<PAGE> PAGE 1
000 B000000 12/31/97
000 C000000 0000912147
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 2.2.a
000 J000000 A
001 A000000 ROYCE MICRO-CAP TRUST, INC.
001 B000000 811-8030
001 C000000 2123557311
002 A000000 1414 AVENUE OF THE AMERICAS
002 B000000 NEW YORK
002 C000000 NY
002 D010000 10019
003 000000 N
004 000000 N
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008 B000001 A
008 C000001 801-8268
008 D010001 NEW YORK
008 D020001 NY
008 D030001 10019
010 A000001 MITCHELL HUTCHINS ASSET MANAGEMENT INC.
010 B000001 801-13219
010 C010001 NEW YORK
010 C020001 NY
010 C030001 10019
012 A000001 STATE STREET BANK AND TRUST COMPANY
012 B000001 84-00896
012 C010001 N. QUINCY
012 C020001 MA
012 C030001 02171
013 A000001 ERNST & YOUNG LLP
013 B010001 NEW YORK
013 B020001 NY
<PAGE> PAGE 2
013 B030001 10019
015 A000001 STATE STREET BANK & TRUST COMPANY
015 B000001 C
015 C010001 N. QUINCY
015 C020001 MA
015 C030001 02170
015 E010001 X
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015 B000002 S
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015 E040002 X
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015 B000003 S
015 C010003 FRANKFURT
015 D010003 GERMANY
015 E040003 X
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015 B000004 S
015 C010004 TOKYO
015 D010004 JAPAN
015 E040004 X
015 A000005 STANDARD CHARTERED BANK MALAYSIA BERHAD
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<PAGE> PAGE 3
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020 B000006 95-3583143
020 C000006 5
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020 C000007 5
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022 B000004 94-1727783
022 C000004 1508
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022 B000008 58-1472560
022 C000008 996
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022 B000009 43-0895447
022 C000009 1182
<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 9
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SIGNATURE BRIAN SHISSEL
TITLE VICE PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 140,226,639
<INVESTMENTS-AT-VALUE> 182,520,642
<RECEIVABLES> 516,846
<ASSETS-OTHER> 44,563
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 183,082,051
<PAYABLE-FOR-SECURITIES> 458,580
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<OTHER-ITEMS-LIABILITIES> 261,826
<TOTAL-LIABILITIES> 720,406
<SENIOR-EQUITY> 40,000,000
<PAID-IN-CAPITAL-COMMON> 96,371,132
<SHARES-COMMON-STOCK> 13,130
<SHARES-COMMON-PRIOR> 12,154
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<OVERDISTRIBUTION-NII> 40,755
<ACCUMULATED-NET-GAINS> 3,722,520
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<DIVIDEND-INCOME> 1,960,444
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<REALIZED-GAINS-CURRENT> 10,619,371
<APPREC-INCREASE-CURRENT> 21,021,456
<NET-CHANGE-FROM-OPS> 33,909,612
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<DISTRIBUTIONS-OF-GAINS> 11,606,744
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</TABLE>
EXHIBIT 77.Q1(d)
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
__% CUMULATIVE PREFERRED STOCK OF
ROYCE MICRO-CAP TRUST, INC.
ROYCE MICRO-CAP TRUST, INC., a Maryland corporation, having its principal
office in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by Article FOURTH of the Charter of the Corporation, the Board
of Directors has reclassified 5,000,000 authorized and unissued shares of Common
Stock of the Corporation, par value $.001 per share, as shares of preferred
stock, par value $.001 per share, of the Corporation designated as the "___%
Cumulative Preferred Stock" (the "Cumulative Preferred Stock") and has provided
for the issuance of shares of such series.
SECOND: The preferences, voting powers, rights, restrictions, limitations
as to dividends, qualifications and terms and conditions of redemption of shares
of the Cumulative Preferred Stock of the Corporation, as set by the Board of
Directors, are as follows:
ARTICLE I
DEFINITIONS
-----------
Unless the context or use indicates another or different meaning or intent,
the following terms when used in these Articles Supplementary shall have the
meanings set forth below, whether such terms are used in the singular or plural
and regardless of their tense:
"Accountant's Confirmation"* means a letter from an Independent Accountant
delivered to Moody's with respect to certain Basic Maintenance Reports
substantially to the effect that:
(i) the Independent Accountant has read the Basic Maintenance Report
for the current Quarterly Valuation Date and a randomly selected Basic
Maintenance Report prepared by the Corporation during the quarter ending on
such Quarterly Valuation Date (the "Reports");
(ii) with respect to the issue size compliance, issuer diversification
and industry diversification calculations,
<PAGE>
<PAGE>
such calculations and the resulting Market Value of Moody's Eligible Assets
and Portfolio Calculation are numerically correct;
(iii) with respect to the calculation of the Basic Maintenance Amount,
such calculation has been compared with the definition of Basic Maintenance
Amount in these Articles Supplementary and is calculated in accordance with
such definition and the results of such calculation have been recalculated
and are numerically correct;
(iv) with respect to the excess or deficiency of the Portfolio
Calculation when compared to the Basic Maintenance Amount calculated for
Moody's, the results of the calculation set forth in the Reports have been
recalculated and are numerically correct;
(v) with respect to the Moody's and S&P ratings on corporate bonds,
convertible corporate bonds and preferred stock, issuer name, issue size
and coupon or dividend rate listed in the Reports, that information has
been traced and agrees with the information listed in the applicable guides
of the respective rating agencies (in the event such information does not
agree or such information is not listed in the applicable guides of the
respective rating agencies, the Independent Accountant will inquire of the
rating agencies what such information is, and provide a listing in its
letter of such differences, if any);
(vi) with respect to the lower of two bid prices (or alternative
permissible factors used in calculating the Market Value as provided by
these Articles Supplementary) provided by the custodian of the
Corporation's assets for purposes of valuing securities in the portfolio,
the Independent Accountant has traced the price used in the Reports to the
lower of the two bid prices listed in the report provided by such custodian
and verified that such information agrees (in the event such information
does not agree, the Independent Accountant will provide a listing in its
letter of such differences); and
(vii) with respect to the description of each security included in the
Reports, the description of Moody's Eligible Assets has been compared to
the definition of Moody's Eligible Assets contained in these Articles
Supplementary, and the description as appearing in the Reports agrees with
the definition of Moody's Eligible Assets as described in these Articles
Supplementary.
Each such letter may state: such Independent Accountant has made no
independent verification of the accuracy of the description of the investment
securities listed in the Reports or
2
<PAGE>
<PAGE>
the Market Value of those securities nor have they performed any procedures
other than those specifically outlined above for the purposes of issuing such
letter; unless otherwise stated in the letter, the procedures specified therein
were limited to a comparison of numbers or a verification of specified
computations applicable to numbers appearing in the Reports and the schedule(s)
thereto; the foregoing procedures do not constitute an examination in accordance
with generally accepted auditing standards and the Reports discussed in the
letter do not extend to any of the Corporation's financial statements taken as a
whole; such Independent Accountant does not express an opinion as to whether
such procedures would enable such Independent Accountant to determine that the
methods followed in the preparation of the Reports would correctly determine the
Market Value or Discounted Value of the investment portfolio; accordingly, such
Independent Accountant expresses no opinion as to the information set forth in
the Reports or in the schedule(s) thereto and make no representation as to the
sufficiency of the procedures performed for the purposes of these Articles
Supplementary.
Such letter shall also state that the Independent Accountant is a
"independent accountant" with respect to the Corporation within the meaning of
the Securities Act of 1933, as amended, and the related published rules and
regulations thereunder.
"Adviser" means Royce & Associates, Inc., a New York corporation.
"Asset Coverage" means, asset coverage, as defined in Section 18(h) of the
1940 Act, of at least 225%, or such higher percentage as may be required under
the 1940 Act, with respect to all outstanding senior securities of the
Corporation which are stock, including all outstanding shares of Cumulative
Preferred Stock.
"Asset Coverage Cure Date" means, with respect to the failure by the
Corporation to maintain the Asset Coverage (as required by paragraph 5(a)(i) of
Article II hereof) as of the last Business Day of each March, June, September
and December of each year, 60 days following such Business Day.
"Basic Maintenance Amount"* means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by the
Liquidation Preference; (B) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the
3
<PAGE>
<PAGE>
initial Dividend Payment Date with respect to the Cumulative Preferred Stock,
then from the Date of Original Issue) through the Valuation Date plus all
dividends to accumulate on the Cumulative Preferred Stock then outstanding
during the 70 days following such Valuation Date; (C) the Corporation's other
liabilities due and payable as of such Valuation Date (except that dividends and
other distributions payable by the Corporation by the issuance of Common Stock
shall not be included as a liability) and such liabilities projected to become
due and payable by the Corporation during the 90 days following such Valuation
Date (excluding liabilities for investments to be purchased and for dividends
and other distributions not declared as of such Valuation Date; (D) any current
liabilities of the Corporation as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(C) (including, without limitation, and
immediately upon determination, any amounts due and payable by the Corporation
pursuant to reverse repurchase agreements and any payables for assets purchased
as of such Valuation Date) less (ii) (A) the Discounted Value of any of the
Corporation's assets and/or (B) the face value of any of the Corporation's
assets if, in the case of both (ii)(A) and (ii)(B), such assets are either cash
or securities which mature prior to or on the date of redemption or repurchase
of Cumulative Preferred Stock or payment of another liability and are either
U.S. Government Obligations or securities which have a rating assigned by
Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+
or A- 1+, in both cases irrevocably held by the Corporation's custodian bank in
a segregated account or deposited by the Corporation with the Paying Agent for
the payment of the amounts needed to redeem or repurchase Cumulative Preferred
Stock subject to redemption or repurchase or any of (i)(B) through (i)(D) and
provided that in the event the Corporation has repurchased Cumulative Preferred
Stock at a price of less than the Liquidation Preference thereof and irrevocably
segregated or deposited assets as described above with its custodian bank or the
Paying Agent for the payment of the repurchase price the Corporation may deduct
100% of the Liquidation Preference of such Cumulative Preferred Stock to be
repurchased from (i) above.
"Basic Maintenance Amount Cure Date"* means 14 calendar days following a
Valuation Date, such date being the last day upon which the Corporation's
failure to comply with paragraph 5(a)(ii)(A) of Article II hereof could be
cured.
"Basic Maintenance Report"* means a report signed by the President, the
Treasurer or any Vice President of the Corporation which sets forth, as of the
related Valuation Date, the assets of the Corporation, the Market Value and
Discounted Value thereof (seriatim and in the aggregate), and the Basic
Maintenance Amount.
4
<PAGE>
<PAGE>
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and that is neither a Saturday, Sunday nor any other day on which banks
in the City of New York are authorized by law to close.
"Charter" means the Articles of Incorporation, as amended and supplemented
(including these Articles Supplementary), of the Corporation on file in the
State Department of Assessments and Taxation of Maryland.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Corporation.
"Corporation" shall mean Royce Micro-Cap Trust, Inc., a Maryland
corporation.
"Cumulative Preferred Stock" means the ___% Cumulative Preferred Stock, par
value $.001 per share, of the Corporation.
"Date of Original Issue" shall have the meaning set forth in paragraph 1(a)
of Article II hereof.
"Deposit Securities" means cash, Short-Term Money Market Instruments and
U.S. Government Obligations. Except for determining whether the Corporation has
a Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security shall be deemed to have a value equal to its principal or
face amount payable at maturity plus any interest payable thereon after delivery
of such Deposit Security but only if payable on or prior to the applicable
payment date in advance of which the relevant deposit is made.
"Discounted Value"* means, with respect to a Moody's Eligible Asset, the
quotient of (A) in the case of non-convertible fixed income securities, the
lower of the principal amount and the Market Value thereof or (B) in the case of
any other Moody's Eligible Asset, the Market Value thereof, divided by the
applicable Moody's Discount Factor.
"Dividend Payment Date" with respect to the Cumulative Preferred Stock,
means any date on which dividends are payable thereon pursuant to the provisions
of paragraph 1(a) of Article II hereof.
"Dividend Period" shall have the meaning set forth in paragraph 1(a) of
Article II hereof.
"Independent Accountant"* means a nationally recognized accountant, or firm
of accountants, that is with respect to the
5
<PAGE>
<PAGE>
Corporation an independent public accountant or firm of independent public
accountants under the Securities Act of 1933, as amended.
"Liquidation Preference" shall have the meaning set forth in paragraph 2(a)
of Article II hereof.
"Market Value"* means the amount determined by State Street Bank and Trust
Company (so long as prices are provided to it by Telekurs N.A., Inc. or another
pricing service approved by Moody's in writing), or, if Moody's agrees in
writing, the then bank custodian of the Corporation's assets or such other party
approved by Moody's in writing, with respect to specific Moody's Eligible Assets
of the Corporation, as follows: Securities listed on an exchange or on the
Nasdaq System shall be valued on the basis of the last reported sale on the
Valuation Date or, if no sale is reported for such Valuation Date, then at their
electronically-reported bid price for such day for exchange-listed securities
and at the average of their electronically-reported bid and asked prices for
such Valuation Date for Nasdaq System securities. Quotations shall be taken from
the market where the security is primarily traded. Bonds and other fixed income
securities may be valued by reference to other securities with comparable
ratings, interest rates and maturities, using established independent pricing
services.
Notwithstanding the foregoing, "Market Value" may, at the option of the
Corporation, mean the amount determined with respect to specific Moody's
Eligible Assets of the Corporation in the manner set forth below:
(a) as to any corporate bond or convertible corporate bond which is a
Moody's Eligible Asset, (i) the product of (A) the unpaid principal balance of
such bond as of the Valuation Date and (B)(1) if the bond is traded on a
national securities exchange or quoted on the NASDAQ System, the last sales
price reported on the Valuation Date or (2) if there was no reported sales price
on the Valuation Date or if the bond is not traded on a national securities
exchange or quoted on the NASDAQ System, the lower of two bid prices for such
bond provided by two recognized securities dealers with a minimum capitalization
of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one
such securities dealer and any other source (provided that the utilization of
such source would not adversely affect Moody's then-current rating of the
Cumulative Preferred Stock) to the custodian of the Corporation's assets, at
least one of which shall be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation reducible to written form
or similar means, and in turn provided to the Corporation by any such means by
such custodian, plus (ii) accrued interest on such bond or, if two bid prices
cannot be
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obtained, such Moody's Eligible Asset shall have a Market Value of zero;
(b) as to any common or preferred stock which is a Moody's Eligible Asset,
(i) if the stock is traded on a national securities exchange or quoted on the
NASDAQ System, the last sales price reported on the Valuation Date or (ii) if
there was no reported sales price on the Valuation Date, the lower of two bid
prices for such stock provided by two recognized securities dealers with a
minimum capitalization of $25,000,000 (or otherwise approved for such purpose by
Moody's) or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect Moody's then-current
rating of the Cumulative Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by any
such means by such custodian, or, if two bid prices cannot be obtained, such
Moody's Eligible Asset shall have a Market Value of zero;
(c) the product of (i) as to U.S. Government Obligations, Short Term Money
Market Instruments (other than demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements) and commercial paper,
the face amount or aggregate principal amount of such U.S. Government
Obligations or Short Term Money Market Instruments, as the case may be, and (ii)
the lower of the bid prices for the same kind of securities or instruments, as
the case may be, having, as nearly as practicable, comparable interest rates and
maturities provided by two recognized securities dealers having minimum
capitalization of $25,000,000 (or otherwise approved for such purpose by
Moody's) or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect Moody's then-current
rating of the Cumulative Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by any
such means by such custodian, or, if two bid prices cannot be obtained, such
Moody's Eligible Asset will have a Market Value of zero;
(d) as to cash, demand deposits, federal funds, bankers' acceptances and
next Business Day's repurchase agreements included in Short Term Money Market
Instruments, the face value thereof.
"Moody's" means Moody's Investors Service, Inc., or its successor.
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"Moody's Discount Factor"* means, with respect to a Moody's Eligible Asset
specified below, the following applicable number:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ----------------
Moody's Short Term Money Market Instruments
(other than U.S. Government Obligations
set forth below) and other commercial
paper:
Demand or time deposits,
certificates of deposit and bankers'
acceptances includible in Moody's Short
Term Money Market Instruments............................ 1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less.............................. 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270
days or less............................................. 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less............................. 1.25
Repurchase obligations includible in Moody's
Short Term Money Market Instruments if
term is less than 30 days and
counterparty is rated at least A2........................ 1.00
Other repurchase obligations.................................. Discount Factor
applicable to
underlying
assets
Common stocks................................................. 3.00
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Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ----------------
Preferred stocks:
Auction rate preferred stocks............................. 3.50
Other preferred stocks issued by issuers
in the financial and industrial
industries........................................... 2.35
Other preferred stocks issued by issuers
in the utilities industry............................ 1.60
U.S. Government Obligations (other than U.S.
Treasury Securities Strips set forth
below) with remaining terms to maturity
of:
1 year or less............................................ 1.08
2 years or less........................................... 1.15
3 years or less........................................... 1.20
4 years or less........................................... 1.26
5 years or less........................................... 1.31
7 years of less........................................... 1.40
10 years or less.......................................... 1.48
15 years or less.......................................... 1.54
20 years or less.......................................... 1.61
30 years or less.......................................... 1.63
U.S. Treasury Securities Strips with
remaining terms to maturity of:
1 year or less............................................ 1.08
2 years or less........................................... 1.16
3 years or less........................................... 1.23
4 years or less........................................... 1.30
5 years or less........................................... 1.37
7 years or less........................................... 1.51
10 years or less.......................................... 1.69
15 years or less.......................................... 1.99
20 years or less.......................................... 2.28
30 years or less.......................................... 2.56
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Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ----------------
Corporate bonds:
Corporate bonds rated Aaa with remaining
terms to maturity of:
1 year or less............................................ 1.14
2 years or less........................................... 1.21
3 years or less........................................... 1.26
4 years or less........................................... 1.32
5 years or less........................................... 1.38
7 years or less........................................... 1.47
10 years or less.......................................... 1.55
15 years or less.......................................... 1.62
20 years or less.......................................... 1.69
30 years or less.......................................... 1.71
Corporate bonds rated Aa with remaining
terms to maturity of:
1 year or less............................................ 1.19
2 years or less........................................... 1.26
3 years or less........................................... 1.32
4 years or less........................................... 1.38
5 years or less........................................... 1.44
7 years or less........................................... 1.54
10 years or less.......................................... 1.63
15 years or less.......................................... 1.69
20 years or less.......................................... 1.77
30 years or less.......................................... 1.79
Corporate bonds rated A with remaining terms
to maturity of:
1 year or less............................................ 1.24
2 years or less........................................... 1.32
3 years or less........................................... 1.38
4 years or less........................................... 1.45
5 years or less........................................... 1.51
7 years or less........................................... 1.61
10 years or less.......................................... 1.70
15 years or less.......................................... 1.77
20 years or less.......................................... 1.85
30 years or less.......................................... 1.87
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Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ----------------
Convertible corporate bonds with senior debt
securities rated Aa issued by the
following type of issuers:
Utility.................................................. 1.80
Industrial............................................... 2.97
Financial................................................ 2.92
Transportation........................................... 4.27
Convertible corporate bonds with senior debt
securities rated A issued by the
following type of issuers:
Utility.................................................. 1.85
Industrial............................................... 3.02
Financial................................................ 2.97
Transportation........................................... 4.32
Convertible corporate bonds with senior debt
securities rated Baa issued by the
following type of issuers:
Utility.................................................. 2.01
Industrial............................................... 3.18
Financial................................................ 3.13
Transportation........................................... 4.48
Convertible corporate bonds with senior debt
securities rated Ba issued by the
following type of issuers:
Utility.................................................. 2.02
Industrial............................................... 3.19
Financial................................................ 3.14
Transportation........................................... 4.49
Convertible corporate bonds with senior debt
securities rated B1 or B2 issued by
the following type of issuers:
Utility.................................................. 2.12
Industrial............................................... 3.29
Financial................................................ 3.24
Transportation........................................... 4.59
"Moody's Eligible Assets"* means:
(i) cash (including, for this purpose, receivables for investments
sold to a counterparty whose senior debt securities are rated at least Baa3
by Moody's or a
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counterparty approved by Moody's and payable within five Business Days
following such Valuation Date and dividends and interest receivable within
70 days on investments);
(ii) Short-Term Money Market Instruments;
(iii) commercial paper that is not includible as a Short-Term Money
Market Instrument having on the Valuation Date a rating from Moody's of at
least P-1 and maturing within 270 days;
(iv) preferred stocks (A) which either (1) are issued by issuers whose
senior debt securities are rated at least Baa1 by Moody's or (2) are rated
at least "baa3" by Moody's (or in the event an issuer's senior debt
securities or preferred stock is not rated by Moody's, which either (1) are
issued by an issuer whose senior debt securities are rated at least A by
S&P or (2) are rated at least A by S&P and for this purpose have been
assigned a Moody's equivalent rating of at least "baa3"), (B) of issuers
which have (or, in the case of issuers which are special purpose
corporations, whose parent companies have) common stock listed on the New
York Stock Exchange or the American Stock Exchange, (C) which have a
minimum issue size (when taken together with other of the issuer's issues
of similar tenor) of $50,000,000, (D) which have paid cash dividends
consistently during the preceding three-year period (or, in the case of new
issues without a dividend history, are rated at least "a1" by Moody's or,
if not rated by Moody's, are rated at least AA by S&P), (E) which pay
cumulative cash dividends in U.S. dollars, (F) which are not convertible
into any other class of stock and do not have warrants attached, (G) which
are not issued by issuers in the transportation industry and (H) in the
case of auction rate preferred stocks, which are rated at least "aa" by
Moody's, or if not rated by Moody's, AAA by S&P or are otherwise approved
in writing by Moody's and have never had a failed auction; provided,
however, that for this purpose the aggregate Market Value of the Company's
holdings of any issue of preferred stock shall not be less than $500,000
nor more than $5,000,000;
(v) common stocks (A) which are traded on the New York Stock Exchange,
the American Stock Exchange or in the over-the-counter market, (B) which,
if cash dividend paying, pay cash dividends in U.S. dollars, and (C) which
are not privately placed; provided, however, that (1) common stock which,
while a Moody's Eligible Asset owned by the Corporation, ceases paying any
regular cash dividend will no longer be considered a Moody's Eligible Asset
until 71 days after the date of the announcement of such cessation, unless
the issuer of the common stock has senior debt securities
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rated at least A3 by Moody's and (2) the aggregate Market Value of the
Corporation's holdings of the common stock of any issuer shall not exceed
4% in the case of utility common stock and 6% in the case of non-utility
common stock of the number of outstanding shares times the Market Value of
such common stock;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which are not privately placed, rated at
least B3 (Caa subordinate) by Moody's (or, in the event the bond is not
rated by Moody's, the bond is rated at least BB- by S&P and which for this
purpose is assigned a Moody's equivalent rating of one full rating category
lower), with such rating confirmed on each Valuation Date, (B) which have a
minimum issue size of at least (x) $100,000,000 if rated at least Baa3 or
(y) $50,000,000 if rated B or Ba3, (C) which are U.S. dollar denominated
and pay interest in cash in U.S. dollars, (D) which are not convertible or
exchangeable into equity of the issuing corporation and have a maturity of
not more than 30 years, (E) for which, if rated below Baa3, the aggregate
Market Value of the Company's holdings do not exceed 10% of the aggregate
Market Value of any individual issue of corporate bonds calculated at the
time of original issuance, (F) the cash flow from which must be controlled
by an indenture trustee and (G) which are not issued in connection with a
reorganization under any bankruptcy law;
(viii) convertible corporate bonds (A) which are issued by issuers
whose senior debt securities are rated at least B2 by Moody's (or, in the
event an issuer's senior debt securities are not rated by Moody's, which
are issued by issuers whose senior debt securities are rated at least BB by
S&P and which for this purpose is assigned a Moody's equivalent rating of
one full rating category lower), (B) which are convertible into common
stocks which are traded on the New York Stock Exchange or the American
Stock Exchange or are quoted on the NASDAQ National Market System and (C)
which, if cash dividend paying, pay cash dividends in U.S. dollars;
provided, however, that once convertible corporate bonds have been
converted into common stock, the common stock issued upon conversion must
satisfy the criteria set forth in clause (v) above and other relevant
criteria set forth in this definition in order to be a Moody's Eligible
Asset;
provided, however, that the Corporation's investment in preferred stock, common
stock, corporate bonds and convertible corporate bonds described above must be
within the following diversification requirements (utilizing Moody's Industry
and Sub-
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industry Categories) in order to be included in Moody's Eligible Assets:
Issuer:
- ------
Non-Utility Utility Maximum
Moody's Rating Maximum Single Issuer Single Issuer
(1)(2) (3)(4) (3)(4)
------ ------ ------
"aaa", Aaa 100% 100%
"aa", Aa 20% 20%
"a", A 10% 10%
CS/CB, "Baa", Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 (Caa subordinate) 2% 2%
Industry and State:
- ------------------
Utility
Non-Utility Utility Maximum
Maximum Single Maximum Single Single
Moody's Rating(1) Industry(3) Sub-Industry(3)(6) State(3)
- ----------------- ----------- ------------------ --------
"aaa", Aaa 100% 100% 100%
"aa", Aa 60% 60% 20%
"a", A 40% 50% 10%(7)
CS/CB, "baa", Baa(5) 20% 50% 7%(7)
Ba 12% 12% N/A
B1/B2 8% 8% N/A
B3 (Caa subordinate) 5% 5% N/A
- ----------------------------
(1) The equivalent Moody's rating must be lowered one full rating category for
preferred stocks, corporate bonds and convertible corporate bonds rated by
S&P but not by Moody's.
(2) Corporate bonds from issues ranging $50,000,000 to $100,000,000 are limited
to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the
related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility bonds
and utility convertible bonds, the definition of industry refers to
sub-industries (electric,
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water, hydro power, gas, diversified). Investments in other sub-industries
are eligible only to the extent that the combined sum represents a
percentage position of the Moody's Eligible Assets less than or equal to
the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by
California, New York and Texas.
; and provided, further, that the Corporation's investments in auction rate
preferred stocks described in clause (iv) above shall be included in Moody's
Eligible Assets only to the extent that the aggregate Market Value of such
stocks does not exceed 10% of the aggregate Market Value of all of the
Corporation's investments meeting the criteria set forth in clauses (i) through
(viii) above less the aggregate Market Value of those investments excluded from
Moody's Eligible Assets pursuant to the immediately preceding proviso; and
(ix) no assets which are subject to any lien or irrevocably deposited
by the Corporation for the payment of amounts needed to meet the
obligations described in clauses (i)(A) through (i)(E) of the definition of
"Basic Maintenance Amount" may be includible in Moody's Eligible Assets.
"Moody's Industry and Sub-Industry Categories"* means as set forth below:
Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition
Automobile: Automotive Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods,
Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks,
Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes,
Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
Engineering, Construction, Hardware, Forest Products (building-related
only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development,
REITs, Land Development
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Chemicals, Plastics and Rubber: Chemicals (non- agriculture), Industrial
Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints,
Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood, or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals: Fabricating
Distribution
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste
Disposal
Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers,
Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
Farming and Agriculture: Livestock, Grains, Produce; Agricultural
Chemicals, Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment
Home and Office Furnishings, Housewares, and Durable Consumer Products:
Carpets, Floor Coverings, Furniture, Cooking, Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agent, Surety
Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes,
Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy
Manufacturing,
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Motion Picture Production Theaters, Motion Picture Distribution
Machinery (Non-Agriculture, Non-Construction, Non- Electronic): Industrial,
Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead, Uranium,
Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production,
Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution
and Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper Products,
Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks,
Radio, T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-Car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking,
Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra- national agencies
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notice of Redemption" has the meaning set forth in paragraph 3(c)(i) of
Article II hereof.
"Officers' Certificate" means a certificate signed by any two of the
President, a Vice President, the Treasurer or the
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Secretary of the Corporation or by any one of the foregoing and an Assistant
Treasurer or Assistant Secretary of the Corporation.
"Paying Agent" means State Street Bank and Trust Company and its successors
or any other paying agent appointed by the Corporation.
"Portfolio Calculation"* means the aggregate Discounted Value of all
Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $.001 per share, of
the Corporation, and includes the Cumulative Preferred Stock.
"Quarterly Valuation Date"* means the last Valuation Date in March, June,
September and December of each year, commencing September 26, 1997.
"Redemption Price" has the meaning set forth in paragraph 3(a) of Article
II hereof.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Corporation (or, in the case of an instrument specified by clauses (i) and (ii)
below, on the Valuation Date), the remaining terms to maturity thereof are not
in excess of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is issued by
an issuer (or guaranteed or supported by a person or entity other than the
issuer) whose long-term unsecured debt obligations are rated at least Aa by
Moody's;
(iii) demand or time deposits in, or certificates of deposit of, or
banker's acceptances issued by (A) a depository institution or trust
company incorporated under the laws of the United States of America or any
state thereof or the District of Columbia or (B) a United States branch
office or agency of a foreign depository institution (provided that such
branch office or agency is subject to banking regulation under the laws of
the United States, any state thereof or the District of Columbia) if, in
each case, the commercial paper, if any, and the long-term unsecured debt
obligations (other than such obligations the ratings of which are based on
the credit of a person or entity other than such depository institution or
trust company) of such depository institution or trust company at the time
of purchase or acquisition and the Valuation Date, have (1)
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credit ratings from Moody's of at least P-1 in the case of commercial paper
and (2) credit ratings from Moody's of at least Aa in the case of long-term
unsecured debt obligations; provided, however, that in the case of any such
investment that matures in no more than one Business Day from the date of
purchase or other acquisition by the Corporation, all of the foregoing
requirements shall be applicable except that the required long-term
unsecured debt credit rating of such depository institution or trust
company from Moody's shall be at least A2; and provided, further, however,
that the foregoing credit rating requirements shall be deemed to be met
with respect to a depository institution or trust company if (1) such
depository institution or trust company is the principal depository
institution in a holding company system, (2) the commercial paper, if any,
of such depository institution or trust company is not rated below P-1 by
Moody's and (3) the holding company shall meet all of the foregoing credit
rating requirements (including the preceding proviso in the case of
investments that mature in no more than one Business Day from the date of
purchase or other acquisition by the Corporation);
(iv) repurchase obligations with respect to any U.S. Government
Obligation entered into with a depository institution, trust company or
securities dealer (acting as principal) which is rated (A) at least Aa3 if
the maturity is three months or less, (B) at least A1 if the maturity is
two months or less and (C) at least A2 if the maturity is one month or
less; and
(v) Eurodollar demand or time deposits in, or certificates of deposit
of, the head office or the London branch office of a depository institution
or trust company meeting the credit rating requirements of commercial paper
and long-term unsecured debt obligations specified in clause (iii) above,
provided that the interest receivable by the Corporation shall be payable
in U.S. dollars and shall not be subject to any withholding or similar
taxes.
"S&P" means Standard & Poor's Ratings Services or its successors.
"U.S. Government Obligations" means direct non-callable obligations of the
United States, provided that such direct obligations are entitled to the full
faith and credit of the United States and that any such obligations, other than
United States Treasury Bills and U.S. Treasury Securities Strips, provide for
the periodic payment of interest and the full payment of principal at maturity.
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"Valuation Date"* means every Friday or, if such day is not a Business Day,
the immediately preceding Business Day.
"Voting Period" shall have the meaning set forth in paragraph 4(b) of
Article II hereof.
Those of the foregoing definitions which are marked with an asterisk have
been adopted by the Board of Directors of the Corporation in order to obtain a
"aaa" rating from Moody's on the shares of Cumulative Preferred Stock on their
Date of Original Issue; and the Board of Directors of the Corporation shall have
the authority, without stockholder approval, to amend, alter or repeal from time
to time the foregoing definitions and the restrictions and guidelines set forth
thereunder if Moody's advises the Corporation in writing that such amendment,
alteration or repeal will not adversely affect their then current rating on the
Cumulative Preferred Stock. Furthermore, if the Board of Directors determines
not to continue to comply with the provisions of paragraphs 5(a)(ii), 5(c) and 6
of Article II hereof as provided in paragraph 7 of Article II hereof, then such
definitions marked with an asterisk, unless the context otherwise requires,
shall have no meaning for these Articles Supplementary.
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ARTICLE II
CUMULATIVE PREFERRED STOCK
--------------------------
1. Dividends.
(a) Holders of shares of Cumulative Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends at the annual rate of %
per share (computed on the basis of a 360-day year consisting of twelve 30-day
months) of the initial Liquidation Preference of $25.00 per share on the
Cumulative Preferred Stock and no more, payable quarterly on March 23, June 23,
September 23 and December 23 in each year (each, a "Dividend Payment Date"),
commencing September 23, 1997 (or, if any such day is not a Business Day, then
on the next succeeding Business Day), to holders of record of Cumulative
Preferred Stock as they appear on the stock register of the Corporation at the
close of business on the preceding March 6, June 6, September 6 and December 6
(or, if any such day is not a Business Day, then on the next succeeding Business
Day), as the case may be, in preference to dividends on shares of Common Stock
and any other capital stock of the Corporation ranking junior to the Cumulative
Preferred Stock in payment of dividends. Dividends on shares of Cumulative
Preferred Stock shall accumulate from the date on which the first such shares of
Cumulative Preferred Stock are originally issued ("Date of Original Issue").
Each period beginning on and including a Dividend Payment Date (or the Date of
Original Issue, in the case of the first dividend period after issuance of any
such shares) and ending on but excluding the next succeeding Dividend Payment
Date is referred to herein as a "Dividend Period." Dividends on account of
arrears for any past Dividend Period may be declared and paid at any time,
without reference to any Dividend Payment Date, to holders of record on such
date, not exceeding 30 days preceding the payment date thereof, as shall be
fixed by the Board of Directors.
(b)(i) No dividends shall be declared or paid or set apart for payment on
any shares of Cumulative Preferred Stock for any Dividend Period or part thereof
unless full cumulative dividends have been or contemporaneously are declared and
paid on all outstanding shares of Cumulative Preferred Stock through the most
recent Dividend Payment Date therefor. If full cumulative dividends are not
declared and paid on the shares of Cumulative Preferred Stock, any dividends on
the shares of Cumulative Preferred Stock shall be declared and paid pro rata on
all outstanding shares of Cumulative Preferred Stock. No holders of shares of
Cumulative Preferred Stock shall be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends as provided
in this paragraph 1(b)(i) on shares of Cumulative Preferred Stock. No interest
or
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sum of money in lieu of interest shall be payable in respect of any dividend
payments on any shares of Cumulative Preferred Stock that may be in arrears.
(ii) For so long as shares of Cumulative Preferred Stock are outstanding,
the Corporation shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of Common Stock
or other stock, if any, ranking junior to the Cumulative Preferred Stock as to
dividends or upon liquidation) in respect of the Common Stock or any other stock
of the Corporation ranking junior to or on parity with the Cumulative Preferred
Stock as to dividends or upon liquidation, or call for redemption, redeem,
purchase or otherwise acquire for consideration any shares of Common Stock or
any other stock of the Corporation ranking junior to the Cumulative Preferred
Stock as to dividends or upon liquidation (except by conversion into or exchange
for stock of the Corporation ranking junior to or on parity with the Cumulative
Preferred Stock as to dividends and upon liquidation), unless, in each case, (A)
immediately thereafter, the Corporation shall have a Portfolio Calculation at
least equal to the Basic Maintenance Amount and the Corporation shall maintain
the Asset Coverage, (B) full cumulative dividends on all shares of Cumulative
Preferred Stock due on or prior to the date of the transaction have been
declared and paid (or shall have been declared and sufficient funds for the
payment thereof deposited with the Paying Agent) and (C) the Corporation has
redeemed the full number of shares of Cumulative Preferred Stock required to be
redeemed by any provision contained herein for mandatory redemption.
(iii) Any dividend payment made on the shares of Cumulative Preferred Stock
shall first be credited against the dividends accumulated with respect to the
earliest Dividend Period for which dividends have not been paid.
(c) Not later than the Business Day next preceding each Dividend Payment
Date, the Corporation shall deposit with the Paying Agent Deposit Securities
having an initial combined value sufficient to pay the dividends that are
payable on such Dividend Payment Date, which Deposit Securities shall mature on
or prior to such Dividend Payment Date. The Corporation may direct the Paying
Agent with respect to the investment of any such Deposit Securities, provided
that such investment consists exclusively of Deposit Securities and provided
further that the proceeds of any such investment will be available at the
opening of business on such Dividend Payment Date.
(d) The Board of Directors may declare an additional dividend on the
Cumulative Preferred Stock each year in order to permit the Corporation to
distribute its income in accordance
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with Section 855 (or any successor provision) of the Internal Revenue Code of
1986, as amended (the "Code"), and the other rules and regulations under
Subchapter M of the Code. Any such additional dividend shall be payable to
holders of the Cumulative Preferred Stock on the next Dividend Payment Date,
shall be part of a regular quarterly dividend for the year of declaration
payable to holders of record pursuant to paragraph 1(a) hereof and shall not
result in any increase in the amount of cash dividends payable for such year
pursuant to paragraph 1(a) hereof.
2. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of Cumulative Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, after
claims of creditors but before any distribution or payment shall be made in
respect of the Common Stock or any other stock of the Corporation ranking junior
to the Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25.00 per share plus an amount equal to all
unpaid dividends thereon accumulated to and including the date fixed for such
distribution or payment (whether or not earned or declared by the Corporation,
but excluding interest thereon) (the "Liquidation Preference"), and such holders
shall be entitled to no further participation in any distribution or payment in
connection with any such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs of
the Corporation, whether voluntary or involuntary, the assets of the Corporation
available for distribution among the holders of all outstanding shares of
Cumulative Preferred Stock, and any other outstanding class or series of
Preferred Stock of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to payment upon liquidation, shall be insufficient to permit
the payment in full to such holders of Cumulative Preferred Stock of the
Liquidation Preference and the amounts due upon liquidation with respect to such
other Preferred Stock, then such available assets shall be distributed among the
holders of shares of Cumulative Preferred Stock and such other Preferred Stock
ratably in proportion to the respective preferential amounts to which they are
entitled. Unless and until the Liquidation Preference has been paid in full to
the holders of shares of Cumulative Preferred Stock, no dividends or
distributions shall be made to holders of the Common Stock or any other stock of
the Corporation ranking junior to the Cumulative Preferred Stock as to
liquidation.
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3. Redemption.
Shares of the Cumulative Preferred Stock shall be redeemed or redeemable by
the Corporation as provided below:
(a) Mandatory Redemptions.
If the Corporation is required to redeem any shares of Cumulative Preferred
Stock pursuant to paragraphs 5(b) or 5(c) of Article II hereof, then the
Corporation shall, to the extent permitted by the 1940 Act, Maryland law and any
agreement in respect of indebtedness of the Corporation to which it may be a
party or by which it may be bound, by the close of business on such Asset
Coverage Cure Date or Basic Maintenance Amount Cure Date (herein collectively
referred to as a "Cure Date"), as the case may be, fix a redemption date and
proceed to redeem shares as set forth in paragraph 3(c) hereof. On such
redemption date, the Corporation shall redeem, out of funds legally available
therefor, the number of shares of Cumulative Preferred Stock equal to the
minimum number of shares the redemption of which, if such redemption had
occurred immediately prior to the opening of business on such Cure Date, would
have resulted in the Asset Coverage having been satisfied or the Corporation
having a Portfolio Calculation equal to or greater than the Basic Maintenance
Amount, as the case may be, immediately prior to the opening of business on such
Cure Date or, if the Asset Coverage or a Portfolio Calculation equal to or
greater than the Basic Maintenance Amount, as the case may be, cannot be so
restored, all of the shares of Cumulative Preferred Stock, at a price equal to
$25.00 per share plus accumulated but unpaid dividends thereon (whether or not
earned or declared by the Corporation) through the date of redemption (the
"Redemption Price"). In the event that shares of Cumulative Preferred Stock are
redeemed pursuant to paragraph 5(b) of Article II hereof, the Corporation may,
but shall not be required to, redeem a sufficient number of shares of Cumulative
Preferred Stock pursuant to this paragraph 3(a) in order that the "asset
coverage" of a class of senior security which is stock, as defined in Section
18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock after redemption is up to 250%.
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(b) Optional Redemptions.
Prior to July 1, 2002, the Corporation may, at its option, redeem shares of
Cumulative Preferred Stock at the Redemption Price per share only if and to the
extent that any such redemption is necessary, in the judgment of the
Corporation, to maintain the Corporation's status as a regulated investment
company under Subchapter M of the Code. Commencing July 1, 2002 and at any time
and from time to time thereafter, the Corporation may, at its option, to the
extent permitted by the 1940 Act, Maryland law and any agreement in respect of
indebtedness of the Corporation to which it may be a party or by which it may be
bound, redeem the Cumulative Preferred Stock in whole or in part at the
Redemption Price per share.
(c) Procedures for Redemption.
(i) If the Corporation shall determine or be required to redeem
shares of Cumulative Preferred Stock pursuant to this paragraph 3, it shall mail
a written notice of redemption ("Notice of Redemption") with respect to such
redemption by first class mail, postage prepaid, to each holder of the shares to
be redeemed at such holder's address as the same appears on the stock books of
the Corporation on the record date in respect of such redemption established by
the Board of Directors. Each such Notice of Redemption shall state: (A) the
redemption date, which shall be not fewer than 30 days nor more than 45 days
after the date of such notice; (B) the number of shares of Cumulative Preferred
Stock to be redeemed; (C) the CUSIP number(s) of such shares; (D) the Redemption
Price; (E) the place or places where the certificate(s) for such shares
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require and the Notice of Redemption shall so state) are to be surrendered for
payment in respect of such redemption; (F) that dividends on the shares to be
redeemed will cease to accumulate on such redemption date; and (G) the
provisions of this paragraph 3 under which such redemption is made. If fewer
than all shares of Cumulative Preferred Stock held by any holder are to be
redeemed, the Notice of Redemption mailed to such holder also shall specify the
number of shares to be redeemed from such holder. No defect in the Notice of
Redemption or the mailing thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
(ii) If the Corporation shall give a Notice of Redemption, then by the
close of business on the Business Day preceding the redemption date specified in
the Notice of Redemption the Corporation shall (A) deposit with the Paying Agent
Deposit Securities having an initial combined value sufficient to effect the
redemption of the shares of Cumulative Preferred Stock to be redeemed, which
Deposit Securities shall mature on or prior to such redemption date, and (B)
give the Paying Agent irrevocable
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instructions and authority to pay the Redemption Price to the holders of the
shares of Cumulative Preferred Stock called for redemption on the redemption
date. The Corporation may direct the Paying Agent with respect to the investment
of any Deposit Securities so deposited, provided that the proceeds of any such
investment will be available at the opening of business on such redemption date.
Upon the date of such deposit (unless the Corporation shall default in making
payment of the Redemption Price), all rights of the holders of the shares of
Cumulative Preferred Stock so called for redemption shall cease and terminate
except the right of the holders thereof to receive the Redemption Price thereof,
and such shares shall no longer be deemed outstanding for any purpose. The
Corporation shall be entitled to receive, promptly after the date fixed for
redemption, any cash in excess of the aggregate Redemption Price of the shares
of Cumulative Preferred Stock called for redemption on such date and any
remaining Deposit Securities. Any assets so deposited that are unclaimed at the
end of two years from such redemption date shall, to the extent permitted by
law, be repaid to the Corporation, after which the holders of the shares of
Cumulative Preferred Stock so called for redemption shall look only to the
Corporation for payment thereof. The Corporation shall be entitled to receive,
from time to time after the date fixed for redemption, any interest on the
Deposit Securities so deposited.
(iii) On or after the redemption date, each holder of shares of
Cumulative Preferred Stock that are subject to redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
the Notice of Redemption and shall then be entitled to receive the cash
Redemption Price, without interest.
(iv) In the case of any redemption of less than all of the shares of
Cumulative Preferred Stock pursuant to these Articles Supplementary, such
redemption shall be made pro rata from each holder of shares of Cumulative
Preferred Stock in accordance with the respective number of shares held by each
such holder on the record date for such redemption.
(v) Notwithstanding the other provisions of this paragraph 3, the
Corporation shall not redeem shares of Cumulative Preferred Stock unless all
accumulated and unpaid dividends on all outstanding shares of Cumulative
Preferred Stock for all applicable past Dividend Periods (whether or not earned
or declared by the Corporation) shall have been or are contemporaneously paid or
declared and Deposit Securities for the payment of such dividends shall have
been deposited with the Paying Agent as set forth in paragraph 1(c) of Article
II hereof.
(vi) If the Corporation shall not have funds legally
available for the redemption of, or is otherwise unable to
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redeem, all the shares of the Cumulative Preferred Stock to be redeemed on any
redemption date, the Corporation shall redeem on such redemption date the number
of shares of Cumulative Preferred Stock as it shall have legally available
funds, or is otherwise able, to redeem ratably from each holder whose shares are
to be redeemed, and the remainder of the shares of the Cumulative Preferred
Stock required to be redeemed shall be redeemed on the earliest practicable date
on which the Corporation shall have funds legally available for the redemption
of, or is otherwise able to redeem, such shares.
4. Voting Rights.
(a) General.
Except as otherwise provided by law or as specified in the Charter or
By-Laws, each holder of shares of Cumulative Preferred Stock shall be entitled
to one vote for each share held on each matter submitted to a vote of
stockholders of the Corporation, and the holders of outstanding shares of
Preferred Stock, including Cumulative Preferred Stock, and of shares of Common
Stock shall vote together as a single class; provided that, at any meeting of
the stockholders of the Corporation held for the election of directors, the
holders of outstanding shares of Preferred Stock, including Cumulative Preferred
Stock, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation, to elect two
directors of the Corporation. Subject to paragraph 4(b) of Article II hereof,
the holders of outstanding shares of capital stock of the Corporation, including
the holders of outstanding shares of Preferred Stock (including the Cumulative
Preferred Stock), voting as a single class, shall elect the balance of the
directors. Notwithstanding the foregoing, and except as otherwise required by
the 1940 Act, (i) the holders of outstanding shares of Cumulative Preferred
Stock shall be entitled as a class, to the exclusion of the holders of all other
securities, including other Preferred Stock and classes of capital stock of the
Corporation, to vote on matters affecting the Cumulative Preferred Stock that do
not adversely affect other securities, including other Preferred Stock and
classes of capital stock, and (ii) holders of other outstanding shares of
Preferred Stock shall be entitled, as a class to the exclusion of the holders of
Cumulative Preferred Stock, to vote on matters affecting such other Preferred
Stock that do not adversely affect the holders of the Cumulative Preferred
Stock.
(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting Period"),
the number of directors constituting the Board of Directors shall be
automatically increased by the
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smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled to
elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or
declared, and whether or not funds are then legally available in an amount
sufficient therefor) on the outstanding shares of Cumulative Preferred
Stock equal to at least two full years' dividends shall be due and unpaid
and sufficient Deposit Securities shall not have been deposited with the
Paying Agent for the payment of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Stock are
entitled to elect a majority of the directors of the Corporation under the
1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 4(b) shall cease, subject always, however, to the reverting of
such voting rights in the holders of Preferred Stock upon the further occurrence
of any of the events described in this paragraph 4(b).
(c) Right to Vote with Respect to Certain Other Matters.
So long as any shares of Cumulative Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the holders of two-thirds
of the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the Charter of holders
of shares of Cumulative Preferred Stock. The Corporation shall notify Moody's
ten Business Days prior to any such vote described above. Unless a higher
percentage is provided for under the Charter, the affirmative vote of the
holders of a majority of the outstanding shares of Preferred Stock, including
Cumulative Preferred Stock, voting together as a single class, will be required
to approve any plan of reorganization adversely affecting such shares or any
action requiring a vote of security holders under Section 13(a) of the 1940 Act.
For purposes of the preceding sentence, the phrase "vote of the holders of a
majority of the outstanding shares of Preferred Stock" shall have the meaning
set forth in the 1940 Act. The class vote of holders of shares of Preferred
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Stock, including Cumulative Preferred Stock, described above will be in addition
to a separate vote of the requisite percentage of shares of Common Stock and
shares of Preferred Stock, including Cumulative Preferred Stock, voting together
as a single class, necessary to authorize the action in question. An increase in
the number of authorized shares of Preferred Stock pursuant to the Charter or
the issuance of additional shares of any series of Preferred Stock (including
Cumulative Preferred Stock) pursuant to the Charter shall not in and of itself
be considered to adversely affect the contract rights of the holders of
Cumulative Preferred Stock.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders of
shares of Preferred Stock to elect additional directors as described in
paragraph 4(b) above, the Corporation shall call a special meeting of such
holders and instruct the Paying Agent to mail a notice of such special meeting
to such holders, such meeting to be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send such
notice to the Paying Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding the
day on which such notice is mailed. At any such special meeting and at each
meeting held during a Voting Period, such holders of Preferred Stock, voting
together as a class (to the exclusion of the holders of all other securities and
classes of capital stock of the Corporation), shall be entitled to elect the
number of directors prescribed in paragraph 4(b) above. At any such meeting or
adjournment thereof in the absence of a quorum, a majority of such holders
present in person or by proxy shall have the power to adjourn the meeting
without notice, other than by an announcement at the meeting, to a date not more
than 120 days after the original record date.
(ii) For purposes of determining any rights of the holders of Cumulative
Preferred Stock to vote on any matter or the number of shares required to
constitute a quorum, whether such right is created by these Articles
Supplementary, by the other provisions of the Charter, by statute or otherwise,
a share of Cumulative Preferred Stock which is not outstanding shall not be
counted.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Preferred Stock,
including Cumulative Preferred Stock, to elect directors shall continue,
notwithstanding the election at such meeting by such holders of the number of
directors that they are entitled to elect, and the persons so elected by such
holders, together with the two incumbent directors elected by the holders
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of Preferred Stock, including Cumulative Preferred Stock, and the remaining
incumbent directors elected by the holders of the Common Stock and Preferred
Stock, shall constitute the duly elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the terms of
office of the additional directors elected by the holders of Preferred Stock,
including Cumulative Preferred Stock, pursuant to paragraph 4(b) above shall
terminate, the remaining directors shall constitute the directors of the
Corporation and the voting rights of such holders of Preferred Stock, including
Cumulative Preferred Stock, to elect additional directors pursuant to paragraph
4(b) above shall cease, subject to the provisions of the last sentence of
paragraph 4(b).
(e) Exclusive Remedy.
Unless otherwise required by law, the holders of shares of Cumulative
Preferred Stock shall not have any rights or preferences other than those
specifically set forth herein. The holders of shares of Cumulative Preferred
Stock shall have no preemptive rights or rights to cumulative voting. In the
event that the Corporation fails to pay any dividends on the shares of
Cumulative Preferred Stock, the exclusive remedy of the holders shall be the
right to vote for directors pursuant to the provisions of this paragraph 4.
(f) Notification to Moody's.
In the event a vote of holders of Cumulative Preferred Stock is required
pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the
Cumulative Preferred Stock is rated by Moody's, the Corporation shall, not later
than ten Business Days prior to the date on which such vote is to be taken,
notify Moody's that such vote is to be taken and the nature of the action with
respect to which such vote is to be taken and, not later than ten Business Days
after the date on which such vote is taken, notify Moody's of the result of such
vote.
5. Coverage Tests.
(a) Determination of Compliance.
For so long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation shall make the following determinations:
(i) Asset Coverage. The Corporation shall maintain, as of the last
Business Day of each March, June, September and December of each year in which
any shares of Cumulative Preferred Stock are outstanding, the Asset Coverage.
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(ii) Basic Maintenance Amount Requirement.
(A) For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall maintain, on each Valuation Date, a Portfolio
Calculation at least equal to the Basic Maintenance Amount, each as of such
Valuation Date. Upon any failure to maintain the required Portfolio Calculation,
the Corporation shall use its best efforts to reattain a Portfolio Calculation
at least equal to the Basic Maintenance Amount on or prior to the Basic
Maintenance Amount Cure Date, by altering the composition of its portfolio or
otherwise.
(B) The Corporation shall prepare a Basic Maintenance Report relating to
each Valuation Date. On or before 5:00 P.M., New York City time, on the third
Business Day after the first Valuation Date following the Date of Original Issue
of the Cumulative Preferred Stock and after each (A) Quarterly Valuation Date,
(B) Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) above, (C) Basic Maintenance Amount Cure Date following a
Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) above and (D) Valuation Date and any immediately
succeeding Business Day on which the Portfolio Calculation exceeds the Basic
Maintenance Amount by 5% or less, the Corporation shall complete and deliver to
Moody's a Basic Maintenance Report, which will be deemed to have been delivered
to Moody's if Moody's receives a copy or telecopy, telex or other electronic
transcription setting forth at least the Portfolio Calculation and the Basic
Maintenance Amount each as of the relevant Valuation Date and on the same day
the Corporation mails to Moody's for delivery on the next Business Day the full
Basic Maintenance Report. The Corporation also shall provide Moody's with a
Basic Maintenance Report relating to any other Valuation Date on Moody's
specific request. A failure by the Corporation to deliver a Basic Maintenance
Report under this paragraph 5(a)(ii)(B) shall be deemed to be delivery of a
Basic Maintenance Report indicating a Portfolio Calculation less than the Basic
Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery to Moody's of a
Basic Maintenance Report in accordance with paragraph 5(a)(ii)(B) above relating
to a Quarterly Valuation Date, the Corporation shall deliver to Moody's an
Accountant's Confirmation relating to such Basic Maintenance Report and any
other Basic Maintenance Report, randomly selected by the Independent
Accountants, that was prepared by the Corporation during the quarter ending on
such Quarterly Valuation Date. Also, within ten Business Days after the date of
delivery to Moody's of a Basic Maintenance Report in accordance with paragraph
5(a)(ii)(B) above relating to a Valuation Date on which the Corporation fails to
satisfy the requirements of paragraph 5(a)(ii)(A) and any Basic Maintenance
Amount Cure Date, the
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Corporation shall deliver to Moody's an Accountant's Confirmation relating to
such Basic Maintenance Report. If any Accountant's Confirmation delivered
pursuant to this paragraph 5(a)(ii)(C) shows that an error was made in the Basic
Maintenance Report for such Quarterly Valuation Date, or shows that a lower
Portfolio Calculation was determined by the Independent Accountants, the
calculation or determination made by such Independent Accountants shall be final
and conclusive and shall be binding on the Corporation, and the Corporation
shall accordingly amend the Basic Maintenance Report and deliver the amended
Basic Maintenance Report to Moody's promptly following Moody's receipt of such
Accountant's Confirmation.
(D) In the event the Portfolio Calculation shown in any Basic Maintenance
Report prepared pursuant to paragraph 5(a)(ii)(B) above is less than the
applicable Basic Maintenance Amount, the Corporation shall have until the Basic
Maintenance Amount Cure Date to achieve a Portfolio Calculation at least equal
to the Basic Maintenance Amount, and upon such achievement (and not later than
such Basic Maintenance Amount Cure Date) the Corporation shall inform Moody's of
such achievement in writing by delivery of a revised Basic Maintenance Report
showing a Portfolio Calculation at least equal to the Basic Maintenance Amount
as of the date of such revised Basic Maintenance Report, together with an
Officers' Certificate to such effect.
(E) On or before 5:00 P.M., New York City time, on the first Business Day
after shares of Common Stock are repurchased by the Corporation, the Corporation
shall complete and deliver to Moody's a Basic Maintenance Report as of the close
of business on such date that Common Stock is repurchased. A Basic Maintenance
Report delivered as provided in paragraph 5(a)(ii)(B) above also shall be deemed
to have been delivered pursuant to this paragraph 5(a)(ii)(E).
(b) Failure to Meet Asset Coverage.
If the Asset Coverage is not satisfied as provided in paragraph 5(a)(i)
hereof and such failure is not cured as of the related Asset Coverage Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock to enable it to meet the requirements of
paragraph 5(a)(i) above, and, at the Corporation's discretion, such additional
number of shares of Cumulative Preferred Stock in order that the "asset
coverage" of a class of senior security which is stock, as defined in Section
18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock is up to 250%, and deposit with
the Paying Agent Deposit Securities having an initial combined value sufficient
to effect the redemption of
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the shares of Cumulative Preferred Stock to be redeemed, as contemplated by
paragraph 3(a) of Article II hereof.
(c) Failure to Maintain a Portfolio Calculation At Least
Equal to the Basic Maintenance Amount.
If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A) above
and such failure is not cured by the related Basic Maintenance Amount Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock to enable it to meet the requirements of
paragraph 5(a)(ii)(A) above, and, at the Corporation's discretion, such
additional number of shares of Cumulative Preferred Stock in order that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
by up to 10%, and deposit with the Paying Agent Deposit Securities having an
initial combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, as contemplated by paragraph 3(a) of
Article II hereof.
(d) Status of Shares Called for Redemption.
For purposes of determining whether the requirements of paragraphs 5(a)(i)
and 5(a)(ii)(A) hereof are satisfied, (i) no share of the Cumulative Preferred
Stock shall be deemed to be outstanding for purposes of any computation if,
prior to or concurrently with such determination, sufficient Deposit Securities
to pay the full Redemption Price for such share shall have been deposited in
trust with the Paying Agent and the requisite Notice of Redemption shall have
been given, and (ii) such Deposit Securities deposited with the Paying Agent
shall not be included in determining whether the requirements of paragraphs
5(a)(i) and 5(a)(ii)(A) hereof are satisfied.
6. Certain Other Restrictions.
(a) For so long as the Cumulative Preferred Stock is rated by Moody's, the
Corporation will not, and will cause the Adviser not to, (i) knowingly and
willfully purchase or sell a portfolio security for the specific purpose of
causing, and with the actual knowledge that the effect of such purchase or sale
will be to cause, the Portfolio Calculation as of the date of the purchase or
sale to be less than the Basic Maintenance Amount as of such date, (ii) in the
event that, as of the immediately preceding Valuation Date, the Portfolio
Calculation exceeded the Basic Maintenance Amount by 5% or less, alter the
composition of the Corporation's portfolio securities in a manner reasonably
expected to reduce the Portfolio Calculation, unless the
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Corporation shall have confirmed that, after giving effect to such alteration,
the Portfolio Calculation exceeded the Basic Maintenance Amount or (iii) declare
or pay any dividend or other distribution on any shares of Common Stock or
repurchase any shares of Common Stock, unless the Corporation shall have
confirmed that, after giving effect to such declaration, other distribution or
repurchase, the Corporation continues to satisfy the requirements of paragraph
5(a)(ii)(A) of Article II hereof.
(b) For so long as the Cumulative Preferred Stock is rated by Moody's, the
Corporation shall not (a) acquire or otherwise invest in (i) future contracts or
(ii) options on futures contracts, (b) engage in reverse repurchase agreements,
(c) engage in short sales, (d) overdraw any bank account, (e) write options on
portfolio securities other than call options on securities held in the
Corporation's portfolio or that the Corporation has an immediate right to
acquire through conversion or exchange of securities held in its portfolio, or
(f) borrow money, except for the purpose of clearing and/or settling
transactions in portfolio securities (which borrowings shall under any
circumstances be limited to the lesser of $10,000,000 and an amount equal to 5%
of the Market Value of the Corporation's assets at the time of such borrowings
and which borrowings shall be repaid within 60 days and not be extended or
renewed), unless in any such case, the Corporation shall have received written
confirmation from Moody's that such investment activity will not adversely
affect Moody's then current rating of the Cumulative Preferred Stock.
Furthermore, for so long as the Cumulative Preferred Stock is rated by Moody's,
unless the Corporation shall have received the written confirmation from Moody's
referred to in the preceding sentence, the Corporation may engage in the lending
of its portfolio securities only in an amount of up to 5% of the Corporation's
total assets, provided that the Corporation receives cash collateral for such
loaned securities which is maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities and, if
invested, is invested only in money market mutual funds meeting the requirements
of Rule 2a-7 under the 1940 Act that maintain a constant $1.00 per share net
asset value. In determining the Portfolio Calculation, the Corporation shall use
the Moody's Discount Factor applicable to the loaned securities rather than the
Moody's Discount Factor applicable to the collateral.
(c) For so long as the Cumulative Preferred Stock is rated by Moody's, the
Corporation shall not consolidate the Corporation with, merge the Corporation
into, sell or otherwise transfer all or substantially all of the Corporation's
assets to another entity or adopt a plan of liquidation of the Corporation, in
each case without providing prior written notification to Moody's.
7. Termination of Rating Agency Provisions.
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(a) The Board of Directors may determine that it is not in the best
interests of the Corporation to continue to comply with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's, in
which case the Corporation will no longer be required to comply with any of the
provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect
to Moody's, provided that (i) the Corporation has given the Paying Agent,
Moody's and holders of the Cumulative Preferred Stock at least 20 calendar days
written notice of such termination of compliance, (ii) the Corporation is in
compliance with the provisions of paragraphs 5(a)(i), 5(a)(ii), 5(c) and 6 of
Article II hereof at the time the notice required in clause (i) hereof is given
and at the time of the termination of compliance with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
(iii) at the time the notice required in clause (i) hereof is given and at the
time of termination of compliance with the provisions of paragraphs 5(a)(ii),
5(c) and 6 of Article II hereof with respect to Moody's the Cumulative Preferred
Stock is listed on the American Stock Exchange or on another exchange registered
with the Securities and Exchange Commission as a national securities exchange
and (iv) at the time of termination of compliance with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
the cumulative cash dividend rate payable on a share of the Cumulative Preferred
Stock pursuant to paragraph 1(a) of Article II hereof shall be increased by
.375% per annum.
(b) On the date that the notice is given in paragraph 7(a) above and on the
date that compliance with the provisions of paragraphs 5(a)(ii), 5(c) and 6 of
Article II hereof with respect to Moody's is terminated, the Corporation shall
provide the Paying Agent and Moody's with an Officers' Certificate as to the
compliance with the provisions of paragraph 7(a) hereof, and the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's
shall terminate on such later date and thereafter have no force or effect.
8. Limitation on Issuance of Additional Preferred Stock.
So long as any shares of Cumulative Preferred Stock are outstanding, the
Corporation may issue and sell additional shares of Cumulative Preferred Stock
authorized hereby and/or shares of one or more other series of Preferred Stock
constituting a series of a class of senior securities of the Corporation
representing stock under Section 18 of the 1940 Act in addition to the shares of
Cumulative Preferred Stock, provided that (i) immediately after giving effect to
the issuance and sale of such additional Preferred Stock and to the
Corporation's receipt and application of the proceeds thereof, the Corporation
will maintain the Asset Coverage of the shares of Cumulative Preferred Stock and
all other Preferred Stock of the Corporation then outstanding, and (ii) no such
additional Preferred Stock shall have any preference
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or priority over any other Preferred Stock of the Corporation upon the
distribution of the assets of the Corporation or in respect of the payment of
dividends.
ARTICLE III
ABILITY OF BOARD OF DIRECTORS TO MODIFY THE ARTICLES
SUPPLEMENTARY
To the extent permitted by law, the Board of Directors, without the vote of
the holders of the Cumulative Preferred Stock or any other capital stock of the
Corporation, may amend the provisions of these Articles Supplementary to resolve
any inconsistency or ambiguity or remedy any formal defect so long as the
amendment does not materially adversely affect any of the contract rights of
holders of shares of the Cumulative Preferred Stock or any other capital stock
of the Corporation.
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IN WITNESS WHEREOF, ROYCE MICRO-CAP TRUST, INC. has caused these presents
to be signed in its name and on its behalf by a duly authorized officer, and its
corporate seal to be hereunto affixed and attested by its Secretary, and the
said officers of the Corporation further acknowledge said instrument to be the
corporate act of the Corporation, and state that to the best of their knowledge,
information and belief the matters and facts herein set forth with respect to
approval are true in all material respects, all on June _________, 1997.
ROYCE MICRO-CAP TRUST, INC.
By
-------------------------
Name:
Title:
Attest:
- ---------------------------
John E. Denneen
Secretary
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors of
Royce Micro-Cap Trust, Inc.
In planning and performing our audit of the financial statements of Royce
Micro-Cap Trust, Inc. for the year ended December 31, 1997, we considered its
internal control, including control activities for safeguarding securities,
in order to determine our auditing procedures for the purpose of expressing
our opinion on the financial statements and to comply with the requirements
of Form N-SAR, not to provide assurance on the internal control.
The management of Royce Micro-Cap Trust, Inc. is responsible for establishing
and maintaining internal control. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of controls. Generally, controls that are relevant
to an audit pertain to the entity's objective of preparing financial statements
for external purposes that are fairly presented in conformity with generally
accepted accounting principles. Those controls include the safeguarding of
assets against unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of the internal control would not necessarily disclose all
matters in the internal control that might be material weaknesses under
standards established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the design or
operation of one or more of the internal control components does not reduce
to a relatively low level the risk that errors or fraud in amounts that would
be material in relation to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
the internal control and its operation, including controls for safeguarding
securities, that we consider to be material weaknesses as defined above at
December 31, 1997.
This report is intended solely for the information and use of the Board of
Directors and management of Royce Micro-Cap Trust, Inc. and the Securities
and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
February 10, 1998
