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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1994
SECURITIES ACT FILE NO. 33-51395
INVESTMENT COMPANY ACT FILE NO. 811-7131
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 2 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 2 /X/
------------------------
SENIOR STRATEGIC INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(609) 282-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ARTHUR ZEIKEL
SENIOR STRATEGIC INCOME FUND, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
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PATRICK D. SWEENEY, ESQ. THOMAS R. SMITH, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. BROWN & WOOD
BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
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APPROXIMATE DATE OF PROPOSED OFFERING: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED(1)(2) PER UNIT(1) OFFERING PRICE(1) FEE(3)
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Common Stock (par value $.10
per share)................... 7,817,400 shs. $10.00 $78,174,000 $26,956.55
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 77,400 shares subject to the Underwriter's over-allotment option.
(3) Registration fees in the amounts of $344.83 and $44,267.55 were previously
paid in connection with the registration of 100,000 and 12,937,500 shares,
respectively.
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SENIOR STRATEGIC INCOME FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(C)
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ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
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PART A -- INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover Page................... Cover Page
2. Inside Front and Outside Back Cover
Pages.................................... Cover Page; Underwriting
3. Fee Table and Synopsis..................... Fee Table
4. Financial Highlights....................... Not Applicable
5. Plan of Distribution....................... Underwriting
6. Selling Shareholders....................... Not Applicable
7. Use of Proceeds............................ Use of Proceeds
8. General Description of the Registrant...... The Fund
9. Management................................. Directors and Officers
10. Capital Stock, Long-Term Debt, and Other
Securities............................... Description of Capital Stock
11. Defaults and Arrears on Senior
Securities............................... Not Applicable
12. Legal Proceedings.......................... Not Applicable
13. Table of Contents of the Statement of
Additional Information................... Not Applicable
PART B -- INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page................................. Not Applicable
15. Table of Contents.......................... Not Applicable
16. General Information and History............ Not Applicable
17. Investment Objectives and Policies......... Investment Objectives and Policies; Other
Investment Policies; Investment
Restrictions
18. Management................................. Directors and Officers; Investment Advisory
and Management Arrangements
19. Control Persons and Principal Holders of Investment Advisory and Management
Securities............................... Arrangements
20. Investment Advisory and Other Services..... Investment Advisory and Management
Arrangements; Underwriting; Custodian;
Experts
21. Brokerage Allocation and Other Practices... Portfolio Transactions
22. Tax Status................................. Taxes
23. Financial Statements....................... Statement of Assets, Liabilities and
Capital
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PART C -- OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
7,740,000 SHARES
SENIOR STRATEGIC INCOME FUND, INC.
COMMON STOCK
------------------------
Senior Strategic Income Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end management investment company seeking to provide
high current income by investing principally in senior debt obligations of
companies ("Senior Debt"), including corporate loans made by banks and other
financial institutions and both privately placed and publicly offered corporate
bonds and notes. Senior Debt investments of the Fund may be rated in the lower
rating categories of the established rating services (Baa or lower by Moody's
Investors Service, Inc. and BBB or lower by Standard & Poor's Corporation), or
in unrated securities of comparable quality. Such securities generally involve
greater volatility of price and risks to principal and income than securities in
the higher rating categories. The Fund may engage in various portfolio
strategies to enhance income and to hedge its portfolio against investment and
interest rate risks, including the utilization of leverage and the use of
options and futures. There can be no assurance that the investment objective of
the Fund will be realized.
Because the Fund is newly organized, its shares have no history of public
trading, and shares of closed-end investment companies frequently trade at a
discount from their net asset value. The risk of loss may be greater for initial
investors expecting to sell their shares in a relatively short period after
completion of the public offering. See "Prospectus Summary -- Risk Factors and
Special Considerations."
------------------------ (Continued on page 2)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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MAXIMUM MAXIMUM SALES PROCEEDS TO
PRICE TO PUBLIC(1) LOAD(1)(2) FUND(3)
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Per Share......................... $10.00 $.50 $9.50
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Total(4).......................... $77,400,000 $3,870,000 $73,530,000
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(1) The "Maximum Price to Public" and "Maximum Sales Load" per share will be
reduced to $9.93 and $.43, respectively, for purchases in single
transactions of between 5,000 and 9,999 shares and to $9.83 and $.33,
respectively, for purchases in single transactions of 10,000 or more shares.
See "Underwriting."
(2) The Fund and the Investment Adviser have agreed to indemnify Merrill Lynch
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(3) Before deducting organizational and offering costs payable by the Fund
estimated at $265,000.
(4) The Fund has granted Merrill Lynch an option, exercisable for 45 days after
the date hereof, to purchase up to an additional 77,400 shares to cover
over-allotments. If all such shares are purchased, the total Maximum Price
to Public, Maximum Sales Load and Proceeds to Fund will be $78,174,000,
$3,908,700 and $74,265,300, respectively. See "Underwriting."
------------------------
The shares are offered by Merrill Lynch, subject to prior sale, when, as
and if issued by the Fund and accepted by Merrill Lynch, subject to certain
conditions. Merrill Lynch reserves the right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
the shares will be made in New York, New York on or about April 8, 1994.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is March 31, 1994.
<PAGE> 4
(Continued from page 1)
This Prospectus sets forth in concise form the information about the Fund
that a prospective investor should know before investing in the Fund. Investors
should read and retain this Prospectus for future reference. Fund Asset
Management, L.P. is the Fund's Investment Adviser. The address of the Fund is
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone number
is (609) 282-2000.
At times, the Fund expects to utilize leverage through borrowings or
issuance of short-term debt securities or shares of preferred stock. Under
current market conditions, the Fund intends to utilize leverage in an amount
between approximately 25% and 33 1/3% of its total assets (including the amount
obtained from leverage). The Fund generally will not utilize leverage if it
anticipates that its leveraged capital structure would result in a lower rate of
return to holders of the Common Stock than that obtainable if the Common Stock
were unleveraged for any significant amount of time. Use of leverage creates an
opportunity for increased income, but, at the same time, creates special risks.
See "Other Investment Policies -- Leverage."
As a "non-diversified" investment company, the Fund may invest more than 5%
of its assets in the obligations of any single issuer, subject to certain tax
requirements. Since the Fund may invest a relatively high percentage of its
assets in the obligations of a limited number of issuers, the Fund may be more
susceptible than a more widely-diversified fund to any single economic,
political or regulatory occurrence. See "Investment Objective and Policies."
Prior to this offering, there has been no public market for the Fund's
shares. The Fund's shares have been approved for listing on the New York Stock
Exchange under the symbol "SSN." However, during an initial period which is not
expected to exceed four weeks from the date of this Prospectus, the Fund's
shares will not be listed on any securities exchange. During such period,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") does not
intend to make a market in the Fund's shares. Consequently, it is anticipated
that an investment in the Fund will be illiquid during such period.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FUND'S COMMON
STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with the detailed
information appearing elsewhere in this Prospectus.
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THE FUND...................... Senior Strategic Income Fund, Inc. (the "Fund") is a newly
organized, non-diversified, closed-end management investment
company. See "The Fund."
THE OFFERING.................. The Fund is offering 7,740,000 shares of Common Stock at a
maximum initial offering price of $10 per share, except that
the price will be reduced to $9.93 for purchases in single
transactions of between 5,000 and 9,999 shares and to $9.83
for purchases in single transactions of 10,000 or more
shares. The shares are being offered by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch").
Merrill Lynch has been granted an option, exercisable for 45
days from the date of this Prospectus to purchase up to
77,400 additional shares to cover over-allotments. See
"Underwriting."
INVESTMENT OBJECTIVE AND
POLICIES.................... The investment objective of the Fund is to seek to provide
high current income by investing principally in senior debt
obligations of companies ("Senior Debt"), including corporate
loans made by banks and other financial institutions and both
privately placed and publicly offered corporate bonds and
notes. No assurance can be given that the Fund's investment
objective will be achieved. See "Investment Objective and
Policies."
Senior Debt will include both debt securities bearing
interest at fixed rates and debt instruments which pay
interest at rates which float at a margin above a generally
recognized base lending rate such as the prime rate of a
designated U.S. bank, or which adjust periodically at a
margin above the Certificate of Deposit ("CD") rate or the
London InterBank Offered Rate ("LIBOR"). Senior Debt
investments of the Fund may be rated in the lower rating
categories of the established rating services (Baa or lower
by Moody's Investors Service, Inc. ("Moody's") and BBB or
lower by Standard & Poor's Corporation ("S&P"), or in unrated
securities of comparable quality. Securities rated below Baa
by Moody's or below BBB by S&P, and unrated securities of
comparable quality are commonly known as "junk bonds." The
Fund may also invest up to 35% of its total assets in debt
obligations of companies which do not constitute senior debt
obligations but which otherwise meet the credit standards and
criteria established by the Investment Adviser for
investments in Senior Debt. These investments may be rated in
the same lower rated categories as the investments of the
Fund in Senior Debt.
At times, the Fund expects to utilize leverage through
borrowings or issuance of short-term debt securities or
shares of preferred stock. Under current market conditions,
the Fund intends to utilize leverage in an amount between
approximately 25% and 33 1/3% of its total assets
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(including the amount obtained from leverage). The Fund
intends to utilize leverage to provide the Common Stock
shareholders with a potentially higher rate of return. The
Fund generally will not utilize leverage if it anticipates
that the Fund's leveraged capital structure would result in a
lower rate of return to holders of the Common Stock than that
obtainable if the Common Stock were unleveraged for any
significant amount of time. Use of leverage creates an
opportunity for increased income, but, at the same time,
creates special risks. See "Other Investment
Policies--Leverage."
The Fund may engage in various portfolio strategies to seek
to increase its return and to hedge its portfolio against
movements in interest rates through the use of interest rate
transactions, the purchase of call and put options on
securities, the sale of covered call and put options on its
portfolio securities and transactions in financial futures
and related options on such futures. See "Other Investment
Policies."
Investment in shares of Common Stock of the Fund offers
several benefits. The Fund offers investors the opportunity
to receive a high level of current income by investing in a
professionally managed portfolio comprised primarily of
Senior Debt which, to the extent the portfolio is comprised
of Corporate Loans, is a type of investment typically not
available to individual investors. In managing such
portfolio, the Investment Adviser provides the Fund and its
shareholders with professional credit analysis. The Fund also
relieves the investor of the burdensome administrative
details involved in managing a portfolio of such investments.
Additionally, the Investment Adviser will seek to enhance the
yield on the Common Stock by leveraging the Fund's capital
structure through the borrowing of money or the issuance of
preferred stock. The benefits are at least partially offset
by the expenses involved in operating an investment company.
Such expenses primarily consist of the advisory fee and
operational costs. Additionally, the use of leverage involves
certain expenses and risk considerations. See "Other
Investment Policies -- Leverage."
LISTING....................... Prior to this offering, there has been no public market for
the shares of the Fund. The Fund's shares have been approved
for listing on the New York Stock Exchange. However, during
an initial period which is not expected to exceed four weeks
from the date of this Prospectus, the Fund's shares will not
be listed on any securities exchange. During such period,
Merrill Lynch does not intend to make a market in the Fund's
shares. Consequently, it is anticipated that an investment in
the Fund will be illiquid during such period. See
"Underwriting."
INVESTMENT ADVISER............ Fund Asset Management, L.P. (the "Investment Adviser") is the
Fund's investment adviser and is responsible for the
management of the Fund's investment portfolio and for
providing administrative services to the Fund. For its
services, the Fund pays the Investment Adviser a monthly fee
at the annual rate of 0.50% of the Fund's average weekly net
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4
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assets plus the proceeds of any outstanding borrowings used
for leverage. The Investment Adviser and its affiliate,
Merrill Lynch Asset Management, L.P. ("MLAM"), are owned and
controlled by Merrill Lynch & Co., Inc. ("ML & Co."). The
Investment Adviser or MLAM acts as the investment adviser for
over 90 other registered management investment companies. The
Investment Adviser also offers portfolio management and
portfolio analysis services to individuals and institutions.
As of December 31, 1993, the Investment Adviser and MLAM had
a total of approximately $160 billion in investment company
and other portfolio assets under management, including
accounts of certain affiliates of the Investment Adviser. See
"Investment Advisory and Management Arrangements."
DIVIDENDS AND DISTRIBUTIONS... The Fund will distribute dividends of all or a portion of its
net investment income monthly. The Fund may at times pay out
less than the entire amount of net investment income earned
in any particular period and may at times pay out such
accumulated undistributed income in addition to net
investment income earned in other periods in order to permit
the Fund to maintain a more stable level of distributions. As
a result, the distribution paid by the Fund for any
particular period may be more or less than the amount of net
investment income earned by the Fund during such period. For
Federal income tax purposes, the Fund will be required to
distribute substantially all of its net investment income for
each calendar year. All net realized long-term and short-term
capital gains, if any, will be distributed to the Fund's
shareholders at least annually. See "Dividends and
Distributions."
The Fund expects that it will commence paying dividends
within 90 days of the date of this Prospectus.
AUTOMATIC DIVIDEND
REINVESTMENT PLAN............. All dividend and capital gains distributions will be
reinvested automatically in additional shares of the Fund
unless a shareholder elects to receive cash. Shareholders
whose shares are held in the name of a broker or nominee
should contact such broker or nominee to confirm that they
may participate in the Fund's dividend reinvestment plan. See
"Automatic Dividend Reinvestment Plan."
MUTUAL FUND
INVESTMENT OPTION............. Purchasers of shares of the Fund in this offering will have
an investment option consisting of the right to reinvest the
net proceeds from a sale of such shares (the "Original
Shares") in Class A initial sales charge shares of certain
Merrill Lynch-sponsored open-end mutual funds ("Eligible
Class A Shares") at their net asset value, without the
imposition of the initial sales charge, if the conditions set
forth below are satisfied. First, the sale of the Original
Shares must be made through Merrill Lynch, and the net
proceeds therefrom must be immediately reinvested in Eligible
Class A Shares. Second, the Original Shares must have been
either acquired in this offering or be shares representing
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5
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reinvested dividends from shares acquired in this offering.
Third, the Original Shares must have been continuously
maintained in a Merrill Lynch securities account. Fourth,
there must be a minimum purchase of $250 to be eligible for
the investment option. Class A shares of certain of the
mutual funds may be subject to an account maintenance fee at
an annual rate of up to 0.25% of the average daily net asset
value of such mutual fund. See "Mutual Fund Investment
Option."
CUSTODIAN, TRANSFER AGENT,
DIVIDEND DISBURSING
AGENT AND REGISTRAR........... The Bank of New York will act as custodian, transfer agent,
dividend disbursing agent and registrar for the Fund. See
"Custodian" and "Transfer Agent, Dividend Disbursing Agent
and Registrar."
RISK FACTORS AND
SPECIAL CONSIDERATIONS........ The Fund is a newly organized, non-diversified closed-end
management investment company and has no operating history.
As described under "Listing" above, it is anticipated that an
investment in the Fund will be illiquid prior to listing of
the Fund's shares on the New York Stock Exchange. See
"Underwriting." Shares of closed-end investment companies
frequently trade at a discount from their net asset value.
This risk may be greater for investors expecting to sell
their shares in a relatively short period after completion of
the public offering. Accordingly, the Common Stock of the
Fund is designed primarily for long-term investors and should
not be considered a vehicle for trading purposes. The net
asset value of the Fund's shares of Common Stock will
fluctuate with interest rate changes as well as with price
changes of the Fund's portfolio securities and these
fluctuations are likely to be greater in the case of a fund
having a leveraged capital structure, as contemplated for the
Fund. See "Other Investment Policies -- Leverage."
Non-Diversified Status. The Fund has registered as a
"non-diversified" investment company so that it will be able
to invest more than 5% of its assets in the obligations of
any single issuer, subject to the diversification
requirements of Subchapter M of the Internal Revenue Code of
1986, as amended, applicable to the Fund. Since the Fund may
invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the Fund may be
more susceptible than a more widely-diversified fund to any
single economic, political or regulatory occurrence.
Corporate Loans. The Fund may invest in corporate loans
("Corporate Loans") made by banks and other financial
institutions, including highly leveraged loans. Corporate
Loans made in connection with highly leveraged transactions
are subject to greater credit risks than other Corporate
Loans in which the Fund may invest. These credit risks
include a greater possibility of default or bankruptcy of the
borrower and the assertion that the pledging of collateral to
secure the loan constituted a fraudulent conveyance or
preferential transfer which can be nullified or
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subordinated to the rights of other creditors of the borrower
under applicable law. Highly leveraged Corporate Loans also
may be less liquid than other Corporate Loans.
The financial status of the agent bank and co-lenders and
participants interposed between the Fund and a borrower may
affect the ability of the Fund to receive payments of
interest and principal. The Fund will invest in Corporate
Loans only if, at the time of investment, the outstanding
debt obligations of the agent bank and intermediate
participants are investment grade, i.e., rated BBB or A-3 or
higher by S&P or Baa or P-3 or higher by Moody's, or
determined to be of comparable quality in the judgment of the
Investment Adviser.
The success of the Fund depends to a great degree, on the
skill with which the Agent Banks administer the terms of the
Corporate Loan agreements, monitor borrower compliance with
covenants, collect principal, interest and fee payments from
borrowers and, where necessary, enforce creditor remedies
against borrowers. Typically, the Agent Bank will have broad
discretion in enforcing a Corporate Loan agreement.
Lower-Rated Securities. Junk bonds are regarded as being
predominantly speculative as to the issuer's ability to make
payments of principal and interest. Investment in such
securities involves substantial risk. Issuers of junk bonds
may be highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers
generally are greater than is the case with higher rated
securities. For example, during an economic downturn or a
sustained period of rising interest rates, issuers of junk
bonds may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such
periods, such issuers may not have sufficient revenues to
meet their interest payment obligations. The issuer's ability
to service its debt obligations also may be adversely
affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or
the unavailability of additional financing.
Junk bonds tend to be more volatile than higher rated fixed
income securities, so that adverse economic events may have a
greater impact on the prices of junk bonds than on higher
rated fixed income securities. Like higher rated fixed income
securities, junk bonds are generally purchased and sold
through dealers who make a market in such securities for
their own accounts. There are fewer dealers in the junk bond
market, however, which may be less liquid than the market for
higher rated fixed income securities, even under normal
economic conditions. Also, there may be significant
disparities in the prices quoted for junk bonds by various
dealers. Adverse economic conditions or investor perceptions
(whether or not based on economic fundamentals) may impair
the liquidity of this market, and may cause the prices the
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Fund receives for its junk bonds to be reduced, or the Fund
may experience difficulty in liquidating a portion of its
portfolio in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Under
such conditions, judgment may play a greater role in valuing
certain of the Fund's portfolio securities than is the case
with securities trading in a more liquid market. In addition,
the Fund may incur additional expenses to the extent that it
is required to seek recovery upon a default on a portfolio
holding or to participate in the restructuring of the
obligation.
Leverage. The use of leverage by the Fund creates an
opportunity for increased net income, but, at the same time,
creates special risks. The Fund intends to utilize leverage
to provide the common shareholders with a potentially higher
rate of return. Leverage creates risks for common
shareholders including the likelihood of greater volatility
of net asset value and market price of shares of the Common
Stock, and the risk that fluctuations in interest rates on
borrowings or in the dividend rates on any preferred stock
may affect the yield to common shareholders. To the extent
the income derived from securities purchased with funds
received from leverage exceeds the cost of leverage, the
Fund's net income will be greater than if leverage had not
been used. Conversely, if the income from the securities
purchased with such funds is not sufficient to cover the cost
of leverage, the net income of the Fund will be less than if
leverage had not been used, and therefore the amount
available for distribution to shareholders as dividends will
be reduced. In the latter case, the Fund may nevertheless
determine to maintain its leveraged position in order to
avoid capital losses on securities purchased with the
leverage. Certain types of borrowings may result in the Fund
being subject to covenants in credit agreements relating to
asset coverage and portfolio composition requirements. The
Fund may be subject to certain restrictions on investments
imposed by guidelines of one or more nationally recognized
rating agencies which may issue ratings for the short-term
corporate debt securities or preferred stock issued by the
Fund. These guidelines may impose asset coverage or portfolio
composition requirements that are more stringent than those
imposed by the Investment Company Act of 1940, as amended
(the "Investment Company Act"). It is not anticipated that
these covenants or guidelines will impede the Investment
Adviser from managing the Fund's portfolio in accordance with
the Fund's investment objective and policies.
Other Investment Management Techniques. The Fund may use
various other investment management techniques that also
involve special considerations including engaging in interest
rate transactions, utilization of options and futures
transactions, making forward commitments, and lending its
portfolio securities. For further discussion of these
practices and the associated risks and special
considerations, see "Other Investment Policies."
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Non-U.S. Securities. The Fund may invest in Senior Debt
issued by non-U.S. issuers, provided that the debt
instruments are U.S. dollar-denominated or otherwise provide
for payment in U.S. dollars. Investing in securities issued
by non-U.S. issuers involves certain special risks. See
"Investment Objective and Policies -- Description of Senior
Debt."
Concentration in Financial Institutions. The Fund may be
deemed to be concentrated in securities of issuers in the
industry group consisting of financial institutions and their
holding companies, including commercial banks, thrift
institutions, insurance companies and finance companies. As a
result, the Fund is subject to certain risks associated with
such institutions, including, among other things, changes in
governmental regulation, interest rate levels and general
economic conditions. See "Investment Objective and
Policies -- Description of Senior Debt Consisting of
Corporate Loans."
Illiquid Securities. The Fund may invest in securities that
lack an established secondary trading market or are otherwise
considered illiquid. Some or all of the Corporate Loans in
which the Fund invests will be considered to be illiquid.
Liquidity of a security relates to the ability to easily
dispose of the security and the price to be obtained and does
not generally relate to the credit risk or likelihood of
receipt of cash at maturity. Illiquid corporate bonds and
notes may trade at a discount from comparable, more liquid
investments.
Antitakeover Provisions. The Fund's Articles of
Incorporation include provisions that could have the effect
of limiting the ability of other entities or persons to
acquire control of the Fund or to change the composition of
its Board of Directors and could have the effect of depriving
shareholders of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. See
"Description of Shares -- Certain Provisions of the Articles
of Incorporation."
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FEE TABLE
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<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)......................... 5.00%(a)
Dividend Reinvestment and Cash Purchase Plan Fees.............................. None
ANNUAL EXPENSES (as a percentage of net assets attributable to common shares)(b)
Management Fees(c)............................................................. 0.50%
Interest Payments on Borrowed Funds............................................ None
Other Expenses................................................................. 0.28%
-----
Total Annual Expenses............................................................... 0.78%
-----
-----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, including the maximum front-end
sales load of $50.00 and assuming (1) total annual
expenses of 0.78% and (2) a 5% annual return
throughout the periods:.............................. $ 57.57 $ 73.67 $ 91.16 $ 141.77
</TABLE>
- ---------------
(a) Reduced for purchases in single transactions of 5,000 or more shares,
decreasing to 3.36% for purchases in single transactions of 10,000 or more
shares. See "Underwriting" -- page 39.
(b) The expenses set forth in this table do not include expenses associated with
leverage, since neither the manner of leverage nor the cost of leverage has
been determined as of this time. See "Other Investment
Policies -- Leverage" -- page 18.
(c) See "Investment Advisory and Management Arrangements" -- page 28.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other expenses" are based on estimated
amounts through the end of the Fund's first fiscal year on an annualized basis.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations. The Example should not be considered a
representation of future expenses or annual rate of return, and actual expenses
or annual rate of return may be more or less than those assumed for purposes of
the Example.
10
<PAGE> 13
THE FUND
Senior Strategic Income Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The Fund was
incorporated under the laws of the State of Maryland on November 12, 1993, and
has registered under the Investment Company Act. See "Description of Shares."
The Fund's principal office is located at 800 Scudders Mill Road, Plainsboro,
New Jersey 08536, and its telephone number is (609) 282-2000.
The Fund has been organized as a closed-end investment company. Closed-end
investment companies differ from open-end investment companies (commonly
referred to as mutual funds) in that closed-end investment companies do not
redeem their securities at the option of the shareholder, whereas open-end
companies issue securities redeemable at net asset value at any time at the
option of the shareholder and typically engage in a continuous offering of their
shares. Accordingly, open-end companies are subject to continuous asset in-flows
and out-flows that can complicate portfolio management. However, shares of
closed-end investment companies frequently trade at a discount from net asset
value.
USE OF PROCEEDS
The net proceeds of this offering will be $73,265,000 (or approximately
$74,000,300 assuming Merrill Lynch exercises the over-allotment option in full)
after payment of the sales load and organizational and offering costs.
The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies within approximately three months after
completion of the offering of the shares of Common Stock, depending on market
conditions and the availability of appropriate securities. Pending such
investment, it is anticipated that the proceeds will be invested in U.S.
government securities or high grade, short-term money market instruments. See
"Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide high current income by
investing principally in senior debt obligations of companies ("Senior Debt"),
including corporate loans made by banks and other financial institutions and
both privately placed and publicly offered corporate bonds and notes. This is a
fundamental policy of the Fund and may not be changed without a vote of a
majority of the outstanding shares of the Fund. There can be no assurance that
the investment objective of the Fund will be realized.
Senior Debt will include both debt securities bearing interest at fixed
rates and debt instruments which pay interest at rates which float at a margin
above a generally recognized base lending rate such as the prime rate of a
designated U.S. bank, or which adjust periodically at a margin above the
Certificate of Deposit ("CD") rate or the London InterBank Offered Rate
("LIBOR").
Senior Debt investments of the Fund may be rated in the lower rating
categories of the established rating services (Baa or lower by Moody's Investors
Service, Inc. ("Moody's") and BBB or lower by Standard & Poor's Corporation
("S&P")), or in unrated securities of comparable quality. Securities rated below
Baa by Moody's or below BBB by S&P, and unrated securities of comparable quality
are commonly known as "junk bonds." See "Appendix A: Description of Corporate
Bond Ratings" for additional information concerning rating categories. Although
junk bonds can be expected to provide higher yields, such securities may be
subject to greater market fluctuations and risk of loss of income and principal
than lower-yielding, higher-
11
<PAGE> 14
rated fixed-income securities. See "Prospectus Summary -- Risk Factors and
Special Considerations." The Fund will not invest in securities in the lowest
rating categories (Caa or below for Moody's and CCC or below for S&P).
Securities which are subsequently downgraded may continue to be held and will be
sold only if, in the judgment of the Investment Adviser, it is advantageous to
do so. The Fund may also invest up to 35% of its total assets in debt
obligations of companies which do not constitute senior debt obligations but
which otherwise meet the credit standards and criteria established by the
Investment Adviser for investments in Senior Debt. These investments may be
rated in the same lower rated categories as the investments of the Fund in
Senior Debt. To a limited extent, incidental to and in connection with its
portfolio investments, the Fund also may acquire warrants and other equity
securities.
When changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the Fund
may purchase higher-rated securities if the Investment Adviser believes that the
risk of loss of income and principal may be substantially reduced with only a
relatively small reduction in yield. In addition, under unusual market or
economic conditions, the Fund for temporary defensive purposes may invest up to
100% of its assets in securities issued or guaranteed by the United States
Government or its instrumentalities or agencies, certificates of deposit,
bankers' acceptances and other bank obligations, commercial paper rated in the
highest category by an established rating agency, or other fixed-income
securities deemed by the Investment Adviser to be consistent with a defensive
posture, or may hold its assets in cash. The yield on such securities may be
lower than the yield on lower-rated fixed-income securities.
The Fund has no restrictions on portfolio maturity, but it is anticipated
that a majority of the Senior Debt in which it will invest will have stated
maturities ranging from four to ten years. As a result of prepayments, however,
it is expected that the actual maturities of many of the Fund's investments will
be shorter. See "Investment Objective and Policies -- Description of Senior
Debt."
Investment in shares of Common Stock of the Fund offers several benefits.
The Fund offers investors the opportunity to receive a high level of current
income by investing in a professionally managed portfolio comprised primarily of
Senior Debt which, to the extent the portfolio is comprised of Corporate Loans,
is a type of investment typically not available to individual investors. In
managing such portfolio, the Investment Adviser provides the Fund and its
shareholders with professional credit analysis. The Fund also relieves the
investor of the burdensome administrative details involved in managing a
portfolio of such investments. Additionally, the Investment Adviser will seek to
enhance the yield on the Common Stock by leveraging the Fund's capital structure
through the borrowing of money or the issuance of preferred stock. The benefits
are at least partially offset by the expenses involved in operating an
investment company. Such expenses primarily consist of the advisory fee and
operational costs. Additionally, the use of leverage involves certain expenses
and risk considerations. See "Other Investment Policies -- Leverage."
The Fund may engage in various portfolio strategies to seek to increase its
return and to hedge its portfolio against movements in interest rates through
the use of interest rate transactions, the purchase of call and put options on
securities, the sale of covered call and put options on its portfolio securities
and transactions in financial futures and related options on such futures. Each
of these portfolio strategies is described below. There can be no assurance that
the Fund's hedging transactions will be effective. Furthermore, the Fund will
only engage in hedging activities from time to time and may not necessarily be
engaging in hedging transactions when movements in interest rates occur.
The Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act in
the proportion of its assets that it may invest in securities of a single
issuer. However, the Fund's investments will be limited so as to qualify the
Fund as a "regulated
12
<PAGE> 15
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). See "Taxes." To qualify, among other requirements, the
Fund will limit its investments so that, at the close of each quarter of the
taxable year, (i) not more than 25% of the market value of the Fund's total
assets will be invested in the securities (other than U.S. Government
securities) of a single issuer and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities (other than U.S. Government securities) of a
single issuer. A fund which elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% requirement with respect to
75% of its total assets. To the extent that the Fund assumes large positions in
the securities of a small number of issuers, the Fund's yield may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
DESCRIPTION OF SENIOR DEBT
The Senior Debt in which the Fund invests primarily consist of direct
obligations of a company (a corporation, partnership or trust) undertaken to
finance the growth of the company's business internally or externally, or to
finance a capital restructuring. Senior Debt may also include senior obligations
of a company issued in connection with a restructuring pursuant to Chapter 11 of
the United States Bankruptcy Code provided that such senior obligations meet the
credit standards established by the Investment Adviser. It is anticipated that a
significant portion of such Senior Debt may include obligations of companies
with highly leveraged capital structures (i.e., a large proportion of debt
compared to equity). Such obligations may include leveraged buy-out loans,
leveraged recapitalization loans and other types of acquisition loans. Such
Senior Debt may be structured to include both term loans, which are generally
fully funded at the time of the Fund's investment, and revolving credit
facilities, which would require the Fund to make additional investments in the
Senior Debt as required under the terms of the credit facility. Such Senior Debt
may also include receivables purchase facilities, which are similar to revolving
credit facilities secured by a company's receivables.
The Senior Debt in which the Fund invests will, in many instances, hold the
most senior position in the capitalization structure of the company (i.e., not
subordinated to other debt obligations in right of payment), and, in any case,
will, in the judgment of the Investment Adviser, be in the category of senior
debt of the company. The Fund may also invest up to 35% of its total assets in
debt obligations of companies which do not constitute senior debt obligations
but which otherwise meet the credit standards and criteria established by the
Investment Adviser for investments in Senior Debt discussed below.
The Senior Debt in which the Fund invests may be wholly or partially
secured by collateral, or may be unsecured. In the event of a default, the
ability of an investor to have access to any collateral may be limited by
bankruptcy and other insolvency laws. The value of the collateral may also
decline subsequent to the Fund's investment in the Senior Debt. Under certain
circumstances, the collateral may be released with the consent of a majority of
the Senior Debt investors or pursuant to the terms of the debt instrument. There
is no assurance that the liquidation of the collateral would satisfy the
company's obligation in the event of nonpayment of scheduled interest or
principal, or that the collateral could be readily liquidated. As a result, the
Fund might not receive payments to which it is entitled and thereby may
experience a decline in the value of the investment and, possibly, its net asset
value.
In the case of highly leveraged senior debt instruments, a company
generally is required to pledge collateral which may include (i) working capital
assets, such as accounts receivable and inventory, (ii) tangible fixed assets,
such as real property, buildings and equipment, (iii) intangible assets, such as
trademarks, copyrights and patent rights and (iv) security interests in
securities of subsidiaries or affiliates. In
13
<PAGE> 16
the case of Senior Debt issued by privately held companies, the companies'
owners may pledge additional security in the form of guarantees and/or other
securities that they own.
The rate of interest payable on floating or variable rate corporate loans
and other debt instruments is established as the sum of a base lending rate plus
a specified margin. These base lending rates generally are the Prime Rate of a
designated U.S. bank, the London InterBank Offered Rate ("LIBOR"), the
Certificate of Deposit ("CD") rate or another base lending rate used by
commercial lenders. The interest rate on Prime Rate-based loans floats daily as
the Prime Rate changes, while the interest rate on LIBOR-based and CD-based
loans is reset periodically, typically every 30 days to one year. Investment in
Senior Debt with longer interest rate reset periods or fixed interest rates may
increase fluctuations in the Fund's net asset value as a result of changes in
interest rates. However, to the extent that a substantial portion of the Fund's
investment portfolio is invested in Senior Debt with relatively short interest
rate reset periods, the Fund's net asset value should experience less
fluctuation as a result of changes in interest rates than would a portfolio
comprised primarily of fixed rate debt instruments.
The Fund will invest in Senior Debt only if, in the Investment Adviser's
judgment, the company can meet debt service on such debt. In addition, the
Investment Adviser will consider other factors deemed by it to be appropriate to
the analysis of the company and the Senior Debt. Such factors include financial
ratios of the company such as pre-tax interest coverage, leverage ratios, the
ratio of cash flows to total debt and the ratio of tangible assets to debt. In
its analysis of these factors, the Investment Adviser also will be influenced by
the nature of the industry in which the company is engaged, the nature of the
company's assets and the Investment Adviser's assessments of the general quality
of the company. The factors utilized have been reviewed and approved by the
Fund's Board of Directors.
The primary consideration in selecting such Senior Debt for investment by
the Fund is the creditworthiness of the company. In evaluating Senior Debt, the
quality ratings assigned to other debt obligations of a company may not be a
determining factor, since they will often be subordinated to the Senior Debt.
Instead, the Investment Adviser will perform its own independent credit analysis
of the company. The Investment Adviser's analysis will continue on an ongoing
basis for any Senior Debt in which the Fund has invested. Although the
Investment Adviser will use due care in making such analysis, there can be no
assurance that such analysis will disclose factors which may impair the value of
the Senior Debt.
Senior Debt issued in connection with highly leveraged transactions is
subject to greater credit risks than other Senior Debt in which the Fund may
invest. These credit risks include a greater possibility of default or
bankruptcy of the company and the assertion that the pledging of collateral to
secure the Senior Debt constituted a fraudulent conveyance or preferential
transfer which can be nullified or subordinated to the rights of other creditors
of the company under applicable law. Highly leveraged Senior Debt also may be
less liquid than other debt instruments.
A company also must comply with various restrictive covenants contained in
any Senior Debt instrument. Such covenants, in addition to requiring the
scheduled payment of interest and principal, may include restrictions on
dividend payments and other distributions to stockholders, provisions requiring
the company to maintain specific financial ratios or relationships and limits on
total debt. In addition, the Senior Debt instrument may contain a covenant
requiring the company to prepay the Senior Debt with any excess cash flow.
Excess cash flow generally includes net cash flow after scheduled debt service
payments and permitted capital expenditures, among other things, as well as the
proceeds from asset dispositions or sales of securities. A breach of a covenant
(after giving effect to any cure period) which is not waived by the holders of
the Senior Debt normally is an event of default permitting acceleration of the
maturity of the Senior Debt.
14
<PAGE> 17
It is expected that a majority of the Senior Debt instruments will have
stated maturities ranging from four to ten years. However, such Senior Debt
instruments may require, in addition to scheduled payments of interest and
principal, the prepayment of the Senior Debt from excess cash flow, as discussed
above, and may permit the company to prepay at its election. The degree to which
companies prepay Senior Debt, whether as a contractual requirement or at their
election, may be affected by general business conditions, the financial
condition of the company and competitive conditions among lenders, among other
factors. Accordingly, prepayments cannot be predicted with accuracy. Upon a
prepayment of a corporate loan, the Fund may receive both a prepayment penalty
fee from the prepaying company and a facility fee on the purchase of new Senior
Debt with the proceeds from the prepayment of the former. Such fees may mitigate
any adverse impact on the yield on the Fund's portfolio which may arise as a
result of prepayments and the reinvestment of such proceeds in Senior Debt
bearing lower interest rates.
The Fund may invest in Senior Debt issued by non-U.S. companies, provided
that the debt instruments are U.S. dollar-denominated or otherwise provide for
payment in U.S. dollars, and the company meets the credit standards established
by the Investment Adviser for U.S. companies. The Fund similarly may invest in
U.S. companies with significant non-dollar denominated revenues, provided that
the debt instruments are U.S. dollar-denominated or otherwise provide for
payment to the Fund in U.S. dollars. In all cases where debt instruments are not
denominated in U.S. dollars, the Senior Debt facility will provide for payments
to the investors, including the Fund, in U.S. dollars pursuant to foreign
currency swap arrangements. Investments in such non-U.S. companies or U.S.
companies may involve risks not typically involved in domestic investment,
including fluctuation in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or U.S. governmental laws or restrictions applicable to such loans. With
respect to certain foreign countries, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments which could affect the Fund's investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment position. In addition, information with respect to non-U.S. companies
may differ from that available with respect to U.S. companies, since foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies. Interest income from foreign securities may be
subject to withholding taxes imposed by the country in which the company is
located, and the Fund generally will not be able to pass through to its
shareholders foreign tax credits or deductions with respect to these taxes.
Senior Debt issued by non-U.S. companies or by U.S. companies with
significant non-U.S. dollar-denominated revenues may provide for conversion of
all or part of the debt from a U.S. dollar-denominated obligation into a foreign
currency obligation at the option of the companies. The Fund may invest in
Senior Debt which has been converted into non-U.S. dollar-denominated
obligations only when the Senior Debt facility provides for payments in U.S.
dollars pursuant to foreign currency swap arrangements. Foreign currency swaps
involve the exchange by the investors, including the Fund, with another party
(the "counterparty") of the right to receive the currency in which the debt is
denominated for the right to receive U.S. dollars. The Fund will enter into a
transaction subject to a foreign currency swap only if, at the time of entering
into such swap, the outstanding debt obligations of the counterparty are
investment grade; i.e., rated BBB or A-3 or higher by S&P or Baa or P-3 or
higher by Moody's, or determined to be of comparable quality in the judgment of
the Investment Adviser. The amounts of U.S. dollar payments to be received by
the investors and the foreign currency payments to be received by the
counterparty are fixed at the time the swap arrangement is entered into.
Accordingly, the swap protects the Fund from fluctuations in exchange rates and
locks in the right to receive payments under the debt in a predetermined amount
of U.S. dollars. If there is a
15
<PAGE> 18
default by the counterparty, the Fund will have contractual remedies pursuant to
the swap arrangements; however, the U.S. dollar value of the Fund's right to
foreign currency payments under the debt will be subject to fluctuations in the
applicable exchange rate to the extent that a replacement swap arrangement is
unavailable or the Fund is unable to recover damages from the defaulting
counterparty. If the company defaults on or prepays the Senior Debt, the Fund
may be required pursuant to the swap arrangements to compensate the counterparty
to the extent of fluctuations in exchange rates adverse to the counterparty. In
the event of such a default or prepayment, an amount of cash or high grade
liquid debt securities having an aggregate net asset value at least equal to the
amount of compensation that must be paid to the counterparty pursuant to the
swap arrangements will be maintained in a segregated account by the Fund's
custodian.
DESCRIPTION OF SENIOR DEBT CONSISTING OF CORPORATE LOANS
The Fund will invest in Senior Debt consisting of corporate loans
("Corporate Loans") made by banks and other financial institutions to
corporations, partnerships or trusts (each a "Borrower"). As described in the
third paragraph under "Description of Senior Debt" above, the Corporate Loans
may be secured or unsecured. The Fund may receive and/or pay certain fees in
connection with its lending activities. These fees are in addition to interest
payments received and may include facility fees, commitment fees, commissions
and prepayment penalty fees. When the Fund buys a loan it may receive a facility
fee. In certain circumstances, the Fund may receive a prepayment penalty fee on
the prepayment of a loan by a Borrower. In connection with the acquisition of
loans, the Fund may also acquire warrants and other equity securities of the
Borrower or its affiliates. The acquisition of such equity securities will only
be incidental to the Fund's purchase of an interest in Senior Debt.
A Corporate Loan in which the Fund may invest typically is originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting of
commercial banks, thrift institutions, insurance companies, finance companies or
other financial institutions one or more of which administers the Loan on behalf
of the syndicate (the "Agent Bank"). Co-Lenders may sell Corporate Loans to
third parties called "Participants." The Fund may invest in a Corporate Loan
either by participating as a Co-Lender at the time the loan is originated or by
purchasing an interest in the Corporate Loan from a Co-Lender or a Participant.
Co-Lenders and Participants interposed between the Fund and a Borrower, together
with Agent Banks, are referred to herein as "Intermediate Participants."
The Fund may purchase a Corporate Loan from an Intermediate Participant by
means of a novation, an assignment or a participation. In a novation, the Fund
would accept all of the rights of the Intermediate Participants in a Corporate
Loan, including the right to receive payments of principal and interest and
other amounts directly from the Borrower and to enforce its rights as a lender
directly against the Borrower and would assume all of the obligations of the
Intermediate Participants, including any obligations to make future advances to
the Borrower. As a result, therefore, the Fund would have the status of a
Co-Lender. As an alternative, the Fund may purchase an assignment of all or a
portion of an Intermediate Participant's interest in a Corporate Loan, in which
case the Fund may be required generally to rely on the assigning lender to
demand payment and enforce its rights against the Borrower but would otherwise
be entitled to all of such lender's rights in the Corporate Loan. The Fund also
may purchase a participation in a portion of the rights of an Intermediate
Participant in a Corporate Loan by means of a participation agreement with such
Intermediate Participant. A participation in the rights of an Intermediate
Participant is similar to an assignment in that the Intermediate Participant
transfers to the Fund all or a portion of an interest in a Corporate Loan.
Unlike an assignment, however, a participation does not establish any direct
relationship
16
<PAGE> 19
between the Fund and the Borrower. In such case, the Fund would be required to
rely on the Intermediate Participant that sold the participation not only for
the enforcement of the Fund's rights against the Borrower but also for the
receipt and processing of payments due to the Fund under the Corporate Loans.
The Fund will not act as an Agent Bank, guarantor, sole negotiator or sole
structuror with respect to a Corporate Loan.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event the Borrower fails
to pay principal and interest when due, the Fund may be subject to delays,
expenses and risks that are greater than those that would be involved if the
Fund could enforce its rights directly against the Borrower. Moreover, under the
terms of a participation, the Fund may be regarded as a creditor of the
Intermediate Participant (rather than of the Borrower), so that the Fund may
also be subject to the risk that the Intermediate Participant may become
insolvent. Similar risks may arise with respect to the Agent Bank, as described
below. Further, in the event of the bankruptcy or insolvency of the Borrower,
the obligation of the Borrower to repay the Corporate Loan may be subject to
certain defenses that can be asserted by such Borrower as a result of improper
conduct by the Agent Bank or Intermediate Participant. The Fund will invest in
Corporate Loans only if, at the time of investment, the outstanding debt
obligations of the Agent Bank and any Intermediate Participant which remains
interposed between the Fund and a Borrower are investment grade, i.e., rated BBB
or A-3 or higher by S&P or Baa or P-3 or higher by Moody's, or determined to be
of comparable quality in the judgment of the Investment Adviser.
Because the Fund will regard the issuer of a Corporate Loan as including
the Borrower under a Corporate Loan Agreement, the Agent Bank and any
Intermediate Participant, the Fund may be deemed to be concentrated in
securities of issuers in the industry group consisting of financial institutions
and their holding companies, including commercial banks, thrift institutions,
insurance companies and finance companies. As a result, the Fund is subject to
certain risks associated with such institutions. Banking and thrift institutions
are subject to extensive governmental regulations which may limit both the
amounts and types of loans and other financial commitments which such
institutions may make and the interest rates and fees which such institutions
may charge. The profitability of these institutions is largely dependent on the
availability and cost of capital funds, and has shown significant recent
fluctuation as a result of volatile interest rate levels. In addition, general
economic conditions are important to the operations of these institutions, with
exposure to credit losses resulting from possible financial difficulties of
borrowers potentially having an adverse effect. Insurance companies are also
affected by economic and financial conditions and are subject to extensive
government regulation, including rate regulation. The property and casualty
industry is cyclical, being subject to dramatic swings in profitability which
can be affected by natural catastrophes and other disasters. Individual
companies may be exposed to material risks, including reserve inadequacy, latent
health exposure and inability to collect from their reinsurance carriers. The
financial services area is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. In
this regard, recent business combinations have included insurance, finance and
securities brokerage under single ownership. Moreover, the Federal laws
generally separating commercial and investment banking are currently being
studied by Congress.
In a typical Corporate Loan, the Agent Bank administers the terms of the
Corporate Loan Agreement and is responsible for the collection of principal and
interest and fee payments from the Borrower and the apportionment of these
payments to the credit of all lenders which are parties to the Corporate Loan
Agreement. The Fund generally will rely on the Agent Bank or an Intermediate
Participant to collect its portion of the payments on the Corporate Loan.
Furthermore, the Fund will rely on the Agent Bank to use appropriate creditor
remedies against the Borrower. Typically, under Corporate Loan Agreements, the
Agent Bank is given broad discretion in enforcing the Corporate Loan Agreement,
and is obligated to use only the
17
<PAGE> 20
same care it would use in the management of its own property. The Borrower
compensates the Agent Bank for these services. Such compensation may include
special fees paid on structuring and funding the Corporate Loan and other fees
paid on a continuing basis.
In the event that an Agent Bank becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, assets held
by the Agent Bank under the Corporate Loan Agreement should remain available to
holders of Corporate Loans. If, however, assets held by the Agent Bank for the
benefit of the Fund were determined by an appropriate regulatory authority or
court to be subject to the claims of the Agent Bank's general or secured
creditors, the Fund might incur certain costs and delays in realizing payment on
a Corporate Loan or suffer a loss of principal and/or interest. In situations
involving Intermediate Participants similar risks may arise, as described above.
Intermediate Participants may have certain obligations pursuant to a
Corporate Loan Agreement, which may include the obligation to make future
advances to the Borrower in connection with revolving credit facilities in
certain circumstances. The Fund currently intends to reserve against such
contingent obligations by segregating sufficient investments in high quality,
short-term, liquid instruments. The Fund will not invest in Corporate Loans that
would require the Fund to make any additional investments in connection with
such future advances if such commitments would exceed 20% of the Fund's total
assets or would cause the Fund to fail to meet the diversification requirements
described under "Investment Objective and Policies."
ILLIQUID SECURITIES
Corporate Loans are, at present, not readily marketable and may be subject
to restrictions on resale. Although Corporate Loans are transferred among
certain financial institutions, as described above, the Corporate Loans in which
the Fund invests do not have the liquidity of conventional debt securities
traded in the secondary market and may be considered illiquid. As the market for
Corporate Loans becomes more seasoned, the Investment Adviser expects that
liquidity will improve. The Fund has no limitation on the amount of its
investments which are not readily marketable or are subject to restrictions on
resale. See "Net Asset Value" for information with respect to valuation of
illiquid Corporate Loans.
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
LEVERAGE
At times, the Fund expects to utilize leverage through borrowings or
issuance of short-term debt securities or shares of preferred stock. Under
current market conditions, the Fund intends to utilize leverage in an amount
between approximately 25% and 33 1/3% of its total assets (including the amount
obtained from leverage). The Fund will generally not utilize leverage if it
anticipates that the Fund's leveraged capital structure would result in a lower
rate of return to holders of the Common Stock than that obtainable if the Common
Stock were unleveraged for any significant amount of time. The Fund may also
borrow money as a temporary measure for extraordinary or emergency purposes,
including the payment of dividends and the settlement of securities transactions
which may otherwise require untimely dispositions of Fund securities.
The concept of leveraging is based on the premise that the cost of the
assets to be obtained from leverage will be based on short-term rates which
normally will be lower than the return earned by the Fund on its
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longer term portfolio investments. Since the total assets of the Fund (including
the assets obtained from leverage) will be invested in the higher yielding
portfolio investments, the common shareholders will be the beneficiaries of the
incremental yield. Should the differential between the underlying interest rates
narrow, the incremental yield "pick up" will be reduced. Furthermore, if
long-term rates rise, the Common Stock net asset value will reflect the full
decline in the entire portfolio holdings resulting therefrom, since the assets
obtained from leverage do not fluctuate.
Leverage creates risks for common shareholders, including the likelihood of
greater volatility of net asset value and market price of shares of the Common
Stock and the risk that fluctuations in interest rates on borrowings or in the
dividend rates on any preferred stock may affect the yield to common
shareholders. To the extent the income derived from securities purchased with
funds received from leverage exceeds the cost of leverage, the Fund's net income
will be greater than if leverage had not been used. Conversely, if the income
from the securities purchased with such funds is not sufficient to cover the
cost of leverage, the net income of the Fund will be less than if leverage had
not been used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. In the latter case, the Fund may
nevertheless determine to maintain its leveraged position in order to avoid
capital losses on securities purchased with the leverage.
Capital raised through leverage will be subject to interest costs or
dividend payments which may or may not exceed the interest on the assets
purchased. The Fund also may be required to maintain minimum average balances in
connection with borrowings or to pay a commitment or other fee to maintain a
line of credit; either of these requirements will increase the cost of borrowing
over the stated interest rate. The issuance of additional classes of preferred
stock involves offering expenses and other costs and may limit the Fund's
freedom to pay dividends on shares of Common Stock or to engage in other
activities. Borrowings and the issuance of a class of preferred stock having
priority over the Fund's Common Stock create an opportunity for greater income
per share of Common Stock, but at the same time such borrowing or issuance is a
speculative technique in that it will increase the Fund's exposure to capital
risk. Such risks may be reduced through the use of borrowings and preferred
stock that have floating rates of interest. Unless the income and appreciation,
if any, on assets acquired with borrowed funds or offering proceeds exceeds the
cost of borrowing or issuing additional classes of securities, the use of
leverage will diminish the investment performance of the Fund compared with what
it would have been without leverage.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Fund may be subject to certain restrictions on
investments imposed by guidelines of one or more nationally recognized rating
agencies which may issue ratings for the short-term corporate debt securities or
preferred stock. These guidelines may impose asset coverage or portfolio
composition requirements that are more stringent than those imposed by the
Investment Company Act. It is not anticipated that these covenants or guidelines
will impede the Investment Adviser from managing the Fund's portfolio in
accordance with the Fund's investment objective and policies.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of 300% of the aggregate outstanding principal balance of indebtedness
(i.e., such indebtedness may not exceed 33 1/3% of the Fund's total assets).
Additionally, under the Investment Company Act the Fund may not declare any
dividend or other distribution upon any class of its capital stock, or purchase
any such capital stock, unless the aggregate indebtedness of the Fund has, at
the time of the declaration of any such dividend or distribution or at the time
of any such purchase, an asset coverage of at least 300% after deducting the
amount of such dividend, distribution, or purchase price, as the case may be.
Under the Investment Company Act, the Fund is not permitted to issue shares of
preferred stock unless immediately after such issuance the net asset value of
the Fund's portfolio is at least 200% of the
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liquidation value of the outstanding preferred stock (i.e., such liquidation
value may not exceed 50% of the Fund's total assets). In addition, the Fund is
not permitted to declare any cash dividend or other distribution on its Common
Stock unless, at the time of such declaration, the net asset value of the Fund's
portfolio (determined after deducting the amount of such dividend or
distribution) is at least 200% of such liquidation value. In the event preferred
shares are issued, the Fund intends, to the extent possible, to purchase or
redeem shares of preferred stock from time to time to maintain coverage of any
preferred stock of at least 200%.
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount it will borrow, will depend on many factors,
the most important of which are investment outlook, market conditions and
interest rates. Successful use of a leveraging strategy depends on the
Investment Adviser's ability to predict correctly interest rates and market
movements, and there is no assurance that a leveraging strategy will be
successful during any period in which it is employed.
INTEREST RATE TRANSACTIONS
In order to hedge the value of the Fund's portfolio against interest rate
fluctuations or to enhance the Fund's income, the Fund may enter into various
interest rate transactions, such as interest rate swaps and the purchase or sale
of interest rate caps and floors. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions primarily as a hedge and not as a speculative investment.
However, the Fund may also invest in interest rate swaps to enhance income or to
increase the Fund's yield, for example, during periods of steep interest rate
yield curves (i.e., wide differences between short term and long term interest
rates).
In an interest rate swap, the Fund exchanges with another party their
respective commitments to pay or receive interest, e.g., an exchange of fixed
rate payments for floating rate payments. For example, if the Fund holds Senior
Debt with an interest rate that is reset only once each year, it may swap the
right to receive interest at this fixed rate for the right to receive interest
at a rate that is reset every week. This would enable the Fund to offset a
decline in the value of the Senior Debt due to rising interest rates but would
also limit its ability to benefit from falling interest rates. Conversely, if
the Fund holds Senior Debt with an interest rate that is reset every week and it
would like to lock in what it believes to be a high interest rate for one year,
it may swap the right to receive interest at this variable weekly rate for the
right to receive interest at a rate that is fixed for one year. Such a swap
would protect the Fund from a reduction in yield due to falling interest rates
and may permit the Fund to enhance its income through the positive differential
between one week and one year interest rates, but would preclude it from taking
full advantage of rising interest rates.
The Fund usually will enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. The net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and an amount of cash
or high grade liquid debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
the Fund's custodian. If the interest rate swap transaction is entered into on
other than a net basis, the full amount of the Fund's obligations will be
accrued on a daily basis, and the full amount of the Fund's obligations will be
maintained in a segregated account by the Fund's custodian.
The Fund may also engage in interest rate transactions in the form of
purchasing or selling interest rate caps or floors. The Fund will not sell
interest rate caps or floors that it does not own. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest
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rate, to receive payments of interest equal to the difference of the index and
the predetermined rate on a notional principal amount (the reference amount with
respect to which interest obligations are determined although no actual exchange
of principal occurs) from the party selling such interest rate cap. The purchase
of an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
at the difference of the index and the predetermined rate on a notional
principal amount from the party selling such interest rate floor. The Fund will
not enter into caps or floors if, on a net basis, the aggregate notional
principal amount with respect to such agreements exceeds the net assets of the
Fund.
Typically, the parties with which the Fund will enter into interest rate
transactions will be broker-dealers and other financial institutions. The Fund
will not enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated investment grade quality by at least one nationally recognized statistical
rating organization at the time of entering into such transaction or whose
creditworthiness is believed by the Investment Adviser to be equivalent to such
rating. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with other similar instruments
traded in the interbank market. Caps and floors, however, are more recent
innovations and are less liquid than swaps. Certain Federal income tax
requirements may limit the Fund's ability to engage in certain interest rate
transactions. Gains from transactions in interest rate swaps distributed to
shareholders will be taxable as ordinary income or, in certain circumstances, as
long-term capital gains to shareholders. See "Taxes."
OPTIONS ON PORTFOLIO SECURITIES
Call Options on Portfolio Securities. The Fund may purchase call options
on any of the types of securities in which it may invest. A purchased call
option gives the Fund the right to buy, and obligates the seller to sell, the
underlying security at the exercise price at any time during the option period.
The Fund also is authorized to write (i.e., sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where the Fund, in return for a premium, gives another party a right
to buy specified securities owned by the Fund at a specified future date and
price set at the time of the contract. The principal reason for writing call
options is attempt to realize, through the receipt of premiums, a greater return
than would be realized on the securities alone. By writing covered call options,
the Fund gives up the opportunity, while the option is in effect, to profit from
any price increase in the underlying security above the option exercise price.
In addition, the Fund's ability to sell the underlying security will be limited
while the option is in effect unless the Fund effects a closing purchase
transaction. A closing purchase transaction cancels out the Fund's position as
the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written. Covered call
options also serve as a partial hedge against the price of the underlying
security declining. The Fund may also purchase and sell call options on indices.
Index options are similar to options on securities except that, rather than
taking or making delivery of securities underlying the option at a specified
price upon exercise, an index option gives the holder the right to receive cash
upon exercise of the option if the level of the index upon which the option is
based is greater than the exercise price of the option.
Put Options on Portfolio Securities. The Fund is authorized to purchase
put options to hedge against a decline in the value of its securities. By buying
a put option, the Fund has a right to sell the underlying security
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at the exercise price, thus limiting the Fund's risk of loss through a decline
in the market value of the security until the put option expires. The amount of
any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. The
Fund also has authority to write (i.e., sell) put options on the types of
securities which may be held by the Fund, provided that such put options are
covered, meaning that such options are secured by segregated, high grade liquid
debt securities. In certain circumstances, the Fund may purchase call options on
securities held in its portfolio on which it has written call options or which
it intends to purchase. The Fund will receive a premium for writing a put
option, which increases the Fund's return. The Fund will not sell puts if, as a
result, more than 50% of the Fund's assets would be required to cover its
potential obligations under its hedging and other investment transactions. The
Fund may purchase and sell put options on indices. Index options are similar to
options on securities except that, rather than taking or making delivery of
securities underlying the option at a specified price upon exercise, an index
option gives the holder the right to receive cash upon exercise of the option if
the level of the index upon which the option is based is less than the exercise
price of the option.
FINANCIAL FUTURES AND OPTIONS THEREON
The Fund is authorized to engage in transactions in financial futures
contracts ("futures contracts") and related options on such futures contracts
either as a hedge against adverse changes in the market value of its portfolio
securities and interest rates or to enhance the Fund's income. A futures
contract is an agreement between two parties which obligates the purchaser of
the futures contract to buy and the seller of a futures contract to sell a
security for a set price on a future date or, in the case of an index futures
contract to make and accept a cash settlement based upon the difference in value
of the index between the time the contract was entered into and the time of its
settlement. A majority of transactions in futures contracts, however, do not
result in the actual delivery of the underlying instrument or cash settlement,
but are settled through liquidation, i.e., by entering into an offsetting
transaction. Futures contracts have been designed by boards of trade which have
been designated "contract markets" by the Commodities Futures Trading Commission
("CFTC"). Transactions by the Fund in futures contracts and financial futures
are subject to limitations as described below under "Restrictions on the Use of
Futures Transactions."
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of securities which may be held by the Fund will fall,
thus reducing the net asset value of the Fund. However, as interest rates rise,
the value of the Fund's short position in the futures contract will also tend to
increase, thus offsetting all or a portion of the depreciation in the market
value of the Fund's investments which are being hedged. While the Fund will
incur commission expenses in selling and closing out futures positions, these
commissions are generally less than the transaction expenses which the Fund
would have incurred had the Fund sold portfolio securities in order to reduce
its exposure to increases in interest rates. The Fund also may purchase
financial futures contracts in anticipation of a decline in interest rates when
it is not fully invested in a particular market in which it intends to make
investments to gain market exposure that may in part or entirely offset an
increase in the cost of securities it intends to purchase. It is anticipated
that, in a substantial majority of these transactions, the Fund will purchase
securities upon termination of the futures contract.
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<PAGE> 25
The Fund also has authority to purchase and write call and put options on
futures contracts. Generally, these strategies are utilized under the same
market and market sector conditions (i.e., conditions relating to specific types
of investments) in which the Fund enters into futures transactions. The Fund may
purchase put options or write call options on futures contracts rather than
selling the underlying futures contract in anticipation of a decrease in the
market value of securities or an increase in interest rates. Similarly, the Fund
may purchase call options, or write put options on futures contracts, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value or a decline in interest rates of
securities which the Fund intends to purchase.
The Fund may engage in options and futures transactions on exchanges and
options in the over-the-counter markets ("OTC options"). In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligation is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller. See
"Restrictions on OTC Options" below for information as to restrictions on the
use of OTC options.
Restrictions on the Use of Futures Transactions. Under regulations of the
CFTC, the futures trading activity described herein will not result in the Fund
being deemed a "commodity pool," as defined under such regulations, provided
that the Fund adheres to certain restrictions. In particular, the Fund may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts and options. Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of variation margin held in the account of its
broker, equals the market value of the futures contract, thereby ensuring that
the use of such futures is unleveraged.
An order has been obtained from the Commission which exempts the Fund from
certain provisions of the Investment Company Act in connection with transactions
involving futures contracts and options thereon.
Restrictions on OTC Options. The Fund will engage in OTC options only with
member banks of the Federal Reserve System and primary dealers in U.S.
government securities or with affiliates of such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million.
RISK FACTORS IN INTEREST RATE TRANSACTIONS AND OPTIONS AND FUTURES TRANSACTIONS
The use of interest rate transactions is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Interest rate transactions
involve the risk of an imperfect correlation between the index used in the
hedging transaction and that pertaining to the securities which are the subject
of such transaction. If the Investment Adviser is incorrect in its forecasts of
market values, interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what it would have been if
these investment techniques were not used. In addition, interest rate
transactions that may be entered into by the Fund do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Fund is contractually
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obligated to make. If the security underlying an interest rate swap is prepaid
and the Fund continues to be obligated to make payments to the other party to
the swap, the Fund would have to make such payments from another source. If the
other party to an interest rate swap defaults, the Fund's risk of loss consists
of the net amount of interest payments that the Fund contractually is entitled
to receive. In the case of a purchase by the Fund of an interest rate cap or
floor, the amount of loss is limited to the fee paid. Since interest rate
transactions are individually negotiated, the Investment Adviser expects to
achieve an acceptable degree of correlation between the Fund's rights to receive
interest on securities and its rights and obligations to receive and pay
interest pursuant to interest rate swaps.
Utilization of options and futures transactions to hedge the portfolio
involves the risk of imperfect correlation in movements in the price of options
and futures and movements in the prices of the securities which are the subject
of the hedge. If the price of the options or futures moves more or less than the
price of the subject of the hedge, the Fund will experience a gain or loss which
will not be completely offset by movements in the price of the subject of the
hedge. This risk particularly applies to the Fund's use of futures and options
thereon since it will generally use such instruments as a so-called
"cross-hedge," which means that the security that is the subject of the futures
contract is different from the security being hedged by the contract.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures. However, there can be no assurance
that a liquid secondary market will exist at any specific time. Thus, it may not
be possible to close an options or futures position. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a broker
with whom the Fund has an open position in an option, a futures contract or an
option related to a futures contract.
OTHER INVESTMENT STRATEGIES
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements and purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with a member bank of the Federal Reserve System or primary dealer in U.S.
government securities. Under such agreements, the bank or primary dealer agrees,
upon entering into the contract, to repurchase the security at a mutually agreed
upon time and price, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period. In the case of repurchase agreements, the
prices at which the trades are conducted do not reflect accrued interest on the
underlying obligations; whereas, in the case of purchase and sale contracts, the
prices take into account accrued interest. Such agreements usually cover short
periods, such as under one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, the Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement; the Fund does not have the right to seek additional
collateral in the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral. A
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purchase and sale contract differs from a repurchase agreement in that the
contract arrangements stipulate that the securities are owned by the Fund. In
the event of a default under such a repurchase agreement or a purchase and sale
contract, instead of the contractual fixed rate of return, the rate of return to
the Fund shall be dependent upon intervening fluctuations of the market value of
such security and the accrued interest on the security. In such event, the Fund
would have rights against the seller for breach of contract with respect to any
losses arising from market fluctuations following the failure of the seller to
perform.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loan premium to
be received by the Fund for lending its portfolio securities. ln either event,
the total yield on the Fund's portfolio is increased by loans of its portfolio
securities. The Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions. Such loans are
terminable at any time. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans.
When-Issued and Forward Commitment Securities. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or loss. At
the time the Fund enters into a transaction on a when-issued or forward
commitment basis, it will segregate with the custodian cash or other liquid high
grade debt securities with a value not less than the value of the when-issued or
forward commitment securities. The value of these assets will be monitored daily
to ensure that their marked to market value will at all times exceed the
corresponding obligations of the Fund. There is always a risk that the
securities may not be delivered, and the Fund may incur a loss. Settlements in
the ordinary course, which may take substantially more than five business days
for mortgage-related securities, are not treated by the Fund as when-issued or
forward commitment transactions and accordingly are not subject to the foregoing
restrictions.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and,
prior to issuance of any preferred stock, may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares of Common
Stock (which for this purpose and under the Investment Company Act means the
lesser of (i) 67% of the shares of Common Stock represented at a meeting at
which more than 50% of the outstanding shares of Common Stock are represented or
(ii) more than 50% of the outstanding shares). Subsequent to the issuance of a
class of preferred stock, the following investment restrictions may not be
changed without the approval of a majority of the outstanding shares of Common
Stock and of the preferred stock, voting together
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as a class, and the approval of a majority of the outstanding shares of
preferred stock, voting separately by class. The Fund may not:
1. Issue senior securities (including borrowing money) in excess of the
limits set forth in the Investment Company Act; or pledge its assets other than
to secure such issuances or in connection with hedging transactions, when-issued
and forward commitment transactions and similar investment strategies. The
Fund's obligations under interest rate swaps are not treated as senior
securities.
2. Make investments for the purpose of exercising control or management.
3. Purchase securities of other investment companies, except to the extent
that such purchases are permitted by applicable law.
4. Purchase or sell real estate, commodities or commodity contracts;
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by companies that invest in real estate or interests
therein, and the Fund may purchase and sell financial futures contracts and
options thereon.
5. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
6. Make loans to other persons, except (i) to the extent that the Fund may
be deemed to be making loans by purchasing Corporate Loans, as a Co-Lender or
otherwise, and other debt securities and entering into repurchase agreements in
accordance with its investment objective, policies and limitations and (ii) the
Fund may lend its portfolio securities in an amount not in excess of 33 1/3% of
its total assets, taken at market value, provided that such loans shall be made
in accordance with the guidelines set forth in this Prospectus.
7. Invest more than 25% of its total assets in the securities of issuers in
any one industry; provided that this limitation shall not apply with respect to
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities; and provided further that this limitation shall apply to the
financial institutions industry group as described below. The Fund may not
invest more than 25% of its total assets in securities of issuers in which the
Borrower, in the case of a Corporate Loan, or the issuer, in the case of other
Senior Debt, is in the industry group consisting of financial institutions and
their holding companies, including commercial banks, thrift institutions,
insurance companies and finance companies. The Fund may invest more than 25% and
may invest up to 100% of its assets in securities of issuers in such financial
institutions industry group when, with respect to Corporate Loans, the term
"issuer" is deemed to include not only the Borrower but also the Agent Bank and
any Intermediate Participant. The capitalized terms used herein, are as defined
under "Investment Objective and Policies -- Description of Senior Debt
Consisting of Corporate Loans".
8. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
9. Make short sales of securities or maintain a short position or invest in
put, call, straddle or spread options, except as described under "Investment
Objective and Policies" herein.
An additional investment restriction adopted by the Fund, which may be
changed by the Board of Directors, provides that the Fund may not mortgage,
pledge, hypothecate or in any manner transfer, as security for indebtedness, any
securities owned or held by the Fund except as may be necessary in connection
with hedging techniques involving interest rate transactions, foreign currency
swap transactions relating to non-U.S. dollar-denominated loans and permitted
borrowings by the Fund.
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If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
Because of the affiliation of Merrill Lynch with the Fund, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch except
pursuant to an exemptive order or otherwise in compliance with the provisions of
the Investment Company Act and the rules and regulations thereunder. Included
among such restricted transactions will be purchases from or sales to Merrill
Lynch of securities in transactions in which it acts as principal. See
"Portfolio Transactions."
The Fund has established procedures for blocking the use of inside
information in securities transactions (commonly referred to as "Chinese Wall
procedures"). As a result, the Fund's purchase of a security in a private
placement may deprive the Fund of investment in certain publicly traded
securities of the same issuer and the Fund's purchase of a publicly traded
security may deprive the Fund of the opportunity to purchase certain privately
placed securities of the same issuer. Also, in relation to other funds managed
by the same portfolio manager as the Fund (currently, Merrill Lynch Prime Fund,
Inc., Merrill Lynch Prime Rate Portfolio, Senior High Income Portfolio, Inc. and
Senior High Income Portfolio II, Inc.), if one fund buys a security that is
publicly traded or privately placed, respectively, the other fund may be
deprived of the opportunity to buy a security of the same issuer that is
privately placed or publicly traded, respectively.
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each Director and executive officer is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
ARTHUR ZEIKEL -- President and Director(1)(2) -- President and Chief
Investment Officer of the Investment Adviser since 1977; President of MLAM since
1977 and Chief Investment Officer thereof since 1976; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; an Executive Vice
President of ML & Co. since 1990 and an Executive Vice President of Merrill
Lynch since 1990 and a Senior Vice President from 1985 to 1990; Director of
Merrill Lynch Funds Distributor, Inc. ("MLFD") since 1977.
RONALD W. FORBES -- Director(2) -- 1400 Washington Avenue, Albany, New York
12222. Professor of Finance, School of Business, State University of New York at
Albany since 1989 and Associate Professor prior thereto; Member, Task Force on
Municipal Securities Markets, Twentieth Century Fund.
CYNTHIA A. MONTGOMERY -- Director(2) -- Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163. Professor, Harvard Business School
since 1989; Associate Professor, J. L. Kellogg Graduate School of Management,
Northwestern University, 1985-1989; Assistant Professor, Graduate School of
Business Administration, the University of Michigan, 1979-1985; Director, UNUM
Corporation.
CHARLES C. REILLY -- Director(2) -- 9 Hampton Harbor Road, Hampton Bays,
N.Y. 11946. President and Chief Investment Officer of Verus Capital, Inc. from
1979 to 1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from
1973 to 1990; Adjunct Professor, Columbia University Graduate School of Business
since 1990; Adjunct Professor, Wharton School, University of Pennsylvania, 1990;
Director, Harvard Business School Alumni Association.
KEVIN A. RYAN -- Director(2) -- 127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Professor of Education at Boston University since 1982.
Founder and current Director of The Boston University Center for the Advancement
of Ethics and Character.
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RICHARD R. WEST -- Director(2) -- 482 Tepi Drive, Southbury, Connecticut
06488. Professor of Finance, and Dean from 1984 to 1993, New York University
Leonard N. Stern School of Business Administration; Professor of Finance from
1976 to 1984 and Dean from 1976 to 1983 at the Amos Tuck School of Business
Administration; Director of Bowne & Co., Inc. (printers), Vornado, Inc. (real
estate holding corporation), Smith Corona Corporation (manufacturer of
typewriters and word processors) and Alexander's Inc.
TERRY K. GLENN -- Executive Vice President(1)(2) -- Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of MLFD since
1986.
N. JOHN HEWITT -- Senior Vice President(1)(2) -- Senior Vice President of
the Investment Adviser and MLAM since 1980 and Vice President from 1979 to 1980;
Senior Vice President of Princeton Services since 1993.
R. DOUGLAS HENDERSON -- Vice President and Portfolio Manager(1)(2) -- Vice
President of MLAM since 1989; Vice President, Leveraged Finance Department,
Security Pacific Merchant Bank from 1987 to 1989; Vice President, Corporate
Finance and Banking Department, Security Pacific Merchant Bank from 1983 to
1987.
DONALD C. BURKE -- Vice President(1)(2) -- Vice President of MLAM since
1990; employee of Deloitte & Touche from 1982 to 1990.
GERALD M. RICHARD -- Treasurer(1)(2) -- Senior Vice President and Treasurer
of the Investment Adviser and MLAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer since 1984; employee of the Distributor since 1978.
PATRICK D. SWEENEY -- Secretary(1)(2) -- Vice President of MLAM since 1990;
Vice President and Associate Counsel of Security Pacific Merchant Bank from 1988
to 1990; Lawyer in private practice from 1981 to 1988.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of one or more
other investment companies for which the Investment Adviser or MLAM acts as
investment adviser.
The Fund pays each Director not affiliated with the Investment Adviser an
annual fee of $2,000 plus $400 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings. The
Fund also compensates members of its audit committee, which consists of all of
the Directors not affiliated with the Investment Adviser, an annual fee of
$1,000; the chairman of the audit committee receives an additional annual fee of
$1,000.
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
The Investment Adviser and its affiliate, MLAM, are owned and controlled by
ML & Co. The Investment Adviser will provide the Fund with investment advisory
and management services. The Investment Adviser, or MLAM, acts as the investment
adviser for over 90 other registered investment companies. The Investment
Adviser also offers portfolio management and portfolio analysis services to
individuals and institutions. As of December 31, 1993, the Investment Adviser
and MLAM had a total of approximately $160 billion in investment company and
other portfolio assets under management, including accounts of certain
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<PAGE> 31
affiliates of the Investment Adviser. The principal business address of the
Investment Adviser is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
The Investment Advisory Agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors.
The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources (including
brokerage firms with which the Fund does business), make the necessary
investment decisions, and place orders for transactions accordingly. The
Investment Adviser will also be responsible for the performance of certain
administrative and management services for the Fund.
For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund will pay a monthly fee at the annual rate of 0.50%
of the Fund's average weekly net assets plus the proceeds of any outstanding
borrowings used for leverage ("average weekly net assets" means the average
weekly value of the total assets of the Fund minus the sum of (i) accrued
liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding
borrowings and (iii) accumulated dividends on shares of preferred stock). For
purposes of this calculation, average weekly net assets is determined at the end
of each month on the basis of the average net assets of the Fund for each week
during the month. The assets for each weekly period are determined by averaging
the net assets at the last business day of a week with the net assets at the
last business day of the prior week.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Directors of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, stock
certificates and shareholder reports, listing fees, charges of the custodian and
the transfer, dividend disbursing agent and registrar, Commission fees, fees and
expenses of unaffiliated Directors, accounting and pricing costs, insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, mailing and other expenses properly payable by the Fund. Accounting
services are provided to the Fund by the Investment Adviser, and the Fund
reimburses the Investment Adviser, for its costs in connection with such
services.
Securities held by the Fund also may be held by or be appropriate
investments for other funds for which the Investment Adviser or MLAM acts as an
adviser or by investment advisory clients of MLAM. Because of different
investment objectives or other factors, a particular security may be bought for
one or more clients when one or more clients are selling the same security. If
purchases or sales of securities for the Fund or other funds for which the
Investment Adviser or MLAM acts as investment adviser or for their advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or MLAM during the same
period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
Unless earlier terminated as described below, the Investment Advisory
Agreement will remain in effect until February 28, 1996, and from year to year
thereafter if approved annually (a) by the Board of Directors of
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<PAGE> 32
the Fund or by a majority of the outstanding shares of the Fund and (b) by a
majority of the Directors who are not parties to such contract or interested
persons (as defined in the Investment Company Act) of any such party. Such
contract is not assignable and may be terminated without penalty on 60 days'
written notice at the option of either party thereto or by the vote of the
shareholders of the Fund.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking in account such factors as
price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved, the
firm's risk in positioning a block of securities and the provision of
supplemental investment research by the firm. While the Investment Adviser
generally seeks reasonably competitive fees, commissions or spreads, the Fund
does not necessarily pay the lowest fee, commission or spread available.
The Fund has no obligation to deal with any broker or dealer in execution
of transactions in portfolio securities. Subject to obtaining the best price and
execution, securities firms which provide supplemental investment research to
the Investment Adviser, including Merrill Lynch, may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Investment Adviser under
the Investment Advisory Agreement, and the expenses of the Investment Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information.
The Fund will purchase Corporate Loans in individually negotiated
transactions with commercial banks, thrifts, insurance companies, finance
companies and other financial institutions. In selecting such financial
institutions, the Investment Adviser may consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. See "Investment Objective and Policies --
Description of Corporate Loans." While such financial institutions generally are
not required to repurchase Corporate Loans which they have sold, they may act as
principal or on an agency basis in connection with the Fund's disposition of
Corporate Loans.
Other securities in which the Fund may invest, such as publicly traded
corporate bonds and notes, are traded primarily in the over-the-counter markets,
and the Fund intends to deal directly with the dealers who make markets in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the Investment Company Act, except as
permitted by exemptive order, persons affiliated with the Fund are prohibited
from dealing with the Fund as principal in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principal for their own account, the Fund will not deal
with affiliated persons, including Merrill Lynch and its affiliates, in
connection with such transactions. In addition, the Fund may not purchase
securities for the Fund during the existence of any underwriting syndicate of
which Merrill Lynch is a member except pursuant to procedures approved by the
Board of Directors of the Fund which comply with rules adopted by the Securities
and Exchange Commission. An affiliated person of the Fund may serve as its
broker in over-the-counter transactions conducted on an agency basis.
PORTFOLIO TURNOVER
Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such actions, for defensive or other
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<PAGE> 33
reasons, appear advisable to the Investment Adviser. While it is not possible to
predict turnover rates with any certainty, at present it is anticipated that the
Fund's annual portfolio turnover rate, under normal circumstances, will be less
than 100%. (The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the particular fiscal year. For purposes of determining this rate, all
securities whose maturities at the time of acquisition are one year or less are
excluded.)
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute dividends of all or a portion of its net
investment income monthly. The Fund may at times pay out less than the entire
amount of net investment income earned in any particular period and may at times
pay out such accumulated undistributed income in addition to net investment
income earned in other periods in order to permit the Fund to maintain a more
stable level of distributions. As a result, the distribution paid by the Fund
for any particular period may be more or less than the amount of net investment
income earned by the Fund during such period. For Federal income tax purposes,
the Fund will be required to distribute substantially all of its net investment
income for each calendar year. All net realized long-term and short-term capital
gains, if any, will be distributed to the Fund's shareholders at least annually.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of 300% of the aggregate outstanding principal balance of indebtedness.
Additionally, under the Investment Company Act, the Fund may not declare any
dividend or other distribution upon any class of its capital stock, or purchase
any such capital stock, unless the aggregate indebtedness of the Fund has, at
the time of the declaration of any such dividend or distribution or at the time
of any such purchase, an asset coverage of at least 300% after deducting the
amount of such dividend, distribution, or purchase price, as the case may be.
While any shares of preferred stock are outstanding, the Fund may not
declare any cash dividend or other distribution on its Common Stock, unless at
the time of such declaration, (1) all accumulated preferred stock dividends have
been paid and (2) the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
the liquidation value of the outstanding preferred stock (expected to be equal
to original purchase price per share plus any accumulated and unpaid dividends
thereon). In addition to the limitations imposed by the Investment Company Act
described in the previous two paragraphs, certain lenders may impose additional
restrictions on the payment of dividends or distributions on the Fund's Common
Stock in the event of a default on the Fund's borrowings. Any limitation on the
Fund's ability to make distributions on its Common Stock could under certain
circumstances impair the ability of the Fund to maintain its qualification for
taxation as a regulated investment company. See "Other Investment
Policies -- Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning the
matter in which dividends and distributions to holders of Common Stock may be
automatically reinvested in shares of Common Stock of the Fund. Dividends and
distributions will be taxable to shareholders whether they are reinvested in
shares of the Fund or received in cash.
The Fund expects that it will commence paying dividends within 90 days of
the date of this Prospectus.
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TAXES
GENERAL
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in
which it distributes at least 90% of its net income (see below), the Fund (but
not its shareholders) will not be subject to Federal income tax to the extent
that it distributes its net investment income and net realized capital gains.
The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions, if any, of net long-term capital gains from the sale of
securities or from certain transactions in futures, options and interest rate
swaps ("capital gain dividends") are taxable at long-term capital gains rates
for Federal income tax purposes, regardless of the length of time the
shareholder has owned Fund shares. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
Common Stock and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such Common Stock is held as a
capital asset). Any loss upon the sale or exchange of Fund shares held for six
months or less, however, will be treated as long-term capital loss to the extent
of any capital gain dividends received by the shareholder.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Distributions attributable to any dividend income
earned by the Fund will be eligible for the dividends received deduction allowed
to corporations under the Code, if certain requirements are met. Not later than
60 days after the close of its taxable year, the Fund will provide its
shareholders with a written notice designating the amounts of any dividends
eligible for the dividends received deduction (if any) or capital gain
dividends. If the Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of the
year in which the dividend was declared.
The Internal Revenue Service has taken the position in a revenue ruling
that if a RIC has two classes of shares, it may designate distributions made to
each class in any year as consisting of no more than such class's proportionate
share of particular types of income, including net long-term capital gains. A
class's proportionate share of a particular type of income is determined
according to the percentage of total dividends paid by the RIC during such year
that was paid to such class. Consequently, if both Common Stock and preferred
stock are outstanding, the Fund intends to designate distributions made to the
classes as consisting of particular types of income in accordance with the
classes' proportionate shares of such income. Thus, capital gain dividends will
be allocated between the holders of Common Stock and preferred stock in
proportion to the total dividends paid to each class during the taxable year, or
otherwise as required by applicable law.
If at any time when shares of preferred stock are outstanding the Fund does
not meet the asset coverage requirements of the Investment Company Act, the Fund
will be required to suspend distributions to holders of Common Stock until the
asset coverage is restored. See "Dividends and Distributions." This may prevent
the Fund from distributing at least 90% of its net income, and may therefore
jeopardize the Fund's qualification for taxation as a RIC or may subject the
Fund to the 4% Federal excise tax described below. Upon any failure to meet the
asset coverage requirement of the Investment Company Act, the Fund may, in its
sole discretion, redeem shares of preferred stock in order to maintain or
restore the requisite asset coverage and avoid the
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adverse consequences to the Fund and its shareholders of failing to qualify as a
RIC. There can be no assurance, however, that any such action would achieve
these objectives.
As noted above, the Fund must distribute annually at least 90% of its net
investment income. A distribution will only be counted for this purpose if it
qualifies for the dividends paid deduction under the Code. Some types of
preferred stock that the Fund has the authority to issue may raise an issue as
to whether distributions on such preferred stock are "preferential" under the
Code and therefore not eligible for the dividends paid deduction. In the event
the Fund determines to issue preferred stock, the Fund intends to issue
preferred stock that counsel advises will not result in the payment of a
preferential dividend and may seek a private letter ruling from the Internal
Revenue Service to that effect. If the Fund ultimately relies solely on a legal
opinion in the event it issues such preferred stock, there is no assurance that
the Internal Revenue Service would agree that dividends on the preferred stock
are not preferential. If the Internal Revenue Service successfully disallowed
the dividends paid deduction for dividends on the preferred stock, the Fund
could be disqualified as a RIC.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax. Interest income from non-U.S. securities may be
subject to withholding taxes imposed by the country in which the issuer is
located. Unless more than 50% of the Fund's assets (by value) consists of stock
or securities of foreign corporations, the Fund will not be able to pass through
to its shareholders foreign tax credits or deductions with respect to these
taxes.
Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on reportable dividends, capital gain dividends and redemption
payments ("backup withholding"). Generally, shareholders subject to backup
withholding will be those for whom a certified taxpayer identification number is
not on file with the Fund or who, to the Fund's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. The Fund anticipates that it will make sufficient
timely distributions of income so as to avoid imposition of the excise tax.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may engage in interest rate transactions, write (i.e., sell)
covered call and covered put options on its portfolio securities, purchase call
and put options on securities, and engage in transactions in financial futures
and related options on such futures. In general, unless an election is available
to the Fund or an exception applies, such options and futures contracts that are
"Section 1256 contracts" will be "marked to market" for Federal income tax
purposes at the end of each taxable year, i.e., each such options or futures
contract will be treated as sold for its fair market value on the last day of
the taxable year, and any gain or loss attributable to such contracts will be
60% long-term and 40% short-term capital gain or loss. Application of these
rules to Section 1256 contracts held by the Fund may alter the timing and
character of distributions to shareholders.
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The Federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat payments received under
such arrangements as ordinary income and to amortize such payments under certain
circumstances. The Fund does not anticipate that its activity in this regard
will affect its qualification as a RIC.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's options, futures and interest rate transactions. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options, futures and
interest rate swaps.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the Fund
may be restricted in effecting closing transactions within three months after
entering into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
Code Section 988 provides special rules for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions, and any distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a shareholder otherwise elects, all dividend and capital gains
distributions will be reinvested automatically by The Bank of New York, as agent
for shareholders in administering the Plan (the "Plan Agent"), in additional
shares of Common Stock of the Fund. Shareholders who elect not to participate in
the Plan will receive all dividends and distributions in cash paid by check
mailed directly to the shareholder of record (or, if the shares are held in
street or other nominee name, then to such nominee) by The Bank of New York, as
dividend paying agent. Such participants may elect not to participate in the
Plan and to receive all distributions of dividends and capital gains in cash by
sending written instructions to The Bank of New York, as dividend paying agent,
at the address set forth below. Participation in the Plan is completely
voluntary and may be terminated or resumed at any time without penalty by
written notice if received by the Plan Agent not less than ten days prior to any
dividend record date; otherwise such termination will be effective with respect
to any subsequently declared dividend or distribution.
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Whenever the Fund declares an income dividend or a capital gains
distribution (collectively referred to as "dividends") payable either in shares
or in cash, non-participants in the Plan will receive cash, and participants in
the Plan will receive the equivalent in shares of Common Stock. The shares will
be acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional unissued
but authorized shares of Common Stock from the Fund ("newly issued shares") or
(ii) by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued provided, that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases. Prior to the time the shares of Common
Stock commence trading on the New York Stock Exchange, participants in the Plan
will receive any dividends in newly issued shares.
In the event of a market discount on the dividend payment date, the Plan
Agent will have until the last business day before the next date on which the
shares trade on an "ex-dividend" basis or in no event more than 30 days after
the dividend payment date (the "last purchase date") to invest the dividend
amount in shares acquired in open-market purchases. It is contemplated that the
Fund will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares held pursuant
to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
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There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata share
of brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not available
to shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at less than they could otherwise
purchase them and will have shares with a cash value greater than the value of
any cash distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at 101 Barclay Street, New York, New York 10286.
MUTUAL FUND INVESTMENT OPTION
Purchasers of shares of the Fund in this offering will have an investment
option consisting of the right to reinvest the net proceeds from a sale of such
shares (the "Original Shares") in Class A initial sales charge shares of certain
Merrill Lynch-sponsored open-end mutual funds ("Eligible Class A Shares") at
their net asset value, without the imposition of the initial sales charge, if
the conditions set forth below are satisfied. First, the sale of the Original
Shares must be made through Merrill Lynch, and the net proceeds therefrom must
be immediately reinvested in Eligible Class A Shares. Second, the Original
Shares must have been either acquired in this offering or be shares representing
reinvested dividends from shares acquired in this offering. Third, the Original
Shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. Class A shares of certain of the mutual funds may be subject
to an account maintenance fee at an annual rate of up to 0.25% of the average
daily net asset value of such mutual fund. The Eligible Class A Shares may be
redeemed at any time at the next determined net asset value, subject in certain
cases to a redemption fee. Prior to the time the shares commence trading on the
New York Stock Exchange, the distributor for the mutual funds will advise
Merrill Lynch financial consultants as to those mutual funds which offer the
investment option described above.
NET ASSET VALUE
Net asset value per share is determined at 4:15 P.M., New York time, on the
last business day in each week. For purposes of determining the net asset value
of a share of Common Stock, the value of the securities held by the Fund plus
any cash or other assets (including interest accrued but not yet received) minus
all liabilities (including accrued expenses) and the aggregate liquidation value
of any outstanding shares of
36
<PAGE> 39
preferred stock is divided by the total number of shares of Common Stock
outstanding at such time. Expenses, including the fees payable to the Investment
Adviser, are accrued daily.
The Fund determines and makes available for publication the net asset value
of its shares weekly. Currently, the net asset values of shares of publicly
traded closed-end investment companies investing in debt securities are
published in Barron's, and the Monday editions of The Wall Street Journal and
The New York Times.
The Investment Adviser, subject to guidelines adopted and periodically
reviewed by the Fund's Board of Directors, values the Corporate Loans at fair
value, which approximates market value. In valuing a Corporate Loan, the
Investment Adviser considers, among other factors, (i) the creditworthiness of
the Borrower and any Intermediate Participants, (ii) the current interest rate,
period until next interest rate reset and maturity of the Corporate Loan, (iii)
recent prices in the market for similar Corporate Loans, if any, and (iv) recent
prices in the market for instruments of similar quality, rate, period until next
interest rate reset and maturity. The Investment Adviser believes that
Intermediate Participants selling Corporate Loans or otherwise involved in a
Corporate Loan transaction may tend, in valuing Corporate Loans for their own
accounts, to be less sensitive to interest rate and credit quality changes and,
accordingly, the Investment Adviser may not rely solely on such valuations in
valuing the Corporate Loans for the Fund's account. In addition, because a
secondary trading market in Corporate Loans has not yet fully developed, in
valuing Corporate Loans, the Investment Adviser may not rely solely on but may
consider prices or quotations provided by banks, dealers or pricing services
with respect to secondary market transactions in Corporate Loans. To the extent
that an active secondary market in Corporate Loans develops to a reliable
degree, or exists in respect of other loans or instruments deemed to be similar
to Corporate Loans, the Investment Adviser may rely to an increasing extent on
such market prices and quotations in valuing the Corporate Loans in the Fund's
portfolio.
Other portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, portfolio
securities are valued at the last sale price on the exchange that is the primary
market for such securities, or the last quoted bid price for those securities
for which the over-the-counter market is the primary market or for listed
securities in which there were no sales during the day. The value of interest
rate swaps, caps and floors is determined in accordance with a formula and then
confirmed periodically by obtaining a bank quotation. Positions in options are
valued at the last sale price on the market where any such option is principally
traded. Obligations with remaining maturities of 60 days or less are valued at
amortized cost unless this method no longer produces fair valuations. Repurchase
agreements are valued at cost plus accrued interest. Rights or warrants to
acquire stock, or stock acquired pursuant to the exercise of a right or warrant,
may be valued taking into account various factors such as original cost to the
Fund, earnings and net worth of the issuer, market prices for securities of
similar issuers, assessment of the issuer's future prosperity, liquidation value
or third party transactions involving the issuer's securities. Securities for
which there exist no price quotations or valuations and all other assets are
valued at fair value as determined in good faith by or on behalf of the Board of
Directors of the Fund.
DESCRIPTION OF SHARES
The Fund is authorized to issue 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares are initially classified as Common
Stock. The Board of Directors is authorized, however, to classify and
37
<PAGE> 40
reclassify any unissued shares of capital stock into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series. The Fund may
reclassify an amount of unissued Common Stock as preferred stock and at that
time offer shares of preferred stock representing up to approximately 33 1/3% of
the Fund's capital immediately after the issuance of such preferred stock.
Shares of Common Stock, when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders upon liquidation of the
Fund. Shareholders are entitled to one vote for each share held.
In the event that the Fund issues preferred stock and so long as any shares
of the Fund's preferred stock are outstanding, holders of Common Stock will not
be entitled to receive any net income of or other distributions from the Fund
unless all accumulated dividends on preferred stock have been paid, and unless
asset coverage (as defined in the Investment Company Act) with respect to
preferred stock would be at least 200% after giving effect to such
distributions. See "Other Investment Policies -- Leverage."
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.
As of March 18, 1994, there were 10,527 shares issued and outstanding, all
of which were owned by the Investment Adviser.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director may be removed from office
with or without cause but only by vote of the holders of at least 66 2/3% of the
shares entitled to be voted on the matter.
In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 66 2/3% of the Fund's shares to approve, adopt or
authorize the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with other corporations,
(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities), or
(iii) a liquidation or dissolution of the Fund, unless such action has
been approved, adopted or authorized by the affirmative vote of two-thirds
of the total number of Directors fixed in accordance with the by-laws, in
which case the affirmative vote of a majority of the Fund's shares of
capital stock is required. Following any issuance of preferred stock by the
Fund, it is anticipated that the approval, adoption or authorization of the
foregoing would also require the favorable vote of a majority of the Fund's
shares of preferred stock then entitled to be voted, voting as a separate
class.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Articles of Incorporation. The amendment
would have to be declared advisable by the Board of
38
<PAGE> 41
Directors prior to its submission to shareholders. Such an amendment would
require the favorable vote of the holders of at least 66 2/3% of the Fund's
outstanding shares (including any preferred stock) entitled to be voted on the
matter, voting as a single class (or a majority of such shares if the amendment
was previously approved, adopted or authorized by two-thirds of the total number
of Directors fixed in accordance with the by-laws), and, assuming preferred
stock is issued, the affirmative vote of a majority of outstanding shares of
preferred stock of the Fund, voting as a separate class. Such a vote also would
satisfy a separate requirement in the Investment Company Act that the change be
approved by the shareholders. Shareholders of an open-end investment company may
require the company to redeem their shares of common stock at any time (except
in certain circumstances as authorized by or under the Investment Company Act)
at their net asset value, less such redemption charge, if any, as might be in
effect at the time of a redemption. All redemptions would usually be made in
cash. If the Fund is converted to an open-end investment company, it could be
required to liquidate portfolio securities to meet requests for redemption, and
the shares would no longer be listed on a stock exchange. Conversion to an
open-end investment company would also require changes in certain of the Fund's
investment policies and restrictions, such as those relating to the borrowing of
money and the purchase of illiquid securities.
The Board of Directors has determined that the 66 2/3% voting requirements
described above, which are greater than the minimum requirements under Maryland
law or the Investment Company Act, are in the best interests of shareholders
generally. Reference should be made to the Articles of Incorporation on file
with the Commission for the full text of these provisions.
CUSTODIAN
The Fund's securities and cash are held under a custodian agreement with
The Bank of New York, 110 Washington Street, New York, New York 10286.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has
agreed, subject to the terms and conditions of a Purchase Agreement with the
Fund and the Investment Adviser, to purchase 7,740,000 shares of Common Stock
from the Fund. Merrill Lynch is committed to purchase all of such shares if any
are purchased.
Merrill Lynch has advised the Fund that it proposes initially to offer the
shares to the public at the public offering price set forth on the cover page of
this Prospectus, except that the price will be reduced to $9.93 per share for
purchases in single transactions of between 5,000 and 9,999 shares and to $9.83
for purchases in single transactions of 10,000 or more shares. Merrill Lynch has
also advised the Fund that it may offer shares to certain dealers at the initial
offering price set forth in the preceding sentence less a concession not in
excess of $.40 per share ($.33 per share for purchases in single transactions of
between 5,000 and 9,999 shares and $.25 per share for purchases in single
transactions of 10,000 or more shares). Merrill Lynch may allow, and such
dealers may reallow, a discount on sales to certain other dealers not in excess
of $.10 per share. After the initial public offering, the public offering price,
concession and discount may be changed. The maximum sales load of $.50 per share
is equal to 5.00%, the sales load of $.43 per share for purchases in single
transactions of between 5,000 and 9,999 shares is equal to 4.33% and the sales
load of $.33 per share for purchases in single transactions of 10,000 or more
shares is equal to 3.36% of the respective initial public offering prices.
Investors must pay for any Common Stock purchased in the initial public offering
on or before April 8, 1994.
39
<PAGE> 42
The Fund has granted Merrill Lynch an option, exercisable for 45 days after
the date hereof, to purchase up to 77,400 additional shares to cover
over-allotments, if any, at the initial offering price less the underwriting
discount.
Prior to this offering, there has been no public market for the shares of
the Fund. The Fund's shares have been approved for listing on the New York Stock
Exchange. However, during an initial period which is not expected to exceed four
weeks from the date of this Prospectus, the Fund's shares will not be listed on
any securities exchange. Additionally, during such period, Merrill Lynch does
not intend to make a market in the Fund's shares, although a limited market may
develop. Consequently, it is anticipated that an investment in the Fund will be
illiquid during such period. In order to meet the requirements for listing,
Merrill Lynch has undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Fund anticipates that Merrill Lynch may from time to time act as a
broker in connection with the execution of the Fund's portfolio transactions.
Merrill Lynch is an affiliate of the Investment Adviser of the Fund.
Merrill Lynch's principal business address is Merrill Lynch World Headquarters,
World Financial Center, North Tower, New York, New York 10281-1305.
The Fund and the Investment Adviser have agreed to indemnify Merrill Lynch
against certain liabilities including liabilities under the Securities Act of
1933.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the shares
of the Fund is The Bank of New York, 101 Barclay Street, New York, New York
10286.
LEGAL OPINIONS
Certain legal matters in connection with the shares offered hereby will be
passed upon for the Fund and Merrill Lynch by Brown & Wood, New York, New York.
Brown & Wood will rely as to matters of Maryland law on the opinion of Venable,
Baetjer and Howard, Baltimore, Maryland.
EXPERTS
The statement of assets, liabilities and capital of the Fund included in
this Prospectus has been so included in reliance on the report of Deloitte &
Touche, independent auditors, and on their authority as experts in auditing and
accounting.
40
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Senior Strategic Income Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital of
Senior Strategic Income Fund, Inc. as of March 18, 1994. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets, liabilities and capital presents
fairly, in all material respects, the financial position of Senior Strategic
Income Fund, Inc. as of March 18, 1994 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
Princeton, New Jersey
March 21, 1994
41
<PAGE> 44
SENIOR STRATEGIC INCOME FUND, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
MARCH 18, 1994
<TABLE>
<S> <C>
ASSETS
Cash............................................................................. $100,007
Deferred organization and offering costs (Note 1)................................ 250,000
--------
Total Assets............................................................. 350,007
LIABILITIES
Deferred organization and offering costs payable (Note 1)........................ 250,000
--------
NET ASSETS......................................................................... $100,007
--------
--------
CAPITAL
Common Stock, par value $.10 per share; 200,000,000 shares authorized; 10,527
shares issued and outstanding (Note 1)........................................ $ 1,053
Paid-in Capital in excess of par................................................. 98,954
--------
Total Capital -- Equivalent to $9.50 net asset value per share of Common Stock
(Note 1)...................................................................... $100,007
--------
--------
</TABLE>
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
NOTE 1. ORGANIZATION
The Fund was incorporated under the laws of the State of Maryland on
November 12, 1993, as a closed-end, non-diversified management investment
company and has had no operations other than the sale to Fund Asset Management,
L.P. of an aggregate of 10,527 shares for $100,007 on March 18, 1994.
Deferred organization costs will be amortized on a straight-line basis over
a five-year period beginning with the commencement of operations of the Fund.
Direct costs relating to the public offering of the Fund's shares will be
charged to capital at the time of issuance of shares.
NOTE 2. MANAGEMENT ARRANGEMENTS
The Fund has engaged Fund Asset Management, L.P. (the "Investment Adviser")
to provide investment advisory and management services to the Fund. The
Investment Adviser will receive a monthly fee at the annual rate of 0.50% of the
Fund's average weekly net assets plus the proceeds of any outstanding borrowings
used for leverage.
NOTE 3. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such
(and by complying with the applicable provisions of the Internal Revenue Code of
1986, as amended) will not be subject to Federal income tax on taxable income
(including realized capital gains) that is distributed to shareholders.
42
<PAGE> 45
APPENDIX A: DESCRIPTION OF CORPORATE BOND RATINGS
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
The modifier 1 indicates that the bond ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its rating
category.
A-1
<PAGE> 46
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S CORPORATION:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB -- B -- CCC -- CC -- Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C -- The C rating is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
NR -- Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of bond as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE> 47
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY STATE OR JURISDICTION OF THE U.S. OR ANY COUNTRY WHERE SUCH OFFER
WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Fee Table............................. 10
The Fund.............................. 11
Use of Proceeds....................... 11
Investment Objective and Policies..... 11
Other Investment Policies............. 18
Investment Restrictions............... 25
Directors and Officers................ 27
Investment Advisory and Management
Arrangements........................ 28
Portfolio Transactions................ 30
Dividends and Distributions........... 31
Taxes................................. 32
Automatic Dividend Reinvestment
Plan................................ 34
Mutual Fund Investment Option......... 36
Net Asset Value....................... 36
Description of Shares................. 37
Custodian............................. 39
Underwriting.......................... 39
Transfer Agent, Dividend Disbursing
Agent and Registrar................. 40
Legal Opinions........................ 40
Experts............................... 40
Independent Auditors' Report.......... 41
Statement of Assets, Liabilities and
Capital............................. 42
Appendix A............................ A-1
</TABLE>
------------------------
UNTIL JUNE 29, 1994 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
7,740,000 SHARES
SENIOR STRATEGIC INCOME
FUND, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
MARCH 31, 1994
------------------------------------------------------
------------------------------------------------------
Code #18032
<PAGE> 48
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements Report of Independent Auditors
Statement of Assets, Liabilities and Capital as of March 18, 1994
(2) Exhibits:
<TABLE>
<S> <C> <C>
(a)(1) -- Articles of Incorporation**
(2) -- Articles of Amendment to Articles of Incorporation
(b) -- By-Laws**
(c) -- Not applicable
(d)(1) -- Portions of the Articles of Incorporation and By-Laws of the Registrant
defining the rights of holders of shares of the Registrant*
(2) -- Form of certificate for Common Stock
(e) -- Form of Dividend Reinvestment Plan**
(f) -- Not applicable
(g) -- Form of Investment Advisory Agreement between the Fund and the Investment
Adviser**
(h)(1) -- Form of Purchase Agreement**
(2) -- Form of Merrill Lynch Standard Dealer Agreement**
(i) -- Not applicable
(j) -- Custodian Contract between the Fund and The Bank of New York
(k) -- Registrar, Transfer Agency and Service Agreement between the Fund and The
Bank of New York
(l) -- Opinion and Consent of Brown & Wood, counsel to the Fund
(m) -- Not applicable
(n) -- Consent of Deloitte & Touche, independent auditors for the Fund
(o) -- Not applicable
(p) -- Certificate of Fund Asset Management, L.P.
(q) -- Not applicable
</TABLE>
- ---------------
* Reference is made to Article V, Article VI (Sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Articles of Incorporation, filed herewith as Exhibit
(a)(1) to the Registration Statement; and to Article II, Article III
(Sections 1, 3, 5, and 17), Article VI, Article VII, Article XII, Article
XIII and Article XIV of the Registrants's By-Laws, filed herewith as Exhibit
(b) to the Registration Statement.
** Previously filed.
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibit (h).
C-1
<PAGE> 49
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees......................................................... $ 26,957
New York Stock Exchange listing fee....................................... 95,100
Printing (other than stock certificates).................................. 52,500
Engraving and printing stock certificates................................. 20,000
Fees and expenses of qualifications under state securities laws (including
fees of counsel)........................................................ 10,000
Legal fees and expenses................................................... 45,000
Accounting fees and expenses.............................................. 3,600
NASD fees................................................................. 8,317
Miscellaneous............................................................. 3,526
---------
Total................................................................ $ 265,000
---------
---------
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the Prospectus under the caption "Investment Advisory
and Management Arrangements" and in Note 1 to the Statement of Assets,
Liabilities and Capital is incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
There will be one record holder of the Common Stock, par value $.10 per
share, as of the effective date of this Registration Statement.
ITEM 29. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Fund's Articles of Incorporation, Article VI of the Fund's
By-Laws and the Investment Advisory Agreement filed as Exhibit (g) provide for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be provided to directors, officers and controlling persons of the
Fund, pursuant to the foregoing provisions or otherwise, the Fund has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Fund of expenses incurred or
paid by a director, officer or controlling person of the Fund in connection with
any successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Fund will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Reference is made to Section six of the Purchase Agreement, a form of which
is filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the agent.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser") acts as investment
adviser for the following investment companies: Apex Municipal Fund, Inc., CBA
Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series
Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal
C-2
<PAGE> 50
Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Institutional Tax-Exempt Fund, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund
Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund,
Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and
Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is Box 9011, Princeton, New Jersey 08543-9011, except that the address
of Merrill Lynch Funds for Institutions Series, Merrill Lynch Institutional
Tax-Exempt Fund and Merrill Lynch Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Investment Adviser and its affiliate, Merrill Lynch Asset Management, L.P.
("MLAM"), is also Box 9011, Princeton, New Jersey 08543-9011. The address of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill
Lynch & Co., Inc. ("ML & Co.") is North Tower, World Financial Center, 250 Vesey
Street, New York, New York 10281-1201.
Set forth below is a list of each officer and director of the Investment
Adviser indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since March 1,
1992 for his own account or in the capacity of director, officer, employee,
partner or trustee. In addition, Mr. Zeikel is President and Director, Mr.
Richard is Treasurer and Mr. Glenn is Executive Vice President of all or
substantially all of the investment companies described in the preceding
paragraph and also hold the same positions with all or substantially all of the
investment companies advised by MLAM as they do with those advised by the
Investment Adviser. Messrs. Durnin, Giordano, Harvey, Hewitt and Monagle are
directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- ---------------------------- -------------------------------------
<S> <C> <C>
ML & Co. ................ Limited Partner Financial Services Holding Company
Fund Asset Management,
Inc. .................. Limited Partner Investment Advisory Services
Princeton Services, Inc.
("Princeton General Partner General Partner of MLAM
Services")..........
Arthur Zeikel............ President President of MLAM; Director of
Merrill Lynch Funds Distributor, Inc.
("MLFD"); President and Director of
Princeton Services, Inc.
("Princeton Services"); Executive
Vice President of ML & Co.;
Executive Vice President of Merrill
Lynch
Terry K. Glenn........... Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD
</TABLE>
C-3
<PAGE> 51
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- ---------------------------- -------------------------------------
<S> <C> <C>
Bernard J. Durnin........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
Vincent R. Giordano...... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
Elizabeth Griffin........ Senior Vice President Senior Vice President of MLAM
Norman R. Harvey......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
N. John Hewitt........... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
Philip L. Kirstein....... Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of MLAM; Senior
Secretary Vice President of Princeton
Services; Director of MLFD
Ronald M. Kloss.......... Senior Vice President and Senior Vice President and Controller
Controller of MLAM; Senior Vice President and
Controller of Princeton Services
Joseph T. Monagle........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
Gerald M. Richard........ Senior Vice President and Senior Vice President and Treasurer
Treasurer of MLAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD
Richard L. Rufener....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services; Vice President of MLFD
Ronald L. Welburn........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
Anthony Wiseman.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton
Services
</TABLE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the registrant (800 Scudders Mill
Road, Plainsboro, New Jersey 08536), its Investment Adviser (800 Scudders Mill
Road, Plainsboro, New Jersey 08536), and its custodian (110 Washington Street,
New York, New York 10286) and transfer agent (101 Barclay Street, New York, New
York 10286).
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(a) Registrant undertakes to suspend offering of the shares of Common Stock
covered hereby until it amends its Prospectus contained herein if (1) subsequent
to the effective date of this Registration Statement, its net asset value per
share of Common Stock declines more than 10 percent from its net asset value per
share of Common Stock as of the effective date of this Registration Statement,
or (2) its net asset value per share of Common Stock increases to an amount
greater than its net proceeds as stated in the Prospectus contained herein.
C-4
<PAGE> 52
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 497(h) under
the Securities Act shall be deemed to be part of the registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
C-5
<PAGE> 53
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 30TH
DAY OF MARCH 1994.
SENIOR STRATEGIC INCOME FUND, INC.
(Registrant)
By /s/ ARTHUR ZEIKEL
------------------------------------
(Arthur Zeikel, President)
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES ARTHUR ZEIKEL,
TERRY K. GLENN OR GERALD M. RICHARD, OR ANY OF THEM, AS ATTORNEY-IN-FACT, TO
SIGN ON HIS BEHALF, INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, ANY
AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING POST-EFFECTIVE AMENDMENTS)
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, WITH THE SECURITIES AND
EXCHANGE COMMISSION.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<S> <C> <S>
President (Principal March 30, 1994
/s/ ARTHUR ZEIKEL Executive Officer) and
- ------------------------------------------ Director
(Arthur Zeikel)
Treasurer (Principal March 30, 1994
/s/ GERALD M. RICHARD Financial and Accounting
- ------------------------------------------ Officer)
(Gerald M. Richard)
Director March 30, 1994
/s/ RONALD W. FORBES
- ------------------------------------------
(Ronald W. Forbes)
Director March 30, 1994
/s/ CYNTHIA A. MONTGOMERY
- ------------------------------------------
(Cynthia A. Montgomery)
Director March 30, 1994
/s/ CHARLES C. REILLY
- ------------------------------------------
(Charles C. Reilly)
Director March 30, 1994
/s/ KEVIN A. RYAN
- ------------------------------------------
(Kevin A. Ryan)
Director March 30, 1994
/s/ RICHARD R. WEST
- ------------------------------------------
(Richard R. West)
</TABLE>
C-6
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C> <C>
(d)(2) -- Form of Certificate for Common Stock
(j) -- Custodian Contract between the Fund and The Bank of New York
(k) -- Registrar, Transfer Agency and Service Agreement between the Fund and The
Bank of New York
(l) -- Opinion and Consent of Brown & Wood, counsel to the Fund
(n) -- Consent of Deloitte & Touche, independent auditors for the Fund
(p) -- Certificate of Fund Asset Management, L.P.
</TABLE>
<PAGE> 1
TEMPORARY CERTIFICATE
EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN READY FOR DELIVERY
SENIOR STRATEGIC INCOME FUND, INC.
COMMON STOCK CUSIP 81721H 10 0
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND SEE REVERSE FOR
CERTAIN DEFINITIONS
PAR VALUE $.10
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Senior Strategic Income Fund, Inc., transferable on the books of the
Corporation by the holder in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be held subject to all of the
provisions of the Articles of Incorporation and of the By-Laws of the
Corporation, and of all the amendments from time to time made thereto. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
(SEAL) /S/ Patrick D. Sweeney /S/ Arthur Zeikel
Secretary President
Countersigned and Registered:
THE BANK OF NEW YORK
Transfer Agent
and Registrar
By
Authorized Signature
<PAGE> 2
SENIOR STRATEGIC INCOME FUND, INC.
A full statement of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of stock which the Corporation is authorized to issue and the
differences in the relative rights and preferences between the shares of each
class and series to the extent that they have been set, and the authority of
the Board of Directors to set the relative rights and preferences of subsequent
classes and series, will be furnished by the Corporation to any stockholder,
without charge, upon request to the Secretary of the Corporation at its
principal office.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT--. . . . . . . . . . . . . . . . .Custodian. . . . . . . . .
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right Act . . . . . . . . . . . . .
of survivorship and not as (State)
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
__________________________________________
<TABLE>
<S> <C>
____________________________________________________________________________ NOTICE: The signature to this
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee) assignment must correspond with
the name as written upon the face
____________________________________________________________________________ of the Certificate, in every parti-
cular, without alteration or enlarge-
____________________________________________________________________________ ment, or any change whatever.
______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
____________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with full
power of substitution in the premises.
Dated:_____________________________
</TABLE>
__________________________________________
Signatures must be guaranteed by an "eligible guarantor institution" as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
<PAGE> 1
CUSTODY AGREEMENT
Agreement made as of this 16th day of March, 1994, between SENIOR
STRATEGIC INCOME FUND, INC., a corporation organized and existing under the
laws of the State of Maryland having its principal office and place of business
at Princeton, New Jersey (hereinafter called the "Fund"), and THE BANK OF NEW
YORK, a New York corporation authorized to do a banking business, having its
principal office and place of business at 48 Wall Street, New York, New York
10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing
member.
<PAGE> 2
5. "Collateral Account" shall mean a segregated account so
denominated which is specifically allocated to a Series and pledged to the
Custodian as security for, and in consideration of, the Custodian's issuance of
(a) any Put Option guarantee letter or similar document described in paragraph
8 of Article V herein, or (b) any receipt described in Article V or VIII
herein.
6. "Covered Call Option" shall mean an exchange traded option
entitling the holder, upon timely exercise and payment of the exercise price,
as specified therein, to purchase from the writer thereof the specified
underlying Securities (excluding Futures Contracts) which are owned by the
writer thereof and subject to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository"
shall further mean and include any other person authorized to act as a
depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identified in a certified
copy of a resolution of the Fund's Board of Directors specifically approving
deposits therein by the Custodian.
8. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates
of deposit, and Eurodollar certificates of deposit, during a specified month at
an agreed upon price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or
2
<PAGE> 3
withdrawn from, a Margin Account upon the Custodian's effecting an appropriate
entry in its books and records.
12. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority,
commercial paper, certificates of deposit and bankers' acceptances, repurchase
agreements with respect to the same and bank time deposits, where the purchase
and sale of such securities normally requires settlement in federal funds on
the same day as such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
14. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock
Index Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant
to which the Fund sells Securities and agrees to repurchase such Securities at
a described or specified date and price.
3
<PAGE> 4
19. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or
representing any other rights or interest therein, or any property or assets,
and agreements representing corporate loans and interests therein as defined
from time to time in the Fund's prospectus.
20. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such
transactions as the Fund may from time to time determine.
21. "Series" shall mean the various portfolios, if any, of the Fund
as described from time to time in the current and effective prospectus for the
fund.
22. "Shares" shall mean the shares of capital stock of the Fund, each
of which is, in the case of a Fund having Series, allocated to a particular
Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and the
value of the index on the date of exercise.
25. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in
4
<PAGE> 5
connection with each use of the Terminal Link by or on behalf of the Fund use
of an authorization code provided by the Custodian and at least two access
codes established by the Fund.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as
custodian of the Securities and moneys at any time owned by the Fund during the
period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of
this Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities and deliveries and returns of Securities
collateral. Prior to a deposit of Securities specifically allocated to a
Series in the Depository, the Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit B hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis until instructed to the contrary by a Certificate
actually received by the Custodian to deposit in the Depository all Securities
specifically allocated to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect
5
<PAGE> 6
to such Securities in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of Securities
collateral. Securities and moneys deposited in either the Book-Entry System or
the Depository will be represented in accounts which include only assets held
by the Custodian for customers, including, but not limited to, accounts in
which the Custodian acts in a fiduciary or representative capacity and will be
specifically allocated on the Custodian's books to the separate account for the
applicable Series. Prior to the Custodian's accepting, utilizing and acting
with respect to Clearing Member confirmations for Options and transactions in
Options for a Series as provided in this Agreement, the Custodian shall have
received a certified resolution of the Fund's Board of Directors, substantially
in the form of Exhibit C hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis, until instructed to the contrary
by a Certificate actually received by the Custodian, to accept, utilize and act
in accordance with such confirmations as provided in this Agreement with
respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in
the name of each Series, and shall credit to the separate account for each
Series all moneys received by it for the account of the Fund with respect to
such Series. Money credited to a separate account for a Series shall be
disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account
from which payment is to be made and the purpose for which payment is to be
made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance
with this Agreement during said day. Where Securities are transferred to the
account of the Fund for a Series, the Custodian shall also by book-entry or
otherwise identify as belonging to such Series a quantity of Securities in a
fungible bulk of Securities registered in the name of the Custodian (or its
nominee) or shown on the Custodian's account on the books of the Book-Entry
System or the Depository.
6
<PAGE> 7
At least monthly and from time to time, the Custodian shall furnish the Fund
with a detailed statement, on a per Series basis, of the Securities and moneys
held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the
name of any duly appointed registered nominee of the Custodian as the Custodian
may from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time
to time be registered in the name of the Fund. The Custodian shall hold all
such Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of
such Series physically segregated at all times from those of any other person
or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by itself,
or through the use of the Book-Entry System or the Depository with respect to
Securities held hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with preceding paragraph
4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix B annexed hereto, which may be
amended at any time by the Custodian without the prior notification or consent
of the Fund;
(c) Present for payment and collect the amount payable upon
all Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the
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<PAGE> 8
laws or regulations of any other taxing authority now or hereafter in effect;
and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held
by the Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder
for the Series specified in such Certificate in exchange for other Securities
or cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian hereunder
for the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the
Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any
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<PAGE> 9
Option, or any Futures Contract Option until after it shall have determined, or
shall have received a Certificate from the Fund stating, that any such
instruments or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day preceding the
availability of any such instrument or certificate. Prior to such
availability, the Custodian shall comply with Section 17(f) of the Investment
Company Act of 1940, as amended, in connection with the purchase, sale,
settlement, closing out or writing of Futures Contracts, Options, or Futures
Contract Options by making payments or deliveries specified in Certificates
received by the Custodian in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer, or futures
commission merchant of a statement or confirmation reasonably believed by the
Custodian to be in the form customarily used by brokers, dealers, or futures
commission merchants with respect to such Futures Contracts, Options, or
Futures Contract Options, as the case may be, confirming that such Security is
held by such broker, dealer or futures commission merchant, in book-entry form
or otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstanding the foregoing,
payments to or deliveries from the Margin Account, and payments with respect to
Securities to which a Margin Account relates, shall be made in accordance with
the terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall, notwithstanding
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than
a purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a)
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<PAGE> 10
the Series to which such Securities are to be specifically allocated; (b) the
name of the issuer and the title of the Securities; (c) the number of shares or
the principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if
any; and (h) the name of the broker to whom payment is to be made. The
Custodian shall, upon receipt of Securities purchased by or for the Fund, pay
to the broker specified in the Certificate out of the moneys held for the
account of such Series the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each sale of Money Market Securities, a
Certificate or Oral Instructions, specifying with respect to each such sale:
(a) the Series to which such Securities were specifically allocated; (b) the
name of the issuer and the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the date of sale; (e)
the sale price per unit; (f) the total amount payable to the Fund upon such
sale; (g) the name of the broker through whom or the person to whom the sale
was made, and the name of the clearing broker, if any; and (h) the name of the
broker to whom the Securities are to be delivered. The Custodian shall deliver
the Securities specifically allocated to such Series to the broker specified in
the Certificate against payment of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Certificate or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically
allocated; (b) the type of Option (put or call); (c) the name of the issuer and
the title and number of shares subject to such Option or, in the case of a
Stock Index Option, the stock index to which such Option relates and the number
of Stock Index Options purchased; (d) the expiration date; (e) the exercise
price; (f) the dates of purchase and settlement; (g) the total amount payable
by the Fund in connection with such purchase;
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<PAGE> 11
(h) the name of the Clearing Member through whom such Option was purchased; and
(i) the name of the broker to whom payment is to be made. The Custodian shall
pay, upon receipt of a Clearing Member's statement confirming the purchase of
such Option held by such Clearing Member for the account of the Custodian (or
any duly appointed and registered nominee of the Custodian) as custodian for
the Fund, out of moneys held for the account of the Series to which such Option
is to be specifically allocated, the total amount payable upon such purchase to
the Clearing Member through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to each such sale: (a) the Series to which
such Option was specifically allocated; (b) the type of Option (put or call);
(c) the name of the issuer and the title and number of shares subject to such
Option or, in the case of a Stock Index Option, the stock index to which such
Option relates and the number of Stock Index Options sold; (d) the date of
sale; (e) the sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the Clearing Member
through whom the sale was made. The Custodian shall consent to the delivery of
the Option sold by the Clearing Member which previously supplied the
confirmation described in preceding paragraph 1 of this Article with respect to
such Option against payment to the Custodian of the total amount payable to the
Fund, provided that the same conforms to the total amount payable as set forth
in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Call Option: (a)
the Series to which such Call Option was specifically allocated; (b) the name
of the issuer and the title and number of shares subject to the Call Option;
(c) the expiration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid by the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such Call Option
was exercised. The Custodian shall, upon receipt of the Securities underlying
the Call Option which was exercised, pay out of the moneys held for the account
of the Series to which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call Option was
exercised, provided that the same conforms to the total amount payable as set
forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with
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<PAGE> 12
respect to such Put Option: (a) the Series to which such Put Option was
specifically allocated; (b) the name of the issuer and the title and number of
shares subject to the Put Option; (c) the expiration date; (d) the date of
exercise and settlement; (e) the exercise price per share; (f) the total amount
to be paid to the Fund upon such exercise; and (g) the name of the Clearing
Member through whom such Put Option was exercised. The Custodian shall, upon
receipt of the amount payable upon the exercise of the Put Option, deliver or
direct the Depository to deliver the Securities specifically allocated to such
Series, provided the same conforms to the amount payable to the Fund as set
forth in such Certificate.
5. Prompt)y after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund
in connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for
which the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of
the Clearing Member through whom the premium is to be received. The Custodian
shall deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct
the Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has
the right, upon prior written notification to the Fund, at any time to refuse
to issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described
in the preceding paragraph of this Article is exercised, the Fund shall
promptly deliver to the Custodian a Certificate instructing the Custodian to
deliver, or to direct the Depository to deliver, the Securities subject to such
Covered Call Option and
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<PAGE> 13
specifying: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares subject to the
Covered Call Option; (c) the Clearing Member to whom the underlying Securities
are to be delivered; and (d) the total amount payable to the Fund upon such
delivery. Upon the return and/or cancellation of any receipts delivered
pursuant to paragraph 6 of this Article, the Custodian shall deliver, or direct
the Depository to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery;
(e) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian
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<PAGE> 14
in connection with such Put Option, the Custodian shall pay out of the moneys
held for the account of the Series to which such Put Option was specifically
allocated the total amount payable to the Clearing Member specified in the
Certificate as set forth in such Certificate against delivery of such
Securities, and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for
such Series; (j) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in the Collateral
Account for such Series; and (k) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series to be deposited in
a Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described
in the preceding paragraph of this Article is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) such information as may be necessary to identify the Stock Index
Option being exercised; (c) the Clearing Member through whom such Stock Index
Option is being exercised; (d) the total amount payable upon such exercise, and
whether such amount is to be paid by or to the Fund; (e) the amount of cash
and/or amount and kind of Securities, if any, to be withdrawn from the Margin
Account; and (f) the amount of cash and/or amount and kind of Securities, if
any, to be withdrawn from the Senior Security Account for such Series; and the
amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Collateral Account for such Series. Upon the return and/or
cancellation of the receipt, if any, delivered pursuant to the preceding
paragraph of this Article, the Custodian
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<PAGE> 15
shall pay out of the moneys held for the account of the Series to which such
Stock Index Option was specifically allocated to the Clearing Member specified
in the Certificate the total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order
to liquidate its position as a writer of an Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to the Option
being purchased: (a) that the transaction is a Closing Purchase Transaction;
(b) the Series for which the Option was written; (c) the name of the issuer and
the title and number of shares subject to the Option, or, in the case of a
Stock Index Option, the stock index to which such Option relates and the number
of Options held; (d) the exercise price; (e) the premium to be paid by the
Fund; (f) the expiration date; (g) the type of Option (put or call); (h) the
date of such purchase; (i) the name of the Clearing Member to whom the premium
is to be paid; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium and the return and/or cancellation of any
receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect
to the Option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing
Purchase Transaction with respect to any Option purchased or written by the
Fund and described in this Article, the Custodian shall delete such Option from
the statements delivered to the Fund pursuant to paragraph 3 Article III
herein, and upon the return and/or cancellation of any receipts issued by the
Custodian, shall make such withdrawals from the Collateral Account, and the
Margin Account and/or the Senior Security Account as may be specified in a
Certificate received in connection with such expiration, exercise, or
consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures
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<PAGE> 16
Contract (the name of the underlying stock index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f) whether the Fund
is buying (going long) or selling (going short) on such Futures Contract(s);
(g) the amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Series; (h) the name of the
broker, dealer or futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if any, to be paid
and the name of the broker, dealer or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin
Account Agreement. The Custodian shall make payment out of the moneys
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to
be made by the Fund to a broker, dealer or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer or
futures commission merchant to or from whom payment or delivery is to be made
or received; and (d) the amount of cash and/or Securities to be withdrawn from
the Senior Security Account for such Series. The Custodian shall make the
payment or delivery specified in the Certificate, and delete such Futures
Contract from the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein.
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<PAGE> 17
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the
dates of purchase and settlement; (g) the amount of premium to be paid by the
Fund upon such purchase; (h) the name of the broker or futures commission
merchant through whom such option was purchased; and (i) the name of the
broker, or futures commission merchant, to whom payment is to be made. The
Custodian shall pay out of the moneys specifically allocated to such Series,
the total amount to be paid upon such purchase to the broker or futures
commission merchant through whom the purchase was made, provided that the same
conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically allocated; (b)
the type of Futures Contract Option (put or call); (c) the type of Futures
Contract and such other information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option; (d) the date of sale; (e) the
sale price; (f) the date of settlement; (g) the total amount payable to the
Fund upon such sale; and (h) the name of the broker or futures commission
merchant through whom the sale was made. The Custodian shall consent to the
cancellation of the
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<PAGE> 18
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total
amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant
to paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the
type of Futures Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Contract Option; (d) the
expiration date; (e) the exercise price; (f) the premium to be received by the
Fund; (g) the name of the broker or futures commission merchant through whom
the premium is to be received; and (h) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Senior Security Account for
such Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option
was specifically allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the Futures Contract
Option; (d) the
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<PAGE> 19
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund
and which is a put is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures Contract Option; (d)
the name of the broker or futures commission merchant through whom such Futures
Contract Option is exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total amount payable to
the Fund, if any, specified in the Certificate, make out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin Account, if
any, shall be made by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical
to a previously written Futures Contract Option described in this Article in
order to liquidate its position as a writer of such Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to the Futures Contract Option being purchased: (a) the Series to which
such Option is specifically allocated; (b) that the transaction is a closing
transaction; (c) the type of Futures Contract and such other information as may
be necessary to identify the Futures Contract underlying the Futures Contract
Option; (d) the exercise price; (e) the premium to be paid by the Fund; (f) the
expiration date; (g) the name of the broker or futures commission merchant to
whom the premium is to be paid; and (h) the amount of cash and/or the amount
and kind of Securities, if any, to be withdrawn from the Senior Security
Account for such Series. The Custodian shall
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effect the withdrawals from the Senior Security Account specified in the
Certificate. The withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased
by the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein, and (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may
be specified in a Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article
VI hereof.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the
Series for which such short sale was made; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale and
settlement; (e) the sale price per unit; (f) the total amount credited to the
Fund upon such sale, if any; (g) the amount of cash and/or the amount and kind
of Securities, if any, which are to be deposited in a Margin Account and the
name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be
deposited in a Senior Security Account; and (i) the name of the broker through
whom such short sale was made. The Custodian shall upon its receipt of a
statement from such broker confirming such sale and that the total amount
credited to the Fund upon such sale, if any, as specified in the Certificate is
held by such broker for the account of the Custodian (or any nominee of the
Custodian) as custodian of the Fund, issue a receipt or make the deposits into
the Margin Account and the Senior Security Account specified in the
Certificate.
2. In connection with the closing-out of any short sale, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to each such closing-out: (a) the Series for which such transaction is being
made; (b) the name of the
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<PAGE> 21
issuer and the title of the Security; (c) the number of shares or the principal
amount, and accrued interest or dividends, if any, required to effect such
closing-out to be delivered to the broker; (d) the dates of closing-out and
settlement; (e) the purchase price per unit; (f) the net total amount payable
to the Fund upon such closing-out; (g) the net total amount payable to the
broker upon such closing-out; (h) the amount of cash and the amount and kind of
Securities to be withdrawn, if any, from the Margin Account; (i) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account; and (j) the name of the broker through whom the Fund
is effecting such closing-out. The Custodian shall, upon receipt of the net
total amount payable to the Fund upon such closing-out, and the return and/or
cancellation of the receipts, if any, issued by the Custodian with respect to
the short sale being closed-out, pay out of the moneys held for the account of
the Fund to the broker the net total amount payable to the broker, and make the
withdrawals from the Margin Account and the Senior Security Account, as the
same are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver to the Custodian a Certificate, or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate or Oral
Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be delivered by
the Fund to such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to
the Fund specified in the Certificate, Oral Instructions, or Written
Instructions make the delivery to the broker or dealer, and the deposits, if
any, to the Senior Security Account, specified in such Certificate or Oral
Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described
in preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money
Market Security, a Certificate or Oral Instructions to the Custodian
specifying: (a) the Reverse
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<PAGE> 22
Repurchase Agreement being terminated and the Series for which same was
entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from
the Senior Securities Account for such Series. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by the Fund
specified in the Certificate or Oral Instructions, make the payment to the
broker or dealer, and the withdrawals, if any, from the Senior Security
Account, specified in such Certificate or Oral Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver
or cause to be delivered to the Custodian a Certificate specifying with respect
to each such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount loaned; (d) the
date of loan and delivery; (e) the total amount to be delivered to the
Custodian against the loan of the Securities, including the amount of cash
collateral and the premium, if any, separately identified; and (f) the name of
the broker, dealer, or financial institution to which the loan was made. The
Custodian shall deliver the Securities thus designated to the broker, dealer or
financial institution to which the loan was made upon receipt of the total
amount designated as to be delivered against the loan of Securities. The
Custodian may accept payment in connection with a delivery otherwise than
through the Book-Entry System or Depository only in the form of a certified or
bank cashier's check payable to the order of the Fund or the Custodian drawn on
New York Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned; (c) the number of shares or the principal amount to be returned; (d)
the date of termination; (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus
22
<PAGE> 23
any offsetting credits as described in said Certificate); and (f) the name of
the broker, dealer, or financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned from the broker,
dealer or financial institution to which such Securities were loaned and upon
receipt thereof shall pay, out of the moneys held for the account of the Fund,
the total amount payable upon such return of Securities as set forth in the
Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or
withdrawn from, a Senior Securities Account, the Custodian shall be under no
obligation to make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member
in whose name, or for whose benefit, the account was established as specified
in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions
with respect to Securities deposited in any Margin Account shall be dealt with
in accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest
in and to any property at any time held by the Custodian in any Collateral
Account described herein. In accordance with applicable law the Custodian may
enforce its lien and realize on any such property whenever the Custodian has
made payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt,
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<PAGE> 24
such deficiency shall be a debt owed the Custodian by the Fund within the scope
of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding
the delivery to the Fund of such statement, the Fund shall furnish to the
Custodian a Certificate or Written Instructions specifying the then market
value of the Securities described in such statement. In the event such then
market value is indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or similar document, the
Fund shall promptly specify in a Certificate the additional cash and/or
Securities to be deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution
of the Board of Directors of the Fund, certified by the Secretary or any
Assistant Secretary, either (i) setting forth with respect to the Series
specified therein the date of the declaration of a dividend or distribution,
the date of payment thereof, the record date as of which shareholders entitled
to payment shall be determined, the amount payable per Share of such Series to
the shareholders of record as of that date and the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund on
the payment date, or (ii) authorizing with respect to the Series specified
therein the declaration of dividends and distributions on a daily basis and
authorizing the Custodian to rely on Oral Instructions or a Certificate setting
forth the date of the declaration of such dividend or distribution, the date of
payment thereof, the record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share of such Series to the
shareholders of record as
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<PAGE> 25
of that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the
foregoing provisions of this Article, the Custodian shall pay, out of the money
held for the account of such Series, all original issue or other taxes required
to be paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Whenever the Fund desires the Custodian to make payment out of the
money held by the Custodian hereunder in connection with a redemption of any
Shares, it shall furnish to the Custodian:
(a) A resolution by the Board of Directors of the Fund
directing the Transfer Agent to redeem the Shares; and
(b) A Certificate specifying the number and Series of Shares
redeemed; and
(c) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth
the Series and number of Shares received by the Transfer Agent for redemption
and that such Shares are in good form for
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<PAGE> 26
redemption, the Custodian shall make payment to the Transfer Agent out of the
moneys held in the separate account in the name of the Series the total amount
specified in the Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions,
or which results in an overdraft in the separate account of such Series for
some other reason, or if the Fund is for any other reason indebted to the
Custodian with respect to a Series, including any indebtedness to The Bank of
New York under the Fund's Cash Management and Related Services Agreement
(except a borrowing for investment or for temporary or emergency purposes using
Securities as collateral pursuant to a separate agreement and subject to the
provisions of paragraph 2 of this Article), such overdraft or indebtedness
shall be deemed to be a loan made by the Custodian to the Fund for such Series
payable on demand and shall bear interest from the date incurred at a rate per
annum (based on a 360-day year for the actual number of days involved) equal to
1/2% over the Custodian's prime commercial lending rate in effect from time to
time, such rate to be adjusted on the effective date of any change in such
prime commercial lending rate but in no event to be less than 6% per annum. In
addition, the Fund hereby agrees that the Custodian shall have a continuing
lien and security interest in and to any property specifically allocated to
such Series at any time held by it for the benefit of such Series or in which
the Fund may have an interest which is then in the Custodian's possession or
control or in possession or control of any third party acting in the
Custodian's behalf. The Fund authorizes the Custodian, in its sole discretion,
at any time to charge any such overdraft or indebtedness together with interest
due thereon against any balance of account standing to such Series' credit on
the Custodian's books. In addition, the Fund hereby covenants that on each
Business Day on which either it intends to enter a Reverse Repurchase Agreement
and/or otherwise borrow from a third party, or which next succeeds a Business
Day on which at the close of business the Fund had outstanding a Reverse
Repurchase Agreement or such a borrowing, it shall prior to 9 a.m., New York
City time, advise the Custodian, in writing, of each such borrowing, shall
specify the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
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<PAGE> 27
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using Securities held by the Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will loan to
the Fund against delivery of a stated amount of collateral. The Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such borrowing: (a) the Series to which such borrowing relates; (b) the name of
the bank; (c) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement; (d) the time and date, if known, on which the
loan is to be entered into; (e) the date on which the loan becomes due and
payable; (f) the total amount payable to the Fund on the borrowing date; (g)
the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities; and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act
of 1940 and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Certificate. The Custodian may, at the
option of the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending bank by
virtue of any promissory note or loan agreement. The Custodian shall deliver
such Securities as additional collateral as may be specified in a Certificate
to collateralize further any transaction described in this paragraph. The Fund
shall cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the issuer, the title
and number of shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be under any
obligation to deliver any Securities.
ARTICLE XV.
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated
to have or utilize the Terminal Link, and the provisions
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of this Article shall apply if, but only if, the Fund in its sole and absolute
discretion elects to utilize the Terminal Link to transmit Certificates to the
Custodian.
2. The Terminal Link shall be utilized by the Fund only for the
purpose of the Fund providing Certificates to the Custodian with respect to
transactions involving Securities or for the transfer of money to be applied to
the payment of dividends, distributions or redemptions of Fund Shares, and
shall be utilized by the Custodian only for the purpose of providing notices to
the Fund. Such use shall commence only after the Fund shall have delivered to
the Custodian a Certificate substantially in the form of Exhibit D and shall
have established access codes. Each use of the Terminal Link by the Fund shall
constitute a representation and warranty that the Terminal Link is being used
only for the purposes permitted hereby, that at least two Officers have each
utilized an access code, that such safekeeping procedures have been established
by the Fund, and that such use does not contravene the Investment Company Act
of 1940, as amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part
of, or through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care
and discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status
of any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund except that the
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<PAGE> 29
Custodian shall give the Fund notice not less than 75 days in advance of any
modification which would materially adversely affect the Fund's operation, and
the Fund agrees that the Fund shall not modify or attempt to modify the
Terminal Link without the Custodian's prior written consent. The Fund
acknowledges that any software or procedures provided the Fund as part of the
Terminal Link are the property of the Custodian and, accordingly, the Fund
agrees that any modifications to the Terminal Link, whether by the Fund, or by
the Custodian and whether with or without the Custodian's consent, shall become
the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes any
warranties or representations, express or implied, in fact or in law, including
but not limited to warranties of merchantability and fitness for a particular
purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance
with and rely on Certificates received by it through the Terminal Link. The
Fund acknowledges that it is its responsibility to assure that only its
Officers use the Terminal Link on its behalf, and that a Custodian shall not be
responsible nor liable for use of the Terminal Link on the Fund's behalf by
persons other than such persons or Officers, or by only a single Officer, nor
for any alteration, omission or failure to promptly forward.
9. (a). Except as otherwise specifically provided in Section 9(b) of
this Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $25,000; provided, however, that
the Custodian shall have no liability under this Section 9 if the Fund fails to
comply with the provisions of Section 11.
9. (b). The Custodian's liability for its negligence in executing or
failing to execute in accordance with a Certificate received through Terminal
Link shall be only with respect to a transfer of funds which is not made in
accordance with such Certificate after such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon the Fund complying
with the provisions of Section 12 of this Article, and shall be limited to (i)
restoration of the principal amount mistransferred, if and to the extent that
the Custodian would be required to make such restoration under applicable law,
and (ii) the lesser of (A) a Fund's actual pecuniary loss incurred by reason
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<PAGE> 30
of its loss of use of the mistransferred funds or the funds which were not
transferred, as the case may be, or (B) compensation for the loss of the use of
the mistransferred funds or the funds which were not transferred, as the case
may be, at a rate per annum equal to the average federal funds rate as computed
from the Federal Reserve Bank of New York's daily determination of the
effective rate for federal funds, for the period during which a Fund has lost
use of such funds. In no event shall the Custodian have any liability for
failing to execute in accordance with a Certificate a transfer of funds where
the Certificate is received by the Custodian through Terminal Link other than
through the applicable transfer module for the particular instructions
contained in such Certificate.
10. Without limiting the generality of the foregoing, in no event
shall the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or consequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link even if the Custodian
or any manufacturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall the Custodian
or any such manufacturer or supplier be liable for acts of God, or with respect
to the following to the extent beyond such person's reasonable control: machine
or computer breakdown or malfunction, interruption or malfunction of
communication facilities, labor difficulties or any other similar or dissimilar
cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have
occurred through the exercise of reasonable care and (iii) in the case of any
error, the date of actual receipt of the earliest notice which reflects such
error, it being agreed that discovery and receipt of notice may only occur on a
business day. The Custodian shall promptly advise the Fund whenever the
Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.
12. The Custodian shall verify to the Fund, by use of the Terminal
Link, receipt of each Certificate the Custodian receives through the Terminal
Link, and in the absence of such verification the Custodian shall not be liable
for any failure to act in accordance with such Certificate and the Fund may not
claim that such Certificate was received by the Custodian. Such verification,
which may occur after the Custodian has acted upon such Certificate, shall be
accomplished on the same day on which such Certificate is received.
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ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). The Custodian shall be liable
for the acts and omissions of each Foreign Sub-Custodian constituting
negligence or willful misconduct in the conduct of its responsibilities under
the terms of the Foreign Sub-Custodian Agreement. Upon receipt of a
Certificate, together with a certified resolution substantially in the form
attached as Exhibit E of the Fund's Board of Directors, the Fund may designate
any additional foreign sub-custodian with which the Custodian has an agreement
for such entity to act as the Custodian's agent, as its sub-custodian and any
such additional foreign sub-custodian shall be deemed added to Schedule I.
Upon receipt of a Certificate from the Fund, the Custodian shall cease the
employment of any one or more Foreign Sub-Custodians for maintaining custody of
the Fund's assets and such Foreign Sub-Custodian shall be deemed deleted from
Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the
Fund or any Series against a Foreign Sub-Custodian as a consequence of any
loss, damage, cost, expense, liability or claim sustained or incurred by the
Fund or any Series if and to the extent that the Fund or such Series has not
been made whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts
to arrange for the independent accountants
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<PAGE> 32
of the Fund to be afforded access to the books and records of any Foreign
Sub-Custodian insofar as such books and records relate to the performance of
such Foreign Sub-Custodian under its agreement with the Custodian on behalf of
the Fund.
5. The Custodian will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and other assets
of each Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually
agreed upon, information concerning the Foreign Sub- Custodians employed by the
Custodian. Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the Fund's initial approval of such
Foreign Sub-Custodians and, in any event, shall include information pertaining
to (i) the Foreign Custodians' financial strength, general reputation and
standing in the countries in which they are located and their ability to
provide the custodial services required, and (ii) whether the Foreign
Sub-Custodians would provide a level of safeguards for safekeeping and custody
of securities not materially different from those prevailing in the United
States. The Custodian shall monitor the general operating performance of each
Foreign Sub-Custodian, and at least annually obtain and review the annual
financial report published by such Foreign Sub-Custodian to determine that it
meets the financial criteria of an "Eligible Foreign Custodian" under Rule
17f-5(c)(2)(i) or (ii). The Custodian will promptly inform the Fund in the
event that the Custodian learns that a Foreign Sub-Custodian no longer
satisfies the financial criteria of an "Eligible Foreign Custodian" under such
Rule. The Custodian agrees that it will use reasonable care in monitoring
compliance by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign
Sub-Custodian Agreement believed by the Custodian to have a material adverse
effect on the Fund or any Series it will promptly notify the Fund of such
breach. The Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including, without limitation, notices of corporate action, proxies
and proxy solicitation materials.
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<PAGE> 33
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series
and delivery of securities maintained for the account of such Series may be
effected in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
ARTICLE XVII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI,
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or willful
misconduct. In no event shall the Custodian be liable to the Fund or any third
party for special, indirect or consequential damages or lost profits or loss of
business, arising under or in connection with this Agreement, even if
previously informed of the possibility of such damages and regardless of the
form of action. The Custodian may, with respect to questions of law arising
hereunder or under any Margin Account Agreement, apply for and obtain the
advice and opinion of counsel to the Fund or of its own counsel, at the expense
of the Fund, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice or opinion. The
Custodian shall be liable to the Fund for any loss or damage resulting from the
use of the Book-Entry System or any Depository arising by reason of any
negligence or willful misconduct on the part of the Custodian or any of its
employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased,
sold or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
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<PAGE> 34
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or
held by it at any time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the
Custodian shall be under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund
is entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by
the final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions,
34
<PAGE> 35
exchange offers, tenders, interest rate changes or similar matters relating to
Securities held in the Depository, unless the Custodian shall have actually
received timely notice from the Depository. In no event shall the Custodian
have any responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the Depository of any
amount payable upon Securities deposited in the Depository which may mature or
be redeemed, retired, called or otherwise become payable. However, upon
receipt of a Certificate from the Fund of an overdue amount on Securities held
in the Depository the Custodian shall make a claim against the Depository on
behalf of the Fund, except that the Custodian shall not be under any obligation
to appear in, prosecute or defend any action, suit or proceeding in respect of
any Securities held by the Depository which in its opinion may involve it in
expense or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by
a Certificate and (ii) it shall be assured to its satisfaction of reimbursement
of its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund
and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the
35
<PAGE> 36
Custodian, are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation and any expenses with respect to a
Series incurred by the Custodian in the performance of its duties pursuant to
such agreement against any money specifically allocated to such Series. Unless
and until the Fund instructs the Custodian by a Certificate to apportion any
loss, damage, liability or expense among the Series in a specified manner, the
Custodian shall also be entitled to charge against any money held by it for the
account of a Series such Series' pro rata share (based on such Series net asset
value at the time of the charge to the aggregate net asset value of all Series
at that time) of the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses for which the Custodian shall
be entitled to reimbursement hereunder shall include, but are not limited to,
the expenses of sub-custodians and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving the purchase and
sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the
36
<PAGE> 37
accuracy of any statements or representations contained in any such instrument
or other notice including, without limitation, any specification of any amount
to be paid to a broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian
shall provide in hard copy or on micro-film, whichever the Custodian elects,
any records included in any such delivery which are maintained by the Custodian
on a computer disc, or are similarly maintained, and the Fund shall reimburse
the Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Article XVI the Custodian may deliver
and receive Securities, and receipts with respect to such Securities, and
arrange for payments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability
for all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
15. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
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<PAGE> 38
ARTICLE XVIII.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. In the event such notice is given by the Fund, it shall
be accompanied by a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of Directors of
the Fund, certified by the Secretary or any Assistant Secretary, designating a
successor custodian or custodians. In the absence of such designation by the
Fund, the Custodian may designate a successor custodian which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian shall upon receipt of a notice of acceptance by
the successor custodian on that date deliver directly to the successor
custodian all Securities and moneys then owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other amounts for the payment
or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the Book-Entry System
which cannot be delivered to the Fund to hold such Securities hereunder in
accordance with this Agreement.
ARTICLE XIX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees to
furnish to the Custodian a new
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<PAGE> 39
Certificate in similar form in the event any such present Officer ceases to be
an Officer of the Fund, or in the event that other or additional Officers are
elected or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement upon the signatures of the Officers as set forth in the last
delivered Certificate.
2. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its office at the
address for the Fund first above written, or at such other place as the Fund
may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of the Fund's Board of
Directors.
6. This Agreement shall be construed in accordance with the laws of
the State of New York without giving effect to conflict of laws principles
thereof. Each party hereby consents to the jurisdiction of a state or federal
court situated in New York City, New York in connection with any dispute
arising hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
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<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate Officers, thereunto duly authorized
and their respective corporate seals to be hereunto affixed, as of the day and
year first above written.
SENIOR STRATEGIC INCOME
FUND, INC.
(SEAL) By:/s/ ARTHUR ZEIKEL
Attest:
/s/ PATRICK D. SWEENEY
THE BANK OF NEW YORK
(SEAL) By:/s/ JORGE RAMOS
Attest:
___________________________
40
<PAGE> 41
APPENDIX A
I, __________________ , and I, ____________________ , of SENIOR
STRATEGIC INCOME FUND, INC., a Maryland corporation (the "Fund"), do hereby
certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Directors of
the Fund to each such position and qualified therefor in conformity with the
Fund's Articles of Incorporation and By-Laws, and the signatures set forth
opposite their respective names are their true and correct signatures:
Name Position Signature
________________ _____________ __________________
<PAGE> 42
APPENDIX B
I, Jorge Ramos, a Vice President with THE BANK OF NEW YORK, do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
The New York Times
Standard & Poor's Called Bond Record
The Wall Street Journal
<PAGE> 43
EXHIBIT A
CERTIFICATION
The undersigned, _______________________, hereby certifies that he or
she is the duly elected and acting _________________ of SENIOR STRATEGIC INCOME
FUND, INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on ______________, 1994, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
____________, 1994 (the "Custody Agreement"), is authorized and instructed on a
continuous and ongoing basis to deposit in the Book-Entry System, as defined in
the Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize the
Book-Entry System to the extent possible in connection with its performance
thereunder, including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of SENIOR
STRATEGIC INCOME FUND, INC. as of the ______ day of __________, 1994.
__________________________________________
(SEAL)
<PAGE> 44
EXHIBIT B
CERTIFICATION
The undersigned, _______________________, hereby certifies that he or
she is the duly elected and acting ______________ of SENIOR STRATEGIC INCOME
FUND, INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on ________________, 1994, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
________________, 1994 (the "Custody Agreement"), is authorized and instructed
on a continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary to deposit in the
Depository, as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Depository to the extent possible in connection
with its performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of SENIOR
STRATEGIC INCOME FUND, INC. as of the _____ day of _____________, 1994.
____________________________________________
(SEAL)
<PAGE> 45
EXHIBIT B-1
CERTIFICATION
The undersigned, ____________________, hereby certifies that he or she
is the duly elected and acting ____________________ of SENIOR STRATEGIC INCOME
FUND, INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on __________________, 1994, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and
is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
_________________, 1994 (the "Custody Agreement"), is authorized and instructed
on a continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary to deposit in the
Participants Trust Company as Depository, as defined in the Custody Agreement,
all securities eligible for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the Participants Trust
Company to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of SENIOR
STRATEGIC INCOME FUND, INC., as of the _____ day of _______________, 1994.
_______________________________________
(SEAL)
<PAGE> 46
EXHIBIT C
CERTIFICATION
The undersigned, _________________________, hereby certifies that he
or she is the duly elected and acting ________________ of SENIOR STRATEGIC
INCOME FUND, INC., a Maryland corporation (the "Fund"), and further certifies
that the following resolution was adopted by the Board of Directors of the Fund
at a meeting duly held on ______________, 1994, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and
is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
_______________, 1994 (the "Custody Agreement"), is authorized and instructed
on a continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary, to accept, utilize and
act with respect to Clearing Member confirmations for Options and transaction
in Options, regardless of the Series to which the same are specifically
allocated, as such terms are defined in the Custody Agreement, as provided in
the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of SENIOR
STRATEGIC INCOME FUND, INC. as of the _____ day of _______________, 1994.
______________________________________
(SEAL)
<PAGE> 47
EXHIBIT D
The undersigned, _____________________, hereby certifies that he or
she is the duly elected and acting ___________________ of SENIOR STRATEGIC
INCOME FUND, INC., a Maryland corporation (the "Fund"), further certifies that
the following resolutions were adopted by the Board of Directors of the Fund at
a meeting duly held on _____________, 1994, at which a quorum was at all times
present and that such resolutions have not been modified or rescinded and are
in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as of
______________, 1994 (the "Custody Agreement"), is authorized and instructed on
a continuous and ongoing basis to act in accordance with, and to rely on
Certificates (as defined in the Custody Agreement) given by the Fund to the
Custodian by a Terminal Link (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant use of
such access codes only to Officers of the Fund as defined in the Custody
Agreement, shall establish internal safekeeping procedures to safeguard and
protect the confidentiality and availability of such access codes, shall limit
its use of the Terminal Link to those purposes permitted by the Custody
Agreement, shall require at least two such Officers to utilize their respective
access codes in connection with each such Certificate, and shall use the
Terminal Link only in a manner that does not contravene the Investment Company
Act of 1940, as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the establishment
of such access codes and such internal safe-keeping procedures, advise the
Custodian that the same have been established by delivering a Certificate, as
defined in the Custody Agreement, and the Custodian shall be entitled to rely
upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of SENIOR
STRATEGIC INCOME FUND, INC., as of the _____ day of __________, 1994.
____________________________________
(SEAL)
<PAGE> 48
EXHIBIT E
The undersigned, ____________________, hereby certifies that he or she
is the duly elected and acting ___________________, of SENIOR STRATEGIC INCOME
FUND, INC., a Maryland corporation (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Directors of the Fund at a
meeting duly held on ____________, 1994, at which a quorum was at all times
present and that such resolutions have not been modified or rescinded and are
in full force and effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each country
listed in Schedule I hereto be, and hereby is, approved by the Board of
Directors as consistent with the best interests of the Fund and its
shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the foreign
branches of The Bank of New York (the "Bank") listed in Schedule I located in
the countries specified therein, and with the foreign sub-custodians and
depositories listed in Schedule I located in the countries specified therein
be, and hereby is, approved by the Board of Directors as consistent with the
best interest of the Fund and its shareholders; and further
RESOLVED, that the Sub-custodian Agreements presented to this meeting
between the Bank and each of the foreign sub- custodians and depositories
listed in Schedule I providing for the maintenance of the Fund's assets with
the applicable entity, be and hereby are, approved by the Board of Directors as
consistent with the best interests of the Fund and its shareholders; and
further
RESOLVED, that the appropriate Officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign branches
and foreign sub-custodians and depositories as hereinabove provided; and
further
RESOLVED, that the appropriate Officers of the Fund, or any of them,
are authorized to do any and all other acts, in the name of the Fund and on its
behalf, as they, or any of them, may determine to be necessary or desirable and
proper in connection with or in furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of SENIOR
STRATEGIC INCOME FUND, INC., as of the _____ day of __________, 1994.
___________________________________
(SEAL)
<PAGE> 49
SCHEDULE I
Bank of New York Branches
and
Eligible Foreign Custodians
<TABLE>
<CAPTION>
Country Bank Name and Address Status
------- --------------------- ------
<S> <C> <C>
Argentina The First National Bank of Boston Florida 99, 1005 Buenos Correspondent
Aires,
Argentina
Australia Australia and New Zealand Banking Group, Limited Correspondent
35 Elizabeth Street
Melbourne, Australia
Austria GiroCredit Bank Aktiengesellschaft Correspondent
der Sparkassen
A-1011 Wien, Schubertring 5,
Vienna, Austria
Belgium Banque Bruxelles Lambert, S.A. Correspondent
Cours Saint Michel 60
Brussels 1040
Belgium
Brazil The First National Bank of Boston Correspondent
Rua Libero Badaro, 497,
01009 - Sao - SP (Alt 226)
Brazil
Canada Royal Trust Corporation of Canada Correspondent
55 King Street West
Royal Trust Tower, Toronto,
Ontario M5W 1P9, Canada
Chile Banco de Chile Correspondent
Departamento Comisiones de Confianza
Ahumada 251, Piso 3
Santiago
China Standard Chartered Bank Correspondent
8/F Edinburgh Tower
The Landmark, 15 Queens Road Central
Hong Kong
Denmark Den Danske Bank Correspondent
2-12 Holmens Kanal
DK - 1092 Copenhagen K.
Denmark
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
Country Bank Name and Address Status
------- --------------------- ------
<S> <C> <C>
Euromarket Cedel, S.A. Depository
67 Boulevard Grande-Duchesse
Charlotte
L-1010, Luxembourg
Finland Union Bank of Finland Ltd. Correspondent
Aleksanterinkatu 30,
Helsinki, Finland
France Banque Paribas Correspondent
BP 141
3 Rue D'Antin
75078 Paris, France
Germany Dresdner Bank A.G. Correspondent
Jurgen-Ponto-Platz 1 (Alt 207)
6000 Frankfurt 11,
Federal Republic of Germany
Greece Creditbank Correspondent
Banking Relations Division
40 Stadiou Street
GR10252 Athens
Hong Kong The HongKong & Shanghai Banking Correspondent
Corporation
1 Queen's Road Central,
Hong Kong
India The HongKong & Shanghai Banking Correspondent
Corporation
52/60 Mahatma Gandi Road
Bombay 400 001
Indonesia The HongKong & Shanghai Banking Correspondent
Corporation
P.O. Box 2307, Jakarta 1001,
Indonesia
Ireland Allied Irish Bank Correspondent
P.O. Box 518
I.F.S.C.
Dublin 1
Israel Israel Discount Bank Limited Correspondent
27-31 Yehuda Halevi Street
65-546 Tel Aviv
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
Country Bank Name and Address Status
------- --------------------- ------
<S> <C> <C>
Italy Citibank, N.A. Correspondent
Foro Buonaparte, 16
20121 Milano
Italy
Japan The Yasuda Trust & Banking Company, Correspondent
Limited
2-1 Yaesu, 1-Chome
Chuo-ku, Tokyo 103,
Japan
Korea Bank of Seoul Correspondent
10-1, Namdaeman-Ro 2-Ka
Chung-ku, Seoul, 100-092,
Korea
Malaysia The HongKong & Shanghai Banking Correspondent
Corporation Ltd.
2 Leboh Ampang
Kuala Lumpur, Malaysia
Mexico Citibank, N.A. Correspondent
Paseo de la Reforma 390,
Mexico City, 06695
Mexico
Netherlands Amsterdam-Rotterdam Bank, N.V. Correspondent
Kemelstede 2, 4817 St. Breda
New Zealand Australia and New Zealand Banking Correspondent
Group Ltd.
UDC Tower
113-119, The Terrace
Wellington, l
New Zealand
Norway Den norske Bank AS Correspondent
P.O. Box 1171 Sentrum
0107 OSLO 1
Pakistan Standard Chartered Bank Correspondent
Box 4896
Ismail Ibrahim Chundrigar Road
Karachi 2
Philippines The HongKong & Shanghai Banking Correspondent
Corporation Ltd.
San Miguel Avenue
Ortigas Centre
Pasig, Metro Manila
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
Country Bank Name and Address Status
------- --------------------- ------
<S> <C> <C>
Portugal Banco Comercial Portugues Correspondent
Avienda Jose Malhoa
Lote 1686, 7th Floor
1000 Lisbon
Singapore United Overseas Bank Limited Correspondent
1 Bonham Street,
Raffles Place
Singapore
South Africa Standard Bank of South Africa Correspondent
Limited
P.O. Box 3720
Johannesburg 2000
Spain Banco Bilbao Vizcaya, S.A. Correspondent
Clara Del Ray, 26-3 Floor
28002 Madrid
Sri Lanka Standard Chartered Bank Correspondent
P.O. Box 27
17 Janadhipathi Mawatha
Colombo 1
Sweden Skandinaviska Enskilda Banken Correspondent
Jakobsgatan 6
Stockholm, S-106 40
Switzerland Union Bank of Switzerland Correspondent
Bahnhofstrasse, 45
8021 Zurich
Taiwan The HongKong & Shanghai Banking Correspondent
Corporation
333 Section 1, Keelung Road
Taipei 10548
Thailand The Siam Commercial Bank, Ltd. Correspondent
1060 Phetchaburi Road,
Bangkok 10400, Thailand
Turkey Citibank, N.A. Correspondent
Abdi Ipekci Cad. 65
80200 Macka
Istanbul
United The Bank of New York Branch
Kingdom 3 Birchin Lane
London EC3V 9BY
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
Country Bank Name and Address Status
------- --------------------- ------
<S> <C> <C>
Uruguay The Bank of Boston Correspondent
Zabala 1463
Casilla de Correo 90
Montevideo
Venezuela Citibank, N.A. Correspondent
Carmelitas a Altagracia,
Edificio Citibank,
Caracas, 1010, Venezuela
</TABLE>
<PAGE> 54
STANDARD FORM
STOCK TRANSFER AGENCY AGREEMENT
AGREEMENT, made as of March 16, 1994, between Senior Strategic Income
Fund, Inc., a corporation organized and existing under the laws of the state of
Maryland (hereinafter referred to as the "Customer"), and The Bank of New York,
a New York trust company (hereinafter referred to as the "Bank").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
1. "Business Day" shall be deemed to be each day on which the Bank
is open for business.
2. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Bank by the Customer which is signed by any Officer, as hereinafter
defined, and actually received by the Bank.
3. "Officer" shall be deemed to be the Customer's Chief Executive
Officer, President, any Vice President, the Secretary, the Treasurer, the
Controller, any Assistant Treasurer and any Assistant Secretary duly authorized
by the Board of Directors of the Customer to execute any Certificate,
instruction, notice or other instrument on behalf of the Customer and named in
a Certificate, as such Certificate may be amended from time to time.
4. "Prospectus" shall mean the last Customer prospectus actually
received by the Bank from the Customer with respect to which the Customer has
indicated a registration statement under the Securities Act of 1933, as
amended, has become effective, including the Statement of Additional
Information incorporated by reference therein.
5. "Shares" shall mean all or any part of each class of the shares of
capital stock of the Customer which from time to time are authorized and/or
issued by the Customer and identified in a
<PAGE> 55
Certificate of the Secretary of the Customer under corporate seal, as such
Certificate may be amended from time to time.
ARTICLE II
APPOINTMENT OF BANK
1. The Customer hereby constitutes and appoints the Bank as its agent
to perform the services described herein and as more particularly described in
Schedule I attached hereto (the "Services"), and the Bank hereby accepts
appointment as such agent and agrees to perform the Services in accordance with
the terms hereinafter set forth.
2. In connection with such appointment, the Customer shall deliver
the following documents to the Bank:
(a) A certified copy of the Certificate of Incorporation or
other document evidencing the Customer's form of organization (the "Charter")
and all amendments thereto;
(b) A certified copy of the By-Laws of the Customer;
(c) A certified copy of a resolution of the Board of
Directors of the Customer appointing the Bank to perform the Services and
authorizing the execution and delivery of this Agreement;
(d) A Certificate signed by the Secretary of the Customer
specifying: the number of authorized Shares, the number of such authorized
Shares issued and currently outstanding, and the names and specimen signatures
of all persons duly authorized by the Board of Directors of the Customer to
execute any Certificate on behalf of the Customer, as such Certificate may be
amended from time to time;
(e) A Specimen Share certificate for each class of Shares in
the form approved by the Board of Directors of the Customer, together with a
Certificate signed by the Secretary of the Customer as to such approval;
(f) A copy of the Customer's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment thereto,
filed by the Customer with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, together with any applications filed in
connection therewith; and
(g) An opinion of counsel for the Customer with respect to
the validity of the authorized and outstanding Shares, whether such Shares are
fully paid and non-assessable and the status of
2
<PAGE> 56
such Shares under the Securities Act of 1933, as amended, and any other
applicable law or regulation (i.e. if subject to registration, that they have
been registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor).
3. The Customer shall furnish the Bank with a sufficient supply of
blank Share certificates and from time to time will renew such supply upon
request of the Bank. Such blank Share certificates shall be properly signed,
by facsimile or otherwise, by officers of the Customer authorized by law or by
the By-Laws to sign Share certificates, and, if required, shall bear the
corporate seal or a facsimile thereof.
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Customer shall deliver to the Bank the following documents on
or before the effective date of any increase, decrease or other change in the
total number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Charter giving effect to
such increase, decrease or change;
(b) An opinion of counsel for the Customer with respect to the
validity of the Shares and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal law or regulations (i.e.,
if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor); and
(c) In the case of an increase, if the appointment of the Bank was
theretofore expressly limited, a certified copy of a resolution of the Board of
Directors of the Customer increasing the authority of the Bank.
2. Prior to the issuance of any additional Shares pursuant to stock
dividends, stock splits or otherwise, and prior to any reduction in the number
of Shares outstanding, the Customer shall deliver the following documents to
the Bank:
(a) A certified copy of the resolutions adopted by the Board of
Directors and/or the shareholders of the Customer authorizing such issuance of
additional Shares of the Customer or such reduction, as the case may be;
(b) A certified copy of the order or consent of each governmental or
regulatory authority required by law as a
3
<PAGE> 57
prerequisite to the issuance or reduction of such Shares, as the case may be,
and an opinion of counsel for the Customer that no other order or consent is
required; and
(c) An opinion of counsel for the Customer with respect to the
validity of the Shares and the status of such the Shares under the Securities
Act of 1933, as amended, and any other applicable law or regulation (i.e., if
subject to registration, that they have been registered and that the
Registration Statement has become effective, or, if exempt, the specific
grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Bank will issue Share certificates in the new form in exchange for, or upon
transfer of, outstanding Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of Share certificates in
the new form;
(b) A certified copy of any amendment to the Charter with respect to
the change;
(c) Specimen Share certificates for each class of Shares in the new
form approved by the Board of Directors of the Customer, with a Certificate
signed by the Secretary of the Customer as to such approval;
(d) A certified copy of the order or consent of each governmental or
regulatory authority required by law as a prerequisite to the issuance of the
Shares in the new form, and an opinion of counsel for the Customer that the
order or consent of no other governmental or regulatory authority is required;
and
(e) An opinion of counsel for the Customer with respect to the
validity of the Shares in the new form and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable law or regulation
(i.e., if subject to registration that the Shares have been registered and that
the Registration Statement has become effective or, if exempt, the specific
grounds therefor).
2. The Customer shall furnish the Bank with a sufficient supply of
blank Share certificates in the new form, and from time to time will replenish
such supply upon the request of the Bank. Such blank Share certificates shall
be properly signed, by facsimile or otherwise, by Officers of the Customer
authorized by
4
<PAGE> 58
law or by the By-Laws to sign Share certificates and, if required, shall bear
the corporate seal or a facsimile thereof.
ARTICLE V
ISSUANCE AND TRANSFER OF SHARES
1. (a) The Bank will issue Share certificates upon receipt of a
Certificate from an Officer, but shall not be required to issue Share
certificates after it has received from an appropriate federal or state
authority written notification that the sale of Shares has been suspended or
discontinued, and the Bank shall be entitled to rely upon such written
notification. The Bank shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Customer in connection
with the issuance of any shares.
(b) Shares will be transferred upon presentation to the Bank
of Share certificates in form deemed by the Bank properly endorsed for
transfer, accompanied by such documents as the Bank deems necessary to evidence
the authority of the person making such transfer, and bearing satisfactory
evidence of the payment of applicable stock transfer taxes. In the case of
small estates where no administration is contemplated, the Bank may, when
furnished with an appropriate surety bond, and without further approval of the
Customer, transfer Shares registered in the name of the decedent where the
current market value of the Shares being transferred does not exceed such
amount as may from time to time be prescribed by the various states. The Bank
reserves the right to refuse to transfer Shares until it is satisfied that the
endorsements on Share certificates are valid and genuine, and for that purpose
it may require, unless otherwise instructed by an Officer of the Customer, a
guaranty of signature by a member firm of the New York Stock Exchange or by a
bank or trust company acceptable to the Bank. The Bank also reserves the right
to refuse to transfer Shares until it is satisfied that the requested transfer
is legally authorized, and it shall incur no liability for the refusal in good
faith to make transfers which the Bank, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis to any claims
adverse to such transfer. The Bank may, in effecting transfers of Shares, rely
upon those provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of securities, and the Customer
shall indemnify the Bank for any act done or omitted by it in good faith in
reliance upon such laws.
(c) All certificates representing Shares that are subject to
restrictions on transfer (e.g., securities acquired pursuant to an investment
representation, securities held by
5
<PAGE> 59
controlling persons, securities subject to stockholders' agreements, etc.),
other than the general restrictions on the transferability of the Shares
described in the Prospectus, shall be stamped with a legend describing the
extent and conditions of the restrictions or referring to the source of such
restrictions. The Bank assumes no responsibility with respect to the transfer
of restricted securities where counsel for the Customer advises that such
transfer may be properly effected.
(d) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Bank shall be fully protected
by the Customer in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a transfer of Shares whenever the Bank
reasonably believes that requiring the same would be inconsistent with the
transfer procedures as described in the Prospectus.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Customer shall furnish to the Bank a copy of a resolution of
its Board of Directors, certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, the record
date as of which shareholders entitled to payment, or accrual, as the case may
be, shall be determined, the amount per Share of such dividend or distribution,
the payment date on which all previously accrued and unpaid dividends are to be
paid, and the total amount, if any, payable to the Bank on such payment date,
or (ii) authorizing the declaration of dividends and distributions on a
periodic basis and authorizing the Bank to rely on a Certificate setting forth
the information described in subsection (i) of this paragraph.
2. Prior to the payment date specified in such Certificate or
resolution, as the case may be, the Customer shall, in the case of a cash
dividend or distribution, pay to the Bank an amount of cash, sufficient for the
Bank to make the payment, specified in such Certificate or resolution, to the
shareholders of record as of such payment date. The Bank will, upon receipt of
any such cash, (i) in the case of shareholders who are participants in a
dividend reinvestment and/or cash purchase plan of the Customer, reinvest such
cash dividends or distributions in accordance with the terms of such plan, and
(ii) in the case of shareholders who are not participants in any such plan,
make payment of such cash dividends or distributions to the shareholders of
record as of the record date by mailing a check, payable to the registered
shareholder, to the address of record or dividend mailing address. The Bank
shall
6
<PAGE> 60
not be liable for any improper payment made in accordance with a Certificate or
resolution described in the preceding paragraph. If the Bank shall not receive
sufficient cash prior to the payment date to make payments of any cash dividend
or distribution pursuant to subsections (i) and (ii) above to all shareholders
of the Customer as of the record date, the Bank shall, upon notifying the
Customer, withhold payment to all shareholders of the Customer as of the record
date until sufficient cash is provided to the Bank.
3. It is understood that the Bank shall in no way be responsible for
the determination of the rate or form of dividends or distributions due to the
shareholders.
4. It is understood that the Bank shall file such appropriate
information returns concerning the payment of dividends and distributions with
the proper federal, state and local authorities as are required by law to be
filed by the Customer but shall in no way be responsible for the collection or
withholding of taxes due on such dividends or distributions due to
shareholders, except and only to the extent required of it by applicable law.
ARTICLE VII
CONCERNING THE CUSTOMER
1. The Customer shall promptly deliver to the Bank written notice of
any change in the Officers authorized to sign Share certificates, Certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any Officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Bank may issue such Share certificates as the Share certificates of the
Customer notwithstanding such death, resignation or removal, and the Customer
shall promptly deliver to the Bank such approvals, adoptions or ratifications
as may be required by law.
2. Each copy of the Charter of the Customer and copies of all
amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of incorporation, and if such Charter and/or
amendments are required by law also to be filed with a county or other officer
or official body, a certificate of such filing shall be filed with a certified
copy submitted to the Bank. Each copy of the By-Laws and copies of all
amendments thereto, and copies of resolutions of the Board of Directors of the
Customer, shall be certified by the Secretary or an Assistant Secretary of the
Customer under the corporate seal.
7
<PAGE> 61
3. It shall be the sole responsibility of the Customer to deliver to
the Bank the Customer's currently effective Prospectus and, for purposes of
this Agreement, the Bank shall not be deemed to have notice of any information
contained in such Prospectus until it is actually received by the Bank.
ARTICLE VIII
CONCERNING THE BANK
1. The Bank shall not be liable and shall be fully protected in
acting upon any oral instruction, writing or document reasonably believed by it
to be genuine and to have been given, signed or made by the proper person or
persons and shall not be held to have any notice of any change of authority of
any person until receipt of written notice thereof from an Officer of the
Customer. It shall also be protected in processing Share certificates which it
reasonably believes to bear the proper manual or facsimile signatures of the
duly authorized officers of the Customer and the proper countersignature of the
Bank.
2. The Bank may establish such additional procedures, rules and
regulations governing the transfer or registration of Share certificates as it
may deem advisable and consistent with such rules and regulations generally
adopted by bank transfer agents.
3. The Bank may keep such records as it deems advisable but not
inconsistent with resolutions adopted by the Board of Directors of the
Customer. The Bank may deliver to the Customer from time to time at its
discretion, for safekeeping or disposition by the Customer in accordance with
law, such records, papers, Share certificates which have been cancelled in
transfer or exchange and other documents accumulated in the execution of its
duties hereunder as the Bank may deem expedient, other than those which the
Bank is itself required to maintain pursuant to applicable laws and
regulations, and the Customer shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled Share certificate or other
document so returned, if and when required. The records maintained by the Bank
pursuant to this paragraph which have not been previously delivered to the
Customer pursuant to the foregoing provisions of this paragraph shall be
considered to be the property of the Customer, shall be made available upon
request for inspection by the Officers, employees and auditors of the Customer,
and shall be delivered to the Customer upon request and in any event upon the
date of termination of this Agreement, as specified in Article IX of this
Agreement, in the form and manner kept by the Bank on such date of termination
or such earlier date as may be requested by the Customer.
8
<PAGE> 62
4. The Bank may employ agents or attorneys-in-fact at the reasonable
expense of the Customer, and shall not be liable for any loss or expense
arising out of, or in connection with, the actions or omissions to act of its
agents or attorneys-in-fact, so long as the Bank acts in good faith and without
negligence or willful misconduct in connection with the selection of such
agents or attorneys-in-fact.
5. The Bank shall not be liable for any loss or damage, including
reasonable attorney's fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its own negligence or
willful misconduct.
6. The Customer shall indemnify and hold harmless the Bank from and
against any and all claims (whether with or without basis in fact or law),
costs, demands, expenses and liabilities, including reasonable attorney's fees,
which the Bank may sustain or incur or which may be asserted against the Bank
by reason of or as a result of any action taken or omitted to be taken by the
Bank without its own negligence or willful misconduct in reliance upon (i) any
provision of this agreement, (ii) the Prospectus, (iii) any instrument, order
or Share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized Officer of the Customer, (iv)
any Certificate or other instructions of an Officer, (v) any opinion of legal
counsel for the Customer or the Bank, or (vi) any law, act, regulation or any
interpretation of the same even though such law, act or regulation may
thereafter have been altered, changed, amended or repealed.
7. Specifically, but not by way of limitation, the Customer shall
indemnify and hold harmless the Bank from and against any and all claims
(whether with or without basis in fact or law), costs, demands, expenses and
liabilities, including reasonable attorney's fees, of any and every nature
which the Bank may sustain or incur or which may be asserted against the Bank
in connection with the genuineness of a Share certificate, the Bank's capacity
and authorization to issue Shares and the form and amount of authorized Shares.
8. At any time the Bank may apply to an Officer of the Customer for
written instructions with respect to any matter arising in connection with the
Bank's duties and obligations under this Agreement, and the Bank shall not be
liable for any action taken or omitted to be taken by the Bank in good faith in
accordance with such instructions. Such application by the Bank for
instructions from an Officer of the Customer may, at the option of the Bank,
set forth in writing any action proposed to be taken or omitted to be taken by
the Bank with respect to its duties or obligations under this Agreement and the
date on and/or after which such action shall be taken, and the Bank shall not
be liable for
9
<PAGE> 63
any action taken or omitted to be taken in accordance with a proposal included
in any such application on or after the date specified therein unless, prior to
taking or omitting to take any such action, the Bank has received written
instructions in response to such application specifying the action to be taken
or omitted. The Bank may consult counsel to the Customer or its own counsel,
at the expense of the Customer, and shall be fully protected with respect to
anything done or omitted by it in good faith in accordance with the advice or
opinion of such counsel.
9. When mail is used for delivery of non-negotiable Share
certificates, the value of which does not exceed the limits of the Bank's
Blanket Bond, the Bank shall send such non-negotiable Share certificates by
first class mail, and such deliveries will be covered while in transit by the
Bank's Blanket Bond. Non-negotiable Share certificates, the value of which
exceed the limits of the Bank's Blanket Bond, will be sent by insured
registered mail. Negotiable Share certificates will be sent by insured
registered mail. The Bank shall advise the Customer of any Share certificates
returned as undeliverable after being mailed as herein provided for.
10. The Bank may issue new Share certificates in place of Share
certificates represented to have been lost, stolen or destroyed upon receiving
instructions in writing from an Officer and indemnity satisfactory to the Bank.
Such instructions from the Customer shall be in such form as approved by the
Board of Directors of the Customer in accordance with applicable law or the
By-Laws of the Customer governing such matters. If the Bank receives written
notification from the owner of the lost, stolen or destroyed Share certificate
within a reasonable time after he has notice of it, the Bank shall promptly
notify the Customer and shall act pursuant to written instructions signed by an
Officer. If the Customer receives such written notification from the owner of
the lost, stolen or destroyed Share certificate within a reasonable time after
he has notice of it, the Customer shall promptly notify the Bank and the Bank
shall act pursuant to written instructions signed by an Officer. The Bank
shall not be liable for any act done or omitted by it pursuant to the written
instructions described herein. The Bank may issue new Share certificates in
exchange for, and upon surrender of, mutilated Share certificates.
11. The Bank will issue and mail subscription warrants for Shares,
Shares representing stock dividends, exchanges or splits, or act as conversion
agent upon receiving written instructions from an Officer and such other
documents as the Bank may deem necessary.
12. The Bank will supply shareholder lists to the Customer from time
to time upon receiving a request therefor from an Officer of the Customer.
10
<PAGE> 64
13. In case of any requests or demands for the inspection of the
shareholder records of the Customer, the Bank will notify the Customer and
endeavor to secure instructions from an officer as to such inspection. The
Bank reserves the right, however, to exhibit the shareholder records to any
person whenever it is advised by its counsel that there is a reasonable
likelihood that the Bank will be held liable for the failure to exhibit the
shareholder records to such person.
14. At the request of an Officer, the Bank will address and mail such
appropriate notices to shareholders as the Customer may direct.
15. Notwithstanding any provisions of this Agreement to the contrary,
the Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:
(a) The legality of the issue, sale or transfer of any Shares, the
sufficiency of the amount to be received in connection therewith, or the
authority of the Customer to request such issuance, sale or transfer;
(b) The legality of the purchase of any Shares, the sufficiency of
the amount to be paid in connection therewith, or the authority of the Customer
to request such purchase;
(c) The legality of the declaration of any dividend by the Customer,
or the legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of the
Shares.
16. The Bank shall be entitled to receive and the Customer hereby
agrees to pay to the Bank for its performance hereunder (i) out-of-pocket
expenses (including legal expenses and attorney's fees) incurred in connection
with this Agreement and its performance hereunder, and (ii) the compensation
for services as set forth in Schedule I.
17. The Bank shall not be responsible for any money, whether or not
represented by any check, draft or other instrument for the payment of money,
received by it on behalf of the Customer, until the Bank actually receives and
collects such funds.
18. The Bank shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied against the Bank in
connection with this Agreement.
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ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Customer, it shall be accompanied by a
copy of a resolution of the Board of Directors of the Customer, certified by
the Secretary electing to terminate this Agreement and designating a successor
transfer agent or transfer agents. In the event such notice is given by the
Bank, the Customer shall, on or before the termination date, deliver to the
Bank a copy of a resolution of its Board of Directors certified by the
Secretary designating a successor transfer agent or transfer agents. In the
absence of such designation by the Customer, the Bank may designate a successor
transfer agent. If the Customer fails to designate a successor transfer agent
and if the Bank is unable to find a successor transfer agent, the Customer
shall, upon the date specified in the notice of termination of this Agreement
and delivery of the records maintained hereunder, be deemed to be its own
transfer agent and the Bank shall thereafter be relieved of all duties and
responsibilities hereunder. Upon termination hereof, the Customer shall pay to
the Bank such compensation as may be due to the Bank as of the date of such
termination, and shall reimburse the Bank for any disbursements and expenses
made or incurred by the Bank and payable or reimbursable hereunder.
ARTICLE X
MISCELLANEOUS
1. The Customer agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of the Bank
hereunder, it shall advise the Bank of such proposed change at least 30 days
prior to the intended date of the same, and shall proceed with such change only
if it shall have received the written consent of the Bank thereto.
2. The indemnities contained herein shall be continuing obligations
of the Customer, its successors and assigns, notwithstanding the termination of
this Agreement.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Customer shall be sufficiently given if
addressed to the Customer and mailed or delivered to it at 800 Scudders Mill
Road, Plainsboro, NJ 08536 or at such other place as the Customer may from time
to time designate in writing.
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4. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Bank shall be sufficiently given if
addressed to the Bank and mailed or delivered to it at its office at 101
Barclay Street (12W), New York, New York 10286 or at such other place as the
Bank may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except
by a written agreement duly authorized and executed by both parties. Any duly
authorized Officer may amend any Certificate naming Officers authorized to
execute and deliver Certificates, instructions, notices or other instruments,
and the Secretary or any Assistant Secretary may amend any Certificate listing
the shares of capital stock of the Customer for which the Bank performs
Services hereunder.
6. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by either party without the prior
written consent of the other party.
7. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
8. This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original; but such counterparts, together,
shall constitute only one instrument.
9. The provisions of this Agreement are intended to benefit only the
Bank and the Customer, and no rights shall be granted to any other person, by
virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate officer, thereunto duly authorized
and their respective corporate seals to be hereunto affixed, as of the day and
year first above written.
Attest: SENIOR STRATEGIC INCOME FUND, INC.
/s/ PATRICK D. SWEENEY BY: /s/ ARTHUR ZEIKEL
Title:____________________________
Attest: THE BANK OF NEW YORK
/s/ William J. Skinner
________________________ BY:_______________________________
Vice President
Title:____________________________
13
<PAGE> 1
STANDARD FORM
STOCK TRANSFER AGENCY AGREEMENT
AGREEMENT, made as of March 16, 1994, between Senior Strategic Income
Fund, Inc., a corporation organized and existing under the laws of the state of
Maryland (hereinafter referred to as the "Customer"), and The Bank of New York,
a New York trust company (hereinafter referred to as the "Bank").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
1. "Business Day" shall be deemed to be each day on which the Bank
is open for business.
2. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Bank by the Customer which is signed by any Officer, as hereinafter
defined, and actually received by the Bank.
3. "Officer" shall be deemed to be the Customer's Chief Executive
Officer, President, any Vice President, the Secretary, the Treasurer, the
Controller, any Assistant Treasurer and any Assistant Secretary duly authorized
by the Board of Directors of the Customer to execute any Certificate,
instruction, notice or other instrument on behalf of the Customer and named in
a Certificate, as such Certificate may be amended from time to time.
4. "Prospectus" shall mean the last Customer prospectus actually
received by the Bank from the Customer with respect to which the Customer has
indicated a registration statement under the Securities Act of 1933, as
amended, has become effective, including the Statement of Additional
Information incorporated by reference therein.
5. "Shares" shall mean all or any part of each class of the shares of
capital stock of the Customer which from time to time are authorized and/or
issued by the Customer and identified in a
<PAGE> 2
Certificate of the Secretary of the Customer under corporate seal, as such
Certificate may be amended from time to time.
ARTICLE II
APPOINTMENT OF BANK
1. The Customer hereby constitutes and appoints the Bank as its agent
to perform the services described herein and as more particularly described in
Schedule I attached hereto (the "Services"), and the Bank hereby accepts
appointment as such agent and agrees to perform the Services in accordance with
the terms hereinafter set forth.
2. In connection with such appointment, the Customer shall deliver
the following documents to the Bank:
(a) A certified copy of the Certificate of Incorporation or
other document evidencing the Customer's form of organization (the "Charter")
and all amendments thereto;
(b) A certified copy of the By-Laws of the Customer;
(c) A certified copy of a resolution of the Board of
Directors of the Customer appointing the Bank to perform the Services and
authorizing the execution and delivery of this Agreement;
(d) A Certificate signed by the Secretary of the Customer
specifying: the number of authorized Shares, the number of such authorized
Shares issued and currently outstanding, and the names and specimen signatures
of all persons duly authorized by the Board of Directors of the Customer to
execute any Certificate on behalf of the Customer, as such Certificate may be
amended from time to time;
(e) A Specimen Share certificate for each class of Shares in
the form approved by the Board of Directors of the Customer, together with a
Certificate signed by the Secretary of the Customer as to such approval;
(f) A copy of the Customer's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment thereto,
filed by the Customer with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, together with any applications filed in
connection therewith; and
(g) An opinion of counsel for the Customer with respect to
the validity of the authorized and outstanding Shares, whether such Shares are
fully paid and non-assessable and the status of
2
<PAGE> 3
such Shares under the Securities Act of 1933, as amended, and any other
applicable law or regulation (i.e. if subject to registration, that they have
been registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor).
3. The Customer shall furnish the Bank with a sufficient supply of
blank Share certificates and from time to time will renew such supply upon
request of the Bank. Such blank Share certificates shall be properly signed,
by facsimile or otherwise, by officers of the Customer authorized by law or by
the By-Laws to sign Share certificates, and, if required, shall bear the
corporate seal or a facsimile thereof.
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Customer shall deliver to the Bank the following documents on
or before the effective date of any increase, decrease or other change in the
total number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Charter giving effect to
such increase, decrease or change;
(b) An opinion of counsel for the Customer with respect to the
validity of the Shares and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal law or regulations (i.e.,
if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor); and
(c) In the case of an increase, if the appointment of the Bank was
theretofore expressly limited, a certified copy of a resolution of the Board of
Directors of the Customer increasing the authority of the Bank.
2. Prior to the issuance of any additional Shares pursuant to stock
dividends, stock splits or otherwise, and prior to any reduction in the number
of Shares outstanding, the Customer shall deliver the following documents to
the Bank:
(a) A certified copy of the resolutions adopted by the Board of
Directors and/or the shareholders of the Customer authorizing such issuance of
additional Shares of the Customer or such reduction, as the case may be;
(b) A certified copy of the order or consent of each governmental or
regulatory authority required by law as a
3
<PAGE> 4
prerequisite to the issuance or reduction of such Shares, as the case may be,
and an opinion of counsel for the Customer that no other order or consent is
required; and
(c) An opinion of counsel for the Customer with respect to the
validity of the Shares and the status of such the Shares under the Securities
Act of 1933, as amended, and any other applicable law or regulation (i.e., if
subject to registration, that they have been registered and that the
Registration Statement has become effective, or, if exempt, the specific
grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Bank will issue Share certificates in the new form in exchange for, or upon
transfer of, outstanding Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of Share certificates in
the new form;
(b) A certified copy of any amendment to the Charter with respect to
the change;
(c) Specimen Share certificates for each class of Shares in the new
form approved by the Board of Directors of the Customer, with a Certificate
signed by the Secretary of the Customer as to such approval;
(d) A certified copy of the order or consent of each governmental or
regulatory authority required by law as a prerequisite to the issuance of the
Shares in the new form, and an opinion of counsel for the Customer that the
order or consent of no other governmental or regulatory authority is required;
and
(e) An opinion of counsel for the Customer with respect to the
validity of the Shares in the new form and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable law or regulation
(i.e., if subject to registration that the Shares have been registered and that
the Registration Statement has become effective or, if exempt, the specific
grounds therefor).
2. The Customer shall furnish the Bank with a sufficient supply of
blank Share certificates in the new form, and from time to time will replenish
such supply upon the request of the Bank. Such blank Share certificates shall
be properly signed, by facsimile or otherwise, by Officers of the Customer
authorized by
4
<PAGE> 5
law or by the By-Laws to sign Share certificates and, if required, shall bear
the corporate seal or a facsimile thereof.
ARTICLE V
ISSUANCE AND TRANSFER OF SHARES
1. (a) The Bank will issue Share certificates upon receipt of a
Certificate from an Officer, but shall not be required to issue Share
certificates after it has received from an appropriate federal or state
authority written notification that the sale of Shares has been suspended or
discontinued, and the Bank shall be entitled to rely upon such written
notification. The Bank shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Customer in connection
with the issuance of any shares.
(b) Shares will be transferred upon presentation to the Bank
of Share certificates in form deemed by the Bank properly endorsed for
transfer, accompanied by such documents as the Bank deems necessary to evidence
the authority of the person making such transfer, and bearing satisfactory
evidence of the payment of applicable stock transfer taxes. In the case of
small estates where no administration is contemplated, the Bank may, when
furnished with an appropriate surety bond, and without further approval of the
Customer, transfer Shares registered in the name of the decedent where the
current market value of the Shares being transferred does not exceed such
amount as may from time to time be prescribed by the various states. The Bank
reserves the right to refuse to transfer Shares until it is satisfied that the
endorsements on Share certificates are valid and genuine, and for that purpose
it may require, unless otherwise instructed by an Officer of the Customer, a
guaranty of signature by a member firm of the New York Stock Exchange or by a
bank or trust company acceptable to the Bank. The Bank also reserves the right
to refuse to transfer Shares until it is satisfied that the requested transfer
is legally authorized, and it shall incur no liability for the refusal in good
faith to make transfers which the Bank, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis to any claims
adverse to such transfer. The Bank may, in effecting transfers of Shares, rely
upon those provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of securities, and the Customer
shall indemnify the Bank for any act done or omitted by it in good faith in
reliance upon such laws.
(c) All certificates representing Shares that are subject to
restrictions on transfer (e.g., securities acquired pursuant to an investment
representation, securities held by
5
<PAGE> 6
controlling persons, securities subject to stockholders' agreements, etc.),
other than the general restrictions on the transferability of the Shares
described in the Prospectus, shall be stamped with a legend describing the
extent and conditions of the restrictions or referring to the source of such
restrictions. The Bank assumes no responsibility with respect to the transfer
of restricted securities where counsel for the Customer advises that such
transfer may be properly effected.
(d) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Bank shall be fully protected
by the Customer in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a transfer of Shares whenever the Bank
reasonably believes that requiring the same would be inconsistent with the
transfer procedures as described in the Prospectus.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Customer shall furnish to the Bank a copy of a resolution of
its Board of Directors, certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, the record
date as of which shareholders entitled to payment, or accrual, as the case may
be, shall be determined, the amount per Share of such dividend or distribution,
the payment date on which all previously accrued and unpaid dividends are to be
paid, and the total amount, if any, payable to the Bank on such payment date,
or (ii) authorizing the declaration of dividends and distributions on a
periodic basis and authorizing the Bank to rely on a Certificate setting forth
the information described in subsection (i) of this paragraph.
2. Prior to the payment date specified in such Certificate or
resolution, as the case may be, the Customer shall, in the case of a cash
dividend or distribution, pay to the Bank an amount of cash, sufficient for the
Bank to make the payment, specified in such Certificate or resolution, to the
shareholders of record as of such payment date. The Bank will, upon receipt of
any such cash, (i) in the case of shareholders who are participants in a
dividend reinvestment and/or cash purchase plan of the Customer, reinvest such
cash dividends or distributions in accordance with the terms of such plan, and
(ii) in the case of shareholders who are not participants in any such plan,
make payment of such cash dividends or distributions to the shareholders of
record as of the record date by mailing a check, payable to the registered
shareholder, to the address of record or dividend mailing address. The Bank
shall
6
<PAGE> 7
not be liable for any improper payment made in accordance with a Certificate or
resolution described in the preceding paragraph. If the Bank shall not receive
sufficient cash prior to the payment date to make payments of any cash dividend
or distribution pursuant to subsections (i) and (ii) above to all shareholders
of the Customer as of the record date, the Bank shall, upon notifying the
Customer, withhold payment to all shareholders of the Customer as of the record
date until sufficient cash is provided to the Bank.
3. It is understood that the Bank shall in no way be responsible for
the determination of the rate or form of dividends or distributions due to the
shareholders.
4. It is understood that the Bank shall file such appropriate
information returns concerning the payment of dividends and distributions with
the proper federal, state and local authorities as are required by law to be
filed by the Customer but shall in no way be responsible for the collection or
withholding of taxes due on such dividends or distributions due to
shareholders, except and only to the extent required of it by applicable law.
ARTICLE VII
CONCERNING THE CUSTOMER
1. The Customer shall promptly deliver to the Bank written notice of
any change in the Officers authorized to sign Share certificates, Certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any Officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Bank may issue such Share certificates as the Share certificates of the
Customer notwithstanding such death, resignation or removal, and the Customer
shall promptly deliver to the Bank such approvals, adoptions or ratifications
as may be required by law.
2. Each copy of the Charter of the Customer and copies of all
amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of incorporation, and if such Charter and/or
amendments are required by law also to be filed with a county or other officer
or official body, a certificate of such filing shall be filed with a certified
copy submitted to the Bank. Each copy of the By-Laws and copies of all
amendments thereto, and copies of resolutions of the Board of Directors of the
Customer, shall be certified by the Secretary or an Assistant Secretary of the
Customer under the corporate seal.
7
<PAGE> 8
3. It shall be the sole responsibility of the Customer to deliver to
the Bank the Customer's currently effective Prospectus and, for purposes of
this Agreement, the Bank shall not be deemed to have notice of any information
contained in such Prospectus until it is actually received by the Bank.
ARTICLE VIII
CONCERNING THE BANK
1. The Bank shall not be liable and shall be fully protected in
acting upon any oral instruction, writing or document reasonably believed by it
to be genuine and to have been given, signed or made by the proper person or
persons and shall not be held to have any notice of any change of authority of
any person until receipt of written notice thereof from an Officer of the
Customer. It shall also be protected in processing Share certificates which it
reasonably believes to bear the proper manual or facsimile signatures of the
duly authorized officers of the Customer and the proper countersignature of the
Bank.
2. The Bank may establish such additional procedures, rules and
regulations governing the transfer or registration of Share certificates as it
may deem advisable and consistent with such rules and regulations generally
adopted by bank transfer agents.
3. The Bank may keep such records as it deems advisable but not
inconsistent with resolutions adopted by the Board of Directors of the
Customer. The Bank may deliver to the Customer from time to time at its
discretion, for safekeeping or disposition by the Customer in accordance with
law, such records, papers, Share certificates which have been cancelled in
transfer or exchange and other documents accumulated in the execution of its
duties hereunder as the Bank may deem expedient, other than those which the
Bank is itself required to maintain pursuant to applicable laws and
regulations, and the Customer shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled Share certificate or other
document so returned, if and when required. The records maintained by the Bank
pursuant to this paragraph which have not been previously delivered to the
Customer pursuant to the foregoing provisions of this paragraph shall be
considered to be the property of the Customer, shall be made available upon
request for inspection by the Officers, employees and auditors of the Customer,
and shall be delivered to the Customer upon request and in any event upon the
date of termination of this Agreement, as specified in Article IX of this
Agreement, in the form and manner kept by the Bank on such date of termination
or such earlier date as may be requested by the Customer.
8
<PAGE> 9
4. The Bank may employ agents or attorneys-in-fact at the reasonable
expense of the Customer, and shall not be liable for any loss or expense
arising out of, or in connection with, the actions or omissions to act of its
agents or attorneys-in-fact, so long as the Bank acts in good faith and without
negligence or willful misconduct in connection with the selection of such
agents or attorneys-in-fact.
5. The Bank shall not be liable for any loss or damage, including
reasonable attorney's fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its own negligence or
willful misconduct.
6. The Customer shall indemnify and hold harmless the Bank from and
against any and all claims (whether with or without basis in fact or law),
costs, demands, expenses and liabilities, including reasonable attorney's fees,
which the Bank may sustain or incur or which may be asserted against the Bank
by reason of or as a result of any action taken or omitted to be taken by the
Bank without its own negligence or willful misconduct in reliance upon (i) any
provision of this agreement, (ii) the Prospectus, (iii) any instrument, order
or Share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized Officer of the Customer, (iv)
any Certificate or other instructions of an Officer, (v) any opinion of legal
counsel for the Customer or the Bank, or (vi) any law, act, regulation or any
interpretation of the same even though such law, act or regulation may
thereafter have been altered, changed, amended or repealed.
7. Specifically, but not by way of limitation, the Customer shall
indemnify and hold harmless the Bank from and against any and all claims
(whether with or without basis in fact or law), costs, demands, expenses and
liabilities, including reasonable attorney's fees, of any and every nature
which the Bank may sustain or incur or which may be asserted against the Bank
in connection with the genuineness of a Share certificate, the Bank's capacity
and authorization to issue Shares and the form and amount of authorized Shares.
8. At any time the Bank may apply to an Officer of the Customer for
written instructions with respect to any matter arising in connection with the
Bank's duties and obligations under this Agreement, and the Bank shall not be
liable for any action taken or omitted to be taken by the Bank in good faith in
accordance with such instructions. Such application by the Bank for
instructions from an Officer of the Customer may, at the option of the Bank,
set forth in writing any action proposed to be taken or omitted to be taken by
the Bank with respect to its duties or obligations under this Agreement and the
date on and/or after which such action shall be taken, and the Bank shall not
be liable for
9
<PAGE> 10
any action taken or omitted to be taken in accordance with a proposal included
in any such application on or after the date specified therein unless, prior to
taking or omitting to take any such action, the Bank has received written
instructions in response to such application specifying the action to be taken
or omitted. The Bank may consult counsel to the Customer or its own counsel,
at the expense of the Customer, and shall be fully protected with respect to
anything done or omitted by it in good faith in accordance with the advice or
opinion of such counsel.
9. When mail is used for delivery of non-negotiable Share
certificates, the value of which does not exceed the limits of the Bank's
Blanket Bond, the Bank shall send such non-negotiable Share certificates by
first class mail, and such deliveries will be covered while in transit by the
Bank's Blanket Bond. Non-negotiable Share certificates, the value of which
exceed the limits of the Bank's Blanket Bond, will be sent by insured
registered mail. Negotiable Share certificates will be sent by insured
registered mail. The Bank shall advise the Customer of any Share certificates
returned as undeliverable after being mailed as herein provided for.
10. The Bank may issue new Share certificates in place of Share
certificates represented to have been lost, stolen or destroyed upon receiving
instructions in writing from an Officer and indemnity satisfactory to the Bank.
Such instructions from the Customer shall be in such form as approved by the
Board of Directors of the Customer in accordance with applicable law or the
By-Laws of the Customer governing such matters. If the Bank receives written
notification from the owner of the lost, stolen or destroyed Share certificate
within a reasonable time after he has notice of it, the Bank shall promptly
notify the Customer and shall act pursuant to written instructions signed by an
Officer. If the Customer receives such written notification from the owner of
the lost, stolen or destroyed Share certificate within a reasonable time after
he has notice of it, the Customer shall promptly notify the Bank and the Bank
shall act pursuant to written instructions signed by an Officer. The Bank
shall not be liable for any act done or omitted by it pursuant to the written
instructions described herein. The Bank may issue new Share certificates in
exchange for, and upon surrender of, mutilated Share certificates.
11. The Bank will issue and mail subscription warrants for Shares,
Shares representing stock dividends, exchanges or splits, or act as conversion
agent upon receiving written instructions from an Officer and such other
documents as the Bank may deem necessary.
12. The Bank will supply shareholder lists to the Customer from time
to time upon receiving a request therefor from an Officer of the Customer.
10
<PAGE> 11
13. In case of any requests or demands for the inspection of the
shareholder records of the Customer, the Bank will notify the Customer and
endeavor to secure instructions from an officer as to such inspection. The
Bank reserves the right, however, to exhibit the shareholder records to any
person whenever it is advised by its counsel that there is a reasonable
likelihood that the Bank will be held liable for the failure to exhibit the
shareholder records to such person.
14. At the request of an Officer, the Bank will address and mail such
appropriate notices to shareholders as the Customer may direct.
15. Notwithstanding any provisions of this Agreement to the contrary,
the Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:
(a) The legality of the issue, sale or transfer of any Shares, the
sufficiency of the amount to be received in connection therewith, or the
authority of the Customer to request such issuance, sale or transfer;
(b) The legality of the purchase of any Shares, the sufficiency of
the amount to be paid in connection therewith, or the authority of the Customer
to request such purchase;
(c) The legality of the declaration of any dividend by the Customer,
or the legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of the
Shares.
16. The Bank shall be entitled to receive and the Customer hereby
agrees to pay to the Bank for its performance hereunder (i) out-of-pocket
expenses (including legal expenses and attorney's fees) incurred in connection
with this Agreement and its performance hereunder, and (ii) the compensation
for services as set forth in Schedule I.
17. The Bank shall not be responsible for any money, whether or not
represented by any check, draft or other instrument for the payment of money,
received by it on behalf of the Customer, until the Bank actually receives and
collects such funds.
18. The Bank shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied against the Bank in
connection with this Agreement.
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<PAGE> 12
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Customer, it shall be accompanied by a
copy of a resolution of the Board of Directors of the Customer, certified by
the Secretary electing to terminate this Agreement and designating a successor
transfer agent or transfer agents. In the event such notice is given by the
Bank, the Customer shall, on or before the termination date, deliver to the
Bank a copy of a resolution of its Board of Directors certified by the
Secretary designating a successor transfer agent or transfer agents. In the
absence of such designation by the Customer, the Bank may designate a successor
transfer agent. If the Customer fails to designate a successor transfer agent
and if the Bank is unable to find a successor transfer agent, the Customer
shall, upon the date specified in the notice of termination of this Agreement
and delivery of the records maintained hereunder, be deemed to be its own
transfer agent and the Bank shall thereafter be relieved of all duties and
responsibilities hereunder. Upon termination hereof, the Customer shall pay to
the Bank such compensation as may be due to the Bank as of the date of such
termination, and shall reimburse the Bank for any disbursements and expenses
made or incurred by the Bank and payable or reimbursable hereunder.
ARTICLE X
MISCELLANEOUS
1. The Customer agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of the Bank
hereunder, it shall advise the Bank of such proposed change at least 30 days
prior to the intended date of the same, and shall proceed with such change only
if it shall have received the written consent of the Bank thereto.
2. The indemnities contained herein shall be continuing obligations
of the Customer, its successors and assigns, notwithstanding the termination of
this Agreement.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Customer shall be sufficiently given if
addressed to the Customer and mailed or delivered to it at 800 Scudders Mill
Road, Plainsboro, NJ 08536 or at such other place as the Customer may from time
to time designate in writing.
12
<PAGE> 13
4. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Bank shall be sufficiently given if
addressed to the Bank and mailed or delivered to it at its office at 101
Barclay Street (12W), New York, New York 10286 or at such other place as the
Bank may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except
by a written agreement duly authorized and executed by both parties. Any duly
authorized Officer may amend any Certificate naming Officers authorized to
execute and deliver Certificates, instructions, notices or other instruments,
and the Secretary or any Assistant Secretary may amend any Certificate listing
the shares of capital stock of the Customer for which the Bank performs
Services hereunder.
6. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by either party without the prior
written consent of the other party.
7. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
8. This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original; but such counterparts, together,
shall constitute only one instrument.
9. The provisions of this Agreement are intended to benefit only the
Bank and the Customer, and no rights shall be granted to any other person, by
virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate officer, thereunto duly authorized
and their respective corporate seals to be hereunto affixed, as of the day and
year first above written.
Attest: SENIOR STRATEGIC INCOME FUND, INC.
/s/ PATRICK D. SWEENEY BY: /s/ ARTHUR ZEIKEL
Title:____________________________
Attest: THE BANK OF NEW YORK
/s/ William J. Skinner
________________________ BY:_______________________________
Vice President
Title:____________________________
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<PAGE> 1
BROWN & WOOD
One World Trade Center
New York, N.Y. 10048-0557
Telephone: 212-839-5300
Facsimile: 212-839-5599
March 31, 1994
Senior Strategic Income Fund, Inc.
800 Scudders Mill Road
Princeton, New Jersey 08536
Dear Sirs:
This opinion is being furnished in connection with the registration by
Senior Strategic Income Fund, Inc., a Maryland corporation (the "Fund"), of
shares of common stock, par value $0.10 per share (the "Shares"), under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
Fund's registration statement on Form N-2, as amended (the "Registration
Statement") under the Securities Act, in the amount set forth under "Amount
Being Registered" on the facing page of the Registration Statement.
As counsel for the Fund, we are familiar with the proceedings taken by
it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Articles of Incorporation
of the Fund, as amended, the By-Laws of the Fund, and such other documents as
we have deemed relevant to the matters referred to in this opinion.
<PAGE> 2
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, will
be legally issued, fully paid and non-assessable shares of common stock of the
Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus
constituting a part thereof.
Very truly yours,
/s/ BROWN & WOOD
2
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
Senior Strategic Income Fund, Inc.
We consent to the use in Post-Effective Amendment No. 2 to Registration
Statement No. 33-51395 of our report dated March 21, 1994, and to the reference
to us under the caption "Experts" both of which appear in the Prospectus, which
also is a part of such Registration Statement.
Deloitte & Touche
Princeton, New Jersey
March 30, 1994
<PAGE> 1
CERTIFICATE OF SOLE STOCKHOLDER
Fund Asset Management, L.P. ("FAM"), the holder of 10,527 shares of
common stock, par value $0.10 per share, of Senior Strategic Income Fund, Inc.
(the "Fund"), a Maryland corporation, does hereby confirm to the Fund its
representation that it purchased such shares for investment purposes, with no
present intention of redeeming or reselling any portion thereof, and does
further agree that if it redeems (by tender offer or otherwise) any portion of
such shares prior to the amortization of the Fund's organizational expenses,
the proceeds thereof will be reduced by the proportionate amount of unamortized
organizational expenses which the number of shares being redeemed bears to the
number of shares initially purchased and outstanding at the time of redemption.
FAM further agrees that in the event such shares are sold or otherwise
transferred to any other party, that prior to such sale or transfer FAM will
obtain on behalf of the Fund an agreement from such other party to comply with
the foregoing as to the reduction of redemption proceeds and to obtain a
similar agreement from any transferee of such party.
FUND ASSET MANAGEMENT, L.P.
By:/s/ N. John Hewitt
Authorized Signatory
Dated: March 22, 1994
