As filed with the Securities and Exchange Commission
on March 27, 1997
File Nos. 811-06495
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
Registration Statement Under the
Investment Company Act of 1940
Amendment No. 6
PREFERRED INCOME OPPORTUNITY 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 Opportunity Fund Incorporated
One Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
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* All items required to be set forth in Part B: Statement of Additional
Information have been included in Part A: The Prospectus.
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
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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
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Part A - INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Outside Front Cover
(1)(a),(b),
(j),(k) Incorporated by reference to the Fund's Registration Statement
as filed with the Securities and Exchange Commission (the
"Commission") on December 13, 1991 (the "Common Stock
Amendment") with respect to the Common Stock of the Fund and
Amendment No. 5 to the Fund's Registration Statement as filed
with the Commission on April 3, 1992 (the "MMP Amendment")
with respect to the Money Market Cumulative Preferred Stock
("MMP") of the Fund, except as provided below.
Preferred Income Opportunity 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 "PFO."
Item 3. Fee Table and Synopsis
(1) Not applicable.
(2) Incorporated by reference to the MMP Amendment, 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 "PFO."
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") and up to 15% of its assets in common stocks.
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
Services. The Fund had 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, 95.5%
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. The Fund's holdings of securities of companies in
any industry other than the utilities 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 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 57.3% of the Fund's net
assets were invested in the utilities industry, approximately
24.2% were invested in the banking industry and approximately
16.2% 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."
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 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 306%.
(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 #0000927405-97-000015(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)
11/30/92* 700 $286,384 $100,000 $100,000
11/30/93 700 305,099 100,000 100,000
11/30/94 700 273,996 100,000 100,000
11/30/95 700 296,743 100,000 100,000
11/30/96 700 305,992 100,000 100,000
- -------------------------
* The Fund commenced operations on February 13, 1992.
(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 the MMP Amendment.
(2) Incorporated by reference to the MMP Amendment, 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 89.2% of the Fund's net assets were invested in
preferred stocks (excluding "Hybrid Securities" as defined
below).
In selecting individual securities, the 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, 6.3% 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. The Fund may also invest up to 15% of
its assets in common stocks. As of November 30, 1996, 2.2% of
the Fund's net assets were invested in common stocks.
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 the MMP Amendment
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
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 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. 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 MMP Amendment.
(3)(a) Incorporated by reference to the Common Stock Amendment and
the MMP Amendment, 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 Industry
The Fund concentrates its investments in the utilities
industry. 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.
(3)(b)(1) At March 1, 1997, 700 shares of MMP were outstanding at the
current annual rate of 3.87%. 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 the Common Stock Amendment.
(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, and other similar 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 the MMP Amendment.
(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 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 $420 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.
(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 Registration
-----------------------------------------------------------------
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 the MMP Amendment.
(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 the MMP Amendment.
(1)(b) Incorporated by reference to the MMP Amendment.
(1)(c) Incorporated by reference to the MMP Amendment.
(1)(d) Incorporated by reference to the MMP Amendment.
(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 the MMP Amendment.
(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 11,151,288
Money Market 10,000,000 None 700
Cumulative
Preferred Stock
Par Value $.01
(6) Incorporated by reference to the MMP Amendment, 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 the MMP Amendment 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 87% 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 Fund Incorporated and Preferred
Income Management 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.
<PAGE>
Common Stock
Business Beneficially
Name, Address Experience During Owned
and Age Past Five Years on March 1, 1997
Martin Brody Director of the Fund, 837 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 ` 12,389 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 11,103 Shares**
301 E. Colorado Blvd. Board, President and Chief
Suite 720 Executive Officer of the
Pasadena, CA 91101 Fund, President and Director
Age: 59 of Flaherty & Crumrine
David Gale Director of the Fund None
Delta Dividend
Group, Inc.
301 Pine Street
San Francisco, CA 94104
Age: 48
Morgan Gust Director of the Fund, 1,467 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, 1,000 Shares
3560 Deerfield Drive Financial Consultant
South
Salem, OR 97302
Age: 60
Robert M. Ettinger Vice President and 12,603 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 1,278 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 Fund Incorporated and Preferred Income Management 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 11,151,288 outstanding shares of
Common Stock:
Amount
Name and Address of Record Percent
of Record Owner Ownership of Class
Cede & Co., as nominee for 10,454,566 93.75%
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 the MMP Amendment, except as provided below.
For the fiscal years ended November 30, 1996, 1995 and 1994,
the Fund paid $1,156,891, $1,115,560 and $1,140,424
respectively, in investment advisory fees to the Investment
Adviser.
(2) Incorporated by reference to the MMP Amendment.
(3) Incorporated by reference to the MMP Amendment.
(4) Incorporated by reference to the MMP Amendment 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 $392,108, $376,413 and $385,688, respectively,
in administration fees to FDISG or its predecessors.
(5) Not applicable.
(6) Incorporated by reference to the MMP Amendment.
(7) Coopers & Lybrand, L.L.P., located at One Post Office Square,
Boston, Massachusetts 02109, are the independent accountants
for the Fund.
(8) Not applicable.
Item 21. Brokerage Allocation and Other Practices
(1) Incorporated by reference to the MMP Amendment, except as
provided below.
For the fiscal years ended November 30, 1996, 1995 and 1994,
the Fund paid $111,328, $89,870 and $161,287, 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 the MMP Amendment.
(4) Incorporated by reference to the MMP Amendment, 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 the MMP Amendment.
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 January
27, 1992 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 4 of
Amendment No. 1 on Form N-2 filed with the SEC on
January 16, 1992 ("Amendment No. 1").
(2) Specimen Certificate for MMP, par value $.01 per share is
incorporated by reference to Exhibit 4B of Amendment No. 4 to
the Registration Statement filed on March 18, 1992.
(e) Dividend Reinvestment and Cash Purchase Plan is
incorporated by reference to Exhibit
10A of Amendment No. 1.
(f) Not applicable.
(g) Investment Advisory Agreement between the Fund
and Flaherty & Crumrine Incorporated (the "Investment
Adviser") dated February 2, 1992 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 February 5, 1992.
(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 1,534
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 Opportunity 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)
First Data 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
27th day of March, 1997.
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
By: CHRISTINE P. RITCH
CHRISTINE P. RITCH
Title: Assistant Secretary
<PAGE>
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
ARTICLES OF AMENDMENT AND RESTATEMENT
Preferred Income Opportunity 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:
FIRST: The Charter of the Corporation is amended and as so amended is
restated in its entirety by striking out article first through nine
and inserting in lieu thereof the following:
ARTICLE I
NAME
The name of the Corporation is PREFERRED INCOME OPPORTUNITY
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.
<PAGE>
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 current number of directors of the Corporation shall
be five. The number of directors may be changed by the Bylaws or 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 12. The names of the directors who shall act
until the first annual meeting of shareholders or until their successors are
duly chosen and qualified are:
Martin Brody
Morgan Gust
Robert T. Flaherty
Donald F. Crumrine
Robert Wulf
(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 a vote of at least 80% of the class of the shares of capital stock of the
Corporation then entitled to vote in an election to fill that directorship and
the stockholders of the class entitled to elect the Director by plurality vote
may elect a successor or successors to fill any resulting vacancies for the
unexpired term of the removed Director.
(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 VI, at least
eighty percent (80%) of the votes of the Corporation's Common Stock and
Preferred Stock entitled to be cast by stockholders, voting as a single class,
and at least eighty percent (80%) of the votes of the Corporation's Preferred
Stock entitled to be cast by stockholders, voting as a separate class, in
addition to the affirmative vote of at least eighty percent (80%) of the entire
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 the holders of the Corporation's Common Stock and
Preferred Stock to be voted on the matter, voting as a single class, and a
majority of the votes entitled to be cast by the holders of the Corporation's
Preferred Stock to be voted on the matter, voting as a separate class, shall be
required to approve such actions unless otherwise provided in the Charter or
unless otherwise required by law;
(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
unless otherwise required by law; 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, acting by a vote
of at least 80% of the Continuing Directors, 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 a transfer of
all or substantially all of the assets of the Corporation with respect to which
shareholder approval is required under the Maryland General Corporation Law) 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 unless otherwise provided in the charter or unless
otherwise required by law. 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 unless otherwise 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 to make, from time to
time, any amendment to its Charter now or hereafter authorized by law (including
any amendment that alters the contract rights, as expressly set forth in the
Charter, of any class of outstanding stock) and all rights at any time conferred
upon the stockholders of the Corporation by the Charter are granted subject to
the provisions of this Article VIII.
(2) With the exception of Articles II, V, VI and VIII, any of
the provisions of the Articles of Incorporation may be amended, altered or
repealed upon the vote of a majority of the votes entitled to be cast by
stockholders. The provisions of Articles II, V, VI and VIII may be amended,
altered or repealed only upon the 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, voting as a single class, and of at least eighty percent (80%)
of the votes of the Corporation's Preferred Stock entitled to be cast by
stockholders, 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 votes entitled to be cast by the holders of the
Corporation's Common Stock and Preferred Stock to be voted on the matter, voting
as a single class, unless otherwise provided in the charter or unless otherwise
required by law shall be required to approve, adopt, or authorize such an
amendment."
SECOND: The Corporation desires to amend and restate its
Charter as currently in effect. The provisions set forth in these Articles of
Amendment and Restatement are all the provisions of the Charter currently in
effect. The current address of the principal office of the Corporation, the name
and address of the Corporation's current resident agent and the number of
directors of the Corporation and the names of those currently in office are as
set forth herein.
THIRD: The amendment and restatement of the Charter of the
Corporation as hereinabove set forth has been duly approved by a majority of the
entire board of directors. No stock entitled to be voted on the matter was
outstanding or subscribed for at the time of approval.
IN WITNESS WHEREOF, Preferred Income Opportunity 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, Donald F. Crumrine, on January 24, 1992.
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 OPPORTUNITY
FUND INCORPORATED
By: Robert T. Flaherty
President
Attest:
Donald F. Crumrine
Secretary
<PAGE>
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
Amended Working Copy of
Articles Supplementary Creating and Fixing the Rights of
Money Market Cumulative Preferred(TM) Stock
PREFERRED INCOME OPPORTUNITY 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: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article IV of its Articles of Incorporation
(which, as hereafter restated or amended from time to time are, together with
these Articles Supplementary, herein called the "Articles"), the Board of
Directors has classified 2,000 shares of Preferred Stock, par value $.01 per
share, as shares of a series designated: Money Market Cumulative Preferred Stock
("MMP(R)"), liquidation preference $100,000 per share plus an amount equal to
dividends on each share (whether or not earned or declared) accumulated and
unpaid thereon and Additional Distribution Rights with regard to such
accumulated dividends.
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
4, 1992, 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 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 9,
1992, 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 3.45% 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 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,
then the dividend rate for shares of MMP for each Subsequent Rate Period thereof
commencing after such failure to and including 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 and the Eligible Asset 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, 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 liquidations 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.
(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
(A) without the affirmative vote of at least 80% of
the votes entitled to be cast by Holders of MMP, 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) without the affirmative vote of at least a
majority of the votes entitled to be cast by Holders of MMP or such
higher percentage as may be required under any other provision of the
Articles, 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 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
(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, 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. 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, and (ii) the
Certificate of Eligible Asset Coverage (A) as of April 3, 1992, (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, 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,
(a) the calculations set forth in the related Certificate of Eligible
Asset Coverage are mathematically accurate, (b)
the method used by the Corporation in determining whether the
Eligible Asset Coverage 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 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 in the related certificate conform to
the descriptions of Eligible 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 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 or a
Certificate of Eligible Asset 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).
(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 and related
Accountants' Certificates and Certificates of Dividend Coverage, 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:
(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
182 days or less, 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 Rates (as defined below) applicable to the Retroactive
Taxable Allocation and the Additional Distribution (to the extent that
the Corporation does not designate all or a portion of 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, or portion thereof, 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 Rates" are the maximum marginal regular
Federal income tax rates generally applicable to corporations with
respect to the various components of income and gains realized by the
Corporation (currently 34% for ordinary income, 34% for short-term
capital gains and 34% for long-term capital gains) 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, or any portion thereof, 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 Manufacturers Hanover
Trust Company, 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 Part II hereof.
(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
Opportunity 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; 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 includible 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:
Corporate and 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
Corporate and 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
Corporate and 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
Corporate and 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 3, 1992 and (ii) each Eligible
Asset Evaluation Date next preceding a Dividend Payment Date for the shares
of MMP. (dd) "Dividend Coverage is met" means, as of any date of
determination, that the aggregate Coverage 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 the next
Dividend Payment Date for the MMP. (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
Federal Income Tax Rates change, the method of calculating the amount of
the Additional Distribution 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 3, 1992, (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 includible
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 includible 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
therefor.
(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 Manufacturers
Hanover Trust Company 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 one or more nationally recognized statistical rating
organization designated by the Corporation, subject to the approval of
Shearson Lehman Brothers Inc. ("Shearson Lehman") or its successors, or, in
their absence, a majority of the outstanding shares of MMP not held by the
Corporation or its affiliates.
(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 3, 1992) 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 (or is guaranteed or supported by a person or entity other
than the issuer whose unsecured debt obligations are rated at least
Aa3/P-1 by Moody's or, if such commercial paper will mature within
one business day from the Eligible Asset Evaluation Date, whose
long-term unsecured debt obligations are rated at least A3/P-1 by
Moody's);
(iii) demand or time deposits in,
certificates of deposit of, or
bankers' acceptances 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
short-term certificates of deposit or commercial paper (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 credit ratings from Moody's of at least P-1; and
(iv) 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 short-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 lower of the yield to stated maturity or, if shorter,
the next date on which the obligation reasonably may be expected to be
called on the most recently auctioned 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 lower of the yields to
stated maturity or, if shorter, the next date on which the obligation
reasonably may be expected to be called (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 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.
<PAGE>
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 an
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
or its successors, or, in their absence, a majority of the outstanding
shares of MMP not held by the Corporation or its affiliates, shall
select one or more nationally recognized statistical rating
organizations (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
s
hares, 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 fro
m 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 shall be 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.
<PAGE>
IN WITNESS WHEREOF, PREFERRED INCOME OPPORTUNITY FUND
INCORPORATED has caused these presents to be signed in its name and on its
behalf by its President, and its corporate seal to be hereunto affixed and
attested by its Secretary, and the said officers of the Corporation acknowledge
said instrument to be the corporate act of the Corporation, and state under
penalties of perjury that to the best of their knowledge, information and belief
the matters and facts therein set forth with respect to approval are true in all
material respects, all on July 19, 1996.
PREFERRED INCOME OPPORTUNITY
FUND INCORPORATED
By /s/ Donald F. Crumrine
Donald F. Crumrine
Vice President
ATTEST:
/s/ Peter C. Stimes
Peter C. Stimes
Assistant Secretary
<PAGE>
BYLAWS
OF
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
BYLAW-ONE: NAME OF COMPANY, LOCATION OF OFFICES AND SEAL.
Article 1.1. Name. The name of the Company is Preferred
Income Opportunity 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 1993, 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
G:\SHARED\DOMESTIC\CLIENTS\F&C\PFO\BYLAWS2.DOC
<PAGE>
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
<PAGE>
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
<PAGE>
INVESTMENT ADVISORY AGREEMENT
February 5, 1992
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard
Suite 720
Pasadena, California 91101
Ladies and Gentlemen:
Preferred Income Opportunity 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 (the
"1940 Act") 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 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 business 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 1940 Act) 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 the 1940 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 the
1940 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
thereof.
Very truly yours,
PREFERRED INCOME OPPORTUNITY FUND
INCORPORATED
By: Donald F. Crumrine
Title: Vice President
Accepted:
FLAHERTY & CRUMRINE INCORPORATED
By: Robert T. Flaherty
Title: President
<PAGE>
AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
The Administration Agreement of PREFERRED INCOME OPPORTUNITY 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 February 5, 1992, 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 covenants
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 December 10, 1991 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 February 1, 1992
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 February 5, 1992 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. 33-44513 and 811-6495), as filed with the Securities and
Exchange Commission ("SEC") on December 31, 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 Opportunity 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: Executive Vice President
PREFERRED INCOME OPPORTUNITY
FUND INCORPORATED
By: ROBERT T. FLAHERTY
Title: President
<PAGE>
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.
<PAGE>
SCHEDULE B
PREFERRED INCOME OPPORTUNITY 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
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND REGISTRAR AGREEMENT
The Transfer Agency and Registrar Agreement of PREFERRED INCOME
OPPORTUNITY FUND INCORPORATED, (the "Fund"), a corporation organized under the
laws of Maryland and having its principal place of business at 301 E. Colorado
Boulevard, 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 February 5, 1992, as amended on October 21, 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:
W I 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 cause 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
prior 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 nonpublic
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 Opportunity 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 OPPORTUNITY
FUND INCORPORATED
By: ROBERT T. FLAHERTY
Title: President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: GERALD KOKOS
Title: Executive Vice
President
<PAGE>
g:\shared\lehman\f&c\pfo\agrmnts\transagt.doc
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).
<PAGE>
-3-
g:\shared\lehman\f&c\pfd\agrmnts\ecocon96.doc
g:\shared\lehman\f&c\pfd\agrmnts\ecocon96.doc
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.
<PAGE>
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.
<PAGE>
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
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.
<PAGE>
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
<PAGE>
g:\shared\lehman\f&c\pfd\agrmnts\ecocon96.doc
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
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
<PAGE>
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 th
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>
G:\SHARED\LEHMAN\F&C\PFO\N2CVR.DOC
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
<PAGE>
Consent of Independent Accountants
To the Board of Directors
Preferred Income Opportunity Fund Incorporated:
We consent to the incorporation by reference in Amendment No. 6 to the
Registration Statement of Preferred Income Opportunity Fund Incorporated on Form
N-2 (File No. 811-06495) 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> PREFERRED INCOME OPPORTUNITY FUND INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 201,004,926
<INVESTMENTS-AT-VALUE> 212,970,107
<RECEIVABLES> 2,738,312
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24,919
<TOTAL-ASSETS> 215,733,338
<PAYABLE-FOR-SECURITIES> 1,013,766
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 524,866
<TOTAL-LIABILITIES> 1,538,632
<SENIOR-EQUITY> 70,000,000
<PAID-IN-CAPITAL-COMMON> 128,934,503
<SHARES-COMMON-STOCK> 11,151,287
<SHARES-COMMON-PRIOR> 11,151,287
<ACCUMULATED-NII-CURRENT> 1,001,239
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,293,783
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,965,181
<NET-ASSETS> 214,194,706
<DIVIDEND-INCOME> 15,041,334
<INTEREST-INCOME> 204,701
<OTHER-INCOME> 0
<EXPENSES-NET> 2,331,378
<NET-INVESTMENT-INCOME> 12,914,657
<REALIZED-GAINS-CURRENT> 6,552,224
<APPREC-INCREASE-CURRENT> (630,710)
<NET-CHANGE-FROM-OPS> 18,836,171
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,651,475)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,857,817
<ACCUMULATED-NII-PRIOR> 44,550
<ACCUMULATED-GAINS-PRIOR> (3,875,235)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,156,891
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,331,378
<AVERAGE-NET-ASSETS> 206,410,382
<PER-SHARE-NAV-BEGIN> 12.35
<PER-SHARE-NII> 1.16
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.87)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.91
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
