treasury Strips:
U.S. Treasury Securities:
<TABLE>
<CAPTION>
Discount
Remaining Term to Maturity Factor
-------------------------- --------
<S> <C>
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
</TABLE>
U.S. Treasury Strips:
<TABLE>
<CAPTION>
Discount
Remaining Term to Maturity Factor
-------------------------- --------
<S> <C>
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
</TABLE>
(xx) "Moody's Eligible Assets" means
(i) cash (including, for this purpose, interest and dividends due
on assets rated (A) Baa3 or higher by Moody's if the payment date is within
five Business Days of the Valuation Date, (B) A2 or higher if the payment
date is within thirty days of the Valuation Date, and (C) A1 or higher if
the payment date is within the Moody's Exposure Period) and receivables for
Moody's Eligible Assets sold if the receivable is due within five Business
Days of the Valuation Date, and if the trades which generated such
receivables are (A) settled through clearing house firms with respect to
which the Corporation has received prior written authorization from Moody's
or (B) (1) with counterparties having a Moody's long-term debt rating of at
least Baa3 or (2) with
38
<PAGE>
counterparties having a Moody's Short-Term Money Market Instrument rating
of at least P-1;
(ii) Short-Term Money Market Instruments so long as (A) such
securities are rated at least P-1, (B) in the case of demand deposits, time
deposits and overnight funds, the supporting entity is rated at least A2,
or (C) in all other cases, the supporting entity (1) is rated A2 and the
security matures within one month, (2) is rated A1 and the security matures
within three months or (3) is rated at least Aa3 and the security matures
within six months; provided, however, that for purposes of this definition,
such instruments (other than commercial paper rated by S&P and not rated by
Moody's) need not meet any otherwise applicable S&P rating criteria;
(iii) U.S. Treasury Securities and Treasury Strips;
(iv) Corporate debt securities will be included in Moody's
Eligible Assets if (A) such securities are rated Caa or higher by Moody's;
(B) the senior unsecured rating of the issuer's corporate bonds is higher
than B3; (C) such securities provide for the periodic payment of interest
in cash in U.S. dollars; (D) such securities do not provide for conversion
or exchange into equity capital at any time over their lives; (E) for debt
securities rated Ba1 and below, no more than 10% of the original amount of
such issue may constitute Moody's Eligible Assets; and (F) such securities
have been registered under the Securities Act of 1933, as amended. In
addition, debt securities which are issued in connection with a
reorganization under federal bankruptcy law will not be considered Moody's
Eligible Assets.
(v) Portfolio securities that are preferred stocks will be
included in Moody's Eligible Assets if (A) dividends on such preferred
stock are cumulative, (B) such securities provide for the periodic payment
of dividends thereon in cash in U.S. dollars and do not provide for
conversion or exchange into, or have warrants attached entitling the holder
to receive, equity capital at any time over the respective lives of such
securities, (C) the issuer of such a preferred stock has common stock
listed on either the New York Stock Exchange or the American Stock
Exchange, (D) the issuer of such a preferred stock has a senior debt rating
from Moody's of Baa1 or higher or a preferred stock rating from Moody's of
"baa3" or higher and (E) such preferred stock has paid consistent cash
dividends in U.S. dollars over the last three years or has a minimum rating
of "a1" (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 $5 million. In
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<PAGE>
addition, preferred stocks issued by transportation companies will not be
considered Moody's Eligible Assets.
(vi) In addition, portfolio holdings as described below must be
within the following diversification and issue size requirements in order
to be included in Moody's Eligible Assets:
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Collateral Ratings(l) (%)(2,3) (%)(3,4) millions)(6)
--------------------- -------- -------- ------------
<S> <C> <C> <C>
"aaa", Aaa ................................ 100% 100% $ 100
"aa", Aa .................................. 20 60 100
"a", A, P-1 ............................... 10 40 100
"baa", Baa ................................ 6 20 100
Ba ....................................... 4 12 50(5)
Bl-B2 .................................... 3 8 50(5)
B3 (Caa subordinate) ..................... 2 5 50(5)
</TABLE>
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.
(4) Industries are determined according to Moody's Industry Classifications.
(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.
(6) Except for preferred stock, which has a minimum issue size of $50 million.
Where the Corporation sells an asset and agrees to repurchase such asset in
the future, the Discounted Value of such asset will constitute a Moody's
Eligible Asset and the amount the Corporation is required to pay upon repurchase
of such asset will count as a liability for the purposes of the ATP Basic
Maintenance Amount. Where the Corporation purchases an asset and agrees to sell
it to a third party in the future, cash 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
40
<PAGE>
Discounted Value of such asset will constitute a Moody's Eligible Asset. For the
purposes of calculation of Moody's Eligible Assets, portfolio securities which
have been called for redemption by the issuer thereof shall be valued at the
lower of Market Value or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(F) under the definition of ATP Basic Maintenance
Amount or it is subject to any material lien, mortgage, pledge, security
interest or security agreement of any kind (collectively, "Liens"), except for
(A) Liens which are being contested in good faith by appropriate proceedings and
which Moody's has indicated to the Corporation will not affect the status of
such asset as a Moody's Eligible Asset, (B) Liens for taxes that are not then
due and payable or that can be paid thereafter without penalty, (C) Liens to
secure payment for services rendered or cash advanced to the Corporation by its
investment adviser, the Corporation's custodian, transfer agent or registrar or
the Auction Agent and (D) Liens by virtue of any repurchase agreement. See also
Section 12 for certain information with respect to Moody's Eligible Assets.
(yy) "Moody's Industry Classification" means, for the purposes of
determining Moody's Eligible Assets, each of the following industry
classifications:
Aerospace and Defense: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition
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
41
<PAGE>
Chemicals, Plastics and Rubber: Chemicals (non-agriculture),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives,
Coatings, Paints, Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made
of: Glass, Metal, Paper, Plastic, Wood, or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School
Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste
Disposal
Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers,
Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
Farming and Agriculture: Livestock, Grains, Produce; Agricultural
Chemicals, Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals,
Hospital Supplies, Medical Equipment
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
42
<PAGE>
Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records,
Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games,
Toy Manufacturing), Motion Picture Production Theaters, Motion Picture
Distribution
Machinery (Non-Agriculture, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-car builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national
Agencies
The Corporation shall use its discretion in determining which industry
classification is applicable to a particular investment.
43
<PAGE>
(zz) "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(aaa) "1940 Act ATP Asset Coverage" means asset coverage, as defined
in Section 18(h) of the 1940 Act, of at least 200% with respect to all
Outstanding senior securities or the Corporation which are stock, including all
Outstanding ATP (or such other asset coverage as may in the future be specified
in or under the 1940 Act as the minimum asset coverage for senior securities
which are stock of a closed-end investment company as a condition of declaring
dividends on its common stock), determined on the basis of values calculated as
of a time within 48 hours next preceding the time of such determination.
(bbb) "1940 Act ATP Asset Coverage Certificate" means the certificate
required to be delivered by the Corporation pursuant to Section 13(e).
(ccc) "Notice of Redemption" means any notice with respect to the
redemption of shares of ATP pursuant to Section 3.
(ddd) "Other Rating Agency" means any rating agency other than Moody's
or Fitch then providing a rating for the ATP pursuant to the request of the
Corporation.
(eee) "Other Rating Agency Eligible Assets" means assets of the
Corporation designated by any Other Rating Agency as eligible for inclusion in
calculating the discounted value of the Corporation's assets in connection with
such Other Rating Agency's rating of the ATP.
(fff) "Outstanding" means, as of any date, shares of each series of
ATP theretofore issued by the Corporation except, without duplication, (i) any
shares of ATP theretofore cancelled, redeemed or repurchased by the Corporation,
or delivered to the Auction Agent for cancellation or with respect to which the
Corporation has given notice of redemption and irrevocably deposited with the
Paying Agent sufficient funds to redeem such shares of each series of ATP, (ii)
any shares of ATP as to which the Corporation or any Affiliate thereof is an
Existing Holder; provided, however, that for purposes of determining the ATP
Basic Maintenance Amount, shares of ATP held by any Affiliate of the Corporation
will be deemed Outstanding, and (iii) any shares of ATP represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Corporation.
(ggg) "Paying Agent" means Bankers Trust Company unless and until
another entity appointed by a resolution of the Board of Directors enters into
an agreement with the Corporation to serve as paying agent, which paying agent
may be the same as the Auction Agent.
44
<PAGE>
(hhh) "Person" or "person" means and includes an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political subdivision
thereof.
(iii) "Preferred Stock" means the preferred stock of the Corporation
from time to time.
(jjj) "Proration Procedures" means:
(i) if Sufficient Clearing Orders exist, in the case of a
Submitted Hold/Sell Order specifying a rate equal to the Winning Rate
(A) the number of shares of the relevant series of ATP to be
the subject of an accepted Hold Order will be (1) the number of shares
of such series of ATP subject to such Submitted Hold/Sell Order
multiplied by (2) the total number of shares of such series of ATP
that are neither the subject of a Submitted Buy Order or a Submitted
Hold/Sell Order specifying a rate lower than the Winning Rate nor the
subject of a Submitted Hold Order and divided by (3) the total number
of shares of such series of ATP subject to Submitted Hold/Sell Orders
that specified a rate equal to the Winning Rate, and
(B) the number of shares of the relevant series of ATP to be
the subject of an accepted Sell Order will be the remaining number of
shares of such series of ATP subject to such Submitted Hold/Sell
Order,
(ii) if Sufficient Clearing Orders exist, in the case of a
Submitted Buy Order specifying a rate equal to the Winning Rate
(A) the number of shares of the relevant series of ATP to be
the subject of an accepted Buy Order will be (1) the number of shares
of such series of ATP subject to such Submitted Buy Order multiplied
by (2) the difference between (x) the number of shares of such series
of ATP that are the subject of a Submitted Sell Order or a Submitted
Hold/Sell Order that specified a rate higher than the Winning Rate and
(y) the number of shares of such series of ATP that are the subject of
a Submitted Buy Order that specified a rate lower than the Winning
Rate and divided by (3) the total number of shares of such series of
ATP subject to Submitted Buy Orders that specified a rate equal to the
Winning Rate, and
(B) such Submitted Buy Order will not be accepted as to the
remaining number of shares subject to such Submitted Buy Order, and
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<PAGE>
(iii) if Sufficient Clearing Orders do not exist, in the case of
a Submitted Hold/Sell Order specifying a rate higher than the Maximum
Applicable Rate and in the case of a Submitted Sell Order
(A) the number of shares of the relevant series of ATP to be
the subject of an accepted Sell Order will be (1) the number of shares
of such series of ATP subject to such Submitted Hold/Sell Order or
Submitted Sell Order multiplied by (2) the total number of shares of
such series of ATP that are the subject of a Submitted Buy Order
specifying a rate equal to or lower than the Maximum Rate and dividend
by (3) the total number of shares of such series of ATP subject to all
Submitted Hold/Sell Orders that specified a rate higher than the
Maximum Applicable Rate and Submitted Sell Orders, and
(B) the number of shares of the relevant series of ATP to be
the subject of an accepted Hold Order will be the remaining number of
shares of such series of ATP subject to such Submitted Hold/Sell Order
or Submitted Sell Order.
(kkk) "Rating Default" has the meaning set forth in Section 3(c)(ii).
(lll) "Rating Default Cure Date" has the meaning set forth in Section
3(a)(iii).
(mmm) "Redemption Default" has the meaning set forth in Section
3(c)(ii).
(nnn) "Reference Rate" means, with respect to the determination of the
Maximum Applicable Rate, the applicable AA Composite Commercial Paper Rate (for
a Dividend Period of fewer than 184 days) or the applicable Treasury Index Rate
for a Dividend Period of 184 days or more).
(ooo) "Rounding Procedures" means, if as a result of an Auction
(including the Proration Procedures) any Existing Holder would be entitled to
hold or required to sell, or any Potential Holder would be required to purchase,
a number of shares of the relevant series of ATP not evenly divisible by 1, on
any Auction Date, the Auction Agent will, in such manner as it determines, round
up or down the number of shares of such series of ATP to be held, purchased or
sold by any Existing Holder or Potential Holder on such Auction Date so that the
number of shares held, purchased or sold by each Existing Holder or Potential
Holder on such Auction Date will be a number of shares of such series of ATP
evenly divisible by 1.
(ppp) "S&P" means Standard & Poor's Corporation and its successors at
law.
(qqq) "Securities Depository" means The Depository Trust Company and
its successors and assigns or any successor securities depository selected by
the Corporation that
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agrees to follow the procedures required to be followed by such securities
depository in connection with the shares of each series of ATP.
(rrr) "Short-Term Money Market Instruments" means the following types
of instruments if, on the date of purchase or other acquisition thereof by the
Corporation, the remaining terms to maturity thereof are not in excess of (a)
180 days for instruments rated at least Aa3 or 270 days for instruments rated at
least Aaa for purposes of determining Moody's Eligible Assets (if Moody's is
then rating the ATP), and (b) 180 days for purposes of determining Fitch
Eligible Assets (if Fitch is then rating the ATP):
(i) commercial paper that is rated as of each Valuation Date P-1
by Moody's and either F-1+ by Fitch or A-1+ by S&P, respectively;
(ii) demand or time deposits in, certificates of deposit of (A) a
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof or the District of Columbia
or (B) a United States branch office or agency of a foreign depository
institution (provided that such branch office or agency is subject to
banking regulation under the laws of the United States, any state thereof
or the District of Columbia) if, in each case, the certificates of deposit,
if any, and the long-term unsecured debt obligations (other than such
obligations the ratings of which are based on the credit of a person or
entity other than such depository institution or trust company) of such
depository institution or trust company that have (1) credit ratings on
each Valuation Date of at least P-1 from Moody's and either F-1+ from
Fitch or A-1+ from S&P, in the case of commercial paper or certificates of
deposit, and (2) credit ratings on each Valuation Date of at least Aa3 from
Moody's and either AA- from Fitch or AA- from S&P, in the case of long-term
unsecured debt obligations; provided, however, that in the case of any such
investment that matures in no more than one Business Day from the date of
purchase or other acquisition by the Corporation, all of the foregoing
requirements shall be applicable except that the required long-term
unsecured debt credit rating of such depository institution or trust
company from Moody's, Fitch and S&P shall be at least A2, A and A,
respectively; and provided further, however, that the foregoing credit
rating requirements shall be deemed to be met with respect to a depository
institution or trust company if (1) such depository institution or trust
company is the principal 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
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(iv) Eurodollar demand or time deposits in, or certificates of
deposit of, the head office or the London branch office of a depository
institution or trust company meeting the credit rating requirements of
commercial paper and long-term unsecured debt obligations specified in
clause (ii) above, provided that the interest receivable by the Corporation
shall not be subject to any withholding or similar taxes.
(sss) "Specific Redemption Provisions" means, with respect to any
Alternate Term Period of more than one year, either, or any combination of (i) a
period (a "Non-Call Period") determined by the Board of Directors after
consultation with the Broker-Dealers, during which the shares subject to such
Alternate Term Period are not subject to redemption at the option of the
Corporation pursuant to Section 3(a)(i) and/or Section 3(a)(ii) and/or 3(a)(iii)
and (ii) a period (a "Premium Call Period"), consisting of a number of whole
years as determined by the Board of Directors after consultation with the
Broker-Dealers, during each year of which the shares subject to such Alternate
Term Period shall be 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 $50,000 plus accumulated
but unpaid dividends plus a premium expressed as a percentage or percentages of
$50,000 or expressed as a formula using specified variables as determined by the
Board of Directors after consultation with the Broker-Dealers.
(ttt) "Standard Term Period" means a Dividend Period of 28 days,
unless such 28th day is not a Business Day, then the number of days ending on
the Business Day next preceding such 28th day.
(uuu) "Submission Deadline" means 1:00 p.m., New York City time, on
each Auction Date, or such other time on such Auction Date as may be specified
from time to time by the Auction Agent as the time by which each Broker-Dealer
must submit to the Auction Agent all Orders obtained by it for the Auction to be
conducted on such Auction Date.
(vvv) "Treasury Index Rate" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities having
the same number of 30-day periods to maturity as the length of the applicable
Dividend Period, determined, to the extent necessary, by linear interpolation
based upon the yield for such securities having the next shorter and next longer
number of 30-day periods to maturity treating all Dividend Periods with a length
greater than the longest maturity for such securities as having a length equal
to such longest maturity, in all cases based upon data set forth in the most
recent weekly statistical release published by the Board of Governors of the
Federal Reserve System (currently in H.15(519)); provided, however, if the most
recent such statistical release shall 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.
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(www) "Type I Corporate Bonds" means Corporate Bonds rated either AAA
by Fitch or, if not rated by Fitch, rated AAA by S&P and Aaa by Moody's.
(xxx) "Type II Corporate bonds" means Corporate Bonds rated either at
least AA- by Fitch or, if not rated by Fitch, rated at least AA- by S&P and at
least Aa3 by Moody's which do not constitute Type I Corporate Bonds.
(yyy) "Type III Corporate Bonds" means Corporate Bonds rated either at
least A- by Fitch or, if not rated by Fitch, rated at least A- by S&P and at
least A3 by Moody's which do not constitute Type I or Type II Corporate Bonds.
(zzz) "Type IV Corporate Bonds" means Corporate Bonds rated either at
least BBB- by Fitch or, if not rated by Fitch, rated at least BBB- by S&P and at
least Baa3 by Moody's which do not constitute Type I, Type II or Type III
Corporate Bonds.
(aaaa) "Type V Corporate Bonds" means Corporate Bonds rated either at
least BB- by Fitch or, if not rated by Fitch, rated at least BB- by S&P and at
least Ba3 by Moody's which do not constitute Type I, Type II, Type III or Type
IV Corporate Bonds.
(bbbb) "Type VI Corporate Bonds" means Corporate Bonds rated either at
least B- by Fitch or, if not rated by Fitch, rated at least B- by S&P and at
least B3 by Moody's which do not constitute Type I, Type II, Type III, Type IV
or Type V Corporate Bonds.
(cccc) "Type VII Corporate Bonds" means Corporate Bonds rated either
at least CCC by Fitch or, if not rated by Fitch, rated at least CCC by S&P and
at least Caa by Moody's which do not constitute Type I, Type II, Type III, Type
IV, Type V or Type VI Corporate Bonds.
(dddd) "Validity Procedures" means the following procedures and
priorities:
(i) If one or more Hold Orders shall be submitted on behalf of an
Existing Holder as to a number of shares of the relevant series of ATP
greater than the number of shares of such series of ATP held by such
Existing Holder, such Hold Order or Hold Orders shall be considered valid
only as to the number of shares of such series of ATP held by such Existing
Holder. In the case of multiple Hold Orders, each such Hold Order shall be
considered valid pro rata.
(ii) If one or more Hold/Sell Orders shall be submitted on behalf
of an Existing Holder as to a number of shares of the relevant series of
ATP greater 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
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excess. In the case of multiple Hold/Sell Orders specifying different
rates, such Hold/Sell Orders shall be considered valid in increasing order
of such rates. In the case of multiple Hold/Sell Orders specifying the same
rate, each such Hold/Sell Order shall be considered valid pro rata.
(iii) If one or more Sell Orders shall be submitted on behalf of
an Existing Holder as to a number of shares of the relevant series of ATP
greater than the excess of the number of shares of such series of ATP held
by such Existing Holder over the number of shares of such series of ATP
subject to Hold Orders and Hold/Sell Orders submitted on behalf of such
Existing Holder, such Sell Order or Sell Orders shall be considered valid
only as to the number of shares equal to such excess. In the case of
multiple Sell Orders, each such Sell Order shall be considered valid pro
rata.
(eeee) "Valuation Date" means every Friday, or, if such day is not a
Business Day, the next preceding Business Day; provided, however, that the first
Valuation Date may occur on any other date established by the Corporation;
provided, further, however, that such date shall be not more than one week from
the date on which the ATP initially is issued.
(ffff) "Volatility Factor" means 1.89.
19. Interpretation. References to sections, subsections, clauses,
sub-clauses, paragraphs and subparagraphs are to such sections, subsections,
clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I or
Part II hereof, as the case may be, unless specifically identified otherwise. In
addition, capitalized terms not defined in Section 18 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 an Existing Holder or person placing an
Order and is identified as such in such Existing Holder's or person's Master
Purchaser's Letter.
(b) "Available ATP" has the meaning specified in Section 5(a)(i).
(c) "Buy Order" has the meaning specified in Section 2(b).
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(d) "Existing Holder" means a Person who has signed a Master
Purchaser's Letter and is listed as the beneficial owner of shares of either
series of ATP in the records of the Auction Agent.
(e) "Hold Order" has the meaning specified in Section 2(b).
(f) "Hold/Sell Order" has the meaning specified in Section 2(b).
(g) "Master Purchaser's Letter" means a letter addressed to the
Corporation, the Auction Agent, a Broker-Dealer and an Agent Member in which a
Person agrees, among other things, to offer to purchase, to purchase, to offer
to sell and/or to sell shares of ATP as set forth in this Part II.
(h) "Order" has the meaning specified in Section 2(b).
(i) "Potential Holder," when used with respect to shares of ATP, means
any Person, including any Existing Holder of shares of ATP (i) who shall have
executed a Master Purchaser's Letter and (ii) who may be interested in acquiring
shares of ATP (or, in the case of an Existing Holder of shares of ATP,
additional shares of ATP).
(j) "Sell Order" has the meaning specified in Section 2(b).
(k) "Submitted Buy Order" has the meaning specified in Section 5(a).
(l) "Submitted Hold Order" has the meaning specified in Section 5(a).
(m) "Submitted Hold/Sell Order" has the meaning specified in Section
5(a).
(n) "Submitted Order" has the meaning specified in Section 5(a).
(o) "Submitted Sell Order" has the meaning specified in Section 5(a).
(p) "Sufficient Clearing Orders" means that all shares of the relevant
series of ATP are the subject of Submitted Hold Orders or that the number of
shares of such series of ATP that are the subject of Submitted Buy Orders by
Potential Holders specifying one or more rates equal to or less than the Maximum
Applicable Rate exceeds or equals the sum of (A) the number of shares of such
series of ATP that are the subject of Submitted Hold/Sell Orders by Existing
Holders specifying one or more rates higher than the Maximum Applicable Rate and
(B) the number of shares of such series of ATP that are subject to Submitted
Sell Orders.
(q) "Winning Rate" means the lowest rate specified in the Submitted
Orders which, if (i) each Submitted Hold/Sell Order from Existing Holders
specifying such lowest rate and all other Submitted Hold/Sell Orders from
Existing Holders specifying lower rates
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were accepted and (ii) each Submitted Buy Order from Potential Holders
specifying such lowest rate and all other Submitted Buy Orders from Potential
Holders specifying lower rates were accepted, would result in the Existing
Holders described in clause (i) above continuing to hold an aggregate number of
shares of the relevant series of ATP which, when added to the number of shares
of such series of ATP to be purchased by the Potential Holders described in
Clause (ii) above and the number of shares of such series of ATP subject to
Submitted Hold Orders, would be equal to the number of shares of such series of
ATP.
Section 2. Orders by Existing Holders and Potential Holders.
(a) On or prior to the Submissions Deadline on each Auction Date with
respect to the relevant series of ATP:
(i) each Existing Holder may submit to a Broker-Dealer
information as to:
(A) the number of Outstanding shares of such series of ATP,
if any, held by such Existing Holder which such Existing Holder
desires to continue to hold without regard to the Applicable Rate for
the next succeeding Dividend Period;
(B) the number of Outstanding shares of such series of ATP,
if any, held by such Existing Holder which such Existing Holder
desires to continue to hold, provided that the Applicable Rate for the
next succeeding Dividend Period shall not be less than the rate per
annum specified by such Existing Holder; and/or
(C) the number of Outstanding shares of such series of ATP,
if any, held by such Existing Holder which such Existing Holder offers
to sell without regard to the Applicable Rate for the next succeeding
Dividend Period; and
(ii) each Broker-Dealer, using a list of Potential Holders that
shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Holders, including persons
that are not Existing Holders, on such list to determine the number of
Outstanding shares of ATP, if any, which each such Potential Holder offers
to purchase, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by such
Potential Holder.
(b) For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (i) 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
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2(a) of this Part II is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (i)(B) of Section 2(a) of this
Part II is hereinafter referred to as a "Hold/Sell"; an Order containing the
information referred to in clause (i)(C) of Section 2(a) of this Part II is
hereinafter referred to as a "Sell Order"; and an Order containing the
information referred to in clause (ii) of Section 2(a) of this Part II is
hereinafter referred to as a "Buy Order."
(c) (i) A Hold/Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding shares of the relevant series
of ATP specified in such Order if the Applicable Rate determined on
such Auction Date shall be less than the rate per annum specified in
such Order; or
(B) a lesser number of Outstanding shares of the relevant
series of ATP to be determined as set forth in Section 6(a)(v) if the
Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein; or
(C) a lesser number of Outstanding shares of the relevant
series of ATP to be determined as set forth in Section 6(b)(iv) if
such specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Orders do not exist.
(ii) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell the number of Outstanding shares of the relevant
series of ATP specified in such Sell Order.
(iii) A Buy Order by a Potential Holder shall constitute an
irrevocable offer to purchase:
(A) the number of Outstanding shares of the relevant series
of ATP specified in such Order if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum specified in
such Order; or
(B) such number or a lesser number of Outstanding shares of
the relevant series of ATP to be determined as set forth in Section
6(a)(vi) if the Applicable Rate determined on such Auction Date shall
be equal to the rate per annum specified therein.
Section 3. [Reserved]
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Section 4. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date for the Auction to be
conducted on such Auction Date all Orders obtained by such Broker-Dealer and
specifying with respect to each Order:
(i) the name of the Existing Holder or Potential Holder placing
such Order;
(ii) the aggregate number of shares of the relevant series of ATP
that are the subject of such Order;
(iii) to the extent that such Orders are placed by an Existing
Holder:
(A) the number of shares of the relevant series of ATP, if
any, subject to any Hold Order placed by such Existing Holder;
(B) the number of shares of the relevant series of ATP, if
any, subject to any Hold/Sell Order placed by such Existing Holder;
(C) the number of shares of the relevant series of ATP, if
any, subject to any Sell Order placed by such Existing Holder; and
(iv) the rate per annum specified in such Order.
(b) If any rate per annum specified in any Order contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one-thousandth (.0001) of 1%.
(c) If an Order or Orders covering all shares of the relevant series
of ATP held by any Existing Holder are not submitted to the Auction Agent by the
Submission Deadline, the Auction Agent shall, only in the case of an Auction
preceding a Dividend Period of 93 days or fewer and at the conclusion of a
Dividend Period of 93 days or fewer, deem a Hold Order to have been submitted on
behalf of such Existing Holder covering the number of shares held by such
Existing Holder and not subject to Orders submitted to the Auction Agent. If an
Order or Orders covering all shares of ATP held by any Existing Holder are not
submitted to the Auction Agent by the Submission Deadline, the Auction Agent
will, in the case of all other Auctions, deem a Sell Order to have been
submitted on behalf of such Existing Holder covering the number of shares held
by such Existing Holder and not subject to Orders submitted to the Auction
Agent.
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(d) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of shares of the relevant series of ATP held
by such Existing Holder are submitted to the Auction Agent, such Orders shall be
considered valid as follows and in the following order of priority:
(i) If one or more Hold Orders shall be submitted on behalf of an
Existing Holder as to a number of shares of such series of ATP greater than
the number of shares of such series of ATP held by such Existing Holder,
such Hold Order or Hold Orders shall be considered valid only as to the
number of shares of such series of ATP held by such Existing Holder. In the
case of multiple Hold Orders, each such Hold Order shall be considered
valid pro rata.
(ii) If one or more Hold/Sell Orders shall be submitted on behalf
of an Existing Holder as to a number of shares of such series of ATP
greater than the excess of the number of shares of such series of ATP held
by such Existing Holder over the number of shares of such series of ATP
subject to Hold Orders submitted on behalf of such Existing Holder, such
Hold/Sell Order or Hold/Sell Orders shall be considered valid only as to
the number of shares of such series of ATP equal to such excess. In the
case of multiple Hold/Sell Orders specifying different rates, such
Hold/Sell Orders shall be considered valid in increasing order of such
rates. In the case of multiple Hold/Sell Orders specifying the same rate,
each such Hold/Sell Order shall be considered valid pro rata.
(iii) If one or more Sell Orders shall be submitted on behalf of
an Existing Holder as to a number of shares of such series of ATP greater
than the excess of the number of shares of such series of ATP held by such
Existing Holder over the number of shares of such series of ATP subject to
Hold Orders and Hold/Sell Orders submitted on behalf of such Existing
Holder, such Sell Order or Sell Orders shall be considered valid only as to
the number of shares equal to such excess. In the case of multiple Sell
Orders, each such Sell Order shall be considered valid pro rata.
(e) If more than one Order is submitted on behalf of any Potential
Holder, each Order submitted shall be a separate Order with the rate and shares
of the relevant series of ATP therein specified.
(f) In the case of any Dividend Period of 93 days or fewer, if any
rate specified in any Order is lower than the Minimum Applicable Rate for the
Dividend Period with respect to which such Order is made, such Order will be
deemed to be an Order specifying a rate equal to such Minimum Applicable Rate.
(g) In the case of any Dividend Period of more than 93 days, only Buy
Orders, Hold/Sell Orders and Sell Orders may be submitted.
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Section 5. Determination of Sufficient Clearing Orders, Winning Rate
and Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Hold/Sell Order", a "Submitted Sell Order" or a "Submitted
Buy Order," as the case may be, or as a "Submitted Order") and shall determine:
(i) the excess of the total number of Outstanding shares of the
relevant series of ATP over the number of Outstanding shares of such series
of ATP that are the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available ATP");
(ii) from the Submitted Orders whether the number of Outstanding
shares of the relevant series of ATP that are the subject of Submitted Buy
Orders by Potential Holders specifying one or more rates per annum equal to
or lower than the Maximum Applicable Rate exceeds or is equal to the sum
of:
(A) the number of shares of such series of ATP that are the
subject of Submitted Hold/Sell Orders by Existing Holders specifying
one or more rates per annum higher than the Maximum Applicable Rate,
and
(B) the number of shares of such series of ATP that are
subject to Submitted Sell Orders (if such excess or such equality
exists (other than because the number of Outstanding shares of such
series of ATP in clauses (A) and (B) above are each zero because all
of the Outstanding shares of such series of ATP are the subject of
Submitted Hold Orders), such Submitted Buy Orders by Potential Holders
being hereinafter referred to collectively as "Sufficient Clearing
Orders"), would result in the number of shares subject to all
Submitted Orders specifying the Winning Rate or a lower rate per annum
being at least equal to the Available ATP.
(b) Promptly after the Auction Agent has made the determinations
pursuant to Section 5(a), the Auction Agent shall advise the Corporation of the
Maximum Applicable Rate and, based on such determinations, the Applicable Rate
for the next succeeding Dividend Period as follows:
(i) If Sufficient Clearing Orders exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning Rate;
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(ii) If Sufficient Clearing Orders do not exist (other than
because all of the Outstanding shares of the relevant series of ATP are the
subject of Submitted Hold Orders), that the Applicable Rate for the next
succeeding Dividend Period shall 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.
Section 6. Acceptance and Rejection of Submitted Orders and Submitted Sell
Orders and Allocation of Shares.
Based upon the results of the Auction, the Auction Agent will determine the
aggregate number of shares to be held and sold by Existing Holders and to be
purchased by Potential Holders, and, with respect to each Broker-Dealer,
determine the extent to which such Broker-Dealer will deliver, and from which
other Broker-Dealers such Broker-Dealer will receive, shares.
(a) If Sufficient Clearing Orders exist, subject to the Rounding
Procedures:
(i) all Submitted Hold Orders will be accepted;
(ii) all Submitted Sell Orders will be accepted and all Submitted
Hold/Sell Orders specifying any rate higher than the Winning Rate will be
accepted as Sell Orders;
(iii) all Submitted Hold/Sell Orders specifying a rate lower than
the Winning Rate will be accepted as Hold Orders;
(iv) all Submitted Buy Orders specifying a rate lower than the
Winning Rate will be accepted;
(v) all Submitted Hold/Sell Orders specifying a rate equal to the
Winning Rate will be accepted as Hold Orders unless the number of shares
subject to all such Submitted Hold/Sell Orders is greater than the number
of shares remaining unaccounted for after the acceptances described in
clauses (i), (iii) and (iv) above, in which event each such Submitted
Hold/Sell Order will be accepted as a Hold Order and a Sell Order as to the
respective number of shares determined in accordance with the Proration
Procedures; and
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(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, subject to the
Rounding Procedures:
(i) all Submitted Hold Orders will be accepted;
(ii) all Submitted Hold/Sell Orders specifying a rate equal to or
lower than the Maximum Applicable Rate will be accepted as Hold Orders;
(iii) all Submitted Buy Orders specifying a rate equal to or
lower than the Maximum Applicable Rate will be accepted; and
(iv) all Submitted Hold/Sell Orders specifying a rate higher than
the Maximum Applicable Rate and all Submitted Sell Orders will be accepted
as Hold Orders and as Sell Orders as to the respective number of shares of
ATP determined in accordance with the Proration Procedures.
(c) If as a result of the procedures described in Section 6(a) or 6(b)
any Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction of a share of ATP
in any Auction, the Auction Agent will, in such manner as, in its sole
discretion, it shall determine, round up or down the number of shares of ATP
being sold or purchased on such Auction Date so that each share sold or
purchased by each Existing Holder or Potential Holder will be a whole share of
ATP even if such allocation results in one or more of such Potential Holders not
purchasing any shares of ATP or in one or more Existing Holders no longer
holding any shares of ATP.
(d) If, as a result of the procedures described in Section 6(a), any
Potential Holder would be entitled or required to purchase a fraction of a share
of ATP, as applicable, on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate shares of ATP for
purchase among Potential Holders so that only whole shares of ATP are purchased
on such Auction Date by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of ATP on such
Auction Date or in one or more Existing Holders no longer holding any shares of
ATP.
(e) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Orders on behalf of
Existing Holders or
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Potential Holders, the aggregate number of shares of the relevant series of ATP
to be purchased and the aggregate number of shares of such series of ATP to be
sold by such Potential Holders and Existing Holders and, to the extent that such
aggregate number of shares of such series of ATP to be purchased and such
aggregate number of shares of such series of ATP to be sold differ, the Auction
Agent shall determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, shares of such series of ATP.
Section 7. Notification of Results: Settlements.
(a) The Auction Agent will advise each Broker-Dealer that submitted an
Order whether such Order was accepted and of the Applicable Rate for the next
Dividend Period by telephone by approximately 3:00 p.m., New York City time, on
each Auction Date. Each Broker-Dealer that submitted an Order will as soon as
practicable advise each Existing Holder and Potential Holder whether its Order
was accepted and will confirm in writing purchases and sales with each Existing
Holder and Potential Holder purchasing or selling shares as a result of an
auction as soon as practicable on the Business Day next succeeding the Auction
Date. Each Broker-Dealer that submitted a Hold Order will advise each Existing
Holder on whose behalf such Hold Order was submitted of the Applicable Rate for
the shares of ATP for the next Dividend Period.
(b) In accordance with the Securities Depository's normal procedures,
on the Business Day after the Auction Date, the transactions described above
will be executed through the Securities Depository and the accounts of the
respective Agent Members at the Securities Depository will be debited and
credited and shares delivered as necessary to effect the purchases and sales as
determined in the Auction. Purchasers will make payment through their Agent
Members in same-day funds to the Securities Depository against delivery through
their Agent Members; the Securities Depository will make payment in accordance
with its normal procedures as in effect from time to time.
(c) If any Existing Holder selling shares in an Auction fails to
deliver such shares, the Broker-Dealer of any person that was to have purchased
shares in such Auction may deliver to such person a number of whole shares that
is less than the number of shares that otherwise was to be purchased by such
person. In such event, the number of shares to be so delivered shall be
determined by such Broker-Dealer. Delivery of such lesser number of shares shall
constitute good delivery.
Section 8. Miscellaneous.
The Board of Directors may interpret the provisions of these Auction
Procedures to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not adversely affect the
rights of Existing Holders of shares of ATP.
59
<PAGE>
An Existing Holder (A) may sell, transfer or otherwise dispose of shares of ATP
only pursuant to a Hold/Sell Order or Sell Order in accordance with the
procedures described in this Part II, to or through a Broker-Dealer, to a Person
that has delivered a signed copy of a Master Purchaser's Letter to the Auction
Agent, or as otherwise permitted under Section 5 of Part I, provided that in the
case of all transfers other than pursuant to Auctions such Existing Holder, its
Broker-Dealer or its Agent Member advised the Auction Agent of such transfer and
(B) except as otherwise required by law, shall have the ownership of the shares
of ATP held by it maintained in book entry form by the Securities Depository in
the account of its Agent Member, which in turn will maintain records of such
Existing Holder's beneficial ownership. Neither the Corporation nor any
Affiliate of the Corporation shall submit an Order in any Auction. Any Existing
Holder that is such an Affiliate shall not sell, transfer or otherwise dispose
of shares of ATP to any Person other than the Corporation. All of the shares of
ATP of any series shall be represented by a single certificate registered in the
name of the nominee of the Securities Depository unless otherwise required by
law or unless there is no Securities Depository. If there is no Securities
Depository, at the Corporation's option and upon its receipt of such documents
as it deems appropriate, any shares of ATP may be registered in the share
register for the shares of ATP maintained by the Auction Agent in the name of
the Existing Holder thereof and such Existing Holder thereupon will be entitled
to receive certificates therefor and required to deliver certificates therefor
upon transfer or exchange thereof.
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES OF AMENDMENT
The New America High Income Fund, Inc., a Maryland
corporation having its principal office in Boston, Massachusetts
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Part I of the Articles Supplementary to the Fund's
Articles of Amendment and Restatement, as heretofore amended, is
hereby further amended by replacing current Section 18(oo)(iv) with
new Section 18(oo)(iv) as follows:
"(iv) debt securities constituting Corporate Bonds if
(A) such securities are rated CCC or higher by Fitch or, if
unrated by Fitch, rated Caa or higher by Moody's and CCC or
higher by S&P; (B) such securities provide for the periodic
payment of interest in cash in U.S. dollars; (C) such
securities do not provide for conversion or exchange into
equity capital at any time over their lives; (D) such
securities have been registered under the Securities Act of
1933, as amended, (the "Securities Act") or are restricted
as to resale under federal securities laws but are eligible
for resale pursuant to Rule 144A under the Securities Act as
determined by the Fund's adviser acting subject to the
supervision of the Fund's Board of Directors; and (E) such
securities are issued by a U.S. corporation. In addition,
bonds which are issued in connection with a reorganization
under U.S. federal bankruptcy law ("Reorganization Bonds")
will be considered Corporate Bonds constituting Fitch
Eligible Assets if (a) they are rated CCC or higher by Fitch
or, if unrated by Fitch, rated Caa or higher by Moody's and
CCC or higher by S&P; (b) they provide for periodic payment
of interest in cash in U.S. dollars; (c) they do not provide
for conversion or exchange into equity capital at any time
over their lives; (d) they have been registered under the
Securities Act or are restricted as to resale under federal
securities laws but are eligible for trading under Rule 144A
promulgated pursuant to the Securities Act as determined by
the Fund's adviser acting subject to the supervision of the
Fund's Board of Directors; (e) they were issued by a U.S.
corporation; and (f) at the time of purchase at least one
year had elapsed since the issuer's reorganization.
Reorganization Bonds may also be considered Corporate Bonds
constituting Fitch Eligible Assets if they have been
approved by Fitch, which approval shall not be unreasonably
withheld."
<PAGE>
SECOND: Part I of the Articles Supplementary to the Fund's
Articles of Amendment and Restatement, as heretofore amended. is
hereby further amended by replacing current Section l8(xx)(iv) with
new Section l8(xx)(iv) as follows:
"(iv) Corporate debt securities will be included in
Moody's Eligible Assets if (A) such securities are rated Caa
or higher by Moody's; (B) the senior unsecured rating of the
issuer's corporate bonds is higher than B3; (C) such
securities provide for the periodic payment of interest in
cash in U.S. dollars; (D) such securities do not provide for
conversion or exchange into equity capital at any time over
their lives; (E) for debt securities rated Ba1 and below, no
more than 10% of the original amount of such issue may
constitute Moody's Eligible Assets; and (F) such securities
have been registered under the Securities Act or are
restricted as to resale under federal securities laws but
are eligible for resale pursuant to Rule 144A under the
Securities Act as determined by the Fund's adviser acting
subject to the supervision of the Fund's Board of
Directors."
THIRD: Part I of the Articles Supplementary to the Fund's
Articles of Amendment and Restatement, as heretofore amended, is
hereby further amended by replacing current Section 18(uu) with new
Section 18(uu) as follows:
"(uu) "Minimum Applicable Rate" means, on any Auction
Date with respect to a Dividend Period of 93 days or fewer,
80% of the AA Composite Commercial Paper Rate at the close
of business on the Business Day next preceding such Auction
Date. There shall be no Minimum Applicable Rate on any
Auction Date with respect to a Dividend Period of more than
93 days."
FOURTH: Part I of the Articles Supplementary to the Fund's
Articles of Amendment and Restatement, as heretofore amended, is
hereby further amended by adding new Section 18 (nn)(iv) as follows:
"(iv) Rule 144A Securities: The Fitch Discount Factor
applied to securities which are restricted as to resale
under federal securities laws but are eligible for resale
pursuant to Rule 144A under the Securities Act as determined
by the Fund's adviser acting subject to the supervision of
the Fund's Board of Directors ("Rule 144A Securities") will
be 110% of the Fitch Discount Factor which would apply were
the securities registered under the 1933 Act."
FIFTH: Part I of the Articles Supplementary to the Fund's
Articles of Amendment and Restatement, as heretofore amended, is
hereby further amended by adding new Section 18(ww)(v) as follows:
<PAGE>
"(v) Rule 144A Securities: The Moody's Discount Factor
applied to Rule 144A Securities will be 160% of the Moody's
Discount Factor which would apply were the securities
registered under the 1933 Act."
SIXTH: A majority of the board of directors of the
Corporation has approved the foregoing amendments to the charter.
SEVENTH: No stock entitled to vote on the foregoing
amendments to the charter was outstanding or subscribed for at the
time of the approval of such amendments by the board of directors of
the Corporation.
EIGHTH: These Articles shall be effective at the later of the
date the State Department of Assessments and Taxation of Maryland
accepts the Articles for record or on November 1, 1996.
<PAGE>
THE NEW AMERICA HIGH INCOME FUND, INC.
ARTICLES OF AMENDMENT
The New America High Income Fund, Inc., a Maryland
corporation having its principal office in Boston, Massachusetts
(hereinafter called the "Corporation"), hereby certifies to the Stare
Department of Assessments and Taxation of Maryland that:
FIRST: Part I of the Articles Supplementary to the Fund's
Articles of Amendment and Restatement, as heretofore amended, is
hereby further amended by replacing current Section 6(j) with new
Section 6(j) as follows:
"(j) The Board of Directors, without the vote or
consent of any holder of the Preferred Stock, including the
ATP, or any other stockholder of the Corporation, may from
time to time amend, alter or repeal any or all of the
definitions of the terms or provisions listed below, and any
such amendment, alteration or repeal will not be deemed to
affect the preferences. rights or powers of shares of ATP or
the Holders thereof, provided that the Board of Directors
receives written confirmation from Moody's (if Moody's is
then rating the ATP) and Fitch (if Fitch is then rating the
ATP) (with such confirmation in no event being required to
be obtained from a particular rating agency in the case of
the definitions relevant only to and adopted in connection
with the rating of the ATP, if any, by any other rating
agency) that such amendment, alteration or repeal would not
impair the rating then assigned by Moody's or Fitch,
respectively. In addition, the Board of Directors, without
the vote or consent of any Holder of the Preferred Stock,
including the ATP, or any other stockholder of the
Corporation, may from time to time adopt, amend, alter or
repeal any or all of any additional or other definitions or
add covenants and other obligations of the Corporation
(e.g., maintenance of minimum liquidity level) or confirm
the applicability of covenants and other obligations set
forth herein in connection with obtaining or maintaining the
rating of Moody's, Fitch or any Other Rating Agency with
respect to the ATP, and any such amendment, alteration or
repeal will not be deemed to affect the preferences, rights
or powers of the ATP or the Holders thereof, provided the
Board of Directors receives written confirmation from the
relevant rating agency (such confirmation in no event being
required to be obtained from a particular rating agency with
respect to definitions or other provisions relevant only to
another rating agency's rating) that any such amendment,
alteration or repeal would not adversely affect the rating
then assigned by such rating agency.
<PAGE>
Definitions and Provisions Subject to Change by Director
Action:
--------------------------------------------------------
ATP Basic Maintenance Amount
ATP Basic Maintenance Certificate
Asset Coverage Cure Date
Deposit Securities
Discounted Value
Exposure Period
Fitch Discount Factor
Fitch Eligible Assets
Fitch Industry Classification
Market Value
Maximum Applicable Rate
Minimum Applicable Rate
Moody's Discount Factor
Moody's Eligible Assets
Moody's Industry Classification
1940 Act Asset Coverage Cure Date
1940 Act ATP Asset Coverage
Volatility Factor
Short Term Money Market Instruments
Last Paragraph of Section 12
In addition, the Board of Directors may amend the
definition of Maximum Applicable Rate to increase the
percentage amount by which the Reference Rate is multiplied
to determine the Maximum Applicable Rate shown therein
without the vote or consent of the holders of the shares of
the Preferred Stock, including the ATP, or any other
stockholder of the Corporation, and without receiving any
confirmation from any rating agency after consultation with
the Broker-Dealers, provided that immediately following any
such increase the Corporation would be in compliance with
the ATP Basic Maintenance Amount."
SECOND: The board of directors of the Corporation has adopted
a resolution in which was set forth the foregoing amendment to the
charter declaring that said amendment to the charter was advisable and
directing that it be submitted for action thereon at a meeting of the
stockholders of the Corporation.
THIRD: Notice setting forth the aforesaid amendment of the
charter and stating that a purpose of the meeting of the stockholders
would be to take action thereon, was given as required by law, to all
stockholders of the Corporation entitled to vote thereon. The
amendment of the charter of the Corporation as hereinabove set forth
was approved by the stockholders of the Corporation at said meeting by
the affirmative vote required by law and the Corporation's charter.
FOURTH: These Articles shall be effective at the later of the
date the State Department of Assessments and Taxation of Maryland
accepts the Articles for record or on October 31, 1996.
<PAGE>
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 S1.00 per share, liquidation preference S25,000 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 5.625 % per annum and an initial
Dividend Payment Date of June 10, 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:
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<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.
3
<PAGE>
(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"/AA 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 he
"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
4
<PAGE>
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
5
<PAGE>
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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<PAGE>
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. nor 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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<PAGE>
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 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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<PAGE>
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
ATP Basic Maintenance Certificate
Asset Coverage Cure Date
Deposit Securities
Discounted Value
Exposure Period
Fitch Discount Factor
Fitch Eligible Assets
Fitch Industry Classification
Market Value
Maximum Applicable Rate
Minimum Applicable Rate
Moody's Discount Factor
Moody's Eligible Assets
Moody's Industry Classification
1940 Act Asset Coverage Cure Date
1940 Act ATP Asset Coverage
Volatility Factor
Short Term Money Market Instruments
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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<PAGE>
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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<PAGE>
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 Asses
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
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the singular having comparable meanings when used in the plural and
vice versa), unless the context otherwise requires:
(a) "aaa"/AA 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
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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.
S1.00 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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(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).
(1) "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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(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
Instru0ents 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
currency 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
28
<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.
29
<PAGE>
<TABLE>
<S> <C>
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
30
<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
</TABLE>
(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.
31
<PAGE>
(iii) U.S. Treasury Securities with
remaining maturities of:
<TABLE>
<S> <C> <C>
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
</TABLE>
(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 Fl 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;
32
<PAGE>
(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:
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Type of Corporate Bond (%)(1.2) (%)(2.3) millions)
---------------------- -------- -------- ---------
<S> <C> <C> <C>
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)
</TABLE>
See accompanying notes
_____________
33
<PAGE>
(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
34
<PAGE>
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
35
<PAGE>
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.
<TABLE>
<CAPTION>
Moody's Discount Factors --
Corporate Debt Securities
Rating Category
Maturity --------------------------------------------------------------------------------
of Collateral Aaa Aa A Baa Ba B* Caa
------------- --- -- - --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year 112% 118% 123% 128% 139% 150% 260%
2 Years 118 124 130 135 147 158 260
3 Years 123 129 135 141 153 165 260
4 Years 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 153 161 168 175 190 205 250
20 Years 161 169 177 184 200 215 260
30 Years 162 170 178 185 201 216 260
</TABLE>
* Senior debt securities of an issuer rated B3 shall be deemed to be
Caa rated securities for purposes of determining the applicable
Moody's Discount Factor
(ii) Preferred Stock: For (A) utility
preferred stocks, 152%, (B) industrial/financial
preferred stocks, 197%, and (C) auction rate
preferred stocks. 350%.
36
<PAGE>
(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):
<TABLE>
<CAPTION>
U.S. Treasury Securities:
-------------------------
Discount
Remaining Term to Maturity Factor
-------------------------- ------
<S> <C>
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
</TABLE>
37
<PAGE>
(v) Rule 144A Securities: The Moody's
Discount Factor applied to Rule 144A Securities will
be 160% of the Moody's Discount Factor which would
apply were the securities registered under the
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 Bal 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,
38
<PAGE>
(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 Stack
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 "a1"
(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 $5
million. In addition, preferred stocks issued by
transportation companies will not be considered
Moody's Eligible Assets.
(vi) In addition. portfolio holdings as
described below must be within the following
diversification and issue size requirements in order
to be included in Moody's Eligible Assets:
<TABLE>
<CAPTION>
Maximum Maximum Minimum
Single Single Issue Size
Issuer Industry ($ in
Collateral Ratings(1) (%)(2.3) (%)(3.4) millions)(6)
--------------------- -------- -------- ------------
<S> <C> <C> <C>
"aaa",Aaa 100% 100% $100
"aa", Aa 20 60 100
"a", A, P-1 10 40 100
"baa", Baa 6 20 100
Ba 4 12 50(5)
B1-B2 3 8 50(5)
B3 (Caa subordinate) 2 5 50(5)
</TABLE>
See accompanying notes
(1) Refers to the senior debt rating of 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.
39
<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
40
<PAGE>
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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<PAGE>
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
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<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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<PAGE>
(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).
(111)"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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<PAGE>
(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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<PAGE>
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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<PAGE>
(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
48
<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).
(1) "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 a "Hold
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
53
<PAGE>
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");
54
<PAGE>
(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.
55
<PAGE>
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;
56
<PAGE>
(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.
57
<PAGE>
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
58
<PAGE>
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.
DOCSC\501780.5
4/28/97
59
<PAGE>
EXHIBIT E
THE NEW AMERICA 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 AMERICA HIGH INCOME FUND, INC.
<PAGE>
EXHIBIT F
THE NEW AMERICA 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: ___________
<PAGE>
EXHIBIT G
THE NEW AMERICA 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: ______________
<PAGE>
EXHIBIT H
THE NEW AMERICA 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: ______________
DOCSC\510365.5
Exhibit K3
[Logo: The Depository Trust Company]
-------------------------------------------------------
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]
May 6, 1997
-----------
Attention: General Counsel's Office [Date]
The Depository Trust Company
55 Water Street; 49th Floor
New York NY 10041-0099
Re: Auction Term Preferred Stock,
-------------------------------------------
2,000 shares Series C
-------------------------------------------
CUSIP No. 641876602
-------------------------------------------
[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 May 1, 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 May 6, 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 $200 million, one certificate will be
issued with respect to each $200 million of principal amount and an additional
certificate will be issued with respect to any remaining principal amount. Each
Security 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. 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.
3. 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 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 5.
4. 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
distributed 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
<PAGE>
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), 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 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
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Security, which, as of the date of this letter is "Auction
Term Preferred Stock, Series C."
7. 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
4 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York NY 10004-2695
8. 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 12 and 13, 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.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to a standard announcement service
subscribed to by DTC as soon as the information is available. In the unlikely
event that no such service exists, Issuer or Trust Company shall provide this
information directly to DTC electronically, as previously arranged by
<PAGE>
Issuer or Trust Company and DTC, as soon as the information is available. If
electronic transmission has not been arranged, absent any other arrangements
between Issuer or Trust Company and DTC, such information should be sent by
telecopy to DTC's Dividend Department at (212) 709-1723 or (212) 709-1686, and
receipt of such notices shall be confirmed by telephoning (212) 709-1270.
Notices to DTC pursuant to the above by mail or by any other means shall be
addressed as follows:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York NY 10004-2695
10. Issuer or Trust Company shall provide CUSIP-level detail for dividend
payments and distributions to DTC no later than noon (Eastern Time) on the
payment date.
11. Dividend payments and distributions shall be received by Cede & Co., as
nominee of DTC, or its registered assigns in same-day funds no later than 2:30
p.m. (Eastern Time) on each payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-026776
12. Redemption payments shall be received by Cede & Co., as nominee of DTC,
or its registered assigns in same-day funds no later than 2:30 p.m. (Eastern
Time) on the payment date. Absent any other arrangements between Issuer or Trust
Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 091 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account #066-027306
13. Reorganization payments and CUSIP-level detail resulting from corporate
actions (such as tender offers, remarketings, or mergers) shall be received by
Cede & Co., as nominee of DTC, or its registered assigns in same-day funds no
later than 2:30 p.m. (Eastern Time) on the first payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account #066-027608
14. 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,
distributions, or redemption proceeds may be sent
15. In the event of a redemption acceleration, or any similar transaction
(e.g., tender made and accepted in response to Issuer's or Trust Company's
invitation) necessitating a reduction in the number of Securities outstanding,
or an advance refunding of part of the Securities outstanding
<PAGE>
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.
16. 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.
17. 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.
18. 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 5.
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.
19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
21. This Letter of Representations is governed by, and shall be construed
in accordance with, the laws of the State of New York
22. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 B contains statements that DTC believes accurately describe
DTC, the method of effecting book-entry transfers of securities
distributed through DTC, and certain related matters.
Very truly yours,
The New America High Income Fund, Inc.
- --------------------------------------
(Issuer)
By: Ellen E. Terry
-----------------------------------
(Authorized Officer's Signature)
Bankers Trust Company
------------------------------------
(Trust Company)
By: Melissa Reynolds
----------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: Richard B. Nesson
- --------------------------------------
CC: Underwriter
Underwriter's Counsel
<PAGE>
SCHEDULE A
----------
The New America High Income Fund, Inc.
---------------------------------------
Auction Term Preferred Stock, Series C
---------------------------------------
(Describe Issue)
<TABLE>
<CAPTION>
CUSIP Number Share Total Value ($ Amount)
<S> <C> <C>
641876602 2,000 $50,000,000
</TABLE>
<PAGE>
SCHEDULE B
----------
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 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.
<PAGE>
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to 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. Redemption proceeds, distributions and dividend payments on the
Securities will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts, upon DTC's receipt of payment and
corresponding detail information from Issuer or Trust Company on payable date in
accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trust Company, or Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions and dividends to
Cede & Co. is the responsibility of Issuer or Trust Company, 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 Trust Company [or
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 Trust Company [or Tender/Remarketing Agent].
The requirement for physical delivery of Securities in connection with an
optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Securities are transferred by Direct Participants on
DTC's records and followed by a book-entry credit of tendered Securities to
Trustee's [or Tender/Remarketing Agent's] DTC account.]
10. 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. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
11. 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 Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
Exhibit K4
- --------------------------------------------------------------------------------
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 6, 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.
7
<PAGE>
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
8
<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:
9
<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
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/ Melissa Reynolds
______________________________
Name: Melissa Reymonds
Title: AT
LEHMAN BROTHERS INC.
By: /s/ Neil Sherman
______________________________
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
<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 AMERICA 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:
EXHIBIT K5
[DTC 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]
May __, 1998
-----------
[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, 2400 Shares Series D CUSIP No. 641876701
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
[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 ____________________________ , 1998 (the
"Document"). _____________________ is distributing the Securities through The
["Underwriter"]
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 ____________ , 1998, 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 $200 million, one certificate will
be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount. Each Security 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. 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.
3. 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 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 5.
4. 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
distributed 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
- 2 -
<PAGE>
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), 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 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
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Security, which, as of the date of this letter is
"------------------------------------------------------ ".
7. 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 4 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
8. 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 12 and 13, 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.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to a standard announcement service
subscribed to by DTC as soon as the information is available. In the unlikely
event that no such service exists, Issuer or Trust Company shall provide this
information directly to DTC electronically, as previously arranged by
- 3 -
<PAGE>
Issuer or Trust Company and DTC, as soon as the information is available. If
electronic transmission has not been arranged, absent any other arrangements
between Issuer or Trust Company and DTC, such information should be sent by
telecopy to DTC's Dividend Department at (212) 709-1723 or (212) 709-1686, and
receipt of such notices shall be confirmed by telephoning (212) 709-1270.
Notices to DTC pursuant to the above by mail or by any other means shall be
addressed as follows:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
10. Issuer or Trust Company shall provide CUSIP-level detail for dividend
payments and distributions to DTC no later than noon (Eastern Time) on the
payment date.
11. Dividend payments and distributions shall be received by Cede & Co.,
as nominee of DTC, or its registered assigns in same-day funds no later than
2:30 p.m. (Eastern Time) on each payment date. Absent any other arrangements
between Issuer or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-026776
12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account #066-027306
13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) shall be
received by Cede & Co., as nominee of DTC, or its registered assigns in
same-day funds no later than 2:30 p.m. (Eastern Time) on the first payment
date. Absent any other arrangements between Issuer and Trust Company and DTC,
such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account #066-027608
14. 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,
distributions, or redemption proceeds may be sent.
15. In the event of a redemption acceleration, or any similar transaction
(e.g., tender made and accepted in response to Issuer's or Trust Company's
invitation) necessitating a reduction in the number of Securities outstanding,
or an advance refunding of part of the Securities outstanding
- 4 -
<PAGE>
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.
16. 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.
17. 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.
18. 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 5.
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.
19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
21. This Letter or Representations is governed by, and shall be construed
in accordance with, the laws of the State of New York.
22. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- 5 -
<PAGE>
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. Scheduled B 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
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)
- 6 -
<PAGE>
SCHEDULE A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Describe Issue)
<TABLE>
<S> <C> <C>
CUSIP Number Share Total Value ($ Amount)
- ------------ ----------- ----------------
</TABLE>
- 7 -
<PAGE>
SCHEDULE B
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One fully-registered Security certificate will
be issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 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.
- i -
<PAGE>
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine
by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to 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. Redemption proceeds, distributions and dividend payments on the
Securities will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts, upon DTC's receipt of payment and
corresponding detail information from Issuer or Trust Company on payable date in
accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trust Company, or Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions and dividends to
Cede & Co. is the responsibility of Issuer or Trust Company, 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 Trust Company [or
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 Trust Company [or Tender/Remarketing Agent].
The requirement for physical delivery of Securities in connection with an
optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Securities are transferred by Direct Participants on
DTC's records and followed by a book-entry credit of tendered Securities to
Trustee's [or Tender/Remarketing Agent's] DTC account.]
10. 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. Under such circumstances, in the event that a
successor securities depository is not obtained, Security certificates are
required to be printed and delivered.
11. 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 Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
- ii -
EXHIBIT K6
- --------------------------------------------------------------------------------
================================================================================
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
[BROKER DEALER]
Relating to
AUCTION TERM PREFERRED STOCK
of
THE NEW AMERICA HIGH INCOME FUND, INC.
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
BROKER-DEALER AGREEMENT dated as of [ ], 1998 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 __________ (together with its successors and assigns, the "BD") .
The Fund has currently issued three series of shares of Auction Term
Preferred Stock, par value $1.00 per share, liquidation preference $25,000 per
share, and proposes to designate a fourth 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. This Agreement shall apply
initially to the Fund's Series D [and Series __] Auction Term Preferred Stock.
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 or
determines that it would be desirable for other existing series to be subject to
this Agreement, 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.
<PAGE>
(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.
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:
2
<PAGE>
(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 understands that other Persons meeting the
requirements specified in the definition of "Broker-Dealer" contained in the
Auction Procedures may execute Broker-Dealer Agreements and Master Purchaser's
Letters and participate as Broker-Dealers in Auctions.
2.2 Preparation of Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the ATP,
the Auction Agent shall advise the Broker-Dealers for such series by telephone
of the Maximum Applicable Rate therefor and the AA Composite Commercial Paper
Rate(s) and the Treasury Index Rate(s), as the case may be, used in determining
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
3
<PAGE>
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 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.
(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 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
5
<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.
6
<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 Member to
deliver such shares against payment therefor. If (i) any Existing Holder on
whose
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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.
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
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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:
If to BD, addressed: [Broker/Dealer]
If to the Auction Agent,
addressed: Bankers Trust Company
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<PAGE>
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 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.
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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:
[Broker/Dealer]
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
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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 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.
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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
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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.
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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.
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(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.
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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.
<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:
<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:
EXHIBIT K7
LEHMAN BROTHERS INC.
200 Vesey Street
3 World Financial Center
New York, New York 10285
May 6, 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 6, 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 6, 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.
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The New America High
Income Fund, Inc. -3- May 6, 1997
Very truly yours,
LEHMAN BROTHERS INC.
By: /s/ Neil Sherman
________________________
Name:
Title:
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The New America High
Income Fund, Inc. -4- May 6, 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 K8
(Multicurrency--Cross Border)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of February 3, 1994
THE FIRST NATIONAL BANK OF BOSTON and THE NEW AMERICA HIGH INCOME FUND, INC.
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. Interpretation
(a) Definitions. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations from a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value on
that date in the place of the account specified in the relevant Confirmation
or otherwise pursuant to this Agreement, in freely transferable funds and in
the manner customary for payments in the required currency. Where settlement
is by delivery (that is, other than by payment), such delivery will be made
for receipt on the due date in the manner customary for the relevant
obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
Copyright (C) 1992 by International Swap Dealers Association, Inc.
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(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would haven been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or
other documentation reasonably acceptable to Y, evidencing such payment
to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount actually
received by Y (free and clear of Indemnifiable Taxes, whether assessed
against X or Y) will equal the full amount Y would have received had no
such deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that it would
not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section
3(f) to be accurate and true unless such failure would not have
occurred but for (I) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date
on which a Transaction is entered into (regardless of whether such
action is taken or brought with respect to a party to this
Agreement) or (II) a Change in Tax Law.
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(ii) Liability If:--
(1) X is required by any applicable law, as modified by the practice of
any relevant governmental revenue authority, to make any deduction or
withholding in respect of which X would not be required to pay an
additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section
6(c), be required to pay interest (before as well as after judgment) on
the overdue amount to the other party on demand in the same currency as
such overdue amount, for the period from (and including) the original due
date for payment to (but excluding) the date of actual payment, at the
Default Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed. If, prior to the
occurrence or effective designation of an Early Termination Date in
respect of the relevant Transaction, a party defaults in the performance
of any obligation required to be settled by delivery, it will compensate
the other party on demand if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into and, in the case of the representations in Section 3(f), at all times
until the termination of this Agreement) that:--
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of the
jurisdiction of its organisation or incorporation and, if relevant under
such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance.
(iii) No Violation or Conflict. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other agency
of government applicable to it or any of its assets or any contractual
restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to have
been obtained by it with respect to this Agreement or any Credit Support
Document to which it is a party have been obtained and are in full force and
effect and all conditions of any such consents have been complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any Credit
Support Document to which it is a party constitute its legal, valid and
binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganisation, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless
of whether enforcement is sought in a proceeding in equity or at law)).
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(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representations. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that
may be required or reasonably requested in writing in order to allow such
other party or its Credit Support Provider to make a payment under this
Agreement or any applicable Credit Support Document without any deduction or
withholding for or on account of any Tax or with such deduction or
withholding at a reduced rate (so long as the completion, execution or
submission of such form or document would not materially prejudice the legal
or commercial position of the party in receipt of such demand), with any
such form or document to be accurate and completed in a manner reasonably
satisfactory to such other party and to be executed and to be delivered with
any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
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organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any
agreement or obligation (other than an obligation to make any payment under
this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice
of a Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in
accordance with this Agreement if such failure is not remedied on or before
the thirtieth day after notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to
comply with or perform any agreement or obligation to be complied with
or performed by it in accordance with any Credit Support Document if
such failure is continuing after any applicable grace period has
elapsed;
(2) the expiration or termination of such Credit Support Document or the
failing or ceasing of such Credit Support Document to be in full force
and effect for the purpose of this Agreement (in either case other than
in accordance with its terms) prior to the satisfaction of all
obligations of such party under each Transaction to which such Credit
Support Document relates without the written consent of the other party;
or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the validity
of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation under
Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due on
the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice requirement
or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in
whole or in part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, even of
default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) in an aggregate amount of not less than the
applicable Threshold Amount (as specified in the Schedule) which has
resulted in such Specified Indebtedness becoming, or becoming capable at
such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party, such Credit Support Provider or such Specified Entity
(individually or collectively) in making one or more payments on the due
date thereof in an aggregate amount of not less than the applicable
Threshold Amount under such agreements or instruments (after giving effect
to any applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation, amalgamation
or merger); (2) becomes insolvent or is unable to pay its debts or fails
or admits in writing its inability generally to pay its debts as they
become due; (3) makes a general assignment, arrangement or composition
with or for the benefit of its creditors; (4) institutes or has
instituted against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency law or
other similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in the case of any
such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order
for its winding-up or liquidation or (B) is not dismissed, discharged,
stayed or restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its winding-up,
official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject to
the appointment or an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official for
it or for all or substantially all its assets; (7) has a secured party
take possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any such process
is not dismissed, discharged, stayed or restrained, in each case within
30 days thereafter; (8) causes or is subject to any event with respect
to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at the
time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under this
Agreement or any Credit Support Document to which it or its predecessor
was a party by operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without
the consent of the other party) to the performance by such resulting,
surviving or transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in, any applicable law
after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court, tribunal
or regulatory authority with competent jurisdiction of any applicable law
after such date, it becomes unlawful (other than as a result of a breach by
the party of Section 4(b)) for such party (which will be the Affected
Party):--
(1) to perform any absolute or contingent obligation to make a payment
or delivery or to receive a payment or delivery in respect of such
Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document relating
to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (y) a Change in Tax
Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect
of such Tax under Section 2(d)(i)(4) (other than by reason of Section
2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in
the Schedule as applying to the party, such party ("X"), any Credit Support
Provider of X or any applicable Specified Entity of X consolidates or
amalgamates with, or merges with or into, or transfers all or substantially
all of its assets to, another entity and such action does not constitute an
event described in Section 5(a)(viii) but the creditworthiness of the
resulting, surviving or transferee entity is materially weaker than that of
X, such Credit Support Provider or such Specified Entity, as the case may
be, immediately prior to such action (and, in such event, X or its successor
or transferee, as appropriate, will be the Affected Party); or
(v) Additional Termination Event. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence of
such event (and, in such event, the Affected Party or Affected Parties shall
be as specified for such Additional Termination Event in the Schedule or
such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
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6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly
upon becoming aware of it, notify the other party, specifying the nature of
that Termination Event and each Affected Transaction and will also give such
other information about that Termination Event as the other party may
reasonably require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at
such time would permit it to enter into transactions with the transferee on
the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a
Tax Event occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof is
given under Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(b)(iii), as the case may be, has not been effected with respect to all
Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger
or an Additional Termination Event occurs, or a Tax Event Upon Merger
occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of
a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party, or
the party which is not the Affected Party in the case of a Credit Event Upon
Merger or an Additional Termination Event if there is only one Affected
Party may, by not more than 20 days notice to the other party and provided
that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then occurring.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining
a Market Quotation, the records of the party obtaining such quotation will
be conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early
Termination Date under Section 6(e) will be payable on the day that notice
of the amount payable is effective (in the case of an Early Termination Date
which is designated or occurs as a result of an Event of Default) and on the
day which is two Local Business Days after the day on which notice of the
amount payable is effective (in the case of an Early Termination Date which
is designated as a result of a Termination Event). Such amount will be paid
together with (to the extent permitted under applicable law) interest
thereon (before as well as after judgment) in the Termination Currency, from
(and including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an Event
of Default:--
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting
Party the excess, if a positive number, of (A) the sum of the Settlement
Amount (determined by the Non-defaulting Party) in respect of the
Terminated Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party over (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market
Quotation apply, an amount will be payable equal to (A) the sum of the
Settlement Amount (determined by the
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Non-Defaulting Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party less (B) the Termination Currency Equivalent of the
Unpaid Amounts owing to the Defaulting Party. If that amount is a
positive number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except
that, in either case, references to the Defaulting Party and to the
Non-defaulting Party will be deemed to be references to the Affected
Party and the party which is not the Affected Party, respectively, and,
if Loss applies and fewer than all the Transactions are being
terminated, Loss shall be calculated in respect of all Terminated
Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and an
amount will be payable equal to (1) the sum of (a) one-half of the
difference between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement Amount of the
party with the lower Settlement Amount ("Y") and (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less (II) the
Termination Currency Equivalent of the Unpaid Amounts owing to Y;
and
(B) if Loss applies, each party will determine its Loss in respect
of this Agreement (or, if fewer than all the Transactions are being
terminated, in respect of all Terminated Transactions) and an amount
will be payable equal to one-half of the difference between the Loss
of the party with the higher Loss ("X") and the Loss of the party
with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is
a negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a
party, the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments
or deliveries made by one party to the other under this Agreement (and
retained by such other party) during the period from the relevant Early
Termination Date to the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise provided
in this Agreement neither party will be entitled to recover any additional
damages as a consequence of such losses.
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7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all of its assets to, another entity (but without prejudice to
any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
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9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by facsimile
transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to this
Agreement. The parties will specify therein or through another effective
means that any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's facsimile
machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered or
its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if this
Agreement is expressed to be governed by the laws of the State of New York;
and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one of more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head or
home office.
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
" Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a) (i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--.
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
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"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a) (iii) ) to such party under Section 2(a) (i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a) (i) which was (or would have been but for Section 2(a) (iii) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17
<PAGE>
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
<TABLE>
<S> <C>
THE FIRST NATIONAL BANK OF BOSTON THE NEW AMERICA HIGH INCOME FUND, INC.
- ----------------------------------- ---------------------------------------
(Name of Party) (Name of Party)
By: /s/ William K. LePard By: /s/ R. Birch
--------------------------- --------------------------------
Name: William K. LePard Name: R. Birch
Title: Director President
Date: Date: 2/3/94
By: /s/ John T. Daley
---------------------------
Name: John T. Daley
Title: Vice President
</TABLE>
18
<PAGE>
[Bank Of Boston Logo]
SAMPLE FORM OF CONFIRMATION
EXHIBIT I
DATE:
TO:
ATTN:
FAX:
<TABLE>
<S> <C>
FROM: The First National Bank of Boston ("FNBB")
FAX: (617) 434-6795
RE: SWAP TRANSACTION
[Our Ref: SW / ]
</TABLE>
The purpose of this letter agreement is to confirm the terms and conditions of
the Swap Transaction entered into between us on the Trade Date specified below
(the "Swap Transaction"). This letter constitutes a "Confirmation" as referred
to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions in this Confirmation, this Confirmation will
govern.
1. This Confirmation evidences a complete binding agreement between you and us
as to the terms of the Swap Transaction to which this Confirmation relates. In
addition, if you and we are not yet party to a Master Agreement, upon the
execution by you and us of a Master Agreement (the "Agreement"), in the form
published by the International Swaps and Derivatives Association, Inc. ("ISDA"),
with such modifications as you and we shall in good faith agree, this
Confirmation will supplement, form a part of, and be subject to the Agreement.
All provisions contained or incorporated by reference in such Agreement upon its
execution shall govern this Confirmation except as expressly modified below.
2. The terms of the particular Swap Transaction to which this Confirmation
relates are as follows:
NOTIONAL AMOUNT:
TRADE DATE:
EFFECTIVE DATE:
TERMINATION DATE:
FIXED AMOUNTS:
FIXED RATE PAYER:
FIXED RATE:
THE FIRST NATIONAL BANK OF BOSTON, Boston, Massachusetts 02106
<PAGE>
FIXED RATE:
<TABLE>
<S> <C>
FIXED RATE The of in each year beginning and
PAYMENT DATES ending on the Termination Date, subject to adjustment
in accordance with the Modified Following Business
Day convention.
</TABLE>
FIXED RATE DAY
COUNT FRACTION:
[OR FIXED AMOUNT:]
FLOATING AMOUNTS:
FLOATING PAYOR:
<TABLE>
<S> <C>
FLOATING RATE The of in each year beginning and ending
PAYMENT DATES: on the Termination Date, subject to adjustment in
accordance with the Modified Following Business Day
convention.
</TABLE>
FLOATING RATE FOR
INITIAL CALCULATION
PERIOD:
FLOATING RATE DAY
COUNT FRACTION:
FLOATING RATE
OPTION:
DESIGNATED MATURITY:
METHOD OF AVERAGING:
<TABLE>
<S> <C>
SPREAD: None OR [Plus/Minus] %
</TABLE>
RESET DATES:
<TABLE>
<S> <C>
COMPOUNDING: Inapplicable/Applicable
</TABLE>
COMPOUNDING DATES:
[DISCOUNTING:
DISCOUNTING RATE:
DISCOUNT RATE DAY
COUNT FRACTIONS:]
2
<PAGE>
INITIAL EXCHANGE:
INITIAL EXCHANGE DATE:
FIXED RATE PAYER
INITIAL EXCHANGE
AMOUNT:
FLOATING RATE
PAYER INITIAL
EXCHANGE AMOUNT:
FINAL EXCHANGE:
FINAL EXCHANGE DATE:
FIXED RATE PAYER
FINAL EXCHANGE
AMOUNT:
FLOATING RATE
PAYER FINAL
EXCHANGE AMOUNT:
BUSINESS DAYS FOR
FIRST CURRENCY:
BUSINESS DAYS FOR
SECOND CURRENCY:
<TABLE>
<S> <C>
BUSINESS DAYS: New York and London
BUSINESS DAY CONVENTION: Modified Following.
CALCULATION AGENT: FNBB
INCLUDE FOR TRADES UNDER UNEXECUTED AGREEMENTS.
DOCUMENTATION: ISDA's Master Agreement to be provided by FNBB.
</TABLE>
3. OFFICES: [USE ONLY IF MULTIBRANCH PARTIES]
The Office of the Fixed Rate Payer for the Swap Transaction is:
The Office of the Floating Rate Payer for the Swap Transaction is:
3
<PAGE>
4. ACCOUNT DETAILS:
<TABLE>
<S> <C>
PAYMENTS TO FNBB: Through the Federal Reserve Bank,
Boston, Routing No. ABA 011000390,
for A/C FNB, Boston, for credit to
Arbitrage Settlement Account #009-7647,
Attn: Swap Desk, 01-10-06.
PAYMENTS TO: .. PLEASE ADVISE
</TABLE>
5. CONTACT INSTRUCTIONS:
<TABLE>
<S> <C> <C>
Operations (Swap Desk): Tel: (617) 434-0775
FNBB: FAX: (617) 434-6795
Documentation: Tel: (617) 434-7789
FAX: (617) 434-6795
: .. PLEASE ADVISE
</TABLE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
<TABLE>
<S> <C>
Traded by: Approved by:
By:________________________________ By:________________________________
Name: Name: William K. LePard
Title: Director
</TABLE>
PLEASE COUNTERSIGN BELOW AND FAX IMMEDIATELY TO (617) 434-6795, OR REQUEST
CORRECTION TO TEL: (617) 434-7789.
Agreed and accepted as of the date first above written:
[COUNTERPARTY NAME]
By:_____________________________________________________________________________
Name:
Title:
4
<PAGE>
(Mutlicurrency - Cross Border)
IDSA(R)
International Swap Dealers Association, Inc.
SCHEDULE
to the
Master Agreement
dated as of February 3, 1994
between
THE FIRST NATIONAL BANK OF BOSTON
("Party A")
and
THE NEW AMERICA HIGH INCOME FUND, INC.
("Party B")
Part 1. Termination Provisions.
(a) "Specified Entity" means in relation to Party A for the purpose of:-
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv): Not Applicable.
and in relation to Party B for the purpose of:-
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv): Not Applicable.
(b) "Specified Transaction" will have the meaning specified in Section 14.
(c) The "Cross Default" provisions of Section 5(a)(vi)
will not apply to Party A
will apply to Party B
If such provisions apply:-
<PAGE>
"Specified Indebtedness" will have the meaning specified in Section 14.
"Threshold Amount" means an amount equal to US$1,000,000.00
(d) The "Credit Event Upon Merger" provisions of Section 5(b)(iv)
will apply to Party A
will apply to Party B
(e) The "Automatic Early Termination" provision of Section 6(a)
will apply to Party A
will apply to Party B
(f) Payments on Early Termination. For the purpose of Section 6(e) of this
Agreement:-
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "Termination Currency" means United States Dollars.
(h) Additional Termination Event will apply.
The following shall constitute Additional Termination Events:-
Section 6(f) - Additional Termination Event Based on Asset Coverage
Upon any failure of Party B to satisfy any applicable discounted asset
coverage requirement and failure to cure such failure within the time period
specified in its charter documents under the circumstances contemplated by
the attached agreements with Fitch Investors Services, Inc. and Moody's
Investors Service, Inc., then if so required by agreements, Party B will
give notice thereof to Party A and Party B shall thereupon have the right,
exercisable one Business Day following such notice, to terminate any and all
outstanding Swap Transactions (or such Notional Amount thereof as Party B
shall determine) based on the mark-to-market quotation provided by Party A
upon its receipt of Party B's notice, and otherwise with the same effect as
if a Termination Event occurred on the date of such notice (but only to the
extent of the Notional Amount designated by Party B).
Section 6(g) - Exposure
For purposes hereof, the "Exposure" on any day shall mean such amount, if
any, estimated in good faith by Party B based on customary "mark-to-market"
calculations in accordance with past practices, as would be payable by Party
B to Party A or by Party A to Party B, as applicable, hereunder upon the
occurrence of a Termination Event on such day, taking into account any and
all Swap Transactions then existing between Party A and Party B as well as
(without duplication) any Unpaid Amounts owing by Party B to Party A
hereunder. The Exposure shall be a positive number at any time it represents
an obligation owed by Party B to Party A, and shall be a negative number at
any time it represents an obligation owed by Party A to Party B. Party A
agrees to provide mark-to-market quotations with respect to the Swap
Transactions covered by this Agreement and information regarding Unpaid
Amounts to Party B to enable Party B to determine the Exposure at any time
upon request by Party B.
2
<PAGE>
(i) Additional Event of Default.
Breach of the following provisions from page 11 of the Prospectus by Party B
shall constitute an additional Event of Default with respect to Party B:
"Ratings
It is a condition of the Underwriter's obligation to purchase the ATP
offered hereby that the Fund obtain the "aaa"/AAA Credit Rating from Moody's
and Fitch for the ATP on the Date of Original Issue. While there is no
assurance that the "aaa"/AAA Credit Rating with respect to the ATP will not
be changed, suspended or withdrawn, the Fund will endeavor to maintain such
rating and any failure to maintain such rating would, subject to cure and
certain exceptions, result in mandatory redemption of the ATP. See
"Mandatory Redemption" above. While the Fund does not presently intend to
seek a rating from a rating agency other than Moody's and Fitch, it reserves
the right to do so."
"Asset Maintenance.
Under the Fund's Articles, the Fund must maintain (i) as of each Valuation
Date, Eligible Assets having, in the aggregate, a Discounted Value at least
equal to the ATP Basic Maintenance Amount, and (ii) as of the last Business
Day of each month, 1940 Act ATP Asset Coverage of at least 200%. See
"Description of ATP-Asset Maintenance" in the Statement of Additional
Information."
For purposes of this Part 1(i) "Prospectus" shall mean the $100,000,000 The
New America High Income Fund, Inc. Auction Term Preferred Stock 1,200 Shares
Series A, 800 Shares Series B, Liquidation Preference - $50,000 Per Share
Prospectus dated December 20, 1993.
Part 2. Tax Representations.
(a)Payer Representations. For the purpose of Section 3(e), Party A and Party B
will make the following representation:-It is not required by any applicable
law, as modified by the practice of any relevant governmental revenue
authority of any Relevant Jurisdiction to make any deduction or withholding
for or on account of any tax from any payment (other than interest under
Sections 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the
other party under this Agreement. In making this representation, it may rely
on:-
(i) the accuracy of any representation made by the other party pursuant to
Section 3(f);
(ii) the satisfaction of the agreement of the other party contained in
Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness of any
document provided by the other party pursuant to Section 4(a)(i) or
4(a)(iii); and
3
<PAGE>
(iii) the satisfaction of the agreement of the other party contained in
Section 4(d), provided that it shall not be a breach of this representation
where reliance is placed on clause (ii) and the other party does not deliver
a form or document under Section 4(a)(iii) by reason of material prejudice to
its legal or commercial position.
(b)Payee Representations. For the purpose of Section 3(f0 of this Agreement,
Party A and Party B make the representations specified below, if any:
(i) The following representation
will not apply to Party A, and
will not apply to Party B
If is fully eligible for the benefits of the "Business Profits" or
"Industrial and Commercial Profits" provision, as the case may be, the
"Interest" provision or the "Other Income" provision (if any) of the
Specified Treaty with respect to any payment described in such provisions and
received or to be received by it in connection with this Agreement and no
such payment is attributable to a trade or business carried on by it through
a permanent establishment in the Specified Jurisdiction.
If such representations applies, then:-
"Specified Treaty" means with respect to Party A N/A
---
"Specified Jurisdiction" means with respect to Party A N/A
---
"Specified Treaty" means with respect to Party B N/A
---
"Specified Jurisdiction" means with respect to Party B N/A
---
(ii) The following representation
will not apply to Party A, and
will not apply to Party B
Each payment received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a trade or
business in the Specified Jurisdiction.
If such representation applies, then:-
"Specified Jurisdiction" means with respect to Party A N/A
---
"Specified Jurisdiction" means with respect to Party B N/A
---
(iii) The following representation
will not apply to Party A,
will not apply to Party B
(A) It is entering into each Transaction in the ordinary course of its trade as,
and is, either (1) a recognized U.K. bank or (2) a recognized U.K. swaps dealer
(in either case (1) or (2), for purposes of the United Kingdom Inland Revenue
extra statutory concession C17 on interest and currency swaps dated March 14,
1989), and (B) it will bring into account payments made and received in respect
of each Transaction in computing its income for United Kingdom tax purposes.
4
<PAGE>
(iv) Other Payee Representations: None
Part 3. Agreement to Deliver Documents.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:-
(a) In order to assist any party which is required to make a payment under any
Swap Transaction (the "Payer") to secure the benefit of any available
exemption from deduction or withholding for or on account of Taxes, the other
party (the ("Payee") shall, if requested to do so in writing by the Payee, as
soon as reasonably practicable after such request, from time to time, furnish
the Payer or the appropriate governmental or other authority with duly
completed copies of such certificates and documents as are necessary for such
purpose.
(b) Other documents to be delivered are:-
<TABLE>
<CAPTION>
Covered by
Party required by Form/Document/ Date by which to be Section 3(d)
Deliver Document Certificate Delivered Representation
---------------- ----------- --------- --------------
<S> <C> <C> <C>
Party A Certificate of Concurrent with Yes
and Incumbency Execution of this
Party B Agreement
</TABLE>
Part A. Miscellaneous.
(a) Address for Notices. For the purpose of Section 12(a) of this Agreement:-
Address for notices or communications to Party A:-
Address: 100 Federal Street
Boston, Massachusetts 02106
Attention: Arbitrage Operations, Swap Desk, 01-10-06
Facsimile No: (617) 434-6795
Address for notices or communications to Party B:-
Address: 10 Winthrop Square
Boston, Massachusetts 02110
Attention: Ellen Terry, Vice President
Facsimile No: (617) 350-8619
(b) Process Agent: For the purpose of Section 13(c) of this Agreement:-
Party B appoints as its Process Agent N/A
---
5
<PAGE>
(c) Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) Calculation Agent: The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) Credit Support Document: Details of any Credit Support Document:-
None
- ----
(g) Credit Support Provider: Credit Support Provider means in relation in Party
B:-
Not Applicable
- --------------
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to choice
of law doctrine).
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to any Transactions under this Agreement.
(j) "Affiliate" will have the meaning specified in Section 14.
Part 5. Other Provisions
(a) Definitions.
This Agreement, each Confirmation and each Transaction are subject to the 1991
ISDA Definitions (as published by the International Swap Dealers Association,
Inc.) (the "Definitions"), and will be governed in all respects by the
provisions set forth in the Definitions. The provisions of the Definitions are
incorporated by reference in, and shall be deemed to be part of, this Agreement
and each Confirmation, as if set forth in full in this Agreement or in that
Confirmation. In the event of any inconsistency between the provisions of this
Agreement and the Definitions, this Agreement will prevail. In the event of any
inconsistency between the provisions of any Confirmation and this Agreement,
such Confirmation will prevail for the purpose of the relevant Transaction.
(b) Procedures for Entering into Transactions.
With respect to each Transaction entered into pursuant hereto, Party A shall, on
or promptly after the Trade Date thereof, send Party B a Confirmation
substantially in the form of Exhibit I confirming such Transaction, and Party B
shall promptly thereafter confirm the accuracy of or request the correction of
such Confirmation.
6
<PAGE>
IT WITNESS WHEREOF, the parties have executed this document as of the date
specified on the first page hereof.
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ William K. LePard
- -------------------------
Name: William K. LePard
Title: Director
By: /s/ John T. Daley
- ----------------------
Name: John T. Daley
Title: Vice President
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ R. Birch
- -----------------
Name: R. Birch
Title: 2/3/94
7
<PAGE>
[BankBoston logo]
<TABLE>
<S> <C>
DATE: February 3, 1994
TO: New America High Income Fund, Inc. ("New America")
ATTN: Ellen Terry
FAX: 617-350-8619
FROM: The First National Bank of Boston ("FNBB")
FAX: (617) 434-6795
SWAP TRANSACTION
RE:
[Our Ref: SW1164/33414]
</TABLE>
The purpose of this letter agreement is to confirm the terms and conditions of
the Swap Transaction entered into between us on the Trade Date specified below
(the "Swap Transaction"). This letter constitutes a "Confirmation" as referred
to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions in this Confirmation, this Confirmation will
govern.
1. This Confirmation evidences a complete binding agreement between you and us
as to the terms of the Swap Transaction to which this Confirmation relates. In
addition, if you and we are not yet party to a Master Agreement, upon the
execution by you and us of a Master Agreement (the "Agreement"), in the form
published by the International Swaps and Derivatives Association, Inc. ("ISDA"),
with such modifications as you and we shall in good faith agree, this
Confirmation will supplement, form a part of, and be subject to the Agreement.
All provisions contained or incorporated by reference in such Agreement upon its
execution shall govern this Confirmation except as expressly modified below.
2. The terms of the particular Swap Transactions to which this Conformation
relates are as follows:
<TABLE>
<S> <C>
NOTIONAL AMOUNT: USD 65,000,000.
TRADE DATE: February 3, 1994
EFFECTIVE DATE: February 7, 1994
TERMINATION DATE: February 7, 1999
FIXED AMOUNTS:
FIXED RATE PAYER: New America
FIXED RATE: 5.25%
</TABLE>
<PAGE>
<TABLE>
<S> <C>
FIXED RATE
PAYMENT DATES The 7th of each calendar month in each year beginning March 7, 1994 and ending on the
Termination Date, subject to adjustment in accordance with the Modified Following Business
Day convention.
FIXED RATE DAY
COUNT FRACTION: Actual/360
FLOATING AMOUNTS:
FLOATING PAYOR: FNBB
FLOATING RATE
PAYMENT DATES: The 7th of each calendar month in each year beginning March 7, 1994 and ending on the
Termination Date, subject to adjustment in accordance with the Modified Following Business
Day convention.
FLOATING RATE FOR INITIAL
CALCULATION PERIOD: To be determined.
FLOATING RATE DAY
COUNT FRACTION: Actual/360
FLOATING RATE OPTION: USD-CP-H.15
DESIGNATED MATURITY: 30 Days
SPREAD: None
RESET DATES: The first day of each Calculation Period.
COMPOUNDING: Inapplicable
BUSINESS DAYS: New York
BUSINESS DAY CONVENTION: Modified Following.
CALCULATION AGENT: FNBB
GOVERNING LAW: New York law.
DOCUMENTATION: ISDA'S Master Agreement to be provided by FNBB.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
3. ACCOUNT DETAILS:
PAYMENTS TO FNBB: Through the Federal Reserve Bank, Boston, Routing No. ABA 011000390, for A/C FNB,
Boston, for credit to Abritrage Settlement Account #009-7647, Attn: Swap Desk, 01-10-06.
PAYMENTS TO NEW AMERICA: PLEASE ADVISE
4. CONTRACT INSTRUCTIONS:
FNBB: Operations (Swap Desk): Tel: (617) 434-0775
FAX: (617) 434-6795
Documentation: Tel: (617) 434-7789
FAX: (617) 434-6795
NEW AMERICA: PLEASE ADVISE
</TABLE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
<TABLE>
<S> <C>
Traded by: Approved by:
By: /s/ Jaime Buenaventura By: /s/ William K. LePard
- -------------------------- -------------------------
Name: Jaime Buenaventura Name: William K. LePard
Title: Director Title: Director
</TABLE>
PLEASE COUNTERSIGN BELOW AND FAX IMMEDIATELY TO (617) 434-6795, OR REQUEST
CORRECTION TO TEL: (617) 434-7789.
Agreed and accepted as of the date first above written:
NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Ellen E. Terry
------------------
Name: Ellen E. Terry
Title: Vice President
3
<PAGE>
[BankBoston logo]
<TABLE>
<S> <C>
DATE: October 1, 1997
TO: The New America High Income Fund ("New America")
ATTN: Ellen Terry
FAX: 617-350-8619
PHONE: 617-350-8610
FROM: BankBoston, N.A. ("BBNA")
ATTN: May M. Scherr, Derivative Operations, Confirmation Unit
FAX: (617) 434-4284
PHONE: (617) 434-4405
RE: SWAP TRANSACTION
(Our Ref: SW54969)
</TABLE>
The purpose of this letter agreement is to set forth the terms and conditions of
the Transaction entered into between us on the Trade Date specified below (the
"Transaction"). This letter constitutes a "Confirmation" as referred to in the
Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions in this Confirmation, this Conformation will
govern.
1. This Confirmation evidences a complete binding agreement between you and us
as to the terms of the Transaction to which this Confirmation relates. This
Confirmation supplements, forms a part of, and is subject to the Master
Agreement dated as of February 3, 1994, as amended and supplemented from time to
time (the "Agreement"). All provisions contained or incorporated by reference in
such Agreement shall govern this Confirmation except as expressly modified
below.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:-
<TABLE>
<S> <C>
Notional Amount: USD 10,000,000.
Trade Date: September 30, 1997
Effective Date: October 2, 1997
Termination Date: October 2, 2002, subject to adjustment in accordance with the Modified Following Business
Day convention
FIXED AMOUNTS:
Fixed Rate Payer: New America
Fixed Rate: 6.225%
</TABLE>
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
Fixed Rate
Payment Dates: The 2nd of each month in each year beginning November 2, 1997, and ending on the
Termination Date, subject to adjustment in accordance with the Modified Following Business
Day convention.
Fixed Rate
Day Count Fraction: Actual/360
FLOATING AMOUNTS:
Floating Rate Payer: BBNA
Floating Rate
Payment Dates: The 2nd of each month in each year beginning on November 2, 1997, and ending on the
Termination Date, subject to adjustment in accordance with the Modified Following Business
Day convention.
Floating Rate for
Initial Calculation Period: 5.65625%
Floating Rate
Day Count Fraction: Actual/360
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: One month
Method of Averaging: Inapplicable
Spread: None
Reset Dates: The first day of each Calculation Period.
Compounding: Inapplicable
Business Days: New York and London
Business Day Convention: Modified Following.
Calculation Agent: BBNA
</TABLE>
2
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
3. ACCOUNT DETAILS:
PAYMENTS TO BBNA: Through the Federal Reserve Bank, Boston, Routing No. ABA 011000390,
for A/C BankBoston, N.A., Boston, (formerly known as The First
National Bank of Boston) for credit to Arbitrage Settlement
Account #295032, Attn: Swap Desk, 01-13-08.
PAYMENTS TO NEW AMERICA: PLEASE ADVISE
State Street Bank and Trust
ABA 011000028
Attn: The New America High Income Fund
DDA 4977824-4
4. CONTACT INSTRUCTIONS:
BBNA: Swap Desk (Resets/Payments): Tel: (617) 434-4308
FAX: (617) 434-0505
Confirmations: Tel: (617) 434-4405
FAX: (617) 434-4284
NEW AMERICA: Ellen Terry PLEASE ADVISE:
Tel: 617-350-8610
Fax: 617-350-8619
Very truly yours,
BANKBOSTON, N.A.
By: /s/ Jaime Buenaventura By: /s/ James Mather
- -------------------------- --------------------
Name: Jaime Buenaventura Name: James Mather
Title: Director Title: Managing Director
Agreed and accepted as of the date first above written:
THE NEW AMERICA HIGH INCOME FUND
By: /s/ Ellen E. Terry
- ----------------------
Name: Ellen E. Terry
Title: Vice President
</TABLE>
PLEASE COUNTERSIGN AND FAX TO:
(617) 434-4284
ATTN: MARY SCHERR
REQUEST CORRECTIONS AT: (617) 434-4405.
3
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
DATE: October 7, 1997
TO: The New America High Income Fund ("New America")
ATTN: Ellen Terry
FAX: 617:350-8619
PHONE: 617-350-8610
FROM: BankBoston, N.A. ("BBNA")
ATTN: Mary M. Scherr, Derivative Operations, Confirmation Unit
FAX: (617) 434-4284
PHONE: (617) 434-4405
RE: SWAP TRANSACTION
[Our Ref: SW55317US]
</TABLE>
The purpose of this letter agreement is to set forth the terms and conditions of
the Transaction entered into between us on the Trade Date specified below (the
"Transaction"). This letter constitutes a "Confirmation" as referred to in the
Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions in this Confirmation, this Confirmation will
govern.
1. This Confirmation evidences a complete binding agreement between you and
us as to the terms of the Transaction to which this Confirmation relates. This
Confirmation supplements, forms a part of, and is subject to the Master
Agreement dated as of February 3, 1994, as amended and supplemented from time to
time (the "Agreement"). All provisions contained or incorporated by reference in
such Agreement shall govern this Confirmation except as expressly modified
below.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:-
<TABLE>
<S> <C>
Notional Amount: USD 20,000,000.
Trade Date: October 7, 1997
Effective Date: October 7, 1997
Termination Date: October 7, 2002, subject to adjustment in accordance with the
Modified Following Business Day convention.
FIXED AMOUNTS:
Fixed Rate Payer: New America
Fixed Rate: 6.07%
</TABLE>
1
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
Fixed Rate
Payment Dates: The 7th of each month in each year beginning November 7, 1997,
and ending on the Termination Date, subject to adjustment in
accordance with the Modified Following Business Day convention.
Fixed Rate Actual/360
Day Count Fraction:
FLOATING AMOUNTS:
Floating Rate Payer: BBNA
Floating Rate
Payment Dates: The 7th of each month in each year beginning on November 7, 1997,
and ending on the Termination Date, subject to adjustment in
accordance with the Modified Following Business Day convention.
Floating Rate for
Initial Calculation Period: 5.625%
Floating Rate
Day Count Fraction: Actual/360
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: One month
Method of Averaging: Inapplicable
Spread: None
Reset Dates: The first day of each Calculation Period.
Compounding: Inapplicable
Business Days: New York and London
Business Day Convention: Modified Following.
Calculation Agent: BBNA
</TABLE>
2
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
3. ACCOUNT DETAILS:
PAYMENTS TO BBNA: Through the Federal Reserve Bank, Boston, Routing No. ABA
011000390, for A/C BankBoston, N.A., Boston, (formerly known as
The First National Bank of Boston) for credit to Arbitrage Settlement
Account #295032, Attn: Swap Desk, 01-13-08.
PAYMENTS TO NEW AMERICA: PLEASE ADVISE
4. CONTACT INSTRUCTIONS:
BBNA: Swap Desk (Resets/Payments): Tel: (617) 434-4308
FAX: (617) 434-0505
Confirmations: Tel: (617) 434-4405
FAX: (617) 434-4284
NEW AMERICA: PLEASE ADVISE
</TABLE>
Very truly yours,
BANKBOSTON, N.A.
<TABLE>
<S> <C>
By: /s/ Jaime Buenaventura By: /s/ James Mather
--------------------------------- ---------------------------------
Name: Jaime Buenaventura Name: James Mather
Title: Director Title: Managing Director
Agreed and accepted as of the date first above written:
THE NEW AMERICA HIGH INCOME FUND
By: /s/ Ellen E. Terry
-----------------------------------
Name: Ellen E. Terry
Title: Vice President
</TABLE>
PLEASE COUNTERSIGN AND FAX TO:
(617) 434-4284
ATTN: MARY SCHERR
REQUEST CORRECTIONS AT: (617) 434-4405.
3
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
DATE: April 3, 1998
TO: The New America High Income Fund, Inc. ("New America")
ATTN: Ellen Terry
FAX: 617:350-8619
PHONE: 617-350-8610
FROM: BankBoston, N.A. ("BBNA")
ATTN: Mary M. Scherr, Derivative Operations, Confirmation Unit
FAX: (617) 434-4284
PHONE: (617) 434-4405
RE: SWAP TRANSACTION
[Our Ref: SW56698]
</TABLE>
The purpose of this letter agreement is to set forth the terms and conditions of
the Transaction entered into between us on the Trade Date specified below (the
"Transaction"). The letter constitutes a "Confirmation" as referred to in the
Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions in this Confirmation, this Confirmation will
govern.
1. This Confirmation evidences a complete binding agreement between you and
us as to the terms of the Transaction to which this Confirmation relates. This
Confirmation supplements, forms a part of, and is subject to the Master
Agreement dated as of February 3, 1994, as amended and supplemented from time to
time (the "Agreement"). All provisions contained or incorporated by reference in
such Agreement shall govern this Confirmation except as expressly modified
below.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:-
<TABLE>
<S> <C>
Notional Amount: USD 65,000,000.
Trade Date: April 3, 1998
Effective Date: February 8, 1999
Termination Date: February 7, 2004, subject to adjustment in accordance with the
Modified Following Business Day convention.
FIXED AMOUNTS:
Fixed Rate Payer: New America
Fixed Rate: 5.83%
</TABLE>
1
<PAGE>
[BankBoston Logo]
<TABLE>
<S> <C>
Fixed Rate
Payment Dates: The 7th of each month in each year beginning March 8, 1999, and
ending on the Termination Date, subject to adjustment in accordance
with the Modified Following Business Day convention.
Fixed Rate
Day Count Fraction: Actual/360
FLOATING AMOUNTS:
Floating Rate Payer: BBNA
Floating Rate
Payment Dates: The 7th of each month in each year beginning on March 8, 1999, and
ending on the Termination Date, subject to adjustment in accordance
with the Modified Following Business Day convention.
Floating Rate for
Initial Calculation Period: To be determined two Business Days prior to the Effective Date.
Floating Rate
Day Count Fraction: Actual/360
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: One month
Method of Averaging: N/A
Spread: None
Reset Dates: The first day of each Calculation Period.
Compounding: Inapplicable
Business Days: New York and London
Business Day Convention: Modified Following.
Calculation Agent: BBNA
3. ACCOUNT DETAILS:
PAYMENTS TO BBNA: Through the Federal Reserve Bank, Boston, Routing No. ABA
011000390, for A/C BankBoston, N.A., Boston, (formerly known as
The First National Bank of Boston) for credit to Arbitrage Settlement
Account #295032, Attn: Swap Desk, 01-13-08.
PAYMENTS TO NEW AMERICA: PLEASE ADVISE
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
[BankBoston Logo]
4. CONTACT INSTRUCTIONS:
BBNA: Swap Desk (Resets/Payments): Tel: (617) 434-1321
FAX: (617) 434-0505
Confirmations: Tel: (617) 434-4405
FAX: (617) 434-4284
NEW AMERICA: PLEASE ADVISE
Ellen E. Terry Tel - 350-8610
Fax - 350-8619
</TABLE>
Very truly yours,
BANKBOSTON, N.A.
<TABLE>
<S> <C>
By: /s/ Jaime Buenaventura By: /s/ James Mather
--------------------------------- ---------------------------------
Name: Jaime Buenaventura Name: James Mather
Title: Director Title: Managing Director
Agreed and accepted as of the date first above written:
THE NEW AMERICA HIGH INCOME FUND, INC.
By: /s/ Ellen E. Terry
-----------------------------------
Name: Ellen E. Terry
Title: Vice President
</TABLE>
PLEASE COUNTERSIGN AND FAX TO:
617-434-4284
ATTN: MARY SCHERR
REQUEST CORRECTIONS AT: 617-434-4405.
3
EXHIBIT L
[Venable, Baetjer and Howard, LLP Letterhead]
May 8, 1998
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 2,400 shares of the Fund's Series D Auction Term Preferred
Stock, par value $1.00 per share (the "Series D 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.
333-49043 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, (a) the
minimum price to be paid for the Series D 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
May 8, 1998
Page 2
Merrill Lynch & Co., Merrill Lynch, Pierce Fenner & Smith Incorporated has been
further authorized by the Pricing Committee of the Board of Directors and the
price to the Underwriters of the Series D Preferred Stock has been determined;
and (c) Articles Supplementary classifying the Series D 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 D 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 D Preferred
Stock pursuant to the Prospectus the Series D
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 use of our report
(and to all references to our firm) included in or made a part of Pre-Effective
Amendment No. 1 and Amendment No. 26 to Registration Statement File Nos.
333-49043 and 811-5399, respectively.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 8, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 389,971
<INVESTMENTS-AT-VALUE> 392,102
<RECEIVABLES> 9,020
<ASSETS-OTHER> 43
<OTHER-ITEMS-ASSETS> 310
<TOTAL-ASSETS> 401,475
<PAYABLE-FOR-SECURITIES> 2,615
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,235
<TOTAL-LIABILITIES> 7,850
<SENIOR-EQUITY> 150,000
<PAID-IN-CAPITAL-COMMON> 327,393
<SHARES-COMMON-STOCK> 48,453
<SHARES-COMMON-PRIOR> 35,717
<ACCUMULATED-NII-CURRENT> 370
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (86,319)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,181
<NET-ASSETS> 393,625
<DIVIDEND-INCOME> 244
<INTEREST-INCOME> 33,307
<OTHER-INCOME> 366
<EXPENSES-NET> 2,378
<NET-INVESTMENT-INCOME> 31,539
<REALIZED-GAINS-CURRENT> 11,676
<APPREC-INCREASE-CURRENT> (331)
<NET-CHANGE-FROM-OPS> 42,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,910
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 448
<NUMBER-OF-SHARES-SOLD> 11,982
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 754
<NET-CHANGE-IN-ASSETS> 117,217
<ACCUMULATED-NII-PRIOR> 371
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,378
<AVERAGE-NET-ASSETS> 360,374
<PER-SHARE-NAV-BEGIN> 4.94
<PER-SHARE-NII> .70
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> .70
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.03
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
