As filed with the Securities and Exchange Commission on October 22, 1996
Securities Act File No. 33-_________
Investment Company Act File No. 811-7994
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
[X] COMPANY ACT OF 1940
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 1
GLOBAL PARTNERS INCOME FUND INC.
Exact name of Registrant as specified in charter
Seven World Trade Center
New York, New York 10048
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
Registrant's Telephone Number, including Area Code: (212)783-7000
Michael S. Hyland
President
Salomon Brothers Asset Management Inc
Seven World Trade Center
New York, New York 10048
Name and address (Number, Street, City, State, Zip Code) of Agent for Service
with copies to:
Gary S. Schpero, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
(212) 455-2000
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis in reliance on Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with a dividend
reinvestment plan, check the following box.[X]
It is proposed that this filing will become effective (check appropriate
box):
[X] when declared effective pursuant to Section 8(c)
This registration statement relates to the registration of an
indeterminate number of shares solely for market-making transactions. A fee of
$100 is being paid at this time. Pursuant to Rule 429, this Registration
Statement relates to shares previously registered on Form N-2 (File No.
33-68416).
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<TABLE>
<CAPTION>
GLOBAL PARTNERS INCOME FUND, INC.
CROSS REFERENCE SHEET
Parts A and B of Prospectus*
<S> <C>
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 Cover Page ...... Inside Front and Outside Back Cover of Prospectus
Item 3 Fee Table and Synopsis ........................ Prospectus Summary; Summary of Expenses
Item 4 Financial Highlights .......................... Financial Highlights
Item 5 Plan of Distribution .......................... Cover of Prospectus
Item 6 Selling Shareholders .......................... Not Applicable
Item 7 Use of Proceeds ............................... Use of Proceeds; Investment Objective and
Policies; Additional Investment Activities
Item 8 General Description of the Registrant ......... Cover of Prospectus; Prospectus Summary; The
Fund; Investment Objective and Policies;
Additional Investment Activities; Investment
Restrictions; Description of Capital Stock
Item 9 Management..................................... Management of the Fund; Custodian, Transfer
Agent, Dividend Paying Agent and Registrar;
Description of Capital Stock
Item 10 Capital Stock, Long-Term Debt
and Other Securities.......................... Description of Capital Stock; Dividends and
Distributions; Dividend Reinvestment and Cash
Purchase Plan; Taxation
Item 11. Defaults and Arrears on Senior Securities ..... Not Applicable
Item 12. Legal Proceedings ............................. Not Applicable
Item 13. Table of Contents of the Statement
of Additional Information..................... Not Applicable
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 Policy ............... Investment Objective and Policies; Additional
Investment Activities; Investment Restrictions;
Portfolio Transactions
Item 18. Management Management of the Fund; Custodian, Transfer
Agent, Dividend Paying Agent and Registrar
Item 19. Control Persons and Principal
Holders of Securities........................... Description of Capital Stock
Item 20. Investment Advisory and Other Services .......... Management of the Fund
Item 21. Brokerage Allocation and Other Practices ........ Portfolio Transactions
Item 22. Tax Status ...................................... Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan;
Taxation
Item 23. Financial Statements ............................ Experts; Report of Independent Accountants;
Statement of Assets and Liabilities
</TABLE>
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* Pursuant to General Instruction H of Form N-2, all information required to be
set forth in Part B: Statement of Additional Information has been included in
Part A: The Prospectus. All Items required to be set forth in Part C are set
forth in Part C.
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Global Partners Income Fund Inc.
Common Stock
------------
Global Partners Income Fund Inc. (the "Fund") is a non-diversified,
closed-end management investment company that seeks to maintain a high level of
current income by investing primarily in a portfolio of high yield U.S. and
non-U.S. corporate debt securities and high yield foreign sovereign debt
securities. As a secondary objective, the Fund seeks capital appreciation. The
Fund invests only in U.S. dollar-denominated securities. Under normal market
conditions, the Fund invests at least 33% of its total assets in high yield U.S.
corporate debt securities and at least 33% of its total assets in high yield
foreign sovereign debt securities.
The debt securities in which the Fund invests generally are rated, at the
time of investment, in the categories "Ba" or "B" by Moody's Investors Service,
Inc. ("Moody's") or "BB" or "B" by Standard & Poor's Corporation ("S&P") or, if
not rated by Moody's or S&P, are determined to be of comparable quality.
However, there is no minimum rating requirement for the debt securities in which
the Fund invests. There can be no assurance that the Fund's investment
objectives will be achieved.
The address of the Fund is Seven World Trade Center, New York, New York
10048. Periodically updated information regarding the markets in which the Fund
invests and the Fund's investments is available by calling 1-800-421-4777 or
1-800-725-6666. Investors are advised to read this Prospectus, which sets forth
information about the Fund that investors should know before investing, and to
retain it for future reference.
High yield corporate debt securities and high yield sovereign debt
securities are considered speculative and are subject to certain risks. See
"Investment Objectives and Policies" and "Risk Factors and Special
Considerations."
Advantage Advisers, Inc., a subsidiary of Oppenheimer & Co., Inc., acts as
Investment Manager to the Fund. Salomon Brothers Asset Management Inc serves as
Investment Adviser and administrator to the Fund.
The Fund's Common Stock is listed and traded on the New York Stock Exchange
(the "NYSE") under the symbol "GDF." The Common Stock may be offered pursuant to
this Prospectus from time to time in order to effect over-the-counter ("OTC")
secondary market sales by Oppenheimer & Co., Inc. in its capacity as a dealer
and secondary-market maker at negotiated prices related to prevailing market
prices on the NYSE at the time of sale. The closing price for the Common Stock
on the NYSE on October 4,1996 was $15.09. See "Trading History." The Fund will
not receive any proceeds from the sale of Common Stock offered pursuant to this
Prospectus.
The Fund has utilized and expects to continue to utilize leverage through
borrowing or, alternatively, by issuing shares of preferred stock or short-term
debt securities, in an amount up to 33 1/3% of the Fund's total assets including
the amount obtained from leverage. Through these leveraging techniques, the Fund
seeks to obtain a higher return for holders of Common Stock than if the Fund did
not leverage. There are special risks and costs associated with leveraging. See
"Additional Investment Activities--Leverage."
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
Oppenheimer & Co., Inc.
The date of this Prospectus is October 9, 1996
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
The Fund.............................. The Fund is a non-diversified,
closed-end management investment
company which seeks to maintain a
high level of current income.
Investment Objectives
and Policies......................... The Fund's investment objective is to
maintain a high level of current
income by investing primarily in a
portfolio of high yield U.S. and
non-U.S. corporate debt securities
and high yield foreign sovereign
debt securities. As a secondary
objective, the Fund seeks capital
appreciation. The Fund invests only
in U.S. dollar-denominated
securities. Under normal market
conditions, the Fund invests at
least 33% of its total assets in
high yield U.S. corporate debt
securities and at least 33% of its
total assets in high yield foreign
sovereign debt securities. The debt
securities in which the Fund
invests generally will be rated, at
the time of investment, in the
categories "Ba" or "B" by Moody's
or "BB" or "B" by S&P or, if not
rated by Moody's or S&P, will be
determined to be of comparable
quality. There is no minimum rating
requirement for the debt securities
in which the Fund invests. However,
the Fund anticipates that under
normal market conditions no more
than 20% of the Fund's total assets
will be rated, at the time of
investment, below "B" by Moody's or
S&P, or will be unrated and of
comparable quality. Yields on the
corporate and sovereign debt
securities in which the Fund
invests fluctuate over time but are
expected at the time of investment
to exceed current yields on
higher-rated securities. However,
such debt securities also involve
greater risks than higher-rated
securities. A description of the
ratings used by Moody's and S&P is
set forth in Appendix A to this
Prospectus. See "Investment
Objectives and Policies" and
Appendix A.
The Fund has utilized and expects to
continue to utilize leverage by
borrowing or, alternatively, by
issuing shares of preferred stock
or short-term debt securities in an
amount up to 33 1/3% of the Fund's
total assets including the amount
obtained from leverage. Through
these leveraging techniques, the
Fund seeks to obtain a higher
return for holders of Common Stock
than if the Fund did not leverage.
Investors should note that there
are special risks and costs
associated with leveraging. See
"Additional Investment
Activities--Leverage."
High Yield Foreign
Sovereign Debt Market................. The high yield sovereign debt
securities in which the Fund
invests are U.S.
dollar-denominated, fixed or
floating rate debt securities,
including "Brady Bonds", that are
issued or guaranteed by governments
or governmental entities of
developing and emerging countries.
These countries consist primarily
of those which have issued or have
announced plans to issue Brady
Bonds, and a substantial portion of
the Fund's sovereign debt
securities may consist of Brady
Bonds. Brady Bonds are debt
securities issued under the
framework of the Brady Plan, an
initiative announced by former U.S.
Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for
debtor nations to restructure their
outstanding external commercial
bank indebtedness. The Brady Plan
framework, as
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it has developed, contemplates the
adoption by debtor nations of
certain economic reforms and the
exchange of commercial bank debt
for newly issued bonds. The World
Bank and/or the International
Monetary Fund have to date
required countries participating
in the Brady Plan framework to
agree to such reforms in order to
receive loans from these
institutions to support the
restructurings, although the
specific details of debt reduction
plans under the Brady Plan
framework have varied.
The Offering.......................... Shares of the Fund's Common Stock (the
"Common Stock") may be offered
pursuant to this Prospectus from
time to time in order to effect
over-the-counter ("OTC") secondary
market sales by Oppenheimer & Co.,
Inc., in its capacity as a dealer
and secondary-market maker at
negotiated prices related to
prevailing market prices on the
NYSE at the time of sale. See "The
Offering" and "Trading History."
Listing............................... The Common Stock is listed and traded
on the NYSE under the symbol GDF.
Investment Manager
and Investment Adviser............... The Investment Manager is Advantage
Advisers, Inc., a subsidiary of
Oppenheimer & Co., Inc., and the
Investment Adviser is Salomon
Brothers Asset Management Inc.
Pursuant to a management agreement
(the "Management Agreement") the
Investment Manager supervises the
Fund's investment program,
including advising and consulting
with the Investment Adviser
regarding the Fund's overall
investment strategy and advising
the Fund and the Investment Adviser
with respect to all matters
relating to the Fund's use of
leveraging techniques, including
the extent and timing of the Fund's
use of such techniques. In
addition, the Investment Manager
consults with the Investment
Adviser on a regular basis
regarding the Investment Adviser's
decisions concerning the purchase,
sale or holding of particular
securities. The Investment Manager
also provides the Investment
Adviser with access on a continuous
basis to economic, financial and
political information, research and
assistance. In addition to the
foregoing, the Investment Manager
monitors the performance of the
Fund's outside service providers,
including the Fund's administrator,
transfer agent and custodian.
Pursuant to an investment advisory and
administration agreement (the
"Advisory Agreement") among the
Investment Manager, the Investment
Adviser and the Fund (but only with
respect to certain provisions), the
Investment Adviser acts as the
Fund's investment adviser and
administrator and is responsible on
a day-to-day basis for investing
the Fund's portfolio in accordance
with its investment objectives and
policies. The Investment Adviser
has discretion over investment
decisions for the Fund and, in that
connection, places purchase and
sale orders for the Fund's
portfolio securities. In addition,
the Investment Adviser makes
available research and statistical
data to the Fund. The Investment
Adviser is also responsible for
day-to-day administration of the
Fund, assistance in matters related
to the corporate existence of the
Fund, provision of office space to
the Fund and clerical services
relating to the Fund's operations,
maintenance of the Fund's books and
records and preparation of reports.
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Oppenheimer & Co., Inc., the Investment
Manager's parent company, has been
engaged in the management of
investment funds for more than 35
years. As of June 30, 1996, total
assets under management by
Oppenheimer & Co., Inc., and its
affiliates were approximately $50
billion for investment company,
corporate, pension, profit-sharing
and other accounts. The Investment
Manager serves as investment
adviser or manager for 12
registered investment companies.
See "Management of the
Fund--Investment Manager and
Investment Adviser."
The Investment Adviser provides a broad
range of fixed income and equity
investment advisory services for
its individual and institutional
clients located around the world,
and provides investment advisory
services for 15 registered
investment companies (including
portfolios thereof). As of June 30,
1996, the Investment Adviser had
approximately $15.7 billion of
assets under management. The
Investment Adviser is an affiliate
of Salomon Brothers Inc, one of the
largest international investment
houses in the world.
Management Fees........................ The Fund pays the Investment Manager a
monthly fee at an annual rate of
1.10% of the Fund's average weekly
net assets for its services, and
the Investment Manager pays the
Investment Adviser a monthly fee at
an annual rate of 0.65% of the
Fund's average weekly net assets
for its services. See "Management
of the Fund--Compensation and
Expenses." The management fees paid
by the Fund are higher than those
paid by most other U.S. investment
companies investing exclusively in
the securities of U.S. issuers,
primarily because of the additional
time and expense required of the
Investment Manager and the
Investment Adviser in pursuing the
Fund's objective of investing in
high yield U.S. and non-U.S.
corporate debt securities and in
high yield foreign sovereign debt
securities.
Dividends and Distributions............ Although the policy may be changed by
the Fund's Board of Directors at
any time, the Fund has made and
intends to continue making regular
monthly cash distributions to
holders of Common Stock at a level
rate that reflects the past and
projected performance of the Fund,
which over time results in the
distribution of all net investment
income of the Fund, and to
distribute any net realized capital
gains at least annually. At times
when the Fund's Common Stock is
leveraged, monthly distributions to
holders of Common Stock consist of
net investment income remaining
after the payment of interest or
dividends on any outstanding
leverage. As a result of the Fund's
investment in certain Brady Bonds
and other debt obligations acquired
at a discount, as well as its
ability to invest in zero coupon
securities and pay-in-kind bonds,
the Fund has made, and expects to
continue making, distributions of
net investment income in amounts
greater than the total amount of
cash interest actually received in
order to satisfy certain
requirements under current federal
income tax law. See "Investment
Objectives and Policies--Zero
Coupon Securities, Pay-in-Kind
Bonds and Discount Obligations."
Under the Fund's Amended and Restated
Dividend Reinvestment and Cash
Purchase Plan (as it may be
further amended or supplemented
from time to time, the "Plan"),
all dividends and distributions
are
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3
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automatically reinvested in
additional shares of Common Stock
of the Fund purchased in the open
market or, under certain
circumstances, issued by the Fund
as newly issued shares, unless a
shareholder elects to receive cash.
Participants also have the option
of making additional monthly cash
payments, to be used to acquire
additional shares of Common Stock
of the Fund in the open market.
Shareholders whose shares are held
in the name of a broker or nominee
should contact such broker or
nominee to confirm that they may
participate in the Plan. See
"Dividends and Distributions;
Dividend Reinvestment and Cash
Purchase Plan."
Share Repurchases and
Conversion to an
Open-End Fund......................... If, at any time, shares of the Fund's
Common Stock publicly trade for a
substantial period of time at a
substantial discount from net asset
value, the Fund's Board of
Directors will consider, at its
next regularly scheduled meeting,
authorizing various actions
designed to eliminate the discount.
These actions may include periodic
repurchases of the Fund's shares or
recommending to shareholders the
conversion of the Fund to an
open-end investment company. No
assurance can be given that the
Board of Directors will undertake
any such action or that, if
repurchases are undertaken, the
Fund's shares will trade at a price
that is close to or equal to net
asset value. The Board of Directors
would consider all relevant factors
in determining whether to take any
such actions, including the effect
of such actions on the Fund's
status as a regulated investment
company under the Internal Revenue
Code of 1986, as amended (the
"Code"), and the availability of
cash to finance share repurchases
in view of the restrictions on the
Fund's ability to borrow. Under
certain circumstances, shareholder
vote may be required to authorize
periodic repurchases of the Fund's
Common Stock. The ability of the
Fund to make repurchases may be
limited by the asset coverage
requirements of the Investment
Company Act of 1940 (the "1940
Act") and any additional asset
coverage requirements that may be
imposed by a rating agency in
connection with any rating of
preferred stock or short-term debt
securities.
In considering whether to recommend to
shareholders the conversion of the
Fund to an open-end investment
company, the Fund's Board of
Directors would consider a number
of factors including whether the
Fund's ability to operate in
accordance with its investment
policies, such as the authority to
invest in illiquid securities, may
be impaired as a result. Conversion
to an open-end investment company
would require a shareholder vote
and would require the Fund to
redeem any preferred stock and/or
repay any short-term debt
securities. See "Description of
Capital Stock--Future Actions
Relating to a Discount in the Price
of Shares of the Fund's Common
Stock."
Taxation.............................. The Fund has qualified and elected to
be treated as a regulated
investment company for U.S. federal
income tax purposes. As such, it
will generally not be subject to
U.S. federal income tax on income
and gains that are distributed to
shareholders. See "Taxation."
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4
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Custodian, Transfer Agent,
Dividend Paying Agent
and Registrar........................ The Chase Manhattan Bank acts as
custodian for the Fund's assets and
employs foreign sub-custodians
approved by the Fund's Board of
Directors in accordance with
regulations of the Securities and
Exchange Commission (the
"Commission"). American Stock
Transfer & Trust Company acts as
transfer agent, dividend paying
agent and registrar for the Fund's
Common Stock.
Risk Factors and
Special Considerations............... The net asset value of the Fund's
Common Stock changes with
fluctuations in the value of its
portfolio securities. The extent
depends on various factors
including the extent to which the
Fund engages in leveraging
transactions. The high yield
corporate debt securities, commonly
known as junk bonds, and high yield
sovereign debt securities in which
the Fund invests generally are
rated, at the time of investment,
in the categories "Ba" or "B" by
Moody's or "BB" or "B" by S&P, or
are of comparable quality. These
lower-rated and comparable unrated
securities involve greater risks
than higher-rated securities. Under
rating agency guidelines, these
lower-rated securities generally
have some quality and protective
characteristics that are outweighed
by large uncertainties or major
risk exposures to adverse
conditions. Such securities are
considered speculative with respect
to the issuer's capacity to pay
interest and repay principal in
accordance with the terms of the
obligations. Accordingly, these
types of factors can, in certain
instances, reduce the value and
liquidity of securities held by the
Fund with a commensurate effect on
the value of the Fund's Common
Stock. The Fund may also invest in
securities having the lowest
ratings for non-subordinated debt
instruments assigned by Moody's or
S&P (i.e., rated C by Moody's or
CCC or lower by S&P) or in
comparable unrated securities. Some
of the low-rated high yield debt
securities held by the Fund may not
be paying interest currently or may
be in payment default. Under rating
agency guidelines, these securities
are considered to have extremely
poor prospects of ever attaining
any real investment standing, to
have a current identifiable
vulnerability to default, to be
unlikely to have the capacity to
pay interest and repay principal
when due in the event of adverse
business, financial or economic
conditions, and/or to be in default
or not current in the payment of
interest or principal. Unrated
securities deemed comparable to
these lower- and lowest-rated
securities have similar
characteristics.
Because the Fund invests primarily in
fixed income securities, the net
asset value of the Fund's
portfolio, and hence its Common
Stock, can be expected to change as
general levels of interest rates
fluctuate, although the market
values of securities rated below
investment grade and comparable
unrated securities tend to react
less to fluctuations in interest
rate levels than do those of
higher-rated securities. These
fluctuations can be expected to be
greater with respect to investments
in fixed-income securities with
longer maturities than investments
in securities with shorter
maturities. [Although there is no
limitation on the average maturity
of the Fund's portfolio, the Fund's
high yield debt portfolio has had
an average maturity of 10 to 15
years.]
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5
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The secondary markets for high yield
corporate and sovereign debt
securities are not as liquid as the
secondary markets for higher rated
securities. The secondary markets
could contract under adverse market
or economic conditions independent
of any specific adverse changes in
the condition of a particular
issuer. These factors may have an
adverse effect on the Fund's
ability to dispose of particular
portfolio investments and may limit
the ability of the Fund to obtain
accurate market quotations for
purposes of valuing securities and
calculating net asset value. Less
liquid secondary markets may also
affect the Fund's ability to sell
securities at their fair value. In
addition, the Fund may invest up to
20% of its total assets, measured
at the time of investment, in
illiquid securities, which may be
more difficult to value and to sell
at fair value. Further, if the
secondary markets for high yield
debt securities contract due to
adverse economic conditions or for
other reasons, certain previously
liquid securities in the Fund's
portfolio may become illiquid and
the proportion of the Fund's assets
invested in illiquid securities may
increase.
The market values of corporate debt
securities rated below investment
grade and comparable unrated
securities tend to be more
sensitive to company-specific
developments and changes in
economic conditions and interest
rates than those of higher rated
securities. Issuers of these
securities are often highly
leveraged, so that their ability to
service their debt obligations
during an economic downturn or
during sustained periods of rising
interest rates may be impaired. In
addition, such issuers may not have
more traditional methods of
financing available to them, and
may be unable to repay debt at
maturity by refinancing. The risk
of loss due to default in payment
of interest or principal by such
issuers is significantly greater
than with investment grade
securities because such securities
frequently are subordinated to the
prior payment of senior
indebtedness.
Investments in foreign sovereign and
non-U.S. corporate debt securities
such as those in which the Fund
invests involve certain risks not
typically associated with U.S.
corporate investments. In that
connection, the issuers of the
sovereign debt securities in which
the Fund invests have in the past
experienced substantial
difficulties in servicing their
external debt obligations, which
have led to defaults on certain
obligations and the restructuring
of certain indebtedness. Countries
such as those in which the Fund
invests have historically
experienced, and may continue to
experience, high rates of
inflation, high interest rates,
exchange rate fluctuations and
currency depreciation, large
amounts of external debt, balance
of payments and trade difficulties
and extreme poverty and
unemployment. Many of these
countries are also characterized by
political uncertainty or
instability. There can be no
assurance that the Brady Bonds and
other sovereign debt securities in
which the Fund invests will not be
subject to similar defaults or
restructuring arrangements which
may adversely affect the value of
such investments. Issuers in
developing and emerging countries
generally are subject to
accounting, auditing and financial
standards and requirements that
differ in some cases significantly
from those applicable to U.S.
issuers. In addition, effective
legal recourse in the event of a
default on a sovereign or non-U.S.
corporate debt securities may
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6
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be limited. With respect to the
Fund's investment in non-U.S. debt
securities, the Fund is not limited
in the percentage of its assets
that may be invested in any one
country. Under normal market
conditions, the Fund expects that
the non-U.S. portion of its assets
will be invested in at least three
countries.
The Fund has utilized and expects to
continue to utilize leverage by
borrowing or, alternatively, by
issuing shares of preferred stock
or short-term debt securities, in
an amount up to 33 1/3% of the
Fund's total assets including the
amount obtained from leverage. The
use of leverage poses certain risks
for holders of Common Stock
including the possibility of higher
volatility of both the net asset
value and market value of the
Common Stock. There can be no
assurance that the Fund will be
able to realize a higher return on
its investment portfolio than the
then current interest or dividend
rate on any leverage. In the event
the Fund realizes a return on its
investment portfolio which is less
than the then current interest or
dividend rate on any leverage, the
Fund's leveraged capital structure
would result in a lower yield to
the holders of Common Stock than if
the Fund were not leveraged.
Moreover, any decline in the value
of the Fund's assets will be borne
entirely by holders of Common Stock
in the form of reductions in the
Fund's net asset value, and any
requirement that the Fund sell
assets at a loss in order to redeem
or repay any leverage or for other
reasons would make it more
difficult for the net asset value
to recover. Accordingly, the effect
of leverage in a declining market
is likely to be a greater decline
in the net asset value of the
Common Stock than if the Fund were
not leveraged, which may be
reflected in a greater decline in
the market price of the Common
Stock.
The Fund's use of leverage is subject
to the provisions of the 1940 Act,
including asset coverage
requirements and restrictions on
the declaration of dividends and
distributions to holders of Common
Stock or purchases of Common Stock
in the event such asset coverage
requirements are not met. In
addition, the Fund may seek to have
Moody's and/or S&P rate any
preferred stock or short-term debt
which it issues. As a condition to
obtaining such ratings, the terms
of any preferred stock or
short-term debt securities issued
will include asset coverage
maintenance provisions which will
require the redemption of shares of
preferred stock or the repayment of
short-term debt in the event of
non-compliance by the Fund and may
also prohibit dividends and other
distributions on the Common Stock
in such circumstances. In order to
meet redemption or repayment
requirements, the Fund may have to
liquidate portfolio securities.
Such liquidations and redemptions
would cause the Fund to incur
related transaction costs and could
result in capital losses to the
Fund. Prohibitions on dividends and
other distributions on the Common
Stock could impair the Fund's
ability to qualify as a regulated
investment company under the Code.
The 1940 Act also requires that
holders of preferred stock, and in
certain circumstances holders of
debt securities, have certain
voting rights. See "Additional
Investment Activities--Leverage,"
"Taxation" and "Description of
Capital Stock."
Payments to holders of the non-U.S.
corporate high yield and foreign
sovereign debt securities in which
the Fund invests may be subject to
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
foreign withholding and other
taxes. Although the holders of
foreign sovereign debt securities
may be entitled to tax gross-up
payments from the issuers of such
instruments, there is no assurance
that such payments will be made.
The Fund is classified as a
"non-diversified" investment
company under the 1940 Act, which
means the Fund is not limited by
the 1940 Act in the proportion of
its assets that may be invested in
the securities of a single issuer.
However, the Fund has complied and
intends to continue to comply with
the diversification and other
requirements of the Code applicable
to regulated investment companies.
Because the Fund, as a
non-diversified investment company
under the 1940 Act, may invest a
greater proportion of its assets in
a smaller number of issuers than a
diversified investment company, an
investment in the Fund may be more
susceptible to any single economic,
political or regulatory occurrence
and present greater risk to an
investor than an investment in a
diversified company.
The Fund may employ various additional
investment strategies that entail
certain additional or different
risks, such as entering into
interest rate transactions and
options and futures transactions
for hedging or other
non-speculative risk management
purposes or to seek to enhance
income or gain, entering into
repurchase agreements, purchasing
securities on a when-issued or
delayed delivery basis, lending
portfolio securities and investing
in zero coupon securities,
pay-in-kind bonds, structured
investments and loan participations
and assignments. See "Investment
Objectives and Policies--Other
Investments", "Additional
Investment Activities" and Appendix
B.
The Fund's Articles of Incorporation
contain certain anti-takeover
provisions that may have the effect
of inhibiting the Fund's possible
conversion to open-end status and
limiting the ability of other
persons to acquire control of the
Fund. In certain circumstances,
these provisions might also inhibit
the ability of holders of Common
Stock to sell their shares at a
premium over prevailing market
prices. The Fund's Board of
Directors has determined that these
provisions are in the best
interests of shareholders
generally.
Shares of closed-end investment
companies frequently trade at a
discount from net asset value. This
characteristic is a risk separate
and distinct from the risk that the
Fund's net asset value will
decrease as a result of its
investment activities. See "Trading
History" for information regarding
the relative net asset value and
share price of the Fund's Common
Stock since inception of the Fund.
The Fund cannot predict whether its
shares will trade at, above or
below net asset value in the
future. The Fund is intended
primarily for long-term investors
and should not be considered as a
vehicle for trading purposes.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Investors should carefully consider
their ability to assume the
foregoing risks before making an
investment in the Fund. An
investment in shares of Common
Stock of the Fund may not be
appropriate for all investors and
should not be considered as a
complete investment program. See
"Risk Factors and Special
Considerations."
- --------------------------------------------------------------------------------
9
<PAGE>
SUMMARY OF EXPENSES
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price).......................... None1
Annual Expenses (as a percentage of net assets attributable
to common shares)
Management and Administrative Fees....................................... 1.10%
Other Expenses .......................................................... 0.23%
Interest Payments on Borrowed Funds...................................... 2.99%
Total Annual Expenses (estimated)........................................ 4.32%
- ----------
1 Prices for shares of Common Stock traded in the OTC market will reflect
ordinary dealer markups.
2"Other Expenses" are based upon expenses actually incurred for the fiscal year
ended August 31, 1995.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly.
Example
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, (2) reinvestment of all dividends and distributions at
net asset value, and (3) payment by the Fund of operating expenses at the level
set forth in the table above:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$45.00 $137.00 $229.00 $463.00
This example as well as the information set forth in the table above should
not be considered a representation of the future expenses of the Fund, and
actual expenses may be greater or less than those shown. Moreover, while the
example assumes a 5% annual return, the Fund's performance will vary and may
result in a return greater or less than 5%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value, this
may not be the case for participants in the Plan. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan."
10
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected per share data and ratios for a
share of Common Stock outstanding for the periods shown. This information is
supplemented by the financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
and the Fund's Report to Shareholders for the nine-month period ended May 31,
1996, which are incorporated by reference and can be obtained by stockholders
upon request. The financial statements and notes and the financial information
in the table below for the periods ended August 31, 1995 and 1994, have been
audited by Price Waterhouse LLP, the Fund's independent accountants, whose
report thereon also is included in the Annual Report to Shareholders.
Data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
For the Nine
Months Ended For the Year For the Period
May 31, 1996 Year Ended Ended
(Unaudited) August 31, 1995 August 31, 1994(a)
----------- --------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period ....... $11.11 $12.01 $14.02
Net investment income ...................... 1.27 1.54 0.97
Net realized gain (loss) and change in
net unrealized appreciation
(depreciation) on investments .... 2.12 (1.02) (1.86)
------ ------ ------
Total from investment operations ........... 3.39 0.52 (0.89)
------ ------ ------
Less: Distributions
Dividends from net investment income (1.13) (1.42) (0.98)
Dividends from short-term gains .. -- -- (0.07)
Dividends in excess of net investment
income ........................... -- -- (0.02)
Offering costs on issuance of common stock . -- -- (0.05)
------ ------ ------
Net asset value, end of period ............. $13.37 $11.11 $12.01
------ ------
Per share market value, end of period ...... $12.75 $11.25 $11.75
------ ------
Total investment return based on market
price per share (c) ............... 25.72% 8.01% (9.02%)(b)
Ratios to average net assets:
Operating expenses ................ 1.33%(d) 1.39% 1.38%(d)
Interest expense .................. 2.99%(d) 3.46% 1.39%(d)
Total expenses .................... 4.32%(d) 4.85% 2.77%(d)
Net investment income ............. 13.73%(d) 14.10% 9.05%(d)
Portfolio turnover rate ........... 66.38% 85.15% 11.71%(d)
Net assets, end of period (000) ... $193,936 $161,178 $174,252
-------- -------- --------
</TABLE>
(a) For the period October 29, 1993 (commencement of investment operations)
through August 31, 1994.
(b) Return calculated based on beginning of period price of $14.02 (initial
offering price of $15.00 less sales load of $0.98) and end of period market
value of $11.75 per share. This calculation is not annualized.
(c) For purposes of this calculation, dividends on common shares are assumed to
be reinvested at prices obtained under the Fund's dividend reinvestment
plan and the broker commission paid to purchase or sell a share is
excluded. This calculation is not annualized.
(d) Annualized.
11
<PAGE>
The following information relates to the Fund's "senior securities" as defined
under the 1940 Act.
Total Amount Asset Coverage Per
Outstanding $1,000 of Indebtedness
Type Period Ended at End of Period at End of Period
---- ------------ ---------------- ----------------------
Bank Loans May 31, 1996 $75,000,000 368.5%
Bank Loans August 31, 1995 $75,000,000 314.9%
Bank Loans August 31, 1994 $75,000,000 3.32%
THE FUND
The Fund, incorporated in Maryland on September 3, 1993, is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund commenced investment operations on October 29, 1993. The
Fund's investment objective is to maintain a high level of current income by
investing primarily in a portfolio of high yield U.S. and non-U.S. corporate
debt securities and high yield foreign sovereign debt securities. As a secondary
objective, the Fund seeks capital appreciation. There can be no assurance that
the Fund's investment objectives will be achieved. Due to the risks inherent in
the securities in which the Fund may invest, the Fund should not be considered
to be a complete investment program. See "Risk Factors and Special
Considerations."
The Fund's principal office is located at Seven World Trade Center, New
York, New York 10048. Periodically updated information regarding the markets in
which the Fund invests and the Fund's investments is available by calling
1-800-421-4777 or 1-800-725-6666.
THE OFFERING
The Common Stock may be offered pursuant to this Prospectus from time to
time in order to effect OTC secondary market sales by Oppenheimer & Co., Inc.,
in its capacity as a dealer and secondary market-maker at negotiated prices
related to prevailing market prices on the NYSE at the time of sale. Costs
incurred in connection with this offering will be paid by Oppenheimer & Co.,
Inc., whose principal offices are located at Oppenheimer Tower, One World
Financial Center, 200 Liberty Street, New York, New York. Advantage Advisers,
Inc., the Fund's Investment Manager, is a wholly owned subsidiary of Oppenheimer
& Co., Inc.
USE OF PROCEEDS
The Fund will not receive any proceeds from the sale of any Common Stock
offered pursuant to this Prospectus. Proceeds received by Oppenheimer & Co.,
Inc. as a result of its OTC secondary market sales of the Common Stock will be
utilized by Oppenheimer & Co., Inc. in connection with its secondary market
operations and for general corporate purposes.
12
<PAGE>
TRADING HISTORY
The Common Stock is listed and traded on the NYSE under the symbol "GDF".
The following table sets forth for the Common Stock for each quarterly period
since commencement of the Fund's operations: (a) the per share high and low
sales prices reported by the NYSE; (b) the per share net asset values, based on
the Fund's computation as of 4:00 p.m. on the last NYSE business day for the
week corresponding to the dates on which the respective high and low sales
prices were recorded; and (c) the discount or premium to net asset value
represented by the high and low sales prices shown. The range of net asset
values and of premiums and discounts for the Common Stock during the periods
shown may be broader than is shown in this table. On September 27, 1996, the
closing price per share of Common Stock was $13.75, the Fund's net asset value
per share was $14.72 and the discount to net asset value was (6.59)%.
Net Asset (Discount) or Premium
Quarter Sales Prices Values to Net Asset Value
Ended High Low High Low High Low
- ------------------------------------------------------------------------------
11/30/93* n/a n/a n/a n/a n/a n/a
02/28/94 15.125 14.125 14.44 13.81 4.60 (0.53)
05/31/94 14.000 11.875 13.53 11.77 4.85 (1.24)
08/31/94 12.500 11.250 12.42 11.62 3.14 (3.85)
11/30/94 11.875 10.500 12.03 11.21 (0.76) (12.13)
02/28/95 11.000 10.125 11.48 10.07 1.79 (8.90)
05/31/95 11.000 9.500 11.13 9.14 6.67 (2.12)
08/31/95 11.125 10.750 11.26 10.47 5.06 (2.90)
11/30/95 11.375 11.000 11.60 11.20 1.74 (4.93)
02/29/96 13.250 11.375 13.32 11.68 0.59 (6.15)
05/31/96 12.750 11.620 13.47 12.20 (2.66) (7.27)
08/31/96
* For the period October 19, 1993 (commencement of operations) to November
30, 1993.
See "Description of Capital Stock-- Future Actions Relating to a Discount in the
Price of the Fund's Shares" as to methods that may be undertaken by the Fund to
reduce any discount.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to maintain a high level of current
income by investing primarily in a portfolio of high yield U.S. and non-U.S.
corporate debt securities and high yield foreign sovereign debt securities. As a
secondary objective, the Fund seeks capital appreciation. The Fund invests only
in U.S. dollar-denominated securities. Under normal market conditions, the Fund
invests at least 33% of its total assets in high yield U.S. corporate debt
securities and at least 33% of its total assets in high yield foreign sovereign
debt securities. Up to 33% of the Fund's total assets may be invested in high
yield non-U.S. corporate debt securities. The debt securities in which the Fund
invests generally will be rated, at the time of investment, in the categories
"Ba" or "B" by Moody's or "BB" or "B" by S&P or, if not rated by Moody's or S&P,
will be of comparable quality as determined by the Investment Adviser. Debt
securities rated by both Moody's and S&P need only satisfy the foregoing ratings
standards with respect to either the Moody's or the S&P rating. There is no
minimum rating requirement for the debt securities in which the Fund invests.
However, the Fund anticipates that under normal market conditions no more than
20% of the Fund's total assets will be rated, at the time of investment, below
"B" by Moody's or S&P, or will be unrated and of comparable quality. The Fund is
not required to dispose of a debt security if its credit rating or credit
quality declines. However, the Investment Adviser will continue to evaluate the
appropriateness of maintaining such a debt security in the Fund's portfolio in
accordance with the approach described below. Yields on the corporate and
sovereign debt securities in which the Fund invests fluctuate over time but are
expected at the time of investment to exceed current yields on higher rated
securities. However, such debt securities also involve greater risks than higher
rated securities. See "Risk Factors and Special Considerations."
The Investment Adviser is free to invest in high yield debt securities of
any maturity and may adjust the average maturity of the Fund's portfolio from
time to time, depending on the Investment Manager's and Investment Adviser's
assessment of the relative yields available on securities of different
maturities and its expectations of future changes in
13
<PAGE>
interest rates. [Long-term debt securities generally provide a higher yield than
short-term debt securities, and therefore the Investment Manager and the
Investment Adviser expect that, based upon current market conditions, the Fund's
high yield debt securities will have an average maturity of 10 to 15 years.]
In light of the risks associated with high yield corporate and sovereign
debt securities, the Investment Adviser considers various factors in evaluating
the creditworthiness of an issue as well as the appropriateness of the
securities for inclusion in the Fund's portfolio. For corporate debt securities,
these typically include the issuer's financial resources, its sensitivity to
economic conditions and trends, the operating history of the issuer, and the
experience and track record of the issuer's management. For sovereign debt
instruments, these typically include the economic and political conditions
within the issuer's country, the issuer's overall and external debt levels and
debt service ratios, the issuer's access to capital markets and other sources of
funding, and the issuer's debt service payment history. The Investment Adviser
also reviews the ratings, if any, assigned to the security by any recognized
rating agencies, although the Investment Adviser's judgment as to the quality of
a debt security may differ from that suggested by the rating published by a
rating service. In addition to the foregoing credit analysis, the Investment
Adviser evaluates the relative value of an investment compared with its
perceived credit risk. In selecting securities for the Fund, the Investment
Adviser considers the correlation among securities represented in the Fund's
portfolio in an attempt to reduce the risk of exposure to market, industry and
issuer volatility. The Investment Adviser uses floating rate securities from
time to time in an attempt to reduce the Fund's exposure to rising interest
rates and, accordingly, to assist in reducing significant fluctuations in net
asset value. The Fund's ability to achieve its investment objectives may be more
dependent on the Investment Adviser's credit analysis than would be the case if
it invested in higher quality debt securities.
A description of the ratings used by Moody's and S&P is set forth in
Appendix A to this Prospectus.
High Yield Corporate Debt Securities
High yield U.S. and non-U.S. corporate debt securities in which the Fund
may invest include bonds, debentures, notes and commercial paper and will
generally be unsecured. Most of these debt securities will bear interest at
fixed rates. However, the Fund may also invest in debt securities with variable
rates of interest or which involve equity features, such as contingent interest
or participations based on revenues, sales or profits (i.e., interest or other
payments, often in addition to a fixed rate of return, that are based on the
borrower's attainment of specified levels of revenues, sales or profits and thus
enable the holder of the security to share in the potential success of the
venture). The development of a market for high yield non-U.S. corporate debt
securities has been a more recent event. As political and economic reforms have
been adopted by certain developing and emerging countries, and as privatizations
have occurred, access to international capital markets has expanded,
particularly for corporate issuers in Latin American countries.
High Yield Foreign Sovereign Debt Securities
The high yield sovereign debt securities in which the Fund may invest are
U.S. dollar-denominated, fixed or floating rate debt securities, including Brady
Bonds, which are issued or guaranteed by governments or governmental entities of
developing and emerging countries. The price of a developing or emerging
country's external debt in the secondary markets generally reflects market
perception of a country's economic prospects. A significant change in the
country's fundamentals will usually be accompanied by corresponding price
movements in a country's debt. By improving economic and repayment prospects, a
country's credit standing increases, generally resulting in an increase in the
value of the debt. The Fund expects that the sovereign debt securities in which
the Fund will invest will be issued by countries consisting primarily of those
which have issued or have announced plans to issue Brady Bonds, but the Fund is
not limited to investing in the debt of such countries. Sovereign governments
may include national, provincial, state, municipal or other foreign governments
with taxing authority. Governmental entities may include the agencies and
instrumentalities of such governments, as well as state-owned or
state-controlled enterprises.
Brady Bonds are debt securities issued under the framework of the Brady
Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. In restructuring its external debt under
the Brady Plan framework, a debtor nation negotiates with its existing bank
lenders as well as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the International Monetary
Fund (the "IMF"). The Brady Plan framework, as it has developed, contemplates
the exchange of commercial bank debt for newly issued bonds (Brady
14
<PAGE>
Bonds). Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under
these arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's economic growth and development. Investors should
also recognize that the Brady Plan only sets forth general guiding principles
for economic reform and debt reduction, emphasizing that solutions must be
negotiated on a case-by-case basis between debtor nations and their creditors.
The Investment Manager and the Investment Adviser believe that economic reforms
undertaken by countries in connection with the issuance of Brady Bonds make the
debt of countries which have issued or have announced plans to issue Brady Bonds
an attractive opportunity for investment. However, there can be no assurance
that the Investment Manager's and the Investment Adviser's expectations with
respect to Brady Bonds will be realized.
Investors should recognize that Brady Bonds have been issued only recently,
and accordingly, do not have a long payment history. Agreements implemented
under the Brady Plan to date are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, the financial packages offered by each country differ.
The types of options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt which carry a
below-market stated rate of interest (generally known as par bonds), bonds
issued at a discount from the face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time and
bonds issued in exchange for the advancement of new money by existing lenders.
Discount bonds issued to date under the framework of the Brady Plan have
generally borne interest computed semiannually at a rate equal to 13/16 of 1%
above the then current six month London Inter-Bank Offered Rate ("LIBOR") rate.
Regardless of the stated face amount and stated interest rate of the various
types of Brady Bonds, the Fund purchases Brady Bonds in secondary markets, as
described below, in which the price and yield to the investor reflect market
conditions at the time of purchase. Brady Bonds issued to date have traded at a
deep discount from their face value. Certain sovereign bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Certain
Brady Bonds have been collateralized as to principal due at maturity (typically
30 days from the date of issuance) by U.S. Treasury zero coupon bonds with a
maturity equal to the final maturity of such Brady Bonds, although the
collateral is not available to investors until the final maturity of the Brady
Bonds. Collateral purchases are financed by the IMF, the World Bank and the
debtor nations' reserves. In addition, interest payments on certain types of
Brady Bonds may be collateralized by cash or high-grade securities in amounts
that typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized.
The Fund may purchase Brady Bonds with no or limited collateralization, and will
be relying for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness and ability
of the foreign government to make payment in accordance with the terms of the
Brady Bonds. Brady Bonds issued to date are purchased and sold in secondary
markets through U.S. securities dealers and other financial institutions and are
generally maintained through European transnational securities depositories. A
substantial portion of the Brady Bonds and other sovereign debt securities in
which the Fund invests are likely to be acquired at a discount, which involves
certain considerations discussed below under "Other Investments--Zero Coupon
Securities, Pay-in-Kind Bonds and Discount Obligations."
Other Investments
Equity Securities. The Fund may invest up to 10% of its total assets in
common stock, convertible securities, warrants, preferred stock or other equity
securities of U.S. and non-U.S. issuers when consistent with the Fund's
objectives. The Fund will generally hold such investments as a result of
purchases of unit offerings of debt securities which include such securities or
in connection with an actual or proposed conversion or exchange of debt
securities. The Fund will treat investments acquired in this manner, together
with any holdings of convertible securities, as debt securities for purposes of
its policy to invest at least 33% of its total assets, under normal
circumstances, in high yield corporate debt securities. The Fund may also
purchase equity securities not associated with debt securities when, in the
opinion of the Investment Manager and the Investment Adviser, such purchase is
appropriate.
Zero Coupon Securities, Pay-in-Kind Bonds and Discount Obligations. The
Fund may invest up to 15% of its total assets in zero coupon securities and
pay-in-kind bonds and, as indicated above, a substantial portion of the Fund's
15
<PAGE>
sovereign debt securities may be acquired at a discount. These investments
involve special risk considerations. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts from their value
at maturity. When a zero coupon security is held to maturity, its entire return,
which consists of the amortization of discount, comes from the difference
between its purchase price and its maturity value. This difference is known at
the time of purchase, so that investors holding zero coupon securities until
maturity know at the time of their investment what the expected return on their
investment will be. Certain zero coupon securities also are sold at substantial
discounts from their maturity value and provide for the commencement of regular
interest payments at a deferred date. The Fund also may purchase pay-in-kind
bonds. Pay-in-kind bonds pay all or a portion of their interest in the form of
debt or equity securities. Any such equity securities received in payment of
interest will be subject to the 10% limitation described above under "Other
Investments--Equity Securities." Zero coupon securities and pay-in-kind bonds
may be issued by a wide variety of corporate and governmental issuers.
Zero coupon securities, pay-in-kind bonds and debt securities acquired at a
discount tend to be subject to greater price fluctuations in response to changes
in interest rates than are ordinary interest-paying debt securities with similar
maturities. The value of zero coupon securities and debt securities acquired at
a discount appreciates more during periods of declining interest rates and
depreciates more during periods of rising interest rates. Under current federal
income tax law, the Fund is required to accrue as income each year the value of
securities received in respect of pay-in-kind bonds and a portion of the
original issue discount with respect to zero coupon securities and other
securities issued at a discount to the stated redemption price. In addition, the
Fund will elect similar treatment for any market discount with respect to debt
securities acquired at a discount. Accordingly, the Fund may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
current cash to satisfy certain distribution requirements. See "Taxation--The
Fund."
Loan Participations and Assignments. The Fund may invest in
dollar-denominated fixed and floating rate loans ("Loans") arranged through
private negotiations between a foreign sovereign entity and one or more
financial institutions ("Lenders"). The Fund may invest in such Loans in the
form of participations in Loans ("Participations") and assignments of all or a
portion of Loans from third parties ("Assignments"). The Fund considers these
investments to be investments in sovereign debt securities for purposes of this
Prospectus. Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the borrower. The Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and the Fund may not
benefit directly from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund will assume the credit risk
of both the borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the borrower is determined by
the Investment Adviser to be creditworthy. When the Fund purchases Assignments
from Lenders, the Fund will acquire direct rights against the borrower on the
Loan, except that under certain circumstances such rights may be more limited
than those held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and
Participations. Because the market for such instruments is not highly liquid,
the Fund anticipates that such instruments could be sold only to a limited
number of institutional investors. The lack of a highly liquid secondary market
will have an adverse impact on the value of such instruments and on the Fund's
ability to dispose of particular Assignments or Participations in response to a
specific economic event, such as deterioration in the creditworthiness of the
borrower. The Fund currently treats Loan Participations and Assignments as
illiquid for purposes of the Fund's limitation on investing in illiquid
securities. However, the Board of Directors of the Fund may adopt policies and
procedures in the future for the purpose of determining whether Assignments and
Loan Participations are liquid or illiquid for purposes of the Fund's limitation
on investment in illiquid securities. Pursuant to those policies and procedures,
the Board of Directors would delegate to the Investment Adviser the
determination as to whether a particular Loan Participation or Assignment is
liquid or illiquid, requiring that consideration be given to, among other
things, the frequency of quotes, the number of dealers willing to sell and the
number of potential purchasers, the nature of the Loan Participation or
Assignment and the time needed to dispose of it, and the contractual provisions
of the relevant documentation. The Board of Directors would periodically review
purchases and sales of Assignments and Loan Participations. In valuing a Loan
Participation or Assignment held by the Fund for which a sec-
16
<PAGE>
ondary trading market exists, the Fund will rely upon prices or quotations
provided by banks, dealers or pricing services. To the extent a secondary
trading market does not exist, the Fund's Loan Participations and Assignments
will be valued in accordance with procedures adopted by the Board of Directors,
taking into consideration, among other factors, (i) the creditworthiness of the
borrower under the Loan and the Lender, (ii) the current interest rate, period
until next rate reset and maturity of the Loan, (iii) recent prices in the
market for similar Loans and (iv) recent prices in the market for instruments of
similar quality, rate, period until next interest rate reset and maturity. See
"Net Asset Value."
Structured Investments. Included among the issuers of foreign debt
securities in which the Fund may invest are entities organized and operated
solely for the purpose of restructuring the investment characteristics of
various securities. These entities are typically organized by investment banking
firms which receive fees in connection with establishing each entity and
arranging for the placement of its securities. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as Brady Bonds) and the issuance by that
entity of one or more classes of securities ("Structured Investments") backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. Because Structured
Investments of the type in which the Fund anticipates investing typically
involve no credit enhancement, their credit risk will generally be equivalent to
that of the underlying instruments.
The Fund is permitted to invest in a class of Structured Investments that
is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks than unsubordinated Structured Investments. Although the
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing and
other leveraging activities. See "Additional Investment Activities--Leverage."
Certain issuers of Structured Investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these Structured Investments may be limited by the restrictions contained in the
1940 Act described below under "Additional Investment Activities--Investment
Funds." Structured Investments are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Investments.
Higher Quality Debt Securities and Temporary Investments. There may be
times when, in the judgment of the Investment Adviser, conditions in the
securities markets would make pursuing the Fund's basic investment strategy
inconsistent with the best interests of the Fund's shareholders. At such times,
the Investment Adviser may employ alternative strategies, including investment
of a substantial portion of the Fund's assets in securities rated higher than
"Ba" by Moody's or "BB" by S&P, or in unrated securities of comparable quality.
The Fund may hold and/or invest up to 35% of its total assets in cash and/or
Temporary Investments (as defined below) for cash management purposes pending
investment in accordance with the Fund's investment objectives and policies, to
meet operating expenses and to maintain liquidity. Temporary Investments are
debt securities denominated in U.S. dollars including: (1) short-term (less than
12 months to maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by (a) the U.S. government or the government of
a non-emerging market country, their agencies or instrumentalities or (b)
international organizations designated or supported by multiple foreign
governmental entities to promote economic reconstruction or development
("supranational entities"); (2) finance company obligations, corporate
commercial paper and other short-term commercial obligations, in each case rated
or issued by companies with similar securities outstanding that are rated
Prime-1 or A or better by Moody's or A-1 or A or better by S&P or, if unrated,
of comparable quality as determined by the Investment Adviser; (3) obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks, subject to the restriction that the Fund may not invest
more than 25% of its total assets in bank securities; and (4) repurchase
agreements (as discussed below under Additional Investment
Activities--Repurchase Agreements) with respect to securities in which the Fund
may invest.
If at some future time, in the opinion of the Investment Adviser, adverse
conditions prevail in the securities markets which makes the Fund's investment
strategy inconsistent with the best interests of the Fund's shareholders, the
Fund may invest its assets without limit in Temporary Investments.
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The Fund's investment objectives, together with the investment restrictions
set forth under "Investment Restrictions" below, are fundamental policies that
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. The other policies and investment
restrictions referred to in this Prospectus are not fundamental and may be
changed by the Board of Directors of the Fund without shareholder approval. As
used in this Prospectus, a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (ii) more
than 50% of the outstanding shares.
ADDITIONAL INVESTMENT ACTIVITIES
Leverage
The Fund has utilized and intends to continue utilizing leverage by
borrowing or by issuing shares of preferred stock or short-term debt securities.
The Fund intends to leverage in an amount up to 33 1/3% of its total assets
including the amount obtained from leverage. It is anticipated that the interest
payments on any borrowing or short-term debt securities or the dividends on any
preferred stock will reflect short-term rates, and that the net return on the
Fund's portfolio, including the proceeds of any leverage, will exceed the
interest or dividend rate applicable to the leverage. Whether to leverage and
the terms of, and the timing of leverage will be determined by the Fund's Board
of Directors. The extent to which the Fund is leveraged from time to time will
vary depending on the judgment of the Board of Directors, in consultation with
the Investment Manager and the Investment Adviser, regarding market conditions.
Through these leveraging techniques, the Fund will seek to obtain a higher
return for holders of Common Stock than if the Fund were not leveraged. There
can be no assurance, however, that the Fund will engage in any leveraging
techniques.
Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Stock. These include the possibility of
higher volatility of the net asset value of the Common Stock and potentially
more volatility in the market value of the Common Stock. So long as the Fund is
able to realize a higher net return on its investment portfolio than the then
current interest or dividend rate of any leverage together with other related
expenses, the effect of the leverage will be to cause holders of Common Stock to
realize a higher current net investment income than if the Fund were not so
leveraged. On the other hand, to the extent that the then current interest or
dividend rate on any leverage, together with other related expenses, approaches
the net return on the Fund's investment portfolio, the benefit of leverage to
holders of Common Stock will be reduced, and if the then current interest or
dividend rate on any leverage were to exceed the net return on the Fund's
portfolio, the Fund's leveraged capital structure would result in a lower rate
of return to holders of Common Stock than if the Fund were not so leveraged.
Similarly, since any decline in the net asset value of the Fund's investments
will be borne entirely by holders of the Common Stock, the effect of leverage in
a declining market would be a greater decrease in net asset value applicable to
the Common Stock than if the Fund were not leveraged. Any such decrease would
likely be reflected in a decline in the market price of the Common Stock. If the
Fund's current investment income were not sufficient to meet interest or
dividend requirements on any leverage, it could be necessary for the Fund to
liquidate certain of its investments, thereby reducing the net asset value
attributable to the Common Stock. Such liquidations might also cause the Fund to
realize gains on securities held for less than three months. Because not more
than 30% of the Fund's gross income may be derived from the sale or disposition
of securities held for less than three months to maintain the Fund's status as a
regulated investment company under the Code, such gains would limit the ability
of the Fund to sell other securities held for less than three months that the
Fund might wish to sell in the ordinary course of its portfolio management and
thus might adversely affect the Fund's yield.
The Fund's use of leverage is subject to the provisions of the 1940 Act,
including asset coverage requirements and restrictions on the declaration of
dividends and distributions to holders of Common Stock or purchases of Common
Stock in the event such asset coverage requirements are not met. The 1940 Act
also requires that holders of preferred stock, and in certain circumstances
holders of debt securities, have certain voting rights. See "Description of
Capital Stock."
In addition, the Fund may apply for a rating from Moody's and/or S&P on any
preferred stock or short-term debt which it issues; however, no minimum rating
is required for the issuance of preferred stock or short-term debt by the Fund.
The Fund believes that obtaining one or both of such ratings for its preferred
stock or short-term debt securities will
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<PAGE>
enhance the marketability of the preferred stock or short-term debt securities
and thereby reduce the dividend rate on the preferred stock or interest
requirements on such short-term debt securities from that which the Fund would
be required to pay if the preferred stock or short-term debt securities were not
so rated. The rating agencies for any preferred stock or short-term debt
securities may require asset coverage maintenance ratios in addition to those
imposed by the 1940 Act. The ability of the Fund to comply with such asset
coverage maintenance ratios may be subject to circumstances beyond the control
of the Fund such as market conditions for its portfolio securities. The Fund
expects that the terms of any preferred stock or short-term debt securities will
provide for mandatory redemption of the preferred stock or repayment of
short-term debt in the event the Fund fails to meet such asset coverage
maintenance ratios. In such circumstances, the Fund may have to liquidate
portfolio securities in order to meet redemption or repayment requirements. Such
liquidations and redemptions would cause the Fund to incur transaction costs and
could result in capital losses to the Fund. This would have the effect of
reducing the net asset value to holders of the Common Stock and could reduce the
Fund's net income in the future.
The issuance of any leverage will entail certain initial costs and expenses
such as underwriting discounts or placement fees, fees associated with the
registration with the Commission, filings under state securities laws, rating
agency fees, legal and accounting fees, printing costs and certain other ongoing
expenses such as administrative and accounting fees. These costs and expenses
will be borne by the Fund and will reduce net assets available to holders of the
Common Stock.
To date, all of the Fund's borrowing has been made on a secured basis and
the Fund expects this to continue to be the case. The Fund's custodian either
segregates the assets securing the Fund's borrowing for the benefit of the
Fund's lenders or arranges with a suitable sub-custodian, which may include a
lender. If the assets used to secure the borrowing decrease in value, the Fund
may be required to pledge additional collateral to the lender in the form of
cash or securities to avoid liquidation of those assets. The rights of any
lenders to the Fund to receive payments of interest on and repayments of
principal of borrowings will be senior to the rights of the Fund's shareholders,
and the terms of the Fund's borrowings may contain provisions that limit certain
activities of the Fund and could result in precluding the purchase of
instruments that the Fund would otherwise purchase.
If the Fund leverages through preferred stock, under the requirements of
the 1940 Act, the value of the Fund's total assets, less all liabilities and
indebtedness of the Fund not represented by senior securities, as defined in the
1940 Act, must be equal, immediately after any such issuance of preferred stock,
to at least 200% of the aggregate amount of senior securities representing
indebtedness plus the aggregate liquidation preference of any outstanding
preferred stock. Such percentage must also be met any time the Fund pays a
dividend or makes any other distribution on Common Stock (other than a
distribution in Common Stock) or any time the Fund repurchases Common Stock, in
each case after giving effect to such dividend, distribution or repurchase. The
liquidation value of preferred stock is expected to equal the aggregate original
purchase price plus any accrued and unpaid dividends thereon (whether or not
earned or declared). See "Description of Capital Stock."
If the Fund leverages through borrowing or issuing short-term debt
securities, under the requirements of the 1940 Act, the value of the Fund's
total assets, less all liabilities and indebtedness of the Fund not represented
by senior securities, as defined in the 1940 Act, must at least be equal,
immediately after the issuance of senior securities consisting of debt, to 300%
of the aggregate principal amount of all outstanding senior securities of the
Fund which are debt. If the Fund leverages through the issuance of senior
securities consisting of debt, the 300% asset coverage maintenance ratio
referred to above must also be met any time the Fund declares a dividend or
other distribution on Common Stock (other than a distribution in Common Stock)
or any time the Fund repurchases Common Stock, in each case after giving effect
to such dividend, distribution or repurchase.
The Fund may enter into reverse repurchase agreements with any member bank
of the Federal Reserve System and any broker-dealer or any foreign bank that has
been determined by the Investment Adviser to be creditworthy. Under a reverse
repurchase agreement, the Fund would sell securities and agree to repurchase
them at a mutually agreed date and price. At the time the Fund enters into a
reverse repurchase agreement, it may establish and maintain a segregated
account, with its custodian or a designated sub-custodian, containing cash,
securities issued or guaranteed by the U.S. Government or its agencies and
instrumentalities ("U.S. Government Securities") or other liquid, high grade
debt obligations, having a value not less than the repurchase price (including
accrued interest). Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds of the sale of
securities received by
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the Fund may decline below the price of the securities the Fund is obligated to
repurchase. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the
Fund's obligations to repurchase the securities, and the Fund's use of proceeds
of the reverse repurchase agreement may effectively be restricted pending the
decision. Reverse repurchase agreements will be treated as borrowings for
purposes of calculating the Fund's borrowing limitation to the extent the Fund
does not establish and maintain a segregated account (as described above).
The Fund may, in addition to engaging in the transactions described above,
borrow money for temporary or emergency purposes (including, for example,
clearance of transactions, share repurchases or payments of dividends to
shareholders) in an amount not exceeding 5% of the value of the Fund's total
assets (including the amount borrowed).
Derivatives
The Fund is authorized to use various investment strategies described below
to hedge market risks (such as interest rates, currency exchange rates and broad
or specific market movements), to manage the effective maturity or duration of
debt instruments held by the Fund, or to seek to increase the Fund's income or
gain. Although these strategies are regularly used by some investment companies
and other institutional investors, these strategies cannot at the present time
be used to a significant extent by the Fund and may not become available for
extensive use in the future. Techniques and instruments may change, however,
over time as new instruments and strategies are developed or regulatory changes
occur. Limitations on the portion of the Fund's assets that may be used in
connection with the investment strategies described below are set out in
Appendix B to this Prospectus.
Subject to the constraints described above the Fund may purchase and sell
interest rate, currency or stock or bond index futures contracts and enter into
currency forward contracts and currency swaps; purchase and sell (or write)
exchange listed and over-the-counter put and call options on securities, Loan
Participations and Assignments, currencies, futures contracts, indices and other
financial instruments, and the Fund may enter into interest rate transactions,
equity swaps and related transactions and other similar transactions which may
be developed to the extent the Investment Adviser determines that they are
consistent with the Fund's investment objective and policies and applicable
regulatory requirements (collectively, these transactions are referred to in
this Prospectus as "Derivatives"). The Fund's interest rate transactions may
take the form of swaps, caps, floors and collars, and the Fund's currency
transactions may take the form of currency forward contracts, currency futures
contracts, currency swaps and options on currencies or currency futures
contracts.
Derivatives may be used to attempt to protect against possible changes in
the market value of securities held or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect the Fund's unrealized gains in the value of its securities, to
facilitate the sale of those securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities or to seek to enhance the Fund's income or gain.
The Fund may use any or all types of Derivatives which it is authorized to use
at any time; no particular strategy will dictate the use of one type of
transaction rather than another, as use of any authorized Derivative will be a
function of numerous variables, including market conditions. The ability of the
Fund to utilize Derivatives successfully will depend on, in addition to the
factors described above, the Investment Adviser's ability to predict pertinent
market movements, which cannot be assured. These skills are different from those
needed to select the Fund's portfolio securities. The Fund is not a "commodity
pool" (i.e., a pooled investment vehicle which trades in commodity futures
contracts and options thereon and the operator of which is registered with the
CFTC), and Derivatives involving futures contracts and options on futures
contracts will be purchased, sold or entered into only for bona fide hedging
purposes, provided that the Fund may enter into such transactions for purposes
other than bona fide hedging if, immediately thereafter, the sum of the amount
of its initial margin and premiums on open contracts and options would not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and losses on existing contracts, provided further,
that, in the case of an option that is in-the-money, the in-the-money amount may
be excluded in calculating the 5% limitation. The use of certain Derivative in
certain circumstances will require that the Fund segregate cash or other liquid
assets to the extent the Fund's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency.
Derivatives involve special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the Investment Adviser's view
as to certain market movements is incorrect, the risk that the use of
Derivatives could result in significantly greater losses than if it had not been
used. Use of put and call options could
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<PAGE>
result in losses to the Fund, force the purchase or sale of portfolio securities
at inappropriate times or for prices higher or lower than current market values,
or cause the Fund to hold a security it might otherwise sell. The use of
currency transactions could result in the Fund incurring losses as a result of
the imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency in addition to exchange rate
fluctuations. The use of options and futures transactions entails certain
special risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund could create the possibility that losses on the Derivative
will be greater than gains in the value of the Fund's position. In addition,
futures and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. The Fund might not be able to
close out certain positions without incurring substantial losses. To the extent
the Fund utilizes futures and options transactions for hedging, such
transactions should tend to minimize the risk of loss due to a decline in the
value of the hedged position and, at the same time, limit any potential gain to
the Fund that might result from an increase in value of the position. Finally,
the daily variation margin requirements for futures contracts create a greater
ongoing potential financial risk than would purchases of options, in which case
the exposure is limited to the cost of the initial premium and transaction
costs. Losses resulting from the use of Derivatives will reduce the Fund's net
asset value, and possible income, and the losses may be significantly greater
than if Derivatives had not been used.
A detailed discussion of Derivatives, including applicable requirements of
the CFTC, the requirement to segregate assets with respect to these transactions
and special risks associated with such strategies, appears as Appendix B to this
Prospectus. See also "Risk Factors and Special Considerations--Investment
Practices."
Repurchase Agreements
The Fund may enter into repurchase agreements for cash management purposes.
A repurchase agreement is a transaction in which the seller of a security
commits itself at the time of the sale to repurchase that security from the
buyer at a mutually agreed upon time and price. The Fund will enter into
repurchase agreements only with dealers, domestic banks or recognized financial
institutions which, in the opinion of the Investment Adviser, based on
guidelines established by the Fund's Board of Directors, are deemed
creditworthy. The Investment Adviser will monitor the value of the securities
underlying the repurchase agreement at the time the transaction is entered into
and at all times during the term of the repurchase agreement to ensure that the
value of the securities always exceeds the repurchase price. In the event of
default by the seller under the repurchase agreement, the Fund may incur costs
and experience time delays in connection with the disposition of the underlying
securities. To the extent that, in the meantime, the value of the securities
that the Fund has purchased has decreased, the Fund could experience a loss.
When-Issued and Delayed Delivery Securities
The Fund may purchase securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated price and
yield. No income accrues to the purchaser of a security on a when-issued or
delayed delivery basis prior to delivery. Such securities are recorded as an
asset and are subject to changes in value based upon changes in the general
level of interest rates. Purchasing a security on a when-issued or delayed
delivery basis can involve a risk that the market price at the time of delivery
may be lower than the agreed-upon purchase price, in which case there could be
an unrealized loss at the time of delivery. The Fund will only make commitments
to purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities but may sell them before the
settlement date if it is deemed advisable. The Fund will establish a segregated
account in which it will maintain liquid assets in an amount at least equal in
value to the Fund's commitments to purchase securities on a when-issued or
delayed delivery basis. If the value of these assets declines, the Fund will
place additional liquid assets in the account on a daily basis so that the value
of the assets in the account is equal to the amount of such commitments. As an
alternative, the Fund may elect to treat when--issued or delayed delivery
securities as senior securities representing indebtedness, which are subject to
asset coverage requirements under the 1940 Act. See "Investment Restrictions."
Loans of Portfolio Securities
The Fund may lend portfolio securities. By doing so, the Fund attempts to
increase its income through the receipt
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<PAGE>
of interest on the loan. In the event of the bankruptcy of the other party to a
securities loan, the Fund could experience delays in recovering the securities
it lent. To the extent that, in the meantime, the value of the securities the
Fund lent has increased, the Fund could experience a loss.
Any securities that the Fund may receive as collateral will not become a
part of its portfolio at the time of the loan and, in the event of a default by
the borrower, the Fund will, if permitted by law, dispose of such collateral
except for such part thereof that is a security in which the Fund is permitted
to invest. During the time securities are on loan, the borrower will pay the
Fund any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash equivalent collateral. Cash collateral received
by the Fund will be invested in securities in which the Fund is permitted to
invest. The value of securities loaned will be marked to market daily. Portfolio
securities purchased with cash collateral are subject to possible depreciation.
Loans of securities by the Fund will be subject to termination at the Fund's or
the borrower's option. The Fund may pay reasonable negotiated fees in connection
with loaned securities, so long as such fees are set forth in a written contract
and approved by the Fund's Board of Directors. The Fund does not currently
intend to make loans of portfolio securities with a value in excess of 5% of the
value of its total assets.
Illiquid or Restricted Securities
The Fund may invest up to 20% of the value of its total assets, measured at
the time of investment, in illiquid securities, for which there is a limited
trading market and for which a low trading volume of a particular security may
result in abrupt and erratic price movements. The Fund may be unable to dispose
of its holdings in illiquid securities at then current market prices and may
have to dispose of such securities over extended periods of time. The Fund is
not required by its limitation on investments in illiquid securities to dispose
of such securities if the proportion of the Fund's total assets represented by
illiquid securities exceeds 20% due to market changes. The Fund will consider
repurchase agreements which cannot be liquidated within seven days to be
illiquid securities for purposes of its limitation on investments in illiquid
securities.
Certain securities in which the Fund may invest are subject to legal or
contractual restrictions as to resale ("Restricted Securities") and may
therefore be illiquid by their terms. Restricted Securities may involve added
expense to the Fund should the Fund be required to bear registration costs with
respect to such securities. In the absence of registration, the Fund would have
to dispose of its Restricted Securities pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), including a transaction in compliance with Rule 144 under the Securities
Act, which permits only limited sales under specified conditions unless the Fund
has held the securities for at least three years and is unaffiliated with the
issuer. Companies whose securities are not publicly traded are also not subject
to the same disclosure and other legal requirements as are applicable to
companies with publicly traded securities.
The Fund may purchase certain Restricted Securities ("Rule 144A
securities") eligible for sale to qualified institutional buyers as contemplated
by Rule 144A under the Securities Act. Rule 144A provides an exemption from the
registration requirements of the Securities Act for the resale of certain
restricted securities to qualified institutional buyers. One effect of Rule 144A
is that certain restricted securities may now be liquid, though no assurance can
be given that a liquid market for Rule 144A securities will develop or be
maintained. The Fund's holdings of Rule 144A securities which are liquid
securities will not be subject to the 20% limitation described above. The Board
of Directors has adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A are liquid or
illiquid for purposes of the Fund's limitation on investment in illiquid
securities, and has delegated to the Investment Adviser that determination by
requiring that consideration be given to, among other things, the frequency of
trades and quotes for the security, the number of dealers willing to sell the
security and the number of potential purchasers, dealer undertakings to make a
market in the security, the nature of the security and the time needed to
dispose of the security. The Board of Directors periodically reviews the Fund's
purchases and sales of Rule 144A securities and the Investment Adviser's
compliance with the above procedures.
Investment Funds
The Fund may invest in investment funds other than those for which the
Investment Manager or Investment Adviser serve as investment adviser or sponsor,
which invest principally in securities in which the Fund is authorized to
invest. Under the 1940 Act, the Fund may invest a maximum of 10% of its total
assets in the securities of other invest
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<PAGE>
ment companies. In addition, under the 1940 Act, not more than 5% of the Fund's
total assets may be invested in the securities of any one investment company. To
the extent the Fund invests in other investment funds, the Fund's shareholders
will incur certain duplicative fees and expenses, including investment advisory
fees. The Fund's investment in certain investment funds will result in special
U.S. federal income tax consequences described below under "Taxation."
INVESTMENT RESTRICTIONS
The following restrictions, along with the Fund's investment objectives, are the
Fund's only fundamental policies--that is, policies that cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. See "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Special Voting Provisions" for additional
information with respect to the voting rights of holders of preferred stock, if
any. The other policies and investment restrictions referred to in this
Prospectus are not fundamental policies of the Fund and may be changed by the
Fund's Board of Directors without shareholder approval. The percentage
restrictions set forth below, as well as those contained elsewhere in this
Prospectus, apply at the time a transaction is effected, and a subsequent change
in a percentage resulting from market fluctuations or any other cause other than
an action by the Fund will not require the Fund to dispose of portfolio
securities or to take other action to satisfy the percentage restriction. Under
its fundamental restrictions, the Fund may not:
(1) purchase any securities which would cause more than 25% of the value of
its total assets at the time of such purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that there is no limitation with respect to investment in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements collateralized by any of such
obligations;
(2) issue senior securities or borrow money, except for (a) preferred stock
and other senior securities (including borrowing money, including on margin if
margin securities are owned, entering into reverse repurchase agreements and
entering into similar transactions) not in excess of 33 1/3% of its total
assets, and (b) borrowings up to 5% of its total assets (including the amount
borrowed) for temporary or emergency purposes (including for clearance of
transactions, repurchase of its shares or payment of dividends), without regard
to the amount of senior securities outstanding under clause (a) above; provided,
however, that the Fund's obligations under when-issued and delayed delivery
transactions and similar transactions and reverse repurchase agreements are not
treated as senior securities if covering assets are appropriately segregated,
and the use of Derivatives shall not be deemed to involve the issuance of a
"senior security" or a "borrowing"; for purposes of clauses (a) and (b) above,
the term "total assets" shall be calculated after giving effect to the net
proceeds of senior securities issued by the Fund reduced by any liabilities and
indebtedness not constituting senior securities except for such liabilities and
indebtedness as are excluded from treatment as senior securities by this item
(2). The Fund's obligations under interest rate swaps are not treated as senior
securities;
(3) purchase or sell commodities or commodity contracts, including futures
contracts and options thereon, except that the Fund may engage in Derivatives;
(4) make loans, except that the Fund may (a) purchase and hold debt
instruments (including commercial paper notes, bonds, debentures or other
secured or unsecured obligations and certificates of deposit, bankers'
acceptances and fixed time deposits) in accordance with its investment
objectives and policies; (b) invest in or purchase loans through Participations
and Assignments; (c) enter into repurchase agreements with respect to portfolio
securities; and (d) make loans of portfolio securities;
(5) underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, it may be deemed to
be an underwriter;
(6) purchase real estate, real estate mortgage loans or real estate limited
partnership interests (other than securities secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein);
(7) purchase shares of other investment companies in an amount exceeding
the limits set forth in the 1940 Act and the rules thereunder;
23
<PAGE>
(8) make short sales of securities or purchase securities on margin (except
for delayed delivery or when-issued transactions, such short-term credits as are
necessary for the clearance of transactions, and margin deposits in connection
with transactions in futures contracts, options on futures contracts and options
on securities and securities indices);
(9) invest for the purpose of exercising control over management of any
company; or
(10) invest directly in interests in oil, gas or other mineral exploration
development programs or mineral leases.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund is subject to a number of risk factors and
special considerations, including those described below:
General Considerations Relating to Investments in High Yield Debt Securities
The net asset value of the Fund's Common Stock changes with fluctuations in
the value of its portfolio securities. The high yield corporate debt securities,
commonly known as junk bonds, and high yield sovereign debt securities in which
the Fund invests generally will be rated, at the time of investment, in the
categories "Ba" or "B" by Moody's or "BB" or "B" by S&P, or will be of
comparable quality. These lower-rated and comparable unrated securities involve
greater risks than higher-rated securities. Under rating agency guidelines,
these lower-rated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. Such securities are considered speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value and
liquidity of securities held by the Fund with a commensurate effect on the value
of the Fund's Common Stock. The Fund may invest in securities having the lowest
ratings for non-subordinated debt instruments assigned by Moody's or S&P (i.e.,
rated C by Moody's or CCC or lower by S&P) or in comparable unrated securities.
Some of the low-rated high yield debt securities held by the Fund may not be
paying interest currently or may be in payment default. Under rating agency
guidelines, such securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. Unrated securities deemed comparable to these lower- and
lowest-rated securities will have similar characteristics.
Because the Fund invests primarily in fixed-income securities, the net
asset value of the Fund's portfolio, and hence its Common Stock, can be expected
to change as general levels of interest rates fluctuate, although the market
values of securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities. Except to the extent that values are affected
independently by other factors such as developments relating to a specific
issuer, when interest rates decline, the value of a fixed-income portfolio can
generally be expected to rise. Conversely, when interest rates rise, the value
of a fixed-income portfolio can generally be expected to decline. These
fluctuations can be expected to be greater with respect to investments in
fixed-income securities with longer maturities than investments in securities
with shorter maturities. Brady Bonds and other debt obligations acquired at a
discount are subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities which are
not subject to such discount. [Although there is no limitation on the average
maturity of the Fund's portfolio, the Investment Manager and the Investment
Adviser generally expect that the Fund's high yield debt portfolio will have an
average maturity of 10 to 15 years.]
The secondary markets for high yield corporate and sovereign debt
securities, including Brady Bonds, are not as liquid as the secondary markets
for higher rated securities. The secondary markets for high yield debt
securities are characterized by relatively few market makers, participants in
the market being mostly institutional investors including insurance companies,
banks, other financial institutions and mutual funds. In addition, the trading
volume for high yield debt securities is generally lower than that for
higher-rated securities and the secondary markets could contract under adverse
market or economic conditions independent of any specific adverse changes in the
condition of a particular issuer. These factors may have an adverse effect on
the Fund's ability to dispose of particular portfolio investments and may limit
the
24
<PAGE>
ability of the Fund to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value. If the Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Board of Directors to value the Fund's portfolio
securities and the Board may have to use a greater degree of judgment in making
such valuations. Less liquid secondary markets may also affect the Fund's
ability to sell securities at their fair value. In addition, the Fund may invest
up to 20% of its total assets, measured at the time of investment, in illiquid
securities, which may be more difficult to value and to sell at fair value.
Further, if the secondary markets for high yield debt securities contract due to
adverse economic conditions or for other reasons, certain previously liquid
securities in the Fund's portfolio may become illiquid and the proportion of the
Fund's assets invested in illiquid securities may increase.
Considerations Relating to High Yield Corporate Debt Securities
The market values of corporate debt securities rated below investment grade
and comparable unrated securities tend to be more sensitive to company-specific
developments and changes in economic conditions and interest rates than those of
higher rated securities. Issuers of these securities are often highly leveraged,
so that their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
In addition, such issuers may not have more traditional methods of financing
available to them, and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default in payment of interest or principal by such
issuers is significantly greater than with investment grade securities because
such securities frequently are subordinated to the prior payment of senior
indebtedness.
Many fixed income securities, including certain corporate debt securities
in which the Fund may invest, contain call or buy-back features which permit the
issuer of the security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such a "call option"
and redeems the security, the Fund may have to replace the called security with
a lower yielding security, resulting in a decreased rate of return for the Fund.
Considerations Relating to High Yield Foreign Sovereign and Non-U.S. Corporate
Debt Securities
Investments in foreign sovereign and non-U.S. debt securities involve
certain risks not typically associated with U.S. corporate investments.
Investing in foreign sovereign and non-U.S. corporate debt securities will
expose the Fund to the direct or indirect consequences of political, social or
economic changes in the countries in which the Fund invests. The ability and
willingness of sovereign obligors in developing and emerging countries or the
governmental authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on general economic and
political conditions within the relevant country. Countries such as those in
which the Fund may invest have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations or currency depreciation, large amounts of external debt, balance
of payments and trade difficulties and extreme poverty and unemployment. Many of
these countries are also characterized by political uncertainty or instability.
Additional factors which may influence the ability or willingness to service
debt include, but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, its
government's policy towards the IMF, the World Bank and other international
agencies and the political constraints to which a government debtor may be
subject.
The ability of a foreign sovereign obligor to make timely and ultimate
payments on its external debt obligations will also be strongly influenced by
the obligor's balance of payments, including export performance, its access to
international credits and investments, fluctuations in interest rates and the
extent of its foreign reserves. A country whose exports are concentrated in a
few commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated in
dollars could be adversely affected. If a foreign sovereign obligor cannot
generate sufficient earnings from foreign trade to service its external debt, it
may need to depend on continuing loans and aid from foreign governments,
commercial banks, and multilateral organizations, and inflows of foreign
investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make such disbursements may be
conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the obligor's ability or willingness to
service its debts in a timely
25
<PAGE>
manner. The cost of servicing external debt will also generally be adversely
affected by rising international interest rates, because many external debt
obligations bear interest at rates which are adjusted based upon international
interest rates. The ability to service external debt will also depend on the
level of the relevant government's international currency reserves and its
access to foreign exchange. Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to service its external
debt.
As a result of the foregoing, a governmental obligor may default on its
obligations. If such a default occurs, the Fund may have limited effective legal
recourse against the issuer and/or guarantor. Remedies must, in some cases, be
pursued in the courts of the defaulting party itself, and the ability of the
holder of foreign sovereign debt securities to obtain recourse may be subject to
the political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.
Sovereign obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. The issuers of the
sovereign debt securities in which the Fund invests have in the past experienced
substantial difficulties in servicing their external debt obligations, which
have led to defaults on certain obligations and the restructuring of certain
indebtedness. Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of certain foreign sovereign debt securities may be requested to
participate in the restructuring of such obligations and to extend further loans
to their issuers. There can be no assurance that the Brady Bonds and other
foreign sovereign debt securities in which the Fund invests will not be subject
to similar defaults or restructuring arrangements which may adversely affect the
value of such investments. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
Payments to holders of the high yield non-U.S. corporate and foreign
sovereign debt securities in which the Fund invests are subject to foreign
withholding and other taxes. Although the holders of foreign sovereign debt
securities may be entitled to tax gross-up payments from the issuers of such
instruments, there is no assurance that such payments will be made.
The Fund's investments in debt securities of corporate issuers in
developing or emerging countries are subject to certain of the considerations
discussed above. Corporate issuers in developing and emerging countries
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of a developing or emerging country issuer may not reflect its
financial position or results of operations in the way they would be reflected
had the financial statements been prepared in accordance with U.S. generally
accepted accounting principles. In addition, for an issuer that keeps accounting
records in local currency, inflation accounting rules may require, for both tax
and accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Substantially less information may be
publicly available about issuers in developing and emerging countries than is
available about U.S. issuers.
With respect to the Fund's investment in non-U.S. debt securities, the Fund
is not limited in the percentage of its assets that may be invested in any one
country. Under normal market conditions, the Fund expects that the non-U.S.
portion of its assets will be invested in at least three countries.
26
<PAGE>
Operating Expenses
The Fund's annual operating expenses are higher than those of many other
investment companies investing exclusively in the securities of U.S. issuers.
The operating expenses are, however, comparable to expenses of other closed-end
management investment companies that invest in the securities of developing and
emerging countries.
Additional Considerations
Certain considerations concerning the Fund's ability to invest in zero
coupon securities, pay-in-kind bonds and debt securities acquired at a discount,
loan participations and assignments and Structured Investments are discussed
above under "Investment Objectives and Policies--Other Investments." Certain
considerations concerning the Fund's ability to utilize leverage, engage in
Derivatives, enter into repurchase agreements, purchase securities on a
when-issued or delayed-delivery basis and lend portfolio securities are
discussed above under "Additional Investment Activities" and in Appendix B.
The Fund's Articles of Incorporation contain certain anti-takeover
provisions that may have the effect of inhibiting the Fund's possible conversion
to open-end status and limiting the ability of other persons to acquire control
of the Fund. In certain circumstances, these provisions might also inhibit the
ability of shareholders to sell their shares at a premium over prevailing market
prices. The Fund's Board of Directors has determined that these provisions are
in the best interests of shareholders generally.
Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic is a risk separate and distinct from
the risk that the Fund's net asset value will decrease as a result of its
investment activities and may be greater for investors expecting to sell their
shares in a relatively short period following completion of this offering. It
should be noted, however, that shares of some closed-end funds have traded at
premiums to net asset value. The Fund cannot predict whether its shares will
trade at, above or below net asset value in the future. The Fund is intended
primarily for long-term investors and should not be considered as a vehicle for
trading purposes.
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in a single issuer. However, the
Fund has complied with, and intends to continue complying with, the
diversification and other requirements of the Code applicable to investment
companies. Because the Fund, as a non-diversified investment company under the
1940 Act, may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Fund may be more
susceptible to any single economic, political or regulatory occurrence and
present greater risk to an investor than an investment in a diversified company.
Such diversification and other requirements of the Code are discussed below
under "Taxation--The Fund."
Given the above-described investment risks inherent in the Fund, investment
in shares of Common Stock of the Fund should not be considered a complete
investment program and may not be appropriate for all investors. Investors
should carefully consider their ability to assume these risks before making an
investment in the Fund.
27
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The names of the directors and principal officers of the Fund are set
forth below, together with their positions and their principal occupations
during the past five years and, in the case of the directors, their positions
with certain other international organizations and publicly held companies.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address the Fund Age and Other Affiliations
- ---------------- ------------- --- ----------------------
<S> <C> <C> <C>
*Michael S. Hyland Chairman of 50 President and Managing Director, Salomon Brothers
Salomon Brothers Asset the Board Asset Management Inc ("SBAM") and Managing
Management Inc and Director Director, Salomon Brothers Inc (1989-present);
Seven World Trade Center *Chairman of the Board, The Emerging Markets
New York, NY 10048 Income Fund Inc, Salomon Brothers High Income
Fund Inc, Salomon Brothers 2008 Worldwide
Dollar Government Term Trust and Salomon
Brothers Worldwide Income Fund Inc; President and
Director, The Emerging Markets Income Fund
II Inc, The Emerging Markets Floating Rate Fund
Inc., Municipal Partners Fund Inc. and Municipal
Partners Fund II Inc.; Managing Director, First
Boston Asset Management Corp. (1989); Managing
Director, The First Boston Corporation
(1985-1989).
*Alan Rappaport President and 43 Executive Vice President, Oppenheimer & Co., Inc.
Advantage Advisers, Inc. Director Executive (1994-present); Managing Director,
Oppenheimer Tower Oppenheimer & Co., Inc. (1986-1994); President and
World Financial Center Director, Advantage Advisers, Inc. (1993-present);
New York, NY 10281 Vice President, Advantage Advisers, Inc. (1990-
1993); Chairman of the Board, President and
Director, The India Fund, Inc., The Mexico Equity
and Income Fund, Inc. and The Asia Tigers Fund,
Inc; Chairman of the Board and Director, The Czech
Republic Fund, Inc., The Emerging Markets Income
Fund II Inc. and The Emerging Markets Floating
Rate Fund Inc.; President and Director, The
Emerging Markets Income Fund Inc; Director,
Xiosinvest Management Co., S.A.; Member, New York
Stock Exchange Advisory Committee on International
Capital Markets.
Charles F. Barber Director 79 Consultant; former Chairman of the Board,
66 Glenwood Drive ASARCO Incorporated; Director, The Emerging
Greenwich, CT 06830 Markets Income Fund Inc, The Emerging Market
Income Fund II Inc, The Asia Tigers Fund, Inc.,
The India Fund, Inc., The Emerging Markets
Floating Rate Fund Inc., Salomon Brothers High
Income Fund Inc, Municipal Partners Fund Inc.,
Municipal Partners Fund II Inc., The Salomon
Brothers Fund Inc,
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address the Fund Age and Other Affiliations
- ---------------- ------------- --- ----------------------
<S> <C> <C> <C>
Salomon Brothers Series Funds Inc, Salomon Brothers
Institutional Series Fund, Inc, Salomon Brothers Capital
Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers 2008 Worldwide Dollar Government
Term Trust, Salomon Brothers Worldwide Income Fund
Inc, Zenix Income Fund Inc., Municipal High Income
Fund Inc., Managed Municipals Portfolio Inc. and Managed
Municipals Portfolio II Inc.; Director, MinVen
Inc.; Trustee, Lehman Brothers Institutional Funds
Group Trust; Member, Council on Foreign Relations,
Inc.; Director and Treasurer, Americas Society.
Dr. Riordan Roett Director 56 Professor and Director, Latin American Studies
Johns Hopkins University Program, Paul H. Nitze School of Advanced
1740 Massachusetts Ave., International Studies, Johns Hopkins
University; Director, The Emerging Markets Income Fund Inc,
N.W. The Emerging Markets Income Fund II Inc, The
Washington, D.C. 20036 Emerging Markets Floating Rate Fund Inc., Salomon
Brothers High Income Fund Inc, Salomon Brothers
2008 Worldwide Dollar Government Term Trust and
Salomon Brothers Worldwide Income Fund Inc; Member,
Council on Foreign Relations, Inc.; author of
numerous articles and other publications on emerg-
ing market country and international political and
economic affairs.
Jeswald W. Salacuse Director 57 Henry J. Braker Professor of Commercial Law, and
The Fletcher School of formerly Dean, The Fletcher School of Law &
Law & Diplomacy Diplomacy, Tufts University; Director, The
Packard Avenue Emerging Markets Income Fund Inc, The Emerging
Medford, MA 02155 Markets Income Fund II Inc, The Emerging Markets
Floating Rate Fund Inc., The Asia Tigers Fund,
Inc., The India Fund, Inc., Salomon Brothers High
Income Fund Inc, Salomon Brothers 2008 Worldwide
Dollar Government Term Trust, Salomon Brothers
Worldwide Income Fund Inc and Municipal Advantage
Fund, Inc.; Member, Council on Foreign Relations,
Inc.; author of numerous articles and other
publications on law, international relations, and
multinational business.
Leslie H. Gelb Director 58 President, The Council on Foreign Relations (1993-
The Council on Foreign Present); Columnist (1991-1993), Deputy Editorial
Relations Page Editor (1986-1990), and Editor, Op-Ed Page
58 East 68th Street (1988-1990), The New York Times; Assistant
New York, NY 10021 Secretary of State, Department of State
(1977-1979); Director of Policy Planning and Arms Control,
International Security Affairs, Department of
Defense
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address the Fund Age and Other Affiliations
- ---------------- ------------- --- ----------------------
<S> <C> <C> <C>
(1967-1969); Director, The Asia Tigers
Fund, Inc., The India Fund, Inc., The Czech
Republic Fund, Inc., The Emerging Markets Income
Fund Inc, The Emerging Markets Income Fund II Inc,
The Emerging Markets Floating Rate Fund Inc.;
Trustee, The Carnegie Endowment for International
Peace; Trustee,Tufts University; Board Member,
Columbia University School of International and
Public Affairs; Member, International Institute for
Strategic Studies, Advisory Board Member, Center on
Press, Politics and Public Policy, Harvard
University John F. Kennedy School.
Peter J. Wilby Executive Vice 37 Managing Director, SBAM and Salomon Brothers
Salomon Brothers Asset President Inc (1996-present); Director and Portfolio Manager,
Management Inc SBAM and Director, Salomon Brothers Inc (1989-
Seven World Trade Center 1996).
New York, NY 10048
Thomas K. Flanagan Executive Vice 43 Director of SBAM and SBI (1996-present); Former
Salomon Brothers Asset President Vice President, SBAM and SBI.
Management Inc
Seven World Trade Center
New York, NY 10048
Lawrence H. Kaplan Executive Vice 39 Vice President and Chief Counsel, SBAM and Vice
Salomon Brothers Asset President and President, SBI (1995-present); Former Senior Vice
Management Inc General Counsel President, Director and General Counsel, Kidder
Seven World Trade Center Peabody Asset Management, Inc. and Kidder,
New York, NY 10048 Peabody & Co.
Alan M. Mandel Treasurer 38 Vice President, SBAM and SBI (1995-present);
Salomon Brothers Asset Chief Financial Officer, Hyperion Capital
Management Inc Management Inc. (1991-1994); Former Vice
Seven World Trade Center President, Mitchell Hutchins Asset Management,
New York, NY 10048 Inc.
Tana E. Tselepis Secretary 60 Compliance Officer (1993-present), Senior
Salomon Brothers Asset Administrator (1989-1993), SBAM; Senior
Management Inc Administrator, First Boston Asset Management
Seven World Trade Center Corp. (1985-1989).
New York, NY 10048
</TABLE>
- --------------
*Director who is an "interested person" within the meaning of the 1940 Act.
30
<PAGE>
Directors who are not "interested persons" (as defined in the 1940 Act) of
the Investment Manager or the Investment Adviser are paid a fee of $5,000 per
year, plus up to $700 for every meeting of the Board attended, and are
reimbursed for travel and out-of-pocket expenses incurred in connection with
meetings of the Board of Directors.
The following table provides information concerning the compensation paid
during the fiscal year ended August 31, 1995, to each director of the Fund and
other Funds advised by the Investment Manager or the Investment Adviser. Each of
the directors listed below are members of the Audit Committee of the Fund and
audit and other committees of certain other investment companies advised by
Advantage and/or SBAM, and, accordingly, the amounts provided in the table
include compensation for service on such committees. The Fund does not provide
any pension or retirement benefits to directors. In addition, no remuneration is
paid by the Fund to Messrs. Rappaport and Hyland who, as officers of Advantage
and SBAM, respectively, are interested persons as defined under the 1940 Act.
<TABLE>
<CAPTION>
Total Compensation Total Compensation
Aggregate from Other Funds from Other Funds Total Compensation
Compensation Co-Advised by Advised by from Other Funds
Name of Nominee from Fund Advantage and SBAM Advantage Advised by SBAM Total Compensation
- --------------- ------------ ------------------ ------------------ ----------------- ------------------
Directorships (A) Directorships (A) Directorships(A) Directorships(A)
<S> <C> <C> <C> <C> <C>
Charles F. Barber $8,000 $46,200(5) $17,950(2) $57,637(7) $129,787(15)
Leslie H. Gelb 5,562 18,586(3) 18,000(3) 0 42,148(7)
Jeswald W. Salacuse 7,900 26,300(3) 23,850(3) 8,000(1) 66,050(8)
Dr. Riordan Roett 700 2,100(3) 3,929(2) 0(1) 6,729(7)
</TABLE>
- ----------
(A) The numbers in parentheses indicate the applicable number of investment
company directorships held by that director.
The officers of the Fund conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions set
forth elsewhere under "Management of the Fund," review such actions and decide
on general policy.
The Fund's Board of Directors has an Executive Committee, which may
exercise the powers of the Board to conduct the current and ordinary business of
the Fund while the Board is not in session. The current members of the Executive
Committee are Messrs. Hyland and Rappaport and any one of the directors who is
not an interested person of the Fund. The Fund also has an Audit Committee
composed currently of Messrs. Barber, Gelb, Roett and Salacuse.
The Board of Directors is divided into three classes, having three-year
terms that expire at successive Annual Meetings of Stockholders. When the term
of each class of directors expires, directors are elected to a new three-year
term in that class. Under the Fund's Articles of Incorporation and the 1940 Act,
holders of shares of preferred stock (when and if issued) will be entitled to
elect two directors, and the remaining directors, subject to the provisions of
the 1940 Act and the Fund's Articles of Incorporation, will be elected by the
holders of Common Stock and preferred stock, if any, voting together as a single
class. When dividends are in arrears for two full years, such provisions permit
the holders of shares of preferred stock, if any, to elect the minimum number of
additional directors that when combined with the two directors elected by the
holders of shares of preferred stock would result in the election of a majority
of the directors by the holders of shares of preferred stock. Under the 1940
Act, the terms of senior securities consisting of debt may provide the right to
elect directors in certain circumstances.
The Articles of Incorporation and By-Laws of the Fund provide that the Fund
will indemnify its directors and officers and may indemnify employees or agents
of the Fund against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the Fund
to the fullest extent permitted by law. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and officers will not be liable
to shareholders for money damages, except in limited instances. However, nothing
in the Articles of Incorporation or By-Laws of the Fund protects or indemnifies
a director, officer, employee or agent against any liability 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.
31
<PAGE>
At August 31, 1996, directors and officers of the Fund as a group owned
beneficially less than 1% of the outstanding shares of the Fund. No person owned
of record, or to the knowledge of management owned beneficially, more than 5% of
the Fund's outstanding shares at that date, except that Cede & Co., a nominee
for participants in Depository Trust Company, held of record 13,335,637 shares,
equal to 92% of the outstanding shares of the Fund.
Investment Manager and Investment Adviser
The Investment Manager is Advantage Advisers, Inc., and the Investment
Adviser is Salomon Brothers Asset Management Inc. Pursuant to the Management
Agreement between the Fund and the Investment Manager, the Investment Manager
supervises the Fund's investment program, including advising and consulting with
the Investment Adviser regarding the Fund's overall investment strategy and
advising the Fund and the Investment Adviser with respect to all matters
relating to the Fund's use of leveraging techniques, including the extent and
timing of the Fund's use of such techniques. In addition, the Investment Manager
consults with the Investment Adviser on a regular basis regarding the Investment
Adviser's decisions concerning the purchase, sale or holding of particular
securities. The Investment Manager also provides the Investment Adviser with
access on a continuous basis to economic, financial and political information.
In addition to the foregoing, the Investment Manager monitors the performance of
the Fund's outside service providers, including the Fund's administrator,
transfer agent and custodian. The Investment Manager pays the reasonable
salaries and expenses of such of the Fund's officers and employees and any fees
and expenses of such of the Fund's directors who are directors, officers or
employees of the Investment Manager, except that the Fund bears travel expenses
or an appropriate portion thereof of directors and officers of the Fund who are
directors, officers or employees of the Investment Manager to the extent that
such expenses relate to attendance at meetings of the Board of Directors or any
committees thereof.
Pursuant to the Advisory Agreement, the Investment Adviser acts as the
Fund's investment adviser and administrator and is responsible on a day-to-day
basis for investing the Fund's portfolio in accordance with its investments
objectives and policies. The Investment Adviser has discretion over investment
decisions for the Fund and, in that connection, places purchase and sale orders
for the Fund's portfolio securities. In addition, the Investment Advisor makes
available research and statistical data to the Fund. The Investment Advisor is
also responsible for day-to-day administration of the Fund, matters related to
the corporate existence of the Fund, provision of office space to the Fund and
clerical services relating to the Fund's operations, maintenance of the Fund's
books and records and preparation of reports. The Investment Adviser pays the
reasonable salaries and expenses of such of the Fund's officers and employees
and any fees and expenses of such of the Fund's directors who are directors,
officers or employees of the Investment Adviser, except that the Fund bears
travel expenses or an appropriate portion thereof of directors and officers of
the Fund who are directors, officers or employees of the Investment Adviser to
the extent that such expenses relate to attendance at meetings of the Board of
Directors or any committees thereof. The Investment Adviser has, at its own
expense and with the Fund's consent, subcontracted the performance of certain
fund accounting services to 440 Financial Group of Worcester, Inc., which will
maintain certain financial data and accounting records of the Fund and be
responsible for calculation of the Fund's net asset value per share.
Peter J. Wilby, Executive Vice President of the Fund, is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Wilby,
who joined SBAM in 1989, has been a Managing Director of SBAM and SBI since
January 1996. He is responsible for SBAM's investment company and institutional
portfolios which invest in high yield foreign sovereign debt securities and high
yield U.S. corporate debt securities. Mr. Wilby has managed the Fund's portfolio
since its inception.
Investment Manager
The Investment Manager is a subsidiary of Oppenheimer & Co., Inc.
Oppenheimer & Co., Inc. has been engaged in the management of investment funds
for more than 35 years. As of June 30, 1996, total assets under management by
Oppenheimer & Co., Inc. and its affiliates were approximately $50 billion for
investment company, corporate, pension, profit-sharing and other accounts. The
Investment Manager serves as investment adviser or manager for twelve registered
investment companies. The Investment Manager is a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
business address of the Investment Manager is Oppenheimer Tower, World Financial
Center, New York, New York 10281.
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Investment Adviser
The Investment Adviser was incorporated in 1987 and is an indirect,
wholly-owned subsidiary of Salomon Inc, the parent of Salomon Brothers Inc
("SBI"). SBI is one of the largest international investment houses in the world,
with offices and affiliates in 15 countries and assets at June 30, 1996. The
Investment Adviser is a registered investment adviser under the Advisers Act.
The business address of the Investment Adviser is Seven World Trade Center, New
York, New York 10048.
The Investment Adviser's professional staff is comprised of individuals
with extensive experience in the securities and investment industry in both
portfolio and securities analysis. These individuals have been innovators in
developing and managing funds for U.S. and non-U.S. investors. In addition, the
Investment Adviser's staff has access to the quantitative tools and research
capabilities of SBI and its affiliates. The Investment Adviser provides a broad
range of fixed income and equity investment advisory services for its individual
and institutional clients located around the world, and provides investment
advisory services for 16 registered investment companies (including portfolios
thereof). At June 30, 1996, the Investment Adviser had approximately $15 billion
of assets under management. The Investment Adviser is a wholly owned subsidiary
of Salomon Brothers Holding Company Inc, which is in turn a wholly owned
subsidiary of Salomon Inc.
Compensation and Expenses
As compensation for their services, the Investment Manager receives from
the Fund monthly fees at an annual rate of 1.10% of the Fund's average weekly
net assets and the Investment Adviser receives from the Investment Manager
monthly fees at an annual rate of 0.65% of the Fund's average weekly net assets.
For the fiscal period ended May 31, 1996, for the fiscal year ended August 31,
1995 and for the fiscal period ended August 31, 1994, the Investment Manager
received $1,467,959, $1,732,025 and $1,732,982, respectively, of which $867,564,
$1,023,627 and $1,024,192, respectively, was remitted to the Investment Adviser.
The Fund pays or causes to be paid all of its expenses, except for the expenses
borne by the Investment Manager and the Investment Adviser pursuant to the
Management Agreement and the Advisory Agreement, respectively, including, among
other things expenses for legal, accounting and auditing services; taxes and
governmental fees; dues and expenses incurred in connection with membership in
investment company organizations; fees and expenses incurred in connection with
listing the Fund's shares on any stock exchange; expenses of leverage; costs of
printing and distributing shareholder reports, proxy materials, prospectuses,
stock certificates and distributions of dividends; charges of the Fund's
custodians, sub-custodians, administrators and sub-administrators, registrars,
transfer agents, dividend disbursing agents and dividend reinvestment plan
agents; payment for portfolio pricing services to a pricing agent, if any;
registration and filing fees of the Commission; expenses of registering or
qualifying securities of the Fund for sale in the various states; freight and
other charges in connection with the shipment of the Fund's portfolio
securities; fees and expenses of non-interested directors; travel expenses or an
appropriate portion thereof of directors and officers of the Fund who are
directors, officers or employees of the Investment Manager or the Investment
Adviser to the extent such expenses relate to attendance at meetings of the
Board of Directors or any committee thereof; salaries of shareholder relations
personnel; costs of shareholders meetings; the fees of any rating agencies
retained to rate any preferred stock or debt securities issued by the Fund;
insurance; interest; brokerage costs; and litigation and other extraordinary or
non-recurring expenses. For the fiscal year ended August 31, 1995, and for the
fiscal period ended August 31, 1994, the Fund's total expenses, stated as a
percentage of net assets, were 4.85% and 2.77%, respectively.
Duration and Termination; Non-Exclusive Services
Unless earlier terminated as described below, each of the Management
Agreement and the Advisory Agreement remains in effect from year to year if
approved annually (i) by a majority of the non-interested directors of the Fund
and (ii) by the Board of Directors of the Fund or by a majority of the
outstanding voting securities of the Fund. The Management Agreement may be
terminated without penalty on 60 days' written notice by either party thereto or
by vote of a majority of the outstanding voting securities of the Fund and will
terminate in the event it is assigned (as defined in the 1940 Act). The Advisory
Agreement may be terminated without penalty on 60 days' written notice by the
Fund or the Investment Adviser or by vote of majority of the outstanding voting
securities of the Fund and will terminate in the event it is assigned (as
defined in the 1940 Act).
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The services of the Investment Manager and the Investment Adviser are
not deemed to be exclusive, and nothing in the relevant service agreements
prevents either of them or their affiliates from providing similar services to
other investment companies and other clients (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any brokers or dealers in the
execution of transactions in portfolio securities. Subject to policy established
by the Fund's Board of Directors, the Investment Adviser is primarily
responsible for the Fund's portfolio decisions and the placing of the Fund's
portfolio transactions.
Debt securities normally are purchased or sold from or to issuers directly
or to dealers serving as market makers for the securities at a net price, which
may include dealer spreads and underwriting commissions. Equity securities are
normally purchased through brokers to which commissions will be payable. In
placing orders, it is the policy of the Fund to obtain the best results taking
into account the general execution and operational facilities of the broker or
dealer, the type of transaction involved and other factors such as the risk of
the broker or dealer in positioning the securities involved. The purchase by the
Fund of Participations or Assignments may be pursuant to privately negotiated
transactions pursuant to which the Fund may be required to pay fees to the
seller or forego a portion of payments in respect of the Participation or
Assignment. While the Investment Adviser generally seeks the best price in
placing its orders, the Fund may not necessarily pay the lowest price available.
Subject to obtaining the best price and execution, securities firms which
provide supplemental research to the Investment Adviser may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Investment Adviser under
the Advisory Agreement, and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information.
Affiliated persons (as such term is defined in the 1940 Act) of the Fund,
or affiliated persons of such persons, may from time to time be selected to
perform brokerage services for the Fund, subject to the considerations discussed
above, but are prohibited by the 1940 Act from dealing with the Fund as
principal in the purchase or sale of securities. In order for such an affiliated
person to be permitted to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by such affiliated person must
be reasonable and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. This standard would allow such an affiliated person
to receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arm's-length transaction. The Fund
is prohibited by the 1940 Act from purchasing securities in primary offerings in
which Oppenheimer & Co., Inc. or Salomon Brothers Inc or any of their respective
affiliates acts as an underwriter unless certain conditions established under
the 1940 Act are satisfied.
Investment decisions for the Fund are made independently from those for
other funds and accounts advised or managed by the Investment Adviser. Such
other funds and accounts may also invest in the same securities as the Fund. If
those funds or accounts are prepared to invest in, or desire to dispose of, the
same security at the same time as the Fund, however, transactions in such
securities will be made, insofar as feasible, for the respective funds and
accounts in a manner deemed equitable to all. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Fund or the price paid or received by the Fund. In addition, because of
different investment objectives, a particular security may be purchased for one
or more funds or accounts when one or more funds or accounts are selling the
same security.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the Fund's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that the
annual portfolio turnover rate of the Fund will not exceed 100%. The portfolio
turnover rate is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the Fund's portfolio
securities. For purposes of this calculation, portfolio securities exclude all
securities having a maturity when purchased of one year or less. The Fund's
portfolio turnover rate for the fiscal periods ended August 31, 1994 and 1995
were 11.71% and 85.15% respectively. For the fiscal periods ended May 31, 1996,
August 31, 1995 and August 31, 1994, the Fund paid no brokerage commissions for
the execution of portfolio transactions.
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DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
It is the Fund's present policy, which may be changed by the Board of
Directors, to make regular monthly cash distributions to holders of Common Stock
at a level rate that reflects the past and projected performance of the Fund,
which over time will result in the distribution of all net investment income of
the Fund (i.e., net investment income remaining after the payment of any
dividends on preferred stock if any such stock is outstanding) and to distribute
any net realized capital gains at least annually. Future distribution levels
will be determined by the Fund after giving consideration to a number of factors
including the Fund's undistributed net investment income and historical and
projected investment income and expenses. Net income consists of all interest
income accrued on portfolio assets less all expenses of the Fund. Net investment
income for this purpose is income other than net realized long- and short-term
capital gains net of expenses.
To permit the Fund to maintain a more stable monthly distribution, the Fund
will from time to time distribute less than the entire amount of net investment
income earned in a particular period. Such undistributed net investment income
would be available to supplement future distributions which might otherwise have
been reduced by a decrease in the Fund's monthly net income due to fluctuations
in investment income or expenses. As a result, the distributions paid by the
Fund for any particular monthly period may be more or less than the amount of
net investment income actually earned by the Fund during such period.
Undistributed net investment income will be added to the Fund's net asset value
and, correspondingly, distributions from undistributed net investment income
will be deducted from the Fund's net asset value.
Pursuant to the Plan, unless the Fund declares a dividend or distribution
payable only in cash, holders of Common Stock whose shares of Common Stock are
registered in their own names will be deemed to have elected to have all
distributions automatically reinvested by American Stock Transfer & Trust
Company (the "Plan Agent") in Fund shares pursuant to the Plan, unless they
elect to receive distributions in cash. Holders of Common Stock who elect to
receive distributions in cash will receive all distributions in cash paid by
check in dollars mailed directly to the holder by American Stock Transfer &
Trust Company, as dividend paying agent. Holders of Common Stock who do not wish
to have distributions automatically reinvested should notify the Plan Agent at
the address below. Distributions with respect to Common Stock registered in the
name of a bank, broker-dealer or other nominee (i.e., in "street name") will be
reinvested under the Plan unless the service is not provided by the bank,
broker-dealer or other nominee or the holder elects to receive dividends and
distributions in cash. Investors that own shares registered in the name of a
bank, broker-dealer or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the holders of Common Stock in
administering the Plan. After the Fund declares a dividend on the Common Stock
or determines to make a capital gains distribution, the Plan Agent will, as
agent for the participants, receive the cash payment and use it to buy the
Fund's Common Stock in the open market, on the NYSE or elsewhere, for the
participants' accounts. If, on the fourth NYSE trading day (a "Trading Day")
preceding the payment date for the dividend or distribution (the "Determination
Date"), the market price per share of Common Stock equals or exceeds the net
asset value per share of Common Stock on that date (such condition, a "Market
Premium"), the Plan Agent will receive the dividend or distribution in newly
issued shares of Common Stock (the "New Shares") of the Fund on behalf of
holders of Common Stock. If, on the Determination Date, the net asset value per
share of Common Stock exceeds the market price per share of Common Stock (such
condition, a "Market Discount"), the Plan Agent will purchase shares of Common
Stock in the open market. Purchases made by the Plan Agent will be made as soon
as practicable commencing on the Trading Day following the Determination Date
and terminating no later than 30 days after the dividend or distribution payment
date except where temporary curtailment or suspension of purchase is necessary
to comply with applicable provisions of federal securities law; provided,
however, that such purchases will, in any event, terminate on the Trading Day
prior to the "ex-dividend" date next succeeding the dividend or distribution
payment date. If (i) the Plan Agent has not invested the full dividend amount in
open-market purchases by the ex-dividend date or (ii) a market discount shifts
to a market premium during the purchase period, then the Plan Agent will cease
making open-market purchases and will receive the uninvested portion of the
dividend amount in New Shares (x) in the case of (i) above, at the close of
business on the date such shift occurs; but in no event prior to the payment
date for the dividend or distribution. In the event that all or part of a
dividend or distribution amount is to be paid in New Shares, such New Shares
will be issued to holders of Common Stock in accordance with the following
formula: (i) if, on the valuation date, the net asset
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value per share of Common Stock is less than or equal to the market price per
share, then the New Shares will be valued at net asset value per share of Common
Stock on the valuation date; provided, however, that if the net asset value is
less than 95% of the market price on the valuation date, then such New Shares
will be issued at 95% of the market price and (ii) if, on the valuation date,
the net asset value per share of Common Stock is greater than the market price
per share of Common Stock, then the New Shares will be issued at the market
price on the valuation date. The valuation date will be the dividend or
distribution payment date, except that with respect to New Shares issued
pursuant to a termination of open market purchases after the ex-dividend date,
the valuation date will be the date such New Shares are issued. If a date that
would otherwise be a valuation date is not a Trading Day, the valuation date
will be the next preceding Trading Day.
Participants have the option of making additional cash payments to the Plan
Agent monthly, in a minimum amount of $250, for investment in the Fund's Common
Stock. The Plan Agent uses all such funds received from participants to purchase
shares of Common Stock in the open market on or about the first business day of
each month. To avoid unnecessary cash accumulations, and also to allow ample
time for receipt and processing by the Plan Agent, participants should send in
voluntary cash payments to be received by the Plan Agent approximately ten days
before an applicable purchase date specified above. A participant may withdraw a
voluntary cash payment by written notice, if the notice is received by the Plan
Agent not less than 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares of Common Stock in
the account of each Plan participant will be held by the Plan Agent in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
In the case of holders of Common Stock, such as banks, broker-dealers or
other nominees, that hold shares for others who are beneficial owners, the Plan
Agent administers the Plan on the basis of the number of shares of Common Stock
certified from time to time by the holders as representing the total amount
registered in such holders' names and held for the account of beneficial owners
that have not elected to receive distributions in cash.
There is no charge to participants for reinvesting dividends or capital
gains distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments are paid by the Fund. However, each participant pays a pro rata share
of brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends and distributions and
voluntary cash payments made by the participant. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
generally less than the usual brokerage charges for such transactions because
the Plan Agent is purchasing stock for all participants in blocks and prorating
the lower commission thus attainable.
The receipt of dividends and distributions under the Plan does not relieve
participants of any income tax which may be payable on such dividends or
distributions. See "Taxation--Shareholders."
The Fund and the Plan Agent reserve the right to terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to participants of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
40 Wall Street, 46th Floor, New York, New York 10005.
TAXATION
The following is a general summary of certain United States federal income
tax considerations affecting the Fund and United States and foreign shareholders
and, except as otherwise indicated, reflects provisions of the Code as of the
date of this Prospectus. No attempt is made to present a detailed explanation of
all federal, state, local and foreign income tax considerations, and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential investors are urged to consult their own tax advisors
regarding an investment in the Fund.
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The Fund
The Fund intends to qualify and elect to be treated as a regulated
investment company for federal income tax purposes under Subchapter M of the
Code. In order to so qualify, the Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to loans of securities, gains from the sale or other
disposition of stock or securities, or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies (including, but not limited to, gains from options, futures or
forward contracts); (b) derive in each taxable year less than 30% of its gross
income from the sale or other disposition of any of the following held for less
than three months (the "30% limitation"): (i) stock or securities, (ii) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies), or (iii) foreign currencies (or foreign currency
options, futures or forward contracts) that are not directly related to its
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities); and (c) diversify its holdings so that,
at the end of each quarter of each taxable year, (i) at least 50% of the value
of the Fund's assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities which, with respect to any one issuer, do not represent more than 5%
of the value of the Fund's assets nor more than 10% of the voting securities of
such issuer, and (ii) not more than 25% of the value of the Fund's assets is
invested in the securities of any issuer (other than U.S. Government securities
or the securities of other regulated investment companies) or of any two or more
issuers that the Fund controls and that are engaged in the same, similar or
related trades or businesses.
If the Fund qualifies as a regulated investment company and distributes to
its holders of Common Stock at least 90% of its net investment income (i.e., its
investment company taxable income, as that term is defined in the Code,
determined without regard to the deduction for dividends paid), then the Fund
will not be subject to federal income tax on the net investment income and "net
capital gain" (the excess of the Fund's net long-term capital gains over net
short-term capital losses) which it distributes. However, the Fund would be
subject to corporate income tax (currently at a rate of 35%) on any
undistributed net investment income and net capital gain. In the event the Fund
retains amounts attributable to its net capital gain, the Fund expects to
designate such retained amounts as undistributed capital gains in a notice to
its shareholders who (i) will be required to include in income for United States
federal income tax purposes, as long-term capital gains, their proportionate
shares of the undistributed amount, (ii) will be entitled to credit their
proportionate shares of the tax paid by the Fund on the undistributed amount
against their United States federal income tax liabilities and to claim refunds
to the extent such credits exceed their liabilities and (iii) will be entitled
to increase their tax basis, for United States federal income tax purposes, in
their shares by an amount currently equal to 65% of the amount of undistributed
capital gains included in the shareholder's income.
If in any year the Fund should fail to qualify as a regulated investment
company, the Fund would be subject to federal tax in the same amount as an
ordinary corporation, and distributions to shareholders would be taxable to such
holders as ordinary income to the extent of the earnings and profits of the
Fund. Distributions in excess of earnings and profits will be treated as a
tax-free return of capital, to the extent of a holder's basis in its shares, and
any excess, as a long- or short-term capital gain. In addition, the Fund will be
subject to a nondeductible 4% excise tax on the amount by which the aggregate
income it distributes in any calendar year is less than the sum of: (a) 98% of
the Fund's ordinary income for such calendar year; (b) 98% of the excess of
capital gains over capital losses (both long- and short-term) for the one-year
period ending on October 31 of each year; and (c) 100% of the undistributed
ordinary income and gains from prior years. For this purpose, any income or gain
retained by the Fund subject to corporate income tax will be considered to have
been distributed by year-end.
The Internal Revenue Service ("IRS") has taken the position in a revenue
ruling that a regulated investment company that has two or more classes of
shares must designate distributions made to each class in any year as consisting
of no more than such class's proportionate share of each type of income for each
tax year based on the total dividends distributed to each class for such year,
including income qualifying for the corporate dividends-received deduction and
net capital gains. Consequently, when both Common Stock and preferred stock are
outstanding, the Fund intends to allocate, to the fullest extent practicable,
income distributed to the classes as consisting of particular types of income in
accordance with each class's proportionate share of such income. Thus, the Fund
will designate dividends qualifying for the corporate dividends-received
deduction, income not qualifying for the dividends-received deduction and net
capital gain income in a manner that allocates such income between the holders
of Common Stock and preferred stock in proportion to the total distributions
made to each class during the taxable year, or otherwise as required by
applicable law.
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The Fund intends to distribute sufficient income so as to avoid both
corporate income tax and the excise tax.
If at any time when leverage is outstanding the Fund does not meet the
asset coverage requirements of the 1940 Act or of any rating agency that has
rated such leverage, the Fund will be required to suspend distributions to
holders of Common Stock until the asset coverage is restored. See "Additional
Investment Activities--Leverage." This may prevent the Fund from distributing at
least 90% of its investment company taxable income, and may therefore jeopardize
the Fund's qualification for taxation as a regulated investment company or cause
the Fund to incur a tax liability or a non-deductible 4% excise tax on the
undistributed taxable income (including gain), or both. Upon any failure to meet
the asset coverage requirements of the 1940 Act, or imposed by a rating agency,
the Fund may, in its sole discretion, purchase or redeem any preferred stock or
short-term debt securities in order to maintain or restore the requisite asset
coverage and avoid the adverse consequences to the Fund and its shareholders of
failing to qualify as a regulated investment company. There can be no assurance,
however, that any such redemption would achieve such objectives.
In an attempt to reduce or eliminate the potential for a market value
discount from net asset value, the Fund may repurchase its shares. The Fund may
liquidate portfolio securities in order to purchase shares and the securities
sold may include securities held by the Fund for less than three months. Because
of the 30% limitation described above, any gains recognized on the sale of such
securities could limit the Fund's ability to sell at a gain other securities
held for less than three months.
The Fund may engage in various hedging transactions. See "Additional
Investment Activities--Derivatives." Such transactions will be subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund, affect the holding period of the Fund's assets and defer recognition
of certain of the Fund's losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. In addition,
these provisions (1) may require the Fund to mark-to-market certain types of
positions in its portfolio (that is, treat them as if they were closed out) and
(2) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The extent to
which the Fund may be able to use such hedging techniques and continue to
qualify as a regulated investment company may be limited by the 30% limitation
discussed above. The Fund intends to monitor its transactions, make the
appropriate tax elections and make the appropriate entries in its books and
records when it acquires any forward contract, option, futures contract, or
hedged investment in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in pay-in-kind
bonds or in obligations such as certain Brady Bonds or other obligations having
original issue discount (i.e., an amount equal to the excess of the stated
redemption price of the security at maturity over its issue price), or market
discount (i.e., an amount equal to the excess of the stated redemption price of
the security at maturity over its basis immediately after it was acquired) if
the Fund elects as it intends to accrue market discount on a current basis. In
addition, income may continue to accrue for federal income tax purposes with
respect to a non-performing investment. Any of the foregoing income would be
treated as income earned by the Fund and therefore would be subject to the
distribution requirements of the Code. Because such income may not be matched by
a corresponding cash distribution to the Fund, the Fund may be required to
dispose of other securities to be able to make distributions to its investors.
The extent to which the Fund may liquidate securities at a gain may be limited
by the 30% limitation discussed above. In addition, if an election is not made
to currently accrue market discount with respect to a market discount bond, all
or a portion of any deduction for any interest expense incurred to purchase or
hold such bond may be defeased until such bond is sold or otherwise disposed.
The Fund's taxable income will in most cases be determined on the basis of
reports made to the Fund by the issuers of the securities in which the Fund
invests. The tax treatment of certain securities in which the Fund may invest is
not free from doubt and it is possible that an IRS examination of the issuers of
such securities or of the Fund could result in adjustments to the income of the
Fund. An upward adjustment by the IRS to the income of the Fund may result in
the failure of the Fund to satisfy the 90% distribution requirement described in
this Prospectus necessary for the Fund to maintain its status as a regulated
investment company under the Code. In such event, the Fund may be able to make a
"deficiency dividend" distribution to its shareholders with respect to the year
under examination to satisfy this requirement. Such distribution will be taxable
as a dividend to the shareholders receiving the distribution (whether or not the
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Fund has sufficient current or accumulated earnings and profits for the year in
which such distribution is made). A downward adjustment by the IRS to the income
of the Fund may cause a portion of the previously made distribution with respect
to the year under examination not to be treated as a dividend. In such event,
the portion of distributions to each shareholder not treated as a dividend would
be recharacterized as a return of capital and reduce the shareholder's basis in
the shares held at the time of the previously made distributions. Accordingly,
this reduction in basis could cause a shareholder to recognize additional gain
upon the sale of such shareholder's shares.
Certain of the Fund's investments in foreign securities may constitute, for
federal income tax purposes, investments in shares of foreign corporations. If
the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFICs"), the Fund may be subject to
U.S. federal income tax on a portion of any "excess distribution" or gain from
the disposition of the shares even if the income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either the Fund or its shareholders with respect to
deferred taxes arising from the distributions or gains. If the Fund were to
invest in a PFIC and (if the Fund received the necessary information available
from the PFIC, which may be difficult to obtain) elected to treat the PFIC as a
"qualified electing fund" (a "QEF") under the Code, in lieu of the foregoing
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the PFIC, even if not
distributed to the Fund, and the amounts would be subject to the 90% and
calendar year distribution requirements described above.
In the case of PFIC stock owned by a regulated investment company, proposed
Treasury regulations, not currently in effect, provide a mark-to-market election
for regulated investment companies that would permit a regulated investment
company to elect to mark-to-market stock in the PFIC annually and thereby avoid
the need for the company to make a QEF election. These regulations would be
effective for taxable years ending after promulgation of the regulations as
final regulations.
Shareholders
Distributions. Distributions to shareholders of net investment income will
be taxable as ordinary income whether paid in cash or reinvested in additional
shares. It is not anticipated that such dividends, if any, will qualify for the
dividends received deduction generally available to corporate shareholders under
the Code. Shareholders receiving distributions from the Fund in the form of
additional shares pursuant to the Plan will be treated for federal income tax
purposes as receiving a distribution in an amount equal to the fair market value
of the additional shares on the date of such a distribution.
Distributions to shareholders of net capital gain that are designated by
the Fund as "capital gains dividends" will be taxable as long-term capital
gains, whether paid in cash or reinvested in additional shares, regardless of
how long the shares have been held by such shareholders. These distributions
will not be eligible for the dividends received deduction. The current maximum
federal income tax rate imposed on individuals with respect to long-term capital
gains is 28%, whereas the current maximum federal income tax rate imposed on
individuals with respect to ordinary income (and short-term capital gains, which
are taxed at the same rates as ordinary income) is 39.6%. With respect to
corporate taxpayers, long-term capital gains are taxed at the same federal
income tax rates as ordinary income and short-term capital gains. Under H.R.
2491, as passed by Congress and vetoed by President Clinton, individual
taxpayers would have been permitted a 50% deduction for any capital gains that
they recognized, and corporations would have been taxed at a 28% rate on capital
gains, in lieu of the regular corporate rate. It is unclear whether similar
legislation will ultimately be adopted.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares purchased
at that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to a distribution will receive a distribution which will
nevertheless be taxable to them.
Dividends and distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made (even if paid or
reinvested in additional shares). Any dividend declared by the Fund in October,
November or December of any calendar year, however, which is payable to
shareholders of record on a specified date in such a month and which is not paid
on or before December 31 of such year will be treated as received by the
shareholders as of December 31 of such year, provided that the dividend is paid
during January of the following year. Any distribution
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in excess of the Fund's net investment income and net capital gains would first
reduce a shareholder's basis in his shares and, after the shareholder's basis is
reduced to zero, will constitute capital gains to a shareholder who holds his
shares as capital assets.
A notice detailing the tax status of dividends and distributions paid by
the Fund will be mailed annually to the shareholders of the Fund.
Dispositions and Repurchases. Gain or loss, if any, recognized on the sale
or other disposition of shares of the Fund will be taxed as capital gain or loss
if the shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Fund before holding it for more than six months, any loss on
the sale or other disposition of such share shall be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share. A loss realized on a sale or exchange of
shares may be disallowed if other shares are acquired (whether under the Plan or
otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the date the shares are disposed of. If disallowed, the loss will be
reflected by an upward adjustment to the basis of the shares acquired.
A repurchase by the Fund of shares generally will be treated as a sale of
the shares by a shareholder provided that after the redemption the shareholder
does not own, either directly or by attribution under Section 318 of the Code,
any shares. If after a redemption a shareholder continues to own, directly or by
attribution, any shares, it is possible that any amounts received in the
redemption by such shareholder will be taxable as a dividend to such
shareholder, and there is a risk that shareholders who do not have any of their
shares redeemed would be treated as having received a dividend distribution as a
result of their proportionate increase in the ownership of the Fund.
Foreign Taxes. The Fund may be subject to certain taxes imposed by foreign
countries with respect to dividends, capital gains and interest income. If the
Fund qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if more than 50% in value of the Fund's total
assets at the close of any taxable year consists of stocks or securities of
foreign corporations, which for this purpose should include obligations issued
by foreign governmental issuers, the Fund may elect to treat any foreign income
taxes paid by it that can be treated as income taxes under U.S. income tax
regulations as paid by its shareholders. The Fund intends to make such an
election for taxable years in which it qualifies for the election. For any year
that the Fund makes such an election, an amount equal to the foreign income
taxes paid by the Fund that can be treated as income taxes under U.S. income tax
principles will be included in the income of its shareholders and each
shareholder will be entitled (subject to certain limitations) to credit the
amount included in his income against his U.S. tax liabilities, if any, or to
deduct such amount from his U.S. taxable income, if any. Shortly after any year
for which it makes such an election, the Fund will report to its shareholders,
in writing, the amount per share of such foreign income taxes that must be
included in each shareholder's gross income and the amount that will be
available for deductions or credit. In general, a shareholder may elect each
year whether to claim deductions or credits for foreign taxes. No deductions for
foreign taxes may be claimed, however, by non-corporate shareholders (including
certain foreign shareholders as described below) who do not itemize deductions.
If a shareholder elects to credit foreign taxes, the amount of credit that may
be claimed in any year may not exceed the same proportion of the U.S. tax
against which such credit is taken that the shareholder's taxable income from
foreign sources (but not in excess of the shareholder's entire taxable income)
bears to his entire taxable income. If the Fund makes this election, a
shareholder will be treated as receiving foreign source income in an amount
equal to the sum of his proportionate share of foreign income taxes paid by the
Fund and the portion of dividends paid by the Fund representing income earned
from foreign sources. This limitation must be applied separately to certain
categories of income and the related foreign taxes.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with the shareholder's correct
taxpayer identification number, (ii) the IRS notifies the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (iii) when required to
do so, the shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules from payments made
to a shareholder may be credited against such shareholder's federal income tax
liability.
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Foreign Shareholders. Taxation of a shareholder who, as to the United
States, is a non-resident alien individual, foreign trust or estate, foreign
corporation or foreign partnership ("foreign shareholder") depends, in part, on
whether the shareholder's income from the Fund is "effectively connected" with a
United States trade or business carried on by the shareholder. If a shareholder
is a resident alien or if dividends or distributions from the Fund are
effectively connected with a United States trade or business carried on by a
foreign shareholder, then dividends of net investment income, distributions of
net capital gains and gain realized upon the sale of shares of the Fund will be
subject to United States federal income tax at the rates applicable to United
States citizens or domestic corporations.
If the income from the Fund is not effectively connected with a United
States trade or business carried on by the foreign shareholder, (i)
distributions of net investment income will be subject to a 30% (or lower treaty
rate) United States federal withholding tax, and (ii) distributions of net
capital gains and gains realized upon the sale of shares of the Fund will not be
subject to United States federal income tax as long as such foreign shareholder
is not a non-resident alien individual who was physically present in the United
States for 183 days or more during the taxable year. However, certain foreign
shareholders may nonetheless be subject to 31% backup withholding on
distributions of net capital gains and gross proceeds paid to them upon the sale
of their shares of the Fund. See "Backup Withholding."
Transfer by gift of shares of the Fund by a foreign shareholder who is a
non-resident alien individual will not be subject to United States federal gift
tax, but the value of shares of the Fund held by such a shareholder at his death
will be includible in such shareholder's gross estate for United States federal
estate tax purposes.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
U.S. trade or business carried on by them, (b) whether they may claim the
benefits of an applicable tax treaty and (c) any other tax consequences to them
of an investment in the Fund.
Investors should consult their own tax advisors regarding specific
questions as to the federal, state, local and foreign tax consequence of
ownership of shares in the Fund.
NET ASSET VALUE
Net asset value is determined no less frequently than weekly, on the last
business day of each week and at such other times as the Board of Directors may
determine, by dividing the value of the net assets of the Fund (the value of its
assets less its liabilities, exclusive of capital stock and surplus, and less
the liquidation value of any outstanding shares of preferred stock, which is
expected to equal the original purchase price per share plus any accrued and
unpaid dividends thereon, whether or not earned or declared) by the total number
of shares of Common Stock outstanding. In valuing the Fund's assets, all
securities for which market quotations are readily available are valued (except
as described below) (i) at the last sale price prior to the time of
determination if there was a sales price on the date of determination, (ii) at
the mean between the last current bid and asked prices if there was no sales
price on such date and bid and asked quotations are available, and (iii) at the
bid price if there was no sales price on such date and only bid quotations are
available. Publicly traded sovereign debt instruments are typically traded
internationally on the over-the-counter market, and are valued at the mean
between the last current bid and asked price as at the close of business of that
market. In instances where a price determined above is deemed not to represent
fair market value, the price is determined in such manner as the Board of
Directors may prescribe. Securities may be valued by independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Short-term investments having a maturity of 60 days or
less are valued at amortized cost, unless the Board of Directors determines that
such valuation does not constitute fair value. Securities for which reliable
quotations or pricing services are not readily available and all other
securities and assets are valued at fair value as determined in good faith by,
or under procedures established by, the Board of Directors.
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DESCRIPTION OF CAPITAL STOCK
Common Stock
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.001 par value). All shares of Common Stock are equal as to dividends,
distributions and voting privileges. There are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of Common
Stock is entitled to its proportion of the Fund's assets after debts and
expenses. There are no cumulative voting rights for the election of directors.
The Fund has no present intention of offering additional shares of its
Common Stock. Other offerings of its Common Stock, if made, will require
approval of the Fund's Board of Directors. Any additional offering will be
subject to the requirements of the 1940 Act that shares of Common Stock may not
be sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an offering to
existing shareholders or with the consent of a majority of the Fund's
outstanding shares of Common Stock. The Board of Directors has authorized the
officers of the Fund in their discretion, subject to compliance with the 1940
Act and other applicable law, to purchase in the open market up to 5% of the
outstanding Common Stock in the event that the Common Stock trades at a discount
to net asset value. There is no assurance that any such open market purchases
will be made and such authorization may be terminated at any time.
The following chart indicates the shares of the Common Stock outstanding as
of August 31, 1996:
Amount Outstanding
Amount Held by Exclusive of Amount Held
Registrant or for its by Registrant or for its
Title of Class Amount Authorized Own Account Own Account
- -------------- ----------------- ---------------------- ------------------------
Common Stock 100,000,000 0 14,507,134
Preferred Stock
The Fund's Articles of Incorporation provide that the Board of Directors
may classify or reclassify any unissued shares of capital stock into one or more
additional or other classes or series, with rights as determined by the Board of
Directors, by action by the Board of Directors without the approval of the
holders of Common Stock. Holders of Common Stock have no preemptive right to
purchase any shares of preferred stock that might be issued. No shares of
preferred stock are currently issued or outstanding.
Although the terms of any preferred stock, including its dividend rate,
liquidation preference and redemption provisions will be determined by the Board
of Directors (subject to applicable law and the Fund's Articles of
Incorporation), it is likely that the preferred stock will be structured to
carry a relatively short-term dividend rate reflecting interest rates on
short-term debt securities, by providing for the periodic redetermination of the
dividend rate at relatively short intervals through an auction, remarketing or
other procedure. The Fund also believes that it is likely that the liquidation
preference, voting rights and redemption provisions of the preferred stock will
be similar to those stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of preferred
stock will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accrued and unpaid
dividends, whether or not declared) before any distribution of assets is made to
holders of Common Stock. After payment of the full amount of the liquidating
distribution to which they are entitled, the preferred stockholders will not be
entitled to any further participation in any distribution of assets by the Fund.
A consolidation or merger of the Fund with or into any corporation or
corporations or a sale of all or substantially all other assets of the Fund will
not be deemed to be a liquidation, dissolution or winding upon of the Fund.
Voting Rights. The 1940 Act requires that the holders of any preferred
stock, voting separately as a single class, have the right to elect at least two
directors at all times and, subject to the prior rights, if any, of the holders
of any other
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class of senior securities outstanding, to elect a majority of the directors at
any time two years' dividends on any preferred shares are unpaid. The 1940 Act
also requires that, in addition to any approval by stockholders that might
otherwise be required, the approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class, would be required to
(a) adopt any plan of reorganization that would adversely affect the preferred
shares and (b) take any action requiring a vote of security holders pursuant to
Section 13(a) of the 1940 Act, including, among other things, changes in the
Fund's subclassification as a closed-end investment company or changes in its
fundamental investment restrictions. See "Description of Capital Stock--Special
Voting Provisions" concerning voting requirements for conversion of the Fund to
an open-end investment company and other matters. In addition, in the discretion
of the Board of Directors, subject to the 1940 Act, the terms of any preferred
stock may also provide for the vote of up to 75% of the preferred stock, voting
separately as a class, regarding certain transactions involving a merger or sale
of assets or conversion of the Fund to open-end status and other matters. The
Board of Directors presently intends that, except for the matters discussed in
the previous sentence and except as otherwise indicated in this Prospectus and
as otherwise required by applicable law, holders of shares of preferred stock
will have equal voting rights with holders of Common Stock (one vote per share,
unless otherwise required by the 1940 Act), and will vote together with holders
of Common Stock as a single class.
It is presently intended that in connection with the election of the Fund's
directors, on and after issuance of any preferred stock the holders of all
outstanding shares of preferred stock, voting as a separate class, would be
entitled to elect two directors of the Fund, and the remaining directors would
be elected by holders of Common Stock and preferred stock, voting together as a
single class. The Fund's By-Laws provide that the Board of Directors shall
consist of not less than two nor more than 12 directors, as may be determined
from time to time by vote of a majority of directors then in office.
The affirmative vote of the holders of a majority of the outstanding shares
of preferred stock, voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of shares of
preferred stock so as to affect materially and adversely such preferences,
rights, or powers, or increase or decrease the numbers of shares of preferred
stock. The class vote of holders of preferred stock described above will in each
case be in addition to any other vote required to authorize the action in
question.
Redemption, Purchase and Sale of Preferred Stock by the Fund. The terms of
any preferred stock that is issued are expected to provide that it is redeemable
by the Fund in whole or in part at the original purchase price per share plus
accrued dividends per share, that the Fund may tender for or purchase shares of
preferred stock and that the Fund may subsequently resell any shares so tendered
for or purchased. Any redemption or purchase of shares of preferred stock by the
Fund will reduce the leverage applicable to shares of Common Stock, while any
resale of shares of preferred stock by the Fund will increase such leverage. See
"Additional Investment Activities--Leverage."
The discussion above describes the present intention of the Board of
Directors with respect to an offering of preferred stock if the Board elects to
utilize preferred stock in order to leverage the Fund's Common Stock. If the
Board of Directors determines to proceed with such an offering, the terms of the
preferred stock may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Articles of Incorporation. The
Board of Directors, without the approval of the holders of Common Stock, may
authorize an offering of preferred stock or may determine not to authorize such
an offering, and may fix the terms of the preferred stock to be offered.
Future Actions Relating to a Discount in the Price of the Fund's Shares
Shares of closed-end investment companies frequently trade at a discount
from net asset value. The Fund cannot predict whether its shares will trade
above, at or below net asset value in the future. The market price of the Fund's
shares of Common Stock in the future will be determined by, among other things,
the supply and demand for the Fund's shares, the Fund's investment performance
and investor perception of the Fund's overall attractiveness as an investment as
compared with alternative investments. If, at any time, shares of the Fund's
Common Stock publicly trade for a substantial period of time at a substantial
discount from the Fund's then current net asset value per share, the Fund's
Board of Directors will consider, at its next regularly scheduled meeting,
authorizing various actions designed to eliminate the discount. The actions
considered by the Board of Directors may include periodic repurchases of shares
or recommending to shareholders amendments to the Fund's Articles of
Incorporation to convert the Fund to an open-end investment company. The Board
of Directors will consider all relevant factors in determining whether to take
any such actions, including the effect of such actions on the Fund's status as a
regulated investment company under the Code and the availability
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of cash to finance these repurchases in view of the restrictions on the Fund's
ability to borrow. No assurance can be given that the Fund will convert to an
open-end investment company or that share repurchases will be made or that, if
made, they will reduce or eliminate market discount. Should any such repurchases
be made in the future, it is expected that they would be made at prices at or
below the current net asset value per share. Any such repurchases would cause
the Fund's net assets to decrease, which may have the effect of increasing the
Fund's expense ratio. The Fund may borrow money to finance the repurchase of
shares subject to the limitations described in this Prospectus. Any interest on
the borrowings will reduce the Fund's net income.
In the event that the Fund engages in financial leveraging, the asset
coverage requirements of the 1940 Act may restrict the Fund's ability to engage
in repurchases of its shares of Common Stock. With respect to senior securities
consisting of debt, such requirements provide that no purchases of shares may be
made by the Fund unless, at the time of the purchase, the senior securities
consisting of debt have an asset coverage of at least 300% after deducting the
amount of the purchase price. With respect to preferred stock, the applicable
asset coverage percentage is 200%. See "Additional Investment
Activities--Leverage."
In considering whether to recommend to shareholders the conversion of the
Fund to an open-end investment company, the Fund's Board of Directors would
consider a number of factors including whether the Fund's ability to operate in
accordance with its investment policies, such as its authority to invest in
illiquid securities, may be impaired as a result. In light of the position of
the Commission that illiquid securities may not exceed 15% of the total assets
of a registered open-end investment company, an attempt to convert the Fund to
such a company would have to take into account the percentage of such securities
in the Fund's portfolio at the time, and other factors. The Fund cannot predict
whether on this basis it would be able to effect any such conversion or whether
relief from the Commission's position, if sought, could be obtained. Under
certain circumstances, a shareholder vote may be required to authorize periodic
repurchases of the Fund's shares of Common Stock. In considering whether to
recommend to shareholders such authorization, the Board of Directors similarly
would consider a number of factors including limitations that may be placed on
the Fund's investment policies as a consequence of such repurchase policy.
Any amendment to the Fund's Articles of Incorporation that would convert
the Fund to an open-end investment company would require the approval of the
holders of the outstanding Common Stock and the holders of the preferred stock
voting as a separate class. See "Description of Capital Stock--Preferred Stock"
and "Description of Capital Stock--Special Voting Provisions" for a discussion
of voting requirements applicable to conversion of the Fund to an open-end
investment company. If the Fund is converted to an open-end investment company,
it would be required to redeem all shares of preferred stock then outstanding
and repay all outstanding short-term debt, thus removing the special risks and
possible advantages and disadvantages associated with the use of leverage. An
open-end investment company may, however, engage in bank borrowing. In addition,
if the Fund converted to an open-end investment company, it could be required to
liquidate its portfolio investments to meet requests for redemption, and the
Common Stock would no longer be listed on the NYSE. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at the
net asset value, less such redemption charge, if any, as might be in effect at
the time of redemption.
Special Voting Provisions
The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure. The Board of Directors is divided into three classes, each
with a term of three years with only one class of directors standing for
election in any year. This provision could delay for up to two years the
replacement of a majority of the Board of Directors. A director may be removed
from office only for cause and only by a vote of the holders of at least 75% of
the shares of the Fund entitled to be cast on the matter.
The affirmative vote of 75% of the entire Board of Directors is required to
authorize the conversion of the Fund from a closed-end to an open-end investment
company. The conversion also requires the affirmative vote of the holders of 75%
of the votes entitled to be cast thereon by the shareholders of the Fund unless
it is approved by a vote of 75% of the Continuing Directors (as defined below),
in which event such conversion requires the approval of the holders of a
majority of the votes entitled to be cast thereon by the shareholders of the
Fund. A "Continuing Director" is any member of the Board of Directors of the
Fund who (i) is not a person or affiliate of a person who enters or proposes to
enter into
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a Business Combination (as defined below) with the Fund (an "Interested Party")
and (ii) who has been a member of the Board of Directors of the Fund for a
period of at least 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 of the Fund. The affirmative vote of at least 75% of the votes
entitled to be cast thereon by shareholders of the Fund will be required to
amend the Articles of Incorporation or By-Laws to change any of the provisions
in the preceding two paragraphs.
The affirmative votes of 75% of the entire Board of Directors and the
holders of at least (i) 80% of the votes entitled to be cast thereon by the
shareholders of the Fund and (ii) in the case of a Business Combination (as
defined below), 66 2/3% of the votes entitled to be cast thereon by the
shareholders of the Fund other than votes held by an Interested Party who is (or
whose affiliate is) a party to a Business Combination (as defined below) or an
affiliate or associate of the Interested Party, are required to authorize any of
the following transactions:
(i) merger, consolidation or statutory share exchange of the Fund with
or into any other person;
(ii) issuance or transfer by the Fund (in one or a series of
transactions in any 12 month period) of any securities of the Fund to any
person or entity for cash, securities or other property (or combination
thereof) having an aggregate fair market value of $1,000,000 or more,
excluding issuances or transfers of debt securities of the Fund, sales of
securities of the Fund in connection with a public offering, issuances of
securities of the Fund pursuant to a dividend reinvestment plan adopted by
the Fund, issuances of securities of the Fund upon the exercise of any
stock subscription rights distributed by the Fund and portfolio
transactions effected by the Fund in the ordinary course of business;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Fund (in one or a series of transactions in any 12 month
period) to or with any person or entity of any assets of the Fund having an
aggregate fair market value of $1,000,000 or more except for portfolio
transactions (including pledges of portfolio securities in connection with
borrowings) effected by the Fund in the ordinary course of its business
(transactions within clauses (i), (ii) and (iii) above being known
individually as a "Business Combination");
(iv) any voluntary liquidation or dissolution of the Fund or an
amendment to the Fund's Articles of Incorporation to terminate the Fund's
existence; or
(v) unless the 1940 Act or federal law requires a lesser vote, any
shareholder proposal as to specific investment decisions made or to be made
with respect to the Fund's assets as to which shareholder approval is
required under federal or Maryland law.
However, a shareholder vote will not be required with respect to the
foregoing transactions (other than those set forth in (v) above) if they are
approved by a vote of 75% of the Continuing Directors. In that case, if Maryland
law requires, the affirmative vote of a majority of votes entitled to be cast
thereon shall be required. The Fund's By-Laws contain provisions the effect of
which is to prevent matters, including nominations of directors, from being
considered at a shareholders' meeting where the Fund has not received notice of
the matters at least 60 days prior to the meeting (or 10 days following the date
notice of such meeting is given by the Fund if less than 70 days' notice of such
meeting is given by the Fund).
The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interests of shareholders
generally.
Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See "Further
Information." These provisions 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
in a tender offer or similar transaction. In the opinion of the Adviser,
however, these provisions offer several possible advantages. They may require
persons seeking control of the Fund to negotiate with its management regarding
the price to be paid for the shares required to obtain such control, they
promote continuity and stability and they enhance the Fund's ability to pursue
long-term strategies that are consistent with its investment objectives.
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CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
The Chase Manhattan Bank, N.A., serves as custodian for the Fund's assets.
American Stock Transfer & Trust Company serves as the transfer agent, dividend
paying agent and registrar for the Fund's Common Stock.
EXPERTS
The financial statements of the Fund included in the Fund's Annual Report
to Shareholders as of August 31, 1995 have been incorporated by reference in
this Prospectus in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
FURTHER INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information filed by the Fund can be inspected and copies at public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Chicago, Illinois 60661. The Fund's Common
Stock is listed on the New York Stock Exchange. Reports, proxy statements and
other information concerning the Fund can be inspected and copied at the Library
of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
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APPENDIX A
RATINGS
A description of the rating policies of Moody's and S&P with respect to
bonds and debentures appears below.
Moody's Investors Service Corporate Bond Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment qualities
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Corporate Bond Ratings
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differ from AAA
issues only in small degree.
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A -- Bonds rated A have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead a weakened capacity to repay principal and pay interest for bonds
in this category than for higher rated categories.
BB-B-CCC-CC-C -- Bonds rated BB, B, CCC and CC, and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI -- Bonds rated CI are income bonds on which no interest is being paid.
D -- Bonds rated D are in default. The D category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The D rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
Moody's Investors Service Commercial Paper Ratings
Prime-1 -- Issuers (or related supporting institutions) rated Prime-1 have
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates or return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2 -- Issuers (or related supporting institutions) rated Prime-2 have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
Prime-3 -- Issuers (or related supporting institutions) rated Prime-3 have
an acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime -- Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Commercial Paper Ratings
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues
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determined to possess extremely strong safety characteristics are denoted with a
plus (+) sign designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B -- Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D -- Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
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APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF DERIVATIVES
A detailed discussion of Derivatives (as defined below) that may be used by
the Investment Adviser follows below. The Fund is not obligated, however, to use
any Derivatives and makes no representation as to the availability of these
techniques at this time or at any time in the future. "Derivatives," as used in
this Appendix, refers to interest rate, currency or stock or bond index futures
contracts, currency forward contracts and currency swaps, the purchase and sale
(or writing) of exchange listed and over-the-counter ("OTC") put and call
options on debt and equity securities, currencies, interest rate, currency or
stock index futures and fixed-income and stock indices and other financial
instruments, entering into various interest rate transactions such as swaps,
caps, floors, collars, entering into equity swaps, caps, floors or trading in
other similar types of instruments.
The Fund's ability to pursue certain of these strategies may be limited by
the Commodity Exchange Act, as amended, applicable regulations of the Commodity
Futures Trading Commission ("CFTC") thereunder and the federal income tax
requirements applicable to regulated investment companies which are not operated
as commodity pools.
General Characteristics of Options
Put options and call options typically have structural characteristics and
operational mechanics regardless of the underlying instrument on which they are
purchased or sold. Thus, the following general discussion relates to each of the
particular types of options discussed in greater detail below. In addition, many
Derivatives involving options require segregation of Fund assets in special
accounts, as described below under "Use of Segregated and Other Special
Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer of the obligation to buy, the underlying
security, index, currency or other instrument at the exercise price. The Fund's
purchase of a put option on a security, for example, might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value of such instrument
by giving the Fund the right to sell the instrument at the option exercised
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial futures contract, index, currency or other instrument might
be intended to protect the Fund against an increase in the price of the
underlying instrument that it intends to purchase in the future by fixing the
price at which it may purchase the instrument. An "American" style put or call
option may be exercised at any time during the option period, whereas a
"European" style put or call option may be exercised only upon expiration or
during a fixed period prior to expiration. Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to the options. The
discussion below uses the OCC as an example, but is also applicable to other
similar financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or (currency, although in
the future, cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (that is, the
amount by which the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC-issued or exchange-listed put or call option is dependent, in part, upon the
liquidity of the particular option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (1) insufficient trading
interest in certain options, (2) restrictions on transactions imposed by an
exchange, (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
including reaching daily price limits, (4) interruption of the normal operations
of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the relevant market for that option on that exchange
would cease to exist, although
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any such outstanding options on that exchange would continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties (collectively referred to as
"Counterparties" and individually referred to as a "Counterparty") through a
direct bilateral agreement with the Counterparty. In contrast to exchange-listed
options, which generally have standardized terms and performance mechanics, all
the terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium guaranties and security, are determined by negotiation
of the parties. The Fund will generally only enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, no central clearing or guaranty function
is involved in an OTC option. As a result, if a Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, the Investment Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be met. The Fund will enter into OTC option transactions only with
U.S. government securities dealers recognized by the Federal Reserve Bank of New
York as "primary dealers," or broker-dealers, domestic or foreign banks, or
other financial institutions that the Investment Adviser deems to be
creditworthy. In the absence of a change in the current position of the staff of
the SEC, OTC options purchased by the Fund and the amount of the Fund's
obligation pursuant to an OTC option sold by the Fund (the cost of the sell-back
plus the in-the-money amount, if any) or the value of the assets held to cover
such options will be deemed illiquid.
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by the Fund or will
increase the Fund's income. Similarly, the sale of put options can also provide
gains for the Fund.
The Fund may purchase and sell call options on securities that are traded
on U.S. and foreign securities exchanges and in the OTC markets, and on
securities indices, currencies and futures contracts. All calls sold by the Fund
must be "covered" (that is, the Fund must own the securities or futures contract
subject to the call), or must otherwise meet the asset segregation requirements
described below for so long as the call is outstanding. Even though the Fund
will receive the option premium to help protect it or against loss, a call sold
by the Fund will expose the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
that it might otherwise have sold.
The Fund reserves the right to purchase or sell options on instruments and
indices, (whether or not it holds the securities in its portfolio) and on
securities indices, currencies and futures contracts. In selling put options,
the Fund faces the risk that it may be required to buy the underlying security
at a disadvantageous price above the market price.
The Fund may purchase and sell put options on securities (whether or not it
holds the securities in its portfolio) and on securities indices, currencies and
futures contracts. In selling put options, a Fund faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures Contracts and Options on Futures Contracts
The Fund may trade financial futures contracts or purchase or sell put and
call options on those contracts as a hedge against anticipated interest rate
currency or market changes, and for risk management purposes or the Fund may
seek to increase its income or gain. Futures contracts are generally bought and
sold on the commodities exchange on which they are listed with payment of
initial and variation margin as described below. The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to certain instruments, the
net cash amount).
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Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract and obligates the
seller to deliver that position.
The Fund's use of financial futures contracts and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the CFTC. Maintaining a futures contract
or selling an option on a futures contract will typically require the Fund to
deposit with a financial intermediary, as security for its obligations, an
amount of cash or other specified asset ("initial margin") that initially is
from 1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets ("variation margin") may be required
to be deposited thereafter daily as the mark-to-market value of the futures
contract fluctuates. The purchase of an option on a financial futures contract
involves payment of a premium for the option without any further obligation on
the part of the Fund. If the Fund exercises an option on a futures contract it
will be obligated to post initial margin (and potentially variation margin) for
the resulting futures position just as it would for any futures position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position can be
offset prior to settlement or that delivery will occur.
The Fund will not enter into a futures contract or option thereon if,
immediately thereafter, the sum of the amount of its initial margin and premiums
required to maintain permissible non-bona fide hedging positions in futures
contracts and options thereon would exceed 5% of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and losses on
existing contracts; however in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. The value of all futures contracts sold by the Fund (adjusted for
the historical volatility relationship between the Fund and the contracts) will
not exceed the total market value of the Fund's securities. The segregation
requirements with respect to futures contracts and options thereon are described
below under "Use of Segregated and Other Special Accounts."
Options on Securities Indices and Other Financial Indices
The Fund may purchase and sell call and put options on securities indices
and other financial indices. In doing so, the Fund can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, options on indices settle by cash settlement; that is, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
comprising the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.
Currency Transactions
The Fund may engage in currency transactions with Counterparties to hedge
the value of portfolio securities denominated in particular currencies against
fluctuations in relative value or to generate income or gain. Currency
transactions include currency forward contracts, exchange-listed currency
futures contracts and options thereon, exchange-listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows based on
the notional difference among two or more currencies and operates similarly to
an interest rate swap, which is described below under "Swaps, Caps, Floors and
Collars." The Fund may enter into currency transactions only with Counterparties
that the Investment Adviser deems to be creditworthy.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio securities positions
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denominated or generally quoted in that currency. The Fund will not enter into a
transaction to hedge currency exposure to an extent greater, after netting all
transactions intended wholly or partially to offset other transactions, than the
aggregate market value (at the time of entering into the transaction) of the
securities held by the Fund that are denominated or generally quoted in or
currently convertible into the currency, other than with respect to proxy
hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or decline
in value relative to other currencies to which the Fund has or in which the Fund
expects to have exposure. To reduce the effect of currency fluctuations on the
value of existing or anticipated holdings of its securities, the Fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
the Fund's holdings is exposed is difficult to hedge generally or difficult to
hedge against the dollar. Proxy hedging entails entering into a forward contract
to sell a currency, the changes in the value of which are generally considered
to be linked to a currency or currencies in which some or all of the Fund's
securities are or are expected to be denominated, and to buy dollars. The amount
of the contract would not exceed the market value of the Fund's securities
denominated in linked currencies.
Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under "Risk Factors." If the Fund enters into a
currency hedging transaction, the Fund will comply with the asset segregation
requirements described below under "Use of Segregated and Other Special
Accounts."
Combined Transactions
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts), multiple interest rate transactions and
any combination of futures, options, currency and interest rate transactions,
instead of a single Derivative, as part of a single or combined strategy when,
in the judgment of the Investment Adviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions will normally be entered into by the Fund based on the Investment
Adviser's judgment that the combined strategies will reduce risk or otherwise
more effectively achieve the desired portfolio management goal, it is possible
that the combination will instead increase the risks or hinder achievement of
the Fund management objective.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and equity swap, the
purchase or sale of related caps, floors and collars and other similar
arrangements. The Fund will enter into these transactions primarily to seek to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique, to protect against any increase in the price of securities the Fund
anticipates purchasing or selling at a later date or to generate income or gain.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal). An equity swap is an agreement to exchange cash flows on a
national principal amount based on changes in the values of the reference index.
A currency swap is an agreement to exchange cash flows on a notional amount
based on changes in the values of the currency exchange rates. The purchase of a
cap entitles the purchaser to receive payments on a notional principal amount
from the party selling the cap to the extent that a specified interest rate,
currency exchange rate or index exceeds a predetermined rate or amount. The
purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling the floor to the extent that a specified
interest rate currency exchange rate or index falls below a predetermined rate
or amount. A collar is a combination of a cap and a floor that preserves a
certain return with a predetermined range of rates or values.
The Fund will usually enter into swaps on a net basis, that is, the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument with the Fund receiving or paying, as the case may
be, only the net amount of the two payments.
Inasmuch as these swaps, caps, floors, collars and other similar types of
instruments are entered into for good faith hedging or other non-speculative
purposes, they do not constitute senior securities under the 1940 Act, and,
thus, will not be treated as being subject to the Fund's applicable borrowing
restrictions. The Fund will not enter into any swap,
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cap, floor, collar or other similar type of transaction unless the Investment
Adviser deems the Counterparty to be creditworthy. If a Counterparty defaults,
the Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by the Investment
Adviser based on various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), and (5) the nature of the
marketplace for trades (including the ability to assign or offset the Fund's
rights and obligations relating to the investment). Such determination will
govern whether a swap will be deemed within the 10% restriction on investment in
securities that are not readily marketable.
The Fund will maintain cash and appropriate liquid assets (i.e., high grade
debt securities) in a segregated custodial account to cover its current
obligations under swap agreements. If the Fund enters into a swap agreement on a
net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of the Fund's accrued obligations under the swap agreement over
the accrued amount the Fund is entitled to receive under the agreement. If the
Fund enters into a swap agreement on other than a net basis, it will segregate
assets with a value equal to the full amount of the Fund's accrued obligations
under the agreement. See "Use of Segregated and Other Special Accounts" below.
Risk Factors
Derivatives have special risks associated with them, including possible
default by the Counterparty to the transaction, illiquidity and, to the extent
the Investment Adviser's view as to certain market movements is incorrect, the
risk that the use of the Derivatives could result in losses greater than if they
had not been used. Use of put and call options could result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices higher than (in the case of put options) or lower than (in the case
of call options) current market values, or cause the Fund to hold a security it
might otherwise sell.
The use of futures and options transactions entails certain special risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of the
Fund could create the possibility that losses on the hedging instrument are
greater than gain in the value of the Fund's position. In addition, futures and
options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses. Although the Fund's use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to the Fund that might result from an increase in value of the
position. There is also the risk of loss by the Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or option thereon. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium. However, because option premiums paid by the
Fund are small in relation to the market value of the investments underlying the
options, buying options can result in large amounts of leverage. The leverage
offered by trading in options could cause the Fund's net asset value to be
subject to more frequent and wider fluctuation than would be the case if the
Fund did not invest in options.
As is the case with futures and options strategies, the effective use of
swaps and related transactions by the Fund may depend, among other things, on
the Fund's ability to terminate the transactions at times when the Investment
Adviser deems it desirable to do so. To the extent the Fund does not, or cannot,
terminate such a transaction in a timely manner, the Fund may suffer a loss in
excess of any amounts that it may have received, or expected to receive, as a
result of the Investment Adviser entering into the transaction.
Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, the risk exists that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
Currency transactions
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are also subject to risks different from those of other portfolio transactions.
Because currency control is of great importance to the issuing governments and
influences economic planning and policy, purchases and sales of currency and
related instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulations or
exchange restrictions imposed by governments. These forms of governmental
actions can result in losses to the Fund if it is unable to deliver or receive
currency or monies in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency futures
contracts are subject to the same risks that apply to the use of futures
contracts generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures contracts is relatively new, and the ability
to establish and close out positions on these options is subject to the
maintenance of a liquid market that may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
Losses resulting from the use of Derivatives will reduce the Fund's net
asset value, and possibly income, and the losses can be greater than if
Derivatives had not been used.
Risk of Derivatives Outside the United States
When conducted outside the United States, Derivatives may not be regulated
as rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and will be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. In addition, the price of any foreign futures or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time an order is placed
and the time it is liquidated, offset or exercised. The value of positions taken
as part of non-U.S. Derivatives also could be adversely affected by: (1) other
complex foreign political, legal and economic factors, (2) lesser availability
of dates on which to make trading decisions than in the United States, (3)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States, (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States and (5) lower trading volume and liquidity.
Use of Segregated and Other Special Accounts
Use of many Derivatives by the Fund will require, among other things, that
the Fund segregate cash or other liquid assets with its custodian, or a
designated sub-custodian, to the extent the Fund's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian or
sub-custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. A call option on securities written by the Fund, for example,
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate liquid assets sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities that correlate with the index or to segregate
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option on securities written by the Fund will require the
Fund to segregate liquid assets equal to the exercise price. Except when the
Fund enters into a forward contract in connection with the purchase or sale of a
security denominated in a foreign currency or for other non-speculative
purposes, which requires no segregation, a currency contract that obligates the
fund to buy or sell a foreign currency will generally require the Fund to hold
an amount of that currency or liquid securities denominated in that currency
equal to the Fund's obligations or to segregate liquid assets equal to the
amount of the Fund's obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices, and OCC-issued and exchange-listed
index options will generally provide for cash settlement, although the Fund will
not be required to do so. As a result, when the Fund sells these instruments it
will segregate an amount of assets equal to its obligations under the Options.
OCC-issued and exchange-listed options sold by the Fund other than those
described above generally settle with physical delivery, and the Fund will
segregate an amount of assets equal to the full value of the option. OTC options
settling with physical delivery or with an election of either physical delivery
or cash settlement will
B-6
<PAGE>
be treated the same as other options settling with physical delivery. In the
case of a futures contract or an option on a futures contract, the Fund must
deposit initial margin and, in some instances, daily variation margin in
addition to segregating assets sufficient to meet its obligations to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract. These assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets. The
Fund will accrue the net amount of the excess, if any, of its obligations
relating to swaps over its entitlements with respect to each swap on a daily
basis and will segregate with its custodian, or designated sub-custodian, an
amount of cash or liquid assets having an aggregate value equal to at least the
accrued excess. Caps, floors and collars require segregation of assets with a
value equal to the Fund's net obligation, if any.
Derivatives may be covered by means other than those described above when
consistent with applicable regulatory policies. The Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related Derivatives.
The Fund could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Fund. Moreover, instead of segregating assets if it holds a futures contract or
forward contract, the Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Derivatives may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required, but if it terminates prior
to that time, assets equal to any remaining obligation would need to be
segregated.
B-7
<PAGE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Fund, the Fund's investment
manager or adviser or Oppenheimer & Co., Inc. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary ....................................................... 1
Summary of Expenses ...................................................... 10
The Fund ................................................................. 12
Use of Proceeds .......................................................... 12
Investment Objectives and Policies ....................................... 13
Additional Investment Activities ......................................... 18
Investment Restrictions .................................................. 23
Risk Factors and Special Considerations .................................. 24
Management of the Fund ................................................... 28
Portfolio Transactions ................................................... 34
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan ...................................... 35
Taxation ................................................................. 36
Net Asset Value .......................................................... 41
Description of Capital Stock ............................................. 42
Custodian, Transfer Agent, Dividend
Paying Agent and Registrar ............................................... 46
Experts .................................................................. 46
Further Information ...................................................... 46
Appendix A: Ratings ...................................................... A-1
Appendix B: General Characteristics
and Risks of Derivatives ................................................. B-1
GLOBAL PARTNERS
INCOME FUND INC.
Common Stock
----------
PROSPECTUS
----------
Oppenheimer & Co., Inc.
October 9, 1996
- --------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Parts A & B Global Partners Income Fund Inc.
(i) Statement of Investments as of May 31, 1996 (unaudited)*
(ii) Statement of Assets and Liabilities as of May 31, 1996 (unaudited)*
(iii) Statement of Operations for the nine months ended May 31, 1996
(unaudited) and the fiscal period ended August 31, 1995*
(iv) Statement of Changes in Net Assets for the nine months ended May 31,
1996 (unaudited)*
(v) Statement of Changes in Net Assets for the nine months ended May 31,
1996 (unaudited) and for the fiscal period ended August 31, 1996*
(vi) Statement of Cash Flows for the nine months ended May 31, 1996
(unaudited)*
(vii) Notes to Unaudited Financial Statements*
(viii) Financial Highlights*
(ix) Statement of Investments as of August 31, 1995**
(x) Statement of Assets and Liabilities as of August 31, 1995**
(xi) Statements of Operations for the fiscal period ended August 31, 1995**
(xii) Statement of Changes in Net Assets for the fiscal period ended August
31, 1995 and for the period October 29, 1993 (commencement of
operations) to August 31, 1994**
(xiii) Statement of Cash Flows for the fiscal period ended August 31,
1995**
(xiv) Notes to Audited Financial Statements**
(xv) Financial Highlights**
(xvi) Report of Independent Auditors**
- ----------
* Incorporated by reference to the Fund's Interim Report to Shareholders for
the nine months ended May 31, 1996, filed with the Securities and Exchange
Commission. [Accession No. 0000950117-96-000849].
** Incorporated by reference to the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1995, filed with the Securities and
Exchange Commission. [Accession No. 0000950123-95-003164].
C-1
<PAGE>
(2) Exhibits
(a) Articles of Incorporation.1
(b) By-Laws.2
(c) Not applicable.
(d) Not applicable.
(e) Dividend Reinvestment and Cash Purchase Plan.3
(f) Not applicable.
(g)(A) Management Agreement between the Fund and Advantage Advisers, Inc.4
(g)(B) Advisory and Administration Agreement among the Fund (with respect
to certain provisions), Salomon Brothers Asset Management Inc. and
Advantage Advisors, Inc.5
(h)(A) Underwriting Agreement.6
(h)(B) Master Agreement Among Underwriters.7
(h)(C) Master Selected Dealer Agreement.8
(i) Not applicable.
(j) Custodian Contract between the Fund and The Chase Manhattan Bank, N.A.
9
(k)(A) Registrar, Transfer Agency and Service Agreement between the Fund
and American Stock & Trust Company.10
(k)(B) Loan Agreement with Bankers Trust Company (to be filed by
amendment).
(l)(A) Opinion and Consent of Simpson Thacher & Bartlett (to be filed by
amendment).
(l)(B) Opinion and Consent of Piper & Marbury (to be filed by amendment).
(m) Not applicable.
(n) Consent of Price Waterhouse LLP, independent accountants (to be filed
by amendment).
(o) Not applicable.
(p) Form of Share Purchase Agreement among the Fund, Oppenheimer & Co.,
and Salomon Brothers Asset Management Inc.11
(q) Not applicable.
(r) Financial Data Schedules (to be filed by amendment).
(s) Powers of Attorney (to be filed by amendment).
- ----------
1 Incorporated by reference to exhibit (a) to Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on Form N-2, filed October 21,
1993 (File No. 33-68416).
2 Incorporated by reference to exhibit (b) to Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on Form N-2, filed September 3,
1993 (File No. 33-68416).
3 Incorporated by reference to the Fund's Interim Report to Shareholders for
the nine months ended May 31, 1996, filed with the Securities and Exchange
Commission.
4 Incorporated by reference to exhibit (g)(A) to Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-2, filed September
22, 1993 (File No. 33-68416).
5 Incorporated by reference to exhibit (g)(B) to Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-2, filed September
22, 1993 (File No. 33-68416).
6 The Shares offered by the Prospectus will be offered in order to effect
over-the-counter secondary market transactions by Oppenheimer & Co., Inc.,
("Oppenheimer") in its capacity as a dealer and secondary market maker and
not pursuant to any agreement with the Fund. Shares were originally issued
in a public offering pursuant to an Underwriting Agreement, incorporated by
reference to exhibit (h)(A) to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-2, filed September 22, 1993,
(File No. 33-68416).
7 Incorporated by reference to exhibit (h)(B) to Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-2, filed September
22, 1993 (File No. 33-68416).
8 Incorporated by reference to exhibit (h)(C) to Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-2, filed September
22, 1993 (File No. 33-68416).
9 Incorporated by reference to exhibit (j) to Pre-Effective Amendment No. 1
to the Registrant's Registration Statement on Form N-2, filed September 22,
1993 (File No. 33-68416).
10 Incorporated by reference to exhibit (k) to Pre-Effective Amendment No. 1
to the Registrant's Registration Statement on Form N-2, filed September 22,
1993 (File No. 33-68416).
11 Incorporated by reference to exhibit (p) to Pre-Effective Amendment No. 1
to the Registrant's Registration Statement on Form N-2, filed September 22,
1993 (File No. 33-68416).
C-2
<PAGE>
Item 25. Marketing Arrangements
Inapplicable. See note accompanying Item 24(h)(A).
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected to be incurred in
connection with the offering described in this Registration Statement:
Registration fees............................. $100
Printing...................................... *
Accounting fees and expenses.................. *
Legal fees and expenses....................... *
Miscellaneous................................. *
-----
Total.........................................$ *
=====
* To be completed by amendment.
Item 27. Persons Controlled by or under Common Control with Registrant
None.
Item 28. Number of Holders of Securities
As of August 31, 1996:
(2)
(1) Number of
Title of Class Record Holders
-------------- --------------
Common Stock, par value $0.001........................ 13,233
Item 29. Indemnification
Incorporated by reference to Item 29 of Part C to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-2, filed October 21, 1993 (File
No. 33-68416).
Item 30. Business and Other Connections of the Investment Manager and Investment
Adviser
Incorporated herein by reference to Item 30 of Part C to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2, filed October 21,
1993 (File No. 33-68416).
Item 31. Location of Accounts and Records
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are maintained by the Investment Adviser, Seven
World Trade Center, New York, New York 10048. Records relating to the
duties of the Registrant's custodian and transfer agent are maintained by
The Chase Manhattan Bank, Chase Metrotech Center, Brooklyn, New York 11245,
and by American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
Item 32. Management Services
Not applicable.
C-3
<PAGE>
Item 33. Undertakings
The undertakings of the Registrant as set forth in the Fund's Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2, filed October 21,
1993, (File No. 33-68416) are hereby revised as follows.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(3) That, for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(4) To send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or oral
request, any Statement of Additional Information.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement and Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 22nd day
of October, 1996.
GLOBAL PARTNERS INCOME FUND INC.
(Registrant)
By: /S/ MICHAEL S. HYLAND
---------------------------
Michael S. Hyland
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/S/ MICHAEL S. HYLAND Chairman of the Board October 22, 1996
- --------------------- and Director
Michael S. Hyland (Principal Executive Officer)
/S/ ALAN M. MANDEL Treasurer (Principal Financial October 22, 1996
- --------------------- and Accounting Officer)
Alan M. Mandel
/S/ ALAN RAPPAPORT President and Director October 22, 1996
- ---------------------
Alan Rappaport
/S/ CHARLES F. BARBER Director October 22, 1996
- ---------------------
Charles F. Barber
/S/ LESLIE H. GELB Director October 22, 1996
- ---------------------
Leslie H. Gelb
/S/ RIORDAN ROETT Director October 22, 1996
- ---------------------
Riordan Roett
/S/ JESWALD W. SALACUSE Director October 22, 1996
- ---------------------
Jeswald W. Salacuse
