Exhibit (d)(1)
FORM OF ARTICLES SUPPLEMENTARY
CNA INCOME SHARES, INC.
Articles Supplementary
Auction Rate Cumulative Preferred Shares, Series T
CNA Income Shares, Inc., a Maryland corporation having its principal
Maryland office in the City of Baltimore in the State of Maryland (the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: Under a power contained in Article FIFTH of the charter of the
Corporation (the "Charter") the Board of Directors of the Corporation, and a
duly authorized committee thereof, by duly adopted resolutions classified and
designated 1,200 shares of Preferred Stock (as defined in the Charter) as shares
of Auction Rate Cumulative Preferred Shares, Series T, liquidation preference
$25,000 per share (the "Preferred Shares"), with the following preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, and terms and conditions of
redemption, which, upon any restatement of the Charter, shall become part of
Article FIFTH of the Charter, with any necessary or appropriate renumbering or
relettering of the sections or subsections hereof.
AUCTION RATE CUMULATIVE PREFERRED SHARES, SERIES T
1,200 shares of the preferred stock, par value $0.01 per share, liquidation
preference $25,000 per share, are hereby classified and designated Auction Rate
Cumulative Preferred Shares, Series T ("Preferred Shares"). Each share of the
Preferred Shares shall have an Applicable Rate for its initial Dividend Period
equal to 3.8% per annum and an initial Dividend Payment Date of August 1, 2001;
and each share of the Preferred Shares shall have such other preferences,
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption, in
addition to those required by applicable law as are set forth in Part I and Part
II hereof. Subject to the provisions of Section 11(b) of Part I hereof, the
Board of Directors of the Corporation may, in the future, reclassify additional
shares of the Corporation's stock as Preferred Shares, with the same
preferences, rights, voting powers, restrictions, limitations as to dividends
and other distributions, qualifications and terms and conditions of redemption
and other terms herein described, except that the Applicable Rate for its
initial Dividend Period, its initial Dividend Payment Date and any other changes
in the terms herein set forth shall be as set forth in the Articles
Supplementary reclassifying such shares as Preferred Shares.
As used in Part I and Part II of these Articles Supplementary, capitalized
terms shall have the meanings provided in Section 17 of Part I and Section 1 of
Part II of these Articles Supplementary.
PART 1: PREFERRED SHARE TERMS
1. Number of Shares; Ranking.
(a) The initial number of authorized shares constituting the Preferred
Shares is 1,200 shares. No fractional Preferred Shares shall be issued.
(b) Any Preferred Shares which at any time have been redeemed or purchased
by the Corporation shall, after such redemption or purchase, have the status of
authorized but unissued shares of preferred stock.
(c) The Preferred Shares shall rank on a parity with shares of any other
class or series of preferred stock of the Corporation as to the payment of
dividends to which such shares are entitled and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Corporation.
(d) No Holder of Preferred Shares shall have, solely by reason of being
such a holder, any preemptive or other right to acquire, purchase or subscribe
for any Preferred Shares, shares of Common Stock of the Corporation or other
securities of the Corporation which it may hereafter issue or sell.
2. DIVIDENDS.
(a) The Holders of Preferred Shares shall be entitled to receive, when, as
and if authorized and declared by the Board of Directors, out of funds legally
available therefor, cumulative cash dividends on their shares at the Applicable
Rate, determined as set forth in paragraph (c) of this Section 2, and no more,
payable on the respective dates determined as set forth in paragraph (b) of this
Section 2. Dividends on the Outstanding Preferred Shares issued on the Date of
Original Issue shall accumulate from the Date of Original Issue.
(b) (i) Dividends shall be payable when, as and if authorized and declared
by the Board of Directors following the initial Dividend Payment Date, subject
to subparagraph (b)(ii) of this Section 2, on the Preferred Shares, as follows:
(A) with respect to any Dividend Period of one year or less, on
the Business Day following the last day of such Dividend Period; provided,
however, if the Dividend Period is more than 91 days then on the 91st, 181st and
271st days within such period, if applicable, and on the Business Day following
the last day of such Dividend Period; and
(B) with respect to any Dividend Period of more than one year, on
a quarterly basis on each January 1, April 1, July 1 and October 1 within such
Dividend Period and on the Business Day following the last day of such Dividend
Period.
(ii) If a day for payment of dividends resulting from the application
of subparagraph (b)(i) above is not a Business Day, then the Dividend Payment
Date shall be the first Business Day following such day for payment of
dividends.
(iii) The Corporation shall pay to the Paying Agent not later than
12:00 noon, New York City time, on each Dividend Payment Date for the Preferred
Shares, an aggregate amount of immediately available funds equal to the
dividends to be paid to all Holders of the Preferred Shares on such Dividend
Payment Date. The Corporation shall not be required to establish any reserves
for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of dividends
shall be held in trust for the payment of such dividends by the Paying Agent for
the benefit of the Holders specified in subparagraph (b)(v) of this Section 2.
Any moneys paid to the Paying Agent in accordance with the foregoing but not
applied by the Paying Agent to the payment of dividends, including interest
earned on such moneys, will, to the extent permitted by law, be repaid to the
Corporation at the end of 90 days from the date on which such moneys were to
have been so applied.
(v) Each dividend on the Preferred Shares shall be paid on the
Dividend Payment Date therefor to the Holders of the Preferred Shares as their
names appear on the stock ledger or stock records of the Corporation on the
Business Day next preceding such Dividend Payment Date, PROVIDED, HOWEVER, if
dividends are in arrears, they may be declared and paid at any time to Holders
as their names appear on the stock ledger or stock records of the Corporation on
such date not exceeding 15 days preceding the payment date thereof, as may be
fixed by the Board of Directors. No interest will be payable in respect of any
dividend payment or payments which may be in arrears.
(c) (i) The dividend rate on Outstanding Preferred Shares during the period
from and after the Date of Original Issue to and including the last day of the
initial Dividend Period therefor shall be equal to the rate per annum set forth
above. For each subsequent Dividend Period, the dividend rate shall be equal to
the rate per annum that results from an Auction; PROVIDED, HOWEVER, that if an
Auction for any subsequent Dividend Period of Preferred Shares is not held for
any reason or if Sufficient Clearing Orders have not been made in an Auction
(other than as a result of all Preferred Shares being the subject of Submitted
Hold Orders), then the dividend rate on Preferred Shares for any such Dividend
Period shall be the Maximum Rate (except (i) during a Default Period when the
dividend rate shall be the Default Rate, as set forth in Section 2(c)(ii) below
or (ii) after a Default Period and prior to the beginning of the next Dividend
Period when the dividend rate shall be the Maximum Rate at the close of business
on the last day of such Default Period). The rate per annum at which dividends
are payable on Preferred Shares as determined pursuant to this Section 2(c)(i)
shall be the "Applicable Rate."
(ii) Subject to the cure provisions in Section 2(c)(iii) below, a
"Default Period" will commence on any date the Corporation fails to deposit
irrevocably in trust in same-day funds, with the Paying Agent by 12:00 noon, New
York City time, (A) the full amount of any declared dividend on the Preferred
Shares payable on the Dividend Payment Date (a "Dividend Default") or (B) the
full amount of any redemption price (the "Redemption Price") payable on the date
fixed for redemption (the "Redemption Date") (a "Redemption Default," and
together with a Dividend Default, hereinafter referred to as "Default").
Subject to the cure provisions of Section 2(c)(iii) below, a Default
Period with respect to a Dividend Default or a Redemption Default shall end on
the Business Day on which, by 12:00 noon, New York City time, all unpaid
dividends and any unpaid Redemption Price shall have been deposited irrevocably
in trust in same-day funds with the Paying Agent. In the case of a Dividend
Default, the Applicable Rate for each Dividend Period commencing during a
Default Period will be equal to the Default Rate, and each subsequent Dividend
Period commencing after the beginning of a Default Period shall be a Standard
Dividend Period; provided, however, that the commencement of a Default Period
will not by itself cause the commencement of a new Dividend Period. No Auction
shall be held during a Default Period.
(iii) No Default Period with respect to a Dividend Default or
Redemption Default shall be deemed to commence if the amount of any dividend or
any Redemption Price due (if such default is not solely due to the willful
failure of the Corporation) is deposited irrevocably in trust, in same-day funds
with the Paying Agent by 12:00 noon, New York City time within three Business
Days after the applicable Dividend Payment Date or Redemption Date, together
with an amount equal to the Default Rate applied to the amount of such
non-payment based on the actual number of days comprising such period divided by
360. The Default Rate shall be equal to the Reference Rate multiplied by three
(3).
(iv) The amount of dividends per share payable (if declared) on each
Dividend Payment Date of each Dividend Period of less than one (1) year (or in
respect of dividends on another date in connection with a redemption during such
Dividend Period) shall be computed by multiplying the Applicable Rate (or the
Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the
numerator of which will be the number of days in such Dividend Period (or
portion thereof) that such share was Outstanding and for which the Applicable
Rate or the Default Rate was applicable and the denominator of which will be
360, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Dividend Period of one (1) year or
more, the amount of dividends per share payable on any Dividend Payment Date (or
in respect of dividends on another date in connection with a redemption during
such Dividend Period) shall be computed as described in the preceding sentence,
except that it will be determined on the basis of a year consisting of twelve
30-day months.
(d) Any dividend payment made on the Preferred Shares shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to the Preferred Shares.
(e) For so long as the Preferred Shares are Outstanding, except as
otherwise contemplated by Part I hereof, the Corporation will not declare, pay
or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or options, warrants or rights to
subscribe for or purchase, Common Stock or other shares, ranking junior to the
Preferred Shares as to dividends or upon liquidation) with respect to Common
Stock or any other shares of the Corporation ranking junior to the Preferred
Shares as to dividends or upon liquidation, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Stock or other shares
ranking junior to the Preferred Shares (except by conversion into or exchange
for shares of the Corporation ranking junior to the Preferred Shares as to
dividends and upon liquidation), unless (i) immediately after such transaction,
the Corporation would have Eligible Assets with an aggregate Discounted Value at
least equal to the Preferred Shares Basic Maintenance Amount and the 1940 Act
Preferred Shares Asset Coverage would be achieved, (ii) all cumulative and
unpaid dividends due on or prior to the date of the transaction have been
declared and paid in full with respect to the Corporation's preferred stock,
including the Preferred Shares, and (iii) the Corporation has redeemed the full
number of shares of preferred stock required to be redeemed by any mandatory
provision for redemption, including Preferred Shares, required to be redeemed by
any provision for mandatory redemption contained in Section 3(a)(ii) of Part I
of these terms of the Preferred Shares.
(f) For so long as the Preferred Shares are Outstanding, except as set
forth in the next sentence, the Corporation will not declare, pay or set apart
for payment on any series of stock of the Corporation ranking, as to the payment
of dividends, on a parity with the Preferred Shares for any period unless full
cumulative dividends have been or contemporaneously are declared and paid on the
Preferred Shares through their most recent Dividend Payment Date. When dividends
are not paid in full upon the Preferred Shares through their most recent
Dividend Payment Date or upon any other series of shares ranking on a parity as
to the payment of dividends with Preferred Shares through their most recent
respective Dividend Payment Dates, all dividends declared upon the Preferred
Shares and any other such series of shares ranking on a parity as to the payment
of dividends with Preferred Shares shall be declared pro rata so that the amount
of dividends declared per share on the Preferred Shares and such other series of
preferred shares shall in all cases bear to each other the same ratio that
accumulated dividends per share on the Preferred Shares and such other series of
preferred shares bear to each other.
3. REDEMPTION.
(a) (i) After the initial Dividend Period, subject to the provisions of
this Section 3 and to the extent permitted under the 1940 Act and Maryland law,
the Corporation may, at its option, redeem in whole or in part out of funds
legally available therefor the Preferred Shares herein designated as (A) having
a Dividend Period of one year or less, on the Business Day after the last day of
such Dividend Period by delivering a notice of redemption not less than 15
calendar days and not more than 40 calendar days prior to the Redemption Date,
at a redemption price per share equal to $25,000, plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared) to
the Redemption Date ("Redemption Price"), or (B) having a Dividend Period of
more than one year, on any Business Day prior to the end of the relevant
Dividend Period by delivering a notice of redemption not less than 15 calendar
days and not more than 40 calendar days prior to the Redemption Date, at the
Redemption Price, plus a redemption premium, if any, determined by the Board of
Directors after consultation with the Broker-Dealers and set forth in any
applicable Specific Redemption Provisions at the time of the designation of such
Dividend Period as set forth in Section 4 of Part I hereof; PROVIDED, HOWEVER,
that during a Dividend Period of more than one year no shares of the Preferred
Shares will be subject to optional redemption except in accordance with any
Specific Redemption Provisions approved by the Board of Directors after
consultation with the Broker-Dealers at the time of the designation of such
Dividend Period. Notwithstanding the foregoing, the Corporation shall not give a
notice of or effect any redemption pursuant to this Section 3(a)(i) unless, on
the date on which the Corporation gives such notice and on the Redemption Date
(a) the Corporation has available Deposit Securities with maturity or tender
dates not later than the day preceding the applicable Redemption Date and having
a value not less than the amount (including any applicable premium) due to
Holders of the Preferred Shares by reason of the redemption of the Preferred
Shares on the Redemption Date and (b) the Corporation would have Eligible Assets
with an aggregate Discounted Value at least equal the Preferred Shares Basic
Maintenance Amount immediately subsequent to such redemption, if such redemption
were to occur on such date, it being understood that the provisions of paragraph
(d) of this Section 3 shall be applicable in such circumstances in the event the
Corporation makes the deposit and takes the other action required thereby.
(ii) If the Corporation fails as of any Valuation Date to meet the
Preferred Shares Basic Maintenance Amount Test or, as of the last Business Day
of any month, the 1940 Act Preferred Shares Asset Coverage, and such failure is
not cured within five Business Days following the relevant Valuation Date in the
case of a failure to meet the Preferred Shares Basic Maintenance Amount Test or
the last Business Day of the following month in the case of a failure to meet
the 1940 Act Preferred Shares Asset Coverage (each an "Asset Coverage Cure
Date"), the Preferred Shares will be subject to mandatory redemption out of
funds legally available therefor. The number of Preferred Shares to be redeemed
in such circumstances will be equal to the lesser of (A) the minimum number of
Preferred Shares the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the relevant Asset Coverage Cure Date, would
result in the Corporation meeting the Preferred Shares Basic Maintenance Amount
Test, and the 1940 Act Preferred Shares Asset Coverage, as the case may be, in
either case as of the relevant Asset Coverage Cure Date (provided that, if there
is no such minimum number of shares the redemption of which would have such
result, all Preferred Shares then Outstanding will be redeemed), and (B) the
maximum number of Preferred Shares that can be redeemed out of funds
expected to be available therefor on the Mandatory Redemption Date at the
Mandatory Redemption Price set forth in subparagraph (a)(iv) of this Section 3.
(iii) In determining the Preferred Shares required to be redeemed in
accordance with the foregoing Section 3(a)(ii), the Corporation shall allocate
the number of shares required to be redeemed to satisfy the Preferred Shares
Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage,
as the case may be, pro rata among the Holders of the Preferred Shares in
proportion to the number of shares they hold and shares of other preferred stock
subject to mandatory redemption provisions similar to those contained in this
Section 3, subject to the further provisions of this subparagraph (iv). The
Corporation shall effect any required mandatory redemption pursuant to: (A) the
Preferred Shares Basic Maintenance Amount Test, as described in subparagraph
(a)(ii) of this Section 3, no later than 30 days after the Corporation last met
the Preferred Shares Basic Maintenance Amount Test, or (B) the 1940 Act
Preferred Shares Asset Coverage, as described in subparagraph (a)(ii) of this
Section 3, no later than 30 days after the Asset Coverage Cure Date (the
"Mandatory Redemption Date"), except that if the Corporation does not have funds
legally available for the redemption of, or is not otherwise legally permitted
to redeem, the number of Preferred Shares which would be required to be redeemed
by the Corporation under clause (A) of subparagraph (a)(ii) of this Section 3 if
sufficient funds were available, together with shares of other preferred stock
which are subject to mandatory redemption under provisions similar to those
contained in this Section 3, or the Corporation otherwise is unable to effect
such redemption on or prior to such Mandatory Redemption Date, the Corporation
shall redeem those Preferred Shares, and shares of other preferred stock which
it was unable to redeem, on the earliest practicable date on which the
Corporation will have such funds available, upon notice pursuant to Section 3(b)
to record owners of the Preferred Shares to be redeemed and the Paying Agent.
The Corporation will deposit with the Paying Agent funds sufficient to redeem
the specified number of Preferred Shares with respect to a redemption required
under subparagraph (a)(ii) of this Section 3, by 1:00 p.m., New York City time,
of the Business Day immediately preceding the Mandatory Redemption Date. If
fewer than all of the Outstanding Preferred Shares are to be redeemed pursuant
to this Section 3(a)(iii), the number of shares to be redeemed shall be redeemed
pro rata from the Holders of such shares in proportion to the number of the
Preferred Shares held by such Holders, by lot or by such other method as the
Corporation shall deem fair and equitable, subject, however, to the terms of any
applicable Specific Redemption Provisions. "Mandatory Redemption Price" means
the Redemption Price plus (in the case of a Dividend Period of one year or more
only) a redemption premium, if any, determined by the Board of Directors after
consultation with the Broker-Dealers and set forth in any applicable Specific
Redemption Provisions.
(b) In the event of a redemption pursuant to the foregoing Section 3(a),
the Corporation will file a notice of its intention to redeem with the
Securities and Exchange Commission so as to provide at least the minimum notice
required under Rule 23c-2 under the 1940 Act or any successor provision. In
addition, the Corporation shall deliver a notice of redemption to the Auction
Agent (the "Notice of Redemption") containing the information set forth below
(i) in the case of an optional redemption pursuant to Section 3(a)(i) above, one
Business Day prior to the giving of notice to the Holders, (ii) in the case of a
mandatory redemption pursuant to Section 3(a)(ii) above, on or prior to the 10th
day preceding the Mandatory Redemption Date. The Auction Agent will use its
reasonable efforts to provide telephonic notice to each Holder of the Preferred
Shares called for redemption not later than the close of business on the
Business Day immediately following the day on which the Auction Agent determines
the shares to be redeemed (or, during a Default Period with respect to such
shares, not later than the close of business on the Business Day immediately
following the day on which the Auction Agent receives Notice of Redemption from
the Corporation). The Auction Agent shall confirm such telephonic notice in
writing not later than the close of business on the third Business Day preceding
the date fixed for redemption by providing the Notice of Redemption to each
Holder of shares called for redemption, the Paying Agent (if different from the
Auction Agent) and the Securities Depository. Notice of Redemption will be
addressed to the registered owners of the Preferred Shares at their addresses
appearing on the share records of the Corporation. Such Notice of Redemption
will set forth (i) the date fixed for redemption, (ii) the number and identity
of the Preferred Shares to be redeemed, (iii) the redemption price (specifying
the amount of accumulated dividends to be included therein), (iv) that dividends
on the shares to be redeemed will cease to accumulate on such date fixed for
redemption, and (v) the provision under which redemption shall be made. No
defect in the Notice of Redemption or in the transmittal or mailing thereof will
affect the validity of the redemption proceedings, except as required by
applicable law. If fewer than all shares held by any Holder are to be redeemed,
the Notice of Redemption mailed to such Holder shall also specify the number of
shares to be redeemed from such Holder.
(c) Notwithstanding the provisions of paragraph (a) of this Section 3, no
shares of preferred stock, including the Preferred Shares, may be redeemed at
the option of the Corporation unless all dividends in arrears on the Outstanding
Preferred Shares and any other shares of preferred stock have been or are being
contemporaneously paid or set aside for payment; PROVIDED, HOWEVER, that the
foregoing shall not prevent the purchase or acquisition of Outstanding Preferred
Shares pursuant to the successful completion of an otherwise lawful purchase or
exchange offer made on the same terms to Holders of all Outstanding Preferred
Shares.
(d) Upon the deposit of funds sufficient to redeem Preferred Shares with
the Paying Agent and the giving of the Notice of Redemption to the Auction Agent
under paragraph (b) of this Section 3, dividends on such shares shall cease to
accumulate and such shares shall no longer be deemed to be Outstanding for any
purpose (including, without limitation, for purposes of calculating whether the
Corporation has met the Preferred Shares Basic Maintenance Amount Test or the
1940 Act Preferred Shares Asset Coverage), and all rights of the Holders of the
shares so called for redemption shall cease and terminate, except the right of
such Holder to receive the redemption price specified herein, but without any
interest or other additional amount. Such redemption price shall be paid by the
Paying Agent to the nominee of the Securities Depository. The Corporation shall
be entitled to receive from the Paying Agent, promptly after the date fixed for
redemption, any cash deposited with the Paying Agent in excess of (i) the
aggregate redemption price of the Preferred Shares called for redemption on such
date and (ii) such other amounts, if any, to which Holders of the Preferred
Shares called for redemption may be entitled. Any funds so deposited that are
unclaimed at the end of two years from such redemption date shall, to the extent
permitted by law, be paid to the Corporation, after which time the Holders of
the Preferred Shares so called for redemption may look only to the Corporation
for payment of the redemption price and all other amounts, if any, to which they
may be entitled; PROVIDED, HOWEVER, that the Paying Agent shall notify all
Holders whose funds are unclaimed by placing a notice in THE WALL STREET JOURNAL
concerning the availability of such funds for three consecutive weeks. The
Corporation shall be entitled to receive, from time to time after the date fixed
for redemption, any interest earned on the funds so deposited.
(e) To the extent that any redemption for which Notice of Redemption has
been given is not made by reason of the absence of legally available funds
therefor, or is otherwise prohibited, such redemption shall be made as soon as
practicable to the extent such funds become legally available or such redemption
is no longer otherwise prohibited. Failure to redeem the Preferred Shares shall
be deemed to exist at any time after the date specified for redemption in a
Notice of Redemption when the Corporation shall have failed, for any reason
whatsoever, to deposit in trust with the Paying Agent the redemption price with
respect to any shares for which such Notice of Redemption has been given.
Notwithstanding the fact that the Corporation may not have redeemed the
Preferred Shares for which a Notice of Redemption has been given, dividends may
be declared and paid on the Preferred Shares and shall include those Preferred
Shares for which Notice of Redemption has been given but for which deposit of
funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the redemption price
of the Preferred Shares called for redemption shall be held in trust by the
Paying Agent for the benefit of holders of shares so to be redeemed.
(g) So long as any Preferred Shares are held of record by the nominee of
the Securities Depository, the redemption price for such shares will be paid on
the date fixed for redemption to the nominee of the Securities Depository for
distribution to Agent Members for distribution to the persons for whom they are
acting as agent.
(h) Except for the provisions described above, nothing contained herein
should limit any right of the Corporation to purchase or otherwise acquire any
Preferred Shares outside of an Auction at any price, whether higher or lower
than the price that would be paid in connection with an optional or mandatory
redemption, so long as, at the time of any such purchase, there is no arrearage
in the payment of dividends on, or the mandatory or optional redemption price
with respect to, any Preferred Shares for which Notice of Redemption has been
given and the Corporation meets the 1940 Act Preferred Shares Asset Coverage and
the Preferred Shares Basic Maintenance Amount Test after giving effect to such
purchase or acquisition on the date thereof. Any shares which are purchased,
redeemed or otherwise acquired by the Corporation shall have no voting rights.
If fewer than all the Outstanding Preferred Shares are redeemed or otherwise
acquired by the Corporation, the Corporation shall give notice of such
transaction to the Auction Agent, in accordance with the procedures agreed upon
by the Board of Directors.
(i) In the case of any redemption pursuant to this Section 3, only whole
shares of the Preferred Shares shall be redeemed, and in the event that any
provision of the Charter would require redemption of a fractional share, the
Auction Agent shall be authorized to round up so that only whole shares are
redeemed.
(j) Notwithstanding anything herein to the contrary, including, without
limitation, Sections 2(e) and 11 of Part I of these terms of the Preferred
Shares, the Board of Directors may authorize, create or issue other classes or
series of preferred stock, including other series of Preferred Shares, series of
stock ranking on a parity with the Preferred Shares with respect to the payment
of dividends or the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Corporation, to the extent permitted by the
1940 Act if upon issuance, the net proceeds from the sale of such stock (or such
portion thereof needed to redeem or repurchase the Outstanding Preferred Shares)
are deposited with the Auction Agent in accordance with Section 3(d) of Part I
of these terms of the Preferred Shares, Notice of Redemption as contemplated by
Section 3(b) of Part I of these terms of the Preferred Shares has been delivered
prior thereto or is sent promptly thereafter, and such proceeds are used to
redeem all Outstanding Preferred Shares or if upon the issuance of any such
class or series, the Corporation would meet the 1940 Act Preferred Shares Asset
Coverage, the Preferred Shares Basic Maintenance Amount Test and the
requirements of Section 11(b) of Part I of these terms of the Preferred Shares.
(k) Notwithstanding anything herein to the contrary, redemptions of
Preferred Shares pursuant to this Section 3 shall comply with the terms and
covenants of the any credit facility entered into by the Corporation and no such
redemptions shall be permitted to the extent they will cause an event of default
under such facility.
4. DESIGNATION OF DIVIDEND PERIOD.
(a) The initial Dividend Period for the Preferred Shares is as set forth
under "Designation" above. The Corporation will designate the duration of
subsequent Dividend Periods of the Preferred Shares; provided, however, that no
such designation is necessary for a Standard Dividend Period and, provided
further, that any designation of a Special Dividend Period shall be effective
only if (i) notice thereof shall have been given as provided herein, (ii) any
failure to pay in a timely manner to the Auction Agent the full amount of any
dividend on, or the redemption price of, the Preferred Shares shall have been
cured as provided above, (iii) Sufficient Clearing Orders shall have existed in
an Auction held on the Auction Date immediately preceding the first day of such
proposed Special Dividend Period, (iv) if the Corporation shall have mailed a
Notice of Redemption with respect to any shares, the redemption price with
respect to such shares shall have been deposited with the Paying Agent, and (v)
in the case of the designation of a Special Dividend Period, the Corporation has
confirmed that as of the Auction Date next preceding the first day of such
Special Dividend Period, it has Eligible Assets with an aggregate Discounted
Value at least equal to the Preferred Shares Basic Maintenance Amount, and the
Corporation has consulted with the Broker-Dealers and has provided notice of
such designation and a Preferred Shares Basic Maintenance Certificate to each
Rating Agency.
(b) If the Corporation proposes to designate any Special Dividend Period,
not fewer than 7 Business Days (or two Business Days in the event the duration
of the Dividend Period prior to such Special Dividend Period is fewer than 8
days) nor more than 30 Business Days prior to the first day of such Special
Dividend Period, notice shall be (i) made by press release and (ii) communicated
by the Corporation by telephonic or other means to the Auction Agent and
confirmed in writing promptly thereafter. Each such notice shall state (A) that
the Corporation proposes to exercise its option to designate a succeeding
Special Dividend Period, specifying the first and last days thereof and (B) that
the Corporation will by 3:00 p.m., New York City time, on the second Business
Day next preceding the first day of such Special Dividend Period, notify the
Auction Agent, who will promptly notify the Broker-Dealers, of either (x) its
determination, subject to certain conditions, to proceed with such Special
Dividend Period, subject to the terms of any Specific Redemption Provisions, or
(y) its determination not to proceed with such Special Dividend Period, in which
latter event the succeeding Dividend Period shall be a Standard Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of any proposed Special Dividend Period, the Corporation
shall deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) a notice stating (A) that the Corporation has determined to
designate the next succeeding Dividend Period as an Special Dividend Period,
specifying the first and last days thereof and (B) the terms of any Specific
Redemption Provisions; or
(ii) a notice stating that the Corporation has determined not to
exercise its option to designate a Special Dividend Period.
If the Corporation fails to deliver either such notice with respect to
any designation of any proposed Special Dividend Period to the Auction Agent or
is unable to make the confirmation provided in clause (v) of Paragraph (a) of
this Section 4 by 3:00 p.m., New York City time, on the second Business Day next
preceding the first day of such proposed Special Dividend Period, the
Corporation shall be deemed to have delivered a notice to the Auction Agent with
respect to such Dividend Period to the effect set forth in clause (ii) above,
thereby resulting in a Standard Dividend Period.
5. RESTRICTIONS ON TRANSFER. The Preferred Shares may be transferred only
(a) pursuant to an order placed in an Auction, (b) to or through a Broker-Dealer
or (c) to the Corporation or any Affiliate. Notwithstanding the foregoing, a
transfer other than pursuant to an Auction will not be effective unless the
selling Existing Holder or the Agent Member of such Existing Holder, in the case
of an Existing Holder whose shares are listed in its own name on the books of
the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer,
in the case of a transfer between persons holding Preferred Shares through
different Broker-Dealers, advises the Auction Agent of such transfer. The
certificates representing the Preferred Shares issued to the Securities
Depository will bear legends with respect to the restrictions described above
and stop-transfer instructions will be issued to the Transfer Agent and/or
Registrar.
6. VOTING RIGHTS.
(a) Except as otherwise provided in the Charter or as otherwise required by
applicable law, (i) each Holder of Preferred Shares shall be entitled to one
vote for each share of the Preferred Shares held on each matter on which the
Holders of the Preferred Shares are entitled to vote, and (ii) the Holders of
the Outstanding Preferred Shares and shares of Common Stock shall vote together
as a single class on all matters submitted to the stockholders; provided,
however, that, with respect to the election of directors, (x) the Holders of the
Outstanding Preferred Shares, represented in person or by proxy at a meeting for
the election of directors, shall be entitled, as a class, to the exclusion of
the holders of the Common Stock, to elect by a majority of votes cast by such
holders two directors of the Corporation, each Preferred Share entitling the
Holder thereof to one vote, and (y) the holders of the outstanding shares of
Common Stock, represented in person or by proxy at said meeting, shall be
entitled, as a class, to the exclusion of the Holders of the Preferred Shares,
to elect by a majority of votes cast by such holders two directors of the
Corporation, each share of Common Stock entitling the holder thereof to one
vote. The identities of the nominees for the relevant directorships may be fixed
by the Board of Directors. Subject to paragraph (b) of this Section 6, the
holders of a majority of Outstanding shares of Common Stock and Preferred
Shares, voting together as a single class, shall be entitled to elect the
balance of the directors.
(b) If at any time dividends on the Preferred Shares shall be unpaid in an
amount equal to two full years' dividends on the Preferred Shares (a "Voting
Period"), the number of directors constituting the Board of Directors shall
automatically increase by the smallest number of additional directors that, when
added to the number of directors then constituting the Board of Directors, shall
(together with the two directors elected by the holders of Preferred Shares
pursuant to paragraph (a)(x) of this Section 6) constitute a majority of such
increased number, and the holders of Preferred Shares shall be entitled, voting
as a single class on a one-vote-per-share basis (to the exclusion of the holders
of all other securities and classes of capital stock of the Corporation), to
elect the smallest number of such additional directors of the Corporation that
shall constitute a majority of the total number of directors of the Corporation
so increased.
(c) The Voting Period and the voting rights so created upon the occurrence
of the conditions set forth in paragraph (b) of this Section 6 shall continue
unless and until all dividends in arrears on the Preferred Shares shall have
been paid or declared and sufficient Deposit Securities set apart for the
payment of such dividends. Upon the termination of a Voting Period, the voting
rights described in paragraph (b) of this Section 6 shall cease, subject always,
however, to the revesting of such voting rights in the holders of Preferred
Shares upon the further occurrence of any of the events described in paragraph
(b) of this Section 6.
(d) As soon as practicable after the accrual of any right of the holders of
shares of preferred stock, including the Preferred Shares, to elect additional
directors as described in paragraph (b) of this Section 6, the Corporation shall
notify the Auction Agent, and the Auction Agent shall call a special meeting of
such holders, by mailing a notice of such special meeting to such holders, such
meeting to be held not less than 10 nor more than 90 days after the date of
mailing of such notice. If the Corporation fails to send such notice to the
Auction Agent or if the Auction Agent does not call such a special meeting, it
may be called by any such holder on like notice. The record date for determining
the holders entitled to notice of and to vote at such special meeting shall be
the close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting of holders of
preferred shares, including the Preferred Shares, held during a Voting Period at
which directors are to be elected, such holders, voting together as a class (to
the exclusion of the holders of all other securities and classes of capital
stock of the Corporation), shall be entitled to elect the number of directors
prescribed in paragraph (b) of this Section 6 on a one-vote-per-share basis. At
any such meeting or adjournment thereof in the absence of a quorum, a majority
of the holders of the Preferred Shares present in person or by proxy shall have
the power to adjourn the meeting without notice, other than an announcement at
the meeting, until a quorum is present.
(e) For purposes of determining any rights of the holders of shares of
preferred stock, including the Preferred Shares, to vote on any matter, whether
such right is created by terms of the Preferred Shares, by statute or otherwise,
if redemption of some or all of the preferred shares, including the Preferred
Shares, is required, no holder of preferred shares, including the Preferred
Shares, shall be entitled to vote and no share of preferred shares, including
the Preferred Shares, shall be deemed to be "outstanding" for the purpose of
voting or determining the number of shares required to constitute a quorum, if
prior to or concurrently with the time of determination, sufficient Deposit
Securities for the redemption of such shares have been deposited in the case of
Preferred Shares in trust with the Paying Agent for that purpose and the
requisite Notice of Redemption with respect to such shares shall have been given
as provided in Section 3(b) of Part I hereof and in the case of other shares of
preferred stock the Corporation has otherwise met the conditions for redemption
applicable to such shares.
(f) The terms of office of all persons who are directors of the Corporation
at the time of a special meeting of Holders of the Preferred Shares and holders
of shares of other preferred stock to elect directors pursuant to paragraph (b)
of this Section 6 shall continue, notwithstanding the election at such meeting
by the holders of the number of directors that they are entitled to elect.
(g) Simultaneously with the termination of a Voting Period, the terms of
office of the additional directors elected by the Holders of the Preferred
Shares and holders of other preferred shares pursuant to paragraph (b) of this
Section 6 shall terminate and the number of directors constituting the Board of
Directors shall automatically decrease accordingly, the remaining directors
shall constitute the directors of the Corporation and the voting rights of such
holders to elect additional directors pursuant to paragraph (b) of this Section
6 shall cease, subject to the provisions of the last sentence of paragraph (b)
of this Section 6.
(h) Unless otherwise required by law or in the Corporation's Charter, the
Holders of Preferred Shares shall not have any relative rights or preferences or
other special rights other than those specifically set forth herein. In the
event that the Corporation fails to pay any dividends on the Preferred Shares of
the Corporation or fails to redeem any Preferred Shares which it is required to
redeem, or any other event occurs which requires the mandatory redemption of
Preferred Shares and the required Notice of Redemption has not been given, other
than the rights set forth in paragraph (a) of Section 3 of Part I hereof, the
exclusive remedy of the Holders of Preferred Shares shall be the right to vote
for directors pursuant to the provisions of paragraph (b) of this Section 6. In
no event shall the Holders of Preferred Shares have any right to sue for, or
bring a proceeding with respect to, such dividends or redemptions or damages for
the failure to receive the same.
(i) For so long as any shares of preferred stock, including the Preferred
Shares, are outstanding, the Corporation will not, without the affirmative vote
of the holders of a majority of the Preferred Shares outstanding, (i) institute
any proceedings to be adjudicated bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against it, or file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy or insolvency, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Corporation or a substantial part of its property, or
make any assignment for the benefit of creditors, or, except as may be required
by applicable law, admit in writing its inability to pay its debts generally as
they become due or take any corporate action in furtherance of any such action
for so long as the Corporation is solvent and does not foresee becoming
insolvent; (ii) create, incur or suffer to exist, or agree to create, incur or
suffer to exist, or consent to cause or permit in the future (upon the happening
of a contingency or otherwise) the creation, incurrence or existence of any
material lien, mortgage, pledge, charge, security interest, security agreement,
conditional sale or trust receipt or other material encumbrance of any kind upon
any of the Corporation's assets as a whole, except (A) liens the validity of
which are being contested in good faith by appropriate proceedings, (B) liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (C) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
senior to the Preferred Shares, (D) liens, pledges, charges, security interests,
security agreements or other encumbrances arising in connection with any
indebtedness permitted under clause (iii) below and (E) liens to secure payment
for services rendered including, without limitation, services rendered by the
Corporation's Paying Agent and the Auction Agent; or (iii) create, authorize,
issue, incur or suffer to exist any indebtedness for borrowed money or any
direct or indirect guarantee of such indebtedness for borrowed money or any
direct or indirect guarantee of such indebtedness, except the Corporation may
borrow as may be permitted by the Corporation's investment restrictions;
provided, however, that transfers of assets by the Corporation subject to an
obligation to repurchase shall not be deemed to be indebtedness for purposes of
this provision to the extent that after any such transaction the Corporation has
Eligible Assets with an aggregate Discounted Value at least equal to the
Preferred Shares Basic Maintenance Amount as of the immediately preceding
Valuation Date.
(j) The affirmative vote of the holders of a majority of the outstanding
shares of preferred stock, including the Preferred Shares, voting as a separate
class, shall be required to approve any plan of reorganization (as such term is
used in the 1940 Act) adversely affecting such shares or any action requiring a
vote of security holders of the Corporation under Section 13(a) of the 1940 Act.
In the event a vote of holders of preferred shares is required pursuant to the
provisions of Section 13(a) of the 1940 Act, the Corporation shall, not later
than ten Business Days prior to the date on which such vote is to be taken,
notify each Rating Agency that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken and shall, not later than
ten Business Days after the date on which such vote is taken, notify each Rating
Agency of the results of such vote. The class vote of holders of shares of
preferred stock, including the Preferred Shares, described above will in each
case be in addition to a separate vote of the requisite percentage of shares of
Common Stock and shares of preferred stock, including the Preferred Shares,
voting together as a single class necessary to authorize the action in question.
(k) The affirmative vote of the holders of a majority of the outstanding
preferred shares of any series, voting separately from any other series, shall
be required with respect to any matter that materially and adversely affects the
rights, preferences, or powers of that series in a manner different from that of
other series or classes of the Corporation's shares of capital stock. For
purposes of the foregoing, no matter shall be deemed to adversely affect any
right, preference or power unless such matter (i) alters or abolishes any
preferential right of Preferred Shares; (ii) creates, alters or abolishes any
right in respect of redemption of Preferred Shares; or (iii) creates or alters
(other than to abolish) any restriction on transfer applicable to such series.
The vote of holders of any series described in this Section 6(k) will in each
case be in addition to a separate vote of the requisite percentage of Common
Stock and/or preferred shares necessary to authorize the action in question.
(l) Subject to compliance with applicable law, the Board of Directors may
alter the Maximum Rate to increase the percentage amount by which the Reference
Rate is multiplied to determine the Maximum Rate shown therein without the vote
or consent of the holders of preferred shares, including the Preferred Shares,
or any other shareholder of the Corporation, and without receiving any
confirmation from any Rating Agency, after consultation with the Broker-Dealers,
provided, that immediately following any such increase the Corporation would
meet the Preferred Shares Basic Maintenance Amount Test.
(m) Unless otherwise required by law, Holders of the Preferred Shares shall
not have any relative rights or preferences or other special rights other than
those specifically set forth herein. The Holders of the Preferred Shares shall
have no rights to cumulative voting. In the event that the Corporation fails to
pay any dividends on the Preferred Shares, the exclusive remedy of the Holders
shall be the right to vote for directors pursuant to the provisions of this
Section 6.
(n) The foregoing voting provisions will not apply with respect to any
series if, at or prior to the time when a vote is required, such shares have
been (i) redeemed or (ii) called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
7. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the Holders of
shares of preferred stock, including the Preferred Shares, shall be entitled to
receive out of the assets of the Corporation available for distribution to
shareholders, after claims of creditors but before distribution to shareholders,
after claims of creditors but before any distribution or payment shall be made
in respect of the Common Stock or any other shares of the Corporation ranking
junior to the preferred shares, as to liquidation payments, a liquidation
distribution in the amount of $25,000 per share (the "Liquidation Preference"),
plus an amount equal to all unpaid dividends accrued to and including the date
fixed for such distribution or payment (whether or not declared by the
Corporation, but excluding interest thereon), but such Holders shall be entitled
to no further participation in any distribution or payment in connection with
any such liquidation, dissolution or winding up.
(b) If, upon any such liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the holders of all outstanding
preferred shares, including the Preferred Shares, shall be insufficient to
permit the payment in full to such holders of the amounts to which they are
entitled, then such available assets shall be distributed among the holders of
preferred shares, including the Preferred Shares, ratably in any such
distribution of assets according to the respective amounts which would be
payable on all such shares if all amounts thereon were paid in full. Unless and
until payment in full has been made to the holders of preferred shares,
including the Preferred Shares, of the liquidation distributions to which they
are entitled, no dividends or distributions will be made to holders of Common
Stock or any stock of the Corporation ranking junior to the preferred shares as
to liquidation.
(c) Neither the consolidation nor merger of the Corporation with or into
any other corporation or corporations, nor the sale, lease, exchange or transfer
by the Corporation of all or substantially all of its property and assets, shall
be deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 7.
(d) After the payment to Holders of Preferred Shares of the full
preferential amounts provided for in this Section 7, the Holders of the
Preferred Shares as such shall have no right or claim to any of the remaining
assets of the Corporation.
(e) In the event the assets of the Corporation or proceeds thereof
available for distribution to the Holders of Preferred Shares, upon dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, shall be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (a) of this Section 7, no such
distribution shall be made on account of any shares of any other series of
preferred stock unless proportionate distributive amounts shall be paid on
account of the Preferred Shares, ratably, in proportion to the full
distributable amounts to which holders of all preferred shares are entitled upon
such dissolution, liquidation or winding up.
(f) Subject to the rights of the holders of other preferred shares or after
payment shall have been made in full to the Holders of Preferred Shares as
provided in paragraph (a) of this Section 7, but not prior thereto, any other
series or class of shares ranking junior to the Preferred Shares with respect to
the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Corporation shall, subject to any respective terms and provisions
(if any) applying thereto, be entitled to receive any and all assets remaining
to be paid or distributed, and the Holders of the Preferred Shares shall not be
entitled to share therein.
(g) In determining whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other acquisition of shares
of stock of the Corporation or otherwise, is permitted under the Maryland
General Corporation Law, amounts that would be needed, it the Corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of holders of the Preferred Shares will not be added to
the Corporation's total liabilities.
8. AUCTION AGENT. For so long as any Preferred Shares are Outstanding, the
Auction Agent, duly appointed by the Corporation to so act, shall be in each
case a commercial bank, trust company or other financial institution independent
of the Corporation and its Affiliates (which, however, may engage or have
engaged in business transactions with the Corporation or its Affiliates) and at
no time shall the Corporation or any of its Affiliates act as the Auction Agent
in connection with the Auction Procedures. If the Auction Agent resigns or for
any reason its appointment is terminated during any period that any Preferred
Shares are Outstanding, the Corporation shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
9. 1940 ACT PREFERRED SHARES ASSET COVERAGE. The Corporation shall
maintain, as of the last Business Day of each month in which any Preferred
Shares are Outstanding, the 1940 Act Preferred Shares Asset Coverage; provided,
however, that Section 3(a)(ii) shall be the sole remedy in the event the
Corporation fails to do so.
10. PREFERRED SHARES BASIC MAINTENANCE AMOUNT. So long as any Preferred
Shares are Outstanding and any Rating Agency so requires, the Corporation shall
maintain, as of each Valuation Date, Moody's Eligible Assets and S&P Eligible
Assets, as applicable, having an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount; provided, however, that
Section 3(a)(ii) shall be the sole remedy in the event the Corporation fails to
do so.
11. CERTAIN OTHER RESTRICTIONS. So long as any Preferred Shares are
Outstanding and S&P, Moody's or any Other Rating Agency that is rating such
shares so requires, the Corporation will not, unless it has received written
confirmation from S&P (if S&P is then rating the Preferred Shares), Moody's (if
Moody's is then rating the Preferred Shares) and (if applicable) such Other
Rating Agency that any such action would not impair the rating then assigned by
such rating agency to the Preferred Shares, engage in any one or more of the
following transactions:
(a) purchase or sell futures contracts or options thereon with respect to
portfolio securities or write put or call options on portfolio securities;
(b) except in connection with a refinancing of the Preferred Shares, issue
additional shares of any series of preferred stock, including the Preferred
Shares or reissue any shares of preferred stock, including the Preferred Shares
previously purchased or redeemed by the Corporation;
(c) engage in any short sales of securities;
(d) lend portfolio securities; or
(e) merge or consolidate into or with any other fund.
(f) For purposes of valuation of Moody's Eligible Assets: (A) if the
Corporation writes a call option, the underlying asset will be valued as
follows: (1) if the option is exchange-traded and may be offset readily or if
the option expires before the earliest possible redemption of the Preferred
Shares, at the lower of the Discounted Value of the underlying security of the
option and the exercise price of the option or (2) otherwise, it has no value;
(B) if the Corporation writes a put option, the underlying asset will be valued
as follows: the lesser of (1) exercise price and (2) the Discounted Value of the
underlying security; and (C) call or put option contracts which the Corporation
buys have no value. For so long as the Preferred Shares are rated by Moody's:
(A) the Corporation will not engage in options transactions for leveraging or
speculative purposes; (B) the Corporation will not write or sell any
anticipatory contracts pursuant to which the Corporation hedges the anticipated
purchase of an asset prior to completion of such purchase; (C) the Corporation
will not enter into an option transaction with respect to portfolio securities
unless, after giving effect thereto, the Corporation would continue to have
Eligible Assets with an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount; (D) the Corporation will not enter
into an option transaction with respect to portfolio securities unless after
giving effect to such transaction the Corporation would continue to be in
compliance with the provisions relating to the Preferred Shares Basic
Maintenance Amount; (E) for purposes of the Preferred Shares Basic Maintenance
Amount assets in margin accounts are not Eligible Assets; (F) the Corporation
shall write only exchange-traded options on exchanges approved by Moody's (if
Moody's is then rating the Preferred Shares); (G) where delivery may be made to
the Corporation with any of a class of securities, the Corporation shall assume
for purposes of the Preferred Shares Basic Maintenance Amount that it takes
delivery of that security which yields it the least value; (H) the Corporation
will not engage in forward contracts; and (I) there shall be a quarterly audit
made of the Corporation's options transactions by the Corporation's independent
auditors to confirm that the Corporation is in compliance with these standards.
(g) For so long as any Preferred Shares are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the Preferred Shares by S&P.
(h) For so long as any Preferred Shares are outstanding and S&P is then
rating such shares, the Corporation will not, unless it has received written
confirmation from S&P that such action would not impair the rating then assigned
to the Preferred Shares by S&P, change the pricing service to a service other
than Interactive Data Corp. or any other Pricing Service.
12. COMPLIANCE PROCEDURES FOR ASSET MAINTENANCE TESTS. For so long as any
Preferred Shares are Outstanding and any Rating Agency so requires:
(a) As of each Valuation Date, the Corporation shall determine (i) the
Market Value of each Eligible Asset owned by the Corporation on that date, (ii)
the Discounted Value of each such Eligible Asset, (iii) whether the Preferred
Shares Basic Maintenance Amount Test is met as of that date, (iv) the value (as
used in the 1940 Act) of the total assets of the Corporation, less all
liabilities, and (v) whether the 1940 Act Preferred Shares Asset Coverage is met
as of that date.
(b) Upon any failure to meet the Preferred Shares Basic Maintenance Amount
Test or 1940 Act Preferred Shares Asset Coverage on any Valuation Date, the
Corporation may use reasonable commercial efforts (including, without
limitation, altering the composition of its portfolio, purchasing Preferred
Shares outside of an Auction or, in the event of a failure to file a certificate
on a timely basis, submitting the requisite certificate), to meet (or certify in
the case of a failure to file a certificate on a timely basis, as the case may
be) the Preferred Shares Basic Maintenance Amount Test or 1940 Act Preferred
Shares Asset Coverage on or prior to the Asset Coverage Cure Date.
(c) Compliance with the Preferred Shares Basic Maintenance Amount and 1940
Act Asset Coverage Tests shall be determined with reference to those Preferred
Shares which are deemed to be Outstanding hereunder.
(d) The Corporation shall deliver to the Auction Agent and each Rating
Agency a certificate which sets forth a determination of items (i)-(iii) of
paragraph (a) of this Section 12 (a "Preferred Shares Basic Maintenance
Certificate") as of (A) the Date of Original Issue, (B) the last Valuation Date
of each month, (C) any date requested by any Rating Agency, (D) a Business Day
on or before any Asset Coverage Cure Date relating to the Corporation's cure of
a failure to meet the Preferred Shares Basic Maintenance Amount Test, (E) any
day that Common Stock or Preferred Shares are redeemed and (F) when the S&P
Eligible Assets have an aggregate discounted value less than or equal to 110% of
the Preferred Shares Basic Maintenance Amount. Such Preferred Shares Basic
Maintenance Certificate shall be delivered in the case of clause (i)(A) on the
Date of Original Issue and in the case of all other clauses above on or before
the seventh Business Day after the relevant Valuation Date or Asset Coverage
Cure Date.
(e) The Corporation shall deliver to the Auction Agent and each Rating
Agency a certificate which sets forth a determination of items (iv) and (v) of
paragraph (a) of this Section 12 (a "1940 Act Preferred Shares Asset Coverage
Certificate") (i) as of the Date of Original Issue, and (ii) as of (A) the last
Valuation Date of each quarter thereafter, and (B) as of a Business Day on or
before any Asset Coverage Cure Date relating to the failure to meet the 1940 Act
Preferred Shares Asset Coverage. Such 1940 Act Preferred Shares Asset Coverage
Certificate shall be delivered in the case of clause (i) on the Date of Original
Issue and in the case of clause (ii) on or before the seventh Business Day after
the relevant Valuation Date or the Asset Coverage Cure Date. The certificates
required by paragraphs (d) and (e) of this Section 12 may be combined into a
single certificate.
(f) Within ten Business Days of the Date of Original Issue, the Corporation
shall deliver to the Auction Agent and each Rating Agency a letter prepared by
the Corporation's independent auditors (an "Auditor's Certificate") regarding
the accuracy of the calculations made by the Corporation in the Preferred Shares
Basic Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage
Certificate required to be delivered by the Corporation on the Date of Original
Issue. Within ten Business Days after delivery of the Preferred Shares Basic
Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage
Certificate relating to the last Valuation Date of each fiscal quarter of the
Corporation, the Corporation will deliver to the Auction Agent and each Rating
Agency an Auditor's Certificate regarding the accuracy of the calculations made
by the Corporation in such Certificates and in one other Preferred Shares Basic
Maintenance Certificate randomly selected by the Corporation's independent
auditors during such fiscal quarter. In addition, the Corporation will deliver
to the persons specified in the preceding sentence an Auditor's Certificate
regarding the accuracy of the calculations made by the Corporation on each
Preferred Shares Basic Maintenance Certificate and 1940 Act Preferred Shares
Asset Coverage Certificate delivered in relation to an Asset Coverage Cure Date
within ten days after the relevant Asset Coverage Cure Date. If an Auditor's
Certificate shows that an error was made in any such report, the calculation or
determination made by the Corporation's independent auditors will be conclusive
and binding on the Corporation.
(g) The Auditor's Certificates referred to in paragraph (f) above will
confirm, based upon the independent auditors review of portfolio data provided
by the Corporation, (i) the mathematical accuracy of the calculations reflected
in the related Preferred Shares Basic Maintenance Amount Certificates and 1940
Act Preferred Shares Asset Coverage Certificates, (ii) that, based upon such
calculations, the Corporation had, at such Valuation Date, met the Preferred
Shares Basic Maintenance Amount Test.
(h) In the event that a Preferred Shares Basic Maintenance Certificate or
1940 Act Preferred Shares Asset Coverage Certificate with respect to an
applicable Valuation Date is not delivered within the time periods specified in
this Section 13, the Corporation shall be deemed to have failed to meet the
Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares
Asset Coverage, as the case may be, on such Valuation Date for purposes of
Section 12(b) of Part I hereof. In the event that a Preferred Shares Basic
Maintenance Certificate, a 1940 Act Preferred Shares Asset Coverage Certificate
or an applicable Auditor's Certificate with respect to an Asset Coverage Cure
Date is not delivered within the time periods specified herein, the Corporation
shall be deemed to have failed to meet the Preferred Shares Basic Maintenance
Amount Test or the 1940 Preferred Shares Asset Coverage, as the case may be, as
of the related Valuation Date.
13. NOTICE. All notices or communications hereunder, unless otherwise
specified herein, shall be sufficiently given if in writing and delivered in
person, by telecopier or mailed by first-class mail, postage prepaid. Notices
delivered pursuant to this Section 13 shall be deemed given on the earlier of
the date received or the date five days after which such notice is mailed.
14. WAIVER. To the extent permitted by Maryland Law, holders of at least
two-thirds of the Outstanding Preferred Shares, voting separately as a class,
may waive any provision hereof intended for their respective benefit in
accordance with such procedures as may from time to time be established by the
Board of Directors.
15. TERMINATION. In the event that no Preferred Shares are Outstanding, all
rights and preferences of such shares established and designated hereunder shall
cease and terminate, and all obligations of the Corporation hereunder shall
terminate.
16. ADDITIONAL PREFERRED SHARES. Subject to the provisions of these terms
of the Preferred Shares, the Board of Directors may, by resolution duly adopted
without shareholder approval (except as otherwise provided herein or required by
applicable law), classify and designate shares of preferred stock of the
Corporation as additional Preferred Shares (and terms relating thereto). To the
extent permitted by applicable law, the Board of Directors may interpret, amend
or adjust the provisions to resolve any inconsistency or ambiguity or to remedy
any patent defect.
17. DEFINITIONS. As used in Part I and Part II of these terms of the
Preferred Shares, the following terms shall have the following meanings (with
terms defined in the singular having comparable meanings when used in the plural
and vice versa), unless the context otherwise requires:
"'AA' Financial Composite Commercial Paper Rate" on any date means (i)
the interest equivalent of the 7-day rate, in the case of a Dividend Period
which is a Standard Dividend Period or shorter; for Dividend Periods greater
than 7 days but fewer than or equal to 31 days, the 30-day rate; for Dividend
Periods greater than 31 days but fewer than or equal to 61 days, the 60-day
rate; for Dividend Periods greater than 61 days but fewer than or equal to 91
days, the 90 day rate; for Dividend Periods greater than 91 days but fewer than
or equal to 270 days, the rate described in (ii); for Dividend Periods greater
than 270 days, the Treasury Index Rate; on commercial paper on behalf of issuers
whose corporate bonds are rated "AA" by S&P, or the equivalent of such rating by
another nationally recognized rating agency, as announced by the Federal Reserve
Bank of New York for the close of business on the Business Day immediately
preceding such date; or (ii) if the Federal Reserve Bank of New York does not
make available such a rate, then the arithmetic average of the interest
equivalent of such rates on commercial paper placed on behalf of such issuers,
as quoted on a discount basis or otherwise by the Commercial Paper Dealers to
the Auction Agent for the close of business on the Business Day immediately
preceding such date (rounded to the next highest .001 of 1%). If any Commercial
Paper Dealer does not quote a rate required to determine the "AA" Financial
Composite Commercial Paper Rate, such rate shall be determined on the basis of
the quotations (or quotation) furnished by the remaining Commercial Paper
Dealers (or Dealer), if any, or, if there are no such Commercial Paper Dealers,
by the Auction Agent. For Dividend Periods greater than 360 days, the Treasury
Index Rate. For purposes of this definition, (A) "Commercial Paper Dealers"
shall mean (1) Salomon Smith Barney Inc., Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (2) in lieu of any
thereof, its respective Affiliate or successor; and (3) in the event that any of
the foregoing shall cease to quote rates for commercial paper of issuers of the
sort described above, in substitution therefor, a nationally recognized dealer
in commercial paper of such issuers then making such quotations selected by the
Corporation, and (B) "interest equivalent" of a rate stated on a discount basis
for commercial paper of a given number of days' maturity shall mean a number
equal to the quotient (rounded upward to the next higher one-thousandth of 1%)
of (1) such rate expressed as a decimal, divided by (2) the difference between
(x) 1.00 and (y) a fraction, the numerator of which shall be the product of such
rate expressed as a decimal, multiplied by the number of days in which such
commercial paper shall mature and the denominator of which shall be 360.
"Affiliate" means any person known to the Auction Agent to be
controlled by, in control of or under common control with the Corporation;
provided, that Highland Capital Management, L.P. shall not be deemed to be an
Affiliate nor shall any corporation or any person controlled by, in control of
or under common control with such corporation, one of the directors, directors
or executive officers of which is also a trustee, director or executive officer
of the Corporation, be deemed to be an Affiliate.
"Agent Member" means a member of or a participant in the Securities
Depository that will act on behalf of a Bidder.
"All Hold Rate" means 80% of the "AA" Financial Composite Commercial
Paper Rate.
"Applicable Rate" means for each Dividend Period (i) if Sufficient
Clearing Orders exist for the Auction in respect thereof, the Winning Bid Rate,
(ii) if Sufficient Clearing Orders do not exist for the Auction in respect
thereof, the Maximum Rate, and (iii) in the case of any Dividend Period of 93
days or fewer if all the Preferred Shares are the subject of Submitted Hold
Orders for the Auction in respect thereof, the All Hold Rate.
"Approved Price" means the "fair value" as determined by the
Corporation in accordance with the valuation procedures adopted from time to
time by the Board of Directors and for which the Corporation receives a
mark-to-market price (which, for the purpose of clarity, shall not mean a Market
Value Price) from an independent source at least semi-annually.
"Asset Coverage Cure Date" has the meaning set forth in Section
3(a)(ii) of these Terms of the Preferred Shares.
"Auction" means each periodic operation of the procedures set forth
under "Auction Procedures."
"Auction Agent" means Bankers Trust Company unless and until another
commercial bank, trust company, or other financial institution appointed by a
resolution of the Board of Directors enters into an agreement with the
Corporation to follow the Auction Procedures for the purpose of determining the
Applicable Rate.
"Auction Date" means the first Business Day next preceding the first
day of a Dividend Period for the Preferred Shares.
"Auction Procedures" means the procedures for conducting Auctions set
forth in Part II of these Terms of the Preferred Shares.
"Auditor's Certificate" has the meaning set forth in Section 12(f) of
Part I of these Terms of the Preferred Shares.
"Bank Loans" means direct purchases of, assignment of, participations
in and other interests in (a) any senior bank loan or (b) any loan made by an
investment bank, investment fund or other financial institution; provided that
such loan under this clause (b) is similar to those typically made, syndicated,
purchased or participated by a commercial bank or institutional loan investor in
the ordinary course of business.
"Beneficial Owner," with respect to shares of the Preferred Shares,
means a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of such shares.
"Bid" has the meaning set forth in Section 2(a)(ii) of Part II of
these Terms of the Preferred Shares.
"Bidder" has the meaning set forth in Section 2(a)(ii) of Part II of
these Terms of the Preferred Shares; provided, however, that neither the
Corporation nor any Affiliate shall be permitted to be a Bidder in an Auction.
"Board of Directors" means the Board of Directors of the Corporation
or any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other
entity permitted by law to perform the functions required of a Broker-Dealer by
the Auction Procedures, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the
Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is
open for trading and which is not a Saturday, Sunday or other day on which banks
in the City of New York, New York are authorized or obligated by law to close.
"Cash" means any immediately available funds in U.S. dollars or any
currency other than U.S. dollars which is a freely convertible currency.
"Cash Equivalents" means investments (other than Cash) that are one or
more of the following obligations or Securities:
(i) U.S. Government Securities;
(ii) certificates of deposit of, banker's acceptances issued by or
money market accounts in any depository institution or trust
company incorporated under the laws of the United States of
America or any state thereof and subject to supervision and
examination by Federal and/or state banking authorities, so long
as the deposits offered by such depositary institution or trust
company at the time of such investment are rated and have a
rating of at least "F-1+" if rated by Fitch, "P-1" by Moody's and
"A-1+" by S&P (or, in the case of the principal depository
institution in a holding company system whose deposits are not so
rated, the long and term debt obligations of such holding company
are rated and such rating is at least "A+" if rated by Fitch,
"A-1" by Moody's and "A+" by S&P;
(iii) commercial paper issued by any depository institution or trust
company incorporated under the laws of the United States of
America or any state thereof and subject to supervision and
examination by Federal and/or state banking authorities, or any
corporation incorporated under the laws of the United States of
America or any state thereof, so long as the commercial paper of
such issuer is rated and has at the time of such investment a
short term rating of at least "F-1+" if rated by Fitch, "P-1" by
Moody's and "A-1+" by S&P on its commercial paper;
(iv) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of
America or any state thereof the obligations of which at the time
of such investment are rated and that have a credit rating of at
least "F-1+" if rated by Fitch, "P-1" by Moody's and "A-1+" by
S&P either at the time of such investment or the making of a
contractual commitment providing for such investment;
(v) shares of any money market fund organized under the laws of a
jurisdiction other than the United States so long as such money
market fund is rated and has at the time of such investment a
short-term rating of at least "F-1+" if rated by Fitch, "AAAm" or
"AAAg" by S&P and "Aaa" by Moody's and ownership of such
investments will not cause the issuer to become engaged in a
trade or business within the United States for U.S. federal
income tax purposes or subject the Issuer to tax on a net income
basis; and
(vi) unleveraged overnight repurchase obligations on customary terms
with respect to investments described in clauses (i) through (iv)
above entered into with a depository institution, trust company
or corporation has a short-term rating of at least "A-1+" by S&P;
PROVIDED, that: (i) in no event shall Cash Equivalents include any
obligation that provides for the payment of interest alone; (ii) Cash
Equivalents referred to in clauses (ii) and (iii) above shall mature within 183
days of issuance; (iii) if any of Fitch, Moody's or S&P changes its rating
system, then any ratings included in this definition shall be deemed to be an
equivalent rating in a successor rating category of Fitch, Moody's or S&P, as
the case may be; (iv) if any of Fitch, Moody's or S&P is not in the business of
rating securities, then any ratings included in this definition shall be deemed
to be an equivalent rating from another Rating Agency; (v) Cash Equivalents
shall not include any such investment of more than $100 million in any single
issuer; and (vi) in no event shall Cash Equivalents include any obligation that
is not denominated in U.S. dollars, any synthetic securities, any Securities
with ratings containing an "r" subscript, any IOs or any POs (other than
commercial paper with a maturity within 183 days of issuance).
"Charter" means the Charter of the Corporation, as amended or
supplemented from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" has the meaning set forth in the definition
of "AA" Financial Composite Commercial Paper Rate.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of the Corporation's Common Stock, par
value $1.00 per share.
"Date of Original Issue" means the date on which the Preferred Shares
are originally issued by the Corporation.
"Default Period" has the meaning set forth in Sections 2(c) (ii) or
(iii) of Part I of these Terms of the Preferred Shares.
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Securities" means cash and any obligations or securities,
including Short Term Money Market Instruments that are Eligible Assets, rated at
least AAA or A-1+ by S&P, except that, for purposes of optional redemption such
obligations or securities shall be considered "Deposit Securities" only if they
are also rated at least P-1 by Moody's.
"Designated Country" means (i) each of Canada, Great Britain,
Australia, Denmark, New Zealand, Sweden, Switzerland, Luxembourg, The
Netherlands and any G-7 nation (other than Japan) and (ii) each other country
identified by the Corporation from time to time and confirmed in writing as
acceptable by S&P and the Administrative Agent.
"Discount Factor" means the S&P Discount Factor (if S&P is then rating
the Preferred Shares), the Moody's Discount Factor (if Moody's is then rating
the Preferred Shares) or the discount factor established by any Other Rating
Agency which is then rating the Preferred Shares and which so requires,
whichever is applicable.
"Discounted Value" means the quotient of the Market Value of an
Eligible Asset divided by the applicable Discount Factor, provided that with
respect to an Eligible Asset that is currently callable, Discounted Value will
be equal to the quotient as calculated above or the call price, whichever is
lower, and that with respect to an Eligible Asset that is prepayable, Discounted
Value will be equal to the quotient as calculated above or the par value,
whichever is lower.
"Dividend Default" has the meaning set forth in Section 2(c)(iii) of
Part I of these Terms of the Preferred Shares.
"Dividend Payment Date" means (i) with respect to any Dividend Period
of one year or less, the Business Day next succeeding the last day thereof and,
if any, the 91st, 181st and 271st days thereof, and (ii) with respect to any
Dividend Period of more than one year, on a quarterly basis on each January 1,
April 1, July 1 and October 1 and on the Business Day following the last day of
such Dividend Period.
"Dividend Period" means the period commencing on the Date of Original
Issue thereof and ending on the date specified on the Date of Original Issue
thereof and thereafter, the period commencing on the day following each Dividend
Period and ending on the day established by the Corporation.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then
rating the Preferred Shares), S&P Eligible Assets (if S&P is then rating the
Preferred Shares) and/or Other Rating Agency Eligible Assets, if any Other
Rating Agency is then rating the Preferred Shares, whichever is applicable.
"Emerging Markets" means any country (i) whose unsupported sovereign
non-local currency debt obligations are not rated "A-" or better by S&P or (ii)
whose unsupported sovereign non-local currency debt obligations are not rated
"AA+" or better by S&P and is not a Designated Country.
"Existing Holder" has the meaning set forth in Section 1(d) of Part II
of these Terms of the Preferred Shares.
"Exposure Period" means the period commencing on (and including) a
given Valuation Date and ending 30 calendar days thereafter.
"Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II
of these Terms of the Preferred Shares.
"Holder" means, with respect to Preferred Shares, the registered
holder of shares as the same appears on the share ledger or share records of the
Corporation.
"Mandatory Redemption Date" has the meaning set forth in Section
3(a)(iv) of Part I of these Terms of the Preferred Shares.
"Mandatory Redemption Price" has the meaning set forth in Section
3(a)(iv) of Part I of these Terms of the Preferred Shares.
"Market Value" means the fair market value of an asset of the
Corporation as computed based upon (i) one or more Pricing Services agreements
approved from time to time by the Board of Directors, provided that S&P (if S&P
is then rating Preferred Shares), Moody's (if Moody's is then rating Preferred
Shares) and any Other Rating Agency which is then rating Preferred Shares and so
requires have informed the Corporation in writing that use of such pricing
service will not adversely affect such rating agency's then current rating of
the Preferred Shares, or (ii) the lower of the value set forth in bids from two
independent dealers in securities, one of which bids will be in writing, in each
case with interest accrued added to such computation for those assets of the
Corporation where such computation does not include interest accrued. The
independent dealers from whom bids are sought shall be either (a) market makers
in the securities being valued or (b) members of the National Association of
Securities Dealers, Inc.
"Master Purchaser's Letter" means a the letter which is required to be
executed by each prospective purchaser of Preferred Shares or the Broker-Dealer
through whom the shares will be held.
"Maximum Rate" means, on any date on which the Applicable Rate is
determined, the applicable percentage of the "AA" Financial Composite Commercial
Paper Rate on the date of such Auction determined as set forth below based on
the lower of the credit ratings assigned to the Preferred Shares by Moody's and
S&P subject to upward but not downward adjustment in the discretion of the Board
of Directors after consultation with the Broker-Dealers; provided that
immediately following any such increase the Corporation would be in compliance
with the Preferred Shares Basic Maintenance Amount.
MOODY'S S&P APPLICABLE
CREDIT RATING CREDIT RATING PERCENTAGE
------------- ------------- ----------
aa3 or Above AA- or Above 150%
a3 or a1 A- to A+ 160%
baa3 to baa1 BBB- to BBB+ 250%
Below baa3 Below BBB- 275%
"Moody's" means Moody's Investors Service, Inc. and its successors at
law.
"Moody's Advance Rate" means for senior bank loans the percentage
specified in the table below opposite such Moody's Asset Category:
MOODY'S ASSET CATEGORY ADVANCE RATE
---------------------- ------------
A 84.5%
B 73%
C 62%
D 45%
E 45%
"Moody's Asset Category" means the following five categories (and, for
purposes of this categorization, the Market Value Price of a Moody's Eligible
Asset trading at par is equal to $1.00):
(i) "Moody's Asset Category A" means Performing Senior Loans which
have a Market Value Price or an Approved Price greater than or
equal to $0.90.
(ii) "Moody's Asset Category B" means: (A) Performing Senior Loans
which have a Market Value Price or an Approved Price of greater
than or equal to $0.80 but less than $0.90; and (B)
non-Performing Senior Loans which have a Market Value Price or an
Approved Price greater than or equal to $0.85.
(iii) "Moody's Asset Category C" means: (A) Performing Senior Loans
which have a Market Value Price or an Approved Price greater than
or equal to $0.70 but less than $0.80; and (B) non-Performing
Senior Loans which have a Market Value Price or an Approved Price
greater than or equal to $0.75 but less than $0.85.
(iv) "Moody's Asset Category D" means Senior Loans which have a Market
Value Price or an Approved Price less than $0.75.
(v) "Moody's Asset Category E" means non-Senior Loans which have a
Market Value Price or an Approved Price.
Notwithstanding any other provision contained above, for purposes of
determining whether a Moody's Eligible Asset falls within a specific Moody's
Asset Category, to the extent that any Moody's Eligible Asset would fall in more
than one of the Moody's Asset Categories, such Moody's Eligible Asset shall be
deemed to fall into the Moody's Asset Category with the highest applicable
Moody's Advance Rate.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined as
follows. The Moody's Discount Factor for any Moody's Eligible Asset other than
the securities set forth below will be the percentage provided in writing by
Moody's.
(i) Corporate Debt Securities: The percentage determined by reference
to the rating on such asset (which percentage is based upon the
Exposure Period) with reference to the remaining term to maturity
of such assets, in accordance with the table set forth below.
Moody's Discount Factors - Corporate Debt Securities Rating Category
MATURITY OF
COLLATERAL
EQUITY &
ASSET Aaa Aa A Baa Ba B Caa UNRATED* BELOW Caa
1 Year 109% 112% 115% 118% 119% 125% 205% 225% 225%
2 Years 115 118 122 125 127 133 205 225 225
3 Years 120 123 127 131 133 140 205 225 225
4 Years 126 129 133 138 140 147 205 225 225
5 Years 132 135 139 144 146 154 205 225 225
7 Years 139 143 147 152 156 164 205 225 225
10 Years 145 150 155 160 164 173 205 225 225
15 Years 150 155 160 165 170 180 205 225 225
20 Years 150 155 160 165 170 190 205 225 225
30 Years 150 155 160 165 170 191 205 225 225
- -----------
* Unrated securities are limited to 10% of discounted eligible assets. If a
security is unrated by Moody's but is rated by S&P, a rating two numeric ratings
below the S&P rating will be used, e.g., where the S&P rating is AAA, a Moody's
rating of Aa2 will be used; where the S&P rating is AA+ a Moody's rating of Aa3
will be used. If a security is unrated by either Moody's or S&P, the Corporation
will use the percentage set forth under "Unrated" in this table. In order to
merit consideration as an eligible asset, unrated debt securities should be
issued by entities which: (i) have not filed for bankruptcy within the past
three years (ii) are current on all principle and interest in their fixed income
obligations (iii) are current on all preferred stock dividends (iv) possess a
current, unqualified auditor's report without qualified, explanatory language.
Unrated entities not satisfying all of the above requirements where applicable,
will be subject to a discount factor of 225%.
(ii) Preferred Stock: For (A) utility preferred stocks, 146%, (B)
industrial/financial preferred stocks, 178%, and (C) auction rate
preferred stocks, 350%.
(iii) Short Term, Money Market Instruments: The Moody's Discount
Factor applied to short-term portfolio securities will be (A)
100%, so long as such portfolio securities mature or have a
demand feature at par exercisable within the Exposure Period, (B)
115%, so long as such portfolio securities mature or have a
demand feature at par not exercisable within the Exposure Period,
and (C) 125%, if such securities are not rated by Moody's, so
long as such portfolio securities are rated at least A-1+/AA by
S&P and mature or have demand feature at par exercisable within
the Exposure Period. A Moody's Discount Factor of 100% will be
applied to cash.
(iv) U.S. Treasury Securities and Treasury Strips (as defined by
Moody's):
U.S. Treasury U.S. Treasury
Remaining Term to Maturity Securities Discount Factor Strips Discount Factor
-------------------------- -------------------------- ----------------------
1 year or less 107% 107%
2 years or less (but longer than 1 year) 113 114
3 years or less (but longer than 2 year) 118 120
4 years or less (but longer than 3 year) 123 127
5 years or less (but longer than 4 year) 128 133
7 years or less (but longer than 5 year) 135 145
10 years or less (but longer than 7 year) 141 159
15 years or less (but longer than 10 year) 146 184
20 years or less (but longer than 15 year) 154 211
30 years or less (but longer than 20 year) 154 236
(v) Rule 144A Securities: The Moody's Discount Factor applied to Rule
144A Securities for Rule 144A Securities whose terms include
rights to registration under the Securities Act within one year
and Rule 144A Securities which do not have registration rights
within one year will be 120% and 130%, respectively, of the
Moody's Discount Factor which would apply were the securities
registered under the Securities Act.
"Moody's Eligible Assets" means
(i) cash (including, for this purpose, interest and dividends due on
assets rated (A) Baa3 or higher by Moody's if the payment date is
within five Business Days of the Valuation Date, (B) A2 or higher
if the payment date is within thirty days of the Valuation Date,
and (C) A1 or higher if the payment date is within the Moody's
Exposure Period) and receivables for Moody's Eligible Assets sold
if the receivable is due within five Business Days of the
Valuation Date, and if the trades which generated such
receivables are (A) settled through clearing house firms with
respect to which the Corporation has received prior written
authorization from Moody's or (B) (1) with counterparties having
a Moody's long-term debt rating of at least Baa3 or (2) with
counterparties having a Moody's Short-Term Money Market
Instrument rating of at least P-1;
(ii) Short-Term Money Market Instruments so long as (A) such
securities are rated at least P-1, (B) in the case of demand
deposits, time deposits and overnight funds, the supporting
entity is rated at least A2, or (C) in all other cases, the
supporting entity (1) is rated A2 and the security matures within
one month, (2) is rated A1 and the security matures within three
months or (3) is rated at least Aa3 and the security matures
within six months; provided, however, that for purposes of this
definition, such instruments (other than commercial paper rated
by S&P and not rated by Moody's) need not meet any otherwise
applicable S&P rating criteria;
(iii) U.S. Treasury Securities and Treasury Strips (as defined by
Moody's);
(iv) Loans (as defined by Moody's), provided, that the Loans will
qualify as Moody's Eligible Assets only up to a maximum of 10% of
the Corporation's total assets; and
(v) Corporate debt securities will be included in Moody's Eligible
Assets if (A) such securities are rated Caa or higher by Moody's;
(B) such securities provide for the periodic payment of interest
in cash in U.S. dollars; (C) for securities which provide for
conversion or exchange into equity capital at some time over
their lives, the issuer must be rated at least B3 by Moody's and
the discount factor will be 250%; (D) for debt securities rated
Ba1 and below, no more than 10% of the original amount of such
issue may constitute Moody's Eligible Assets; (E) such securities
have been registered under the Securities Act or are restricted
as to resale under federal securities laws but are eligible for
resale pursuant to Rule 144A under the Securities Act as
determined by the Corporation's adviser acting subject to the
supervision of the Corporation's Board of Directors; and (F) such
securities are not subject to extended settlement.
Notwithstanding the foregoing limitations:
Corporate debt securities not rated at least Caa by Moody's or not rated by
Moody's shall be considered to be Moody's Eligible Assets only to the extent the
Market Value of such corporate debt securities does not exceed 50% of the
aggregate Market Value of Moody's Eligible Assets; provided, however, that if
the Market Value of such corporate debt securities exceeds 50% of the aggregate
Market Value of Moody's Eligible Assets, a portion of such corporate debt
securities (selected by the Corporation) shall not be considered Moody's
Eligible Assets, so that the Market Value of such corporate debt securities
(excluding such portion) does not exceed 50% of the aggregate Market Value of
Moody's Eligible Assets.
(vi) Portfolio securities that are preferred stocks will be included
in Moody's Eligible Assets if (A) dividends on such preferred
stock are cumulative, (B) such securities provide for the
periodic payment of dividends thereon in cash in U.S. dollars and
do not provide for conversion or exchange into, or have warrants
attached entitling the holder to receive, equity capital at any
time over the respective lives of such securities, (C) the issuer
of such a preferred stock has common stock listed on either the
New York Stock Exchange or the American Stock Exchange, (D) the
issuer of such a preferred stock has a senior debt rating from
Moody's of Baa1 or higher or a preferred stock rating from
Moody's of "baa3" or higher and (E) such preferred stock has paid
consistent cash dividends in U.S. dollars over the last three
years or has a minimum rating of "a1" (if the issuer of such
preferred stock has other preferred issues Outstanding that have
been paying dividends consistently for the last three years, then
a preferred stock without such a dividend history would also be
eligible). In addition, the preferred stocks must have the
following diversification requirements: (X) the preferred stock
issue must be greater than $50 million and (Y) the minimum
holding by the Corporation of each issue of preferred stock is
$500,000 and the maximum holding of preferred stock of each issue
is $5 million. In addition, preferred stocks issued by
transportation companies will not be considered Moody's Eligible
Assets.
(vii) In addition, portfolio holdings as described below must be
within the following diversification and issue size requirements
in order to be included in Moody's Eligible Assets:
Maximum Single Maximum Single
Issuer Industry Minimum Issue Size
Collateral Ratings(1) (%) (2,3) (%) (3, 4) ($ in millions) (6)
--------------------- --------- ---------- -------------------
"aaa", Aaa 100% 100% $100
"aa", Aa 20 60 100
"a", A 10 40 100
"baa", Baa 6 20 100
Ba 4 12 50(5)
B1-B2 3 8 50(5)
B3 or below 2 5 50(5)
See accompanying notes.
- -------------
(1) Refers to the preferred stock and senior debt rating of collateral.
(2) Companies subject to common ownership of 25% or more are considered as one
name.
(3) Percentages represent a portion of the aggregate Market Value of corporate
securities.
(4) Industries are determined according to Moody's Industry Classifications, as
defined herein.
(5) Collateral bonds from issues ranging from $50 million to $100 million are
limited to 20% of the collateral pool.
(6) Except for preferred stock, which has a minimum issue size of $50 million.
(viii) Financial contracts, as such term is defined in Section
3(c)(2)(B)(ii) of the 1940 Act, may be included in Moody's
Eligible Assets, but, with respect to any financial contract,
only upon receipt by the Corporation of a letter from Moody's
specifying any conditions on including such financial contract in
Moody's Eligible Assets and assuring the Corporation that
including such financial contract in the manner so specified
would not affect the credit rating assigned by Moody's to the
Preferred Shares.
Where the Corporation sells an asset and agrees to repurchase such
asset in the future, the Discounted Value of such asset will constitute a
Moody's Eligible Asset and the amount the Corporation is required to pay upon
repurchase of such asset will count as a liability for the purposes of the
Preferred Shares Basic Maintenance Amount. Where the Corporation purchases an
asset and agrees to sell it to a third party in the future, cash receivable by
the Corporation thereby will constitute a Moody's Eligible Asset if the
long-term debt of such other party is rated at least A2 by Moody's and such
agreement has a term of 30 days or less; otherwise the Discounted Value of such
asset will constitute a Moody's Eligible Asset. For the purposes of calculation
of Moody's Eligible Assets, portfolio securities which have been called for
redemption by the issuer thereof shall be valued at the lower of Market Value or
the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent that it has been irrevocably deposited for
the payment of (i)(A) through (i)(F) under the definition of the Preferred
Shares Basic Maintenance Amount or it is subject to any material lien, mortgage,
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (A) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Corporation will
not affect the status of such asset as a Moody's Eligible Asset, (B) Liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (C) Liens to secure payment for services rendered or cash advanced to
the Corporation by its investment adviser, the Corporation's custodian, transfer
agent or registrar or the Auction Agent and (D) Liens by virtue of any
repurchase agreement. See also Section 12 for certain information with respect
to Moody's Eligible Assets.
"Moody's Industry Classification" means, for the purposes of
determining Moody's Eligible Assets, each of the following industry
classifications (or such other classifications as Moody's may from time to time
approve for application to the Preferred Shares:
1. Aerospace and Defense: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small
Loan, Agency, Factoring, Receivables
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill
Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat
Products, Poultry Products, Snacks, Packaged Foods, Distributors,
Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff,
Vegetable Oil
5. Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real
Estate, Real Estate Development, REITs, Land Development
6. Chemicals, Plastics and Rubber: Chemicals (non-agriculture),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives,
Coatings, Paints, Varnish, Fabricating
7. Containers, Packaging and Glass: Glass, Fiberglass, Containers
made of: Glass, Metal, Paper, Plastic, Wood or Fiberglass
8. Personal and Non-Durable Consumer Products (Manufacturing Only):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School
Supplies
9. Diversified/Conglomerate Manufacturing
10. Diversified/Conglomerate Service
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and
Waste Disposal
13. Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communicating Systems, Radios, TVs, Tape Machines, Speakers,
Printers, Drivers, Technology
14. Finance: Investment Brokerage, Leasing, Syndication, Securities
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture
Chemicals, Agricultural Equipment, Fertilizers
16. Grocery: Grocery Stores, Convenience Food Stores
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary
Drugs, Research, Health Care Centers, Nursing Homes, HMOs,
Hospitals, Hospital Supplies, Medical Equipment
18. Home and Office Furnishings, Housewares, and Durable Consumer
Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges
19. Hotels, Motels, Inns and Gaming
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating,
Bowling, Billiards, Musical Instruments, Fishing, Photo
Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping),
Tourism, Resorts, Games, Toy Manufacturing, Motion Picture
Production Theaters, Motion Picture Distribution
22. Machinery (Non-Agriculture, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales of the foregoing
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
25. Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals,
Newspapers, Textbooks, Radio, T.V., Cable Broadcasting Equipment
26. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders,
Ship Builders, Containers, Container Builders, Parts, Overnight
Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air
Cargo, Transport
27. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail
Order Catalog, Showroom
28. Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
29. Textiles and Leather: Producer, Synthetic Fiber, Apparel
Manufacturer, Leather Shoes
30. Personal Transportation: Air, Bus, Rail, Car Rental
31. Utilities: Electric, Water, Hydro Power, Gas
32. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces,
Supra-national Agencies
The Corporation will use its discretion in determining which industry
classification is applicable to a particular investment in consultation with the
independent auditor and the rating agencies, as necessary.
"1940 Act" means the Investment Company Act of 1940, as amended.
"1940 Act Preferred Shares Asset Coverage" means asset coverage, as
determined in accordance with Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Corporation which are
stock, including all Outstanding Preferred Shares (or such other asset coverage
as may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common shares), determined
on the basis of values calculated as of a time within 48 hours (not including
Sundays or holidays) next preceding the time of such determination.
"1940 Act Preferred Shares Asset Coverage Certificate" means the
certificate required to be delivered by the Corporation pursuant to Section
12(e) of Part I of these Terms of the Preferred Shares.
"Notice of Redemption" means any notice with respect to the redemption
of Preferred Shares pursuant to Section 3 of Part I of these Terms of the
Preferred Shares.
"Order" has the meaning set forth in Section 2(a)(ii) of Part II of
these Terms of the Preferred Shares.
"Other Rating Agency" means any rating agency other than S&P or
Moody's then providing a rating for the Preferred Shares pursuant to the request
of the Corporation.
"Other Rating Agency Eligible Assets" means assets of the Corporation
designated by any Other Rating Agency as eligible for inclusion in calculating
the discounted value of the Corporation's assets in connection with such Other
Rating Agency's rating of the Preferred Shares.
"Outstanding" means, as of any date, Preferred Shares theretofore
issued by the Corporation except, without duplication, (i) Preferred Shares
theretofore canceled, redeemed or repurchased by the Corporation, or delivered
to the Auction Agent for cancellation or with respect to which the Corporation
has given notice of redemption and irrevocably deposited with the Paying Agent
sufficient funds to redeem such Preferred Shares and (ii) any Preferred Shares
represented by any certificate in lieu of which a new certificate has been
executed and delivered by the Corporation. Notwithstanding the foregoing, (A)
for purposes of voting rights (including the determination of the number of
shares required to constitute a quorum), any Preferred Shares as to which the
Corporation or any Affiliate shall be the Existing Holder shall be disregarded
and not deemed Outstanding; (B) in connection with any Auction, any Preferred
Shares as to which the Corporation or any person known to the Auction Agent to
be an Affiliate shall be the Existing Holder shall be disregarded and not deemed
Outstanding; and (C) for purposes of determining the Preferred Shares Basic
Maintenance Amount, Preferred Shares held by the Corporation shall be
disregarded and not deemed Outstanding, but shares held by any Affiliate shall
be deemed Outstanding.
"Paying Agent" means Bankers Trust Company unless and until another
entity appointed by a resolution of the Board of Directors enters into an
agreement with the Corporation to serve as paying agent, which paying agent may
be the same as the Auction Agent.
"Performing" means with respect to any S&P Eligible Asset or Moody's
Eligible Asset that is a Bank Loan or other debt, the issuer of such investment
is not in default of any payment obligations in respect thereof.
"Person" or "person" means and includes an individual, a partnership,
the Corporation, a trust, a corporation, a limited liability company, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Potential Beneficial Owner or Holder" has the meaning set forth in
Section 1 of Part II of these Terms of the Preferred Shares.
"Preferred Shares" means the shares of the Corporation's Auction Rate
Cumulative Preferred Shares, Series T par value $0.01 per share (and liquidation
preference $25,000 per share.)
"Preferred Shares Basic Maintenance Amount" as of any Valuation Date
means the dollar amount equal to the sum of
(i) (A) the sum of the products resulting from multiplying the number
of Outstanding Preferred Shares on such date by the Liquidation Preference per
share; (B) the aggregate amount of dividends that will have accumulated at the
Applicable Rate (whether or not earned or declared) to and including the first
Dividend Payment Date for each Outstanding Preferred Share that follows such
Valuation Date (or to the 30th day after such Valuation Date, if such 30th day
occurs before the first following Dividend Payment Date); (C) the aggregate
amount of dividends that would accumulate at the then current Maximum Rate for
the Exposure Period multiplied by the Volatility Factor on any Preferred Shares
Outstanding from the first day following the Dividend Payment Date referred to
in (B) above through the 30th day after such Valuation Date, but only if such
30th day occurs after the first day following the Dividend Payment Date, except
that if such Valuation Date occurs during a Default Period, the dividend for
purposes of the calculation would accumulate at the Default Rate; (D) the amount
of the current outstanding balances of any indebtedness which is senior to the
Preferred Shares plus interest actually accrued together with 30 days additional
interest on the current outstanding balances calculated at the current rate; (E)
the amount of anticipated Corporation expenses for the 90 days subsequent to
such Valuation Date; and (F) any current liabilities, including, without
limitation, indebtedness due within one year and any redemption premium due with
respect to Preferred Shares for which a Notice of Redemption has been given, as
of such Valuation Date, to the extent reflected in any of (i)(A) through (i)(E):
less
(ii) the sum of any cash plus the value of any Corporation assets
irrevocably deposited by the Corporation for payment of any of (i)(B) through
(i)(E) ("value," for purposes of this clause (ii), means the Discounted Value of
the security, except that if the security matures prior to the relevant
redemption payment date and is either fully guaranteed by the U.S. Government or
is rated P-1 by Moody's and A1 by S&P, it will be valued at its face value).
"Preferred Shares Basic Maintenance Amount Test" means a test which is
met if the lower of the aggregate Discounted Values of the Moody's Eligible
Assets or the S&P Eligible Assets meets or exceeds the Preferred Shares Basic
Maintenance Amount.
"Preferred Shares Basic Maintenance Certificate" has the meaning set
forth in Section 12(d) of Part I of these Terms of the Preferred Shares.
"Pricing Service" means any of the following: Bloomberg, Bridge
Information Services, Data Resources Inc., Interactive Data, Merrill Lynch
Securities Pricing Service, Muller Data Corp., Reuters, Standard & Poors/J.J.
Kenney, Trepp Pricing and Wood Gundy.
"Rating Agency" means Moody's and S&P as long as such rating agency is
then rating the Preferred Shares.
"Redemption Date" has the meaning set forth in Section 2(c)(ii) of
Part I of these Terms of the Preferred Shares.
"Redemption Default" has the meaning set forth in Section 2(c)(ii) of
Part I of these Terms of the Preferred Shares.
"Redemption Price" has the meaning set forth in Section 3(a)(i) of
Part I of these Terms of the Preferred Shares.
"Reference Rate" means, with respect to the determination of the
Default Rate, the applicable "AA" Financial Composite Commercial Paper Rate (for
a Dividend Period of fewer than 184 days) or the applicable Treasury Index Rate
(for a Dividend Period of 184 days or more).
"Registrar" means Bankers Trust Company unless and until another
entity appointed by a resolution of the Board of Directors enters into an
agreement with the Corporation to serve as transfer agent.
"S&P" means Standard & Poor's, a division of the McGraw-Hill
Companies, Inc., and its successors at law.
"S&P Discount Factor" means, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined as
follows. The S&P Discount Factor for any S&P Eligible Asset other than the
securities set forth below will be the percentage provided in writing by S&P.
(A) Corporate Bonds: The percentage determined by reference to
the S&P Diversity category in accordance with the tables set forth below.
(i) If S&P Diversity I:
MATURITY RATING CATEGORY
AAA AA+ AA AA- A+ A A-
5 Years 105.3% 106.6% 107.6% 108.6% 110.5% 111.4% 112.6%
or less
Greater than
5 Years
but less
than 10 110.5 112.4 113.9 115.2 116.5 117.5 119.0%
Years
More than
10 Years 113.8 116.3 118.1 119.8 120.7 122.0 123.6
Emerging
BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- Unrated* Market
Bond
5 Years
or less 114.9% 116.3% 117.9% 122.7% 127.2% 131.7% 145.4% 154.1% 163.8% 188.4% 221.2% 266.2% 266.2% 226.4%
Greater than
5 Years 121.0 122.7 124.7 130.4 137.0 143.9 159.3 173.2 189.5 213.9 264.9 380.4 380.4 256.5
but less
than 10
Years
More than
10 Years 125.7 127.6 129.9 136.6 145.0 154.3 172.4 191.8 216.0 240.5 315.9 516.1 516.1 318.4
* Unrated securities will qualify as S&P Eligible Assets only up to an aggregate maximum of 10% of total assets.
(ii) If S&P Diversity II:
MATURITY RATING CATEGORY
AAA AA+ AA AA- A+ A A-
5 Years
or less 104.3% 105.4% 106.3% 107.2% 108.9% 109.7% 110.7%
Greater than
5 Years
but less
than 10
Years 108.3 109.8 111.2 112.3 113.4 114.4 115.6
More than
10 Years 110.8 112.8 114.3 115.7 116.6 117.7 116.0
Emerging
BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- Unrated* Market
Bond
5 Years
or less 112.7% 113.6% 115.2% 118.9% 122.3% 125.7% 135.5% 141.7% 148.3% 167.7% 189.2% 226.8% 226.8% 194.9%
Greater than
5 Years 117.3 118.7 120.2 124.6 129.4 134.4 145.0 154.1 164.3 183.2 213.2 267.6 267.6 213.0
but less
than 10
Years
More than
10 Years 120.7 122.2 124.1 129.0 135.0 141.4 153.4 185.5 179.5 198.2 237.8 313.9 313.9 242.8
* Unrated securities will qualify as S&P Eligible Assets only up to an aggregate maximum of 10% of total assets.
(B) Cash and Cash Equivalents: The S&P Discount Factor applied to
Cash and Cash Equivalents will be (A) 100% and (B) 102% for those portfolio
securities which mature in 181 to 360 calendar days.
(C) U.S. Treasury Securities, including Treasury interest-only
Strips and Treasury principal-only Strips, as set forth below:
52-week Treasury Bills* 102%
Two-Year Treasury Notes 104
Three-Year Treasury Notes 108
Five-Year Treasury Notes 109
10-Year Treasury Notes 115
30-Year Treasury Bonds 126
* Treasury Bills with maturities of less than 52 weeks will be
discounted at the appropriate short-term money market instrument levels.
Treasury Bills that mature the next day are considered cash equivalents
and are valued at 100%.
Treasury Strips: Treasury interest-only Strips will apply the discount
factor for the Treasury category set forth above following the maturity of the
Treasury Strip, e.g., a Treasury interest-only Strip with a maturity of seven
years will apply the discount factor for U.S. Treasury Securities with a 10-year
maturity. Treasury principal-only Strips will apply the discount factor that is
two categories greater than its maturity, e.g., a Treasury principal-only Strip
with a maturity of seven years will apply the discount factor for U.S. Treasury
Securities with a 30-year maturity.
(D) Rule 144A Securities: The S&P Discount Factor applied to Rule
144A securities will be 120% of the S&P Discount Factor which would apply were
the securities registered under the Securities Act.
(E) Preferred stock as set forth below:
Sinking Fund, Fixed-
Rate, Perpetual or Adjustable- or
Rating* Floating-Rate Auction-Rate
------- ------------- ------------
AAA 240% 400%
* Either the preferred stock issuer or the preferred issue
must have a rating of at least BBB.
(F) Common stock: The S&P Discount Factor applied to Common stock
will be as follows:
(i) If S&P Diversity I:
Issuer Size Discount Factor
----------- ---------------
Small Cap 358.4%
Mid Cap 264.6
Large Cap 217.9
(ii) If S&P Diversity II:
Issuer Size Discount Factor
----------- ---------------
Small Cap 232.0%
Mid Cap 195.7
Large Cap 173.9
(G) Warrants: The S&P Discount Factor applied to Warrants will be
as follows:
(i) If S&P Diversity I:
Maturity Rating Category
-------- ---------------
CCC-
5 Years or less 288.2%
Greater than 5 Years 380.4
but less than 10 Years
More than 10 Years 516.1
(ii) If S&P Diversity II:
Maturity Rating Category
-------- ---------------
CCC-
5 Years or less 226.8%
Greater than 5 Years 267.6
but less than 10 Years
More than 10 Years 313.9
(H) Loans: The S&P Discount Factor applied to Loans will be as
follows:
(i) if S&P Diversity I:
Loan Type Discount Factor
--------- ---------------
Performing Loans priced above $.90 117.8%
Performing Loans price at $.90 and below 125.5
Distressed Loans priced above $.85 154.1
Distressed Loans priced at $.85 and below 177.9
(ii) if S&P Diversity II:
Loan Type Discount Factor
--------- ---------------
Performing Loans priced above $.90 113.8%
Performing Loans price at $.90 and below 119.5
Distressed Loans priced above $.85 141.0
Distressed Loans priced at $.85 and below 157.7
"S&P Eligible Assets" means
(i) Cash and Cash Equivalents;
(ii) Rule 144A Securities, if (a) the securities are
underwritten, (b) the investor cannot negotiate terms or
conduct due diligence with issuer (i.e., sold on a
"take-it-or-leave-it" basis) (c) adhere to public bond
market settlement conventions and (d) have mandatory
registration rights;
(iii) preferred stock if (A) the preferred stock issuer has a
senior rating from S&P of at least BBB or the preferred
issue is rated at least BBB (in the case of Yankee preferred
stock, the issuer is rated at least A by S&P, or the
preferred issue is rated at least A by S&P, (B) the issuer,
or, if the issuer is a special-purpose corporation, its
parent, is listed on either the New York Stock Exchange or
the American Stock Exchange or included in the Nasdaq
National or Small Cap Market System; (C) the preferred stock
is cumulative (except for Yankee preferred stock), has no
attached warrants and has an initial issue size of at least
$50 million (or the issuer must have issues of the same
tenor of at least $50 million); (D) such preferred stock
currently pays cash dividends denominated in U.S. dollars,
and paid cash dividends consistently over the past three
years, or, in the case of new preferred issuers without a
dividend history, the issuer will have an A or higher senior
or preferred stock rating from ; (E) the minimum market
capitalization of the issuer is $500 million; (F) in the
case of floating-rate preferred stock, holdings must be
limited to stock with a dividend period of less than or
equal to 49 days, except for a new issue, where the first
dividend period may be up to 64 days, and the floating-rate
preferred stock may not have been subject to a failed
auction; (G) the total fair market value of adjustable-rate
preferred stock held in the portfolio may not exceed 5% of
S&P Eligible Assets; (H) the issuer may hold positions in a
company's preferred stock of between U.S. $100,000 and
$10,000,000, except for floating-rate preferred stock, where
an auction may restrict the holder to a smaller position;
(iv) common stock if (A) the issuer holds no more than the
average weekly trading volume over the past month; (B) each
stock must have a market capitalization of at least $100
million; and (C) the issuer may not hold any equity unless
it has been listed on an exchange or traded for more than
one year and one quarter, or 15 months (eligible stock
exchanges are the New York Stock Exchange, American Stock
Exchange, Philadelphia Stock Exchange, Boston Stock
Exchange, Washington Stock Exchange, Midwest Stock Exchange,
Pacific Stock Exchange, NASDAQ and National Market
Quotations. Master limited partnerships or limited liability
partnerships are ineligible.
(v) debt securities constituting Corporate Bonds if (A) they
are not subject to extended settlement; (B) such securities
are rated CCC-(senior) or higher by S&P or unrated by S&P
subject to 10% maximum; and (C) such securities are not in
default. In addition, bonds which are issued in connection
with a reorganization under U.S. federal bankruptcy law
("Reorganization Bonds") will be considered Corporate Bonds
constituting S&P Eligible Assets if (a) they are rated CCC
or higher by S&P, (b) they provide for periodic payment of
interest in cash in U.S. dollars; (c) they have been
registered under the Securities Act or are restricted as to
resale under federal securities laws but are eligible for
trading under Rule 144A promulgated pursuant to the
Securities Act as determined by the Corporation's adviser
acting subject to the supervision of the Corporation's Board
of Directors; (d) they were issued by a U.S. corporation;
and (e) at the time of purchase at least one year had
elapsed since the issuer's reorganization. Reorganization
Bonds may also be considered Corporate Bonds constituting
S&P Eligible Assets if they have been approved by S&P, which
approval shall not be unreasonably withheld.
(vi) In addition, portfolio holdings must meet the requirements
of either S&P Diversity I or S&P Diversity II in order to be
included in S&P Eligible Assets.
In addition, debt securities constituting Corporate Bonds shall include
debt obligations satisfying such other criteria established by S&P in its sole
discretion and designated in writing to the Corporation.
Where the Corporation sells an asset and agrees to repurchase such asset in
the future the Discounted Value of such asset will constitute a S&P Eligible
Asset and the amount the Corporation is required to pay upon repurchase of such
asset will count as a liability for the purposes of the Preferred Shares Basic
Maintenance Amount. Where the Corporation purchases an asset and agrees to sell
it to a third party in the future, cash receivable by the Corporation thereby
will constitute a S&P Eligible Asset if the long-term debt of such other party
is rated at least A by S&P and at least A2 by Moody's and such agreement has a
term of 30 days or less; otherwise the Discounted Value of such asset will
constitute a S&P Eligible Asset. Notwithstanding the foregoing, an asset will
not be considered a S&P Eligible Asset to the extent that it has been
irrevocably deposited for the payment of (i)(A) through (i)(F) under the
definition of Preferred Shares Basic Maintenance Amount or it is subject to any
material lien mortgage, pledge, security interest or security agreement of any
kind (collectively, "Liens"), except for (A) Liens which are being contested in
good faith by appropriate proceedings and which S&P has indicated to the
Corporation will not affect the status of such asset as a S&P Eligible Asset,
(B) Liens for taxes that are not then due and payable or that can be paid
thereafter without penalty, (C) Liens to secure payment for services rendered or
cash advanced to the Corporation by its investment adviser, the Corporation's
custodian, transfer agent or registrar or the Auction Agent and (D) Liens by
virtue of any repurchase agreement.
"S&P Diversity I" means that the portfolio meets the following
requirements:
(A) The sum of the top 3 issuers will qualify as S&P Eligible Assets
only up to an aggregate amount of 25% of total assets, each of
the top 3 issuers will qualify as S&P Eligible Assets only up to
an aggregate maximum of 10% of total assets, the remaining
issuers will qualify as S&P Eligible Assets only up to an
aggregate maximum of 5% of total assets.
(B) The sum of the top 2 industries will qualify as S&P Eligible
Assets only up to an aggregate maximum of 30% of total assets,
each of the top 2 industries will qualify as S&P Eligible Assets
only up to an aggregate maximum of 20% of total assets, the
remaining industries will qualify as S&P Eligible Assets only up
to an aggregate maximum of 10% of total assets.
(C) The sum of warrants and equity will qualify as S&P Eligible
Assets only up to an aggregate maximum of 7% of total assets.
(D) Preferred stock will qualify as S&P Eligible Assets only up to
aggregate maximum of 5% of total assets.
(E) Warrants will qualify as S&P Eligible Assets only up to an
aggregate maximum of 5% of total assets. Warrants qualify as S&P
Eligible Assets only if they are not part of a bankruptcy or
litigation and have a life of longer than one year.
(F) All S&P Eligible Assets must be US Dollar denominated.
(G) Emerging Market securities will qualify as S&P Eligible Assets
only up to an aggregate maximum of 5% of total assets.
(H) Bank Loans will qualify as S&P Eligible Assets only up to an
aggregate maximum of 10% of total assets.
"S&P Diversity II" means that the portfolio meets the following
requirements:
(A) The sum of the top 3 issuers will qualify as S&P Eligible Assets
only up to an aggregate maximum of 15% of total assets, each of
the top 3 issuers will qualify as S&P Eligible Assets only up to
an aggregate maximum of 5% of total assets, the remaining issuers
will qualify as S&P Eligible Assets only up to an aggregate
maximum of 3% of total assets
(B) The sum of the top 2 industries will qualify as S&P Eligible
Assets only up to an aggregate maximum of 20% of total assets,
each of the top 2 industries will qualify as S&P Eligible Assets
only up to an aggregate maximum of 10% of total assets, the
remaining industries will qualify as S&P Eligible Assets only up
to an aggregate maximum of 5% of total assets.
(C) The sum of warrants and equity will qualify as S&P Eligible
Assets only up to an aggregate maximum of 5% of total assets.
(D) Preferred stock will qualify as S&P Eligible Assets only up to an
aggregate maximum of 5% total assets.
(E) Warrants will qualify as S&P Eligible Assets only up to an
aggregate maximum of 5% total assets. Warrants qualify as S&P
Eligible Assets only if they are not part of a bankruptcy or
litigation and have a life of longer than one year.
(F) All S&P Eligible Assets must be US Dollar denominated.
(G) Emerging Market securities will qualify as S&P Eligible Assets
only up to an aggregate maximum of 5% of total assets.
(H) Bank Loans will qualify as S&P Eligible Assets only up to an
aggregate maximum of 10% of total assets.
"S&P Industry Classification" means, for the purposes of determining
S&P Eligible Assets, each of the following industry classifications (or such
other classifications as S&P may from time to time approve for application to
the Preferred Shares:
1. Aerospace and Defense: Aircraft manufacturer/components, Arms and
ammunition
2. Air transport
3. Automotive: Manufacturers, Parts and Equipment, Tire and Rubber
4. Beverage and Tobacco
5. Broadcast Radio and Television
6. Brokers/Dealers/Investment Houses
7. Building and Development: Builders, Land Development/Real Estate,
REITs
8. Business Equipment and Services: Graphic Arts, Office
Equipment/Computers, Data Processing Service Bureaus, Computer
Software
9. Cable and Satellite Television
10. Chemical/Plastics: Coatings/Paints/Varnishes
11. Clothing/Textiles
12. Conglomerates
13. Containers and Glass Products
14. Cosmetic/Toiletries
15. Drugs
16. Ecological Services and Equipment: Waste Disposal Services and
Equipment
17. Electronics/Electric
18. Equipment Leasing: Auto Leasing/Rentals, Commercial Equipment Leasing,
Data Processing Equipment Service/Leasing
19. Farming/Agriculture: Agricultural Products and Equipment, Fertilizers
20. Financial Intermediaries: Bank/Thrifts, Finance Companies
21. Food/Drug Retailers
22. Food Products
23. Food Service: Food Service/Restaurants, Vending
24. Forest Products: Building Materials, Paper Products/Containers
25. Health Care
26. Home Furnishings: Appliances, Furniture and Fixtures, Housewares
27. Lodging and Casinos
28. Industrial Equipment: Machinery, Manufacturing/Industrial, Specialty
Instruments
29. Insurance
30. Leisure Goods/Activities/Movies
31. Nonferrous Metals/Minerals: Aluminum Producers, Mining (including
coal), Other Metal/Mineral Producers
32. Oil and Gas: Producers/Refiners, Gas Pipelines
33. Publishing
34. Rail Industries: Railroads, Rail Equipment
35. Retailers (except food and drug)
36. Steel
37. Surface Transport: Shipping/Shipbuilding, Trucking
38. Telecommunications/Cellular Communications
39. Utilities: Electric, Local Gas, Water
Without amending these Articles Supplementary and to the extent
permitted by Maryland law, the S&P Industry Classifications applicable with
respect to the Corporation may be changed from those set forth in these Articles
Supplementary to other S&P Industry Classifications recognized by S&P if the
Board of Directors of the Corporation determines and S&P advises the Corporation
in writing that the change will not adversely affect its then-current rating of
the Preferred Shares.
The Corporation shall use its discretion in determining which industry
classification is applicable to a particular investment.
"S&P OC Rating Chart" means with respect to a S&P Eligible Asset with
a public rating by S&P, such S&P rating; and with respect to a S&P Eligible
Asset without a public rating by S&P but with a public rating by Moody's, which
is specified below, the S&P rating set forth opposite the applicable Moody's
rating specified below:
Moody's Rating Mapped S&P Rating
-------------- -----------------
Aaa AA+
Aa1 AA
Aa2 AA-
Aa3 A+
A1 A
A2 A-
A3 BBB+
Baa1 BBB
Baa2 BBB-
Baa3 BB+
Ba1 BB-
Ba2 B+
Ba3 B
B1 B-
B2 CCC+
B3 CCC
Caa CCC-
NR or Below Caa NR
---------------------------------------------------------
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Corporation that agrees to follow the procedures required to be followed by such
securities depository in connection with the Preferred Shares.
"Sell Order" has the meaning set forth in Section 2(b) of Part II of
these Terms of the Preferred Shares.
"Special Dividend Period" means a Dividend Period that is not a
Standard Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special
Dividend Period of more than one year, either, or any combination of (i) a
period (a "Non-Call Period") determined by the Board of Directors after
consultation with the Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the option of the
Corporation pursuant to Section 3(a)(i) and/or Section 3(a)(ii) and/or 3(a)(iii)
of Part I of these Terms of the Preferred Shares and (ii) a period (a "Premium
Call Period"), consisting of a number of whole years as determined by the Board
of Directors after consultation with the Broker-Dealers, during each year of
which the shares subject to such Special Dividend Period shall be redeemable at
the Corporation's option pursuant to Section 3(a)(i) and/or in connection with
any mandatory redemption pursuant to Section 3(a)(ii) and/or 3(a)(iii) at a
price per share equal to the Liquidation Value plus accumulated but unpaid
dividends (whether or not earned or declared) plus a premium expressed as a
percentage or percentages of the Liquidation Value or expressed as a formula
using specified variables as determined by the Board of Directors after
consultation with the Broker-Dealers.
"Standard Dividend Period" means a Dividend Period of seven days,
unless such seventh day is not a Business Day, then the number of days ending on
the Business Day next preceding such seventh day.
"Submission Deadline" means 1:00 p.m., New York City time, on any
Auction Date or such other time on any Auction Date by which Broker-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.
"Transfer Agent" means Bankers Trust Company, unless and until another
entity appointed by a resolution of the Board of Directors enters into an
agreement with the Corporation to serve as Transfer Agent.
"Treasury Index Rate" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities having the same
number of 30-day periods to maturity as the length of the applicable Dividend
Period, determined, to the extent necessary, by linear interpolation based upon
the yield for such securities having the next shorter and next longer number of
30-day periods to maturity treating all Dividend Periods with a length greater
than the longest maturity for such securities as having a length equal to such
longest maturity, in all cases based upon data set forth in the most recent
weekly statistical release published by the Board of Governors of the Federal
Reserve System (currently in H.15 (519)); provided, however, if the most recent
such statistical release shall not have been published during the 15 days
preceding the date of computation, the foregoing computations shall be based
upon the average of comparable data as quoted to the Corporation by at least
three recognized dealers in U.S. Government securities selected by the
Corporation.
"U.S. Government Securities" means direct obligations of the United
States or by its agencies or instrumentalities that are entitled to the full
faith and credit of the United States and that, other than United States
Treasury Bills, provide for the periodic payment of interest and the full
payment of principal at maturity or call for redemption.
"Valuation Date" means the last Business Day of each week, or such
other date as the Corporation and Rating Agencies may agree to for purposes of
determining the Preferred Shares Basic Maintenance Amount.
"Volatility Factor" means 2.28, or such other number as determined by
S&P from time to time.
"Voting Period" has the meaning set forth in Section 6(b) of Part I of
these Terms of the Preferred Shares.
"Winning Bid Rate" has the meaning set forth in Section 4(a)(iii) of
Part II of these Terms of the Preferred Shares.
"Zero-Coupon Securities" means bonds that do not provide for the
periodic payment of interest.
18. Interpretation. References to sections, subsections, clauses,
sub-clauses, paragraphs and subparagraphs are to such sections, subsections,
clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I or
Part II hereof, as the case may be, unless specifically identified otherwise.
PART 2: AUCTION PROCEDURES
1. CERTAIN DEFINITIONS. As used in Part II of these terms of the Preferred
Shares, the following terms shall have the following meanings, unless the
context otherwise requires and all section references below are to Part II
hereof except as otherwise indicated: Capitalized terms not defined in Section 1
of Part II of these terms of the Preferred Shares shall have the respective
meanings specified in Part I hereof.
"Agent Member" means a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
"Available Preferred Shares" has the meaning set forth in Section
4(a)(i) of Part II of these Terms of the Preferred Shares.
"Existing Holder" means (a) a person who beneficially owns those
Preferred Shares listed in that person's name in the records of the Auction
Agent or (b) the beneficial owner of those Preferred Shares which are listed
under such person's Broker-Dealer's name in the records of the Auction Agent,
which Broker-Dealer shall have signed a Master Purchaser's Letter.
"Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II
of these Terms of the Preferred Shares.
"Master Purchaser's Letter" means a letter which is required to be
executed by each prospective purchaser of Preferred Shares or the Broker-Dealer
through whom such shares will be held.
"Order" has the meaning set forth in Section 2(a)(ii) of Part II of
these Terms of the Preferred Shares.
"Potential Beneficial Owner or Holder," means (1) any Existing Holder
who may be interested in acquiring additional Preferred Shares or (ii) any other
person who may be interested in acquiring Preferred Shares and who has signed a
Master Purchaser's Letter or whose shares will be listed under such person's
Broker-Dealer's name on the records of the Auction Agent which Broker-Dealer
shall have executed a Master Purchaser's Letter.
"Sell Order" has the meaning set forth in Section 2(b) of Part II of
these Terms of the Preferred Shares.
"Submitted Bid Order" has the meaning set forth in Section 4(a) of
Part II of these Terms of the Preferred Shares.
"Submitted Hold Order" has the meaning set forth in Section 4(a) of
Part II of these Terms of the Preferred Shares.
"Submitted Order" has the meaning set forth in Section 4(a) of Part II
of these Terms of the Preferred Shares.
"Submitted Sell Order" has the meaning set forth in Section 4(a) of
Part II of these Terms of the Preferred Shares.
"Sufficient Clearing Orders" means that all Preferred Shares are the
subject of Submitted Hold Orders or that the number of Preferred Shares that are
the subject of Submitted Buy Orders by Potential Holders specifying one or more
rates equal to or less than the Maximum Rate exceeds or equals the sum of (A)
the number of Preferred Shares that are subject to Submitted Hold/Sell Orders by
Existing Holders specifying one or more rates higher than the Maximum Applicable
Rate and (B) the number of Preferred Shares that are subject to Submitted Sell
Orders.
"Winning Bid Rate" means the lowest rate specified in the Submitted
Orders which, if (A) each Submitted Hold/Sell Order from Existing Holders
specifying such lowest rate and all other Submitted Hold/Sell Orders from
Existing Holders specifying lower rates were accepted and (B) each Submitted Buy
Order from Potential Holders specifying such lowest rate and all other Submitted
Buy Orders from Potential Holders specifying lower rates were accepted, would
result in the Existing Holders described in clause (A) above continuing to hold
an aggregate number of Preferred Shares which, when added to the number of
Preferred Shares to be purchased by the Potential Holders described in clause
(B) above and the number of Preferred Shares subject to Submitted Hold Orders,
would be equal to the number of Preferred Shares.
2. Orders.
(a) On or prior to the Submission Deadline on each Auction Date with
respect to the Preferred Shares:
(i) each Beneficial Owner of shares Preferred Shares may submit
to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding Preferred Shares, if any, of
Preferred Shares held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable Rate for the next
succeeding Dividend Period;
(B) the number of Outstanding Preferred Shares, if any, of
Preferred Shares held by such Beneficial Owner which such Beneficial Owner
offers to sell if the Applicable Rate for the next succeeding Dividend Period
shall be less than the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding Preferred Shares, if any, of
Preferred Shares held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for the next succeeding
Dividend Period; and
(ii) each Broker-Dealer, using lists of Potential Beneficial
Owners, shall, in good faith for the purpose of conducting a competitive Auction
in a commercially reasonable manner, contact Potential Beneficial Owners (by
telephone or otherwise), including Persons that are not Beneficial Owners, on
such lists to determine the number of Preferred Shares, if any, which each such
Potential Beneficial Owner offers to purchase if the Applicable Rate for the
Preferred Shares for the next succeeding Dividend Period of Preferred Shares
shall not be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner
or Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or
(ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the Auction Agent, is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders"; an Order containing the information referred
to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of Preferred
Shares subject to an Auction on any Auction Date shall constitute an irrevocable
offer to sell:
(A) the number of Outstanding Preferred Shares specified in such
Bid if the Applicable Rate determined on such Auction Date shall be less than
the rate specified therein;
(B) such number or a lesser number of Outstanding Preferred
Shares to be determined as set forth in clause (iv) of paragraph (a) of Section
5 of this Part II if the Applicable Rate determined on such Auction Date shall
be equal to the rate specified therein; or
(C) the number of Outstanding Preferred Shares specified in such
Bid if the rate specified therein shall be higher than the Maximum Rate, or such
number or a lesser number of Outstanding Preferred Shares be determined as set
forth in clause (iii) of paragraph (b) of Section 5 of this Part II if the rate
specified therein shall be higher than the Maximum Rate and Sufficient Clearing
Bids do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of Preferred Shares subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Preferred Shares specified in such
Sell Order; or
(B) such number or a lesser number of Outstanding Preferred
Shares as set forth in clause (iii) of paragraph (b) of Section 5 of this Part
II if Sufficient Clearing Bids do not exist; PROVIDED, HOWEVER, that a
Broker-Dealer that is an Existing Holder with respect to Preferred Shares shall
not be liable to any Person for failing to sell such shares pursuant to a Sell
Order described in the proviso to paragraph (c) of Section 3 of this Part II if
(1) such shares were transferred by the Beneficial Owner thereof without
compliance by such Beneficial Owner or its transferee Broker-Dealer (or other
transferee person, if permitted by the Corporation) with the provisions of
Section 6 of this Part II or (2) such Broker-Dealer has informed the Auction
Agent pursuant to the terms of its Broker-Dealer Agreement that, according to
such Broker-Dealer's records, such Broker-Dealer believes it is not the Existing
Holder of such shares.
(iii) A Bid by a Potential Holder of Preferred Shares subject to
an Auction on any Auction Date shall constitute an irrevocable offer to
purchase:
(A) the number of Outstanding Preferred Shares specified in such
Bid if the Applicable Rate for Preferred Shares determined on such Auction Date
shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding Preferred
Shares as set forth in clause (v) of paragraph (a) of Section 5 of this Part II
if the Applicable Rate determined on such Auction Date shall be equal to the
rate specified therein.
(c) No Order for any number of Preferred Shares other than whole
shares shall be valid.
3. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date all Orders for Preferred
Shares subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the
Corporation) as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and as a Potential
Holder in respect of shares subject to Orders submitted to it by Potential
Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(ii) the aggregate number of Preferred Shares that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
Preferred Shares:
(A) the number, if any, of Preferred Shares subject to
any Hold Order of such Existing Holder;
(B) the number, if any, of Preferred Shares subject to
any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number, if any, of Preferred Shares subject to
any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of
Preferred Shares, the rate and number of Preferred Shares specified in
such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding
Preferred Shares held by any Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order to have been submitted by or on behalf of such Existing Holder covering
the number of Outstanding Preferred Shares held by such Existing Holder and not
subject to Orders submitted to the Auction Agent; PROVIDED, HOWEVER, that if an
Order or Orders covering all of the Outstanding Preferred Shares held by any
Existing Holder is not submitted to the Auction Agent prior to the Submission
Deadline for an Auction relating to a Special Dividend Period consisting of more
than [seven] Dividend Period days, the Auction Agent shall deem a Sell Order to
have been submitted by or on behalf of such Existing Holder covering the number
of outstanding Preferred Shares held by such Existing Holder and not subject to
Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
Preferred Shares subject to an Auction held by such Existing Holder, such Orders
shall be considered valid in the following order of priority:
(i) all Hold Orders for Preferred Shares shall be
considered valid, but only up to and including in the aggregate the number of
Outstanding Preferred Shares held by such Existing Holder, and if the
number of Preferred Shares subject to such Hold Orders exceeds the
number of Outstanding Preferred Shares held by such Existing Holder,
the number of shares subject to each such Hold Order shall be reduced pro rata
to cover the number of Outstanding Preferred Shares held by such
Existing Holder;
(ii) (A) any Bid for Preferred Shares shall be
considered valid up to and including the excess of the number of Outstanding
Preferred Shares held by such Existing Holder over the number Outstanding
Preferred Shares subject to any Hold Orders referred to in clause (i)
above;
(B) subject to subclause (A), if more than one Bid of an Existing
Holder for Preferred Shares is submitted to the Auction Agent with the
same rate and the number of Outstanding Preferred Shares subject to
such Bids is greater than such excess, such Bids shall be considered valid up to
and including the amount of such excess, and the number of Preferred
Shares subject to each Bid with the same rate shall be reduced pro rata to cover
the number of Preferred Shares equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an
Existing Holder for Preferred Shares is submitted to the Auction Agent
with different rates, such Bids shall be considered valid in the ascending order
of their respective rates up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding
Preferred Shares subject to any portion of Bids considered not valid in whole or
in part under this clause (ii) shall be treated as the subject of a Bid for
Preferred Shares by or on behalf of a Potential Holder at the rate therein
specified; and
(iii) all Sell Orders for Preferred Shares shall be
considered valid up to and including the excess of the number of Outstanding
Preferred Shares held by such Existing Holder over the sum of Preferred Shares
subject to valid Hold Orders referred to in clause (i) above and valid Bids
referred to in clause (ii) above.
(e) If more than one Bid for one or more Preferred Shares is
submitted to the Auction Agent by or on behalf of any Potential Holder, each
such Bid submitted shall be a separate Bid with the rate and number of shares
therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date, shall be
irrevocable.
4. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date for
Preferred Shares, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers in respect
of Preferred Shares (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders")
and shall determine:
(i) the excess of the number of Outstanding Preferred Shares over
the number of Outstanding Preferred Shares subject to Submitted Hold Orders
(such excess being hereinafter referred to as the "Available Preferred Shares");
(ii) from the Submitted Orders for Preferred Shares whether:
(A) the number of Outstanding Preferred Shares subject
to Submitted Bids of Potential Holders specifying one or more rates equal to or
lower than the Maximum Rate (for all Dividend Periods) for Preferred
Shares; exceeds or is equal to the sum of
(B) the number of Outstanding Preferred Shares subject
to Submitted Bids of Existing Holders specifying one or more rates higher than
the Maximum Rate (for all Dividend Periods) for Preferred Shares; and
(C) the number of Outstanding Preferred Shares subject to
Submitted Sell Orders (in the event such excess or such equality exists (other
than because the number of Preferred Shares in subclauses (B) and (C) above is
zero because all of the Outstanding Preferred Shares are subject to Submitted
Hold Orders), such Submitted Bids in subclause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids" for Preferred Shares);
and
(iii) if Sufficient Clearing Bids for Preferred Shares exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
Preferred Shares) which if:
(A) (I) each such Submitted Bid of Existing Holders specifying
such lowest rate and (II) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling such Existing Holders to
continue to hold the Preferred Shares that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders specifying
such lowest rate and (II) all other such Submitted Bids of Potential Holders
specifying lower rates were accepted, would result in such Existing Holders
described in subclause (A) above continuing to hold an aggregate number of
Outstanding Preferred Shares which, when added to the number of Outstanding
Preferred Shares to be purchased by such Potential Holders described in
subclause (B) above, would equal not less than the Available Preferred Shares.
(b) Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 4, the Auction Agent shall advise the
Corporation of the Maximum Rate for Preferred Shares for which an
Auction is being held on the Auction Date and, based on such determination, the
Applicable Rate for Preferred Shares for the next succeeding Dividend
Period thereof as follows:
(i) if Sufficient Clearing Bids for Preferred Shares exist, that
the Applicable Rate for all Preferred Shares for the next succeeding Dividend
Period thereof shall be equal to the Winning Bid Rate for Preferred Shares so
determined;
(ii) if Sufficient Clearing Bids for Preferred Shares do not
exist (other than because all of the Outstanding Preferred Shares are subject to
Submitted Hold Orders), that the Applicable Rate for all Preferred Shares for
the next succeeding Dividend Period thereof shall be equal to the Maximum Rate
for Preferred Shares; or
(iii) if all of the Outstanding Preferred Shares are subject to
Submitted Hold Orders, that the Applicable Rate for all Preferred Shares for the
next succeeding Dividend Period thereof shall be the All Hold Rate.
5. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation.
Existing Holders shall continue to hold the Preferred Shares that are
subject to Submitted Hold Orders, and, based on the determinations made pursuant
to paragraph (a) of Section 4 of this Part II, the Submitted Bids and Submitted
Sell Orders shall be accepted or rejected by the Auction Agent and the Auction
Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for Preferred Shares have been made,
all Submitted Sell Orders with respect to Preferred Shares shall be accepted
and, subject to the provisions of paragraphs (d) and (e) of this Section 5,
Submitted Bids with respect to Preferred Shares shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids with
respect to Preferred Shares shall be rejected:
(i) Existing Holders' Submitted Bids for Preferred
Shares specifying any rate that is higher than the Winning Bid Rate for
Preferred Shares shall be accepted, thus requiring each such Existing Holder
to sell the Preferred Shares subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for Preferred
Shares specifying any rate that is lower than the Winning Bid Rate for
Preferred Shares shall be rejected, thus entitling each such Existing Holder to
continue to hold the Preferred Shares subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for Preferred
Shares specifying any rate that is lower than the Winning Bid Rate for
Preferred Shares shall be accepted;
(iv) each Existing Holder's Submitted Bid for Preferred
Shares specifying a rate that is equal to the Winning Bid Rate for
Preferred Shares shall be rejected, thus entitling such Existing Holder to
continue to hold the Preferred Shares subject to such Submitted Bid, unless the
number of Outstanding Preferred Shares subject to all such Submitted Bids shall
be greater than the number of Preferred Shares ("remaining shares") in the
excess of the Available Preferred Shares over the number of Preferred Shares
subject to Submitted Bids described in clauses (ii) and (iii) of this paragraph
(a), in which event such Submitted Bid of such Existing Holder shall be rejected
in part, and such Existing Holder shall be entitled to continue to hold
Preferred Shares subject to such Submitted Bid, but only in an amount equal to
the Preferred Shares obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding Preferred
Shares held by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the aggregate number of Outstanding Preferred
Shares subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate for Preferred Shares;
and
(v) each Potential Holder's Submitted Bid for Preferred Shares
specifying a rate that is equal to the Winning Bid Rate for Preferred Shares
shall be accepted but only in an amount equal to the number of Preferred Shares
obtained by multiplying the number of shares in the excess of the Available
Preferred Shares over the number of Preferred Shares subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the
numerator of which shall be the number of Outstanding Preferred Shares subject
to such Submitted Bid and the denominator of which shall be the aggregate number
of Outstanding Preferred Shares subject to such Submitted Bids made by all such
Potential Holders that specified a rate equal to the Winning Bid Rate for
Preferred Shares.
(b) If Sufficient Clearing Bids for Preferred Shares have not been
made (other than because all of the Outstanding Preferred Shares are subject to
Submitted Hold Orders), subject to the provisions of paragraph (d) of this
Section 5, Submitted Orders for Preferred Shares shall be accepted or rejected
as follows in the following order of priority and all other Submitted Bids for
Preferred Shares shall be rejected:
(i) Existing Holders' Submitted Bids for Preferred
Shares specifying any rate that is equal to or lower than the Maximum Rate for
Preferred Shares shall be rejected, thus entitling such Existing
Holders to continue to hold the Preferred Shares subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for Preferred
Shares specifying any rate that is equal to or lower than the Maximum Rate for
Preferred Shares shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for Preferred Shares
specifying any rate that is higher than the Maximum Rate for Preferred Shares
and the Submitted Sell Orders for Preferred Shares of each Existing Holder shall
be accepted, thus entitling each Existing Holder that submitted or on whose
behalf was submitted any such Submitted Bid or Submitted Sell Order to sell the
Preferred Shares subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of Preferred Shares obtained by
multiplying the number of Preferred Shares subject to Submitted Bids described
in clause (ii) of this paragraph (b) by a fraction, the numerator of which shall
be the number of Outstanding Preferred Shares held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate number of Outstanding Preferred Shares subject to
all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding Preferred Shares are subject to
Submitted Hold Orders, all Submitted Bids for Preferred Shares shall be
rejected.
(d) If, as a result of the procedures described in clause (iv) or (v)
of paragraph (a) or clause (iii) of paragraph (b) of this Section 5, any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a Preferred Share on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, round up or down the number of Preferred Shares to be
purchased or sold by any Existing Holder or Potential Holder on such Auction
Date as a result of such procedures so that the number of shares so purchased or
sold by each Existing Holder or Potential Holder on such Auction Date shall be
whole Preferred Shares.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 5, any Potential Holder would be entitled or
required to purchase less than a whole Preferred Share on any Auction Date, the
Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate Preferred Shares for purchase among Potential Holders so
that only whole Preferred Shares are purchased on such Auction Date as a result
of such procedures by any Potential Holder, even if such allocation results in
one or more Potential Holders not purchasing Preferred Shares on such Auction
Date.
(f) Based on the results of each Auction for Preferred Shares,
the Auction Agent shall determine the aggregate number of Preferred Shares to be
purchased and the aggregate number of Preferred Shares to be sold by Potential
Holders and Existing Holders and, with respect to each Potential Holder and
Existing Holder, to the extent that such aggregate number of shares to be
purchased and such aggregate number of shares to be sold differ, determine to
which other Potential Holder(s) or Existing Holder(s) they shall deliver, or
from which other Potential Holder(s) or Existing Holder(s) they shall receive,
as the case may be, Preferred Shares. Notwithstanding any provision of the
Auction Procedures or the Settlement Procedures to the contrary, in the event an
Existing Holder or Beneficial Owner of Preferred Shares with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a Sell
Order for such shares that was accepted in whole or in part, fails to instruct
its Agent Member to deliver such shares against payment therefor, partial
deliveries of Preferred Shares that have been made in respect of Potential
Holders' or Potential Beneficial Owners' Submitted Bids for Preferred Shares
that have been accepted in whole or in part shall constitute good delivery to
such Potential Holders and Potential Beneficial Owners.
(g) Neither the Corporation nor the Auction Agent nor any affiliate of
either shall have any responsibility or liability with respect to the failure of
an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential
Beneficial Owner or its respective Agent Member to deliver Preferred Shares or
to pay for Preferred Shares sold or purchased pursuant to the Auction Procedures
or otherwise.
6. Transfer of Preferred Shares.
Unless otherwise permitted by the Corporation, a Beneficial Owner or an
Existing Holder may sell, transfer or otherwise dispose of Preferred Shares only
in whole shares and only pursuant to a Bid or Sell Order placed with the Auction
Agent in accordance with the procedures described in this Part II or to a
Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition
of Preferred Shares from a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer as the holder of such shares to that Broker-Dealer
or another customer of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of this Section 6 if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other Person, if permitted by the Corporation) to whom such transfer is made
shall advise the Auction Agent of such transfer.
SECOND: The Preferred Shares have been classified and designated
by the Board of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the
Board of Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
President acknowledges that, to the best of her knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
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IN WITNESS WHEREOF, CNA INCOME SHARES, INC. has caused these presents to be
signed in its name and on its behalf by its President and its corporate seal to
be hereunder affixed and attested by its Secretary on this 20th day of
July, 2001.
CNA INCOME SHARES, INC.
By: /s/ MARILOU R. MCGIRR
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President
ATTEST:
/s/ LYNNE GUGENHEIM
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Secretary