- -----------------------------
* All items required to be set forth in Part B: Statement of Additional
Information has been included in Part A: The Prospectus.
G:\SHARED\LEHMAN\F&C\PFD\N2-1997.COP
As filed with the Securities and Exchange Commission
on March 27, 1997
File Nos. 811-06179
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
Registration Statement Under the
Investment Company Act of 1940
Amendment No. 9
PREFERRED INCOME FUND INCORPORATED
(Exact Name of Registrant as specific in charter)
301 E. Colorado Boulevard,
Suite 720
Pasadena, California 91101
(Address of Principal Executive Offices)
Registrant's Telephone Number (818) 795-7300
Christine P. Ritch
Preferred Income Fund Incorporated
One Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
<PAGE>
* All items required to be set forth in Part B: Statement of Additional
Information have been included in Part A: The Prospectus.
PREFERRED INCOME FUND INCORPORATED
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
PARTS A AND B OF PROSPECTUS*
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
Item 1. Outside Front Cover...................................... Cover of Prospectus
Item 2. Inside Front and Outside Back............................ Inside Front and Outside Back
Cover Page Cover of Prospectus
Item 3. Fee Table and Synopsis................. Prospectus Summary; Selected
Financial Information;
Capitalization; Management of
the Fund
Item 4. Financial Highlights..................................... Not Applicable
Item 5. Plan of Distribution..................................... Cover of Prospectus; Management of
the Fund
Item 6. Selling Shareholders..................................... Not Applicable
Item 7. Use of Proceeds.......................................... Use of Proceeds; Investment
Objective and Policies; Special
Leverage Considerations
Item 8. General Description of the Registrant.................... Cover of Prospectus; Prospectus
Summary; The Fund; Investment
Objective and Policies; Special
Leverage Considerations; Investment
Restrictions
Item 9. Management............................................... Management of the Fund; Custodian,
Transfer Agent, Dividend Paying
Agent and Registrar and Redemption
Agent; Description of Capital
Stock; Description of MMP; Description of Common
Stock
Item 10. Capital Stock, Long-Term Debt,......... Description of Capital Stock; and
Other Securities Description of MMP; Description of
Common Stock; Dividends and
Distributions; Dividend Reinvestment
Plan; Taxation; Tax Matters
Item 11. Defaults and Arrears on Senior........................... Not Applicable
Securities
Item 12. Legal Proceedings........................................ Not Applicable
Item 13. Table of Contents of the Statement....................... Not Applicable
of Additional Information
Item 14. Cover Page............................................... Not Applicable
Item 15. Table of Contents........................................ Not Applicable
Item 16. General Information and History Not Applicable
Item 17. Investment Objective and Policies........................ Investment Objective and Policies;
Additional Investment Practices;
Investment Restrictions; Portfolio
Transactions
Item 18. Management............................................... Management of the Fund; Custodian,
Transfer Agent, Dividend Paying Agent
and Registrar and Redemption Agent
Item 19. Control Persons and Principal.......... Description of Capital Stock; Holders
of Securities Description of MMP; Description of
Common Stock
Item 20. Investment Advisory and Other............................ Management of the Fund
Services
Item 21. Brokerage Allocation and Other........................... Portfolio Transactions and Turnover
Practices
Item 22. Tax Status............................................... Dividends and Distributions;
Dividend Reinvestment Plan;
Taxation; Tax Matters
Item 23. Financial Statements..................................... Experts; Financial Statements
</TABLE>
Part A - INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Outside Front Cover
(1)(a),(b),
(j),(k) Incorporated by reference to Amendment No. 8 to the Fund's
Registration Statement as filed with the Securities and
Exchange Commission (the "Commission") on August 5, 1992
("Amendment No. 8"), except as provided below.
Preferred Income Fund Incorporated (the "Fund") is a
diversified, closed-end management investment company. The
Fund's investment objective is high current income for holders
of its Common Stock consistent with preservation of capital.
In seeking to achieve its investment objective, the Fund
intends to generate sufficient income to pay dividends and
other amounts due on its outstanding shares of Money Market
Cumulative Preferred Stock ("MMP"). The Fund's investment
adviser intends to pursue strategies that it expects generally
to result in the Fund's income increasing in response to
significant increases in interest rates while being relatively
resistant to the impact of significant declines in interest
rates. The Fund intends to pursue its objective by investing
in a diversified portfolio of preferred stocks and other debt
and equity securities. The Fund normally will invest at least
65% of its assets in a diversified portfolio of preferred
stocks, some of which preferred stocks are expected to be
hedged. Preferred stocks in which the Fund invests will be
rated investment grade (at least "baa" by Moody's Investors
Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Group ("S&P")) or will be preferred stocks of issuers
of investment grade senior debt, some of which may have
speculative elements. In addition, the Fund may invest in
unrated securities deemed by the Fund's investment adviser to
be comparable in quality to rated issues in which the Fund is
authorized to invest. The Fund concentrates its investments in
the utilities and banking industries and is subject to the
risks of such concentration. An investment in the Fund
involves certain risks and special considerations and may not
be appropriate for all investors. See "Investment Objective
and Policies -- Risk Factors and Special Considerations."
There can be no assurance that the Fund will achieve its
investment objective.
(1)(c)-(i) Not applicable.
Item 2. Inside Front and Outside Back Cover Page
(1) Not applicable.
(2) The Common Stock is listed on the New York Stock Exchange
("NYSE") and the Pacific Stock Exchange ("PSE") under the
trading symbol "PFD."
Item 3. Fee Table and Synopsis
(1) Not applicable.
(2) Incorporated by reference to Amendment No. 8, except as
provided below.
The Fund
The Fund is a closed-end, diversified management investment
company. The Fund invests in a diversified portfolio of
preferred stocks and other debt and equity securities. The
Fund normally will invest at least 65% of its assets in a
diversified portfolio of preferred stocks. These preferred
stocks consist principally of fixed rate preferred stocks and
adjustable rate preferred stocks, some of which preferred
stocks are expected to be hedged. See "The Fund" and
"Investment Objective and Policies." The Fund has issued and
outstanding Common Stock and Money Market Cumulative Preferred
Stock. The Common Stock is traded on the New York Stock
Exchange and Pacific Stock Exchange under the symbol "PFD."
See "Description of Common Stock" and "Description of MMP."
Investment Objective and Policies
The Fund's investment objective is high current income for
holders of its Common Stock consistent with preservation of
capital. In seeking to achieve its investment objective, the
Fund intends to generate sufficient income to pay dividends
and other amounts due on its outstanding shares of MMP. The
Fund's investment adviser intends to pursue strategies that it
expects generally to result in the Fund's income increasing in
response to significant increases in interest rates while
being relatively resistant to the impact of significant
declines in interest rates. The Fund's investment adviser does
not manage the Fund's portfolio with a view to maximizing the
portion of the Fund's distributions qualifying for the
dividends received deduction (the "Dividends Received
Deduction") allowed corporations under Section 243(a)(1) of
the Internal Revenue Code of 1986, as amended (the "Code").
If, for any taxable year, there is any amount of distributions
on shares of MMP retroactively designated by the Fund as
ineligible for the Dividends Received Deduction, the Fund is
required to make an Additional Distribution to certain holders
or prior holders of shares of MMP. See "Description of MMP --
Dividends -- Additional Distributions."
Under normal market conditions, the Fund's portfolio of
preferred stocks is expected to consist principally of fixed
rate preferred stocks and adjustable rate preferred stocks.
The Fund also expects to engage in hedging and other
transactions involving options on futures contracts, futures
contracts and, possibly, options on securities and stock
indices. There is no limit on the portion of the Fund's assets
that can be hedged, subject to compliance with applicable laws
and regulations, as well as restrictions imposed in connection
with the rating of the Fund's MMP. The Fund may invest up to
5% of its assets in each of options on securities and options
on stock indices, and up to 10% (5% for non-bona fide hedges)
of its assets may be committed to initial margin deposits on
futures contracts and premiums paid for options thereon.
However, under current market conditions, it is expected that
up to an aggregate of 15% of the Fund's assets could be
invested in options on securities and stock indices and
initial margin deposits and option premiums paid in connection
with futures transactions. The Fund may also invest up to 35%
of its assets in the following securities: trust originated
preferred securities ("TOPRS"), monthly income preferred
securities ("MIPS"), quarterly income debt securities
("QUIDS"), quarterly income preferred securities ("QUIPS"),
Canadian originated preferred securities ("COPRS") and other
similarly structured instruments (collectively, "Hybrid
Securities"). While QUIDS are debt securities, other Hybrid
Securities have been characterized as either preferred stock
or debt by the marketplace, ratings agencies and the Internal
Revenue Service. The Fund has determined to classify these
instruments as debt instruments for purposes of determining
its portfolio allocations, although there can be no assurance
that it will continue to do so. As of November 30, 1996, 98.0%
of the Fund's net assets were invested in preferred stocks and
Hybrid Securities in accordance with the Fund's investment
objective and policies.
The Fund, under normal market conditions, invests 25% or more
of its assets in securities of companies in the utilities
industry and another 25% or more of its assets in securities
of companies in the banking industry. The Fund's holdings of
securities of companies in any industry other than the
utilities industry or banking industry is at all times less
than 25% of the Fund's assets. Consistent with the limitations
described above, the proportion of the Fund's assets invested
in the utilities, banking and other industries may vary from
time to time, depending on market conditions. Under current
market conditions, the Fund expects that holdings of utility
stocks will represent a large portion of its total assets, in
part due to the fact that utility stocks comprise a sizable
portion of the universe of preferred stocks. As of November
30, 1996, approximately 44.9% of the Fund's net assets were
invested in the utilities industry, approximately 37.7% were
invested in the banking industry and approximately 15.4% were
invested in other industries.
Economic Consultant and Administrator
Primark Decision Economics, Inc. ("Primark"), a division of
Primark Corp., serves as the Fund's economic consultant. For
economic consulting services rendered, Primark will be paid by
the Fund an annual fee of $45,333. First Data Investor
Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's administrator.
For Fund administration services, the Fund pays FDISG a fee
computed and paid monthly at the annual rate of .12 of 1.00%
of the Fund's average monthly net assets, such net assets
being calculated as described below under "Management of the
Fund -- Administrator."
<PAGE>
Tax Matters
Dividends will be taxable as ordinary income and will be
eligible for the Dividends Received Deduction to the extent
that they are designated by the Fund as qualifying for such
deduction. The Internal Revenue Service requires the Fund to
allocate particular types of income received by it for any
taxable year, including income that qualifies for the
Dividends Received Deduction and that which does not, between
shares of Common Stock and shares of MMP outstanding in
proportion to the total amount of distributions paid to each
such class of shares for such taxable year. See "Tax Matters."
The Fund's portfolio, however, will not be managed with a view
to maximizing the portion of the Fund's distributions eligible
for the Dividends Received Deduction. Investors should note
that the Fund has in the past generated and may in the future
generate capital gains and other income that does not qualify
for the Dividends Received Deduction. The Fund may consider a
security's potential for appreciation as one factor, among
others, in selecting portfolio investments, although it will
not seek capital gains as a primary investment objective of
the Fund's portfolio as a whole. (The amount of realized and
unrealized capital gains of the Fund as of November 30, 1996
can be found in the Fund's annual report of that date.)
The Dividends Received Deduction is currently 70% of the
amount of dividends received. President Clinton's budget
proposal for the fiscal year beginning October 1, 1997, would
reduce the Dividends Received Deduction to 50%. Corporate
shareholders of the Fund should consider the effect on the
Dividends Received Deduction of the more than 45-day holding
period requirement of Section 246(c) of the Code and the rules
in Section 246A that reduce the Dividends Received Deduction
for debt-financed holdings of portfolio stock. See "Investment
Objective and Policies -- Risk Factors and Special
Considerations."
Rating Agency Guidelines, 1940 Act Asset Coverage and
Dividend Coverage
The Fund's investments are subject to certain investment
guidelines (the "Rating Agency Guidelines") established by
Moody's. The Rating Agency Guidelines require the Fund to
meet, as of certain specified dates, the Eligible Asset
Coverage. To meet the Eligible Asset Coverage, the Fund must
maintain a certain amount of its assets in Eligible Assets
with an aggregate value net of liabilities (determined using
procedures specified by Moody's) sufficient to cover (i) the
aggregate liquidation preference of the outstanding shares of
MMP including accumulated dividends, (ii) the amount of the
applicable redemption premium on shares of MMP, if any, (iii)
the amount of dividends projected to accumulate on the shares
of MMP from the Eligible Asset Evaluation Date until the 56th
day thereafter and (iv) an amount equal to the amount of any
assumed Additional Distributions that would be payable on the
shares of MMP. The Articles Supplementary require the Fund to
meet, as of certain specified dates, the Dividend Coverage.
The Dividend Coverage requires the Fund to own Dividend
Coverage Assets with an aggregate value (determined using
procedures specified in the Articles Supplementary) sufficient
to pay the dividends that will accumulate through the next
Dividend Payment Date on the outstanding shares of MMP.
In addition to the coverage tests established by the Rating
Agency Guidelines and the Articles Supplementary, in order to
pay dividends on the Common Stock, the 1940 Act requires the
Fund to meet minimum asset coverage requirements (the "1940
Act Asset Coverage"). The 1940 Act Asset Coverage will be met
if, as of any date of determination, the value of the Fund's
total assets, less all liabilities and indebtedness not
representing senior securities (as defined in the 1940 Act) of
the Fund, is equal to at least 200% of the aggregate amount of
senior securities representing indebtedness of the Fund plus
the aggregate liquidation preference of the outstanding shares
of MMP. On November 30, 1996, the 1940 Act Asset Coverage was
approximately 383%.
(3) Not applicable.
Item 4. Financial Highlights
(1) Incorporated by reference to the Fund's Annual Report for the
fiscal year ended November 30, 1996, definitive copies of
which were filed with the Commission pursuant to Rule 30b2-1
of the Securities Exchange Act of 1934 on January 17, 1997 as
Accession #0000927405-97-000013 (the "Annual Report").
(2) Not applicable.
(3) The table below sets out information with respect to MMP currently
outstanding. The "Asset Coverage Per Share" refers to the 1940 Act Asset
Coverage per share of MMP. Each share of outstanding MMP has a stated
involuntary liquidation preference, which would be paid prior to the Common
Stockholders receiving any amounts, of $100,000.
Average
Market
Value
Involuntary Per Share
Asset Liquidating (Exclude
MMP Coverage Preference Bank
Year Outstanding Per Share Per Share(1) Loans)(1)(2)
11/30/91* 575 $326,832 $100,000 $100,000
11/30/92 575 373,205 100,000 100,000
11/30/93 575 392,862 100,000 100,000
11/30/94 575 346,759 100,000 100,000
11/30/95 575 370,527 100,000 100,000
11/30/96 575 382,762 100,000 100,000
- -------------------------
* The Fund commenced operations on January 31, 1991.
(1) Excludes accumulated undeclared dividends.
(2) Excludes accrued undeclared dividends measured at the auction date
of the MMP.
Item 5. Plan of Distribution
Not applicable.
Item 6. Selling Shareholders
Not applicable.
Item 7. Use of Proceeds
Not applicable.
Item 8. General Description of Registrant
(1) Incorporated by reference to Amendment No. 8.
(2) Incorporated by reference to Amendment No. 8, except as
provided below.
General
The Fund's investment objective is high current income for
holders of its Common Stock consistent with preservation of
capital. The Fund's investment objective may not be changed
without the approval of the holders of a majority of the
Fund's voting securities (as defined below under "Investment
Restrictions"), voting as a single class, and a majority of
the Fund's outstanding shares of MMP (as defined below under
"Investment Restrictions"), voting as a separate class. See
"Description of MMP -- Voting Rights" for additional
information with respect to the voting rights of holders of
shares of MMP. The Fund's investment adviser does not manage
the Fund's portfolio with a view to maximizing the portion of
the Fund's distributions qualifying for the Dividends Received
Deduction. No assurance can be given that the Fund's
investment objective will be achieved.
The Fund pursues its investment objective by investing in a
diversified portfolio of preferred stocks and other debt and
equity securities. In seeking its objective, the Fund intends
to generate sufficient income to pay dividends and other
amounts due on its outstanding shares of MMP. The Fund will
normally invest at least 65% of its assets in a diversified
portfolio of preferred stocks. As of November 30, 1996,
approximately 91.9% of the Fund's net assets were invested in
preferred stocks (excluding "Hybrid Securities" as defined
below).
In selecting individual securities, the Fund's investment
adviser considers, among other things, current yield, price
variability and the underlying fundamental characteristics of
the issuer, with particular emphasis on debt and dividend
coverage and the potential for the timely payment of dividends
and interest. The Fund will typically invest in fixed rate
preferred stocks and adjustable rate securities. The Fund may
invest in other types of securities -- such as auction rate
preferred stocks and convertible preferred stocks -- in
appropriate circumstances. The Fund may invest up to 35% of
its assets collectively in the following securities: trust
originated preferred securities ("TOPRS"), monthly income
preferred securities ("MIPS"), quarterly income debt
securities ("QUIDS"), quarterly income preferred securities
("QUIPS"), Canadian originated preferred securities ("COPRS")
and other similarly structured instruments (collectively,
"Hybrid Securities"). As of November 30, 1996, 6.1% of the
Fund's net assets were invested in Hybrid Securities. The
investment adviser currently anticipates using various
techniques, including entering into futures contracts and
options on futures contracts from time to time for the purpose
of hedging some or all of the Fund's securities holdings.
There is no limit on the portion of the Fund's assets that can
be hedged, subject to compliance with applicable laws and
regulations, as well as restrictions imposed in connection
with the rating of the MMP. The Fund may invest up to 5% of
its assets in each of options on securities and options on
stock indices, and up to 10% (5% for non-bona fide hedges) of
its assets may be committed to initial margin deposits on
futures contracts and premiums paid for options thereon.
However, up to an aggregate of 15% of the Fund's assets could
be invested in options on securities and stock indices and
initial margin deposits and option premiums paid in connection
with futures transactions. See "Investment Techniques --
Futures Contracts and Options on Futures Contracts" for a
discussion of the limitations and risks associated with
investments in futures contracts and options on futures
contracts. As of November 30, 1996, 0.3% of the Fund's net
assets were invested in put options or Treasury Bond futures.
The portion of the Fund's assets not invested in preferred
stocks, Hybrid Securities and hedging instruments may be
invested in, among other securities, money market instruments
and securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("Government Securities"),
which, depending on market conditions, may at times have a
higher or lower yield than preferred stocks in which the Fund
invests.
Rating Agency Guidelines, 1940 Act Asset Coverage and Dividend Coverage
- -- Eligible Asset Coverage
--------------
The definition of "Eligible Assets" in the above-referenced
section of the prospectus that forms part of Amendment No. 8
is revised to read as follows:
Eligible Assets include, generally;
(a) cash, receivables and short-term money market
instruments;
(b) commercial paper, bankers' acceptances, demand deposits,
time deposits and certificates of deposit that are not
included as short-term money market instruments having on the
Eligible Asset Evaluation Date a rating from Moody's of P-2 or
better or a rating from S&P of A-1+ or better and maturing
within 270 days;
(c) preferred stocks, including preference stocks, convertible
preferred and preference stocks and other "analogous
securities senior to common equity," which are either (1)
issued by issuers whose senior debt securities are rated at
least Baa1 by Moody's or (2) rated at least baa3 by Moody's
(or, if not rated by Moody's, which (A) are issued by issuers
whose senior debt securities are rated at least A by S&P and
(B) are rated at least A by S&P) and, in each case, that meet
other credit quality criteria established by Moody's;
(d) common stocks of issuers having outstanding senior
securities rated at least Baa by Moody's (or, if not rated by
Moody's, are issued by issuers whose senior debt securities
are rated at least A by S&P) and that meet other credit
quality criteria established by Moody's;
(e) auction rate preferred stocks rated at least "aa" by
Moody's (or, if not rated by Moody's, AAA by S&P or otherwise
approved in writing by Moody's) and which have dividend
periods of not more than six days greater than the Minimum
Holding Period (or, in the case of a new issue, 64 days for
the initial dividend period), have never had a failed auction
and meet other credit quality criteria established by Moody's;
(f) U.S. Treasury Securities;
(g) corporate and utility bonds, which are not privately
placed, are rated at least Baa by Moody's (or, if not rated by
Moody's, at least A by S&P) and which meet other credit
quality criteria established by Moody's; and
(h) securities which the Fund has bought and agreed to
sell in the future.
"Analogous securities senior to common equity" include debt
securities that either (1) rank immediately senior to any
class of equity in respect of the right to receive payment of
interest or the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of the
issuer or (2) are beneficiaries of a guarantee of the
applicable common equity issuer which guarantee ranks
immediately senior to any class of equity of the applicable
common equity issuer in respect of the right to receive
payment of interest or the right to participate in any
distribution upon liquidation, dissolution or winding up of
the affairs of the applicable common equity issuer. These
securities are included in the definition of Hybrid
Securities.
Futures Contracts and Options on Futures Contracts
In order to hedge against a decline in the value of securities
it owns or an increase in the price of securities it proposes
to purchase, the Fund may enter into interest rate and stock
index futures contracts and may purchase and sell put and call
options on such futures contracts. The Fund will enter into
such transactions for bonafide hedging and other appropriate
risk-management purposes in accordance with the rules and
regulations of the Commodities Futures Trade Commission
("CFTC") and the Commission.
An interest rate futures contract is a standardized contract
for the future delivery of a specified security (such as a
U.S. Treasury Bond or U.S. Treasury Note) or its equivalent at
a future date at a price set at the time of the contract. A
stock index futures contract is an agreement to take or make
delivery of an amount of cash equal to the difference between
the value of the index at the beginning and at the end of the
contract period. The Fund may only enter into futures
contracts traded on regulated commodity exchanges.
Parties to a futures contract must make "initial margin"
deposits to secure performance of the contract. There are also
requirements to make "variation margin" deposits from time to
time as the value of the futures contract fluctuates. The Fund
is not a commodity pool and, in compliance with CFTC
regulations currently in effect, may enter into any futures
contracts and related options for "bona fide hedging" purposes
and, in addition, for other purposes, provided that aggregate
initial margin and premiums required to establish positions
other than those considered by the CFTC to be "bona fide
hedging" will not exceed 5% of the Fund's net asset value,
after taking into account unrealized profits and unrealized
losses on any such contracts. The Fund reserves the right to
engage in transactions involving futures and options thereon
to the extent allowed by CFTC regulations in effect from time
to time and in accordance with the Fund's policies. In the
event that the Fund enters into short positions in futures
contracts as a hedge against a decline in the value of the
Fund's portfolio securities, the value of such futures
contracts may not exceed the total market value of the Fund's
portfolio securities. With respect to futures contracts to
purchase securities or stock indices (called "long" positions)
and long positions in options on futures that are anticipatory
hedges, the Fund will set aside in a segregated account cash,
debt securities or other money market instruments at least
equal to the value of instruments underlying the futures
contracts less the amount of initial margin on deposit for
such contracts. In addition, certain provisions of the Code
may limit the extent to which the Fund may enter into futures
contracts or engage in options transactions. See "Tax
Matters."
Additional information concerning futures contracts and
options on futures contracts is incorporated by reference from
"Investment Objective and Policies -- Investment Techniques --
Futures and Options on Futures" in Amendment No. 8.
(3)(a) Incorporated by reference to Amendment No. 8, except as
provided below.
Hybrid Securities
The Fund may invest up to 35% of its assets in MIPS, QUIDS and
other similar securities, including, but not limited to,
TOPRS, QUIPS and COPRS. While QUIDS are debt securities, other
Hybrid Securities have been characterized as either preferred
stock or debt by the marketplace, ratings agencies and the
Internal Revenue Service. The Fund has determined to classify
these securities as debt instruments for purposes of
determining its portfolio allocations although there can be no
assurance that it will continue to do so.
The issuer of a Hybrid Security is typically a special purpose
entity which engages in no activities other than issuing
preferred shares and lending the proceeds to its parent and
has no assets of significance other than the subordinated loan
of the parent. Accordingly, the issuer may be deemed to be an
"investment company" for purposes of Section 12(d)(1) A(i) and
12(d)(1)B(i) of the 1940 Act, limiting the amount which the
Fund could invest in such securities to 10% of its total
assets. Rule 3a-5 under the 1940 Act excepts from the
definition of "investment company" a "finance subsidiary."
While it is believed that the issuers of Hybrid Securities
will meet the qualifications for this exception, no assurance
can be given that this will be the case with respect to each
individual issue.
Proposed Changes to the Dividends Received Deduction
President Clinton's budget proposal for the fiscal year
beginning October 1, 1997, contains three changes to the
Dividends Received Deduction. First, the 70% deduction for
dividends received by corporations holding less than 20% of
the payor's stock would be reduced to 50%. Second, the
deduction generally would be unavailable if the 46-day (or
91-day) holding period for the stock is not satisfied by the
taxpayer over a period immediately before and immediately
after the taxpayer is entitled to receive the dividend. These
changes would apply to dividends paid or accrued more than 30
days after the date of enactment.
The third change to the Dividends Received Deduction would be
to deny the deduction for preferred stock with certain
non-stock characteristics. Generally, the deduction would be
eliminated for dividends on "limited term preferred stock."
This proposal would apply to dividends on stock issued more
than 30 days after the date of enactment. There can be no
assurance that any of the proposed changes would be included
in the final budget, or, if included, they will be included in
the current form.
Foreign Securities
The Fund may invest in analogous securities senior to common
equity issued by foreign issuers, such as COPRS, but only
where such issues are registered under the U.S. Securities
Laws and readily tradable in the United States. Investments in
foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs as well
as the imposition of additional taxes by foreign governments.
In addition, foreign investments may include additional risks
associated with currency exchange rates, less complete
financial information about the issuers, less market
liquidity, and political instability. Future political and
economic developments, the possible imposition of withholding
taxes on interest income, the possible seizure or
nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other
governmental restrictions, might adversely affect the payment
of principal and interest on foreign obligations.
Concentration in Utilities and Banking Industries
The Fund concentrates its investments in the utilities and
banking industries. As a result, the Fund's investments may be
subject to greater risk and market fluctuation than a fund
that had securities representing a broader range of investment
alternatives.
Utilities Industry. The utilities industry generally includes
companies engaged in the generation, transmission or
distribution of electric energy, gas, water, telephone and
telecommunications. Certain segments of the industry and
individual companies within such segments may not perform as
well as the industry as a whole. Many utility companies
historically have been subject to risks of increases in fuel,
safety and other operating costs, high interest costs on
borrowings needed for capital improvement programs and costs
associated with compliance with and changes in environmental
and other governmental regulations. In particular, regulatory
changes with respect to nuclear and conventionally fueled
power generating and transmission facilities could increase
costs or impair the ability of the utility companies to
operate and utilize such facilities, thus reducing the utility
companies' earnings or resulting in losses. Rates of return on
investment of certain utility companies are subject to review
by government regulators. There can be no assurance that
changes in regulatory policies or accounting standards will
not negatively affect utility companies' earnings or
dividends. Costs incurred by utilities, such as fuel costs,
often are subject to immediate market action resulting from
political or military forces operating in geographic regions
where oil production is concentrated, while the rates of
return of utility companies generally are subject to review
and limitation by state public utility commissions, which
results ordinarily in a lag between costs and return. Certain
utilities, especially gas and telephone utilities, have in
recent years been affected by increased competition with the
need to make large investments in technology to meet this
competition, which could adversely affect the profitability of
such utilities. Certain other utilities, particularly water
companies, have been restricted to relatively mature markets
which could constrain the potential for growth. Electric
utilities may also be subject to increasing economic pressures
due to deregulation of generation, transmission and other
aspects of their business. The passage in 1992 of the
Comprehensive National Energy Policy Act, which aims to
improve energy efficiency, also could cause significant
changes in the competitive conditions in the utilities
industry.
Bank Holding Company and Bank Stocks. Investment in the Fund
involves consideration of various regulatory and economic
factors affecting bank holding companies and their subsidiary
banks.
Federal and state banking laws and regulations limit the
ability of bank holding companies and their subsidiary banks
to compete geographically and restrict the activities in which
they may engage. From time to time, changes in law and
regulation have permitted greater diversification of their
financial products, but their ability to expand by acquisition
or branching across state lines and to engage in non-banking
activities continues to be limited. Legislation tightening and
easing those restrictions has been proposed from time to time,
but there is no assurance that such legislation will be
adopted or as to its effect, if adopted.
Federal law and regulations require commercial banks and bank
holding companies to maintain minimum levels of capital and
liquidity and to establish loan loss reserves. The minimum
capital requirements of banks and bank holding companies and
the premium rates for federal deposit insurance have
significantly increased in past years. An insured bank's
failure to maintain specified capital ratios may trigger
dividend restrictions, suspensions on payments on subordinated
debt and limitations on growth. Bank regulators have broad
authority in these instances and can ultimately impose
sanctions, including conservatorship or receivership, on such
noncomplying banks even when these banks continue to be
solvent, thereby possibly resulting in the elimination of
stockholders' equity. Unless a bank holding company has
subsidiaries other than banks that generate substantial
revenues, the holding company's cash flow and ability to
declare dividends may be impaired severely by restrictions on
the ability of its bank subsidiaries to declare dividends.
Fiscal and monetary policies of the government and general
economic and political conditions may affect the availability
and cost of funds to banks, loan demand and asset quality and
thereby impact the earnings and financial condition of banking
institutions. Downturns in a regional or local economy or in
the general business cycle or depressed conditions in an
industry, for example, may adversely affect the quality or
volume of a bank's loan portfolio, particularly if the
portfolio is concentrated in the affected region or industry.
In the past decade, general economic conditions have adversely
affected financial institutions' energy, agricultural,
commercial real estate, less developed country and highly
leveraged loan portfolios. The impact of a deteriorating
economy or industry upon institutions depends, in part, on the
size of the institutions, the extent to which they are
involved in the type of lending or market affected, the
duration of the softening in the affected area and the
managerial and capital resources of the institutions. In
addition, changes in accounting rules applicable to loans and
investment securities also may adversely impact the financial
condition of banking institutions.
(3)(b)(1) At March 1, 1997, 575 shares of MMP were outstanding at the
current annual rate of 3.88%. The dividend rate, as set by the
auction process, is generally expected to vary with short-term
interest rates. These rates vary in a manner unrelated to the
income received on the Fund's assets, which could have either
a beneficial or detrimental impact on net investment income
and gains available to Common Stock Shareholders. While the
Fund expects to structure the portfolio holdings and hedging
transactions to lessen such risks to Common Stock
shareholders, there can be no assurance that such results will
be attained.
(3)(b)(2) Incorporated by reference to Amendment No. 8.
(3)(b)(3) Not applicable.
(4) MIPS, QUIDS and Other Hybrid Securities
---------------------------------------
The Fund may invest up to 35% of its assets in MIPS, QUIDS and
other Hybrid Securities, including, but not limited to, TOPRS,
QUIPS and COPRS. MIPS, as well as TOPRS, QUIPS and COPRS,
refer to a class of capital stock of a U.S. or foreign
corporation issued in the public market as preferred stock by
a special purpose issuer of that corporation. Typically, the
special purpose issuer lends the proceeds of the preferred
stock offering to its parent in exchange for a subordinated
debenture of the parent the interest on which is passed
through the special purpose issuer to preferred holders as
dividend payments. The parent deducts the interest payments on
the loan; dividend payments on the preferred stock, which are
not eligible for the Dividends Received Deduction, are
guaranteed by the parent. QUIDS refer to a class of debt
securities issued by a U.S. or foreign issuer that are
subordinate and junior in right of payment and permit the
issuer to defer payments to holders for a period that may be
as long as five years.
QUIDS are structured as debt securities, not preferred shares,
and would not be treated as preferred stock. Other Hybrid
Securities, while denominated as preferred shares, have been
characterized functionally in the marketplace as a subordinate
form of debt issuance, lying between preferred stock and
subordinated debt in the issuer's capital structure. Ratings
agencies, however, are treating Hybrid Securities as perpetual
preferred stock (rather than debt) of the parent company for
many purposes. The Internal Revenue Service has expressed
reservations concerning treating Hybrid Securities as equity
for rating agency purposes and debt for tax purposes.
(5) Not applicable.
(6) Not applicable.
Item 9. Management
(1)(a) Incorporated by reference to Amendment No. 8.
(1)(b) Flaherty & Crumrine Incorporated (the "Adviser") serves as the
Fund's investment adviser pursuant to an Advisory Agreement
between the Fund and the Adviser (the "Advisory Agreement").
The Adviser which was organized in 1983 and has offices at 301
E. Colorado Boulevard, Pasadena, California 91101, specializes
in the management of preferred stock portfolios, including
related hedging activities for institutional investors, which
include several Fortune 100 companies and public utilities,
and had assets under management, as of December 31, 1996 of
approximately $1.175 million. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940
and serves as an investment adviser to Preferred Income
Opportunity Fund Incorporated and Preferred Income Management
Fund Incorporated, closed-end investment companies investing
primarily in preferred stocks, which, as of December 31, 1996,
had approximately $430 million in aggregate net assets. Each
of Messrs. Flaherty and Crumrine, the founders of the Adviser,
may be deemed to control the Adviser by virtue of his
ownership of 40% of the Adviser.
Economic Consultant
Primark Decision Economics, Inc. ("Primark") serves as the
Fund's economic consultant pursuant to an Economic Consultant
Agreement dated October 18, 1996, among Primark and the Fund
(the "Economic Consulting Agreement"). Primark is located at
260 Franklin Street, 15th Floor, Boston, Massachusetts 02110.
Primark is a division of Primark Corp. From the commencement
of operations of the Fund until September 9, 1996, Lehman
Brothers Economic Advisors served as the Fund's economic
consultant. Allan Sinai, a principal of Primark, was a
principal of Lehman Brothers Economic Advisors until
September, 1996.
In its capacity as the Fund's economic consultant, Primark
evaluates factors and trends affecting the banking and
utilities industries and monitors, analyzes and forecasts the
causal factors and behavior of a wide range of interest rates
as they change under various economic conditions, inflation,
policy changes and other factors, as well as the behavior of
various regional economies throughout the United States. In
this regard, Primark will provide written materials published
by it on a regular basis, personal information support through
telephone and on-site meetings involving its economists and
staff and, if requested by the Fund, special consulting
services. The Investment Adviser will utilize information
provided by Primark in managing investments for the Fund.
Primark will not furnish advice or make recommendations
regarding the purchase or sale of securities by the Fund nor
will it be responsible for making investment decisions
involving Fund assets. For economic consulting services
rendered, Primark will be paid by the Fund an annual fee of
$45,333. From the commencement of the Fund's operations
through September 9, 1996, Lehman Economic Advisors was paid
an annual fee of $75,000.
(1)(c) In managing the day-to-day operations of the Fund, including
the making of all investment decisions, the Adviser will rely
on its team of money management professionals, and no one
person is responsible for making recommendations to this
management team. See Item 18 for additional information on
these individuals.
<PAGE>
(1)(d) Administrator
First Data Investor Services Group, Inc. ("FDISG"), located at
One Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's administrator. FDISG is a wholly-owned subsidiary of
First Data Corporation. In its capacity as the Fund's
administrator, FDISG calculates the net asset value of the
Common Stock and generally assists in all aspects of the
administration and operation of the Fund. For Fund
administration services, the Fund pays FDISG a fee computed
and paid monthly at the annual rate of .12 of 1.00% of the
Fund's average monthly net assets (which, for purposes of
calculating such fee, will be deemed to be the average monthly
value of the Fund's total assets minus the sum of the Fund's
liabilities (which liabilities exclude the aggregate
liquidation preference of the outstanding auction rate
preferred stock) and accumulated dividends, if any, on the
auction rate preferred stock). Prior to December 1, 1996, the
Fund paid FDISG a fee for administration services computed and
paid monthly at the annual rate of .19 of 1.00% of the Fund's
average monthly net assets.
(1)(e) Custodian, Transfer Agent and Dividend-Paying Agent and Registrar
------------------------------------------------
Boston Safe, a wholly-owned subsidiary of Mellon Bank, N.A.,
located at One Boston Place, Boston, Massachusetts 02108, acts
as the custodian for the Fund's investments. For its services
as custodian, the Fund pays Boston Safe a fee computed and
paid monthly at the annual rate of .01 of 1.00% of the Fund's
average monthly net assets. Prior to December 1, 1996, the
Fund paid Boston Safe a fee computed and paid monthly at the
annual rate of .02 of 1.00% of the Fund's average monthly net
assets. FDISG serves as the transfer agent, dividend paying
agent and registrar for the Fund's Common Stock. FDISG also
serves as agent in connection with the Dividend Reinvestment
and Cash Purchase Plan. For these services, the Fund pays
FDISG a fee computed and paid monthly at the annual rate of
.02 of 1.00% of the Fund's average monthly net assets plus
certain out-of-pocket expenses. Prior to December 1, 1996, the
Fund paid FDISG a fee computed and paid monthly at the annual
rate of .04 of 1.00% of the Fund's average monthly net assets
plus certain out-of-pocket expenses.
(1)(f) Incorporated by reference to Amendment No. 8.
(1)(g) Not applicable.
(2) Not applicable.
(3) Not applicable.
Item 10. Capital Stock, Long-Term Debt and Other Securities
(1)(a) Incorporated by reference to Amendment No. 8.
(1)(b) Incorporated by reference to Amendment No. 8.
(1)(c) Incorporated by reference to Amendment No. 8.
(1)(d) Incorporated by reference to Amendment No. 8.
(1)(e) Incorporated by reference to the Annual Report.
(1)(f) The Fund's Articles of Incorporation and By-Laws contain
provisions that could have the effect of limiting the ability
of other entities or persons to acquire control of the Fund or
to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices
by discouraging a third party from seeking to obtain control
of the Fund. For example, the Fund's By-Laws include a
provision that a special meeting of shareholders may be called
only upon the written request of shareholders owning a
majority of the votes entitled to be cast at the meeting. This
provision could delay the ability of a shareholder or group of
shareholders to call a special meeting. Additional information
concerning certain charter and by-law provisions is
incorporated by reference from "Certain Provisions of the
Articles of Incorporation" in Amendment No. 8.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) As of February 1, 1997, the Fund's capital stock was as follows:
(1) (2) (3) (4)
Amount
Outstanding
Amount Held Exclusive
Title Amount by Fund or of Amount
of Class Authorized for its Account Shown under (3)
Common Stock
Par Value $.01 240,000,000 None 9,838,571
Money Market 10,000,000 None 575
Cumulative
Preferred Stock
Par Value $.01
(6) Incorporated by reference to Amendment No. 8, except as provided below.
The MMP has been rated "Aa1" by Moody's and "AA+" by Fitch Investor
Services, Inc. ("Fitch"). The Fund is subject to Rating Agency Guidelines
established by Moody's and agreed to by Fitch, with which the Fund intends
to comply.
Item 11. Defaults and Arrears on Senior Securities
(1) Not applicable.
(2) None.
Item 12. Legal Proceedings
Not applicable.
Item 13. Table of Contents of the Statement of Information
Not applicable.
Part B - INFORMATION REQUIRED IN A STATEMENT OF INFORMATION
Item 14. Cover Page
Not applicable.
Item 15. Table of Contents
Not applicable.
Item 16. General Information and History
Not applicable.
Item 17. Investment Objective and Policies
(1)-(3) Incorporated by reference to Amendment No. 8 and Item 8
hereunder.
(4) A high portfolio turnover rate (100% or higher) involves
correspondingly greater expenses which must be borne by the
Fund and its shareholders and may under certain circumstances
make it more difficult for the Fund to qualify as a regulated
investment company under the Code. The portfolio turnover rate
is calculated by dividing the lesser of the dollar amount of
sales or purchases of portfolio securities by the average
monthly value of the Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one
year or less. The Fund's portfolio turnover rate was 98% for
the fiscal year ended November 30, 1996 and 94% for the fiscal
year ended November 30, 1995.
Item 18. Management
(1)-(2) Set forth in the following table are the Directors and
officers of the Fund, together with certain other information. No
Director or officer owned any shares of MMP on March 1, 1997. Each
Director and officer serves in a similar capacity for Preferred Income
Management Fund Incorporated and Preferred Income Opportunity Fund
Incorporated. Each director who is not a director, officer or employee
of the adviser or any of its affiliates receives a fee of $9,000 per
annum plus $500 for each in-person meeting of the Board of Directors
or any committee and $100 for each such meeting conducted by telephone
conference call. In addition, all Directors are reimbursed for travel
and out-of-pocket expenses associated with attending Board of
Directors or committee meetings.
Common Stock
Business Beneficially
Name, Address Experience During Owned
and Age Past Five Years On March 1, 1997
Martin Brody Director of the Fund, 1,008 Shares
Three ADP Boulevard Director of Jaclyn,
Roseland, NJ 07068 Inc., Director of
Age: 74 several other invest-
ment companies
Donald F. Crumrine* Director, Chief Financial 10,304 Shares**
301 E. Colorado Blvd. Officer, Chief Accounting
Suite 720 Officer, Vice President and
Pasadena, CA 91101 Secretary of the Fund,
Age: 49 Chairman of the Board and
Director of Flaherty & Crumrine
Robert T. Flaherty* Director, Chairman of the 9,269 Shares**
301 E. Colorado Blvd. Board, President and Chief
Suite 720 Executive Officer of the
Pasadena, CA 91101 Fund, and Director of
Age: 59 Flaherty & Crumrine
David Gale Director of the Fund, 1,500 Shares
Delta Dividend President of Delta Dividend
Group, Inc. Group, Inc. (Investments)
301 Pine Street
San Francisco, CA 94104
Age: 48
Morgan Gust Director of the Fund, 1,385 Shares
Giant Industries, Inc. Vice President, General
23733 N. Scottsdale Rd. Counsel, Corporate
Scottsdale, AZ 85255 Secretary and Vice Pres-
Age: 49 ident of Administration
of Giant Industries, Inc.
Robert F. Wulf Director of the Fund, 1,224 Shares
3560 Deerfield Drive Financial Consultant
South
Salem, OR 97302
Age: 60
Robert M. Ettinger Vice President and 7,469 Shares**
301 E. Colorado Blvd. Assistant Treasurer of
Suite 720 the Fund, President
Pasadena, CA 91101 and Director of Flaherty
Age: 38 & Crumrine
Peter C. Stimes Vice President, Treasurer 500 Shares
301 E. Colorado Blvd. and Assistant Secretary
Suite 720 of the Fund, Vice President
Pasadena, CA 91101 of Flaherty & Crumrine
Age: 41
- -------------------------
* Director who is an "Interested Person" of the Fund as defined in
the 1940 Act.
** 7,169 Shares of the Fund are held by Flaherty & Crumrine of which
the reporting person is a shareholder and director and, therefore, is
deemed to have an indirect beneficial interest in the share amounts.
(3) Not applicable.
(4)(a) The following table sets forth certain information regarding
the compensation of the Fund's Directors during the fiscal
year ended November 30, 1996. No executive officer or person
affiliated with the Fund received compensation from the Fund
during the fiscal year ended November 30, 1996, in excess of
$60,000. Directors of the Fund do not receive pension or
retirement benefits from the Fund.
Total Compensation
Name of Person Aggregate From the Fund and Fund
and Position Compensation Complex Paid to Directors*
Martin Brody $11,700 $35,100
Director
Donald F. Crumrine $0 $0
Director, Chief
Financial Officer,
Chief Accounting
Officer, Vice Pres-
ident and Secretary
Robert T. Flaherty $0 $0
Director, Chairman of
the Board, President
and Chief Executive
Officer
David Gale** $0 $0
Director
Morgan Gust $12,200 $36,600
Director
Robert F. Wulf $12,200 $36,600
Director
- --------------------------
* Represents total compensation paid to such persons by the Fund,
Preferred Income Management Fund Incorporated and Preferred Income
Opportunity Fund Incorporated during the fiscal year ended November 30,
1996, which are considered part of the same "fund complex" because they
have a common adviser.
** Mr. Gale was not a Director of the Fund as of November 30, 1996.
(4)(b) Not applicable.
(4)(c) Not applicable.
Item 19. Control Persons and Principal Holders of Securities
(1) Not applicable.
(2) There are no persons known to the Fund to be control persons of the Fund,
as such term is defined in Section 2(a)(9) of the 1940 Act. As of March 1,
1997, the following persons held of record more than 5% of the 9,838,571
outstanding shares of Common Stock:
Amount
Name and Address of Record Percent
of Record Owner Ownership of Class
Cede & Co., as nominee for 9,140,898 92.91%
The Depository Trust
Company
P.O. Box 20
Bowling Green Station
New York, New York 10004
As of March 1, 1997, to the extent known by the Fund, Cede & Co.
owned of record 100% of the MMP.
(3) At March 1, 1997, directors and officers of the Fund, as a group,
beneficially owned less than 1% of the outstanding shares of the Fund.
Item 20. Investment Advisory and Other Services
(1)(a) Not applicable.
(1)(b) Not applicable.
(1)(c) Incorporated by reference to Amendment No. 8, except as provided below.
For the fiscal years ended November 30, 1996, 1995 and 1994,
the Fund paid $1,182,796, $1,138,595 and $1,183,757,
respectively, in investment advisory fees to the Investment
Adviser.
(2) Incorporated by reference to Amendment No. 8.
(3) Incorporated by reference to Amendment No. 8.
(4) Incorporated by reference to Amendment No. 8 and Item 9 hereunder, except
as provided below.
For the fiscal years ended November 30, 1996, 1995 and 1994,
the Fund paid $64,561, $75,000 and $75,000, respectively, in
economic consulting fees to Lehman Brothers Economic Advisors.
For the fiscal years ended November 30, 1996, 1995 and 1994,
the Fund paid $401,952, $385,166 and $402,364, respectively,
in administration fees to FDISG or its predecessors.
(5) Not applicable.
(6) Incorporated by reference to Amendment No. 8.
(7) Coopers & Lybrand, L.L.P., located at One Post Office Square,
Boston, Massachusetts 02109, is the independent accountants
for the Fund.
(8) Not applicable.
Item 21. Brokerage Allocation and Other Practices
(1) Incorporated by reference to Amendment No. 8, except as provided below.
For the fiscal years ended November 30, 1996, 1995 and 1994,
the Fund paid $93,378, $79,829 and $147,009, respectively, in
brokerage commissions. Of these amounts, no brokerage
commissions were paid to affiliates of the Fund, the Adviser,
or affiliates of such entities.
(2) Not applicable.
(3) Incorporated by reference to Amendment No. 8.
(4) Incorporated by reference to Amendment No. 8, except as provided below.
During the Fund's last fiscal year, neither the Fund nor the
Investment Adviser, pursuant to any agreement or understanding
with a broker or otherwise through an internal allocation
procedure, directed the Fund's brokerage transactions to a
broker or brokers because of research services provided.
(5) Not applicable.
Item 22. Tax Status
Incorporated by reference to Amendment No. 8.
Item 23. Financial Statements
Incorporated by reference to the Annual Report.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Parts A and B:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference as set forth in Item 23)
(2) Exhibits:
(a)(1) Articles of Amendment and Restatement dated December 27, 1990 are
filed herein.
(2) Articles Supplementary Creating and Fixing the Rights of MMP dated July 19,
1996 is filed herein.
(b)(1) By-Laws dated January 22, 1993 are filed herein.
(2) Amendment to By-Laws dated April 29, 1994 is filed herein.
(3) Amendment to By-Laws dated October 18, 1996 is filed herein.
(c) Not applicable.
(d)(1) Specimen Certificate for Common Stock, par value $.01 per share is
incorporated by reference to Exhibit 4A of Amendment No. 1 on Form N-2
filed with the SEC on November 19, 1990 ("Amendment No. 1").
(2) Specimen Certificate for MMP, par value $.01 per share is
incorporated by reference to Exhibit 4B of Amendment No. 1 to
the Registration Statement filed on February 7, 1991.
(e) Dividend Reinvestment and Cash Purchase Plan is incorporated by reference
to Exhibit 10A of Amendment No. 3 to the Registration Statement filed on
January 24, 1991.
(f) Not applicable.
(g) Investment Advisory Agreement between the Fund and Flaherty & Crumrine
Incorporated (the "Investment Adviser") dated January 24, 1991 is filed
herein.
(h) Not applicable.
(i) Not applicable.
(j) Amended and Restated Custodian Agreement between the Fund and Boston
Safe Deposit and Trust Company dated December 1, 1996 will be filed by
amendment.
(k)(1) Amended and Restated Administration Agreement between the Fund and
First Data Investor Services Group, Inc. ("FDISG") dated December 1, 1996
is filed herein.
(2) Amended and Restated Transfer Agency and Registrar Agreement between
the Fund and FDISG dated December 1, 1996 is filed herein
(3) Economic Consulting Agreement among the Fund, the Investment Adviser
and Primark Decisions Economics, Inc. dated October 18, 1996 is filed
herein.
(l) Not applicable.
(m) Not applicable.
(n) Consent of Independent Accountants is filed herein.
(o) None.
(p) Purchase Agreement between the Fund and the Investment Adviser is
incorporated by reference to Exhibit 14 of Amendment No. 2 to the
Registration Statement filed on December 27, 1990.
(q) Not applicable.
(r) Financial Data Schedules are filed herein.
Item 25. Marketing Arrangements
Incorporated by reference to the Registration Statement on Form N-2 filed
with the SEC on October 3, 1990 (the "Registration Statement").
Item 26. Other Expenses of Issuance and Distribution
Incorporated by reference to the Registration Statement.
Item 27. Persons Controlled by or Under Common Control
None.
Item 28. Number of Security Holders
As of March 14, 1997
Number of
Title of Class Record Shareholders
Common Stock 788
MMP 1
Item 29. Indemnification
Incorporated by reference to the Registration Statement.
Item 30. Business and Other Connections of Investment Adviser
Information as to the directors and officers of the Investment
Adviser are included in its Form ADV filed with the Commission
(Commission File No. 801-19384) and is incorporated herein by
reference thereto.
Item 31. Location of Accounts and Records
Pursuant to Section 31(a) of the 1940 Act and Rules 31a1-3
thereunder, all accounts, books and other documents required
to be maintained are located at:
Preferred Income Fund Incorporated
c/o Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
(As Adviser)
Primark Decision Economics, Inc.
260 Franklin Street
15th Floor
Boston, Massachusetts 02110
(As Economic Consultant)
Boston Safe Deposit & Trust Company
One Boston Place
Boston, Massachusetts 02108
(As Custodian)
FirstData Investor Services Group, Inc. One Exchange Place
Boston, Massachusetts 02109 (As Administrator, Transfer
Agent, Registrar and Dividend-Paying Agent for Common Stock)
Item 32. Management Services
Not applicable.
Item 33. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Amendment No. 9 to its Registration
Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, Commonwealth of Massachusetts, on the
25th day of March, 1997.
PREFERRED INCOME FUND INCORPORATED
By: CHRISTINE P. RITCH
CHRISTINE P. RITCH
Title: Assistant Secretary
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PREFERRED INCOME FUND INCORPORATED
Preferred Income Fund Incorporated, a Maryland corporation
having its principal office in the City of Baltimore, State of Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend its Charter and to
restate its ----- Charter as so amended.
SECOND: The provisions set forth herein are all of the provisions
of the Charter as in effect upon the amendment effected hereby:
ARTICLE I
NAME
The name of the Corporation is PREFERRED INCOME FUND
INCORPORATED (the "Corporation").
ARTICLE II
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct and carry on the business of a closed-end
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
(2) To hold, invest and reinvest its assets in securities and
other investments or to hold part or all of its assets in cash.
(3) To issue and sell shares of its capital stock in such
amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereinafter be permitted by law.
(4) To do any and all additional acts and to exercise any and
all additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the Maryland General Corporation Law now or hereinafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202. The name of the resident agent of
the Corporation in the State of Maryland is The Corporation Trust Incorporated.
The post office address of the resident agent is 32 South Street, Baltimore,
Maryland 21202.
ARTICLE IV
CAPITAL STOCK
(1) The total number of shares of capital stock that the
Corporation shall have authority to issue is two hundred fifty million
(250,000,000) shares, of which 240,000,000 shares are classified as Common
Stock, par value one cent ($.01) per share, and 10,000,000 shares are classified
as Preferred Stock, par value one cent ($.01) per share. The aggregate par value
of all shares of all classes that the Corporation is authorized to issue is
$2,500,000.
(2) The Board of Directors is authorized to determine the
designation of and to set the terms of the Preferred Stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms and conditions of
redemption, prior to issuance. The Preferred Stock may be issued in series.
(3) The Board of Directors is authorized, from time to time,
to fix the price or the minimum price of the consideration or minimum
consideration for, and to issue, the shares of stock of the Corporation.
(4) The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a whole share
including, without limitation, the right to vote and the right to receive
dividends. A fractional share shall not, however, carry the right to receive a
certificate evidencing it.
(5) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation and the Bylaws of the Corporation, as from time to time amended.
(6) No holder of stock of the Corporation by virtue of being
such a holder shall have any preemptive or preferential right to purchase or
subscribe for any shares of the Corporation's capital stock or any other
security that the Corporation may issue or sell other than a right that the
Board of Directors in its discretion may determine to grant.
(7) The Board of Directors shall have authority by resolution
to classify and reclassify any authorized but unissued shares of capital stock
from time to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of the capital stock.
(8) Notwithstanding any provision of law requiring any action
to be taken or authorized by the affirmative vote of the holders of a greater
proportion of the votes of all classes or of any class of stock of the
Corporation, such action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon, except as otherwise provided in the Charter.
(9) The presence in person or by proxy of the holders of
shares of stock of the Corporation entitled to cast a majority of the votes
entitled to be cast (without regard to class) shall constitute a quorum at any
meeting of the stockholders, except with respect to any such matter that, under
applicable statutes or regulatory requirements, requires approval by a separate
vote of one or more classes of stock, in which case the presence in person or by
proxy of the holders of shares entitled to cast a majority of the votes entitled
to be cast by each such class on such a matter shall constitute a quorum.
ARTICLE V
BOARD OF DIRECTORS
(l) The number of directors constituting the Board of
Directors shall be as specified in the Bylaws or determined by the Board of
Directors pursuant to the Bylaws, except that the number of Directors shall in
no event be less than the minimum number required under the Maryland General
Corporation Law or greater than twelve (12).
(2) Beginning with the first annual meeting of stockholders
held after the initial public offering of the shares of the Corporation (the
"initial annual meeting"), the Board of Directors shall be divided into three
classes: Class I, Class II and Class III. The terms of office of the classes of
Directors elected at the initial annual meeting shall expire at the times of the
annual meetings of the stockholders as follows: Class I on the next annual
meeting, Class II on the second next annual meeting and Class III on the third
next annual meeting, or thereafter in each case when their respective successors
are elected and qualified. At each subsequent annual election, the Directors
chosen to succeed those whose terms are expiring shall be identified as being of
the same class as the Directors whom they succeed, and shall be elected for a
term expiring at the time of the third succeeding annual meeting of
stockholders, or thereafter in each case when their respective successors are
elected and qualified. Subject to the following paragraph, the number of
directorships shall be apportioned among the classes so as to maintain the
classes as nearly equal in number as possible, but in no case shall a decrease
in the number of directors shorten the term of any incumbent director.
If the Corporation issues Preferred Stock entitling the
holders to elect additional Directors in specified circumstances, and the
election of such additional Directors would cause the number of Directors to
exceed 12, then the terms of office of a number of Directors elected by the
other stockholders (excluding any Directors which the holders of the Preferred
Stock are entitled to elect in all events) shall terminate at the time of the
meeting of the holders of the Preferred Stock called to elect the additional
Directors such that the sum of the number of remaining Directors and the number
of additional Directors to be elected by the holders of the Preferred Stock does
not exceed 12. The Directors whose terms shall expire will be determined in
inverse order of their initial election to the Board of Directors. The
additional Directors will be apportioned among the classes of Directors so that
the number of Directors in each class will be as nearly equal as possible.
(3) A Director may be removed with or without cause, but only
by action of the stockholders taken by the holders of at least eighty percent
(80%) of the votes entitled to be cast for election of the Director's successor.
(4) In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Maryland, the Board of Directors is
expressly authorized:
(i) To make, alter or repeal the Bylaws of the Corporation,
except as otherwise required by the 1940 Act.
(ii) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations
the books and accounts of the Corporation, or any of them other than
the stock ledger, shall be open to the inspection of the stockholders.
No stockholder shall have any right to inspect any account or book or
document of the Corporation, except as conferred by law or authorized
by resolution of the Board of Directors.
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of the stock of any
class of the Corporation, whether now or hereafter authorized, and
securities convertible into shares of stock of the Corporation of any
class or classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
(iv) Without the assent or vote of the stockholders, to authorize
and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be
executed mortgages and liens upon the real or personal property of the
Corporation.
(v) In addition to the powers and authorities granted herein and
by statute expressly conferred upon it, the Board of Directors is
authorized to exercise all powers and do all acts that may be
exercised or done by the Corporation pursuant to the provisions of the
laws of the State of Maryland, these Articles of Incorporation and the
Bylaws of the Corporation.
(5) Any determination made in good faith and in accordance
with these Articles of Incorporation by or pursuant to the direction of the
Board of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which the reserves or
charges have been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Corporation, as to the determination of the net asset value of shares of any
class of the Corporation's capital stock, or as to any other matters relating to
the issuance, sale or other acquisition or disposition of securities or shares
of capital stock of the Corporation, and any reasonable determination made in
good faith by the Board of Directors whether any transaction constitutes a
purchase of securities on "margin," a sale of securities "short," or an
underwriting or the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation of the Corporation
shall be effective to (i) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the Investment Company Act of 1940,
as amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect or purport to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
ARTICLE VI
CERTAIN TRANSACTIONS
(1) Except as otherwise provided in this Article VII, at least
eighty percent (80%) of the votes of the Corporation's Common Stock and
Preferred Stock entitled to be cast by stockholders, each voting as a separate
class, in addition to the affirmative vote of at least eighty percent (80%) of
the Board of Directors, shall be necessary to effect any of the following
actions:
(i) Any amendment to these Articles to make the Corporation's
Common Stock a "redeemable security" or to convert the Corporation from a
"closed-end company" to an "open-end company" (as such terms are defined in the
Investment Company Act of 1940, as amended) or any amendment to paragraph (1) of
Article II, unless the Continuing Directors (as hereinafter defined) of the
Corporation, by a vote of at least eighty percent (80%) of such Directors,
approve such amendment in which case the affirmative vote of a majority of the
votes entitled to be cast by stockholders shall be required to approve such
actions unless otherwise provided in the Charter;
(ii) Any stockholder proposal as to specific investment decisions
made or to be made with respect to the Corporation's assets;
(iii) Any proposal as to the voluntary liquidation or
dissolution of the Corporation or any amendment to these Articles of
Incorporation to terminate the existence of the Corporation, unless the
Continuing Directors of the Corporation, by a vote of at least eighty percent
(80%) of such Directors, approve such proposal in which case the affirmative
vote of a majority of the votes entitled to be cast by stockholders shall be
required to approve such actions unless otherwise provided in the Charter; or
(iv) Any Business Combination (as hereinafter defined) unless
either the condition in clause (A) below is satisfied, or all of the conditions
in clauses (B), (C), (D), (E) and (F) below are satisfied, in which case
paragraph (3) below shall apply:
(A) The Business Combination shall have been approved by a vote
of at least eighty percent (80%) of the Continuing Directors.
(B) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received
per share by holders of any class of outstanding Voting Stock (as
hereinafter defined) in such Business Combination shall be at least
equal to the higher of the following:
(x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by an
Interested Party (as hereinafter defined) for any shares of such
Voting Stock acquired by it (aa) within the two-year period
immediately prior to the first public announcement of the proposal of
the Business Combination (the "Announcement Date"), or (bb)(i) in the
Threshold Transaction (as hereinafter defined), or (ii) in any period
between the Threshold Transaction and the consummation of the Business
Combination, whichever is higher; and
(y) the net asset value per share of such Voting Stock on the
Announcement Date or on the date of the Threshold Transaction,
whichever is higher.
(C) The consideration to be received by holders of the particular
class of outstanding Voting Stock shall be in cash or in the same form
as the Interested Party has previously paid for shares of any class of
Voting Stock. If the Interested Party has paid for shares of any class
of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class of
Voting Stock previously acquired by it.
(D) After the occurrence of the Threshold Transaction, and prior
to the consummation of such Business Combination, such Interested
Party shall not have become the beneficial owner of any additional
shares of Voting Stock except by virtue of the Threshold Transaction.
(E) After the occurrence of the Threshold Transaction, such
Interested Party shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder of the
Corporation), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(F) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the Investment Company Act of
1940, as amended, and the rules and regulations thereunder (or any
subsequent provisions replacing such Acts, rules or regulations) shall
be prepared and mailed by the Interested Party, at such Interested
Party's expense, to the shareholders of the Corporation at least 30
days prior to the consummation of such Business Combination (whether
or not such proxy or information statement is required to be mailed
pursuant to such Acts or subsequent provisions).
(2) For the purposes of this Article:
(i) "Business Combination" shall mean any of the transactions
described or referred to in any one or more of the following
subparagraphs:
(A) any merger, consolidation or share exchange of the
Corporation with or into any other person;
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions in
any 12 month period) to or with any other person of any assets of the
Corporation having an aggregate Fair Market Value of $1,000,000 or
more except for portfolio transactions of the Corporation effected in
the ordinary course of the Corporation's business;
(C) the issuance or transfer by the Corporation (in one
transaction or a series of transactions in any 12 month period) of any
securities of the Corporation to any other person in exchange for
cash, securities or other property (or a combination thereof) having
an aggregate Fair Market Value of $1,000,000 or more excluding (x)
sales of any securities of the Corporation in connection with a public
offering or private placement thereof, (y) issuances of any securities
of the Corporation pursuant to a dividend reinvestment and cash
purchase plan adopted by the Corporation and (z) issuances of any
securities of the Corporation upon the exercise of any stock
subscription rights distributed by the Corporation;
(ii) "Continuing Director" means any member of the Board of
Directors of the Corporation who is not an Interested Party or an Affiliate (as
hereinafter defined) of an Interested Party and has been a member of the Board
of Directors for a period of at least 12 months (or since the Corporation's
commencement of operations, if that period is less than 12 months), or is a
successor of a Continuing Director who is unaffiliated with an Interested Party
and is recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors.
(iii) "Interested Party" shall mean any person, other than an
investment company advised by the Corporation's initial investment manager or
any of its Affiliates, which enters, or proposes to enter, into a Business
Combination with the Corporation.
(iv) "Person" shall mean an individual, a corporation, a trust or
a partnership.
(v) "Voting Stock" shall mean capital stock of the Corporation
entitled to vote generally in the election of directors.
(vi) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(B) which such person or any of its Affiliates or Associates has
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
(C) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(vii) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(viii) "Fair Market Value" means:
(A) in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the relevant date of a share
of such stock on the New York Stock Exchange, or if such stock is not
listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sale price (if such stock is a National
Market System security) or the highest closing bid quotation (if such
stock is not a National Market System security) with respect to a
share of such stock during the 30-day period preceding the relevant
date on the National Association of Securities Dealers, Inc. Automated
Quotation System (NASDAQ) or any system then in use, or if no such
quotations are available, the fair market value on the relevant date
of the share of such stock as determined by at least eighty percent
(80%) of the Continuing Directors in good faith, and
(B) in the case of property other than cash or stock, the fair
market value of such property on the relevant date as determined by at
least eighty percent (80%) of the Continuing Directors in good faith.
(ix) "Threshold Transaction" means the transaction by or as a
result of which an Interested Party first becomes the beneficial owner of
Voting Stock.
(x) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in subparagraph (l)(iv)(B) above shall include the shares of
Common Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
(xi) Continuing Directors of the Corporation shall have the
power and duty to determine, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine (a) the number of shares of
Voting Stock beneficially owned by any person, (b) whether a person is an
Affiliate or Associate of another, (c) whether the requirements of subparagraph
(l)(iv) above have been met with respect to any Business Combination, and (d)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation in any Business Combination has, an aggregate Fair Market Value
of $1,000,000 or more.
(3) If any Business Combination described in subparagraph
(2)(i)(A) or (B) (if the transfer or other disposition constitutes all or
substantially all of the assets of the Corporation) is approved by a vote of
eighty percent (80%) of the Continuing Directors or all of the conditions in
subparagraph (l)(iv)(B), (C), (D), (E) and (F) are satisfied, a majority of the
votes entitled to be cast by stockholders shall be required to approve such
transaction. If any other Business Combination is approved by a vote of eighty
percent (80%) of the Continuing Directors or all of the conditions in
subparagraph (l)(iv)(B), (C), (D), (E) and (F) are satisfied, no stockholder
vote shall be required to approve such transaction unless otherwise provided in
the Charter or required by law.
ARTICLE VII
LIMITATIONS ON LIABILITY; INDEMNIFICATION
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, 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.
(2) Any person who was or is a party or is threatened to be
made a party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of the Corporation,
or is or was serving while a director or officer of the Corporation at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding to the fullest extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, as such
statutes are now or hereinafter in force. In addition, the Corporation shall
also advance expenses to its currently acting and its former directors and
officers to the fullest extent that indemnification of directors is permitted by
the Maryland General Corporation Law, the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended. The Board of Directors may
by Bylaw, resolution or agreement make further provision for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law.
(3) No provision of this Article VII 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 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.
(4) References to the Maryland General Corporation Law in this
Article VII are to that law as from time to time amended. No amendment to the
Charter of the Corporation shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the amendment.
ARTICLE VIII
AMENDMENTS
(1) The Corporation reserves the right from time to time to
make any amendment to its Articles of Incorporation, now or hereafter authorized
by law, including any amendment that alters the contract rights, as expressly
set forth in its Articles of Incorporation, of any outstanding stock.
(2) Notwithstanding Paragraph (1) of this Article or any other
provision of these Articles of Incorporation, no amendment to these Articles of
Incorporation of the Corporation shall amend, alter, change or repeal any of the
provisions of Articles V, VI and VIII unless the amendment effecting such
amendment, alteration, change or repeal shall receive the affirmative vote of at
least eighty percent (80%) of the votes of the Corporation's Common Stock and
Preferred Stock entitled to be cast by stockholders, each voting as a separate
class, unless such action previously has been approved, adopted or authorized by
the affirmative vote of eighty percent (80%) of the total number of Continuing
Directors, in which case the affirmative vote of a majority of the holders of
the Corporation's Common Stock and Preferred Stock to be voted on the matter,
each voting as a separate class, shall be required to approve, adopt, or
authorize such an amendment.
THIRD: These Articles of Amendment and Restatement of the
Corporation were approved by a majority of the entire Board of Directors of the
Corporation and no stock entitled to be voted to amend and restate the
Corporation's Articles of Incorporation was outstanding or subscribed for at the
time the Board approved such Articles of Amendment and Restatement.
FOURTH: There are currently five directors of the Corporation:
Robert T. Flaherty
Donald F. Crumrine
Martin Brody
Morgan Gust
Robert F. Wulf
IN WITNESS WHEREOF, Preferred Income Fund Incorporated has
caused these Articles of Amendment and Restatement to be signed in its name and
on its behalf by its President, Robert T. Flaherty, and attested by its
Secretary, Robert M. Ettinger, on December 26, 1990.
The President acknowledges these Articles of Amendment and
Restatement to be the corporate act of the Corporation and states that to the
best of his knowledge, information and belief, the matters and facts set forth
in these Articles with respect to the authorization and approval of the
amendment and restatement of the Corporation's Articles of Incorporation are
true in all material respects and that this statement is made under penalties of
perjury.
PREFERRED INCOME FUND INCORPORATED
By: Robert T. Flaherty
President
Attest:
Robert M. Ettinger
Secretary
PREFERRED INCOME FUND INCORPORATED
Amended Working Copy of
Articles Supplementary Creating and Fixing the Rights of
Money Market Cumulative Preferred(TM) Stock
PREFERRED INCOME FUND INCORPORATED, a Maryland corporation
having its principal Maryland office in the City of Baltimore (the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Articles Supplementary Creating and Fixing the
Rights of Money Market Cumulative Preferred Stock ("MMP(R)") of the Corporation
(along with the Articles of Incorporation of the Corporation herein referred to
as the "Articles") are hereby amended by deleting Article SECOND in its entirety
and inserting in lieu thereof the following:
SECOND: The preferences, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of
redemption, of the shares of such series of preferred stock are as
follows: PART I 1. Number of Shares; Ranking. (a) The number of
authorized shares constituting the MMP is 2,000. No fractional shares
of MMP shall be issued.
(b) Any shares of MMP which at any time have been redeemed,
purchased or otherwise acquired by the Corporation shall, after such redemption,
purchase or acquisition, have the status of authorized but unissued shares of
MMP. The Corporation may not repurchase shares of MMP if, as a result of such
purchases, the number of shares of MMP outstanding would be fewer than 200.
(c) The shares of MMP shall rank on a parity with shares of any
other series of Preferred Stock as to the payment of dividends, including any
Additional Distribution Rights, and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Corporation.
(d) The Corporation shall not reissue any shares of MMP
acquired by it unless (i) on the Business Day on which such shares are reissued
the Eligible Asset Coverage is met giving effect to such reissuance and (ii) the
Board of Directors receives written confirmation from Moody's that such
reissuance would not impair the rating then assigned by Moody's to the shares of
MMP.
2. Dividends. (a) The Holders of shares of MMP shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, cumulative cash dividends at the Applicable
Rate per annum thereof, determined as set forth in paragraph (c) of this Section
2, and no more (except to the extent set forth in subparagraph (c)(i) and
paragraph (d) of this Section 2), payable on the respective dates (each a
"Dividend Payment Date") determined as set forth in paragraph (b) of this
Section 2. Dividends on shares of MMP shall accumulate at the Applicable Rate
per annum from the Date of Original Issue thereof.
(b) (i) Dividends shall be payable, subject to subparagraphs
(b)(ii)(A) and (b)(ii)(C) of this Section 2, on shares of MMP, on Thursday, June
6, 1991, and on each succeeding seventh Thursday following such date, provided
that if the Corporation, subject to the conditions set forth in Section 4 of
this Part I, designates any Subsequent Rate Period as a Special Rate Period that
consists of:
(A) 91 Rate Period Days, dividends shall be payable, subject
to subparagraphs (b)(ii)(A) and (b)(ii)(C) of this Section 2, on shares
of MMP on the thirteenth Thursday after the first day of such Special
Rate Period;
(B) 182 Rate Period Days, dividends shall be payable, subject
to subparagraphs (b)(ii)(A) and (b)(ii)(C) of this Section 2, on shares
of MMP on each of the thirteenth and twenty-sixth Thursdays after the
first day of such Special Rate Period;
(C) four or more Dividend Periods, dividends shall be payable,
subject to subparagraphs (b)(ii)(B) and (b)(ii)(C) of this Section 2,
on shares of MMP, on the first day of the fourth month after the first
day of such Special Rate Period and on the first day of each succeeding
third month thereafter; provided, however, that if dividends for the
last Dividend Period in any Special Rate Period would be payable as
determined in this subparagraph (b)(i)(C) on a day that is not a
Thursday, then dividends for such last Dividend Period shall be payable
instead on the first Thursday preceding such day.
After any Special Rate Period, dividends on such shares of MMP shall be payable,
subject to subparagraphs (b)(ii)(A) and (b)(ii)(C) of this Section 2, on each
succeeding seventh Thursday, subject in each case to the option of the
Corporation to further designate from time to time any Subsequent Rate Period
thereof as a Special Rate Period.
(ii) (A) In the case of dividends that would be payable on a
Thursday, as determined by subparagraph (b)(i) of this Section 2,
including clause (A) or (B) of the proviso thereto, if:
(1) (x) the Securities Depository shall make available
to its participants and members, in next-day funds in The City of New
York, New York, on Dividend Payment Dates, the amount then due as
dividends or shall make available to its participants and members, in
funds immediately available in The City of New York, New York, on
Dividend Payment Dates, such amount but shall not have so advised the
Auction Agent of such availability, and (y) (I) such Thursday is not a
Business Day or (II) the day following such Thursday is not a Business
Day, then dividends shall be payable on the first Business Day that
falls prior to such Thursday and is immediately followed by a Business
Day; or
(2) (x) the Securities Depository shall make available
to its participants and members, in funds immediately available in The
City of New York, New York, on Dividend Payment Dates, the amount due as
dividends on such Dividend Payment Dates and shall have advised the
Auction Agent of such availability, and (y) such Thursday is not a
Business Day, then dividends shall be payable on the first Business Day
that falls after such Thursday.
(B) In the case of dividends that would be payable on the first
day of a month, as determined by clause (C) of the proviso to
subparagraph (b)(i) of this Section 2, if:
(1) (x) the Securities Depository shall make available
to its participants and members, in next-day funds in The City of New
York, New York, on Dividend Payment Dates, the amount then due as
dividends or shall make available to its participants and members, in
funds immediately available in The City of New York, New York, on
Dividend Payment Dates, such amount but shall not have so advised the
Auction Agent of such availability, and (y) (I) such first day of the
month is not a Business Day or (II) the day following such first day is
not a Business Day, then dividends shall be payable on the first
Business Day that falls after such first day of the month and is
immediately followed by a Business Day; or
(2) (x) the Securities Depository shall make available
to its participants and members, in funds immediately available in The
City of New York, New York, on Dividend Payment Dates, the amount due as
dividends on such Dividend Payment Dates and shall have advised the
Auction Agent of such availability, and (y) such first day of the month
is not a Business Day, then dividends shall be payable on the first
Business Day after such first day of the month.
(C) If any date on which dividends would be payable for any
shares of MMP as determined above is a day that would result in the
number of days between the second Auction Date preceding such date and
the date that would have been the Auction Date next succeeding such
second Auction Date (determined by including such second preceding
Auction Date and excluding the date that would have been such next
succeeding Auction Date) not being at least equal to the Minimum Holding
Period, then dividends on shares of MMP shall be payable, if clause (1)
of either subparagraph (b)(ii)(A) or (B) of this Section 2 is applicable
to the shares of MMP, on the first Business Day following such date on
which dividends would be so payable that is next succeeded by a Business
Day or, if clause (2) of either subparagraph (b)(ii)(A) or (B) of this
Section 2 is applicable to the shares of MMP, on the first Business Day
following such date on which dividends would be so payable, that in
either case results in the number of days between successive Auction
Dates (determined as above) being at least equal to the Minimum Holding
Period; provided, however, that the Board of Directors, in the event of
any change in law changing the Minimum Holding Period, shall adjust the
period of time between Auction Dates for shares of MMP so as, subject to
subparagraphs (b)(ii)(A) and (b)(ii)(B) of this Section 2, and this
subparagraph (b)(ii)(C), to adjust uniformly the number of Rate Period
Days in Minimum Rate Periods commencing after the date of such change in
law to equal or exceed the Minimum Holding Period, provided that after
such adjustment:
(1) the rating on the shares of MMP is not adversely modified as
a result of such adjustment;
(2) such number of Rate Period Days does not exceed the
length of the then-current Minimum Holding Period by more than nine days
and is not less than seven or more than 182 days; and
(3) dividends continue to be payable for Minimum Rate
Periods, subject to such subparagraphs (b)(ii)(A) and (b)(ii)(B) and
this subparagraph (b)(ii)(C), on the successive Thursdays designated by
the Board of Directors, in which event dividends shall be payable on
shares of MMP, in lieu of the Thursdays specified in subparagraph (b)(i)
of this Section 2, on the successive Thursdays so designated by the
Board of Directors and, if there are more than 90 Rate Period Days in
any such Subsequent Rate Period, on the Thursday that is the 91st day
thereof (with respect to the Dividend Period ending on such 90th day),
subject to such subparagraphs (b)(ii)(A) and (b)(ii)(B) and this
subparagraph (b)(ii)(C). The Corporation shall notify Moody's at the
earliest possible date of any proposed change in law known to the
Corporation that would alter the Minimum Holding Period, in order that
Moody's may analyze the Eligible Asset Coverage Amount and Dividend
Coverage Amount in light of the altered number of Rate Period Days with
a view toward maintaining its then-current rating of the shares of MMP
(and the Corporation shall have been advised in writing by Moody's that
its then-current rating on the shares of MMP will be maintained) in the
event such proposed change in law is enacted, and the Corporation will
use reasonable efforts to maintain the then-current rating of the shares
of MMP notwithstanding the enactment of the change in law. Upon any such
change in the number of Rate Period Days as a result of a change in law,
the Corporation shall mail or cause to be mailed notice of such change
by first class mail, postage prepaid, to the Auction Agent, the MMP
Paying Agent, each Broker-Dealer, each Holder at such Holder's address
as the same appears on the stock books of the Corporation and to
Moody's.
(iii) The Corporation shall pay or cause to be paid to the MMP
Paying Agent not later than 12:00 Noon, New York City time, on the Business Day
next preceding each such Dividend Payment Date for shares of MMP, 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 on such Dividend Payment
Date. The Corporation may direct the MMP Paying Agent to invest any such funds
in short-term Money Market Instruments, provided that the proceeds of any such
investment will be available in The City of New York, New York at the opening of
business on such Dividend Payment Date.
(iv) All moneys paid to the MMP Paying Agent for the payment of
dividends (or for the payment of any late charges pursuant to subparagraph
(c)(i) of this Section 2 or Additional Distributions) and any income or proceeds
therefrom shall be held in trust for the payment of such dividends (and any such
late charges or Additional Distributions) by the MMP Paying Agent for the
benefit of the Holders specified in subparagraph (b)(v) of this Section 2. Any
moneys paid to the MMP Paying Agent in accordance with the foregoing (and any
income or proceeds therefrom) but not applied by the MMP Paying Agent to the
payment of dividends (and any late charges or Additional Distributions) will, to
the extent permitted by law, be repaid to the Corporation no later than the end
of 12 months from the date on which such moneys, income or proceeds were so to
have been applied.
(v) Each dividend on shares of MMP shall be paid on the
Dividend Payment Date therefor to the Holders as their names appear on the stock
books of the Corporation on the Business Day next preceding such Dividend
Payment Date. Subject to paragraph (e) of this Section 2, 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 books 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 shares of MMP issued on April 17,
1991, during the period from and after such Date of Original Issue to and
including the last day of the Initial Rate Period shall be equal to 4.90% per
annum. For each Subsequent Rate Period, the dividend rate on shares of MMP shall
be equal to the rate per annum that results from an Auction for such shares on
the Auction Date next preceding such Subsequent Rate Period; provided, however,
that if an Auction for any Subsequent Rate Period is not held for any reason or
the shares of MMP are no longer held in the form of a single global certificate
by a Securities Depository or if a Failure to Deposit has occurred that has not
been cured (in which cases an Auction shall not be held), then, subject to the
next succeeding proviso, the dividend rate on such shares for such Subsequent
Rate Period shall be the Maximum Rate on the Auction Date for such Subsequent
Rate Period; provided, further, however, that if:
(A) any Failure to Deposit shall have occurred with
respect to shares of MMP during any Rate Period thereof (other than any
Special Rate Period consisting of four or more Dividend Periods or any
Rate Period succeeding any Special Rate Period consisting of four or
more Dividend Periods during which a Failure to Deposit occurred that
has not been cured), and, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with the next succeeding sentence or the Corporation shall
not have paid to the MMP Paying Agent a late charge ("Late Charge")
equal to the sum of:
(1) if such Failure to Deposit consisted of the failure to
pay timely to the MMP Paying Agent pursuant to subparagraph (c)(ii) of
this Section 2 the full amount of dividends with respect to any
Dividend Period on such shares, an amount computed by multiplying (x)
225% of the "AA" Composite Commercial Paper Rate for the Rate Period
during which such Failure to Deposit occurs on the Dividend Payment
Date for such Dividend Period by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit has not
been cured in accordance with the next succeeding sentence (including
the day such Failure to Deposit occurs and excluding the day such
Failure of Deposit is cured) and the denominator of which shall be 360,
and applying the rate obtained against the product of $100,000 and the
number of outstanding shares of MMP; and
(2) if such Failure to Deposit consisted of the failure to
pay timely to the MMP Paying Agent pursuant to paragraph (e) of Section
3 of this Part I the cash redemption price of the shares of MMP of such
series, if any, for which Notice of Redemption has been given by the
Corporation pursuant to paragraph (b) of Section 3 of this Part I, an
amount computed by multiplying (x) 225% of the "AA" Composite
Commercial Paper Rate for the Rate Period during which such Failure to
Deposit occurs on the redemption date by (y) a fraction, the numerator
of which shall be the number of days for which such Failure to Deposit
is not cured in accordance with the next succeeding sentence (including
the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 360,
and applying the rate obtained against the aggregate cash redemption
price of the shares of MMP to be redeemed; or
(B) any Failure to Deposit shall have occurred with
respect to shares of MMP during a Special Rate Period thereof consisting
of four or more Dividend Periods, or during any Rate Period thereof
succeeding any Special Rate Period consisting of four or more Dividend
Periods during which a Failure to Deposit occurred that has not been
cured, and such Failure to Deposit shall not have been cured in
accordance with the next succeeding sentence during such Special Rate
Period or such Rate Period, or the Corporation shall not have paid to
the MMP Paying Agent a Late Charge calculated as set forth in
subparagraph (c)(i)(A) of Section 2 above (except that for this purpose,
the "AA" Composite Commercial Paper Rate shall be the "AA" Composite
Commercial Paper Rate applicable to a Rate Period (x) consisting of 148
or more Rate Period Days but fewer than 182 Rate Period Days and (y)
commencing on the date on which the Rate Period during which the Failure
to Deposit occurred commenced),
then the dividend rate for shares of MMP for each Subsequent Rate Period thereof
commencing after such failure to and including the later of (i) the Subsequent
Rate Period, if any, during which the applicable Late Charge is paid by the
Corporation to the MMP Paying Agent (provided that such Late Charge shall have
been paid no later than 12:00 Noon, New York City time, on the fourth Business
Day prior to the end of such Rate Period) and (ii) the Subsequent Rate Period,
if any, during which such Failure to Deposit is so cured shall be a rate per
annum equal to the Maximum Rate on the Auction Date for such Subsequent Rate
Period (but with the prevailing rating of such shares, for purposes of
determining such Maximum Rate, being deemed to be "Below 'baa3'") (the rate per
annum at which dividends are payable on shares of MMP for any Rate Period for
such shares being herein referred to as the "Applicable Rate" for such shares).
A Failure to Deposit with respect to shares of MMP shall have been cured (if
such Failure to Deposit is not solely due to the willful failure of the
Corporation to make required payments to the MMP Paying Agent) with respect to
any Rate Period if, not later than 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period subsequent to such
Rate Period the Corporation shall have paid to the MMP Paying Agent (A) all
accumulated and unpaid dividends on the shares of MMP and (B) without
duplication, the redemption price due and unpaid for the shares of MMP, if any,
for which Notice of Redemption has been given by the Corporation pursuant to
paragraph (b) of Section 3 of this Part I.
(ii) The amount of dividends per share payable on shares of MMP
on any date on which dividends shall be payable on such shares shall be computed
by multiplying the respective Applicable Rate in effect for such Dividend Period
or Dividend Periods or part thereof for which dividends have not been paid by a
fraction, the numerator of which shall be the number of days in such Dividend
Period or Dividend Periods or part thereof and the denominator of which shall be
360, and applying the rate obtained against $100,000. Any dividend payment made
on shares of MMP shall be credited against the earliest accumulated but unpaid
dividends due with respect to such shares of MMP.
(d) Each Holder who is entitled to receive any dividend
declared by the Board of Directors on MMP shall also be entitled to receive an
Additional Distribution Right. The Additional Distribution Right will be issued
on the payment date for the related dividend to the person entitled to receive
the dividend as the holder of record of the MMP on the record date for the
dividend and the Additional Distribution will be paid in the same manner as
provided in these Articles Supplementary with respect to cash dividends.
(e) (i) Except as set forth in the next sentence, no dividends
shall be declared or paid or set apart for payment on the shares of any class or
series of stock ranking, as to the payment of dividends, on a parity with shares
of MMP for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of MMP and any other
parity stock through the most recent respective Dividend Payment Date with
respect thereto. When dividends are not paid in full as aforesaid, upon the
shares of MMP or any other class or series of stock ranking on a parity as to
the payment of dividends with shares of MMP, all dividends declared upon shares
of MMP and any other such class or series of stock ranking on a parity as to the
payment of dividends with shares of MMP shall be declared pro rata so that the
amount of dividends declared per share on shares of MMP and such other class or
series of stock shall in all cases bear to each other the same ratio that
accumulated dividends per share on the shares of MMP and such other class or
series of stock bear to each other (for purposes of this sentence, the amount of
dividends declared per share shall be based on the Applicable Rate for such
shares for the Dividend Periods during which dividends were not paid in full).
Holders of shares of MMP shall not be entitled to any dividend, whether payable
in cash, property or stock, in excess of full cumulative dividends and
Additional Distributions, as herein provided, on shares of MMP. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MMP which may be in arrears, and, except to the
extent set forth in subparagraph (c)(i) of this Section 2, no additional sum of
money shall be payable in respect of any such arrearage.
(ii) For so long as any shares of MMP are outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend or
other distribution in respect of the Common Stock or any other stock of the
Corporation ranking junior to the MMP as to dividends or upon liquidation
(except a dividend payable in shares of Common Stock or such shares ranking
junior to the MMP), or call for redemption, redeem, purchase or otherwise
acquire for consideration any Common Stock or any other shares of the
Corporation ranking junior to the MMP as to dividends or upon liquidation,
unless:
(A) immediately thereafter, the 1940 Act Asset Coverage
is met, the Eligible Asset Coverage is met and the Dividend Coverage is
met;
(B) full cumulative dividends on all shares of MMP for
all past Rate Periods and any Additional Distributions then due have
been paid or declared and a sum sufficient for the payment of such
dividends and Additional Distributions set apart for payment; and
(C) the Corporation has redeemed the full number of
shares of MMP required to be redeemed by any provision for mandatory
redemption contained in these Articles Supplementary (the number of
shares subject to mandatory redemption to be determined without regard
to the requirement that redemptions be made out of legally available
funds).
The Certificate of 1940 Act Asset Coverage, the Certificate of Eligible Asset
Coverage and the Certificate of Dividend Coverage dated as of the applicable
evaluation date shall reflect any such transaction. An officer's certificate
shall be filed with the records of the Corporation maintained at its principal
executive office evidencing that (B) has been satisfied.
(iii) No dividend shall be declared, paid or set apart for
payment on any class of stock of the Corporation (except dividends payable in
stock of the Corporation), and no shares of any class of stock of the
Corporation shall be called for redemption, redeemed, repurchased or otherwise
acquired for consideration by the Corporation, unless the Corporation has paid
or set apart for payment all Additional Distributions then due pursuant to
Additional Distribution Rights issued by the Corporation in connection with
payment of dividends or redemption of shares of MMP. If the Corporation does not
pay all Additional Distributions then due, the amount paid shall be payable to
each holder of Additional Distribution Rights to which Additional Distributions
are due (regardless of the scheduled payment date) in the proportion that the
Additional Distributions then due to such holder bear to the aggregate
Additional Distributions due to all such holders.
3. Redemption. (a)(i) Subject to the next succeeding sentence,
the shares of MMP may be redeemed, at the option of the Corporation,
as a whole or from time to time in part, on the second Business Day
next preceding any Dividend Payment Date therefor, at a redemption
price per share equal to the sum of:
(A) $100,000;
(B) an amount equal to all dividends (whether or not
earned or declared) accumulated thereon up to but not including the date
fixed for redemption and unpaid, and an Additional Distribution Right
with respect to such accumulated and unpaid dividends; and
(C) if redeemed during any Rate Period consisting of
four or more Dividend Periods, the applicable redemption premium, if any,
specified in the next succeeding sentence;
provided that shares of MMP may not be redeemed in part if after such partial
redemption fewer than 200 shares remain outstanding. The applicable redemption
premium per share of MMP during any Rate Period consisting of four or more
Dividend Periods that is redeemed pursuant to this subparagraph (a)(i) shall be
equal to:
(A) $1,000 if such share is redeemed on the second
Business Day next preceding the second or third Dividend Payment Date in
a Rate Period consisting of four Dividend Periods;
(B) $3,000 if such share is redeemed on the second
Business Day next preceding the second or third Dividend Payment Date in
a Rate Period consisting of 12 Dividend Periods, $2,000 if such share is
redeemed on the second Business Day next preceding the fourth, fifth,
sixth or seventh Dividend Payment Date in a Rate Period consisting of 12
Dividend Periods or $1,000 if such share is redeemed on the second
Business Day next preceding the eighth, ninth, tenth or eleventh
Dividend Payment Date in any such Rate Period; or
(C) $3,000 if such share is redeemed on the second
Business Day next preceding any Dividend Payment Date during the first
seven Dividend Periods in a Rate Period consisting of 20 Dividends
Periods, $2,000 if such share is redeemed on the second Business Day
next preceding the eighth, ninth, tenth or eleventh Dividend Payment
Date in any such Rate Period, $1,000 if such share is redeemed on the
second Business Day next preceding the twelfth, thirteenth, fourteenth
or fifteenth Dividend Payment Date in any such Rate Period or $0 if such
share is redeemed on the second Business Day next preceding the
sixteenth, seventeenth, eighteenth or nineteenth Dividend Payment Date
in any such Rate Period.
(ii) The shares of MMP may be redeemed, at the option of the
Corporation, as a whole but not in part, on the first day following any Dividend
Period thereof included in a Rate Period consisting of four or more Dividend
Periods if, on the date of determination of the Applicable Rate for such Rate
Period, such Applicable Rate equaled or exceeded on such date of determination
the Treasury Rate for such Rate Period, at a redemption price per share equal to
the sum of $100,000 plus an amount equal to all dividends (whether or not earned
or declared) accumulated thereon up to but not including the date fixed for
redemption and unpaid, and an Additional Distribution Right with respect to such
accumulated and unpaid dividends.
(iii) (A) If the 1940 Act Asset Coverage is not met as of the
1940 Act Asset Coverage Cure Date as shown in a Certificate of 1940 Act
Asset Coverage and the related Accountants' Certificate delivered by the
Corporation to the Common Stock Paying Agent by the close of business on
such 1940 Act Asset Coverage Cure Date, then the Corporation shall, by
the close of business on such 1940 Act Asset Coverage Cure Date, (1)
notify the MMP Paying Agent of its intention to redeem on the earliest
practicable date following such 1940 Act Asset Coverage Cure Date the
number of shares of MMP set forth below and (2) give a Notice of
Redemption (which shall specify a mandatory redemption date that is not
fewer than 30 days nor more than 33 days after the date of such notice)
with respect to the redemption of MMP on such mandatory redemption date.
On such mandatory redemption date, the Corporation shall redeem, out of
funds legally available therefor, the number of shares of MMP equal to
the minimum number of shares the redemption of which, if such redemption
had occurred immediately prior to the opening of business on such 1940
Act Asset Coverage Cure Date, would have resulted in the 1940 Act Asset
Coverage having been met on such 1940 Act Asset Coverage Cure Date or, if
the 1940 Act Asset Coverage cannot be so restored, all of the shares of
MMP, at a redemption price equal to $100,000 per share (without payment
of any premium) plus an amount equal to all dividends (whether or not
earned or declared) accumulated thereon up to but not including such
mandatory redemption date and unpaid, and an Additional Distribution
Right with respect to such accumulated and unpaid dividends.
(B) If the Eligible Asset Coverage is not met as of any
Eligible Asset Cure Date as shown in a Certificate of Eligible Asset
Coverage and the related Accountants' Certificate delivered by the
Corporation to the MMP Paying Agent by the close of business on the
second Business Day following such Eligible Asset Cure Date, then the
Corporation shall, by the close of business no later than the second
Business Day following such Eligible Asset Cure Date, (1) notify the MMP
Paying Agent of its intention to redeem on the earliest practicable date
following such Eligible Asset Cure Date the number of shares of MMP
determined as provided below and (2) give a Notice of Redemption (which
shall specify a mandatory redemption date that is not fewer than 30 days
nor more than 33 days after the date of such notice) with respect to the
redemption of shares of MMP on such mandatory redemption date. The
Corporation shall redeem, out of funds legally available therefor, the
number of shares of MMP equal to the minimum number of shares the
redemption of which, if such redemption had occurred immediately prior to
the opening of business on such Eligible Asset Cure Date, would have
resulted in the Eligible Asset Coverage having been met on such Eligible
Asset Cure Date or, if the Eligible Asset Coverage cannot be restored,
all of the shares of MMP, at a redemption price equal to $100,000 per
share (without payment of any premium) plus an amount equal to all
dividends (whether or not earned or declared) accumulated thereon up to
but not including such mandatory redemption date and unpaid, and an
Additional Distribution Right with respect to such accumulated and unpaid
dividends.
(C) In the event of a redemption in part of the shares of MMP
pursuant to this subparagraph (a)(iii), such redemption shall not be
effected on either of the two Business Days immediately preceding an
Auction Date.
(b) If the Corporation shall determine or be required to redeem
shares of MMP pursuant to paragraph (a) of this Section 3, it shall mail a
Notice of Redemption with respect to such redemption by first class mail,
postage prepaid, to each Holder of the shares to be redeemed, at such Holder's
address as the same appears on the stock books of the Corporation on the record
date established by the Board of Directors. Such Notice of Redemption shall be
so mailed no less than 30 nor more than 33 days prior to the date fixed for
redemption. Each such Notice of Redemption shall state: (i) the redemption date;
(ii) the number of shares of MMP to be redeemed; (iii) the CUSIP number of such
shares; (iv) the redemption price; (v) the place or places where the
certificate(s) for such shares (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the redemption price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; (vii) the provision or provisions of paragraph (a) of this
Section 3 under which such redemption is made; and (viii) if applicable, that
the Holders of the shares of MMP being called for redemption will not be
entitled to participate, with respect to such shares, in an Auction held
subsequent to the date of such Notice of Redemption. If fewer than all shares of
MMP 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 other provisions of this Section 3, the
Corporation shall not redeem, purchase or otherwise acquire for consideration
shares of MMP unless:
(i) all Additional Distributions due on or before the
date of such redemption shall have been or are contemporaneously paid or
a sum sufficient to pay such Additional Distributions set apart for
payment;
(ii) all accumulated and unpaid dividends on all
outstanding shares of MMP for all applicable past Rate Periods shall
have been or are contemporaneously paid or declared and a sum sufficient
for the payment of such dividends set apart for payment; and
(iii) other than in the case of mandatory redemptions
pursuant to paragraph (a)(iii) of this Section 3 only, the 1940 Act
Asset Coverage, the Eligible Asset Coverage and the Dividend Coverage
would be met on the date of such redemption, purchase or other
acquisition after giving effect thereto and, on or prior to such date,
the Corporation provides to the Common Stock Paying Agent a Certificate
of 1940 Act Asset Coverage and to the MMP Paying Agent a Certificate of
Eligible Asset Coverage and a Certificate of Dividend Coverage, each
together with a confirming Accountants' Certificate, showing compliance
with this clause (iii) of this paragraph (c);
provided, however, that the Corporation may, without regard to the limitation
contained in clause (ii) of this paragraph (c), but subject to the requirements
of the 1940 Act, redeem, purchase or otherwise acquire shares of MMP (A) as a
whole, pursuant to a mandatory redemption, or (B) pursuant to a purchase or
exchange offer made on an equal basis for all of the outstanding shares of MMP
pursuant to the 1940 Act. In the event that shares of MMP are acquired pursuant
to an exchange offer, the securities exchanged for the MMP must have a rating
from Moody's equivalent to the then-current rating on the MMP. In the event that
fewer than all of the outstanding shares of MMP are to be redeemed pursuant to
either an optional redemption or a mandatory redemption, the shares to be
redeemed shall otherwise be selected by lot, or such other method as the Board
of Directors shall deem fair and equitable. An officer's certificate shall be
filed with the records of the Corporation maintained at its principal executive
offices evidencing that (ii) has been satisfied.
(d) On or after the redemption date, each Holder of shares of
MMP that were called for redemption shall surrender the certificate evidencing
such shares to the Corporation at the place designated in the Notice of
Redemption and shall then be entitled to receive the cash redemption price,
without interest, and the Additional Distribution Right; provided, however, that
if and so long as all shares of MMP are held of record by a single person, such
person shall not be required to surrender the certificate representing such
shares in connection with a partial redemption of shares of MMP. If less than
all of the shares represented by the share certificate are to be redeemed and
the share certificate has been surrendered, the Corporation shall issue a new
share certificate for the shares not redeemed.
(e) Not later than 12:00 Noon, New York City time, on the
Business Day immediately preceding the redemption date, the Corporation shall
irrevocably deposit with (or, in the case of a wire transfer, shall irrevocably
instruct its bank to transfer to) the MMP Paying Agent sufficient funds to pay
the cash redemption price of the shares of MMP to be redeemed and shall give the
MMP Paying Agent irrevocable instructions to apply such funds and, if
applicable, the income and proceeds therefrom, to the payment of the cash
redemption price for such shares upon surrender of the certificate therefor. The
Corporation may direct the MMP Paying Agent to invest any such available funds
in short-term Money Market Instruments, provided that the proceeds of any such
investment will be available in The City of New York, New York, at the opening
of business on such redemption date. All such funds (to the extent necessary to
pay the full amount of the redemption price) shall be held in trust for the
benefit of the Holders.
(f) If the Corporation shall have given or caused to be given a
Notice of Redemption as aforesaid, shall have irrevocably deposited with the MMP
Paying Agent a sum sufficient to pay the cash redemption price for the shares of
MMP as to which such Notice of Redemption was given and shall have given the MMP
Paying Agent irrevocable instructions and authority to pay the cash redemption
price to the Holders of such shares, then on the date of such deposit (or, if no
such deposit shall have been made, then on the date fixed for redemption, unless
the Corporation shall have defaulted in making payment of the redemption price),
all rights of the Holders of such shares by reason of their ownership of such
shares, except their right to receive the redemption price thereof (but without
interest) and any amount distributed pursuant to the Additional Distribution
Right distributed upon redemption or otherwise to the Holder, shall terminate,
and such shares shall no longer be deemed outstanding for any purpose,
including, without limitation, calculation of the Eligible Asset Coverage and
the Dividend Coverage and the right of the Holders of such shares to vote on any
matter or to participate in any subsequent Auction. The Corporation shall be
entitled to receive, from time to time, from the MMP Paying Agent the income, if
any, derived from the investment of moneys and/or other assets deposited with it
(to the extent that such income is not required to pay the cash redemption price
of the shares to be redeemed), and the Holders of shares to be redeemed shall
have no claim to any such income. In case the Holder of any shares called for
redemption shall not claim the redemption price for his shares within two years
after the redemption date, the MMP Paying Agent shall, upon demand, pay over to
the Corporation such amount remaining on deposit and the MMP Paying Agent shall
thereupon be relieved of all responsibility to the Holder with respect to such
shares, and such Holder shall thereafter look only to the Corporation for
payment of the redemption price of such shares.
(g) Except as set forth in this Section 3 with respect to
redemptions and subject to the provisions of paragraph (e) of Section 2 and
paragraph (b) of Section 1 of this Part I and paragraph (c) of this Section 3
and the 1940 Act, nothing contained herein shall limit any legal right of the
Corporation to purchase or otherwise acquire any shares of MMP outside of an
Auction at any price, whether higher or lower than the redemption price, in
privately negotiated transactions or in the over-the-counter market or
otherwise.
(h) Solely for the purpose of determining the number of shares
of MMP to be stated in a Notice of Redemption as subject to a mandatory or
optional redemption, the amount of funds legally available for such redemption
shall be determined as of the date of such Notice of Redemption. The Corporation
shall not give a Notice of Redemption with respect to an optional redemption
unless at the time of giving such notice the Corporation shall have sufficient
legally available funds in the form of cash or U.S. Treasury Securities and
short-term Money Market Instruments maturing in 30 days or less to effect the
redemption of all of the shares of MMP to be redeemed pursuant to such notice.
To the extent that any redemption of which Notice of Redemption has been given
is not made by reason of the absence of legally available funds therefor, such
redemption shall be made as soon as practicable to the extent such funds become
available. Failure to redeem shares of MMP shall be deemed to exist at any time
after the date specified for redemption in the Notice of Redemption when the
Corporation shall have failed, for any reason whatsoever, to deposit in trust
funds with the MMP Paying Agent 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 MMP for which a Notice of Redemption has been given,
dividends may be declared and paid on shares of MMP and shall include those
shares of MMP for which a Notice of Redemption has been given, subject to
paragraph (f) above.
(i) In the event that the Corporation shall have given a Notice
of Redemption with respect to any of the shares of MMP and the sale of any
Eligible Asset with a Discount Factor of greater than 1.000 shall be necessary
to provide sufficient moneys to redeem all such shares on the redemption date,
the Corporation shall sell or otherwise liquidate such asset as soon as
reasonably practicable following the date on which such Notice of Redemption is
given and shall take all reasonable steps to ensure that all such sales or other
liquidation's are effected no later than 30 days after such date.
(j) In effecting any redemption pursuant to this Section 3, the
Corporation shall use its best efforts to comply with all applicable procedural
conditions precedent to effecting such redemption under the 1940 Act and
Maryland law, but shall effect no redemption except in accordance with the 1940
Act and Maryland law.
(k) In the case of any redemption pursuant to this Section 3,
only whole shares of MMP shall be redeemed.
4. Designation of Special Rate Periods. (a) The Corporation, at
its option, may designate any succeeding Subsequent Rate Period as a
Special Rate Period; provided, however, that such designation shall be
effective only if:
(i) notice thereof shall have been given in accordance
with paragraph (b) and subparagraph (c)(i) of this Section 4;
(ii) any Failure to Deposit that shall have occurred
with respect to shares of MMP during any Rate Period shall have been
cured in accordance with the provisions of the third sentence of
subparagraph (c)(i) of Section 2 of this Part I;
(iii) Sufficient Clearing Bids (as defined in Section 1
of Part II hereof) shall have existed in the Auction held on the Auction
Date immediately preceding the first day of such proposed Special Rate
Period;
(iv) if any Notice of Redemption shall have been mailed
by the Corporation pursuant to paragraph (b) of Section 3 of this Part I
with respect to any shares of MMP, the Redemption Price with respect to
any such shares of MMP shall have been paid to the Holders of such
shares or set apart for payment;
(v) the length of such proposed Special Rate Period shall exceed
the Minimum Holding Period; and
(vi) Moody's shall have confirmed in writing to the
Corporation that such designation shall not adversely affect its
then-current rating of the MMP.
(b) If the Corporation proposes to designate any succeeding
Subsequent Rate Period as a Special Rate Period pursuant to paragraph (a) of
this Section 4, not less than 20 nor more than 30 days prior to the date the
Corporation proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum Rate
Period), notice shall be:
(i) published or caused to be published by the
Corporation in a newspaper of general circulation to the financial
community in The City of New York, New York, which carries financial
news; and
(ii) mailed by the Corporation by first-class mail,
postage prepaid, to the Holders of shares of MMP.
Each such notice shall state (A) that the Corporation may exercise its option to
designate a succeeding Subsequent Rate Period as a Special Rate Period,
specifying the first day thereof and (B) that the Corporation will by 11:00
A.M., New York City time, on the second Business Day next preceding such date
notify the Auction Agent of either (1) its determination, subject to certain
conditions, to exercise such option, in which case the Corporation shall specify
the Special Rate Period designated, or (2) its determination not to exercise
such option.
(c) Not later than 11:00 A.M., New York City time, on the
second Business Day next preceding the first day of any proposed Special Rate
Period as to which notice has been given as set forth in paragraph (b) of this
Section 4, the Corporation shall deliver to the Auction Agent either:
(i) a notice stating (A) that the Corporation has
determined to designate the next succeeding Rate Period as a Special
Rate Period, specifying the same and the first day thereof, (B) the
Auction Date immediately prior to the first day of such Special Rate
Period, (C) that such Special Rate Period shall not commence if (1) on
such Auction Date Sufficient Clearing Bids shall not exist unless all
shares of MMP are subject to Hold Orders or (2) a Failure to Deposit
shall have occurred prior to the first day of such Special Rate Period
with respect to shares of MMP and (D) the scheduled Dividend Payment
Dates during such Special Rate Period; such notice to be accompanied by
a Certificate of Eligible Asset Coverage showing that, as of the third
Business Day next preceding such proposed Special Rate Period, Eligible
Assets were at least equal to Eligible Asset Coverage as of such
Business Day (assuming for purposes of the foregoing calculation that
the Maximum Rate is the Maximum Rate on such Business Day as if such
Business Day were the Auction Date for the proposed Special Rate Period)
and written confirmation from Moody's that the designation of such
Special Rate Period will not adversely affect Moody's then-current
rating of the MMP; or
(ii) a notice stating that the Corporation has
determined not to exercise its option to designate a Special Rate Period
of MMP and that the next succeeding Rate Period shall be a Minimum Rate
Period.
If the Corporation fails to deliver either such notice (and, in the case of the
notice described in clause (i) above, a Certificate of Eligible Asset Coverage
and confirmation from Moody's to the effect set forth in clause (i)) with
respect to any designation of any proposed Special Rate Period to the Auction
Agent by 11:00 A.M., New York City time, on the second Business Day next
preceding the first day of such proposed Special Rate Period, the Corporation
shall be deemed to have delivered a notice to the Auction Agent with respect to
such Special Rate Period to the effect set forth in clause (ii) of the preceding
sentence.
5. Voting Rights. (a) Except as otherwise provided in the
Articles or as otherwise required by law, each Holder of shares of MMP shall be
entitled to one vote for each share of MMP held on each matter submitted to a
vote of shareholders of the Corporation, and the holders of outstanding shares
of MMP and shares of Common Stock shall vote together as a single class.
(b) At any meeting of the shareholders of the Corporation held
for the election of directors, the holders of Preferred Stock, including MMP,
shall be entitled, voting as a single 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. Subject to paragraph (c) of this Section 5,
the holders of Common Stock of the Corporation, voting as a separate class,
shall elect the balance of the directors.
(c) 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 shares of MMP, 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 MMP, shall be entitled, voting as a single class 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 any time dividends (whether or not earned or
declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding shares of MMP equal to at
least two full years' dividends shall be due and unpaid and sufficient
cash or specified securities shall not have been deposited with the MMP
Paying Agent for the payment of such dividends; or
(ii) if at any time holders of any other shares of
Preferred Stock are entitled to elect a majority of the directors of the
Corporation.
Upon the termination of a Voting Period, the voting rights described in
paragraph (c) of this Section 5 shall cease, subject always, however, to the
revesting of such voting rights in the holders of Preferred Stock, including
MMP, upon the further occurrence of either of the events described in paragraph
(c) of this Section 5.
(d) (i) As soon as practicable after the accrual of any right
of the holders of shares of Preferred Stock, including MMP, to elect additional
directors as described in paragraph (c) of this Section 5, the Corporation shall
notify the MMP Paying Agent and the MMP Paying 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 or more than 30 days after the
date of mailing of such notice. If the Corporation fails to send such notice to
the MMP Paying Agent or if the MMP Paying 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 held during a Voting Period, such holders, voting together as a single
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
additional directors prescribed in paragraph (c) of this Section 5. At any such
meeting or adjournment thereof in the absence of a quorum, the holders present
in person or by proxy shall have the power to adjourn the meeting without
notice, other than by an announcement at the meeting, to a date not more than
120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to
vote on any matter, whether such right is created by these Articles
Supplementary, by the other provisions of the Articles, by statute or otherwise,
no Holder shall be entitled to vote and no share of MMP 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 MMP Paying Agent for that purpose
and the requisite Notice of Redemption with respect to such shares has been
given as provided in Section 3 of this Part I. No share of MMP held by the
Corporation or any Affiliate shall have any voting rights or be deemed to be
outstanding for voting or other purposes except that shares held by any
Affiliates shall be deemed to be outstanding for the purpose of calculating the
Eligible Asset Coverage Amount.
(iii) Except as provided in the next succeeding sentence, the
terms of office of all persons who are directors of the Corporation at the time
of a special meeting of holders of Preferred Stock, including MMP, to elect
directors shall continue, notwithstanding the election at such meeting by such
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 shall constitute the duly elected directors of the
Corporation. If the election of additional directors by the holders of Preferred
Stock, including MMP, would cause the number of directors to exceed 12, then the
terms of office of a number of directors elected by the holders of Common Stock
shall terminate at the time of the special meeting to elect such additional
directors such that the sum of the number of remaining directors and the number
of additional directors does not exceed 12 and the number of additional
directors and the two directors elected by the holders of Preferred Stock,
including MMP, constitute a majority of the entire Board of Directors.
(iv) Simultaneously with the termination of a Voting Period,
the terms of office of the additional directors elected by the holders of
Preferred Stock, including MMP, pursuant to paragraph (c) of this Section 5
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 (c) of this Section 5 shall cease, subject to the
provisions of the last sentence of paragraph (c) of this Section 5.
(v) If the right of the holders of Preferred Stock, including
MMP, to elect additional directors as described in paragraph (c) of this Section
5 accrues during the period commencing one month prior to the Corporation's
fiscal year end and ending at the end of the fourth month after the
Corporation's fiscal year end, the Corporation shall not be required to hold a
separate meeting pursuant to subparagraph (d)(i) of this Section 5 and may,
instead, call an annual meeting for such purpose if such meeting has not been
held following such fiscal year end. At any such annual meeting, such holders,
voting as a single class, shall be entitled to elect two directors pursuant to
paragraph (b) of this Section 5 and additional directors pursuant to paragraph
(c) of this Section 5. Upon expiration of the Voting Period, the term of office
of the additional directors elected pursuant to paragraph (c) of this Section 5
shall expire.
(e) (i) In addition to all rights of holders of Preferred Stock
set forth in the Articles, so long as any shares of MMP are outstanding, the
Corporation shall not, without the affirmative vote of at least 80% of the votes
entitled to be cast by Holders of MMP:
(A) authorize, create or issue any class or series of
stock ranking prior to or on a parity with the MMP with respect to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Corporation (other than
previously authorized and unissued shares of MMP, including any shares
of MMP purchased or redeemed by the Corporation), or increase the
authorized amount of MMP or any other Preferred Stock; or
(B) amend, alter or repeal the provisions of the
Articles, including these Articles Supplementary, whether by merger,
consolidation or otherwise, so as to adversely affect in any material
respect any of the contract rights expressly set forth in the Articles,
including these Articles Supplementary, of such shares of MMP or the
Holders thereof.
The affirmative vote of a majority of the votes entitled to be
cast by holders of MMP, voting as a separate class with holders of other
Preferred Stock entitled to vote on the matter, shall be required to approve any
matter which, under Article VI of the Articles of Incorporation, requires the
approval of a majority of the votes entitled to be cast by stockholders if also
approved by 80% of the Continuing Directors (as therein defined) or certain
other requirements therein specified are met.
The class votes of the shares of MMP described in these
Articles will in each case be in addition to any required separate vote of the
requisite percentage of shares of Common Stock and MMP, voting together as a
single class, necessary to authorize the action in question.
(ii) The Board of Directors, without the vote or consent of the
Holders, may from time to time amend, alter or repeal any or all of the
definitions of the terms listed below, and any such amendment, alteration or
repeal will not be deemed to affect the contract rights of shares of MMP or the
Holders thereof, provided the Board of Directors receives written confirmation
from Moody's that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's to the shares of MMP:
Coverage Value
Discount Factor
Dividend Coverage Amount
Dividend Coverage Assets
Dividend Coverage Cure
Date
Dividend Coverage
Evaluation Date
Dividend Coverage is met
Eligible Asset Coverage
Amount
Eligible Asset Coverage is met
Eligible Asset Cure Date
Eligible Asset Evaluation
Date
Eligible Assets
Market Value
Net Coverage Value
1940 Act Asset Coverage
1940 Act Asset Coverage
Cure Date
1940 Act Asset Coverage
Evaluation Date
1940 Act Asset Coverage
is met
Projected Dividend Amount
(iii) To the extent permitted by applicable law, from time to
time without the vote or consent of the Holders, the Board of Directors may
interpret or adjust the provisions of these Articles Supplementary to resolve
any inconsistency or ambiguity or to remedy any formal defect.
(f) Unless otherwise required by law, the Holders shall not
have any relative rights or preferences or other rights other than those
specifically set forth herein. The Holders shall have no preemptive rights or
rights to cumulative voting. In the event that the Corporation fails to pay any
dividends on the shares of MMP, the exclusive remedy of the Holders shall be the
right to vote for directors pursuant to the provisions of this Section 5.
(g) Unless a higher percentage is provided for in the Articles,
the affirmative vote of the Holders of a majority of the outstanding shares of
MMP (as determined in accordance with the 1940 Act), 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,
including a change in the Corporation's subclassification from that of a
closed-end investment company to that of an open-end investment company. In the
event a vote of Holders 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 that such vote is
to be taken and the nature of the action with respect to which such vote is to
be taken. The Corporation shall, in a timely fashion after such vote is taken,
notify Moody's of the result of such vote.
6. Liquidation Rights. (a) Upon the dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
the Holders shall be entitled to receive and to be paid out of the assets of the
Corporation available for distribution to its shareholders after satisfying
claims of creditors but before any payment or distribution shall be made on the
Common Stock or on any other class of stock of the Corporation ranking junior to
the MMP upon dissolution, liquidation or winding up, liquidating distributions
per share of $100,000 plus an amount equal to all dividends (whether or not
earned or declared) accumulated thereon up to but not including the date of such
distribution and unpaid, and an Additional Distribution Right with regard to
such accumulated and unpaid dividends.
(b) Neither the sale, lease or exchange (for cash, stock,
securities or other consideration) of all or substantially all the property or
business of the Corporation, nor the merger or consolidation of the Corporation
into or with any other entity, nor the merger or consolidation of any other
entity into or with the Corporation, nor any share exchange between the
Corporation and any other entity shall be deemed to be a dissolution,
liquidation or winding up, whether voluntary or involuntary, for the purpose of
this Section 6.
(c) After the payment to the Holders of the full preferential
amounts provided in this Section 6, the Holders as such shall have no right or
claim to any of the remaining assets of the Corporation, except pursuant to the
Additional Distribution Right distributed pursuant to paragraph (a) of this
Section 6 or otherwise to the Holder.
(d) In the event the assets of the Corporation available for
distribution to the Holders 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 6, 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 shares of MMP 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 MMP, ratably, in
proportion to the full distributable amounts to which such Holders and the
holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(e) Subject to the rights of holders of shares of any series or
class or classes of stock ranking on a parity with the shares of MMP 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 as provided in paragraph (a) of this Section 6, but not prior
thereto, any other series or class or classes of stock ranking junior to the
shares of MMP with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Corporation shall, subject to
the 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
shall not be entitled to share therein.
7. 1940 Act Asset Coverage, Eligible Asset Coverage and Dividend
Coverage. (a) (i) The Corporation shall determine whether the 1940 Act Asset
Coverage is met as of each 1940 Act Asset Coverage Evaluation Date. The
calculation of the asset coverage for the MMP on that date in accordance with
the 1940 Act and whether the 1940 Act Asset Coverage is met shall be set forth
in a certificate (a "Certificate of 1940 Act Asset Coverage") dated as of such
1940 Act Asset Coverage Evaluation Date. In addition, as of each Eligible Asset
Evaluation Date, the Corporation shall determine:
(A) the Coverage Value of each Eligible Asset owned by the
Corporation on that date;
(B) the Net Coverage Value of all such Eligible Assets;
(C) the Eligible Asset Coverage Amount with respect to such Eligible
Asset Evaluation Date; and
(D) whether the Eligible Asset Coverage is met as of
such date.
The calculation of the Coverage Value of each Eligible Asset, the Net Coverage
Value of all such Eligible Assets, the Eligible Asset Coverage Amount and
whether the Eligible Asset Coverage is met shall be set forth in a certificate
(a "Certificate of Eligible Asset Coverage") dated as of such Eligible Asset
Evaluation Date. As of each Dividend Coverage Evaluation Date, the Corporation
shall determine:
(A) the aggregate Coverage Value of the Dividend Coverage Assets
owned by the Corporation on that date for the shares of MMP;
(B) the Dividend Coverage Amount on that date; and (C)
whether the Dividend Coverage is met as of such date.
The calculations of the aggregate Coverage Value of the Dividend Coverage
Assets, the Dividend Coverage Amount and whether the Dividend Coverage is met
shall be set forth in a certificate (a "Certificate of Dividend Coverage") dated
as of such Dividend Coverage Evaluation Date. The Corporation shall cause the
Certificate of 1940 Act Asset Coverage to be delivered to the Common Stock
Paying Agent not later than the close of business on the third Business Day
after the related 1940 Act Asset Coverage Evaluation Date. The Corporation shall
cause the Certificate of Eligible Asset Coverage and the Certificate of Dividend
Coverage to be delivered to the MMP Paying Agent not later than the close of
business on the third Business Day after the related evaluation date. In
addition, the Corporation shall cause the Certificate of Eligible Asset Coverage
to be delivered to Moody's quarterly, and not later than the close of business
on the third Business Day after (i) any Eligible Asset Evaluation Date
immediately preceding any approval by the Corporation's Board of Directors of
redemption of shares of the Corporation's Common Stock and (ii) any Eligible
Asset Evaluation Date on which the Net Coverage Value of Eligible Assets is less
than 25% greater than the Eligible Asset Coverage Amount. In the event that the
Eligible Asset Coverage is not met or is not met and is subsequently cured, the
Corporation shall cause the Certificate of Eligible Asset Coverage to be
delivered to Moody's not later than the close of business on the third Business
Day following such date of failure and/or on the second Business Day following
such date of cure.
(ii) In the event that a Certificate of 1940 Act Asset
Coverage, a Certificate of Eligible Asset Coverage or a Certificate of Dividend
Coverage is not delivered to the Common Stock Paying Agent or the MMP Paying
Agent, as the case may be, when required, the 1940 Act Asset Coverage, the
Eligible Asset Coverage or the Dividend Coverage, as the case may be, will be
deemed not to have been met as of the related evaluation date.
(b) With respect to (i) the Certificate of 1940 Act Asset
Coverage relating to any 1940 Act Asset Coverage Cure Date, (ii) the Certificate
of Eligible Asset Coverage (A) as of April 12, 1991, (B) relating to the last
Eligible Asset Evaluation Date in each fiscal quarter and relating to one other
Eligible Asset Evaluation Date during such fiscal quarter as selected by the
Independent Accountants, and (C) relating to any Eligible Asset Cure Date and
(iii) the Certificate of Dividend Coverage relating to any Dividend Coverage
Cure Date, the Corporation shall obtain from the Independent Accountants a
written communication confirming that:
(1) with respect to the 1940 Act Asset Coverage, (a) the
calculations set forth in the related Certificate of 1940 Act Asset
Coverage are mathematically accurate and (b) the Independent Accountants
have traced the prices used by the Corporation in valuing the
Corporation's portfolio investments to the prices provided to the
Corporation by the Corporation's administrator or other appropriate
service provider for such purpose and verified that such information
agrees; and
(2) with respect to the Eligible Asset Coverage or the
Dividend Coverage, (a) the calculations set forth in the related
Certificate of Eligible Asset Coverage or Certificate of Dividend
Coverage, as the case may be, are mathematically accurate, (b) the
method used by the Corporation in determining whether the Eligible Asset
Coverage or the Dividend Coverage, as the case may be, is met, is in
accordance with the applicable requirements of these Articles
Supplementary, (c) the Independent Accountants have traced the prices
used by the Corporation in the determination of Market Values of the
Eligible Assets or the Dividend Coverage Assets, as the case may be, to
the prices provided to the Corporation by the Corporation's
administrator or other appropriate service provider for purposes of such
determination and verified that such information agrees, (d) the
Independent Accountants have calculated the liabilities and related
assumed assets arising in connection with Section 8(b) of Part I, (e)
the Corporation's positions in futures and options at such Eligible
Asset Evaluation Date were in accordance with the provisions of Section
8(b) of Part I and (f) the assets listed as Eligible Assets or Dividend
Coverage Assets, as the case may be, in the related certificate conform
to the descriptions of Eligible Assets or Dividend Coverage Assets set
forth in these Articles (such a written communication being referred to
herein as an "Accountants' Certificate").
The Corporation shall cause each Accountants' Certificate relating to any 1940
Act Asset Coverage Cure Date to be delivered, together with the related
Certificate of 1940 Act Asset Coverage, to the Common Stock Paying Agent by the
close of business on such 1940 Act Asset Coverage Cure Date. The Corporation
shall cause each Accountants' Certificate relating to the last Eligible Asset
Evaluation Date of each fiscal quarter and such other one Eligible Asset
Evaluation Date per quarter as selected by the Independent Accountants to be
delivered to the MMP Paying Agent not later than the close of business on the
seventh Business Day following the last day of the related fiscal quarter (such
seventh Business Day being referred to herein as a "Confirmation Date") and
shall cause each Accountants' Certificate relating to any Eligible Asset Cure
Date to be delivered to the MMP Paying Agent by the close of business on the
second Business Day following such Eligible Asset Cure Date. The Corporation
shall cause each Accountants' Certificate relating to any Dividend Coverage Cure
Date to be delivered to the MMP Paying Agent by the close of business on the
second Business Day following such Dividend Coverage Cure Date. The Corporation
shall cause each Accountants' Certificate delivered to the Common Stock Paying
Agent or the MMP Paying Agent, as the case may be, to be contemporaneously
delivered to Moody's. In the event of any difference between the Corporation's
calculations as shown on a Certificate of 1940 Act Asset Coverage, a Certificate
of Eligible Asset Coverage or a Certificate of Dividend Coverage and the
Independent Accountants' calculations as shown on an Accountants' Certificate,
such calculations of the Independent Accountants shall control. If the number of
Rate Period Days in the Minimum Rate Period is altered as provided for in the
proviso to subparagraph (b)(ii)(C) of Section 2 of this Part I, or the
Corporation shall designate a Special Rate Period pursuant to Section 4 of this
Part I, the Corporation shall provide for an Accountants' Certificate relating
to a Certificate of Eligible Asset Coverage to be furnished to the MMP Paying
Agent at such additional times as may be necessary to provide for such
confirmations to be furnished at least as frequently as provided prior to such
alteration and as may be necessary to maintain the then-current rating by
Moody's of the shares of MMP.
(c) If the 1940 Act Asset Coverage is not met as of any 1940
Act Asset Coverage Evaluation Date as shown in a Certificate of 1940 Act Asset
Coverage delivered to the Common Stock Paying Agent by the close of business on
the third Business Day after such 1940 Act Asset Coverage Evaluation Date, then
the Corporation shall (if and to the extent necessary to enable it to meet the
requirements of paragraph (d) of this Section 7):
(i) by the close of business on the 1940 Act Asset
Coverage Cure Date relating to such 1940 Act Asset Coverage Evaluation
Date, if the Corporation shall have funds legally available for the
purchase of shares of MMP, purchase such shares outside of an Auction in
order that the 1940 Act Asset Coverage is met as of such 1940 Act Asset
Coverage Cure Date; and/or
(ii) by the close of business on the applicable 1940 Act
Asset Coverage Cure Date, notify the MMP Paying Agent of its intention
to redeem, and give a Notice of Redemption as described in these
Articles Supplementary with respect to the redemption of, shares of MMP.
(d) If the 1940 Act Asset Coverage is not met as of any 1940
Act Asset Coverage Evaluation Date as shown in a Certificate of 1940 Act Asset
Coverage, then the Corporation shall, by the close of business on the applicable
1940 Act Asset Coverage Cure Date, deliver to the Common Stock Paying Agent a
Certificate of 1940 Act Asset Coverage together with an Accountants' Certificate
showing that the 1940 Act Asset Coverage is met (or, if clause (ii) of paragraph
(c) of this Section 7 is applicable, would have been met) as of such 1940 Act
Asset Coverage Cure Date after giving effect to (A) any purchase of the shares
of MMP outside of an Auction pursuant to clause (i) of paragraph (c) of this
Section 7 and/or (B) any redemption of the shares of MMP pursuant to the Notice
of Redemption contemplated by such clause (ii) (as if such redemption had
occurred immediately prior to the opening of business on such 1940 Act Asset
Coverage Cure Date).
(e) If (i) the Eligible Asset Coverage is not met as of any
Eligible Asset Evaluation Date as shown in a Certificate of Eligible Asset
Coverage delivered to the MMP Paying Agent by the close of business on the third
Business Day after such Eligible Asset Evaluation Date or (ii) the Corporation
is required to deliver to the MMP Paying Agent by the close of business on a
Confirmation Date an Accountants' Certificate confirming the Certificate of
Eligible Asset Coverage with respect to such Eligible Asset Evaluation Date, and
the Corporation fails timely to deliver such Accountants' Certificate, then the
Corporation shall (if and to the extent necessary to enable it to meet the
requirements of paragraph (f) of this Section 7):
(A) by the close of business on the Eligible Asset Cure
Date relating to such Eligible Asset Evaluation Date or Confirmation
Date, as the case may be, purchase or otherwise acquire additional
Eligible Assets or, if the Corporation shall have funds legally
available for the purchase of shares of MMP, purchase such shares
outside of an Auction, or both, in order that the Eligible Asset
Coverage is met as of such Eligible Asset Cure Date; and/or
(B) by the close of business on the second Business Day
after the applicable Eligible Asset Cure Date, notify the MMP Paying
Agent of its intention to redeem, and give a Notice of Redemption with
respect to the redemption of, shares of MMP as described herein.
(f) If the Eligible Asset Coverage is not met as of any
Eligible Asset Evaluation Date as shown in a Certificate of Eligible Asset
Coverage or if an Accountants' Certificate confirming a Certificate of Eligible
Asset Coverage is not timely delivered as contemplated by subclause (i) or
subclause (ii) of paragraph (e) of this Section 7, then the Corporation shall,
by the close of business on the second Business Day following the applicable
Eligible Asset Cure Date, deliver to the MMP Paying Agent a Certificate of
Eligible Asset Coverage together with an Accountants' Certificate showing that
the Eligible Asset Coverage is met (or, if subclause (B) of such paragraph (e)
is applicable, would have been met) as of such Eligible Asset Cure Date after
giving effect to:
(i) any purchase or other acquisition of Eligible Assets
or any purchase of the shares of MMP outside of an Auction pursuant to
clause (A) of paragraph (e) of this Section 7; and/or
(ii) any redemption of the shares of MMP pursuant to the
Notice of Redemption contemplated by clause (B) of such paragraph (e)
(as if such redemption had occurred immediately prior to the opening of
business on such Eligible Asset Cure Date).
(g) If the Dividend Coverage is not met as of any Dividend
Coverage Evaluation Date as shown in a Certificate of Dividend Coverage
delivered to the MMP Paying Agent by the close of business on the third Business
Day after such Dividend Coverage Evaluation Date, then the Corporation shall, by
the close of business on the Dividend Coverage Cure Date relating to such
Dividend Coverage Evaluation Date, to the extent necessary so that the Dividend
Coverage is met on such Dividend Coverage Cure Date, purchase or otherwise
acquire Dividend Coverage Assets (with the proceeds from the liquidation of
Eligible Assets or otherwise). The Corporation shall, by the third Business Day
following the applicable Dividend Coverage Cure Date, deliver to the MMP Paying
Agent a Certificate of Dividend Coverage together with an Accountants'
Certificate showing that the Dividend Coverage is met as of such Dividend
Coverage Cure Date after giving effect to any purchase or other acquisition of
Dividend Coverage Assets.
(h) For purposes of determining whether the 1940 Act Asset
Coverage is met, the Eligible Asset Coverage is met or the Dividend Coverage is
met, no share of the MMP shall be deemed to be "outstanding" for purposes of any
computation if, prior to or concurrently with such determination, (i) the
requisite funds for the redemption of such share shall have been deposited in
trust with the MMP Paying Agent for that purpose and the requisite Notice of
Redemption shall have been given or (ii) such share shall have been redeemed,
purchased or otherwise acquired by the Corporation. In the case of clause (i) of
this paragraph (h), the funds deposited with the MMP Paying Agent (to the extent
necessary to pay the full redemption price for such shares) shall not be
included in determining whether the 1940 Act Asset Coverage, the Dividend
Coverage or the Eligible Asset Coverage are met.
8. Certain Other Restrictions. (a) For so long as any shares of
MMP are outstanding and Moody's is rating such shares, the Corporation
will not, unless it has received written confirmation from Moody's
that any such action would not impair the rating then assigned by
Moody's to shares of MMP:
(i) enter into options and futures transactions except as set
forth in paragraph (b) of this Section 8;
(ii) make short sales of securities unless at all times
when a short position is open, the Corporation owns an equal or greater
amount of such securities or owns preferred stock, debt or warrants
convertible or exchangeable into an equal or greater number of the
shares of common stocks sold short;
(iii) overdraw any bank account (except as may be necessary for
the clearance of security transactions); or
(iv) borrow money or issue senior securities (as defined
in the 1940 Act) other than the shares of MMP.
(b) For so long as the shares of MMP are rated by Moody's, the
Corporation (i) may buy call or put option contracts on securities, (ii) may
write only covered call options on securities, (iii) may write put options on
securities, (iv) may only sell futures contracts as a bona fide hedge of assets
held by the Corporation, (v) may only engage in futures transactions on an
exchange where the exchange or its clearinghouse takes the opposite side of the
transaction, (vi) may buy call or put options on futures contracts, (vii) may
write put options on futures contracts and may only write call options on
futures contracts if such call options are covered by: (1) purchased futures
contracts underlying the option, (2) call positions owned on the futures
contracts underlying the call option written, or (3) holdings of securities for
which the written call options are a bona fide hedge, (viii) may purchase
futures contracts as a hedge, (ix) to the extent an asset is used to cover a
particular option, futures contract or option on a futures contract, will not be
able to use such asset to cover any additional option, futures contract or
option on a futures contract, and (x) will only engage in index-based futures or
options transactions if Moody's advises the Corporation in writing that such
transaction will not adversely affect its then-current rating on the MMP.
For so long as the shares of MMP are rated by Moody's, unless,
in each case, Moody's advises the Corporation in writing that such action or
actions will not adversely affect its then-current rating on the MMP, in
determining the Net Coverage Value of the Corporation's Eligible Assets, the
Corporation shall include as a liability (i) 10% of the exercise value of a
written call option on securities, (ii) 100% of the exercise value of any
written put option on securities, (iii) 10% of the settlement value of the
assets underlying futures contracts sold or call options written on futures
contracts, (iv) 100% of the settlement value of the assets underlying futures
contracts purchased and (v) 100% of the settlement value of the assets
underlying the futures contracts based on exercise price if the Corporation
writes put options on futures contracts.
Also, for so long as the shares of MMP are rated by Moody's,
unless, in each case, Moody's advises the Corporation in writing that such
action or actions will not adversely affect its then-current rating on the MMP,
the Corporation (i) will limit its transactions in futures contracts and written
options thereon to those relating to U.S. Treasury Bonds, (ii) will not engage
in options and futures transactions for leveraging or speculative purposes,
(iii) will not enter into an options or futures transaction unless after giving
effect to such transaction the Eligible Asset Coverage is met, (iv) shall not
include in Eligible Assets any assets pledged in margin accounts in connection
with futures transactions, (v) will assume for purposes of determining the
Coverage Value, when the Corporation has purchased futures contracts or has
written put options, ownership by the Corporation of the underlying asset, which
will be the security resulting in the lowest Coverage Value when delivery may be
made to the Corporation with any of a class of securities, (vi) will engage only
in exchange traded futures contracts and written options thereon on exchanges
approved by Moody's in writing, which, as of the Date of Original Issue, consist
of the Chicago Board of Trade and the Financial Exchange, (vii) will limit the
transactions in futures contracts sold and call options written on futures
contracts so that the settlement value of the underlying futures contracts does
not in total exceed 65% of the value of the Eligible Assets of the Corporation
rated the equivalent of "baa3" or better by Moody's and not otherwise hedged by
a written call and (viii) will only take positions in futures which are
deliverable in the nearby and next following contract months and will close out
such futures positions by the fifth business day of the delivery month.
(c) For so long as the shares of MMP are rated by Moody's,
unless, in each case, Moody's advises the Corporation in writing that such
action or actions will not adversely affect its then-current rating on the MMP:
(i) the composition of the Corporation's portfolio will not be
altered if the effect of any such alteration would be to cause the Corporation,
immediately after giving effect to the transaction, to have an Eligible Asset
Coverage Amount equal to or in excess of the Net Coverage Value of Eligible
Assets as of the previous Eligible Asset Evaluation Date;
(ii) if the Eligible Asset Coverage Amount exceeds the Net
Coverage Value of Eligible Assets, the Corporation will invest the proceeds of
the sale or other disposition of an Eligible Asset in an investment having a
greater Discount Factor or in an issuer in a different industry from the
investment sold or otherwise disposed of only if the effect of such transaction
immediately after giving effect thereto would be to reduce the excess of the
Eligible Asset Coverage Amount over the Net Coverage Value; and
(iii) at such time that the Net Coverage Value of Eligible
Assets is less than 25% greater than the Eligible Asset Coverage Amount, the
composition of the Corporation's portfolio will not be altered if, in the
Corporation's reasonable judgment, the result of such alteration would cause
Eligible Asset Coverage not to be met.
(d) By resolution of the Board of Directors and without
amending the Articles or otherwise submitting such resolution for shareholder
approval, the restrictions and procedures set forth in this Section 8 may be
adjusted, modified, altered or changed and any such adjustment, modification,
alteration or change will not be deemed to affect the contract rights of shares
of MMP or the Holders thereof if Moody's has advised the Corporation in writing
that such adjustment, modification, alteration or change will not adversely
affect its then-current rating of the MMP and that any such action will be in
accordance with guidelines established by Moody's.
9. Auction Agent and MMP Paying Agent. For so long as any shares
of MMP are outstanding, the Auction Agent (which shall act as agent of the
Corporation in connection with the implementation of the Auction Procedures) and
the MMP Paying Agent (which shall act as transfer agent, registrar, dividend
disbursing agent and redemption agent on behalf of the Corporation with respect
to MMP), shall receive Certificates of Eligible Asset Coverage, Certificates of
Dividend Coverage, and related Accountants' Certificates, shall each be a
commercial bank, trust company or other financial institution unaffiliated with
the Corporation or any affiliate of the Corporation (which, however, may engage
or have engaged in business transactions with the Corporation or any affiliate
of the Corporation), and at no time shall the Corporation or any affiliate of
the Corporation act as the Auction Agent or the MMP Paying Agent. If the Auction
Agent or the MMP Paying Agent resigns or for any reason either of their
appointments are terminated during any period that any of the shares of MMP are
outstanding, the Board of Directors shall promptly thereafter use its best
efforts to appoint another qualified commercial bank, trust company or financial
institution to act as the Auction Agent or the MMP Paying Agent, as the case may
be, upon commercially reasonable terms. A single qualified commercial bank,
trust company or financial institution may act as the Auction Agent and the MMP
Paying Agent. The MMP Paying Agent shall maintain an office or agency in The
City of New York for purposes of making payments on the shares of MMP.
10. Notice. All notices or communications, unless otherwise
specified in the By-laws of the Corporation or these Articles Supplementary,
shall be sufficiently given if in writing and delivered in person, transmitted
by telecopy or mailed by first-class mail, postage prepaid. In the event notice
is delivered in person or transmitted by telecopy, notice shall be deemed given
on the date received. In the event notice is mailed, it shall be deemed given on
the earlier of the date received or the date seven days after which such notice
is mailed.
11. Definitions. As used in Part I and II hereof, 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. Certain letter ratings may be modified by the
addition of a plus or a minus sign or other modifier, which is used to show
relative standing within the rating category. References to a particular letter
rating by S&P are to the rating without regard to any modifier.
(a) "'AA' Composite Commercial Paper Rate," on any date
for any Rate Period, shall mean (i)(A) in the case of any Rate Period
with Rate Period Days of less than 46 days, the interest equivalent of
the 30-day rate, (B) in the case of any Rate Period with Rate Period
Days of 46 days or more but less than 70 days, the interest equivalent
of the 60-day rate, (C) in the case of any Rate Period with Rate Period
Days of 70 days or more but less than 85 days, the arithmetic average of
the interest equivalent of the 60-day and 90-day rates, (D) in the case
of any Rate Period with Rate Period Days of 85 days or more but less
than 120 days, the interest equivalent of the 90-day rate, (E) in the
case of any Rate Period with Rate Period Days of 120 days or more but
less than 148 days, the arithmetic average of the interest equivalent of
the 90-day and 180-day rates and (F) in the case of any Rate Period with
Rate Period Days of 148 days or more but less than 182 days, the
interest equivalent of the 180-day rate, on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made
available on a discount basis or otherwise by the Federal Reserve Bank
of New York for the Business Day immediately preceding such date; or
(ii) in the event that the Federal Reserve Bank of New York does not
make available any such rate, then the arithmetic average of such rates,
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 next preceding such date. If any Commercial Paper Dealer does not
quote a rate required to determine the "AA" Composite Commercial Paper
Rate, the "AA" Composite Commercial Paper Rate shall be determined on
the basis of the quotation or quotations furnished by the remaining
Commercial Paper Dealer or Commercial Paper Dealers and any Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers selected
by the Corporation to provide such rate or rates not being supplied by
any Commercial Paper Dealer or Commercial Paper Dealers, as the case may
be, or, if the Corporation does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the
remaining Commercial Paper Dealer or Commercial Paper Dealers. For
purposes of this definition, the "interest equivalent" of a rate stated
on a discount basis (a "discount rate") for commercial paper of a given
days' maturity shall be equal to the quotient (rounded upwards to the
next higher one-thousandth (.001) of 1%) of (A) the discount rate
divided by (B) the difference between (x) 1.00 and (y) a fraction the
numerator of which shall be the product of the discount rate times the
number of days in which such commercial paper matures and the
denominator of which shall be 360.
(b) "Accountants' Certificate" shall have the meaning set forth
in paragraph (b) of Section 7 of this Part I.
(c) "Additional Distribution" shall mean payment to a
Holder or prior Holder, as the case may be, of an amount which, when
taken together with the Retroactive Taxable Allocation made to such
Holder or prior Holder with respect to the taxable year in question,
would cause the net return to such Holder or prior Holder (after Federal
income tax consequences) from the aggregate of both such Retroactive
Taxable Allocation and the Additional Distribution to be equal to the
net return that would have been realized by such Holder or prior Holder
(after Federal income tax consequences) from such Retroactive Taxable
Allocation if such amount had been eligible for the Dividends Received
Deduction and the Additional Distribution had not been paid. Such
Additional Distribution shall be calculated (i) without consideration
being given to the time value of money; (ii) assuming that no Federal
alternative minimum tax or similar tax is imposed with respect to
dividends received from the Corporation; (iii) assuming that the Holder
or prior Holder is taxable at all times at the Federal Income Tax Rate
(as defined below) on the Retroactive Taxable Allocation and the
Additional Distribution (to the extent that the Corporation does not
designate the Additional Distribution as qualifying for the Dividends
Received Deduction) and that the Holder or prior Holder is able to take
full advantage of the Dividends Received Deduction with respect to
dividends (including the Additional Distribution if designated as
qualifying for the Dividends Received Deduction) received from the
Corporation; (iv) assuming that the Holder or prior Holder disposed of
such shares in a taxable transaction immediately after a distribution on
a Dividend Payment Date with respect to which a Retroactive Taxable
Allocation was made; and (v) assuming that the Holder or prior Holder
sold such shares for $100,000 per share and had an adjusted tax basis in
such shares equal to $100,000 less any amount distributed as a return of
capital (as calculated for Federal income tax purposes) per share for
the distribution with respect to which the Retroactive Taxable
Allocation was made. "Federal Income Tax Rate" is the maximum marginal
regular Federal income tax rate generally applicable to corporations
(currently 35%) in effect on (a), in the case of a Retroactive Tax
Allocation, the Auction Date related to a distribution on the shares of
MMP for which a Retroactive Taxable Allocation has been made, and (b),
in the case of an Additional Distribution, the date the Corporation
notifies holders of Additional Distribution Rights of the amount of any
Retroactive Taxable Allocation with respect to which such an Additional
Distribution shall be paid. With respect to assumption (iii) above, the
Corporation will not designate the Additional Distribution as qualifying
for the Dividends Received Deduction unless the Corporation receives an
opinion of counsel to the effect that such designation would be given
effect for Federal income tax purposes.
The Corporation shall notify each holder of an
Additional Distribution Right of the amount of each Retroactive Taxable
Allocation allocated to such holder within 120 days after the end of the
taxable year for which the Retroactive Taxable Allocation is made, and
shall make any required Additional Distribution to such holder within 30
days after the date of such notice.
(d) "Additional Distribution Right" shall mean a right
issued by the Corporation to a Holder at the time of payment of a
dividend on, or redemption of, or liquidating distribution on shares of
MMP entitling such Holder to receive an Additional Distribution if a
Retroactive Taxable Allocation is made. An Additional Distribution shall
be paid only if and to the extent that payment of a distribution to
stockholders in such amount could then be made in accordance with
Section 2-311 of the Maryland General Corporation Law. An Additional
Distribution Right shall not be transferable except by operation of law.
(e) "Applicable Rate" shall have the meaning specified in
subparagraph
(c)(i) of Section 2 of this Part I.
(f) "Auction" shall mean each periodic implementation of the Auction
Procedures.
(g) "Auction Agency Agreement" shall mean the agreement
between the Corporation and the Auction Agent which provides, among
other things, that the Auction Agent will follow the Auction Procedures
for purposes of determining the Applicable Rate for the shares of MMP so
long as the Applicable Rate is to be based on the results of an Auction.
(h) "Auction Agent" shall mean Chemical Bank, unless and
until another bank or trust company has been appointed as Auction Agent
by a resolution of the Board of Directors pursuant to Section 9 of this
Part I and thereafter such substitute bank or trust company.
(i) "Auction Date," with respect to any Rate Period,
shall mean the Business Day next preceding the first day of such Rate
Period.
(j) "Auction Procedures" shall mean the procedures for conducting
Auctions set forth in thr Procedures
(k) "Board of Directors" shall mean the Board of Directors of the
Corporation or any duly authorized committee thereof.
(l) "Business Day" shall mean a day on which the New
York Stock Exchange is open for trading and which is neither a Saturday,
Sunday nor any other day on which banks in The City of New York, New
York, are authorized by law to close.
(m) "Certificate of Dividend Coverage" shall have the meaning set forth
in subparagraph (a)(i) of Section 7 of this Part I.
(n) "Certificate of Eligible Asset Coverage" shall have
the meaning set forth in subparagraph (a)(i) of Section 7 of this Part
I.
(o) "Certificate of 1940 Act Asset Coverage" shall have
the meaning set forth in subparagraph (a)(i) of Section 7 of this Part
I.
(p) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(q) "Commercial Paper Dealers" shall mean Lehman
Commercial Paper Incorporated, Goldman, Sachs & Co. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated or, in lieu of any thereof, their
respective affiliates or successors, if such entity is a commercial
paper dealer.
(r) "Common Stock" shall mean the Common Stock, par value one cent ($.01)
per share, of the Corporation.
(s) "Common Stock Paying Agent" shall mean The
Shareholder Services Group, Inc., unless and until another bank or trust
company has been appointed a Common Stock Paying Agent by a resolution
of the Board of Directors, and thereafter such substitute bank or trust
company
(t) "Confirmation Date" shall have the meaning set forth in paragraph (b)
of Section 7 of this Part I.
(u) "Corporation" shall mean Preferred Income Fund
Incorporated, a Maryland corporation which is the issuer of the shares
of MMP.
(v) "Coverage Value" of each Eligible Asset is equal to
the market value of the Eligible Asset divided by the applicable
Discount Factor, and of each Dividend Coverage Asset is equal to 100% of
the face value thereof; provided, however, that the Coverage Value of an
Eligible Asset may not exceed its stated principal amount, if any.
The calculation of Coverage Value may be made on bases
other than those set forth above if Moody's has advised the Corporation
in writing that the revised calculation of Coverage Value would not
adversely affect its then-current rating of the shares of MMP. If other
assets become includable as Eligible Assets, the Coverage Values of such
assets shall be determined in accordance with procedures established in
consultation with Moody's with a view to maintaining its then-current
rating of the shares of MMP.
(w) "Cure Date" shall mean the Eligible Asset Cure Date,
the 1940 Act Asset Coverage Cure Date, or the Dividend Coverage Cure
Date, as the case may be.
(x) "Date of Original Issue" with respect to any share
of MMP, shall mean the date on which the Corporation initially issued
such share of MMP.
(y) "Discount Factor" means, with respect to an Eligible Asset specified
below, the following applicable number:
Type of Eligible Asset: Discount Factor:
Cash, as set forth in the definition of Eligible Assets in paragraph (ll)
of Section 11 of this Part I...................... 1.13
Demand or time deposits, certificates of deposit maturing in one year or less
and bankers' acceptances maturing in 270 days or less having
a rating or rating equivalent of P-1 or better from Moody's. 1.15
Commercial paper rated P-1 by Moody's maturing in 30 days or
less........................................................ 1.13
Commercial paper rated P-1 by Moody's maturing in more than 30 days but in
270 days or less............................................ 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or
less........................................................ 1.25
Commercial paper rated P-2 by Moody's maturing in 270 days or less... 1.30
Securities which the Corporation has bought and agreed to sell in the future:
(a) If the counterparty to the transaction has a rating of at
least a2 by Moody's or a party approved by Moody's and the
transaction has a term of 30 days or less.......... 1.13
(b) Otherwise..................... Discount Factor of
security subject to
purchase and resale
Preferred stocks:
Auction rate preferred stocks which are not
credit enhanced................................. 3.00
Auction rate preferred stocks which are
credit enhanced................................. 3.50
Non-Convertible preferred stocks issued by
issuers in non-utilities industries............. 2.14
Non-Convertible preferred stocks issued by
issuers in the utilities industry............... 1.53
Preferred stocks which are mandatorily convertible into common stock of an
issuer, the common stock of which meets the requirements of Section
11 (ll)(v) set forth below......... Discount Factor of
underlying common stock
Preferred stocks which are convertible into common stock of an issuer at the
option of the holder, the common stock of which meets the requirements
of Section 11 (ll)(v) set
forth below........................Discount Factor of
underlying common stock
U.S. Treasury Securities:
U.S. Treasury Securities with remaining terms to
maturity of:
1 year or less........................1.13
2 years or less.......................1.20
3 years or less.......................1.25
4 years or less.......................1.31
5 years or less.......................1.37
7 years or less.......................1.46
10 years or less.......................1.54
15 years or less.......................1.60
20 years or less.......................1.67
30 years or less.......................1.68
U.S. Treasury Strips with remaining terms to
maturity of:
1 year or less........................1.13
2 years or less......................1.20
3 years or less......................1.25
4 years or less......................1.31
5 years or less......................1.37
7 years or less......................1.46
10 years or less.......................1.58
15 years or less.......................1.83
20 years or less.......................2.07
30 years or less.......................2.31
Corporate bonds:
Corporateand utility bonds rated Aaa with remaining terms to maturity
of:
1 year or less........................1.12
2 years or less......................1.18
3 years or less......................1.23
4 years or less......................1.28
5 years or less......................1.33
7 years or less......................1.41
10 years or less.......................1.48
15 years or less.......................1.53
20 years or less.......................1.59
30 years or less.......................1.60
Corporateand utility bonds rated Aa with remaining terms to maturity
of:
1 year or less........................1.18
2 years or less......................1.24
3 years or less......................1.29
4 years or less......................1.34
5 years or less......................1.40
7 years or less......................1.48
10 years or less.......................1.55
15 years or less.......................1.60
20 years or less.......................1.67
30 years or less.......................1.67
Corporateand utility bonds rated A with remaining terms to maturity
of:
1 year or less........................1.23
2 years or less......................1.30
3 years or less......................1.35
4 years or less......................1.41
5 years or less......................1.46
7 years or less......................1.55
10 years or less.......................1.62
15 years or less.......................1.67
20 years or less.......................1.74
30 years or less.......................1.75
Corporateand utility bonds rated Baa with remaining terms to maturity
of:
1 year or less........................1.28
2 years or less......................1.35
3 years or less......................1.40
4 years or less......................1.47
5 years or less......................1.52
7 years or less......................1.61
10 years or less.......................1.69
15 years or less.......................1.75
20 years or less.......................1.82
30 years or less.......................1.83
Common stocks:
Issued by utilities.......................1.65
Issued by industrial companies............2.43
Issued by financial companies.............2.33
Issued by transportation companies........3.07
By resolution of the Board of Directors and without amending the Articles or
otherwise submitting such resolution for stockholder approval, (i) Discount
Factors may be changed from those set forth above and (ii) additional
Discount Factors may be established for other Eligible Assets if, in each
case, Moody's has advised the Corporation in writing that such change or
addition would not adversely affect its then-current rating of the shares of
MMP.
(z) "Dividend Coverage Amount" for the shares of MMP as
of any date of determination, means the sum of, for each share of MMP
then outstanding for which the next following Dividend Payment Date
occurs within 30 days, that number which is the product of:
(i) $100,000;
(ii) the Applicable Rate in effect on such share; and
(iii) a fraction, the numerator of which is the number of days in
the Dividend Period ending on the next following Dividend
Payment Date for such share (determined by including the first
day thereof but excluding the Dividend Payment Date) and the
denominator of which is 360.
(aa) "Dividend Coverage Assets," for the shares of MMP
as of any date of determination, means (i) cash (including, for this
purpose, receivables for securities sold and dividends and interest
receivable, in each case not later than 12:00 Noon, New York City time,
on the Business Day immediately preceding the next Dividend Payment
Date), and (ii) short-term money market instruments with maturity dates
not later than 12:00 Noon, New York City time, on the Business Day
immediately preceding the applicable Dividend Payment Date.
(bb) "Dividend Coverage Cure Date" means the third
Business Day following a Dividend Coverage Evaluation Date with respect
to which the Dividend Coverage is not met.
(cc) "Dividend Coverage Evaluation Date" means (i) April
12, 1991 and (ii) each thirtieth day preceding a Dividend Payment Date
for the shares of MMP (or, if such day is not a Business Day, the first
Business Day preceding such thirtieth day).
(dd) "Dividend Coverage is met" means, as of any date of
determination, that the aggregate value of the Dividend Coverage Assets
owned by the Corporation as of such date of determination equals or
exceeds the sum of (A) the Dividend Coverage Amount for the MMP and (B)
the amount of all liabilities (including, without limitation, declared
and unpaid dividends (and Additional Distributions then due, if any),
interest expense and operating expenses payable and amounts payable to
the Auction Agent, the MMP Paying Agent and the Common Stock Paying
Agent) that would appear on the date of determination on the face of the
Corporation's statement of assets and liabilities and are payable on or
prior to any Dividend Payment Date for the MMP occurring within 30 days.
(ee) "Dividend Payment Date" with respect to the shares
of MMP, shall mean any date on which dividends are payable pursuant to
the provisions of paragraph (b) of Section 2 of this Part I.
(ff) "Dividend Period" with respect to the shares of
MMP, shall mean the period from and including the Date of Original Issue
to but excluding the initial Dividend Payment Date for such shares and
any period thereafter from and including a Dividend Payment Date for
such shares to but excluding the next succeeding Dividend Payment Date
for such shares.
(gg) "Dividends Received Deduction" shall mean the
dividends received deduction generally allowed to non-affiliated
corporate holders of certain stock under Section 243(a)(1) of the Code,
or any successor thereto, with respect to dividends received on such
stock.
(hh) "Eligible Asset Coverage Amount," as of any date of determination, means
the sum of:
(i) an amount equal to the product of (A)
$100,000 times (B) the number of shares of MMP then outstanding
(including outstanding shares of MMP held by Affiliates);
(ii) an amount equal to the applicable
redemption premium on shares of MMP, if any, computed pursuant
to Section 3 of this Part I;
(iii) the Projected Dividend Amount; and
(iv) an amount equal to the sum of (x) the
amount of any Additional Distribution that would be payable
(excluding any declared and unpaid amount) to the MMP holders
assuming that the amount of any distributions ineligible for the
Dividends Received Deduction as to which the notification
provided in Section 6 of Part II of these Articles Supplementary
has not been given to the Auction Agent (the "Non-DRD Qualifying
Amount") would be the then-current amounts based upon the net
capital gains of the Corporation realized as of the previous
month end and (y) the amount of any increment in the Additional
Distribution referred to in the previous clause which would be
caused by the assumption of additional net capital gains of the
Corporation, if available, realized in the amount of such
Additional Distribution as calculated in the previous clause.
For purposes of clause (iv) above, the Additional Distribution shall be
calculated as the product of:
(A) 0.27;
(B) the Non-DRD Qualifying Amount; and
(C) the quotient of (1) the amount of the
distributions paid to the MMP Holders as dividends during (and
that are attributable to) the current fiscal year to date
("Current MMP Dividends") and (2) the sum of (x) Current MMP
Dividends and (y) the amount of the distributions paid to the
holders of the Common Stock as dividends during the current
fiscal year to date; provided, however, that if either the
percentage of dividends excluded from taxation pursuant to the
Dividends Received Deduction or the maximum marginal Federal tax
rate generally applicable to corporations changes, the method of
calculating the amount of the Current Additional Distribution
Amount shall be revised to reflect the effect of such changes on
the amount that the Corporation would be obligated to pay as
Additional Distributions; provided, further, that, in the event
the amount of liabilities used in the calculation of the Net
Coverage Value includes any redemption price payable with
respect to the shares of MMP called for redemption, the number
of shares of MMP outstanding, for purposes of subclause (i)(B)
above, shall not include the number of such shares called for
redemption; and provided, further, that, in the case of a
calculation in connection with a reissuance of shares of MMP,
such computation shall give effect to such reissuance.
(ii) "Eligible Asset Cure Date" means (i) the sixth
Business Day following an Eligible Asset Evaluation Date as to which an
Accountants' Certificate is not required to be delivered, except if any
Eligible Asset Evaluation Date on which Eligible Asset Coverage is not
met is also an Auction Date, then the fifth Business Day following such
Eligible Asset Evaluation Date or (ii) the third Business Day following
a Confirmation Date with respect to which the Corporation has not
delivered to the MMP Paying Agent an Accountants' Certificate confirming
the Certificate of Eligible Asset Coverage relating to the immediately
preceding Eligible Asset Evaluation Date.
(jj) "Eligible Asset Evaluation Date" means (i) April
12, 1991, (ii) each succeeding Friday following the Date of Original
Issue (or, if such date is not a Business Day, the first Business Day
preceding or following such Friday, as the Corporation shall determine),
(iii) the Business Day preceding the day on which any notice is sent to
Holders or prior Holders as to the payment of any Additional
Distribution and (iv) the Business Day preceding any day on which the
Board of Directors approves the redemption of shares of the
Corporation's Common Stock.
(kk) "Eligible Asset Coverage is met" means, as of any
date of determination, that the aggregate Net Coverage Value of Eligible
Assets owned by the Corporation as of the date of determination equals
or exceeds the Eligible Asset Coverage Amount.
(ll) "Eligible Assets" shall mean:
(i) cash (including, for this purpose, (A)
receivables for securities sold to a party whose senior debt
securities are rated at least Baa3 by Moody's or a party
approved by Moody's and payable within five Business Days and
(B) dividends and interest receivable on Eligible Assets issued
by (1) a party whose senior debt securities are rated at least
A1 by Moody's, or a party approved by Moody's, and payable
within 56 days, (2) a party whose senior debt securities are
rated at least A2 by Moody's, or a party approved by Moody's,
and payable within 30 days and (3) a party whose senior debt
securities are rated at least Baa3 by Moody's, or a party
approved by Moody's, and payable within five days);
(ii) short-term Money Market Instruments (provided,
however, that for purposes of this definition, commercial paper
must mature within 56 days of the Eligible Asset Evaluation
Date);
(iii) commercial paper, bankers acceptances, demand
deposits, time deposits and certificates of deposit that are not
includable as short-term Money Market Instruments of issuers
having on the Eligible Asset Evaluation Date a rating from
Moody's of P-2 or better or a rating from S&P of A-1+ or better
and maturing within 270 days, provided that such investments
must meet the diversification requirements set forth below
relating to bonds in clause (vii) and if such investments have a
rating of P-2 only, such investments shall be considered to have
a rating of "baa3";
(iv) preferred stocks, including preference stock
and other analogous securities senior to common equity (for
purposes of these Articles Supplementary, including the
determination of the applicable Discount Factor under Section
11(y) hereof, analogous securities senior to common equity shall
include debt securities that either (a) rank immediately senior
to any class of equity in respect of the right to receive
payment of interest or the right to participate in any
distribution upon liquidation, dissolution or winding up of the
affairs of the issuer or (b) are beneficiaries of a guarantee of
the applicable common equity issuer which guarantee ranks
immediately senior to any class of equity of the applicable
common equity issuer in respect of the right to receive payment
of interest or the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of the
applicable common equity issuer),
(A) which either (1) are issued by issuers
whose senior debt securities are rated at least Baa1 by
Moody's or (2) are rated at least "baa3" by Moody's (or
in the event an issuer's senior debt securities or
preferred stock is not rated by Moody's, which (1) are
issued by an issuer whose senior debt securities are
rated at least "A" by S&P and (2) are rated at least
"A" by S&P and which for this purpose have been
assigned a Moody's equivalent rating of at least
"baa");
(B) which are listed on the New York Stock
Exchange or the American Stock Exchange or are
preferred stocks of issuers which have (or, in the case
of issuers which are special purpose corporations,
whose parent companies have) common stock listed on the
New York Stock Exchange or the American Stock Exchange;
(C) which have a minimum issue size (when
taken together with other of the issuer's issues of
similar tenor) of $50,000,000 in the case of securities
qualifying for the Dividends Received Deduction or
$100,000,000 in the case of securities not qualifying
for the Dividends Received Deduction;
(D) which have paid cash dividends or, if
debt, made scheduled periodic interest payments
regularly during the preceding three-year period (or,
in the case of new issues without a dividend or
interest history, are rated at least "a1" by Moody's
or, if not rated by Moody's, are rated at least "AA+"
by S&P, or are issued by an issuer who has paid or
whose predecessor has paid cash dividends regularly
during the preceding three-year period on its common
stock or its issues of preferred stock);
(E) which pay cumulative cash dividends or interest in U.S.
dollars;
(F) which are not issued by issuers in the transportation
industry; and
(G) in the case of auction rate preferred
stocks, which are rated at least "aa" by Moody's, or if
not rated by Moody's, AAA by S&P or are otherwise
approved in writing by Moody's, and which have dividend
periods of not more than 6 days greater than the
Minimum Holding Period (or, in the case of a new issue
of auction rate preferred stock, 64 days for the
initial dividend period) and have never had a failed
auction;
provided, however, that for this purpose the aggregate Market
Value of the Corporation's holdings of (1) any issue of
preferred stock which is not an auction rate preferred stock
shall not be less than $100,000 nor more than $7,000,000,
provided further that the aggregate Market Value of the
Corporation's holdings of such issue shall not be (x) more than
$6,000,000 unless the number of shares of that issue held does
not exceed 5% of the total number of shares of that issue then
outstanding or (y) more than $5,000,000 unless the number of
shares of that issue held does not exceed 10% of the total
number of shares of that issue then outstanding and (2) any
issue of auction rate preferred stock shall not be less than
$300,000 nor more than $5,000,000;
(v) common stocks
(A) which are issued by issuers whose
senior debt securities are rated at least Baa by
Moody's (or, in the event an issuer's senior debt
securities are not rated by Moody's, which are issued
by an issuer whose senior debt securities are rated at
least A by S&P and which for this purpose have been
assigned a Moody's equivalent rating of at least Baa);
(B) which are traded on the New York Stock Exchange or the
American Stock Exchange;
(C) which have a market capitalization
greater than $500,000,000; (D) which are
currently paying cash dividends and have
paid cash
dividends or whose predecessors have paid cash dividends regularly during the
preceding three-year period; and
(E) which pay dividends in U.S. dollars;
provided, however, that (1) the aggregate Market Value of the
Corporation's holdings of the common stock of any eligible
issuer (x) shall be less than 5% of the number of outstanding
shares times the Market Value of such common stock and (y) shall
not exceed 5% of the number of outstanding shares (less the
number of shares held by insiders, as determined in accordance
with standards established by Moody's) multiplied by the Market
Value of such common stock and (2) the number of shares of
common stock of any eligible issuer held by the Corporation
shall not exceed the average weekly trading volume of such
common stock during the preceding month;
(vi) U.S. Treasury Securities;
(vii) corporate and utility bonds
(A) which are not privately placed, are
rated at least Baa by Moody's (or, in the event the
bond is not rated by Moody's, the bond is rated at
least A by S&P and which for this purpose is assigned a
Moody's equivalent rating of at least Baa with such
rating confirmed on each Eligible Asset Evaluation
Date);
(B) which have a minimum issue size of at least $100,000,000;
(C) which are U.S. dollar denominated and pay interest in cash
in U.S. dollars;
(D) which are not convertible or
exchangeable into equity of the issuing corporation and
have a maturity of not more than 30 years; and
(E) for which the aggregate Market Value
of the Corporation's holdings do not exceed 10% of the
aggregate Market Value of any individual issue of
corporate bonds calculated at the time of original
issuance;
(viii) securities which the Corporation has bought
and has agreed to sell in the future; provided, however, that
the Corporation's investments in preferred stocks described in
clause (iv) above rated "baa" by Moody's or A by S&P shall be
included in Eligible Assets only to the extent that the
aggregate Market Value of all such preferred stocks of any
single issuer does not exceed (x) 6% of the aggregate Market
Value in the case of issuers in industries other than the
utilities industry (utilizing Moody's industry categories), and
(y) 4% of the aggregate Market Value in the case of issuers in
the utilities industry (utilizing Moody's industry and
sub-industry categories) of all of the Corporation's investments
meeting the criteria set forth in clauses (i) through (vii)
above; and provided, however, that the Corporation's investments
in preferred stocks, common stocks and bonds described in
clauses (iv), (v) and (vii) above of any single issuer whose
senior debt securities are rated Baa by Moody's or A by S&P
shall be included in Eligible Assets only to the extent that all
such preferred stocks, common stocks and bonds of such issuer do
not exceed (x) 6% of the aggregate Market Value in the case of
issuers in industries other than the utilities industry
(utilizing Moody's industry categories), and (y) 4% of the
aggregate Market Value in the case of issuers in the utilities
industry (utilizing Moody's industry and sub-industry
categories) of all the Corporation's investments meeting the
criteria set forth in clauses (i) through (vii) above less the
aggregate Market Value of those investments excluded from
Eligible Assets pursuant to the immediately preceding proviso;
and provided, however, that the Corporation's investments in
preferred stocks, common stocks and bonds described in clauses
(iv), (v) and (vii) above of any single issuer whose senior debt
securities are rated A by Moody's or AA by S&P or whose
preferred stock is rated "a" by Moody's or AA by S&P shall be
included in Eligible Assets only to the extent that all such
preferred stocks, common stocks and bonds of such issuer do not
exceed (x) 10% of the aggregate Market Value in the case of
issuers in industries other than the utilities industry
(utilizing Moody's industry categories), and (y) 8% of the
aggregate Market Value in the case of issuers in the utilities
industry (utilizing Moody's industry and sub-industry
categories) of all the Corporation's investments meeting the
criteria set forth in clauses (i) through (vii) above less the
aggregate Market Value of those investments excluded from
Eligible Assets pursuant to the two immediately preceding
provisos; and, provided, however, that the Corporation's
investments in preferred stocks, common stocks and bonds
described in clauses (iv), (v) and (vii) above of any single
issuer whose senior debt securities are rated AA or higher by
Moody's or AAA or higher by S&P or whose preferred stock is
rated "aa" or higher by Moody's or AAA or higher by S&P shall be
included in Eligible Assets only to the extent that all such
preferred stocks, common stocks and bonds of such issuer do not
exceed (x) 20% of the aggregate Market Value in the case of
issuers in industries other than the utilities industry
(utilizing Moody's industry categories), and (y) 10% of the
aggregate Market Value in the case of issuers in the utilities
industry (utilizing Moody's industry and sub-industry
categories) of all the Corporation's investments meeting the
criteria set forth in clauses (i) through (vii) above less the
aggregate Market Value of those investments excluded from
Eligible Assets pursuant to the three immediately preceding
provisos; and provided, however, that the Corporation's
investments in common stocks described in clause (v) above of
any single issuer shall be included in Eligible Assets only to
the extent that all such common stock of such issuer does not
exceed (x) 6% of the aggregate Market Value in the case of
issuers in industries other than the utilities industry
(utilizing Moody's industry categories), and (y) 4% of the
aggregate Market Value in the case of issuers in the utilities
industry (utilizing Moody's industry and sub-industry
categories) of all of the Corporation's investments meeting the
criteria set forth in clauses (i) through (vii) above less the
aggregate Market Value of those investments excluded from
Eligible Assets pursuant to the four immediately preceding
provisos; and, provided, further, that the Corporation's
investments in preferred stocks, common stocks and bonds
described in clauses (iv), (v) and (vii) above issued by issuers
in any one industry (other than each of the utilities and
banking industries and utilizing Moody's industry categories)
shall be included in Eligible Assets only to the extent that the
aggregate Market Value of such preferred stocks, common stocks
and bonds does not exceed 20% of the aggregate Market Value of
all the Corporation's investments meeting the criteria set forth
in clauses (i) through (vii) above less the aggregate Market
Value of those investments excluded from Eligible Assets
pursuant to the five immediately preceding provisos; and
provided, further, that the Corporation's investments in common
stocks described in clause (v) above issued by issuers in the
utilities industry (utilizing Moody's industry and sub-industry
categories) and the banking industry (utilizing Moody's industry
categories) shall be included in Eligible Assets only to the
extent that (I), in the case of issuers in the utilities
industry, (x) the aggregate Market Value of such common stocks
does not exceed 50%, and (y) the aggregate Market Value of such
common stocks issued by issuers regulated by any one state does
not exceed 7% (15% in the case of California and New York) and
(II), in the case of issuers in the banking industry, the
aggregate Market Value of such common stocks does not exceed
20%, of the aggregate Market Value of all the Corporation's
investments meeting the criteria set forth in clauses (i)
through (vii) above less the aggregate Market Value of those
investments excluded from Eligible Assets pursuant to the six
immediately preceding provisos; and provided, further, that the
Corporation's investments in preferred stocks, common stocks and
bonds described in clauses (iv), (v) and (vii) above issued by
issuers in the utilities industry (utilizing Moody's industry
and sub-industry categories) shall be included in Eligible
Assets only to the extent that the aggregate Market Value of
such preferred stocks, common stocks and bonds does not exceed
the percentages set forth below of the aggregate Market Value of
all of the Corporation's investments meeting the criteria set
forth in clauses (i) through (vii) above less the aggregate
Market Value of those investments excluded from Eligible Assets
pursuant to the seven immediately preceding provisos:
Moody's Rating or
Equivalent Rating Maximum Utilities Maximum Issued
on Preferred Sub-Industry By Issuers Regulated
Stock (1) Concentration (2) By Any One State (2)
- ----------------- ----------------- --------------------
"aaa" 100% 100%
"aa" 100% 20%
"a" 60% 10% (3)
"baa" 50% 7% (3)
(1) The equivalent Moody's rating must be lowered one full rating
category for preferred stocks rated by S&P but not Moody's.
(2) The referenced percentages represent maximum cumulative totals
only for the related Moody's category and each lower Moody's
rating category as well as limitations set forth in the
immediately preceding proviso.
(3) Such percentage shall be 15% in the case of utilities regulated by
California or New York.
; and provided, further, that the Corporation's investments in
preferred stocks, common stocks and bonds described in clauses
(iv), (v) and (vii) above issued by issuers in the banking
industry (utilizing Moody's industry categories) shall be
included in Eligible Assets only to the extent that the
aggregate Market Value of such preferred stocks, common stocks
and bonds does not exceed the percentages set forth below of the
aggregate Market Value of all of the Corporation's investments
meeting the criteria set forth in clauses (i) through (vii)
above less the aggregate Market Value of those investments
excluded from Eligible Assets pursuant to the eight immediately
preceding provisos: Moody's Rating or Equivalent Rating on
Maximum Banking Preferred Stock (1) Industry Concentration (2)
"aaa" 100%
"aa" 60%
"a" 40%
"baa" 20%
(1) The equivalent Moody's rating must be
lowered one full rating category for
preferred stocks rated by S&P but not
Moody's.
(2) The referenced percentages represent maximum
cumulative totals only for the related
Moody's category and each lower Moody's
rating category as well as limitations set
forth in the immediately preceding proviso.
; and provided, further, that the Corporation's investments in
bonds described in clause (vii) above issued by issuers in the
utility industry (utilizing Moody's industry categories) shall
be included in Eligible Assets only to the extent that the
aggregate Market Value of such bonds does not exceed the
percentages set forth below of the aggregate Market Value of all
of the Corporation's investments meeting the criteria set forth
in clauses (i) through (vii) above less the aggregate Market
Value of those investments excluded from Eligible Assets
pursuant to the nine immediately preceding provisos: Moody's
Rating or Maximum Equivalent Rating Utility on Bonds (1)
Concentration (2)
Aaa 100%
Aa 60%
A 40%
Baa 20%
(1) Refers to senior debt rating of collateral
bonds. The equivalent Moody's rating must be
lowered one full rating category for bonds
rated by S&P but not Moody's.
(2) The referenced percentages represent maximum
cumulative totals only for the related
Moody's category and each lower Moody's
rating category as well as limitations set
forth in the immediately preceding proviso.
; and provided, further, that the Corporation's investments in
auction rate preferred stocks described in clause (iv) above
shall be included in the Eligible Assets only to the extent that
the aggregate Market Value of such preferred stocks does not
exceed 10% of the aggregate Market Value of all of the
Corporation's investments meeting the criteria set forth in
clauses (i) through (vii) above less the aggregate Market Value
of those investments excluded from the Eligible Assets pursuant
to the ten immediately preceding provisos; and
(ix) no assets which are subject to any lien may be
includable in Eligible Assets, unless such lien is included as a
liability in determining Net Coverage Value.
By resolution of the Board of Directors and without amending
the Articles or otherwise submitting such resolution for stockholder
approval, other assets (including investments which either do not meet
the criteria set forth in clauses (i) through (vii) above or meet such
criteria but are excluded from Eligible Assets by the foregoing
provisos) may be included in Eligible Assets and the descriptions of
Eligible Assets set forth in this definition may be adjusted, modified,
altered or changed and any such adjustment, modification, alteration or
change will not be deemed to affect the contract rights of shares of MMP
or the Holders thereof if Moody's has advised the Corporation in writing
that the inclusion of such assets in Eligible Assets or the adjustment,
modification or change in such description of Eligible Assets would not
adversely affect its then-current rating of the MMP.
(mm) "Failure to Deposit," with respect to any shares of MMP,
shall mean a failure by the Corporation to 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 such shares, in funds available
on such Dividend Payment Date in The City of New York, New York, the
full amount of any dividend (whether or not earned or declared) to be
paid on such Dividend Payment Date on any such shares or (B) on the
Business Day next preceding any redemption date in funds available on
such redemption date for such shares in The City of New York, New York,
the cash redemption price to be paid on such redemption date for any
shares after Notice of Redemption is given pursuant to paragraph (b) of
Section 3 of this Part I.
(nn) "Holder," with respect to any share of MMP, shall mean
the registered holder of shares of MMP as the same appears on the stock
books of the Corporation.
(oo) "Independent Accountants" shall mean a nationally
recognized firm of accountants, that is with respect to the Corporation
a firm of independent public accountants under the Securities Act of
1933, as amended from time to time.
(pp) "Initial Rate Period," with respect to the initial
issuance of MMP, shall mean the period from and including the Date of
Original Issue thereof to but excluding the initial Dividend Payment
Date therefore
(qq) "Market Value" of any asset of the Corporation shall mean:
(i) with respect to an investment which is listed on an exchange or traded
over-the-counter and quoted on the NASDAQ System, the last sale
price on the day of valuation (using prices as of the close of
trading) or, if there has been no sale that day, pursuant to the
provisions in the following clause (ii); and
(ii) with respect to an investment which is not
listed on an exchange or quoted on the NASDAQ System, the lower
of the bid prices, as of the close of business on the Business
Day immediately preceding the date of determination, quoted (at
least one of such quotes being in writing) to the Corporation by
two or more nationally recognized securities dealers making a
market in such investment at the time. If there is no sale or
bid price for an investment as provided in the preceding
sentence, an investment shall be deemed to have a Market Value
of zero. By resolution of the Board of Directors and without
amending the Articles, the calculation of Market Value may be
made on bases other than those set forth above if Moody's has
advised the Corporation in writing that the revised method of
calculation of Market Values would not adversely affect its
then-current rating of the shares of MMP, provided that the
Corporation shall cause to be made available a written statement
setting forth such revised method for inspection by the Holders
at the principal executive office of the Corporation.
(rr) "Master Purchaser's Letter" has the meaning specified in
Section 1 of Part II hereof.
(ss) "Minimum Holding Period" shall mean the then-current
minimum holding period (contained, as of the Date of Original Issue, in
Section 246(c) of the Code) required for corporate taxpayers generally
to be entitled to the Dividends Received Deduction.
(tt) "Minimum Rate Period" shall mean any Rate Period
consisting of 49 Rate Period Days or such greater or lesser number of
Rate Period Days as shall be established as the Minimum Rate Period by
resolution of the Board of Directors of the Corporation pursuant to
subparagraph (b)(ii)(C) of Section 2 of this Part I.
(uu) "MMP(R)" means Money Market Cumulative Preferred Stock,
par value $.01 per share.
(vv) "MMP Paying Agent" shall mean Chemical Bank or any
successor, unless and until
another bank or trust company has been appointed as MMP Paying Agent by
a resolution of the Board of Directors pursuant to Section 9 of this
Part I and thereafter such substitute bank or trust company.
(ww) "Moody's" shall mean Moody's Investors Service, Inc., a
Delaware corporation, and its successors, and if Moody's no longer rates
the shares of MMP, any nationally recognized statistical rating
organization designated by the Corporation, subject to the approval of
Shearson Lehman Brothers Inc.
(xx) "NASDAQ System" means the electronic inter-dealer
quotation system operated by NASDAQ, Inc., a subsidiary of the National
Association of Securities Dealers, Inc.
(yy) "Net Coverage Value" of the Corporation's Eligible
Assets means the difference of (A) (i) the aggregate Coverage Value, as
determined pursuant to the definition thereof, of Eligible Assets plus
(ii) the lesser of (w) the market value of the assets underlying a
purchased futures contract assumed to be owned by the Corporation in
connection with clause (v) of the third paragraph of Section 8(b) of
this Part I divided by the Discount Factor that corresponds to assets of
such types of Eligible Assets and (x) the settlement value of the assets
underlying the futures contract, plus (iii) the lesser of (y) the market
value of the assets underlying a written put option assumed to be owned
by the Corporation in connection with clause (v) of the third paragraph
of Section 8(b) of this Part I divided by the Discount Factor that
corresponds to assets of such types of Eligible Assets and (z) the
exercise value of the written put option, minus (iv) the discounted
value of securities sold in accordance with clause (i)(A) of the
definition of Eligible Assets in paragraph (ll) of Section 11 of this
Part I to the extent that the discounted value of such securities has
been included in the calculation of the aggregate Coverage Value on
Eligible Assets, minus (v) the amount the Corporation agrees to pay if
it sells a security and agrees to buy it back in the future, minus (B)
the amount of all liabilities (including, without limitation, declared
and unpaid dividends (and any Additional Distributions), late charges,
interest expense, operating expenses expected to accrue during the next
three months, amounts payable to the Auction Agent, the MMP Paying Agent
and the Common Stock Paying Agent, any liabilities in connection with
repurchase agreements entered into by the Corporation and any
liabilities resulting from the requirements set forth in paragraph (b)
of Section 8 of this Part I) that would appear on the Eligible Asset
Evaluation Date on the face of the Corporation's statement of assets and
liabilities and without duplication to the extent already reflected in
the Corporation's balance sheet, provided that for purposes of this
subclause (B), such operating expenses shall not be less than $200,000
and such liabilities shall also include the redemption price payable
with respect to the shares of MMP, if any, that are covered by a Notice
of Redemption sent prior to, or being sent on the date of such
determination.
(zz) "1940 Act" means the Investment Company Act of 1940, as amended.
(aaa)"1940 Act Asset Coverage" and "1940 Act Asset Coverage is met"
shall mean as
of any date of determination, that the ratio of the value of the
Corporation's total assets, less all liabilities and indebtedness not
representing senior securities (as defined in the 1940 Act), to the
aggregate amount of senior securities representing indebtedness of the
Corporation plus the aggregate of the liquidation preference of the
shares of MMP, is at least 200% (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).
(bbb) "1940 Act Asset Coverage Cure Date" shall mean the 1940
Act Asset Coverage Evaluation Date next following a 1940 Act Asset
Coverage Evaluation Date with respect to which the 1940 Act Asset
Coverage is not met.
(ccc) "1940 Act Asset Coverage Evaluation Date" shall mean
(i) the Business Day immediately preceding each dividend declaration
date for the Common Stock and (ii) unless 1940 Act Asset Coverage has
been determined in connection with a dividend declaration during such
month, the last Business Day of each calendar month.
(ddd) "Notice of Redemption" shall mean any notice with
respect to the redemption of shares of MMP pursuant to Section 3 of this
Part I.
(eee) "Preferred Stock" shall mean the preferred stock, par
value $.01 per share of the Corporation, and includes the MMP.
(fff) "Projected Dividend Amount," for the MMP as of any
Eligible Asset Evaluation Date, means the amount of cash dividends,
based on the number of shares of MMP outstanding on such Eligible Asset
Evaluation Date, which (whether or not earned or declared) are
accumulated on such shares up to but not including such Eligible Asset
Evaluation Date and unpaid and which are projected to accumulate on such
shares from such Eligible Asset Evaluation Date until the 56th day, as
specified below, after such Eligible Asset Evaluation Date, at the
following rates:
(i) for the period beginning on the Eligible Asset
Evaluation Date and ending on the first following Dividend
Payment Date for the MMP or the 56th day after such Eligible
Asset Evaluation Date, whichever is sooner, the Applicable Rate
in effect on such Eligible Asset Evaluation Date; and
(ii) for the period beginning on such first
following Dividend Payment Date and ending on the 56th day
following such Eligible Asset Evaluation Date, the product of
the Maximum Rate on the last occurring Auction Date (but with
the prevailing rating of such shares, for purposes of
determining such Maximum Rate, being deemed "Below 'baa3'" in
the case of a Failure to Deposit that has not been cured) (or,
if prior to the first Auction Date, 150% of the 60-day "AA"
Composite Commercial Paper Rate on April 11, 1991) and 2.26.
The number of days in each of the periods referred to above shall be
determined by including the first day and excluding the last day of each
such period. If the date of determination is not an Eligible Asset
Evaluation Date, then the Projected Dividend Amount for the MMP as of
such date of determination shall equal the Projected Dividend Amount on
the immediately preceding Eligible Asset Evaluation Date, adjusted to
reflect any decrease in the number of shares of MMP outstanding. The
calculation of the Projected Dividend Amount may be made on bases other
than those set forth above if Moody's has advised the Corporation in
writing that the revised calculation of the Projected Dividend Amount
would not adversely affect its then-current rating of the MMP. If the
Board of Directors increases the length of Minimum Rate Periods pursuant
to subparagraph (b)(ii)(C) of Section 2 of this Part I, or designates a
Special Rate Period pursuant to Section 4 of this Part I, the Projected
Dividend Amount shall be determined in accordance with procedures
approved by Moody's.
(ggg) "Rate Period" shall mean the Initial Rate Period
thereof and any Subsequent Rate Period, including any Special Rate
Period, for the MMP.
(hhh) "Rate Period Days" for any Rate Period consisting of
less than four Dividend Periods, shall mean the number of days (without
giving effect to subparagraphs (b)(ii)(A) and (b)(ii)(C) (excluding the
provisos of such subparagraph (b)(ii)(C)) of Section 2 of this Part I)
in such Rate Period.
(iii) "Retroactive Taxable Allocation" shall mean, for any
taxable year, the amount of dividends ineligible for the Dividends
Received Deduction, or portion thereof, for which notice thereof had not
been given to the Auction Agent as provided in Section 6 of Part II of
these Articles Supplementary.
(jjj) "S&P" shall mean Standard & Poor's Corporation, a New
York corporation and its successors.
(kkk) "Short-term Money Market Instruments" shall mean the
following types of instruments if, on the date of purchase or other
acquisition thereof by the Corporation (or, in the case of an instrument
specified by clauses (i) and (ii) below, on the Eligible Asset
Evaluation Date), the remaining terms of maturity thereof are not in
excess of 90 days:
(i) U.S. Treasury Securities;
(ii) commercial paper that is rated at the time of
purchase or acquisition and the Eligible Asset Evaluation Date
at least P-1 by Moody's and is issued by an issuer (or
guaranteed or supported by a person or entity other than the
issuer) whose long-term unsecured debt obligations are rated at
least Aa by Moody's;
(iii) demand or time deposits in, certificates of
deposit of, or banker's acceptance issued by (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 commercial paper, 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 at the
time of purchase or acquisition and the Eligible Asset
Evaluation Date, have (1) credit ratings from Moody's of at
least P-1, in the case of commercial paper, and (2) credit
ratings from Moody's of at least Aa, 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 shall be at least A; 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 commercial paper, if any, of such
depository institution or trust company is not rated below P-1
by Moody's 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);
(iv) repurchase obligations with respect to any U.S.
Treasury Security entered into with a depository institution,
trust company or securities dealer (acting as principal) which
meets the credit rating requirements for commercial paper and
long-term unsecured debt obligations specified in clause (iii)
above; and
(v) Eurodollar demand or time deposits in, or
certificates of deposit of, the head office or the London or
Tokyo branch office of a depository institution or trust company
meeting the credit rating requirements of commercial paper and
long-term unsecured debt obligation specified in clause (iii)
above, provided that the interest receivable by the Corporation
shall be in U.S. dollars and shall not be subject to any
withholding or similar taxes.
(lll) "Special Rate Period," with respect to the MMP, shall
mean any Subsequent Rate Period commencing on the date designated by the
Corporation in accordance with Section 4 of this Part I and ending on
the last day of the last Dividend Period thereof which period consists
of that number of consecutive Dividend Periods for such period set forth
below:
Number of
Special Rate Period Dividend Periods
------------------- ----------------
91 Rate Period Days 1
182 Rate Period Days 2
1 Year 4
3 Years 12
5 Years 20
(mmm) "Subsequent Rate Period" shall mean the period from and
including the first day following the Initial Rate Period to but
excluding the next Dividend Payment Date and any period thereafter from
and including one Dividend Payment Date to but excluding the next
succeeding Dividend Payment Date; provided, however, that if any
Subsequent Rate Period is also a Special Rate Period such term shall
mean the period commencing on the first day of such Special Rate Period
and ending on the last day of the last Dividend Period thereof.
(nnn) "Substitute Commercial Paper Dealer" shall mean The
First Boston Company or Morgan Stanley & Co. Incorporated or their
respective affiliates or successors, if such entity is a commercial
paper dealer; provided that none of such entities shall be a Commercial
Paper Dealer.
(ooo) "Substitute U.S. Government Securities Dealer" shall
mean The First Boston Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or their respective affiliates or successors if such entity
is a U.S. Government securities dealer; provided that none of such
entities shall be a U.S. Government Securities Dealer.
(ppp) "Treasury Rate", on any date for any Rate Period shall
mean (i) the yield on the most recently auctioned non-callable direct
obligations of the U.S. Government (excluding "flower" bonds) with a
remaining maturity closest to the duration of such Rate Period, as
quoted in The Wall Street Journal on such date for the Business Day next
preceding such date or (ii) in the event that any such rate is not
published by The Wall Street Journal, then the arithmetic average of the
yields (expressed as an interest equivalent in the case of a Rate Period
consisting of four Dividend Periods and expressed as a bond equivalent
in the case of any longer Rate Period) on the most recently auctioned
non-callable direct obligations of the U.S. Government (excluding
"flower" bonds) with a remaining maturity closest to the duration of
such Rate Period as quoted on a discount basis or otherwise by the U.S.
Government Securities Dealers to the Auction Agent for the close of
business on the Business Day immediately preceding such date. If any
U.S. Government Securities Dealer does not quote a rate required to
determine the Treasury Rate, the Treasury Rate shall be determined on
the basis of the quotation or quotations furnished by the remaining U.S.
Government Securities Dealer or U.S. Government Securities Dealers and
any Substitute U.S. Government Securities Dealer selected by the
Corporation to provide such rate or rates being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers as
the case may be, or, if the Corporation does not select any such
Substitute U.S. Government Securities Dealer or Substitute U.S.
Government Securities Dealers, by the remaining U.S. Government
Securities Dealer or U.S. Government Securities Dealers.
(qqq) "U.S. Government Securities Dealer" shall mean Lehman
Government Securities Inc., Goldman Sachs & Co., Salomon Brothers
Inc., and Morgan Guaranty Trust Company of New York or their
respective affiliates or successors if such entity is a U.S.
Government Securities Dealer.
(rrr) "U.S. Treasury Securities" shall mean obligations
issued by, and backed by the full faith and credit of, the United States
of America which, other than Treasury bills, are not zero coupon
securities.
(sss) "Voting Period" shall have the meaning set forth in
paragraph (b) of Section 5 of this Part I.
PART II
1. Certain Definitions. Capitalized terms not defined in Section
1 of this Part II shall have the respective meanings specified in Part
I hereof. As used in this Part II, the following terms shall have the
followings meanings, unless the context otherwise requires:
(a) "Affiliate" shall mean 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 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 an Affiliate solely because such director or executive
officer is also a director of the Corporation.
(b) "Agent Member" shall mean a member of or participant
in the Securities Depository that will act on behalf of a Bidder and is
identified as such in such Bidder's Master Purchaser's Letter.
(c) "Available MMP" shall have the meaning specified in paragraph
(a) of Section 4 of this Part II.
(d) "Bid" and "Bids" shall have the respective meanings specified
in paragraph (a) of Section 2 of this Part II. (e) "Bidder" and
"Bidders" shall have the respective meanings specified in paragraph
(a) of Section 2 of this Part II. (f) "Broker-Dealer" shall mean any
broker-dealer, commercial bank or other entity permitted by law to
perform the functions required of a Broker-Dealer in this Part II 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
Corporation, and has entered into a Broker-Dealer Agreement that
remains effective. (g) "Broker-Dealer Agreement" shall mean an
agreement among the Corporation, the Auction Agent and a Broker-Dealer
pursuant to which such Broker-Dealer agrees to follow the procedures
specified in this Part II. (h) "Existing Holder," when used with
respect to shares of MMP, shall mean a Person who has signed a Master
Purchaser's Letter and is listed as the beneficial owner of such
shares of MMP in the records of the Auction Agent. (i) "Hold Order"
and "Hold Orders" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II. (j) "Master Purchaser's
Letter" shall mean a letter, addressed to the Corporation, the Auction
Agent, a BrokerDealer and an Agent Member in which a Person agrees,
among other things, to offer to purchase, to offer to sell and/or to
sell shares of MMP as set forth in this Part II. (k) "Maximum Rate,"
for shares of MMP on any Auction Date, shall mean: (i) in the case of
any Auction Date which is not the Auction Date immediately prior to
the first day of any proposed Special Rate Period designated by the
Corporation pursuant to Section 4 of Part I of these Articles
Supplementary, the product of (A) the "AA" Composite Commercial Paper
Rate on such Auction Date for the next Rate Period of such shares and
(B) the Rate Multiple on such Auction Date, unless such shares have or
had a Special Rate Period and an Auction at which Sufficient Clearing
Bids existed has not yet occurred for a Minimum Rate Period of such
shares after such Special Rate Period, in which case the higher of:
(A) the dividend rate on such shares for the then-ending Rate Period,
and (B) the product of (1) the higher of (x) the "AA" Composite
Commercial Paper Rate on such Auction Date for the then-ending Rate
Period of such shares if such Rate Period consists of less than four
Dividend Periods, or the Treasury Rate on such Auction Date for such
Rate Period if such Rate Period consists of four or more Dividend
Periods, and (y) the "AA" Composite Commercial Paper Rate on such
Auction Date for such Special Rate Period of such shares if such
Special Rate Period consists of less than four Dividend Periods, or
the Treasury Rate on such Auction Date for such Special Rate Period if
such Special Rate Period consists of four or more Dividend Periods
and, (2) the Rate Multiple on such Auction Date; or (ii) in the case
of any Auction Date which is the Auction Date immediately prior to the
first day of any proposed Special Rate Period designated by the
Corporation pursuant to Section 4 of Part I of these Articles
Supplementary, the product of (A) the highest of (1) the "AA"
Composite Commercial Paper Rate on such Auction Date for the
then-ending Rate Period of such shares if such Rate Period consists of
less than four Dividend Periods, or the Treasury Rate on such Auction
Date for such Rate Period if such Rate Period consists of four or more
Dividends Periods, (2) the "AA" Composite Commercial Paper Rate on
such Auction Date for the Special Rate Period for which the Auction is
being held if such Special Rate Period consists of less than four
Dividend Periods, or the Treasury Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such
Special Rate Period consists of four or more Dividend Periods and (3)
the "AA" Composite Commercial Paper Rate on such Auction Date for
Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.
(l) "Order" and "Orders" shall have the respective meanings specified
in paragraph (a) of Section 2 of this Part II. (m) "Outstanding" shall
mean, as of any Auction Date with respect to shares of MMP, the number
of such shares theretofore issued by the Corporation except, without
duplication, (i) any shares of MMP theretofore canceled or delivered
to the Auction Agent for cancellation or purchased or redeemed by the
Corporation or as to which a notice of redemption shall have been
given by the Corporation and funds shall have been deposited to pay
the cash redemption price as provided herein, (ii) any shares of MMP
as to which the Corporation or any Affiliate thereof shall be an
Existing Holder and (iii) any shares of MMP represented by any
certificate in lieu of which a new certificate has been executed and
delivered by the Corporation. (n) "Person" shall mean and include 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. (o) "Potential Holder", when
used with respect to shares of MMP, shall mean any Person, including
any Existing Holder of shares of MMP, (i) who shall have executed a
Master Purchaser's Letter and (ii) who may be interested in acquiring
shares of MMP (or, in the case of an Existing Holder of shares of MMP,
additional shares of MMP). (p) "Rate Multiple," for shares of MMP on
any Auction Date, shall mean the percentage, determined as set forth
below, based on the prevailing rating of such shares in effect at the
close of business on the Business Day next preceding such Auction
Date: Prevailing Rating Percentage ----------------- ---------- "aa3"
or higher.............. 150% "a3"......................... 175%
"baa3"....................... 200% Below "baa3"................. 225%
provided, however, that if the Fund has notified the Auction Agent
that it expects that any portion of the dividend to be paid on the
shares of MMP will be ineligible for the Dividends Received Deduction
in such Rate Period, or any portion of the dividend to be paid in such
Rate Period on such shares will be characterized as constituting a
return of capital, prior to the Auction establishing the Applicable
Rate for such shares, the applicable percentage in the foregoing table
with respect to such portion of the dividend shall be multiplied by
(x) one minus the product of (i) one minus the Dividends Received
Deduction rate and (ii) the maximum marginal regular Federal income
tax rate generally applicable to corporations (currently 34%) and (y)
divided by the quantity one minus the maximum marginal regular Federal
income tax rate generally applicable to corporations. For purposes of
this definition, the "prevailing rating" of shares of MMP shall be (i)
"aa3" or higher if such shares have a rating of "aa3" or better by
Moody's or the equivalent of such rating by Moody's or a substitute
rating agency selected as provided below, (ii) if not "aa3" or higher,
then "a3" if such shares have a rating of "a3" or better by Moody's or
the equivalent of such rating by Moody's or a substitute rating agency
selected as provided below, (iii) if not "aa3" or higher or "a3", then
"baa3" if such shares have a rating of "baa3" or better by Moody's or
the equivalent of such rating by Moody's or a substitute rating agency
selected as provided below, and (iv) if not "aa3" or higher, "a3" or
"baa3", then "Below 'baa3'". The Corporation shall take all reasonable
action necessary to enable Moody's to provide a rating for shares of
MMP. If Moody's shall not make such a rating available, the
Corporation, subject to the approval of Shearson Lehman Brothers Inc.,
shall select a nationally recognized statistical rating organization
(as that term is used in the rules and regulations of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in
respect of the MMP and the Corporation shall take all reasonable
action to enable such rating agency to provide a rating for shares of
MMP. (q) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities
depository selected by the Corporation which agrees to follow the
procedures required to be followed by such securities depository in
connection with shares of MMP. (r) "Sell Order" and "Sell Orders"
shall have the respective meanings specified in paragraph (a) of
Section 2 of this Part II. (s) "Submission Deadline" shall mean 1:00
P.M., New York City time, on any Auction Date or such other time on
any Auction Date by which Broker-Dealers are required to submit Orders
to the Auction Agent as specified by the Auction Agent from time to
time. (t) "Submitted Bid" and "Submitted Bids" shall have the
respective meanings specified in paragraph (a) of Section 4 of this
Part II. (u) "Submitted Hold Order" and "Submitted Hold Orders" shall
have the respective meanings specified in paragraph (a) of Section 4
of this Part II. (v) "Submitted Order" and "Submitted Orders" shall
have the respective meanings specified in paragraph (a) of Section 4
of this Part II. (w) "Submitted Sell Order" and "Submitted Sell
Orders" shall have the respective meanings specified in paragraph (a)
of Section 4 of this Part I. (x) "Sufficient Clearing Bids" shall have
the meaning specified in paragraph (a) of Section 4 of this Part II.
(y) "Winning Bid Rate" shall have the meaning specified in paragraph
(a) of Section 4 of this Part II. 2. Orders by Existing Holders and
Potential Holders. (a) Prior to the Submission Deadline on each
Auction Date: (i) each Existing Holder of shares of MMP may submit to
a Broker-Dealer by telephone or otherwise information as to: (A) the
number of Outstanding shares, if any, of MMP held by such Existing
Holder which such Existing Holder desires to continue to hold without
regard to the Applicable Rate for such shares for the next succeeding
Rate Period; (B) the number of Outstanding shares, if any, of MMP held
by such Existing Holder which such Existing Holder offers to sell if
the Applicable Rate for such shares for the next succeeding Rate
Period shall be less than the rate per annum specified by such
Existing Holder; and/or (C) the number of Outstanding shares, if any,
of MMP held by such Existing Holder which such Existing Holder offers
to sell without regard to the Applicable Rate for such shares for the
next succeeding Rate Period; and (ii) one or more Broker-Dealers,
using lists of Potential Holders, shall in good faith for the purpose
of conducting a competitive Auction in a commercially reasonable
manner, contact Potential Holders (by telephone or otherwise),
including Persons that are not Existing Holders, on such lists to
determine the number of Outstanding shares, if any, of MMP which each
such Potential Holder offers to purchase if the Applicable Rate for
such shares for the next succeeding Rate Period shall not be less than
the rate per annum specified by such Potential Holder. For the
purposes hereof, the communication to a Broker-Dealer of information
referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this paragraph
(a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Existing Holder and each Potential Holder placing an
Order is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause
(i)(A) of this paragraph (a) is hereinafter referred to as a "Hold
Order" and collectively as "Hold Orders"; an Order containing the
information referred to in clause (i)(B) or (ii) of this paragraph (a)
is hereinafter referred to as a "Bid" and collectively as "Bids"; and
an Order containing the information referred to in clause (i)(C) of
this paragraph (a) is hereinafter referred to as a "Sell Order" and
collectively as "Sell Orders". (b) (i) A Bid by an Existing Holder of
shares of MMP on an Auction Date shall constitute an irrevocable offer
to sell: (A) the number of Outstanding shares of MMP specified in such
Bid if the Applicable Rate for such shares of MMP determined on such
Auction Date shall be less than the rate specified therein; (B) such
number or a lesser number of Outstanding shares of MMP to be
determined as set forth in clause (iv) of paragraph (a) of Section 5
of this Part II if the Applicable Rate for shares of MMP determined on
such Auction Date shall be equal to the rate specified therein; or (C)
such number or a lesser number of Outstanding shares of MMP to be
determined as set forth in clause (iii) of paragraph (b) of Section 5
of this Part II if the rate specified therein shall be higher than the
Maximum Rate for shares of MMP and Sufficient Clearing Bids do not
exist. (ii) A Sell Order by an Existing Holder of shares of MMP on an
Auction Date shall constitute an irrevocable offer to sell: (A) the
number of Outstanding shares of MMP specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of MMP as set
forth in clause (iii) of paragraph (b) of Section 5 of this Part II if
Sufficient Clearing Bids do not exist. (iii) A Bid by a Potential
Holder of shares of MMP on an Auction Date shall constitute an
irrevocable offer to purchase: (A) the number of Outstanding shares of
MMP specified in such Bid if the Applicable Rate for shares of MMP
determined on such Auction Date shall be higher than the rate
specified therein; or (B) such number or a lesser number of
Outstanding shares of MMP as set forth in clause (v) of paragraph (a)
of Section 5 of this Part II if the Applicable Rate for shares of MMP
determined on such Auction Date shall be equal to the rate specified
therein. (c) No Order for any number of shares of MMP other than whole
shares shall be valid. 3. 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
all Orders for shares of MMP obtained by such Broker-Dealer and shall
specify with respect to each Order for such shares: (i) the name of
the Bidder placing such Order; (ii) the aggregate number of
Outstanding shares of MMP that are the subject of such Order; (iii) to
the extent that such Bidder is an Existing Holder of shares of MMP:
(A) the number of Outstanding shares, if any, of MMP subject to any
Hold Order placed by such Existing Holder; (B) the number of
Outstanding shares, if any, of MMP subject to any Bid placed by such
Existing Holder and the rate specified in such Bid; and (C) the number
of Outstanding shares, if any, of MMP subject to any Sell Order placed
by such Existing Holder; and (iv) to the extent such Bidder is a
Potential Holder of shares of MMP, the rate and number of shares of
MMP specified in such Potential Holder's Bid. (b) If any rate
specified in any Bid contains more than three figures to the right of
the decimal point, the Auction Agent shall round such rate up to the
next highest one-thousandth (.001) of 1%. (c) If an Order or Orders
covering all of the Outstanding shares of MMP held by any Existing
Holder is not submitted to the Auction Agent prior to the Submission
Deadline, the Auction Agent shall deem a Hold Order to have been
submitted on behalf of such Existing Holder covering the number of
Outstanding shares of MMP held by such Existing Holder and not subject
to Orders submitted to the Auction Agent. (d) If any Existing Holder
submits through a Broker Dealer to the Auction Agent one or more
Orders covering in the aggregate more than the number of Outstanding
shares of MMP held by such Existing Holder, such Orders shall be
considered valid in the following order of priority: (i) all Hold
Orders for shares of MMP submitted on behalf of such Existing Holder
shall be considered valid, but only up to and including in the
aggregate the number of Outstanding shares of MMP held by such
Existing Holder, and if the number of shares of MMP subject to such
Hold Orders exceeds the number of Outstanding shares of MMP held by
such Existing Holder, the number of shares subject to each such Hold
Order shall be reduced pro rata to cover the number of Outstanding
shares of MMP held by such Existing Holder; (ii) (A) any Bid for
shares of MMP shall be considered valid up to and including the excess
of the number of Outstanding shares of MMP held by such Existing
Holder over the number of shares of MMP subject to any Hold Orders
referred to in clause (i) above; (B) subject to subclause (A), if more
than one Bid for shares of MMP with the same rate is submitted on
behalf of such Existing Holder and the number of Outstanding shares of
MMP subject to such Bids is greater than such excess, such Bids shall
be considered valid up to and including the amount of such excess, and
the number of shares of MMP subject to each Bid with the same rate
shall be reduced pro rata to cover the number of shares of MMP equal
to such excess; (C) subject to subclauses (A) and (B), if more than
one Bid for shares of MMP with different rates is submitted on behalf
of such Existing Holder, such Bids shall be considered valid in the
ascending order of their respective rates up to and including the
amount of such excess; and (D) in any such event, the number, if any,
of Outstanding shares of MMP subject to any portion of Bids considered
not valid in whole or in part under this clause (ii) shall be treated
as the subject of a Bid for shares of MMP by a Potential Holder at the
rate therein specified; and (iii) all Sell Orders for shares of MMP
shall be considered valid up to and including the excess of the number
of Outstanding shares of MMP held by such Existing Holder over the sum
of shares of MMP subject to valid Hold Orders referred to in clause
(i) above and valid Bids by such Existing Holder referred to in clause
(ii) above. (e) If more than one Bid for one or more shares of MMP is
submitted on behalf of any Potential Holder, each such Bid submitted
shall be a separate Bid with the rate and number of shares therein
specified. (f) Any Order submitted by a Broker-Dealer to the Auction
Agent prior to the Submission Deadline on any Auction Date shall be
irrevocable. 4. Determination of Sufficient Clearing Bids, Winning Bid
Rate and Applicable Rate. (a) Not earlier than the Submission Deadline
on each Auction Date, the Auction Agent shall assemble all valid
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 Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order" and collectively as "Submitted Hold Orders,"
"Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall, after the Submission Deadline on each
Auction Date, determine: (i) the excess of the number of Outstanding
shares of MMP over the number of Outstanding shares of MMP subject to
Submitted Hold Orders (such excess being hereinafter referred to as
the "Available MMP"); (ii) from the Submitted Orders whether: (A) the
number of Outstanding shares of MMP subject to Submitted Bids by
Potential Holders specifying one or more rates equal to or lower than
the Maximum Rate for such shares; exceeds or is equal to the sum of:
(B) the number of Outstanding shares of MMP subject to Submitted Bids
by Existing Holders specifying one or more rates higher than the
Maximum Rate for such shares; and (C) the number of Outstanding shares
of MMP subject to Submitted Sell Orders (in the event such excess or
such equality exists (other than because the number of shares of MMP
in subclauses (B) and (C) above is each zero because all of the
Outstanding shares of MMP are subject to Submitted Hold Orders), such
Submitted Bids in subclause (A) above being hereinafter referred to
collectively, as "Sufficient Clearing Bids"); and (iii) if Sufficient
Clearing Bids exist, the lowest rate specified in such Submitted Bids
(the "Winning Bid Rate") which if: (A) (I) each such Submitted Bid
from Existing Holders specifying such lowest rate and (II) all other
such Submitted Bids from Existing Holders specifying lower rates were
rejected, thus entitling such Existing Holders to continue to hold the
shares of MMP that are subject to such Submitted Bids; and (B) (I)
each such Submitted Bid from Potential Holders specifying such lowest
rate and (II) all other such Submitted Bids from Potential Holders
specifying lower rates were accepted, thus requiring such Potential
Holders to purchase the shares of MMP that are the subject of such
Submitted Bids; would result in such Existing Holders described in
subclause (A) above continuing to hold an aggregate number of
Outstanding shares of MMP which, when added to the number of
Outstanding shares of MMP to be purchased by such Potential Holders
described in subclause (B) above, would equal not less than the
Available MMP. (b) Promptly after the Auction Agent has made the
determination pursuant to paragraph (a) of this Section 4, the Auction
Agent shall advise the Corporation of the Maximum Rate for shares of
MMP for which an Auction is being held on the Auction Date and, based
on such determination, the Applicable Rate for such shares for the
next succeeding Rate Period thereof as follows: (i) if Sufficient
Clearing Bids for such shares exist, that the Applicable Rate for such
shares for the next succeeding Rate Period thereof shall be equal to
the Winning Bid Rate for such shares so determined; (ii) if Sufficient
Clearing Bids for such shares do not exist (other than because all of
the Outstanding shares of MMP are subject to Submitted Hold Orders),
that the Applicable Rate for such shares for the next succeeding Rate
Period thereof shall be equal to the Maximum Rate for such shares; or
(iii) if all of the Outstanding shares of MMP are subject to Submitted
Hold Orders, that the Applicable Rate for such shares for the next
succeeding Rate Period thereof shall be equal to (A) the product of
(1) either (a) the "AA" Composite Commercial Paper Rate on such
Auction Date for such Rate Period, if such Rate Period consists of
less than four Dividend Periods, or (b) the Treasury Rate on such
Auction Date for such Rate Period, if such Rate Period consists of
four or more Dividend Periods, and (2) one minus the maximum marginal
regular Federal income tax rate generally applicable to corporations
(currently 34%), divided by (B) one minus the product of (1) one minus
the Dividends Received Deduction rate and (2) the maximum marginal
regular Federal income tax rate generally applicable to corporations
(rounded up to the next highest one thousandth (.001) of 1%);
provided, however, that if the Corporation has notified the Auction
Agent that any portion of the dividend to be paid on the shares of MMP
is expected to be ineligible for the Dividends Received Deduction in
such Rate Period, or characterizes any portion of the dividend to be
paid in such Rate Period on such shares as constituting a return of
capital, the Applicable Rate in respect of that portion of the
dividend on shares of MMP for such Rate Period that represents such
ineligible amount shall be the rate described in the preceding clause
(A)(1)(a) or (A)(1)(b) as applicable. 5. Acceptance and Rejection of
Submitted Bids and Submitted Sell Orders and Allocation of Shares.
Existing Holders shall continue to hold the shares of MMP that are
subject to Submitted Hold Orders, and, based on the determinations
made pursuant to paragraph (a) of Section 4 of this Part II, the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected
and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of MMP have been made, all
Submitted Sell Orders shall be accepted and, subject to the provisions
of paragraphs (d) and (e) of this Section 5, Submitted Bids shall be
accepted or rejected as follows in the following order of priority and
all other Submitted Bids for such shares shall be rejected: (i)
Existing Holders' Submitted Bids for shares of MMP specifying any rate
that is higher than the Winning Bid Rate for such shares shall be
accepted, thus requiring each such Existing Holder to sell the
Outstanding shares of MMP subject to such Submitted Bids; (ii)
Existing Holders' Submitted Bids for shares of MMP specifying any rate
that is lower than the Winning Bid Rate for such shares shall be
rejected, thus entitling each such Existing Holder to continue to hold
the Outstanding shares of MMP subject to such Submitted Bids; (iii)
Potential Holders' Submitted Bids for shares of MMP specifying any
rate that is lower than the Winning Bid Rate shall be accepted, thus
requiring each such Potential Holder to purchase the Outstanding
shares of MMP that are the subject of such Submitted Bids; (iv) Each
Existing Holder's Submitted Bid for shares of MMP specifying a rate
that is equal to the Winning Bid Rate shall be rejected, thus
entitling such Existing Holder to continue to hold the Outstanding
shares of MMP subject to such Submitted Bid, unless the number of
Outstanding shares of MMP subject to all such Submitted Bids shall be
greater than the number of shares of MMP ("remaining shares") in the
excess of the Available MMP over the number of shares of MMP subject
to Submitted Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event such Submitted Bid of such Existing
Holder shall be rejected in part, and such Existing Holder shall be
entitled to continue to hold Outstanding shares of MMP subject to such
Submitted Bid, but only in an amount equal to the number of
Outstanding shares of MMP obtained by multiplying the number of
remaining shares by a fraction, the numerator of which shall be the
number of Outstanding shares of MMP held by such Existing Holder
subject to such Submitted Bid and the denominator of which shall be
the aggregate number of Outstanding shares of MMP subject to such
Submitted Bids made by all such Existing Holders that specified a rate
equal to the Winning Bid Rate; and (v) Each Potential Holder's
Submitted Bid for shares of MMP specifying a rate that is equal to the
Winning Bid Rate shall be accepted but only in an amount equal to the
number of shares of MMP obtained by multiplying the number of
Outstanding shares in the excess of the Available MMP over the number
of shares of MMP subject to Submitted Bids described in clauses (ii)
through (iv) of this paragraph (a) by a fraction, the numerator of
which shall be the number of Outstanding shares of MMP subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of MMP subject to such Submitted Bids
made by all such Potential Holders that specified a rate equal to the
Winning Bid Rate for such shares; and (b) If Sufficient Clearing Bids
for shares of MMP have not been made (other than because all of the
Outstanding shares of MMP are subject to Submitted Hold Orders),
subject to the provisions of paragraph (d) of this Section 5,
Submitted Orders for such shares shall be accepted or rejected as
follows in the following order of priority and all other Submitted
Bids for such shares shall be rejected: (i) Existing Holders'
Submitted Bids for shares of MMP specifying any rate that is equal to
or lower than the Maximum Rate for such shares shall be rejected, thus
entitling such Existing Holders to continue to hold the shares of MMP
subject to such Submitted Bids; (ii) Potential Holders' Submitted Bids
for shares of MMP specifying any rate that is equal to or lower than
the Maximum Rate for such shares shall be accepted, thus requiring the
Potential Holder to purchase shares of MMP that are the subject of
such Submitted Bids; (iii) Each Existing Holder's Submitted Bid for
shares of MMP specifying any rate that is higher than the Maximum Rate
of such shares and the Submitted Sell Orders for shares of MMP of each
Existing Holder shall be accepted, thus requiring each Existing Holder
that submitted any such Submitted Bid or Submitted Sell Order to sell
the shares of MMP subject to such Submitted Bid or Submitted Sell
Order, but in both cases only in an amount equal to the number of
Outstanding shares of MMP obtained by multiplying the number of shares
of MMP subject to Submitted Bids described in clause (ii) of this
paragraph (b) by a fraction, the numerator of which shall be the
number of Outstanding shares of MMP held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the aggregate number of Outstanding
shares of MMP subject to all such Submitted Bids and Submitted Sell
Orders. (c) If all of the Outstanding shares of MMP are subject to
Submitted Hold Orders, all Submitted Bids for such shares shall be
rejected. (d) If, as a result of the procedures described in clause
(iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of this
Section 5, 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 MMP on any Auction Date, the Auction Agent
shall, in such manner as it shall determine in its sole discretion,
round up or down the number of shares of MMP to be purchased or sold
by any Existing Holder or Potential Holder on such Auction Date as a
result of such procedures so that the number of shares so purchased or
sold by each Existing Holder or Potential Holder on such Auction Date
shall be whole shares of MMP. (e) If, as a result of the procedures
described in clause (v) of paragraph (a) of this Section 5, any
Potential Holder would be entitled or required to purchase less than a
whole share of MMP on any Auction Date, the Auction Agent shall, in
such manner as it shall determine in its sole discretion, allocate
shares of MMP for purchase among Potential Holders so that only whole
shares of MMP are purchased on such Auction Date as a result of such
procedures by any Potential Holder, even if such allocation results in
one or more Potential Holders not purchasing shares of MMP on such
Auction Date. (f) Based on the results of each Auction for shares of
MMP, the Auction Agent shall determine the aggregate number of shares
of MMP to be purchased and the aggregate number of shares of MMP to be
sold by Potential Holders and Existing Holders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate number of shares to
be purchased and such aggregate number of shares to be sold differ,
determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers of shares of MMP such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting
for one or more sellers of shares of MMP such Broker-Dealer shall
receive, as the case may be, shares of MMP. 6. Notification of
Allocations. Whenever the Corporation expects to allocate any net
capital gains or other income ineligible for the Dividends Received
Deduction to any dividend on shares of MMP, or to characterize any
portion of the dividend to be paid on such shares as constituting a
return of capital, the Corporation may, but shall not be required to,
notify the Auction Agent of the amount estimated to be so allocated at
least six Business Days preceding the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Corporation, it will in
turn notify each Broker-Dealer, who, on or prior to such Auction Date,
in accordance with its Broker-Dealer Agreement, will notify its
Existing Holders and Potential Holders believed to be interested in
submitting an Order in the Auction to be held on such Auction Date. 7.
Miscellaneous. To the extent permitted by applicable law, the Board of
Directors may interpret or adjust the provisions of these Articles
Supplementary to resolve any inconsistency or ambiguity or to remedy
any formal defect. SECOND: The foregoing amendment to the charter was
advised by the Board of Directors and, to the extent required,
approved by the stockholders of the Corporation. IN WITNESS WHEREOF,
PREFERRED INCOME FUND INCORPORATED has caused these presents to be
signed in its name and on its behalf by its President or a Vice
President, and its corporate seal to be hereunto affixed and attested
by its Secretary or Assistant Secretary, and the said officers of the
Corporation acknowledge said instrument to be the corporate act of the
Corporation, and state under penalties of perjury that to the
<PAGE>
best of their knowledge, information and belief the matters and
facts therein set forth with respect to authorization and approval are true in
all material respects, all on July 19, 1996.
PREFERRED INCOME FUND
INCORPORATED
By DONALD CRUMRINE
Donald F. Crumrine
Vice President
ATTEST:
PETER STIMES
Peter C. Stimes
Assistant Secretary
Effective as of July __, 1996 pursuant to (i) receipt of a written confirmation
of Moody's Investors Service, Inc. ("Moody's"), dated , 1996, that the
modifications, alterations or changes contained herein will not adversely affect
its current rating of the MMP and that any such action is in accordance with
guidelines established by Moody's, (ii) approval of the Board of Directors on
July __, 1996, and (iii) filing of a notice to Moody's of the approval of the
Board of Directors by letter of the Corporation dated July __, 1996.
BYLAWS
OF
PREFERRED INCOME FUND INCORPORATED
BYLAW-ONE: NAME OF COMPANY, LOCATION OF OFFICES AND SEAL.
Article 1.1. Name. The name of the Company is Preferred Income Fund
Incorporated.
Article 1.2. Principal Offices. The principal office of the Company in the
State of Maryland shall be located in Baltimore, Maryland. The Company may, in
addition, establish and maintain such other offices and places of business
within or outside the State of Maryland as the Board of Directors may from time
to time determine.
Article 1.3. Seal. The corporate seal of the Company shall be circular
in form and shall bear the name of the Company, the year of its incorporation
and the words "Corporate Seal, Maryland." The form of the seal shall be subject
to alteration by the Board of Directors and the seal may be used by causing it
or a facsimile to be impressed or affixed or printed or otherwise reproduced.
Any Officer or Director of the Company shall have authority to affix the
corporate seal of the Company to any document requiring the same.
BYLAW-TWO: STOCKHOLDERS.
Article 2.1. Place of Meetings. All meetings of the Stockholders shall
be held at such place within the United States, whether within or outside the
State of Maryland, as the Board of Directors shall determine, which shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Article 2.2. Annual Meeting. Commencing in 1992, the annual meeting of
the Stockholders of the Company shall be held at such place as the Board of
Directors shall select on such date, during the 31-day period ending six months
after the end of the Company's fiscal year, as may be fixed by the Board of
Directors each year, at which time the Stockholders shall elect Directors by
plurality vote, and transact such other business as may properly come before the
meeting. Any business of the Company may be transacted at the annual meeting
without being specially designated in the notice except as otherwise provided by
statute, by the Articles of Incorporation or by these Bylaws.
Article 2.3. Special Meetings. Special meetings of the Stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may by called by resolution of the Board of Directors
or by the President, and shall be called by the Secretary at the request, in
writing, of a majority of the Board of Directors or at the request, in writing,
of Stockholders owning at least 25% of the votes entitled to be cast at the
meeting upon payment by such Stockholders to the Company of the reasonably
estimated cost of preparing and mailing a notice of the meeting (which estimated
cost shall be provided to such Stockholders by the Secretary of the Company).
Notwithstanding the foregoing, unless requested by Stockholders entitled to cast
a majority of the votes entitled to be cast at the meeting, a special meeting of
the Stockholders need not be called at the request of Stockholders to consider
any matter that is substantially the same as a matter voted on at any special
meeting of the Stockholders held during the preceding 12 months. A written
request shall state the purpose or purposes of the proposed meeting.
Article 2.4. Notice. Written notice of every meeting of Stockholders,
stating the purpose or purposes for which the meeting is called, the time when
and the place where it is to be held, shall be served, either personally or by
mail, not less than ten nor more than ninety days before the meeting, upon each
Stockholder as of the record date fixed for the meeting who is entitled to
notice of or to vote at such meeting. If mailed (i) such notice shall be
directed to a Stockholder at his address as it shall appear on the books of the
Company (unless he shall have filed with the Transfer Agent of the Company a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request) and
(ii) such notice shall be deemed to have been given as of the date when it is
deposited in the United States mail with first-class postage thereon prepaid.
Article 2.5 Notice of Stockholder Business. At any annual or special
meeting of the Stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual or special meeting, the business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a Stockholder.
For business to be properly brought before an annual or special meeting
by a Stockholder, the Stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, any such notice must be
delivered to or mailed and received at the principal executive offices of the
Company not later than 60 days prior to the date of the meeting; provided,
however, that if less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to Stockholders, any such notice by a
Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
annual or special meeting was given or such public disclosure was made.
Any such notice by a Stockholder shall set forth as to each matter the
Stockholder proposes to bring before the annual or special meeting (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (ii) the name and address, as they appear on the Company's books, of
the Stockholder proposing such business, (iii) the class and number of shares of
the capital stock of the Company which are beneficially owned by the
Stockholder, and (iv) and material interest of the Stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at any annual or special meeting except in accordance with
the procedures set forth in this Article 2.5 The chairman of the annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not proper brought before the meeting in accordance
with the provisions of this Articles 2.5, and, if he should so determine, he
shall so declare to the meeting that any such business not properly brought
before the meeting shall not be considered or transacted.
Article 2.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote, present in person or represented by proxy,
shall be requisite and shall constitute a quorum at all meetings of the
Stockholders for the transaction of business except as otherwise provided by
statute, by the Articles of Incorporation or by these Bylaws. If a quorum shall
not be present or represented, the Stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, to a date not more than 120 days after the original record date, until
a quorum shall be present or represented. At such adjourned meeting, at which a
quorum shall be present or represented, any business which might have been
transacted at the original meeting may be transacted.
Article 2.7. Vote of the Meeting. When a quorum is present or
represented at any meeting, a majority of the votes cast thereat shall decide
any question brought before such meeting (except for the election of directors,
which shall be by plurality vote), unless the question is one upon which, by
express provisions of applicable statutes, of the Articles of Incorporation or
of these Bylaws, a different vote is required, in which case such express
provisions shall govern and control the decision of such question.
Article 2.8. Voting Right of Stockholders. Each Stockholder of record
having the right to vote shall be entitled at every meeting of the Stockholders
of the Company to one vote for each share of stock having voting power standing
in the name of such stockholder on the books of the Company on the record date
fixed in accordance with Article 6.5 of these Bylaws, with pro rata voting
rights for any fractional shares, and such votes may be cast either in person or
by written proxy.
Article 2.9. Organization. At every meeting of the Stockholders, the
Chairman of the Board, or in his absence or inability to act, the Vice Chairman
of the Board, if any, or in his absence or inability to act, a chairman chosen
by the Stockholders, shall act as chairman of the meeting. The Secretary, or in
his absence or inability to act, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes of the
meeting.
Article 2.10. Proxies. Every proxy must be in writing and signed by the
Stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date of its execution unless it
provides otherwise. Every proxy shall be revocable at the pleasure of the person
executing it or of his personal representatives or assigns. Proxies shall be
delivered prior to the meeting to the secretary of the Company or to the person
acting as Secretary of the meeting before being voted. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by one
of them unless, at or prior to exercise of such proxy, the Company receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Article 2.11. Stock Ledger and List of Stockholders. It shall be the
duty of the Secretary or Assistant Secretary of the Company to cause an original
or duplicate stock ledger to be maintained at the office of the Company's
Transfer Agent.
Article 2.12. Action without Meeting. Any action to be taken by
Stockholders may be taken without a meeting if (i) all Stockholders entitled to
vote on the matter consent to the action in writing, (ii) all Stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent, and (iii) such consents and waivers are filed
with the records of the meetings of Stockholders. A consent shall be treated for
all purposes as a vote at a meeting.
BYLAW-THREE: BOARD OF DIRECTORS.
Article 3.1. General Powers. Except as otherwise provided in the
Articles of Incorporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the Company
may be exercised by or under authority of the Board of Directors except as
conferred on or reserved to the Stockholders by law, by the Articles of
Incorporation or by these Bylaws.
Article 3.2. Board of Three to Twelve Directors. The Board of Directors
shall consist of not less than three (3) nor more than twelve (12) Directors;
provided that if there are less than three Stockholders, the number of Directors
may be the same number as the number of Stockholders but not less than one.
Directors need not be Stockholders. Subject to the first sentence of the Article
3.2, a majority of the entire Board of Directors shall have power from time to
time, and at any time when the Stockholders as such are not assembled in a
meeting, regular or special, to increase or decrease the number of Directors. If
the number of Directors is increased, the additional Directors may be elected by
a majority of the Directors in office at the time of the increase. If such
additional Directors are not so elected by the Directors in office at the time
they increase the number of places on the Board, or if the additional Directors
are elected by the existing Directors prior to the first meeting of the
Stockholders of the Company, then in either of such events the additional
Directors shall be elected or re-elected by the Stockholders at their next
annual meeting or at an earlier special meeting called for that purpose.
Beginning with the first annual meeting of Stockholders held after the
initial public offering of the shares of the Company (the "initial annual
meeting"), the Board of Directors shall be divided into three classes: Class I,
Class II and Class III. The terms of office of the classes of Directors elected
at the initial annual meeting shall expire at the times of the annual meetings
of the Stockholders as follows: Class I on the next annual meeting, Class II on
the second next annual meeting and Class III on the third next annual meeting,
or thereafter in each case when their respective successors are elected and
qualified. At each subsequent annual election, the Directors chosen to succeed
those whose terms are expiring shall be identified as being of the same class as
the Directors whom they succeed, and shall be elected for a term expiring at the
time of the third succeeding annual meeting of Stockholders, or thereafter in
each case when their respective successors are elected and qualified. The number
of directorships shall be apportioned among the classes so as to maintain the
classes as nearly equal in number as possible. If the Corporation issues
Preferred Stock entitling the holders to elect additional Directors in special
circumstances and those special circumstances arise, then the number of
Directors that the holders of the Common Stock are entitled to elect shall be
reduced to a number such that, when the requisite number of Directors has been
elected by Preferred Stockholders, the total number of Directors shall not
exceed 12 in number.
Article 3.3. Director Nominations.
(a) Only persons who are nominated in accordance with the procedures
set forth in this Article 3.3 shall be eligible for election or re-election as
Directors. Nominations of persons for election or re-election to the Board of
Directors of the Company may be made at a meeting of Stockholders by or at the
direction of the Board of Directors or by any Stockholder of the Company who is
entitled to vote for the election of such nominee at the meeting and who
complies with the notice procedures set forth in this Article 3.3.
(b) Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice delivered in
writing to the Secretary of the Company. To be timely, any such notice by a
Stockholder must be delivered to or mailed and received at the principal
executive offices of the Company not later than 60 days prior to the meeting;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given or made to Stockholders, any such notice by
a Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth (i) as to each
person whom the Stockholder proposes to nominate for election or re-election as
a Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares, if any, of the capital stock of the Company which are
beneficially owned by such person, and (D) any other information relating to
such person that is required to be disclosed in solicitations of proxies for the
election of Directors pursuant to Section 20(a) of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, or Regulation 14A
under the Securities Exchange Act of 1934 or any successor regulation thereto
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected and
whether any person intends to seek reimbursement from the Company of the
expenses of any solicitation of proxies should such person be elected a Director
of the Company); and (ii) as to the Stockholder giving the notice, (A) the name
and address, as they appear on the Company's books, of such Stockholder and (B)
the class and number of shares of the capital stock of the Company which are
beneficially owned by such Stockholder. At the request of theBoard of Directors,
any person nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Company the information required to be set forth
in a Stockholder's notice of nomination which pertains to the nominee.
(d) If a notice by a Stockholder is required to be given pursuant to
this Article 3.3, no person shall be entitled to receive reimbursement from the
Company of the expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Company. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and, if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded for all purposes.
Article 3.4. Vacancies. Subject to the provisions of the Investment
Company Act of 1940, as amended, if the office of any Director or Directors
becomes vacant for any reason (other than an increase in the number of
Directors), the Directors in office, although less than a quorum, shall continue
to act and may choose a successor or successors, who shall hold office until the
next election of Directors, or any vacancy may be filled by the Stockholders at
any meeting thereof.
Article 3.5. Removal. At any meeting of Stockholders duly called and at
which a quorum is present, the Stockholders may, by the affirmative vote of the
holders of at least 80% of the votes entitled to be cast thereon, remove any
Director or Directors from office, with or without cause, and may by a plurality
vote elect a successor or successors to fill any resulting vacancies for the
unexpired term of the removed Director.
Article 3.6. Resignation. A Director may resign at any time by giving
written notice of his resignation to the Board of Directors or the Chairman or
the Vice Chairman, if any, of the Board or the Secretary of the Company. Any
resignation shall take effect at the time specified in it or, should the time
when it is to become effective not be specified in it, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
Article 3.7. Place of Meetings. The Directors may hold their meetings
at the principal office of the Company or at such other places, either within or
outside the State of Maryland, as they may from time to time determine
Article 3.8. Regular Meetings. Regular meetings of the Board may be held at
such date and time as shall from time to time be determined by resolution of the
Board.
Article 3.9. Special Meetings. Special meetings of the Board may be
called by order of the Chairman or Vice Chairman, if any, of the Board on one
day's notice given to each Director either in person or by mail, telephone,
telegram, cable or wireless to each Director at his residence or regular place
of business. Special meetings will be called by the Chairman or Vice Chairman if
any, of the Board or Secretary in a like manner on the written request of a
majority of the Directors.
Article 3.10. Quorum. At all meetings of the Board, the presence of a
majority of the entire Board of Directors shall be necessary to constitute a
quorum and sufficient for the transaction of business, and any act of a majority
present at a meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute, by the
Articles of Incorporation or by these Bylaws. If a quorum shall not be present
at any meeting of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Article 3.11. Organization. The Board of Directors shall designate one
of its members to serve as Chairman of the Board. The Chairman of the Board
shall preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to act, another Director chosen by a majority of the
Directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary (or, in his absence or inability to act, any person
appointed by the chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
Article 3.12. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may, except as otherwise required by statute, be taken
without a meeting if a written consent to such action is signed by all members
of the Board, or of such committee, as the case may be, and filed with the
minutes of the proceedings of the Board or committee. Subject to the Investment
Company Act of 1940, as amended, members of the Board of Directors or a
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
Article 3.13. Executive Committee. There may be an Executive Committee
of two or more Directors appointed by the Board who may meet at stated times or
on notice to all by any of their own number. The Executive Committee shall
consult with and advise the Officers of the Company in the management of its
business and exercise such powers of the Board of Directors as may be lawfully
delegated by the Board of Directors. Vacancies shall be filled by the Board of
Directors at any regular or special meeting. The Executive Committee shall keep
regular minutes of its proceedings and report the same to the Board when
required.
Article 3.14. Audit Committee. There shall be an Audit Committee of two
or more Directors who are not "interested persons" of the Company (as defined in
the Investment Company Act of 1940, as amended) appointed by the Board who may
meet at stated times or on notice to all by any of their own number. The
Committee's duties shall include reviewing both the audit and other work of the
Company's independent accountants, recommending to the Board of Directors the
independent accountants to be retained, and reviewing generally the maintenance
and safekeeping of the Company's records and documents.
Article 3.15. Other Committees. The Board of Directors may appoint
other committees which shall in each case consist of such number of members (but
not less than two) and shall have and may exercise, to the extent permitted by
law, such powers as the Board may determine in the resolution appointing them. A
majority of all members of any such committee may determine its action, and fix
the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to change
the members and, to the extent permitted by law, to change the powers of any
such committee, to fill vacancies and to discharge any such committee.
Article 3.16. Compensation of Directors. The Board may, by resolution,
determine what compensation and reimbursement of expenses of attendance at
meetings, if any, shall be paid to Directors in connection with their service on
the Board or on various committees of the Board. Nothing herein contained shall
be construed to preclude any Director from serving the Company in any other
capacity or from receiving compensation therefor.
BYLAW-FOUR: OFFICERS.
Article 4.1. Officers. The Officers of the Company shall be fixed by the
Board of Directors and shall include a President, Secretary and Treasurer. Any
two offices may be held by the same person except the offices of President and
Vice President. A person who holds more than one office in the Company may not
act in more than one capacity to execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified by more than one
officer. Article 4.2. Appointment of Officers. The Directors shall appoint the
Officers, who need not be members of the Board.
Article 4.3. Additional Officers. The Board may appoint such other
Officers and agents as it shall deem necessary who shall exercise such powers
and perform such duties as shall be determined from time to time by the Board.
Article 4.4. Salaries of Officers. The salaries of all Officers of the
Company shall be
fixed by the Board of Directors.
Article 4.5. Term, Removal, Vacancies. The Officers of the Company
shall serve at the pleasure of the Board of Directors and hold office for one
year and until their successors are chosen and qualify in their stead. Any
Officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the entire Board of Directors. If
the office of any Officer becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
Article 4.6. President. The President shall be the chief executive
officer of the Company. The President shall, subject to the supervision of the
Board of Directors, have general responsibility for the management of the
business of the Company. The President shall see that all orders and resolutions
of the Board are carried into effect.
Article 4.7. Vice President. Any Vice President shall, in the absence
or disability of the President, perform the duties and exercise the powers of
the President and shall perform such other duties as the Board of Directors
shall prescribe.
Article 4.8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Company as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall render to the
Chairman of the Board and Directors at the regular meetings of the Board, or
whenever they may require it, an account of the financial condition of the
Company.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
Article 4.9. Secretary. The Secretary shall attend meetings of the
Board and meetings of the Stockholders and record all votes and the minutes of
all proceedings in a book to be kept for those purposes, and shall perform like
duties for the Executive Committee, or other committees, of the Board when
required. He shall give or cause to be given notice of all meetings of
Stockholders and special meetings of the Board of Directors and shall perform
such other duties as may be prescribed by the Board of Directors. He shall keep
in safe custody the seal of the Company and affix it to any instrument when
authorized by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, may perform all the duties of the Secretary.
Article 4.10. Subordinate Officers. The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall serve at the pleasure of the Board of Directors and have such title,
hold office for such period, have such authority and perform such duties as the
Board of Directors may determine. The Board of Directors from time to time may
delegate to one or more officers or agents the power to appoint any such
subordinate officers or agents and to prescribe their respective rights, terms
of office, authorities and duties.
Article 4.11. Surety Bonds. The Board of Directors may require any
officer or agent of the Company to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Company in such sum and with such surety or sureties as the Board of Directors
may determine, conditioned upon the faithful performance of his duties to the
Company, including responsibility for negligence and for the accounting of any
of the Company's property, funds or securities that may come into his hands.
BYLAW-FIVE: GENERAL PROVISIONS.
Article 5.1. Waiver of Notice. Whenever the Stockholders or the Board
of Directors are authorized by statute, the provisions of the Articles of
Incorporation or these Bylaws to take any action at any meeting after notice,
such notice may be waived, in writing, before or after the holding of the
meeting, by the person or persons entitled to such notice, or, in the case of a
Stockholder, by his duly authorized attorney-in-fact.
<PAGE>
Article 5.2. Indemnity.
(a) The Company shall indemnify its Directors to the fullest extent
that indemnification of Directors is permitted by the Maryland General
Corporation Law. The Company shall indemnify its Officers to the same extent as
its Directors and to such further extent as is consistent with law. The Company
shall indemnify its Directors and Officers who, while serving as Directors or
Officers, also serve at the request of the Company as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
Director or Officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Company 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").
(b) Any current or former Director or Officer of the Company seeking
indemnification within the scope of this Article shall be entitled to advances
from the Company 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 without a preliminary determination of entitlement to
indemnification (except as provided below). The person seeking indemnification
shall provide to the Company a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Company 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 security in form and amount acceptable to
the Company for his undertaking; (ii) the Company is insured against losses
arising by reason of the advance; or (iii) a majority of a quorum of Directors
of the Company who are neither "interested persons" as defined in Section 2(a)
(19) of the Investment Company Act of 1940, as amended, 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 facts readily
available to the Company at the time the advance is proposed to be made, that
there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
(c) At the request of any person claiming indemnification under this
Article, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (ii) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (A) the vote of
a majority of a quorum of disinterested non-party directors or (B) an
independent legal counsel in a written opinion.
(d) Employees and agents who are not Officers or Directors of the
Company 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 Investment Company Act of
1940, as amended.
(e) The Board of Directors may make further provision consistent with
law for indemnification and advance of expenses to Directors, Officers,
employees and agents by resolution, agreement or otherwise. The indemnification
provided by this Article shall not be deemed exclusive of any other right, with
respect to indemnification or otherwise, to which those seeking indemnification
may be entitled under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise
(f) References in the Article are to the Maryland General Corporation
Law and to the Investment Company Act of 1940, as amended. No amendment of these
Bylaws shall affect any right of any person under this Article based on any
event, omission or proceeding prior to the amendment.
Article 5.3. Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was a Director, Officer, employee or agent of
the Company or who, while a Director, Officer, employee or agent of the Company,
is or was serving at the request of the Company 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 position; provided that no insurance
may be purchased by the Company on behalf of any person against any liability to
the Company or to its Stockholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Article 5.4. Checks. All checks or demands for money and notes of the
Company shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate. Article 5.5
Fiscal Year. The fiscal year of the Company shall be determined by resolution of
the Board of Directors.
BYLAW-SIX: CERTIFICATES OF STOCK.
Article 6.1. Certificates of Stock. The interest, except fractional
interests, of each Stockholder of the Company shall be evidenced by certificates
for shares of stock in such form as the Board of Directors may from time to time
prescribe. The certificates shall be numbered and entered in the books of the
Company as they are issued. They shall exhibit the holder's name and the number
of whole shares and no certificate shall be valid unless it has been signed by
the Chairman of the Board, the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the Corporation and sealed with its seal, or bears the facsimile signatures
of such Officers and a facsimile of such seal. In case any of the Officers of
the Company whose manual or facsimile signature appears on any stock certificate
delivered to a Transfer Agent of the Company shall cease to be such Officer
prior to the issuance of such certificate, the Transfer Agent may nevertheless
countersign and deliver such certificate as though the person signing the same
or whose facsimile signature appears thereon had not eased to be such Officer,
unless written instructions of the Company to the contrary are delivered to the
Transfer Agent.
Article 6.2. Lost, Stolen or Destroyed Certificates. The Board of
Directors, or the President together with the Treasurer or Secretary, may direct
a new certificate to be issued in place of any certificate therefore issued by
the Company, alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed, or by his legal representative. When authorizing such
issue of a new certificate, the Board of Directors, or the President and
Treasurer or Secretary, may, in its or their discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it or they shall require and/or give the Company a bond in such
sum and with such surety or sureties as it or they may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed for such newly issued
certificate.
Article 6.3. Transfer of Stock. Shares of the Company shall be
transferable on the books of the Company by the holder thereof in person or by
his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, with such proof of the authenticity of the
transferor's signature as the Company or its agents may reasonably require. The
shares of stock of the Company may be freely transferred, and the Board of
Directors may, from time to time, adopt rules and regulations with reference to
the method of transfer of the shares of stock of the Company.
Article 6.4. Registered Holder. The Company shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, except as
expressly provided by statute.
Article 6.5. Record Date. The Board of Directors may fix a time not
less than 10 nor more than 90 days prior to the date of any meeting of
Stockholders the time as of which Stockholders are entitled to notice of, and to
vote at, such a meeting; and all such persons who were holders of record of
voting stock at such time, and no other, shall be entitled to notice of, and to
vote at, such meeting or to express their consent or dissent, as the case may
be. If no record date has been fixed, the record date for the determination of
Stockholders entitled to notice of, or to vote at, a meeting of Stockholders
shall be the later of the close of business on the day on which notice of the
meeting is mailed or the thirtieth day before the meeting, or, if notice is
waived by all Stockholders, at the close of business on the tenth day
immediately preceding the day on which the meeting is held. The Board of
Directors may also fix a time not exceeding 90 days preceding the date fixed for
the payment of any dividend or the making of any distribution, or for the
delivery of evidences of rights, or evidences of interests arising out of any
change, conversion or exchange of capital stock, as a record time for the
determination of the Stockholder entitled to receive any such dividend,
distribution, rights or interests.
Article 6.6. Stock Ledgers. The stock ledgers of the Company,
containing the names and addresses of the Stockholders and the number of shares
held by then respectively, shall be kept at the principal offices of the Company
or at such other location as may be authorized by the Board of directors from
time to time, except that an original or duplicate stock ledger shall be
maintained at the office of the Company's Transfer Agent.
Article 6.7. Transfer Agents and Registrars. The Board of Directors may
from time to time appoint or remove Transfer Agents and/or Registrars of
transfers (if any) of shares of stock of the Company, and it may appoint the
same person as both Transfer Agent and Registrar. Upon any such appointment
being made, all certificates representing shares of capital stock thereafter
issued shall be countersigned by one of such Transfer Agents or by one of such
Registrars of transfers (if any) or by both and shall not be valid unless so
countersigned. If the same person shall be both Transfer Agent and Registrar,
only one countersignature by such person shall be required.
BYLAW-SEVEN: SPECIAL PROVISIONS.
Article 7.1. Actions Relating to Discount in Price of the Company's
Shares. In the event that at any time after the third year following the initial
public offering of shares of the Company's Common Stock such shares publicly
trade for a substantial period of time at a significant discount from the
Company's then current net asset value per share, the Board of Directors shall
consider, at its next regularly scheduled meeting, taking various actions
designed to eliminate the discount. The actions considered by the Board of
Directors may include periodic repurchases by the Company of its shares of
Common Stock or an amendment to the Company's Articles of Incorporation to make
the Company's Common Stock a "redeemable security" (as such term is defined in
the Investment Company Act of 1940), subject in all events to compliance with
all applicable provisions of the Company's Articles of Incorporation, these
Bylaws, the Maryland General Corporation Law and the Investment Company Act of
1940.
BYLAW-EIGHT: AMENDMENTS.
Article 8.1. General. Except as provided in the next succeeding
sentence and in the Articles of Incorporation, all Bylaws of the Company,
whether adopted by the Board of Directors or the Stockholders, shall be subject
to amendment, alteration or repeal, and new Bylaws may be made, by the
affirmative vote of a majority of either: (a) the holders of record of the
outstanding shares of stock of the Company entitled to vote, at any annual or
special meeting, the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration, repeal or new Bylaw; or (b) the
Directors, at any regular or special meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new Bylaw. The provisions of Articles 2.5, 3.2, 3.3, 3.5, 7.1 and 8.1
of these Bylaws shall be subject to amendment, alteration or repeal by (i) the
affirmative vote of the holders of record of eighty percent (80%) of the
outstanding shares of stock of the Company entitled to vote, at any annual or
special meeting, the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration or repeal or (ii) the Board of
Directors including the affirmative vote of eighty percent (80%) of the
Continuing Directors (as such term is defined in Article VI of the Company's
Articles of Incorporation ), at any regular or special meeting, the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration or repeal.
Dated: January 22, 1993
Amendment to By-Laws
Article 2.2 of the By-Laws is hereby deleted and the following is
substituted in its place:
Article 2.2. Annual Meeting. The annual meeting of Stockholders of the
Company shall be held at such place as the Board of Directors shall select on
such date, during the 31-day period ending eight months after the end of the
Company's fiscal year, as may be fixed by the Board of Directors each year, at
which time the Stockholders shall elect Directors by plurality vote, and
transact such other business as may properly come before the meeting. Any
business of the Company may be transacted at the annual meeting without being
specially designated in the notice except at otherwise provided by statute, by
the Articles of Incorporation or by these By-Laws.
April 29, 1994
Amendment to By-Laws
Article 2.3 of the By-Laws is hereby deleted and the following is
substituted in its place:
Article 2.3. Special Meetings. Special meetings of the Stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may by called by resolution of the Board of Directors
or by the President, and shall be called by the Secretary at the request, in
writing, of a majority of the Board of Directors or at the request, in writing,
of Stockholders owning a majority of the votes entitled to be cast at the
meeting upon payment by such Stockholders to the Company of the reasonably
estimated cost of preparing and mailing a notice of the meeting (which estimated
cost shall be provided to such Stockholders by the Secretary of the Company).
Notwithstanding the foregoing, unless requested by Stockholders entitled to cast
a majority of the votes entitled to be cast at the meeting, a special meeting of
the Stockholders need not be called at the request of Stockholders to consider
any matter that is substantially the same as a matter voted on at any special
meeting of the Stockholders held during the preceding 12 months. A written
request shall state the purpose or purposes of the proposed meeting.
October 18, 1996
INVESTMENT ADVISORY AGREEMENT
January 24, 1991
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard
Suite 720
Pasadena, California 91101
Ladies and Gentlemen:
Preferred Income Fund Incorporated (the "Company"), a
corporation organized under the laws of the State of Maryland, herewith confirms
its agreement with Flaherty & Crumrine Incorporated (the "Adviser"), a
corporation organized under the laws of the State of California, as follows:
1. Investment Description; Appointment
The Company desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Articles of Incorporation, as the same may from time to time be
amended, and in its Registration Statement as from time to time in effect, and
in such manner and to such extent as may from time to time be approved by the
Board of Directors of the Company. Copies of the Company's Registration
Statement and Articles of Incorporation, as amended, have been or will be
submitted to the Adviser. The Company agrees to provide copies of all amendments
to the Company's Registration Statement and Articles of Incorporation to the
Adviser on an ongoing basis. The Company desires to employ and hereby appoints
the Adviser to act as investment adviser to the Company. The Adviser accepts the
appointment and agrees to furnish the services described herein for the
compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Directors of the Company, the Adviser will (a) act in accordance with the
Company's Articles of Incorporation, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Company's portfolio on a discretionary basis in accordance with
its investment objective and policies as stated in the Company's Registration
Statement as from time to time in effect, (c) make investment decisions and
exercise voting rights in respect of portfolio securities for the Company, (d)
place purchase and sale orders on behalf of the Company and (e) employ
professional portfolio managers and securities analysts to provide research
services to the Company. The Adviser is authorized to retain the services of an
economic consultant at the expense of the Fund to provide such services with
respect to the Company as the parties to any agreement may agree upon. In
providing these services, the Adviser will provide investment research and
supervision of the Company's investments and conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of the
Company's assets. In addition, the Adviser will furnish the Company with
whatever statistical information the Company may reasonably request with respect
to the securities that the Company may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Company and selecting
brokers or dealers, the Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
Company transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and on a continuing basis. In selecting brokers or dealers to execute any
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Company
and/or other accounts over which the Adviser or an affiliate exercises
investment discretion.
4. Information Provided to the Company
The Adviser will use its best efforts to keep the Company
informed of developments materially affecting the Company, and will, on its own
initiative, furnish the Company from time to time with whatever information the
Adviser believes is appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services described in paragraphs 2, 3 and 4 above. The Adviser shall not be
liable for any error of judgment or mistake of law or for any act or omission or
any loss suffered by the Company in connection with the matters to which this
Agreement relates, provided that nothing herein shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement ("disabling conduct"). The Company will
indemnify the Adviser against, and hold it harmless from, any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses), including any amounts paid in satisfaction of judgments, in
compromise or as fines or penalties, not resulting from disabling conduct by the
Adviser. Indemnification shall be made only following: (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the Adviser 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 Adviser was not liable by reason of disabling conduct by (a) the
vote of a majority of a quorum of directors of the Company who are neither
"interested persons" of the Company nor parties to the proceeding
("disinterested non-party directors") or (b) an independent legal counsel in a
written opinion. The Adviser shall be entitled to advances from the Company for
payment of the reasonable expenses incurred by it in connection with the matter
as to which it is seeking indemnification in the manner and to the fullest
extent permissible under the Maryland General Corporation law. The Adviser shall
provide to the Company a written affirmation of its good faith belief that the
standard of conduct necessary for indemnification by the Company 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: (a) the Adviser shall
provide a security in form and amount acceptable to the Company for its
undertaking; (b) the Company is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of disinterested non-party directors, or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Company at the time the advance is
proposed to be made, that there is reason to believe that the Adviser will
ultimately be found to be entitled to indemnification.
6. Compensation
(a) In consideration of the services rendered pursuant to this
Agreement, the Company will pay the Adviser after the end of the calendar month
during which the Closing Date (as defined below) occurs and after the end of
each calendar month thereafter a fee for the previous month computed monthly at
the annual rate of .625 of 1.00% on the Company's average monthly net assets up
to $100 million and .50 of 1.00% on the Company's average monthly net assets of
$100 million or more. The fee payable to the Adviser for the period from the
date of the closing of the offering contemplated by the Company's initial
registration statement (the "Closing Date") to the end of the first calendar
month during which the Closing Date occurs shall be prorated according to the
proportion that such period bears to the full monthly period.
(b) Upon any termination of this Agreement before the end of a
month, the fee for such part of that month shall be prorated according to the
proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Company's average
monthly net assets shall be computed at the times and in the manner specified in
the Company's Registration Statement as from time to time in effect.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement, including compensation of and
office space for its officers and employees connected with investment and
economic research, trading and investment management and administration of the
Company, as well as the fees of all directors of the Company who are affiliated
with the Adviser or any of its affiliates; provided that the Company shall
reimburse the Adviser for the travel and out-of-pocket expenses or an
appropriate portion thereof of directors, officers and employees of the Adviser
in connection with attendance at meetings of the Board of Directors of the Fund
or any committee thereof. The Company will bear all other expenses to be
incurred in its operation other than those that other parties have agreed to
bear, including: organizational expenses; taxes, interest, brokerage costs and
commissions and stock exchange fees; fees of directors of the Company who are
not officers, directors or employees of the Adviser; Securities and Exchange
Commission fees; state Blue Sky qualification fees; charges of the custodian,
any subcustodians and transfer and dividend-paying agent; expenses in connection
with the Company's Dividend Reinvestment and Cash Purchase Plan; insurance
premiums; outside auditing and legal expenses; costs of maintenance of the
Company's existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of printing stock
certificates; costs of shareholders' reports and meetings of the shareholders of
the Company and of the officers or Board of Directors of the Company; membership
fees in trade associations; stock exchange listing fees and expenses; expenses
in connection with auctions of shares of auction rate preferred stock proposed
to be issued by the Company; litigation and other extraordinary or non-recurring
expenses.
8. Services to Other Companies or Accounts
The Company understands that the Adviser now acts, will
continue to act or may in the future act, as investment adviser to fiduciary and
other managed accounts or as investment adviser to one or more other investment
companies, and the Company has no objection to the Adviser so acting, provided
that whenever the Company and one or more other accounts or investment companies
advised by the Adviser have available funds for investment, investments suitable
and appropriate for each will be allocated in accordance with procedures
believed by the Adviser to be equitable to each entity. Similarly, opportunities
to sell securities will be allocated in an equitable manner. The Company
recognizes that in some cases this procedure may adversely affect the size of
the position obtained for or disposed of by the Company. In addition, the
Company understands that the persons employed by the Adviser to assist in the
performance of the Adviser's duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of the Adviser or any affiliate of the Adviser to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the
Company's Registration Statement is declared effective by the Securities and
Exchange Commission and shall continue for an initial two-year term and shall
continue thereafter so long as such continuance is specifically approved at
least annually by (i) the Board of Directors of the Company or (ii) a vote of a
"majority" (as defined in the Investment Company Act of 1940, as amended) of the
Company's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Directors who are not
"interested persons" as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Directors of the Company or by vote of holders of a
majority of the Company's shares, or upon 60 days' written notice, by the
Adviser. This Agreement will also terminate automatically in the event of its
assignment (as defined in said Act).
<PAGE>
10. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
11. Governing Law
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the conflicts of laws principles thereof.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
PREFERRED INCOME FUND INCORPORATED
By: Robert T. Flaherty
Title: President
Accepted:
FLAHERTY & CRUMRINE INCORPORATED
By: Donald F. Crumrine
Title: Vice President
AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
The Administration Agreement of PREFERRED INCOME FUND INCORPORATED, a
Maryland corporation (the "Fund") made and agreed to by and between the Fund and
THE BOSTON COMPANY ADVISORS, INC., a Massachusetts corporation ("Boston
Advisors"), on January 24, 1991, as amended and restated on March 1, 1993 and as
assigned by Boston Advisors to FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("FDISG"), (then known as The Shareholder Services
Group, Inc.) on April 29, 1994, is hereby further amended and restated as of
December 1, 1996 to read in its entirety as follows:
WHEREAS, the Fund is registered as a diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain FDISG to render certain
administrative services to the Fund and FDISG is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual convenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints FDISG to act as Administrator of
the Fund on the terms set forth in this Agreement. FDISG accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Fund has furnished FDISG with copies properly
certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of FDISG to provide certain administrative services to the Fund and
approving this Agreement;
(b) The Fund's Articles of Incorporation filed with the
Maryland Department of Assessments and Taxation on September 28, 1990 and all
amendments thereto (the "Articles");
(c) The Fund's By-Laws and all amendments thereto (the "By-Laws");
(d) The Investment Advisory Agreement between Flaherty &
Crumrine Incorporated (the "Adviser") and the Fund dated as of January 24, 1991
as amended and restated from time to time (the "Advisory Agreement");
(e) The Custody Agreement between Boston Safe Deposit and
Trust Company (the "Custodian") and the Fund dated as of January 24, 1991 as
amended and restated from time to time (the "Custody Agreement");
(f) The Transfer Agency and Registrar Agreement between The Shareholder
Services Group, Inc. (the "Transfer Agent") and the Fund dated as of January 24,
1991 as amended and restated from time to time;
(g) The Fund's most recent Registration Statement on Form N-2
(the "Registration Statement") under the Securities Act of 1933 and under the
1940 Act (File Nos. 33-37104 and 811-6179), as filed with the Securities and
Exchange Commission ("SEC") on January 24, 1991 relating to shares of the Fund's
Common Stock, $.01 par value per share, and all amendments thereto; and
(h) The Fund's most recent prospectus (the "Prospectus").
The Fund will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Fund will provide FDISG with any other documents
that FDISG may reasonably request and will notify FDISG as soon as possible of
any matter materially affecting the performance of FDISG of its services under
this agreement.
3. Duties as Administrator. Subject to the supervision and direction of the
Board of directors of the Fund, FDISG, as Administrator, will assist in
supervising various aspects of the Fund's administrative operations and
undertakes to perform the following specific services:
(a) Maintaining office facilities (which may be in the offices of FDISG or
a corporate affiliate);
(b) Furnishing statistical and research data, data processing
services, clerical services, and internal legal, executive the administrative
services and stationery and office supplies in connection with the foregoing;
(c) Furnishing corporate secretarial services including preparation and
distribution of materials for Board of Directors meetings;
(d) Accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Fund as may be required
by section 31(a) of the 1940 Act and the rules thereunder);
(e) Internal auditing;
(f) Valuing the Fund's assets and calculating the net asset
value of the shares of the Fund at the close of trading on the New York Stock
Exchange (the "NYSE") on the last day on which the NYSE is open for trading of
each week and month and at such other times as the Board of Directors may
reasonably request;
(g) Accumulating information for and, subject to approval by
the Fund's Treasurer, preparing reports to the Fund's shareholders of record and
the SEC including, but not necessarily limited to, Annual Reports and
Semi-Annual Reports on Form N-SAR;
(h) Preparing and filing various reports or other documents
required by federal, state and other applicable laws and regulations and by
stock exchanges on which the shares of the Fund are listed, other than those
filed or required to be filed by the Adviser or Transfer Agent;
(i) Preparing and filing the Fund's tax returns;
(j) Assisting the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Fund which will include,
among other matter, procedures to assist the Adviser in monitoring compliance
with the Fund's investment objective, policies, restrictions, tax matters and
applicable laws and regulations; and
(k) Preparing and furnishing the Fund (at the Fund's request)
with the performance information (including yield and total return information)
calculated in accordance with applicable U.S. securities laws and reporting to
external databases such information as may reasonably be requested.
In performing all services under this Agreement, FDISG shall
act in conformity with the Fund's Articles and By-Laws; the 1940 Act and the
Investment Advisers Act of 1940, as the same may be amended from time to time;
and the investment objective, investment policies and other practices and
policies set forth in the Fund's Registration Statement as such Registration
Statement and practices and policies may be amended from time to time.
4. Allocation of Expenses. FDISG shall bear all expenses in connection with
the performance of its services under this Agreement.
(a) FDISG will from time to time employ or associate with
itself such person or persons as FDISG may believe to be particularly suited to
assist it in performing services under this Agreement. Such person or persons
may be officers and employees who are employed by both FDISG and the Fund. The
compensation of such person or persons shall be paid by FDISG and no obligation
shall be incurred on behalf of the Fund in such respect.
(b) FDISG shall not be required to pay any of the following
expenses incurred by the Fund: membership dues in the Investment Company
Institute or any similar organization; investment advisory expenses; costs of
printing and mailing stock certificates, prospectuses, reports and notices;
interest on borrowed money; brokerage commissions; taxes and fees payable to
Federal, state and other governmental agencies; fees of Directors of the Fund
who are not affiliated with FDISG; outside auditing expenses; outside legal
expenses; or other expenses not specified in this Section 4 which may be
properly payable by the Fund.
(c) For the services to be rendered, the facilities to be
furnished and the payments to be made by FDISG, as provided for in this
Agreement, the Fund will pay FDISG the fees in accordance with the Amended and
Restated Fee Agreement among the Fund, Boston Safe Deposit and Trust Company and
FDISG dated March 1, 1993 and attached hereto as Schedule A.
(d) The Fund will compensate FDISG for its services rendered
pursuant to this Agreement in accordance with the fees set forth above. Such
fees do not include out-of-pocket disbursements of FDISG for which FDISG shall
be entitled to bill separately. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedule B, annexed hereto and
incorporated herein, which schedule may be modified by FDISG upon not less than
thirty days' prior written notice to the Fund.
(e) FDISG will bill the Fund as soon as practicable after the end of each
calendar month, and said billings will be detailed in accordance with the
out-of-pocket schedule. The Fund will promptly pay to FDISG the amount of such
billing.
5. Limitation of Liability. FDISG shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of its obligations and duties under this Agreement, except
a loss resulting from FDISG' willful misfeasance, bad faith or gross negligence
in the performance of such obligations and duties, or by reason of its reckless
disregard thereof. The Fund will indemnify FDISG against and hold it harmless
from any and all losses, claims, damages, liabilities of expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand, action
or suit not resulting from the willful misfeasance, bad faith or gross
negligence of FDISG in the performance of such obligations and duties or by
reason of its reckless disregard thereof.
6. Termination of Agreement.
(a) This Agreement shall become effective on the date hereof
and shall remain in force from year to year so long as such continuance is
specifically approved at least annually by the Board of Directors of the Fund or
unless terminated pursuant to the provisions of subsection (b) of this Section
6.
(b) This Agreement may be terminated at any time without
payment of any penalty, upon 60 days' written notice, by vote of the holders of
a majority of the outstanding voting securities of the Fund, or by vote of a
majority of the Board of Directors of the Fund, or by the FDISG.
7. Amendment to this Agreement. No provisions of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or FDISG shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Preferred Income Fund Incorporated
c/o Flaherty & Crumrine Incorporated
301 E. Colorado Blvd-Suite 720
Pasadena, CA 91101
Attention: Robert T. Flaherty
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive, 2AW45
Westborough, Massachusetts 01581
Attention: Christine P. Ritch, Esquire
(b) This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
(d) This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute shall be deemed to constitute only
one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data pertaining
to the business of the Fund that are exchanged or received pursuant to the
performance of FDISG' duties under this Agreement shall remain confidential and
shall not be voluntarily disclosed to any other person, except as specifically
authorized by the Fund or as may be required by law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date,
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By Richard Silver
Title: Excutive Vice President
PREFERRED INCOME FUND
INCORPORATED
By: ROBERT T. FLAHERTY
Title: President
SCHEDULE A
FEE SCHEDULE
In consideration of the services which FDISG shall perform for the Fund
pursuant to this Agreement, the Fund hereby agrees to pay FDISG an aggregate
monthly fee at the annual rate of: 0.12 of 1.00% of the value of the Fund's
average monthly net assets which, for the purposes of calculating such fee, will
be deemed to be the average monthly value of the Fund's total assets minus the
sum of the Fund's liabilities (excluding aggregate liquidation preference on the
outstanding shares of the Fund's auction rate preferred stock and accumulated
dividends, if any, thereon).
The fee for the period from the date the Registration Statement is
declared effective by the Securities and Exchange Commission to the end on the
month during which the Registration Statement is declared effective shall be
prorated according to the proportion that such period bears to the full monthly
period. Upon any termination of this Agreement before the end of any month, the
fee for such part of a month shall be prorated according to the proportion which
such period bears to the full monthly period and shall be payable upon the date
of termination of this Agreement.
>
SCHEDULE B
PREFERRED INCOME FUND INCORPORATED
Out-Of-Pocket Expenses
Administration Agreement
Out-of Pocket expenses include, but are not limited to, the following:
o Postage
o Telephone and telecommunications charges
o Pricing services
o Travel to/from Board meetings
AMENDED AND RESTATED
TRANSFER AGENCY AND REGISTRAR AGREEMENT
The Transfer Agency and Registrar Agreement of PREFERRED INCOME FUND
INCORPORATED, (the "Fund"), a corporation organized under the laws of Maryland
and having its principal place of business at 301 E. Colorado Blvd., Pasadena,
California 91101, made and agreed to by and between the Fund and FIRST DATA
INVESTOR SERVICES GROUP, INC. (the "Transfer Agent"), (then known as The
Shareholder Services Group, Inc.) a Massachusetts corporation with principal
offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109 on
January 24, 1991, as amended on October 22, 1992, and further amended on
February 11, 1993, is hereby amended and restated as of December 1, 1996, to
read in its entirety as follows:
WI T N E S S E T H
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board of Directors,
Board of Trustees or, if the Fund is a limited partnership, the General
Partner(s) of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this Agreement, and
if it is a series fund, as such term is used in the 1940 Act, such term shall
mean each series of the Fund hereafter created, except that appropriate
documentation with respect to each series must be presented to the Transfer
Agent before this Agreement shall become effective with respect to each such
series.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person.
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus, including any supplements thereto if any, which has become effective
under the Securities Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital
stock, beneficial interest or limited partnership interests, as the case may be,
of the Fund as may be issued from time to time and, if the Fund is a closed-end
or a series fund, as such terms are used in the 1940 Act any other classes or
series of stock, shares of beneficial interest or limited partnership interests
that may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital
stock, beneficial interest or any other class or series, and also refers to
partners of limited partnerships.
(1) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an Authorized
Person and actually received by the Transfer Agent. Written Instructions shall
include manually executed originals and authorized electronic transmissions,
including telefacsimile of a manually executed original or other process.
2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund, as shareholder servicing agent for the
Fund, and as plan agent under the Fund's Dividend Reinvestment and Cash Purchase
Plan. The Transfer Agent accepts such appointments and agrees to perform the
duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer Agent to be
compensated for the performance of its obligations hereunder in accordance with
the fees set forth in the written schedule of fees annexed hereto as Schedule A
and incorporated herein. The Transfer Agent will transmit an invoice to the Fund
as soon as practicable after the end of each calendar month which will be
detailed in accordance with Schedule A, and the Fund will pay to the Transfer
Agent the amount of such invoice within fifteen (15) days after the Fund's
receipt of the invoice.
In addition, the Fund agrees to pay, and will be billed separately for,
out-of-pocket expenses incurred by the Transfer Agent in the performance of its
duties hereunder. Out-of-pocket expenses shall include, but shall not be limited
to, the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule B and incorporated herein. Schedule B may be modified by the
Transfer Agent upon not less than 30 days' prior written notice to the Fund.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by the Transfer Agent in the performance of its
obligations hereunder. Reimbursement by the Fund for expenses incurred by the
Transfer Agent in any month shall be made as soon as practicable but no later
than 15 days after the receipt of an itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed and
dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent
the Fund shall deliver or caused to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect, but
in any case within a reasonable period of time for the Transfer Agent to prepare
to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares of the Fund;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the Fund;
(c) A signature card bearing the signatures of any officer of
the Fund or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions;
(d) A certified copy of the Articles of Incorporation, as amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with the
name, address and taxpayer identification number of each Shareholder, and the
number of Shares of the Fund held by each, certificate numbers and denominations
(if any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the Securities Act of
1933, as amended.
5. Further Documentation. The Fund will also furnish the Transfer Agent
with copies of the following documents promptly after the same shall become
available:
(a) each resolution of the Board of Directors authorizing the issuance of
Shares;
(b) any registration statements filed on behalf of the Fund and all
pre-effective and post-effective amendments thereto filed with the Commission;
(c) a certified copy of each amendment to the Articles of Incorporation or
the By-laws of the Fund;
(d) certified copies of each resolution of the Board of Directors or other
authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the
Transfer Agent may reasonably request in connection with the performance of its
duties hereunder.
6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms of
the Fund's Articles of Incorporation and its Prospectus, such Shares shall be
validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution payable in Shares, the Fund
shall deliver or cause to be delivered to the Transfer Agent written notice of
such declaration signed on behalf of the Fund by an officer thereof, upon which
the Transfer Agent shall be entitled to rely for all purposes, certifying (i)
the identity of the Shares involved, (ii) the number of Shares involved, and
(iii) that all appropriate action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a transfer agent; for acting as service agent in connection with
dividend and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the Custodian) of Shares
in accordance with the terms of the Prospectus and applicable law. The operating
standards and procedures to be followed shall be determined from time to time by
agreement between the Fund and the Transfer Agent and shall initially be as
described in Schedule C attached hereto. In addition, the Fund shall deliver to
the Transfer Agent all notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or By-laws of the
Fund or as required by law and shall perform such other specific duties as are
set forth in the Articles of Incorporation including the giving of notice of any
special or annual meetings of shareholders and any other notices required
thereby.
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties hereunder
and as set forth in Schedule C in accordance with all applicable laws, rules and
regulations, including records required by Section 31(a) of the 1940 Act. All
records shall be available during regular business hours for inspection and use
by the Fund. Where applicable, such records shall be maintained by the Transfer
Agent for the periods and in the places required by Rule 31a-2 under the 1940
Act.
Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any person retained by the Fund as may
be necessary for the Fund to evaluate the quality of the services performed by
the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions, and shall be
paid such amounts therefor, as may from time to time be agreed upon in writing
between the Fund and the Transfer Agent. The compensation for such other duties
and functions shall be reflected in a written amendment to Schedule A or B and
the duties and functions shall be reflected in an amendment to Schedule C, both
dated and signed by authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund pursuant to Section 4(c). The Transfer Agent will also
have no liability when processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the officers of
the Fund and the proper countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any
Authorized Person of the Fund for Written Instructions and may seek advice from
legal counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any
action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Fund or for the Transfer Agent. Written Instructions requested by the Transfer
Agent will be provided by the Fund within a reasonable period of time. In
addition, the Transfer Agent, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect the Transfer Agent's right
to rely on Oral Instructions. The Transfer Agent shall have no duty or
obligation to inquire into, nor shall the Transfer Agent be responsible for, the
legality of any act done by it upon the request or direction of a person
reasonably believed by the Transfer Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale of
any Shares or the sufficiency of the amount to be received therefor; (ii) the
legality of the redemption of any Shares, or the propriety of the amount to be
paid therefor; (iii) the legality of the declaration of any dividend by the
Board of Directors, or the legality of the issuance of any Shares in payment of
any dividend; or (iv) the legality of any recapitalization or readjustment of
the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war, riots,
or failure or unavailability of transportation, communication or power supply,
fire, flood or other catastrophe.
13. Duty of Care and Indemnification. The Fund will indemnify the
Transfer Agent against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses of any sort or kind (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit or
other proceeding (a "Claim") unless such Claim has been judicially determined to
have resulted from a negligent failure to act or omission to act or bad faith of
the Transfer Agent in the performance of its duties hereunder. In addition, the
Fund will indemnify the Transfer Agent against and hold it harmless from any
Claim, damages, liabilities or expenses (including reasonable counsel fees) that
is a result of: (i) any action taken in accordance with Written or Oral
Instructions, or any other instructions, or share certificates reasonably
believed by the Transfer Agent to be genuine and to be signed, countersigned or
executed, or orally communicated by an Authorized Person; (ii) any action taken
in accordance with written or oral advice reasonably believed by the Transfer
Agent to have been given by counsel for the Fund or its own counsel; or (iii)
any action taken as a result of any error or omission in any record (including
but not limited to magnetic tapes, computer printouts, hard copies and microfilm
copies) delivered, or caused to be delivered by the Fund to the Transfer Agent
in connection with this Agreement.
In any case in which the Fund may be asked to indemnify or hold the
Transfer Agent harmless, the Fund shall be advised of all pertinent facts
concerning the situation in question. The Transfer Agent will notify the Fund
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Fund although the
failure to do so shall not prevent recovery by the Transfer Agent. The Fund
shall have the option to defend the Transfer Agent against any Claim which may
be the subject of this indemnification, and, in the event that the Fund so
elects, such defense shall be conducted by counsel chosen by the Fund and
satisfactory to the Transfer Agent, and thereupon the Fund shall take over
complete defense of the Claim and the Transfer Agent shall sustain no further
legal or other expenses in respect of such Claim. The Transfer Agent will not
confess any Claim or make any compromise in any case in which the Fund will be
asked to provide indemnification, except with the Fund's prior written consent.
The obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances shall
either party under this Agreement be liable to the other party for consequential
or indirect loss of profits, reputation or business or any other special damages
under any provision of this Agreement or for any act or failure to act
hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first
written above and shall continue in effect from year to year so long as such
continuance is specifically approved at least annually by the Board of Directors
of the Fund, provided that it may be terminated by either party upon 90 days
written notice.
(b) In the event a termination notice is given by the Fund, it
shall be accompanied by a resolution of the Board of Directors, certified by the
Secretary of the Fund, designating a successor transfer agent or transfer
agents. Upon such termination and at the expense of the Fund, the Transfer Agent
will deliver to such successor a certified list of shareholders of the Fund
(with names and addresses), and all other relevant books, records,
correspondence and other Fund records or data in the possession of the Transfer
Agent, and the Transfer Agent will cooperate with the Fund and any successor
transfer agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of the Commission
or other governmental agency. The parties further agree that a breach of this
provision would irreparably damage the other party and accordingly agree that
each of them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision.
17. Amendment. This Agreement may only be amended or
modified by a written instrument
executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer Agent may, in its
discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or the Transfer
Agent, shall be sufficiently given if addressed to that party and received by it
at its office set forth below or at such other place as it may from time to time
designate in writing.
To the Fund:
Preferred Income Fund Incorporated
301 E. Colorado Blvd., Suite 720
Pasadena, California 91101
Attention: Robert T. Flaherty
To the Transfer Agent:
First Data Investor Services Group, Inc.
4400 Computer Drive, 2AW45
Westborough, Massachusetts 01581
Attention: Steven Sunnerberg, Esquire
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person other
than a person controlling, controlled by or under common control with the
assignor without the written consent of the other party, which consent shall not
be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of New York without reference to the choice
of law provisions thereof. Each party hereto hereby agrees that (i) the Supreme
Court of New York sitting in New York County shall have exclusive jurisdiction
over any and all disputes arising hereunder; (ii) hereby consents to the
personal jurisdiction of such court over the parties hereto, hereby waiving any
defense of lack of personal jurisdiction; and (iii) appoints the person to whom
notices hereunder are to be sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material relating
to the Fund in a manner not approved prior thereto in writing; provided, that
the Transfer Agent need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or which are
required by any government agency or applicable law or rule. Notwithstanding the
foregoing, any reference to the Transfer Agent shall include a statement to the
effect that it is a wholly owned subsidiary of American Express Information
Services Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms for
other than internal use in a manner not approved prior thereto in writing;
provided, that the Fund need only receive notice of all reasonable uses of its
name which merely refer in accurate terms to the appointment of the Transfer
Agent or which are required by any government agency or applicable law or rule.
(h) Independent Contractors. The parties agree that they are independent
contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties hereto
relating to the matters covered hereby and supersede any previous agreements. If
any provision is held to be illegal, unenforceable or invalid for any reason,
the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers, as of the day and
year first above written.
PREFERRED INCOME FUND INCORPORATED
By: ROBERT T. FLAHERTY
Title: President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: GERALD KOKOS
Title: Executive Vice President
SCHEDULE A
FEE SCHEDULE
In consideration of the services which the Transfer Agent shall perform
for the Fund pursuant to the Fund's Transfer Agency and Registrar Agreement, the
Fund hereby agrees to pay an aggregate monthly fee to the Transfer Agent under
the Agreement as follows: an annual fee equal to .02% (two basis points) of the
value of the Fund's average monthly net assets which for the purposes of
calculating such fee, will be deemed to be the average monthly value of the
Fund's total assets minus the sum of the Fund's liabilities (excluding aggregate
liquidation preference on the outstanding shares of the Fund's auction rate
preferred stock and accumulated dividends, if any, thereon).
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery - Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Fund - Due diligence mailings - Telephone
and telecommunication costs, including all lease, maintenance and line
costs - Ad hoc reports - Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings - Shipping, Certified and
Overnight mail and insurance
-Year-end form production and mailings
- Terminals, communication lines, printers and other equipment -
Duplicating services - Courier services - Incoming and outgoing wire
charges - Overtime, as approved by the Fund - Temporary staff, as
approved by the Fund - Travel and entertainment, as approved by the
Fund - Federal Reserve charges for check clearance - Record retention,
retrieval and destruction costs - Third party audit reviews - All
conversion costs: including System start up costs - All Systems
enhancements after the conversion at the rate of $95.00 per hour -
Insurance
- Such other miscellaneous expenses reasonably incurred by the Transfer
Agent in performing its duties and responsibilities under this
Agreement.
- Dropsite Fees
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition, the
Fund will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Fund and the Transfer Agent
mutually agree that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its agent shall
maintain a record of the number of Shares held by each holder of record which
shall include name, address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to Shareholder
accounts and will respond to all communications from Shareholders and others
relating to its duties hereunder and such other correspondence as may from time
to time be mutually agreed upon between the Transfer Agent and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates to meet
the Transfer Agent or its agent's requirements therefor. Such Share certificates
shall be properly signed by facsimile. The Fund agrees that, notwithstanding the
death, resignation, or removal of any officer of the Fund whose signature
appears on such certificates, the Transfer Agent or its agent may continue to
countersign certificates which bear such signatures until otherwise directed by
Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement
Share certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly executed
affidavits and lost certificate bonds, in form satisfactory to the Transfer
Agent or its agent, with the Fund and the Transfer Agent or its agent as
obligees under the bond.
(c) The Transfer Agent or its agent shall also maintain a
record of each certificate issued, the number of Shares represented thereby and
the holder of record. With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued with respect thereto, the
Transfer Agent or its agent shall maintain comparable records of the record
holders thereof, including their names, addresses and taxpayer identification.
The Transfer Agent or its agent shall further maintain a stop transfer record on
lost and/or replaced certificates.
<PAGE>
C-2
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to Shareholders of the Fund,
all reports to Shareholders, dividend and distribution notices and proxy
material for the Fund's meetings of Shareholders. In connection with meetings of
Shareholders, the Transfer Agent or its Agent will prepare Shareholder lists,
mail and certify as to the mailing of proxy materials, process and tabulate
returned proxy cards, report on proxies voted prior to meetings, act as
inspector of election at meetings and certify Shares voted at meetings.
5. Sales of Shares.
(a) Suspension of Sale of Shares. The Transfer Agent or its
agent shall not be required to issue any Shares of the Fund where it has
received a Written Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been suspended
or discontinued. The existence of such Written Instructions or such official
notice shall be conclusive evidence of the right of the Transfer Agent or its
agent to rely on such Written Instructions or official notice.
(b) Returned Checks. In the event that any check or other
order for the payment of money is returned unpaid for any reason, the Transfer
Agent or its agent will: (i) give prompt notice of such return to the Fund or
its designee; (ii) place a stop transfer order against all Shares issued as a
result of such check or order; and (iii) take such actions as the Transfer Agent
may from time to time deem appropriate.
6. Transfer.
(a) Requirements for Transfer of Shares. The Transfer Agent or
its agent shall process all requests to transfer Shares in accordance with oral
or written instructions or otherwise pursuant to the transfer procedures set
forth in the Fund's Prospectus.
The Transfer Agent or its agent will transfer Shares upon
receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus
and Share certificates, if any, properly endorsed for transfer, accompanied by
such documents as the Transfer Agent or its agent reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse
to transfer Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. The Transfer Agent or its agent also reserves
the right to refuse to transfer Shares until it is satisfied that the requested
transfer is legally authorized, and it shall incur no liability for the refusal,
in good faith, to make transfers which the Transfer Agent or its agent, in its
good judgment, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer.
<PAGE>
C-3
7. Dividends.
(a) Notice to Agent and Custodian. Upon the declaration of
each dividend and each capital gains distribution by the Board of Directors of
the Fund with respect to Shares of the Fund, the Fund shall furnish or cause to
be furnished to the Transfer Agent or its agent a copy of a resolution of the
Fund's Board of Directors certified by the Secretary of the Fund setting forth
the date of the declaration of such dividend or distribution, the ex-dividend
date, the date of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount payable to the Transfer
Agent or its agent on the payment date and whether such dividend or distribution
is to be paid in Shares of such class at net asset value.
On or before the payment date specified in such resolution of
the Board of Directors, the Custodian of the Fund will pay to the Transfer Agent
sufficient cash to make payment to the shareholders of record as of such payment
date that are not participating in the Fund's Dividend Reinvestment and Cash
Purchase Plan.
(b) Insufficient Funds for Payments. If the Transfer Agent or
its agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Fund as of the
record date, the Transfer Agent or its agent will, upon notifying the Fund,
withhold payment to all Shareholders of record as of the record date until
sufficient cash is provided to the Transfer Agent or its agent.
C-4
Exhibit 1
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall
be as follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant, etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be
referred to the Fund).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the
Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an agreed-upon
period of time for determining whether good funds have
been collected with respect to such purchase and process
as agreed by the Agent in accordance with written
instruments set forth by the Fund.
o Examine and process all transfers of Shares, ensuring that
all transfer requirements and legal documents have been
supplied.
<PAGE>
C-5
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges between accounts.
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and distributions as instructed by
the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the
Fund. Report to the Fund reinvestment plan share
purchases and determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies
(proxies must be adaptable to mechanical equipment of the
Agent or its agents) and supply daily reports when
sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if
requested by the Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other
enclosures requested by the Fund (material must be
adaptable to mechanical equipment of Agent or its agents).
o Receive all notices issued by the Fund with respect to the
Preferred Shares in accordance with and pursuant to the
Articles of Incorporation and the Indenture and perform
such other specific duties as are set forth in the
Articles of Incorporation including a giving of notice of
a special meeting and notice of redemption in the
circumstances and otherwise in accordance with all
relevant provisions of the Articles of Incorporation.
ECONOMIC CONSULTING AGREEMENT
October 18, 1996
Primark Decision Economics, Inc.
260 Franklin Street
15th Floor
Boston, MA 02110
Ladies and Gentlemen:
Preferred Income Fund Incorporated, Preferred Income
Opportunity Fund Incorporated and Preferred Income Management Fund Incorporated
(each a "Company" and together the "Companies"), each a corporation organized
under the laws of the State of Maryland, each herewith confirms its agreement
with Primark Decision Economics, Inc. (the "Economic Consultant"), a corporation
organized under the laws of the Commonwealth of Massachusetts, and for good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Investment Description; Appointment
Each Company desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Articles of Incorporation, as the same may from time to time be
amended, and in such manner and to such extent as may from time to time be
approved by the Board of Directors of the Company. Each Company desires to
employ and hereby appoint the Economic Consultant to act as economic consultant
to the Company. The Economic Consultant accepts the appointment and agrees to
furnish the services described herein for the compensation set forth below.
2. Services as Economic Consultant
The Economic Consultant will provide the services set forth in
Exhibit A and such other services reasonably incidental thereto.
3. Standard of Care
The Economic Consultant shall exercise its best judgment in
rendering the services described in paragraph 2 above. The Economic Consultant
shall not be liable for any error of judgment or mistake of law or for any act
or omission or any loss suffered by the Companies or by Flaherty & Crumrine
Incorporated (the "Adviser") in connection with the matters to which this
Agreement relates, provided that nothing herein shall be deemed to protect or
purport to protect the Economic Consultant against any liability to the Adviser,
the Companies or their shareholders to which the Economic Consultant would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
4. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Companies will pay the Economic Consultant an annual fee, such
amount to be paid in equal quarterly installments, in the aggregate amount of
$136,000, each Company to be solely responsible for payment of one-third of such
amount. The Economic Consultant agrees that no Company will be responsible to
pay amounts owed to the Economic Consultant by any other Company. The fee
payable to the Economic Consultant for the period from the date of this
Agreement to the end of the first calendar quarter thereafter shall be prorated
according to the proportion that such payment bears to the full quarterly
payment.
5. Expenses
The Economic Consultant will bear all expenses in connection
with the performance of its services under this Agreement. Each Company will
bear certain other expenses to be incurred in its operation, including:
organizational expenses, taxes, interest, brokerage costs and commissions and
stock exchange fees; fees of directors of the Company who are not officers,
directors or employees of the Adviser; Securities and Exchange Commission fees;
state Blue Sky qualification fees; charges of the custodian, any sub-custodians
and transfer and dividend-paying agent; expenses in connection with the
Company's Dividend Reinvestment and Cash Purchase Plan; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of printing stock
certificates; costs of shareholders' reports and meetings of the shareholders of
the Company and of the officers or Board of Directors of the Company; membership
fees in trade associations; stock exchange listing fees and expenses; expenses
in connection with auctions of shares of auction rate preferred stock proposed
to be issued by the Company; litigation and other extraordinary or non-recurring
expenses.
6. Services to Other Companies or Accounts
Each Company understands that the Economic Consultant now
acts, will continue to act or may act in the future as economic adviser or
investment adviser to fiduciary and other managed accounts or as economic
adviser or investment adviser to one or more other investment companies, and the
Company has no objection to the Economic Consultant so acting. Each Company
understands that the persons employed by the Economic Consultant to assist in
the performance of the Economic Consultant's duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of the Economic Consultant or any affiliate of the
Economic Consultant to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
7. Term of Agreement
This Agreement shall become effective as of the date hereof
and shall remain in effect with respect to a Company from year to year so long
as such continuance is specifically approved at least annually by the Board of
Directors of the Company. This Agreement is terminable with respect to each
Company separately by that Company or by the Economic Adviser on 60 days'
written notice to the other party. Any termination with respect to one Company
shall not affect the continued operation of the Agreement with respect to any
other Company. Any termination shall be without penalty and any notice of
termination shall be deemed given when received by the addressee.
8. No Assignment
This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by any party hereto. It may be amended by
mutual agreement in writing by the parties hereto.
9. Entire Agreement
This Agreement constitutes the entire agreement among the
parties hereto.
10. Governing Law
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the conflicts of laws principles thereof.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY
FUND INCORPORATED
PREFERRED INCOME MANAGEMENT
FUND INCORPORATED
By:ROBERT T. FLAHERTY
Robert T. Flaherty
Chief Executive Officer
Accepted:
PRIMARK DECISION ECONOMICS, INC.
By: ALLEN SINAI
Allen Sinai
Chief Executive Officer
CLIENT AGREEMENT
Prepared for: Preferred Income Fund
Preferred Income Opportunity Fund
Preferred Income Management Fund
Services of Primark Decision Economics, Inc. ("PDE") provided to the
above-listed investment companies ("Clients") as outlined in the attached
Economic Consulting Agreement.
PRIMARK DECISION ECONOMICS, INC.
By:
Allen Sinai
Chief Executive Officer
Accepted and agreed this 18th day of October, 1996.
PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
PREFERRED INCOME MANAGEMENT FUND INCORPORATED
By: ROBERT T. FLAHERTY
Robert T. Flaherty
Chief Executive Officer
EXHIBIT A
Information Services
o Economic Consultant - The Economic Consultant may be designated as
such, where desired, in any literature relating to the Companies.
o Economic Adviser - Dr. Allen Sinai may be designated as the
Economic Adviser to the Companies, where
desired, in any literature relating to the Companies.
o Publications - Selected publications will be provided to the
Adviser on behalf of the Companies as indicated in Attachment A.
o Strategic Planning - Periodic (4 to 5 and, as needed) in person
or telephone strategy sessions with Dr. Allen Sinai.
o Priority Telephone Access - Telephone access to Dr. Allen Sinai and
other senior staff of the Economic Consultant, including Managing
Directors Pierre Ellis and David Kelly, initiated by the Adviser on
behalf of the Companies.
o Consultations with the Economic Consultant's Economists and Staff -
may be initiated by individuals from any of the Companies at any
time on data, other information, Washington policy, etc.
High-Frequency Personal Information Support
o High frequency telephone support from Pierre Ellis to the Adviser
on U.S. and international economic
indicators and from Dr. Allen Sinai on the most key indicators.
o Telephone support to the Adviser from David Kelly on macroeconomic
trends as they pertain to the banking and utility industries.
Telecommunication
o Tele-conference calls by the Economic Consultant, on notice, with
other clients.
Customized Economic Research and Projects
o At the request of the Companies, the Economic Consultant will
provide customized economic research and/or conduct economic
projects, subject to such additional fees as are agreed upon in
advance.
<PAGE>
Attachment A
Publications:
1. Weekly Executive Summary (Sinai) -- Fax, Internet (not mailed)
2. Daily Staff Summary (worldwide, staff) -- Fax (not mailed)
3. Comments on Current Economic Indicators and Events (worldwide, staff) --
Fax (not mailed)
4. Forecast Calendars -- U.S., Germany, Japan -- Fax (not mailed)
5. Bulletins (periodic) -- Fax, mail
6. Economic Outlook and Issues (monthly, 10 times per year) -- mail
7. World Economic View (quarterly, 3 times a year) -- mail
8. Global Economic Developments in review (weekly) -- mail
9. Prospects (biweekly) -- mail
Consent of Independent Accountants
To the Board of Directors
Preferred Income Fund Incorporated:
We consent to the incorporation by reference in Amendment No. 9 to the
Registration Statement of Preferred Income Fund Incorporated on Form N-2 (File
No. 811-06179) of our report dated January 3, 1997, on our audit of the
financial statements and financial highlights of the Fund, which report is
included in the Annual Report to shareholders for the fiscal year ended November
30, 1996, which is incorporated by reference in the Amendment to the
Registration Statement.
Boston, Massachusetts Coopers & Lybrand L.L.P.
March 24, 1997 /s/ Coopers & Lybrand L.L.P.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> PREFERRED INCOME FUND INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 206,741,156
<INVESTMENTS-AT-VALUE> 218,907,932
<RECEIVABLES> 3,768,998
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,712
<TOTAL-ASSETS> 222,697,642
<PAYABLE-FOR-SECURITIES> 2,013,774
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 595,927
<TOTAL-LIABILITIES> 2,609,701
<SENIOR-EQUITY> 57,500,000
<PAID-IN-CAPITAL-COMMON> 141,866,782
<SHARES-COMMON-STOCK> 9,838,571
<SHARES-COMMON-PRIOR> 9,838,571
<ACCUMULATED-NII-CURRENT> 1,526,596
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,027,787
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,166,776
<NET-ASSETS> 220,087,941
<DIVIDEND-INCOME> 15,588,565
<INTEREST-INCOME> 198,037
<OTHER-INCOME> 0
<EXPENSES-NET> 2,316,493
<NET-INVESTMENT-INCOME> 13,470,109
<REALIZED-GAINS-CURRENT> 8,833,647
<APPREC-INCREASE-CURRENT> (2,414,862)
<NET-CHANGE-FROM-OPS> 19,888,894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,615,834)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,795,556
<ACCUMULATED-NII-PRIOR> 143,497
<ACCUMULATED-GAINS-PRIOR> (1,045,010)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,182,796
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,316,493
<AVERAGE-NET-ASSETS> 211,504,730
<PER-SHARE-NAV-BEGIN> 15.80
<PER-SHARE-NII> 1.37
<PER-SHARE-GAIN-APPREC> 0.65
<PER-SHARE-DIVIDEND> (1.08)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.50
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
