-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RRKr3bqp76s6WyVaK9whmd39LLjH7djze8qXKM+Citj+NHaaoKr5MFFyeHH0txhR irTi0KGa7dKdKliJAgaTeQ== 0000912057-96-021323.txt : 19960930 0000912057-96-021323.hdr.sgml : 19960930 ACCESSION NUMBER: 0000912057-96-021323 CONFORMED SUBMISSION TYPE: N-2/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19960927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEA INCOME FUND INC CENTRAL INDEX KEY: 0000810766 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 232451535 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-10851 FILM NUMBER: 96635469 FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-05012 FILM NUMBER: 96635470 BUSINESS ADDRESS: STREET 1: 153 EAST 53RD ST STREET 2: 8TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: 73 TREMONT ST STREET 2: 8TH FL CITY: BOSTON STATE: MA ZIP: 02108 FORMER COMPANY: FORMER CONFORMED NAME: CS FIRST BOSTON INCOME FUND INC DATE OF NAME CHANGE: 19950420 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BOSTON INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BOSTON QUALITY INCOME FUND INC DATE OF NAME CHANGE: 19870329 N-2/A 1 N-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996 SECURITIES ACT FILE NO. 333-10851 INVESTMENT COMPANY ACT FILE NO. 811-05012 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM N-2 /X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ PRE-EFFECTIVE AMENDMENT NO. 1 / / POST-EFFECTIVE AMENDMENT NO. /X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 10 ----------------- BEA INCOME FUND, INC. (Exact name of registrant as specified in its charter) --------------------- 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 (Address of principal executive offices) (212) 832-2626 (Registrant's telephone number, including area code) --------------------- DANIEL H. SIGG CHIEF EXECUTIVE OFFICER BEA INCOME FUND, INC. 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 (Name and address of agent for service) --------------------- WITH COPIES TO: DANIEL SCHLOENDORN, ESQ. THOMAS A. DECAPO, ESQ. WILLKIE FARR & GALLAGHER SKADDEN, ARPS, SLATE, MEAGHER & FLOM ONE CITICORP CENTER ONE BEACON STREET 153 EAST 53RD STREET BOSTON, MASSACHUSETTS 02108 NEW YORK, NEW YORK 10022
--------------------- APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the effective date of this Registration Statement. --------------------- If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. /X/ It is proposed that this filing will become effective (check appropriate box) / / when declared effective pursuant to Section 8(c) If appropriate, check the following box: / / This amendment designates a new effective date for a previously filed registration statement. / / This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is . --------------------- CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION BEING REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE FEE (2) Shares of Common Stock, par value $.001 per share................................ 10,160,570 $8.31 $84,434,336.70 $29,115.29
(1) As calculated pursuant to Rule 457(c) under the Securities Act of 1933, as amended. Based on the average of the high and low sales prices reported on the New York Stock Exchange on August 21, 1996. (2) Previously paid. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BEA INCOME FUND, INC. FORM N-2 CROSS-REFERENCE SHEET PARTS A AND B OF PROSPECTUS
ITEM NO. CAPTION LOCATION IN PROSPECTUS - --------- --------------------------------------------------- --------------------------------------------------- PART A -- Information Required in a Prospectus 1. Outside Front Cover................................ Front Cover Page 2. Inside Front and Outside Back Cover Page........... Front Cover Page 3. Fee Table and Synopsis............................. Prospectus Summary; Fee Table 4. Financial Highlights............................... Financial Highlights 5. Plan of Distribution............................... Front Cover Page; Prospectus Summary; The Offer; Distribution Arrangements 6. Selling Shareholders............................... Not Applicable 7. Use of Proceeds.................................... Use of Proceeds 8. General Description of the Registrant.............. Front Cover Page; Prospectus Summary; The Fund; Investment Objective and Policies; Risk Factors and Special Considerations; Common Stock; Net Asset Value 9. Management......................................... Management of the Fund; Portfolio Transactions; Custodian and Transfer and Dividend-Paying Agent and Registrar 10. Capital Stock, Long-Term Debt and Other Securities........................................ The Offer; Common Stock; Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan; Net Asset Value; Taxation 11. Defaults and Arrears on Senior Securities.......... Not Applicable 12. Legal Proceedings.................................. Not Applicable 13. Table of Contents of the Statement of Additional Information....................................... Table of Contents of the Statement of Additional Information PART B -- Information required in a Statement of Additional Information 14. Cover Page......................................... Front Cover Page 15. Table of Contents.................................. Front Cover Page 16. General Information and History.................... General Information 17. Investment Objective and Policies.................. Investment Objective and Policies; Investment Restrictions 18. Management......................................... Management of the Fund 19. Control Persons and Principal Holders of Securities........................................ Common Stock 20. Investment Advisory and Other Services............. Management of the Fund 21. Brokerage Allocation and Other Practices........... Portfolio Transactions 22. Tax Status......................................... Taxation 23. Financial Statements............................... Financial Statements PART C -- Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement.
PROSPECTUS BEA INCOME FUND, INC. 8,128,456 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF RIGHTS TO SUBSCRIBE FOR SUCH SHARES ----------- BEA Income Fund, Inc. (the "Fund") is issuing to its shareholders of record ("Record Date Shareholders") as of the close of business on September 27, 1996 (the "Record Date") non-transferable rights ("Rights") entitling the holders thereof to subscribe for an aggregate of 8,128,456 shares ("Shares") of the Fund's common stock ( the "Offer"). Each Record Date Shareholder is being issued one Right for each whole share of the Fund's common stock ("Common Stock") owned on the Record Date. The Rights entitle the Record Date Shareholder to acquire at the Subscription Price (as hereinafter defined) one Share for every three Rights held (one for three). Shareholders who fully exercise their Rights will be entitled to subscribe for additional shares of Common Stock pursuant to an Over-Subscription Privilege, as described herein. The Fund may increase at its discretion the number of shares of Common Stock subject to subscription by up to 25% of the Shares, or 2,032,114 Shares, for an aggregate total of 10,160,570 Shares. Fractional Shares will not be issued upon the exercise of Rights. Accordingly, Shares may be purchased only pursuant to the exercise of Rights in integral multiples of three. The Rights are non-transferable and will not be admitted for trading on the New York Stock Exchange or any other exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE 95% OF THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE OF THE FUND'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON THE DATE OF THE EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON THE FOUR PRECEDING BUSINESS DAYS THEREOF AND (ii) THE NET ASSET VALUE PER SHARE AS OF THE CLOSE OF BUSINESS ON THE PRICING DATE. The Fund announced the Offer after the close of trading on the New York Stock Exchange on August 22, 1996. Shares of the Common Stock trade on that exchange under the symbol "FBF." The last reported net asset value per share of Common Stock at the close of business on August 22, 1996 and September 24, 1996 was $8.50 and $8.54, respectively, and the last reported sales price of a share of the Fund's Common Stock on that exchange on those dates was $8.25 and $8 3/8, respectively. THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 22, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN. Upon the completion of the Offer, Record Date Shareholders who do not fully exercise their Rights will own a smaller proportional interest in the Fund than would otherwise be the case if the Offer had not been made. In addition, because the Subscription Price per Share will be less than the current net asset value per share, the Offer will result in dilution of net asset value per share for all shareholders. If the Subscription Price per Share were to be substantially less than the current net asset value per share, such dilution would be substantial. Shareholders will have no right to rescind their subscriptions after receipt of their payment for Shares by the Subscription Agent. See "Risk Factors and Special Considerations--Certain Effects of the Offer." If you have questions or need further information about the Offer, please call Shareholder Communications Corporation, the Fund's information agent for the Offer (the "Information Agent"), at (800) 733-8481, extension 349. (CONTINUED ON THE FOLLOWING PAGE) ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ESTIMATED ESTIMATED SUBSCRIPTION ESTIMATED PROCEEDS TO PRICE (1) SALES LOAD (2) THE FUND (3)(4) Per Share................................. $7.96 $0.30 $7.66 Total Maximum (5)......................... $64,702,510 $2,438,537 $62,263,973
(FOOTNOTES ON THE FOLLOWING PAGE) SMITH BARNEY INC. The date of this Prospectus is September 27, 1996 (CONTINUED FROM THE PREVIOUS PAGE) The Fund is a closed-end, diversified management investment company that seeks current income consistent with the preservation of capital by investing primarily in fixed-income securities. Under normal circumstances, the Fund will invest at least 75% of its total assets in fixed-income securities, such as bonds, debentures and preferred stocks. All or substantially all of the Fund's assets may be invested in securities rated below investment grade and in unrated securities of comparable quality. Securities of this type are subject to greater risk of loss of principal or nonpayment of interest than higher-rated securities and are predominantly speculative. There can be no assurance that the Fund's investment objective will be achieved. See "Investment Objective and Policies." BEA Associates serves as the Fund's investment adviser. The address of the Fund is One Citicorp Center, 57th Floor, 153 East 53rd Street, New York, New York 10022, and the Fund's telephone number is (212) 832-2626. Investment in lower-rated securities involves certain risks and special considerations not typically associated with investment in higher-rated securities and should be considered speculative. See "Risk Factors and Special Considerations." This Prospectus sets forth information about the Fund that a prospective investor ought to know before investing and should be retained for future reference. A Statement of Additional Information dated September 27, 1996 (the "SAI") containing additional information about the Fund has been filed with the Securities and Exchange Commission (the "Commission") and is incorporated by reference in its entirety into this Prospectus. A copy of the SAI, the table of contents of which appears on page 31 of this Prospectus, may be obtained without charge by contacting the Information Agent at (800) 733-8481, extension 349. -------------- (FOOTNOTES FROM THE PREVIOUS PAGE) (1) Estimated on the basis of 95% of the market price per share on September 24, 1996. See "The Offer-- Subscription Price." (2) In connection with the Offer, Smith Barney Inc. (the "Dealer Manager") and other broker-dealers soliciting the exercise of Rights will receive soliciting fees equal to 2.50% of the Subscription Price per Share for each Share issued upon exercise of the Rights and the Over-Subscription Privilege. The Fund has also agreed to pay the Dealer Manager a fee for financial advisory services and marketing assistance in connection with the Offer equal to 1.25% of the Subscription Price per Share for Shares issued upon exercise of the Rights and the Over-Subscription Privilege and has agreed to indemnify the Dealer Manager against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). (3) Before deduction of offering expenses incurred by the Fund, estimated at $550,000, including an aggregate of up to $100,000 to be paid to the Dealer Manager as partial reimbursement for its expenses. (4) Funds received by check prior to the final due date of this Offer will be deposited into a segregated interest bearing account (which interest will be paid to the Fund regardless of whether shares are issued or not by the Fund) pending proration and distribution of Shares. (5) Assumes all Rights are exercised at the Estimated Subscription Price. Pursuant to the Over-Subscription Privilege, the Fund may at its discretion increase the number of Shares subject to subscription by up to 25% of the Shares offered hereby. If the Fund increases the number of Shares subject to subscription by 25%, the aggregate maximum Estimated Subscription Price, Estimated Sales Load and Estimated Proceeds to the Fund will be $80,878,137, $3,048,171 and $77,829,966, respectively. -------------- 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"). PURPOSE OF THE OFFER The Board of Directors of BEA Income Fund, Inc. (the "Fund") has determined that it would be in the best interest of the Fund and its shareholders to increase the assets of the Fund available for investment, thereby allowing better positioning of the Fund to more fully take advantage of available investment opportunities consistent with the Fund's investment objective of realizing current income. In reaching its decision, the Board of Directors was advised by BEA Associates that the availability of new funds would provide the Fund with additional investment flexibility as well as increase the Fund's ability to take advantage of what BEA Associates believes to be timely opportunities in the high yield bond market as a result of interest rate stability and a strong economy. The Board of Directors also considered that a well-subscribed rights offering may reduce the Fund's expense ratio, which may be of long-term benefit to shareholders. In addition, the Board of Directors considered that such a rights offering could result in an improvement in the liquidity of the trading market for shares of the Fund's common stock ("Common Stock") on the New York Stock Exchange, where the shares are listed and traded. The Board of Directors also considered the proposed terms of the Offer (as defined below), including the expenses of the Offer, and its dilutive effect, including the effect on non- exercising shareholders of the Fund. After careful consideration, the Fund's Board of Directors unanimously voted to approve the Offer. The Fund may, in the future and at its discretion, choose to make additional rights offerings from time to time for a number of shares and on terms which may or may not be similar to the Offer. Any such future rights offering will be made in accordance with the Investment Company Act of 1940, as amended (the "1940 Act"). TERMS OF THE OFFER The Fund is issuing to its shareholders of record ("Record Date Shareholders") as of the close of business on September 27, 1996 (the "Record Date") non-transferable rights ("Rights") to subscribe for an aggregate of 8,128,456 shares ("Shares") of the Fund's Common Stock, par value $0.001 per share (the "Offer"). Each Record Date Shareholder is being issued one Right for each whole share of Common Stock owned on the Record Date. The Rights entitle the Record Date Shareholder to acquire at the Subscription Price (as hereinafter defined) one Share for every three Rights held (one for three). Rights may be exercised at any time during the offering period (the "Subscription Period"), which commences on September 27, 1996 and ends at 5:00 p.m., New York City time, on October 22, 1996 (the "Expiration Date"), unless extended by the Fund until 5:00 p.m., New York City time, on a date no later than October 25, 1996. The right to acquire one Share for every three Rights held during the Subscription Period at the Subscription Price is hereinafter referred to as the "Primary Subscription." OVER-SUBSCRIPTION PRIVILEGE Any Record Date Shareholder who fully exercises all Rights issued to such shareholder is entitled to subscribe for Shares which were not otherwise subscribed for by others on Primary Subscription (the "Over-Subscription Privilege"). If sufficient Shares are not available to honor all requests for over-subscriptions, the Fund may, at its discretion, issue shares of Common Stock up to an additional 25% of the Shares available pursuant to the Offer (up to 2,032,114 Shares) in order to satisfy such over-subscription requests. Shares requested pursuant to the Over-Subscription Privilege may be subject to allotment, which is more fully discussed under "The Offer--Over-Subscription Privilege." SUBSCRIPTION PRICE The subscription price per Share (the "Subscription Price") will be 95% of the lower of (i) the average of the last reported sales price of a share of the Fund's Common Stock on the New York Stock Exchange on the Expiration Date (the "Pricing Date") and on the four preceding business days thereof and (ii) the net asset value per share as of the close of business on the Pricing Date. See "The Offer--Subscription Price." 3 NON-TRANSFERABILITY OF RIGHTS The Rights are non-transferable and, therefore, may not be purchased or sold. The Rights will not be admitted for trading on the New York Stock Exchange or any other exchange. However, the Shares to be issued pursuant to the Rights will be admitted for trading on the New York Stock Exchange. METHOD OF EXERCISE OF RIGHTS Rights will be evidenced by subscription certificates ("Subscription Certificates") that will be mailed to Record Date Shareholders, or if shares are held by Cede & Co. ("Cede"), the nominee for The Depository Trust Company, or any other depository or nominee, to Cede or such other depository or nominee. Rights may be exercised by completing and signing a Subscription Certificate and delivering it, together with payment, either by means of a notice of guaranteed delivery or a check, to The Chase Manhattan Bank (the "Subscription Agent"). Shareholders who exercise their Rights will have no right to rescind their subscription after the Subscription Agent has received payment. See "The Offer--Subscription Agent" and "The Offer--Method of Exercise of Rights." FOREIGN RESTRICTIONS Subscription Certificates will not be mailed to Record Date Shareholders whose record addresses are outside the United States (for these purposes the United States includes its territories and possessions and the District of Columbia) ("Foreign Record Date Shareholders"). The Rights to which such Subscription Certificates relate will be held by the Subscription Agent for such Foreign Record Date Shareholder's accounts until instructions are received to exercise the Rights. If no instructions are received prior to the Expiration Date, such Rights will expire. IMPORTANT DATES TO REMEMBER
EVENT DATE - --------------------------------------------------------------- ------------------------------------------------- Record Date.................................................... September 27, 1996 Subscription Period............................................ September 27, 1996 to October 22, 1996* Payment for Shares or Notice of Guaranteed Delivery Due........ October 22, 1996* Expiration and Pricing Date.................................... October 22, 1996* Payment for Guarantees of Delivery Due......................... October 25, 1996* Confirmation to Participants................................... November 1, 1996* Final Payment for Shares....................................... November 15, 1996*
- --------- * Unless the Offer is extended to a date not later than October 25, 1996. INFORMATION AGENT The Information Agent for the Offer (the "Information Agent") is: [LOGO] Toll Free: (800) 733-8481, Extension 349. Shareholders calling from outside the United States may call collect (212) 805-7000. DISTRIBUTION ARRANGEMENTS Smith Barney Inc. (the "Dealer Manager") will act as the dealer manager for the Offer. The Fund has agreed to pay the Dealer Manager a fee for its financial advisory services and marketing assistance equal to 1.25% of the Subscription Price per Share for Shares issued upon exercise of the Rights and the Over- Subscription Privilege, and to pay broker-dealers, including the Dealer Manager, fees for their soliciting efforts equal to 2.50% of the Subscription Price per Share for each Share issued upon exercise of the Rights and the Over-Subscription Privilege. See "Distribution Arrangements." 4 INFORMATION REGARDING THE FUND The Fund has been engaged in business as a closed-end, diversified management investment company since March 23, 1987. The Fund's investment objective is current income consistent with the preservation capital. The Fund seeks to achieve this objective primarily through investment in fixed-income securities, such as bonds, debentures and preferred stocks. Under normal circumstances, at least 75% of the Fund's total assets will be invested in fixed-income securities. The Fund's investments in fixed-income securities are not subject to any rating quality limitation and, accordingly, a substantial portion or all of the Fund's portfolio may be invested in securities that are rated below investment grade by a nationally recognized rating service or unrated and of comparable quality in the opinion of BEA Associates. Lower-rated securities generally provide yields superior to those of more highly rated securities, but involve greater risks and are speculative in nature ("high yield securities"). See "Risk Factors and Special Considerations-- Lower-Rated Securities." The Fund may also invest up to 25% of its assets in money market instruments such as certificates of deposit, commercial paper, bankers' acceptances and repurchase agreements. There can be no assurance that the Fund's investment objective will be achieved. See "Investment Objective and Policies." BEA Associates anticipates that investment of the net proceeds of the Offer, in accordance with the Fund's investment objective and policies, will take approximately up to one month from their receipt by the Fund, depending on market conditions and the availability of appropriate securities. See "Use of Proceeds." The Common Stock is listed and traded on the New York Stock Exchange under the symbol "FBF." As of June 30, 1996, the net assets of the Fund were approximately $208 million. INVESTMENT ADVISER AND ADMINISTRATORS BEA Associates, a U.S. investment counseling firm ("BEA Associates"), serves as the Fund's investment adviser. BEA Associates emphasizes a global investment strategy and, as of June 30, 1996, acted as adviser for assets in excess of $28.7 billion, including as of that date approximately $10.9 billion of assets invested in fixed-income securities and money market instruments. Chase Global Funds Services Company serves as the Fund's administrator (the "Administrator"). See "Management of the Fund." ADVISORY, ADMINISTRATIVE AND CONSULTING FEES The aggregate annual fees payable by the Fund for investment advice equal 0.50% of the Fund's average weekly net assets. See "Management of the Fund." For administrative services, the Fund pays the Administrator a fee at an annual rate of 0.15% of the first $100 million of the Fund's average weekly net assets, 0.10% of the Fund's next $300 million of average weekly net assets and 0.05% of the Fund's average weekly net assets in excess of $400 million. Since the Fund's investment adviser's and administrator's fees are based on the net assets of the Fund, the Fund's investment adviser and administrator will benefit from an increase in the Fund's assets resulting from the Offer. In addition, one director who is an "interested person" (as such term is defined under the 1940 Act) of the Fund because of his position as a director and officer of BEA Associates could benefit indirectly from the Offer because of such director's affiliation. See "The Offer--Certain Impact on Fees." RISK FACTORS AND SPECIAL CONSIDERATIONS The following summarizes certain matters that should be considered, among others, in connection with an exercise of Rights and an additional investment in the Fund. CERTAIN EFFECTS OF THE OFFER. Upon the completion of the Offer, shareholders who do not fully exercise their Rights will own a smaller proportional interest in the Fund than would be the case if the Offer had not been made. In addition, an immediate dilution of the net asset value per share will be experienced by all shareholders as a result of the Offer because the Subscription Price will be less than the then current net asset value per share, the Fund will bear the expenses of the Offer and the number of shares outstanding after the Offer will have increased proportionately more than the increase in the size of the Fund's net assets. Although it is not possible to state precisely the amount of such a decrease in net asset value, because it is not 5 known at this time how many Shares will be subscribed for or what the Subscription Price will be, such dilution might be substantial. The dilution in net asset value will disproportionately affect shareholders who do not exercise their rights. See "Risk Factors and Special Considerations." RISKS ASSOCIATED WITH INVESTMENTS IN FIXED-INCOME SECURITIES. Bond prices generally vary inversely in relation to changes in the level of interest rates, as well as in response to other market factors and changes in the creditworthiness of the issuers of the securities. The value of a portfolio of fixed-income securities will generally be expected to rise when interest rates decline and to decline when interest rates rise. In addition, the market value of certain securities in which the Fund may invest, such as mortgage-backed securities, zero coupon securities, securities that are purchased at a discount to their par value and stripped income securities tend to be more volatile in response to changes in interest rates than that of traditional fixed-income securities. Longer-term securities in which the Fund may invest generally offer a higher current yield than is offered by shorter-term securities, but also generally involve greater volatility of price and risk of capital than shorter-term securities. See "Risk Factors and Special Considerations." LOWER-RATED SECURITIES. At any time, all or substantially all of the Fund's portfolio may be invested in medium-grade or below investment grade fixed-income securities as determined by a nationally recognized rating service and in unrated securities of comparable quality. Investment in lower-rated securities typically involves risks not associated with higher-rated securities, including, among others, overall greater risk that timely and ultimate payment of interest and principal will not occur, potentially greater sensitivity to general economic conditions, greater market price volatility and potential illiquidity. In addition, ratings are potential and subjective and not absolute standards of quality. See "Risk Factors and Special Considerations." NON PUBLICLY-TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase securities that are not registered under the Securities Act but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A Securities"). Non publicly-traded securities, including Rule 144A Securities, may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly-traded securities, and the Fund may take longer to liquidate these positions than would be the case for publicly-traded securities. Further, companies whose securities are not publicly-traded may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly-traded. A Fund's investment in illiquid securities is subject to the risk that, should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the Fund's net assets could be adversely affected. See "Risk Factors and Special Considerations." RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. The Fund may invest a substantial portion of its total assets in mortgage-backed securities. The value of mortgaged-backed securities is subject to change due to shifts in the market's perception of issuers, and regulatory or tax changes may adversely affect the mortgage securities market as a whole. Foreclosures and prepayments, which occur when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities on these securities. The Fund's yield may be affected by reinvestment of prepayments at higher or lower rates than the original investment. Prepayments tend to increase due to refinancing of mortgages as interest rates decline. In addition, like other debt securities, the values of mortgage-backed securities will generally fluctuate in response to changes in interest rates. See "Risk Factors and Special Considerations." SHORT SALES. The Fund's investment policies may include short selling. Short sales can, in certain circumstances, substantially increase the impact of adverse price movements on the Fund's portfolio. The Fund, however, is restricted from engaging in uncovered short selling. See "Investment Objective and Policies--Short Sales" below and "Investment Restrictions" in the SAI. RISKS OF TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON. The Fund may, for bona fide hedging purposes, purchase and sell interest rate futures contracts and options thereon that are traded on U.S. futures exchanges. There are several risks in connection with the use of interest rate futures contracts as a hedge for transactions and anticipated transactions, including the risk of unlimited loss and significant distortions between the prices of futures contracts and those of the securities being hedged. Although the Fund intends to purchase or sell interest rate futures contracts only on exchanges or boards of 6 trade where there appears to be an active market for such contracts, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The Fund is not required to hedge interest rate risk. In addition, there are special risks relating to options on interest rate futures contracts. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. The Fund will only purchase or write options on futures contracts which, in the opinion of BEA Associates, are traded in sufficiently developed markets such that the risks of illiquidity in connection with such options are not greater than the risks of illiquidity in connection with transactions in the underlying interest rate futures contracts. See "Risk Factors and Special Considerations." RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements collateralized by U.S. Government securities, certificates of deposit and certain bankers' acceptances for the purpose of realizing additional income. The use of repurchase agreements involves certain risks not associated with direct investment in securities. For example, if the seller of securities under an agreement defaults on its obligation to repurchase the underlying securities at the agreed upon repurchase price at a time when the value of these securities has declined, the Fund may incur a loss upon their disposition. If such a defaulting seller were to become insolvent and subject to liquidation or reorganization under applicable bankruptcy or other laws, disposition of the underlying securities could involve certain costs or delays pending court action. Also, it is not certain whether the Fund would be entitled, as against a claim of the seller or its receiver, trustee in bankruptcy or creditors, to retain the underlying securities. While BEA Associates acknowledges these risks, the Fund expects that they can be controlled by limiting the institutions with which the Fund will enter into repurchase agreements to the Federal Reserve Bank, Reporting Government Securities Dealers and member banks of the Federal Reserve System and by carefully monitoring the creditworthiness of such institutions, other than the Federal Reserve Bank, by BEA Associates. See "Risk Factors and Special Considerations." MARKET VALUE AND NET ASSET VALUE. Shares of closed-end investment companies frequently trade at a discount to net asset value. This characteristic of shares of a closed-end fund is a risk separate and distinct from the risk that the Fund's net asset value may decrease. The Fund cannot predict whether its shares will trade at, below or above net asset value. In addition, changes in market yields will affect the Fund's net asset value as prices of fixed-income securities generally increase when interest rates decline and decrease when interest rates rise. Since the commencement of the Fund's operations, the Fund's shares have generally traded in the market at a discount to net asset value. See "Net Asset Value" and "Common Stock." 7 FEE TABLE The following table sets forth certain fees and expenses of the Fund. SHAREHOLDER TRANSACTION EXPENSES Sales Load (as a percentage of the Subscription Price per Share)(1)............. 3.75% ANNUAL EXPENSES (as a percentage of net assets) Management Fees................................................................. .50% Other Expenses(2)............................................................... .31% TOTAL ANNUAL EXPENSES(2)............................................................ .81%
1 3 5 10 EXAMPLE YEAR YEARS YEARS YEARS - -------------------------------------------------- ----- ----- ------ ------ You would pay the following expenses on a $1,000 investment assuming a 5% annual return(3)..................................... $45 $62 $81 $134
- --------- (1) The Dealer Manager and the other broker-dealers soliciting the exercise of Rights will receive soliciting fees equal to 2.50% of the Subscription Price per Share for each Share issued upon exercise of the Rights and the Over-Subscription Privilege. The Fund has also agreed to pay the Dealer Manager a fee for financial advisory and marketing services in connection with the Offer equal to 1.25% of the Subscription Price per Share for Shares issued upon exercise of the Rights and the Over-Subscription Privilege. These fees will be borne by the Fund and indirectly by all of the Fund's shareholders, including those shareholders who do not exercise their Rights. (2) Based upon estimated amounts for the current fiscal year and on the net assets of the Fund after giving effect to the anticipated net proceeds of the Offer including proceeds from the issuance of up to 25% of the Shares pursuant to the Over-Subscription Privilege. Does not include expenses of the Fund incurred in connection with the Offer, estimated at $550,000. Total annual expenses for the fiscal year ended December 31, 1995 were .92% as a percentage of average net assets. (3) The example reflects the Sales Load and other expenses of the Fund incurred in connection with the Offer and assumes that all of the Rights are exercised. THE PURPOSE OF THE FOREGOING TABLE AND EXAMPLE IS TO ASSIST RIGHTS HOLDERS IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND BEARS, DIRECTLY OR INDIRECTLY, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RATE OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR LESS THAN THOSE SHOWN. For more complete descriptions of certain of the Fund's costs and expenses, see "Management of the Fund" below and in the SAI. 8 FINANCIAL HIGHLIGHTS The table below sets forth selected financial data for a share of Common Stock outstanding throughout each period presented. The per share operating performance and ratios for each of the periods, other than the six-month period ended June 30, 1996, have been derived from financial statements audited by Price Waterhouse LLP, the Fund's independent accountants, as stated in their report which is incorporated by reference into the SAI. The following information should be read in conjunction with the Financial Statements and Notes thereto, which are incorporated by reference into the SAI. PER SHARE OPERATING PERFORMANCE FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 6/30/96(1) 12/31/95(2) 12/31/94 12/31/93 12/31/92 ----------- ----------- ----------- ----------- ----------- Net Asset Value, Beginning of Period.............. $ 8.63 $ 8.05 $ 9.00 $ 8.42 $ 8.28 Offering Costs.................................... -- -- -- -- -- Net Investment Income............................. 0.40 0.86 0.83 0.91 0.89 Net Realized and Unrealized Gains or Losses on Investments...................................... 0.02 0.48 (1.06) 0.57 0.08 ----------- ----------- ----------- ----------- ----------- Total from Investment Activities.................. 0.42 1.34 (0.23) 1.48 0.97 ----------- ----------- ----------- ----------- ----------- Distributions: From Net Investment Income........................ (0.54) (0.76) (0.72) (0.90) (0.83) ----------- ----------- ----------- ----------- ----------- From Realized Gain.............................. -- -- -- -- -- From Capital Surplus............................ -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total Distribution............................ -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period.................... $ 8.51 $ 8.63 $ 8.05 $ 9.00 $ 8.42 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Per Share Market Value, End of Period............. $ 7.88 $ 7.88 $ 7.00 $ 8.50 $ 8.38 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Investment Return Net Asset Value(4).............................. 5.06%(6) 17.41% (2.67)% 18.47% 11.95% Market Value.................................... 6.83%(6) 24.34% (9.48)% 12.46% 12.09% PERIOD FROM 3/23/87(3) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 ----------- ----------- ----------- ----------- ------------ Net Asset Value, Beginning of Period.............. $ 7.25 $ 8.32 $ 8.58 $ 8.71 $ 9.30 Offering Costs.................................... -- -- -- -- (0.01) Net Investment Income............................. 0.89 0.87 0.92 0.87 0.59 Net Realized and Unrealized Gains or Losses on Investments...................................... 1.04 (1.04) (0.28) (0.10) (0.51) ----------- ----------- ----------- ----------- ------------ Total from Investment Activities.................. 1.93 (0.17) 0.64 0.77 0.08 ----------- ----------- ----------- ----------- ------------ Distributions: From Net Investment Income........................ (0.90) (0.90) (0.90) (0.90) (0.59) ----------- ----------- ----------- ----------- ------------ From Realized Gain.............................. -- -- -- -- (0.01) From Capital Surplus............................ -- -- -- -- (0.06) ----------- ----------- ----------- ----------- ------------ Total Distribution............................ -- -- -- -- (0.66) ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ Net Asset Value, End of Period.................... $ 8.28 $ 7.25 $ 8.32 $ 8.58 $ 8.71 ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ Per Share Market Value, End of Period............. $ 8.38 $ 6.38 $ 7.88 $ 7.88 $ 8.325 ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ Total Investment Return Net Asset Value(4).............................. 27.71% (2.06)% 7.69% 9.14% 1.01% Market Value.................................... 50.81% (6.12)% 13.58% 7.80% (10.91)%
RATIOS/SUPPLEMENTAL DATA
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 6/30/96(1) 12/31/95(2) 12/31/94 12/31/93 12/31/92 12/31/91 ------------- ---------- ----------- ----------- ----------- ----------- Net Assets, End of Period (thousands).......... $207,551 $210,441 $196,379 $219,355 $203,846 $199,857 Ratio of Expenses to Average Net Assets........ 0.98%(5) 0.92% 0.83% 0.88% 0.86% 0.87% Ratio of Net Investment Income to Average Net Assets............................ 9.44%(5) 10.22% 9.75% 10.34% 10.38% 11.12% Portfolio Turnover........................... 44.1%(6) 44.1% 70.6% 117.5% 115.2% 53.3% PERIOD FROM 3/23/87(3) YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 12/31/90 12/31/89 12/31/88 12/31/87 ----------- ----------- ----------- ------------- Net Assets, End of Period (thousands).......... $175,390 $201,297 $207,293 $209,060 Ratio of Expenses to Average Net Assets........ 0.89% 0.92% 0.91% 0.77%(5) Ratio of Net Investment Income to Average Net Assets............................ 11.26% 10.67% 9.96% 9.40%(5) Portfolio Turnover........................... 61.4% 95.8% 113.5% 42.0%
- ------------ (1) Unaudited. (2) BEA Associates replaced CS First Boston Investment Management Corporation ("CSIM") as the Fund's investment adviser effective June 13, 1995. (3) Commencement of investment operations. (4) Total investment return based on per share net asset value reflects the effects of change in net asset value on the performance of the Fund during each period, and assumes dividends and capital gains distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market value due to differences between the market value of the stock and the net asset value of the Fund. (5) Annualized. (6) Not Annualized.
9 THE OFFER PURPOSE OF THE OFFER The Board of Directors of the Fund has determined that it would be in the best interest of the Fund and its shareholders to increase the assets of the Fund available for investment, thereby allowing better positioning of the Fund to more fully take advantage of available investment opportunities consistent with the Fund's investment objective of realizing current income. In reaching its decision, the Board of Directors was advised by BEA Associates that the availability of new funds would provide the Fund with additional investment flexibility as well as increase the Fund's ability to take advantage of what BEA Associates believes to be timely opportunities in the high yield bond market as a result of interest rate stability and a strong economy. The Board of Directors also considered that a well-subscribed rights offering may reduce the Fund's expense ratio, which may be of long-term benefit to shareholders. In addition, the Board of Directors considered that such a rights offering could result in an improvement in the liquidity of the trading market for shares of the Fund's Common Stock on the New York Stock Exchange, where the shares are listed and traded. The Board of Directors also considered the proposed terms of the Offer, including the expenses of the Offer, and its dilutive effect, including the effect on non-exercising shareholders of the Fund. After careful consideration, the Fund's Board of Directors unanimously voted to approve the Offer. The Fund may, in the future and at its discretion, choose to make additional rights offerings from time to time for a number of shares and on terms which may or may not be similar to the Offer. Any such future rights offering will be made in accordance with the 1940 Act. TERMS OF THE OFFER The Fund is issuing to Record Date Shareholders Rights to subscribe for Shares pursuant to the exercise of such Rights. Each Record Date Shareholder is being issued one Right for each whole share of Common Stock owned on the Record Date. The Rights entitle the Record Date Shareholder to acquire at the Subscription Price one Share for every three Rights held (one for three). Fractional Shares will not be issued upon the exercise of Rights. Accordingly, Shares may be purchased only pursuant to the exercise of Rights in integral multiples of three. Rights may be exercised at any time during the Subscription Period, which commences on September 27, 1996 and ends at 5:00 p.m., New York City time, on October 22, 1996, unless extended by the Fund until 5:00 p.m., New York City time, to a date not later than October 25, 1996. A Record Date Shareholder's right to acquire one Share for every three Rights held during the Subscription Period at the Subscription Price is hereinafter referred to as the "Primary Subscription." The Rights are evidenced by Subscription Certificates, which will be mailed to Record Date Shareholders, except as discussed below under "Foreign Restrictions." Any Record Date Shareholder who fully exercises all Rights issued to such shareholder will be entitled to subscribe for additional Shares pursuant to the Over-Subscription Privilege. Shares requested pursuant to the Over-Subscription Privilege are subject to allotment and may be subject to increase in the event the Fund increases the number of shares available pursuant to the Over-Subscription Privilege, which is more fully discussed below under "Over-Subscription Privilege." For purposes of determining the maximum number of Shares a Record Date Shareholder may acquire pursuant to the Offer, shareholders whose shares are held of record by Cede, the nominee for The Depository Trust Company, or by any other depository or nominee will be deemed to be the holders of the Rights that are issued to Cede or such other depository or nominee on their behalf. As fractional Shares will not be issued, Record Date Shareholders who receive or have remaining fewer than three Rights will be unable to purchase Shares upon the exercise of such Rights and will not be entitled to receive any cash in lieu thereof. Such shareholders, however, may subscribe for Shares pursuant to the Over-Subscription Privilege provided such shareholders have fully exercised the Rights issued to them. Shareholders will have no right to rescind their subscriptions after receipt of their payment for Shares by the Subscription Agent. 10 OVER-SUBSCRIPTION PRIVILEGE To the extent Record Date Shareholders do not exercise all of the Rights issued to them, the underlying Shares represented by such Rights will be offered by means of the Over-Subscription Privilege to Record Date Shareholders who have exercised all the Rights issued to them pursuant to the Primary Subscription and who desire to acquire additional Shares. Only Record Date Shareholders who exercise all such Rights may indicate on the Subscription Certificate the number of additional Shares desired pursuant to the Over-Subscription Privilege. If sufficient Shares remain as a result of unexercised Rights, all over-subscriptions may be honored in full. If sufficient Shares are not available to honor all requests for over-subscriptions, the Fund may, at its discretion, issue shares of Common Stock up to an additional 25% of the Shares available pursuant to the Offer (up to 2,032,114 Shares) in order to satisfy such over-subscription requests. Regardless of whether the Fund issues such additional Shares, to the extent Shares are not available to honor all over- subscriptions, the available Shares will be allocated among those who over-subscribe based on the number of Rights originally issued to them by the Fund, so that the number of Shares issued to Record Date Shareholders who subscribe pursuant to the Over-Subscription Privilege will generally be in proportion to the number of shares owned by them in the Fund on the Record Date. The allocation process may involve a series of allocations in order to assure that the total number of Shares available for over-subscriptions is distributed on a pro rata basis. The Fund will not sell any Shares that are not subscribed for pursuant to the Primary Subscription or the Over-Subscription Privilege. SUBSCRIPTION PRICE The Subscription Price for each Share to be issued pursuant to the Rights will be 95% of the lower of (i) the average of the last reported sales price of a share of the Fund's Common Stock on the New York Stock Exchange on the Pricing Date and on the four preceding business days thereof and (ii) the net asset value per share as of the close of business on the Pricing Date. For example, if the average of the last reported sales price on the New York Stock Exchange on the Pricing Date and on the four preceding business days thereof of a share of the Fund's Common Stock is $8.42, and the net asset value as of the close of business on the Pricing Date is $8.54, the Subscription Price will be $8.00 (95% of $8.42). If, however, the average of the last reported sales price of a share on that exchange on the Pricing Date and on the four preceding business days thereof is $8.40, and the net asset value as of the close of business on the Pricing Date is $8.32, the Subscription Price will be $7.90 (95% of $8.32). See "Common Stock." The Fund announced the Offer after the close of trading on the New York Stock Exchange on August 22, 1996. The last reported net asset value per share of Common Stock at the close of business on August 22, 1996 and September 24, 1996 was $8.50 and $8.54, respectively, and the last reported sales price of a share of the Fund's Common Stock on the New York Stock Exchange on those dates was $8.25 and $8 3/8, respectively. NON-TRANSFERABILITY OF RIGHTS The Rights are non-transferable and, therefore, may not be purchased or sold. The Rights will not be admitted for trading on the New York Stock Exchange or any other exchange. However, the Shares to be issued pursuant to the Rights will be admitted for trading on the New York Stock Exchange. EXPIRATION OF THE OFFER The Offer will expire at 5:00 p.m., New York City time, on October 22, 1996, unless extended by the Fund until 5:00 p.m., New York City time, to a date not later than October 25, 1996. Rights will expire on the Expiration Date and thereafter may not be exercised. Since the Expiration Date and the Pricing Date will be the same date, Record Date Shareholders who decide to acquire Shares during the Primary Subscription or pursuant to the Over-Subscription Privilege will not know, when they make such decision, the purchase price for such Shares. Any extension of the Offer will be followed as promptly as practical by an announcement thereof. Without limiting the manner in which the Fund may choose to make such announcement, the Fund will not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate any such announcement other than by making a release to the Dow Jones News Service or such other means of announcement as the Fund deems appropriate. 11 SUBSCRIPTION AGENT The Subscription Agent is The Chase Manhattan Bank ("Chase Manhattan"), 770 Broadway, New York, New York, which will receive, for its administrative, processing, invoicing and other services as subscription agent, a fee estimated to be $15,000, plus reimbursement for its out-of-pocket expenses related to the Offer. The Subscription Agent is also the Fund's Transfer Agent, Dividend-Paying Agent and Registrar with respect to the Common Stock. An affiliate of the Subscription Agent also acts as the Fund's administrator. SIGNED SUBSCRIPTION CERTIFICATES TOGETHER WITH PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE MUST BE SENT TO CHASE MANHATTAN by one of the methods described below. The Fund will accept only Subscription Certificates actually received on a timely basis at the address listed below: (1) BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER: The Chase Manhattan Bank Retail Processing 770 Broadway 7th Floor New York, New York 10003 (2) BY FACSIMILE (TELECOPY): FOR NOTICE OF GUARANTEED DELIVERY ONLY (212) 979-0658 with the original Subscription Certificate to be sent by method (1) above. Confirm facsimile by telephone at (212) 388-5764.
DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE DOES NOT CONSTITUTE GOOD DELIVERY. METHOD OF EXERCISE OF RIGHTS Rights will be evidenced by Subscription Certificates that will be mailed to Record Date Shareholders, or if shares are held by Cede or any other depository or nominee, to Cede or such other depository or nominee except as discussed under "Foreign Restrictions" below. Rights may be exercised by completing and signing the Subscription Certificate and mailing it in the envelope provided, or otherwise delivering the completed and signed Subscription Certificate, together with payment for the Shares as described below under "Payment for Shares," to the Subscription Agent. Rights may also be exercised by contacting your broker, banker or trust company, which can arrange, on your behalf, to guarantee delivery of payment and of a properly completed and executed Subscription Certificate (a "Notice of Guaranteed Delivery"), as set forth below under "Payment for Shares." A fee may be charged for this service. Fractional Shares will not be issued, and shareholders who receive, or who have remaining, fewer than three Rights will not be able to purchase any Shares upon the exercise of such Rights. Such shareholders may, however, subscribe for Shares pursuant to the Over-Subscription Privilege provided such shareholders have fully exercised the Rights issued to them. Completed Subscription Certificates or Notices of Guaranteed Delivery must be received by the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date at the office of the Subscription Agent at the address set forth above. SHAREHOLDERS WHO ARE RECORD OWNERS. Shareholders who are record owners can choose between either option set forth under "Payment for Shares" below. If time is of the essence, option (2) will permit delivery of the completed Subscription Certificate and payment after the Expiration Date. INVESTORS WHOSE SHARES ARE HELD BY A NOMINEE. Shareholders whose shares are held by a nominee, such as a broker or trustee, must contact that nominee to exercise their Rights. In that case, the nominee will complete the Subscription Certificate on behalf of the investor and arrange for proper payment by one of the methods set forth under "Payment for Shares" below. NOMINEES. Nominees who hold shares for the account of others should notify the beneficial owners of such shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with 12 respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment described under "Payment for Shares" below. FOREIGN RESTRICTIONS Subscription Certificates will not be mailed to Record Date Shareholders whose record addresses are outside the United States (for these purposes the United States includes its territories and possessions and the District of Columbia). The Rights to which those Subscription Certificates relate will be held by the Subscription Agent for such Foreign Record Date Shareholders' accounts until instructions are received to exercise the Rights. If no instructions are received prior to the Expiration Date, such Rights will expire. INFORMATION AGENT Any questions or requests for assistance may be directed to the Information Agent at its telephone number listed below: THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] TOLL FREE: (800) 733-8481, EXTENSION 349 Shareholders calling from outside the United States may call collect (212) 805-7000. Shareholders may also contact their brokers or nominees for information with respect to the Offer. The Information Agent will receive a fee estimated to be $10,000 plus reimbursement for its out-of-pocket expenses related to the Offer. PAYMENT FOR SHARES Shareholders who acquire Shares during the Primary Subscription or pursuant to the Over-Subscription Privilege may choose between the following methods of payment: (1) A shareholder can send the completed Subscription Certificate together with payment for the Shares acquired during the Primary Subscription and for additional Shares subscribed for pursuant to the Over-Subscription Privilege to the Subscription Agent, calculating the total payment on the basis of an estimated Subscription Price of $7.96 per Share (the "Estimated Subscription Price"). To be accepted, such payment, together with the properly executed and completed Subscription Certificate, must be received by the Subscription Agent at one of the Subscription Agent's offices at the addresses set forth above prior to 5:00 p.m., New York City time, on the Expiration Date. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES OF AMERICA, MUST BE PAYABLE TO BEA INCOME FUND, INC. AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. (2) Alternatively, a subscription will be accepted by the Subscription Agent, if, prior to 5:00 p.m., New York City time, on the Expiration Date, the Subscription Agent has received a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank, trust company, or New York Stock Exchange member guaranteeing delivery to the Subscription Agent of (i) payment of the full Subscription Price for the Shares subscribed for during the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege, and (ii) a properly completed and executed Subscription Certificate. The Subscription Agent will not honor a Notice of Guaranteed Delivery if a properly completed and executed Subscription Certificate, together with payment, is not received by the Subscription Agent by the close of business on the third business day after the Expiration Date. Within five business days following the Pricing Date (the "Confirmation Date"), a confirmation will be sent by the Subscription Agent to each Record Date Shareholder (or, if the shareholder's shares are held by 13 Cede or any other depository or nominee, to Cede or such depository or nominee), showing (i) the number of Shares acquired pursuant to the Primary Subscription, (ii) the number of Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per Share and total purchase price for the Shares, and (iv) any additional amount payable by such shareholder to the Fund or any excess to be refunded by the Fund to such shareholder, in each case based on the Subscription Price as determined on the Pricing Date. No other evidence of title will be sent to shareholders unless delivery of a stock certificate has been requested at the time of exercise of the Rights. See "Delivery of Stock Certificates" below. Any additional payment required from a shareholder must be received by the Subscription Agent within ten business days after the Confirmation Date. Any excess payment to be refunded by the Fund to a shareholder will be mailed by the Subscription Agent to such shareholder within a reasonable time after the Expiration Date. No interest shall be paid by the Fund on any such excess payment. All payments by a shareholder must be in U.S. Dollars by money order or check drawn on a bank located in the United States of America and payable to BEA INCOME FUND, INC. The Subscription Agent will deposit all checks received by it prior to the final due date into a segregated interest bearing account (which interest will accrue to the benefit of the Fund regardless of whether shares are issued or not by the Fund) pending distribution of the Shares. Whichever of the two payment methods described above is used, issuance and delivery of evidence of title for the Shares purchased are subject to collection of checks and actual payment pursuant to any Notice of Guaranteed Delivery. SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT. If a shareholder who acquires Shares pursuant to the Primary Subscription or the Over-Subscription Privilege does not make payment of any additional amounts due, the Fund reserves the right to take any or all of the following actions: (i) sell such subscribed and unpaid-for Shares to other shareholders, (ii) apply any payment actually received by it toward the purchase of the greatest whole number of Shares which could be acquired by such holder upon exercise of the Primary Subscription and/or Over-Subscription Privilege, and/or (iii) exercise any and all other rights or remedies to which it may be entitled, including, without limitation, set-offs against payments actually received by it with respect to such subscribed Shares and/or to enforce the relevant guaranty of payment. The method of delivery of Subscription Certificates and payment of the Subscription Price to the Fund will be at the election and risk of the Rights holders, but if sent by mail it is recommended that such certificates and payment be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the Fund and clearance of payment prior to 5:00 p.m., Eastern time, on the Expiration Date. Because uncertified personal checks may take at least five business days to clear, subscribing shareholders are strongly urged to pay, or arrange for payment, by means of certified or cashier's check or money order. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Fund determines in its sole discretion. The Fund will not be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. EVIDENCE OF TITLE Stock certificates for Shares acquired during the Primary Subscription and pursuant to the Over-Subscription Privilege will be issued only upon request made at the time of exercise of the Rights. Stock certificates requested to be delivered will be mailed promptly after the Confirmation Date and after payment for the Shares subscribed for has cleared. Participants in the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired during the Primary Subscription or pursuant 14 to the Over-Subscription Privilege credited to their accounts in the Plan. Stock certificates will not be issued for Shares credited to Plan accounts. Shareholders whose shares of Common Stock are held of record by Cede or by any other depository or nominee on their behalf or their broker-dealers' behalf will have any Shares acquired during the Primary Subscription or pursuant to the Over-Subscription Privilege credited to the account of Cede or such other depository or nominee. FEDERAL INCOME TAX CONSEQUENCES For United States federal income tax purposes, neither the receipt nor the exercise of the Rights by Record Date Shareholders will result in taxable income to holders of Common Stock, and no loss will be realized if the Rights expire without exercise. A shareholder's holding period for a Share acquired upon exercise of a Right begins with the date of exercise. A shareholder's basis for determining gain or loss upon the sale of a Share acquired upon the exercise of a Right will be equal to the sum of the Subscription Price per Share, any servicing fee charged to the shareholder by the shareholder's broker, bank or trust company and the shareholder's basis, if any, in the Rights exercised (as discussed below). A shareholder's gain or loss recognized upon a sale of a Share acquired upon the exercise of a Right will be a capital gain or loss (assuming the Share is held as a capital asset at the time of sale) and will be a long-term capital gain or loss if the Share has been held at the time of sale for more than one year. If the fair market value of the Rights on the date of distribution is less than 15% of the fair market value of the shares of Common Stock with respect to which they are issued, on that date the basis of a Right will be zero unless a Record Date Shareholder elects to allocate his basis in those shares of the Fund which he originally owned between such shares and the Rights issued in the Offer. This allocation is based upon the relative fair market value of such shares and the Rights as of the date of distribution of the Rights. Thus, if such an election is made, the shareholder's basis in the shares originally owned will be reduced by an amount equal to the basis allocated to the Rights. This election must be made in a statement attached to the shareholder's federal income tax return for the year in which the Offer occurs. If the fair market value of the Rights on the date of distribution is equal to or greater than 15% of the fair market value of the shares of Common Stock with regard to which they are issued, a Record Date Shareholder will allocate his basis in those shares of the Fund which he originally owned between such shares and the Rights issued in the Offer based upon their relative fair market values on the date of distribution. However, if a shareholder does not exercise the Rights, no loss will be recognized and no portion of the shareholder's basis in the shares will be allocated to the unexercised Rights. If a shareholder exercises the Rights, the basis of any Shares acquired through exercise of the Rights will be increased by the basis allocated to such Rights. Accordingly, shareholders should consider the advisability of making the election described above if the shareholder intends to exercise the Rights. The foregoing is a general summary of the material United States federal income tax consequences of the receipt and exercise of Rights by a Record Date Shareholder. The discussion is based upon applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury regulations and other authorities currently in effect, and does not cover state, local or foreign taxes. The Code and regulations are subject to change by legislative or administrative action. Shareholders should consult their tax advisors regarding specific questions as to federal, state, local or foreign taxes. See "Taxation" in the SAI. EMPLOYEE BENEFIT PLAN CONSIDERATIONS Shareholders that hold their shares through employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including corporate savings and 401(k) plans, Keogh Plans of self-employed individuals and Individual Retirement Accounts (collectively, "Benefit Plans")) should be aware of the complexity of the rules and regulations governing Benefit Plans and the penalties for noncompliance, and should consult their counsel and tax advisors regarding the consequences under ERISA and the Code of their exercise of the Rights. CERTAIN EFFECTS OF THE OFFER Upon the completion of the Offer, shareholders who do not fully exercise their Rights will own a smaller proportional interest in the Fund than would be the case if the Offer had not been made. In addition, because the Subscription Price per Share will be less than the then current net asset value per share of the 15 Fund's Common Stock, the Offer will result in a dilution of net asset value per share for all shareholders, which will disproportionately affect shareholders who do not exercise their Rights. Although it is not possible to state precisely the amount of such decrease in net asset value because it is not known at the date of this Prospectus how many Shares will be subscribed for, or what the Subscription Price will be, such dilution might be substantial. For example, assuming all Rights are exercised at the Estimated Subscription Price, including up to an additional 25% of the Shares which may be issued to satisfy over-subscriptions, the Fund's current net asset value of $8.54 per share would be reduced by approximately $.28 or 3.28%, taking into account the expenses of the Offer. It is expected that no dividends or other distributions will be payable with respect to the Shares offered hereby until November 20, 1996. CERTAIN IMPACT ON FEES The Fund's investment adviser and administrator will benefit from the Offer because the investment advisory and administration fees are based on the net assets of the Fund. See "Management of the Fund." It is not possible to state precisely the amount of additional compensation the Fund's investment adviser or administrator will receive as a result of the Offer because it is not known how many Shares will be subscribed for and because the proceeds of the Offer will be invested in additional portfolio securities which will fluctuate in value. However, assuming all Rights are exercised at the Estimated Subscription Price, including up to an additional 25% of the Shares which may be issued to satisfy over-subscriptions, the annual compensation to be received by the Fund's investment adviser and administrator would be increased by approximately $386,400 and $77,280, respectively. One of the Fund's directors who voted to authorize the Offer is an "interested person" of the Fund within the meaning of the 1940 Act because of his position as a director and an officer of BEA Associates. This director could benefit indirectly from the Offer because of his affiliation. The other three directors are not "interested persons" of the Fund. See "Management of the Fund" in the SAI. IMPORTANT DATES TO REMEMBER
EVENT DATE - --------------------------------------------------------------- ------------------------------------------------- Record Date.................................................... September 27, 1996 Subscription Period............................................ September 27, 1996 to October 22, 1996* Payment for Shares or Notices of Guaranteed Delivery Due....... October 22, 1996* Expiration and Pricing Date.................................... October 22, 1996* Payment for Guarantees of Delivery Due......................... October 25, 1996* Confirmation to Participants................................... November 1, 1996* Final Payment for Shares....................................... November 15, 1996*
- --------- * Unless the Offer is extended to a date not later than October 25, 1996. THE FUND The Fund, incorporated in Maryland on February 10, 1987, is a diversified, closed-end management investment company registered under the 1940 Act. The Fund's Common Stock is traded on the New York Stock Exchange under the symbol "FBF." The Fund commenced operations on March 23, 1987 after an initial public offering of 24,000,000 shares of the Common Stock, the net proceeds to the Fund of which were approximately $222,902,000. The Fund's investment objective is current income consistent with the preservation of capital. The Fund seeks to achieve its objective by investing primarily in fixed-income securities, such as bonds, debentures and preferred stocks. Under normal circumstances, the Fund will invest at least 75% of its total assets in fixed-income securities. The Fund may also invest up to 25% of its assets in money market instruments, such as certificates of deposit, commercial paper, bankers' acceptances and repurchase agreements. The Fund may hold securities deemed to be Temporary Investments (as defined below). 16 At June 30, 1996, the Fund's portfolio of investments was composed as follows (as a percentage of net assets): corporate obligations (78.5%); government and agency securities (8.4%); collateralized securities (3.7%); asset backed obligations (3.3%); common stocks (1.8%); preferred stocks (0.8%); warrants (0.3%); rights (0.0%) and units (2.1%). At the same date, 67.2% of the Fund's net assets were invested in high yield fixed-income securities. The table below sets forth the percentages of the Fund's assets invested during the fiscal year ended December 31, 1995 in the various Standard & Poor's Rating Group ("S&P") and Moody's Investors Service, Inc. ("Moody's") rating categories and in unrated securities determined by BEA Associates to be of comparable quality. The percentages are based on the dollar-weighted average of credit ratings of all securities held by the Fund during the 1995 fiscal year, computed on a monthly basis. For information regarding the various ratings of Moody's and S&P, see the Appendix to this Prospectus.
YEAR ENDED DECEMBER 31, 1995 -------------------------------------------------------- UNRATED SECURITIES OF RATED SECURITIES COMPARABLE QUALITY RATING AS A PERCENTAGE OF AS A PERCENTAGE OF CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE TOTAL - -------------------------------------------------------------- ------------------- ---------------------- ----------- AAA/Aaa....................................................... 4.13% 4.13% AA/Aa......................................................... -- -- -- A/A........................................................... 8.33% 8.33% BBB/Baa....................................................... 9.20% 9.20% BB/Ba......................................................... 5.50% 5.50% B/B........................................................... 55.30% 2.21% 57.51% CCC/Caa....................................................... 6.72% 1.17% 7.89% CC/Ca......................................................... 0.21% -- 0.21% C/C........................................................... -- -- -- D............................................................. 0.00% 0.78% 0.78% Subtotal................................................ 89.39% 4.16% 93.55% U.S. Government, Equities and Other........................... 6.45% n/a 6.45% Total................................................... 95.84% 4.16% 100.00%
- --------- n/a: not applicable The percentage of the Fund's assets invested in securities of various grades may from time to time vary substantially from those set forth above. Under current market conditions, BEA Associates anticipates that a substantial portion of the net proceeds of the offer will be invested in securities rated B or lower by S&P or Moody's (or unrated but deemed of comparable quality by BEA Associates), which would cause the percentage of the Fund's portfolio invested in securities rated B or lower (or unrated but deemed of comparable quality by BEA Associates) to increase from its current level. See "Risk Factors and Special Considerations--Lower Rated Securities." At June 30, 1996 the Fund's assets were invested in the following industries and financial instruments:
% OF FUND'S NET INDUSTRY ASSETS - ----------------------------------------------------------------------- --------------------- Communications 21.32% Services 11.51% Industrial Goods & Materials 10.99% Manufacturing 10.92% Finance 10.03% U.S. Gvts. (including Mortgage-Backed Securities) 8.42% CMOs & Asset Backed Securities 6.99% Consumer Products 6.10% Retail Trade 5.67% Transportation 2.64% Rights, Warrants & Units 2.49% Oil, Gas & Electric 1.81% ------ Total Investments 98.89% Net Other Assets 1.11% ------ Net Assets 100.00%
17 The Fund's ten largest holdings at June 30, 1996 (as a percentage of net assets) were:
% OF FUND'S POSITION NET ASSETS --------------------------------------------------------------------------- -------------- 1) Drexel, Burnham & Lambert Trust Remic-PAC Series S, Class 2, 9.00%, 8/01/18 3.12% 2) U.S. Treasury Note 5.375%, 5/31/98 2.92% 3) Federal National Mortgage Association Remic-PAC Series 1989-23, Class D, 10.20%, 9/25/18 1.98% 4) American Express Co. Eurobond Zero Coupon, 12/12/00 1.79% 5) Ferrovie dello Stato Notes 9.125%, 7/6/09 1.64% 6) Meditrust Convertible Debentures 7.50%, 3/01/01 1.45% 7) Goldman Sachs Group L.P. MTN 6.20%, 2/15/01 1.40% 8) U.S. Treasury Note 7.25%, 5/15/04 1.30% 9) Household Affinity Credit Card Master Trust I Series 1993-S, Class B, 4.95%, 3/15/99 1.20% 10) Merrill Lynch Home Equity Acceptance Trust Series 1994-A, Class A-2, 6.25%, 7/17/22 0.99%
USE OF PROCEEDS Assuming all Shares offered pursuant to the Primary Subscription are sold at the Estimated Subscription Price, the net proceeds of the Offer are estimated to be $61,713,973, after payment of the Dealer Manager's fees, the soliciting fees and the estimated offering expenses. These expenses will be borne by the Fund and will reduce the net asset value of the Common Stock. If the Fund increases the number of Shares subject to the Offer by 25%, or 2,032,114 Shares, in order to satisfy over-subscription requests, the additional net proceeds will be approximately $15,565,993. The Fund expects that, subject to market conditions, substantially all of the net proceeds of the Offer will be invested in accordance with the Fund's investment objective and policies approximately within one month from the date of their receipt by the Fund. Pending such investment, the proceeds will be invested in certain short-term debt instruments, as described under "Investment Objective and Policies--Temporary Investments." RISK FACTORS AND SPECIAL CONSIDERATIONS Investors should consider the following special considerations associated with an exercise of Rights and an additional investment in the Fund. CERTAIN EFFECTS OF THE OFFER Upon the completion of the Offer, shareholders who do not fully exercise their Rights will own a smaller proportional interest in the Fund than would be the case if the Offer had not been made. In addition, an immediate dilution of the net asset value per share will be experienced by all shareholders as a result of the Offer because the Subscription Price will be less than the then current net asset value per share, the Fund will bear the expenses of the Offer and the number of shares outstanding after the Offer will have increased proportionately more than the increase in the size of the Fund's net assets. Although it is not possible to state precisely the amount of such a decrease in value, because it is not known at this time how many Shares will be subscribed for or what the Subscription Price will be, such dilution might be substantial. For example, if the Subscription Price per Share is $8.11, representing a price that is 95% of an assumed net asset value per share of $8.54, assuming that all Rights are exercised, including an additional 25% of the Shares which may be issued to satisfy over-subscription requests, the Fund's net asset value per share would be reduced by 18 approximately $.23 per share. If, on the other hand, the Subscription Price represents a price that is less than 95% of the Fund's then net asset value, which would be the case if the Subscription Price is set at a time when the market price per share is lower than the net asset value per share, the dilution would be greater. For example, if the Subscription Price per Share is $7.96, representing a price which is only 93% of the net asset value per share, assuming that all Rights are exercised, including an additional 25% of the Shares which may be issued to satisfy over-subscription requests, the Fund's net asset value per share would be reduced by approximately $.28 per share. The foregoing examples assumed Subscription Prices of $8.11 and $7.96 per Share, respectively. The actual Subscription Price may be greater or less than such assumed Subscription Price. This dilution of net asset value per share will disproportionately affect shareholders who do not exercise their Rights. RISKS ASSOCIATED WITH INVESTMENTS IN FIXED-INCOME SECURITIES Bond prices generally vary inversely in relation to changes in the level of interest rates, as well as in response to other market factors and changes in the creditworthiness of the issuers of the securities. The value of a portfolio of fixed-income securities can generally be expected to rise when interest rates decline and to decline when interest rates rise. Longer-term securities in which the Fund may invest generally offer a higher current yield than is offered by shorter-term securities, but also generally involve greater volatility of price and risk of capital than shorter-term securities. Securities in which the Fund invests include zero coupon bonds and other securities that do not produce current income which may reduce the Fund's ability to generate current income in accordance with its investment objective. In addition, the market value of certain securities in which the Fund may invest, such as mortgage-backed securities, zero coupon securities, securities that are purchased at a discount to their par value and stripped income securities tend to be more volatile in response to changes in interest rates than that of traditional fixed-income securities. LOWER-RATED SECURITIES At any time, a substantial portion of the Fund's assets may be invested in medium-grade or below investment grade fixed-income securities as determined by a nationally recognized rating service and in unrated securities deemed of comparable quality by BEA Associates. Investment in lower-rated securities typically involves risks not associated with higher-rated securities, including, among others, overall greater risk that timely and ultimate payment of interest and principal will not occur, potentially greater sensitivity to general economic conditions, greater market price volatility and potential illiquidity. In addition, ratings are relative and subjective and not absolute standards of quality. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition. Securities rated in the lowest investment grade (Baa or BBB) have speculative characteristics and securities rated below investment grade have speculative elements and a greater vulnerability to default than higher-rated securities. Lower-rated and comparable unrated securities (commonly referred to as "junk bonds") (i) will likely have some quality and protective characteristics that, in the judgment of the rating service, are outweighed by large uncertainties or major-risk exposures to adverse economic conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. Medium- and lower-rated securities and comparable unrated securities generally present a higher degree of credit risk. The risk of loss due to default by such issuers is significantly greater because medium- and lower-rated securities and unrated securities generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. These risks are significantly increased for securities having the lowest below investment grade ratings and, as a result, such securities are generally considered to have extremely poor prospects of ever attaining any real investment standing. In addition, the Fund may purchase securities that are in default or not current in the payment of interest or principal. No assurance can be given that the securities purchased by the Fund will continue to earn yields comparable to those earned historically, nor can any assurance be given that issuers whose obligations the Fund acquires will make payments on such obligations as they become due. 19 Lower-rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-rated securities. Economic downturns or increases in interest rates may result in higher rates of default for lower-rated securities than for higher-rated securities. The prices of lower-rated securities have been found to be less sensitive to interest rate changes than those of higher-rated securities, but to be more sensitive to adverse economic downturns or individual corporate developments. The market value of securities in lower-rated categories is more volatile than that of higher-quality securities. The markets in which lower-rated securities are traded are more limited than those in which higher-rated securities are traded. Adverse publicity and investors' perceptions, whether or not based on fundamental analyses, may decrease the values and liquidity of lower-rated securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of lower-rated securities may be more complex than for issuers of higher-rated securities, and the ability of the Fund to achieve its investment objective may, to the extent of investment in lower-rated securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher-rated securities. The more limited size of the markets in which lower-rated securities are traded may result in reducing the Fund's ability to dispose of certain of its investments. The lack of a liquid secondary market for certain securities may have an adverse impact on the Fund's ability to dispose of particular issues and may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund assets and calculating its net asset value. In addition, certain of the Fund's investments in high yield securities may be subject to special tax considerations. Interest on high yield securities structured as zero coupon or paid-in-kind securities must be reported as income by the Fund, although no cash is received until such securities' maturity or payment date. Under the Code, the Fund is required to distribute all its investment income. In order to maintain its status as a regulated investment company, the Fund could therefore be required to dispose of portfolio securities or leverage its portfolio to generate cash for distribution. There is no assurance that any such disposition could be made at favorable market conditions. For a complete description of rating systems of Moody's and S&P, see the Appendix to this Prospectus. NON PUBLICLY-TRADED SECURITIES; RULE 144A SECURITIES The Fund may purchase securities that are not registered under the Securities Act but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A Securities"). Nonpublicly-traded securities, including Rule 144A Securities, may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly-traded securities, and the Fund may take longer to liquidate these positions than would be the case for publicly-traded securities. Further, companies whose securities are not publicly-traded may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly-traded. The Fund's investment in illiquid securities is subject to the risk that, should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the Fund's net assets could be adversely affected. RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES The Fund may invest a substantial portion of its total assets in mortgage-backed securities. The value of mortgaged-backed securities is subject to change due to shifts in the market's perception of issuers, and regulatory or tax changes may adversely affect the mortgage securities market as a whole. Foreclosures and prepayments, which occur when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities on these securities. Like other debt securities, the values of mortgage-backed securities will generally fluctuate in response to changes in interest rates. No assurance can be given as to the liquidity of the market for mortgage-backed securities. The yield characteristics of mortgage-backed securities differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently and that principal 20 may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if the Fund purchases a security at a premium, a prepayment rate that is faster than expected will reduce yield to maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield to maturity. Conversely, if the Fund purchases the securities at a discount, faster than expected prepayments will increase, while slower than expected prepayments will reduce, yield to maturity. Certain types of derivative mortgage-backed securities are designed to be highly sensitive to changes in prepayment and interest rates and can subject the holders thereof to extreme reduction of yield and possibly loss of principal. Prepayments on a pool of mortgage loans are influenced by a variety of economic, geographical, social and other factors. Generally, however, prepayments on fixed mortgage loans will increase during a period of falling interest rates and decrease during a period of rising interest rates. Accordingly, amounts available for reinvestment by the Fund are likely to be greater during periods of declining interest rates and, as a result, likely to be reinvested at lower interest rates. Adjustable rate mortgages are subject to prepayment risk in a manner similar to fixed rate mortgages although to a lesser degree. SHORT SALES The Fund's investment policies may include short selling. Short sales can, under certain circumstances, substantially increase the impact of adverse price movements on the Fund's portfolio. The Fund, however, is restricted from engaging in uncovered short selling. See "Investment Objective and Policies--Short Sales" below and "Investment Restrictions" in the SAI. RISKS OF TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS The Fund may, for bona fide hedging purposes, purchase and sell interest rate futures contracts and options thereon that are traded on U.S. futures exchanges. There are several risks in connection with the use of interest rate futures contracts as a hedge for transactions and anticipated transactions, including the potential risk of unlimited loss. Due to the imperfect correlation between movements in the prices of interest rate futures contracts and movements in the prices of the underlying securities, the price of a futures contract may move more than or less than the price of the securities being hedged. In addition, there is the risk that movements in the prices of interest rate futures contracts will not correlate with interest rate movements. The Fund is not required to hedge interest rate risk. In addition to the possibility that there may be an imperfect correlation between movements in prices of interest rate futures contracts and portfolio securities being hedged, the market prices of futures contracts may be affected by various other factors which may result in significant price distortions. If participants in the interest rate futures market elect to close out their contracts through offsetting transactions rather than meet margin deposit requirements, distortions in the normal relationship between the debt securities and futures markets could result. Price distortions could also result if investors in futures contracts opt to make or take delivery of underlying securities rather than engage in closing transactions due to the resultant reduction in the liquidity of the interest rate futures market. In addition, due to the fact that, from the point of view of speculators, the deposit requirements in the interest rate futures markets are less onerous than margin requirements in the cash market, increased participation by speculators in the interest rate futures market could cause temporary price distortions. Due to the possibility of price distortions in the interest rate futures market and because of the imperfect correlation between movements in the prices of securities and movements in the prices of interest rate futures contracts, a correct forecast of interest rate trends by BEA Associates may still not result in a successful hedging transaction. If BEA Associates' predictions of movements in the direction of overall interest rate markets are inaccurate, the adverse consequences to the Fund may place the Fund in a worse position than if hedging strategies were not employed. Positions in interest futures contracts may be closed out only on an exchange or board of trade which provides a market for such interest rate futures contracts. Although the Fund intends to purchase or sell interest rate futures contracts only on exchanges or boards of trade where there appears to be an active market for such contracts, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. In the event a liquid market does not exist, it may not be possible to close an interest rate futures position at an advantageous price, and in the event of adverse 21 price movements, the Fund would continue to be required to make daily cash payments of maintenance margin. In addition, limitations imposed by an exchange or board of trade on which interest futures contracts are traded may compel or prevent the Fund from closing out a contract which may result in reduced gain or increased loss to the Fund. The absence of a liquid market in futures contracts might cause the Fund to make or take delivery of the underlying securities at a time when it may be disadvantageous to do so. RISKS OF TRANSACTIONS IN OPTIONS ON INTEREST RATE FUTURES CONTRACTS In addition to the risks which apply to all options transactions and the risks that apply to futures contracts, there are several special risks relating to options on interest rate futures contracts. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. The Fund will only purchase or write options on futures contracts which, in the opinion of BEA Associates, are traded on sufficiently developed markets such that the risks of illiquidity in connection with such options are not greater than the risks of illiquidity in connection with transactions in the underlying interest rate futures contracts. Compared to the purchase or sale of interest rate futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of an interest rate futures contract would not result in a loss, such as when there is no movement in the prices of the underlying securities. Because of an income-tax related limitation on the amount of certain types of short-term gain that the Fund can recognize in any year, there is a risk that the Fund may need to defer closing out certain futures contracts and options thereon in order to continue to qualify for beneficial tax treatment. See "Taxation." RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements collateralized by U.S. Government securities, certificates of deposit and certain bankers' acceptances for the purpose of realizing additional income. The use of repurchase agreements involves certain risks not associated with direct investment in securities. For example, if the seller of securities under an agreement defaults on its obligation to repurchase the underlying securities at the agreed upon repurchase price at a time when the value of these securities has declined, the Fund may incur a loss upon their disposition. If such a defaulting seller were to become insolvent and subject to liquidation or reorganization under applicable bankruptcy or other laws, disposition of the underlying securities could involve certain costs or delays pending court action. Finally, it is not certain whether the Fund would be entitled, as against a claim of the seller or its receiver, trustee in bankruptcy or creditors, to retain the underlying securities. While BEA Associates acknowledges these risks, it is expected that they can be controlled by limiting the institutions with which the Fund will enter into repurchase agreements to the Federal Reserve Bank, Reporting Government Securities Dealers and member banks of the Federal Reserve System and by carefully monitoring the creditworthiness of such institutions, other than the Federal Reserve Bank, by BEA Associates. MARKET VALUE AND NET ASSET VALUE Shares of closed-end investment companies frequently trade at a discount to net asset value. This characteristic of shares of a closed-end fund is a risk separate and distinct from the risk that the Fund's net asset value will decrease. In addition, changes in market yields will affect the Fund's net asset value as prices of fixed-income securities generally increase when interest rates decline and decrease when interest rates rise. The Fund cannot predict whether its shares will trade at, below or above net asset value. Since the commencement of the Fund's operations, the Fund's shares have generally traded in the market at a discount to net asset value. See "Net Asset Value" and "Common Stock." The risk of purchasing shares of a closed-end fund that might trade at a discount is more pronounced for investors who wish to sell their shares in a relatively short period of time because for those investors, realization of a gain or loss on their investments is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance. The Fund's shares are not subject to redemption. Investors desiring liquidity may, subject to applicable securities laws, trade their shares in the Fund on any exchange where such shares are then listed at the then 22 current market value, which may differ from the then current net asset value. If, at any time, the average discount from net asset value at which shares of the Fund's Common Stock have traded for any fiscal quarter is substantial in the determination of the Board of Directors, the Board of Directors will consider, at its next regularly scheduled quarterly meeting, taking actions designed to eliminate the discount, including periodic repurchases of shares. See "Common Stock." INVESTMENT OBJECTIVE AND POLICIES GENERAL The Fund's investment objective is current income consistent with the preservation of capital. The Fund seeks to achieve this objective by investing primarily in fixed-income securities, such as bonds, debentures and preferred stock. The Fund's investment portfolio will not be managed for capital appreciation. The Fund's investment objective is a fundamental policy and cannot be changed without the approval of the holders of a majority of the Fund's outstanding voting securities. As used herein, a "majority of the Fund's outstanding voting securities" means the lesser of (a) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (b) more than 50% of the outstanding shares. No assurance can be given that the Fund's investment objective will be achieved. For a more detailed discussion of the Fund's investment objective and policies, see "Investment Objective and Policies" in the SAI. INVESTMENT POLICIES Under normal circumstances, the Fund will invest at least 75% of its total assets in fixed-income securities. In January 1992, the Board of Directors removed the requirement that two-thirds of the Fund's fixed-income securities be comprised of investment grade securities. Accordingly, the Fund's investments in fixed-income securities are no longer subject to any rating quality limitation and a substantial portion or all of the Fund's portfolio may consist of securities that are rated below investment grade by a nationally recognized rating service or that are unrated and of comparable quality in the opinion of BEA Associates. Lower-rated securities generally provide yields superior to those of more highly rated securities, but involve greater risks and are speculative in nature. See "Risk Factors and Special Considerations--Lower-Rated Securities." The market value of lower-rated securities may be more volatile than the market value of higher-rated securities and generally tends to reflect the market's perception of the creditworthiness of the issuer and short-term market developments to a greater extent than more highly rated securities, which reflect primarily fluctuations in general levels of interest rates. For a description of the corporate bond ratings of Moody's and S&P, see the Appendix to the Prospectus. Depending on market conditions, the Fund may also invest a substantial portion of its assets in mortgage-backed securities. Mortgage-backed securities are collateralized by mortgages or interests in mortgages and may be issued by government or non-government entities. Mortgage-backed securities issued by government entities typically provide a monthly payment consisting of interest and principal payments, and additional payments will be made out of unscheduled prepayments of principal. Non-government issued mortgage-backed securities may offer higher yields than those issued by government entities, but may be subject to greater price fluctuations. Subject to the limitations described under "Other Investment Techniques" below, the Fund may also invest up to 25% of its total assets in money market instruments such as certificates of deposit, commercial paper, bankers' acceptances and repurchase agreements; the Fund, however, currently does not intend to invest more than 5% in such assets. The Fund may also, for bona fide hedging purposes, invest in interest rate futures and related options. It is expected that the average weighted maturity of the Fund investment portfolio will be 5 to 10 years. The Fund's policy is to diversify its investments among various securities and industries only to the extent such diversification appears to enhance the opportunity to achieve its investment objective. Under the 1940 Act and the Code, the Fund is also subject to certain portfolio diversification requirements. The Fund may not invest in a security if after such investment 25% or more of its total assets, at market value, would be invested in any one industry. 23 OTHER INVESTMENT TECHNIQUES The Fund may enter into repurchase agreements, lend portfolio securities, purchase securities on a when-issued basis and invest in interest rate futures and related options. REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements collateralized by U.S. Government securities, certificates of deposit and certain bankers' acceptances for the purpose of realizing additional income. Repurchase agreements are transactions by which the Fund purchases a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed upon price on an agreed upon date (usually within seven days of purchase). Use of repurchase agreements can permit the Fund to keep its assets at work while retaining short-term flexibility in pursuit of investments of a longer-term nature. BEA Associates will continually monitor the value of the underlying securities to ensure that their value always equals or exceeds the repurchase price. LENDING OF SECURITIES. The Fund may lend its portfolio securities to banks, brokers, dealers and other financial institutions who need to borrow securities in order to complete certain transactions, such as covering short sales, avoiding failures to deliver securities or completing arbitrage operations. By lending its portfolio securities, the Fund attempts to increase its income through the receipt of interest on the loan. Any gain or loss in the market price of the securities lent that might occur during the term of the loan would be for the account of the Fund. The Fund may lend its portfolio securities so long as the terms and the structure of such loans are not inconsistent with the 1940 Act or the rules and regulations or interpretations of the Securities and Exchange Commission (the "Commission") thereunder. The Fund will not lend portfolio securities if, as a result, the aggregate of such loans exceeds 33 1/3% of the value of the Fund's total assets. Loan arrangements made by the Fund will comply with all other applicable regulatory requirements, including the rules of the New York Stock Exchange. All relevant facts and circumstances, including the creditworthiness of the borrower, will be considered by BEA Associates in making decisions with respect to the lending of securities, subject to review by the Fund's Board of Directors. The creditworthiness of such bank, broker, dealer or other financial institution will be monitored by BEA Associates during the time any securities are loaned. In addition, voting rights may pass with the loaned securities but if a material event were to occur affecting an investment on a loan, the loan must be called and the securities voted by the Fund. SHORT SALE. The Fund may engage in short sales (the sale of securities that it does not own), but only when it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short ("short sales against the box"), and only if not more than 5% of the Fund's net assets (taken at current value) is held as collateral for such sales at any one time. INTEREST RATE FUTURES AND RELATED OPTIONS. The Fund may purchase and sell interest rate futures contracts and options thereon that are traded on U.S. futures exchanges. When the Fund attempts to hedge its portfolio by selling an interest rate futures contract, purchasing a put option thereon, or writing a call option thereon, it will own an amount of U.S. Government securities corresponding to the open futures or option position. The Fund only intends to engage in futures contracts or options for bona fide hedging purposes. In instances where the Fund purchases futures, the Fund will segregate with its custodian an amount of cash, U.S. Government securities or other high-grade, liquid debt securities equal to the market value of the interest rate futures contracts and thereby insure that the use of interest rate futures contracts is unleveraged. In accordance with the current rules of the Commodity Futures Trading Commission (the "CFTC"), the Fund will not enter into any interest rate futures contract or option thereon if, immediately thereafter, the aggregate initial margin for all existing futures contracts and options thereon not entered into for bona fide hedging purposes and for premiums paid for such options would exceed 5% of the Fund's total assets. The Fund will not enter into any such contract or option thereon, if, as a result thereof, more than 50% of the Fund's total assets would be hedged. In contrast to the purchase or sale of a security, the full purchase price of the futures contract is not paid or received by the Fund upon its purchase or sale. Instead, the Fund will deposit in a segregated custodial account as initial margin an amount of cash or U.S. Treasury bills equal to approximately 5% of the value of 24 the contract. At any time prior to expiration of the futures contract, the Fund may elect to terminate the position by taking an opposite position. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or gain. No assurance can be given that the Fund will be able to take an opposite position. The selection of futures and options strategies requires skills different from those needed to select portfolio securities; however, BEA Associates does have experience in the use of futures and options. DIRECT PLACEMENT. As noted under "Investment Restrictions" in the SAI, the Fund may invest up to 10% of its assets in securities that are not readily marketable. The portion of the Fund's portfolio that may be invested in such securities (other than in repurchase agreements) may be purchased in placements from the securities' issuer or in the secondary market for such directly placed securities ("Direct Placement Securities"). The purchase of Direct Placement Securities will depend on the relative attractiveness of those securities as compared to securities which have been publicly offered. TEMPORARY INVESTMENTS The Fund may, for temporary defensive purposes, invest its assets in money market instruments and interest rate futures and related options without regard to any percentage limitation on total assets invested or hedged, as the case may be. The Fund may also, for temporary defensive purposes, invest in short-term (less than twelve months to maturity) debt securities rated at least A by Moody's or S&P. Subject to its limitation on investments in money market instruments, the Fund may also invest in short-term debt securities rated at least Baa by Moody's or BBB by S&P to commit overnight cash balances. MANAGEMENT OF THE FUND DIRECTORS AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Directors, and the day to day operations of the Fund are conducted through or under the direction of the officers of the Fund. For certain information regarding the directors and officers of the Fund, see "Management of the Fund--Directors and Officers" in the SAI. BEA ASSOCIATES BEA Associates serves as the Fund's investment adviser pursuant to an Advisory Agreement with the Fund (the "Advisory Agreement") which became effective on June 13, 1995. Prior to that date, CS First Boston Investment Management Corporation ("CSIM") provided investment advisory services to the Fund. BEA Associates is a general partnership organized under the laws of the State of New York and, together, with its predecessor firms, has been engaged in the investment advisory business for over 50 years. BEA Associates is located at One Citicorp Center, 57th Floor, 153 East 53rd Street, New York, New York 10022. Credit Suisse Capital Corporation ("CS Capital") is an 80% partner and CS Advisors Corp., a New York corporation and a wholly owned subsidiary of CS Capital, is a 20% partner in BEA Associates. CS Capital is a wholly owned subsidiary of Credit Suisse Investment Corporation, which is a wholly owned subsidiary of Credit Suisse, the second largest Swiss bank, which in turn is a subsidiary of CS Holding, a Swiss corporation. BEA Associates is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. BEA Associates is a diversified asset manager, handling global equity, balanced, fixed income and derivative securities accounts for private individuals, as well as corporate pension and profit-sharing plans, state pension funds, union funds, endowments and other charitable institutions. As of June 30, 1996, BEA Associates managed in excess of $28.7 billion of assets. BEA Associates has sole investment discretion for the Fund with respect to the Fund's portfolio under the supervision of the Fund's Board of Directors and in accordance with the Fund's stated policies. BEA Associates will select investments for the Fund and will place purchase and sale orders on behalf of the Fund. For its services, BEA Associates is paid a quarterly fee computed at an annual rate of 0.50% of the Fund's average weekly net assets. 25 PORTFOLIO MANAGEMENT Robert Moore, who has been an Executive Director and the Chief Operating Officer of BEA Associates since 1995, is primarily responsible for management of the Fund's assets. Mr. Moore has served the Fund in such capacity since June 1995. Mr. Moore joined BEA Associates in 1987. He is President and Chief Investment Officer of the Fund and is also President and Chief Investment Officer of BEA Strategic Income Fund, Inc. ADMINISTRATOR Chase Global Funds Services Company, a Delaware corporation, serves as the Fund's administrator pursuant to an agreement with the Fund (the "Administration Agreement"). The Administrator's principal offices are located at 73 Tremont Street, Boston, Massachusetts. Under the Administration Agreement, the Fund pays the Administrator a monthly fee that is computed weekly at an annual rate of 0.15% of the Fund's first $100 million of average weekly net assets, 0.10% of the Fund's next $300 million of average weekly net assets and 0.05% of the Fund's average weekly net assets in excess of $400 million. The Administrator provides office facilities and personnel adequate to perform services for the Fund, including without limitation the following: oversight of the determination and publication of the Fund's net asset value in accordance with the Fund's policy as adopted from time to time by the Board of Directors; oversee the maintenance of the books and records of the Fund as required under the 1940 Act; assist in preparation and filing of the Fund's U.S. federal, state and local income tax returns; preparation of financial information for the Fund's proxy statements and semiannual and annual reports to shareholders; and preparation of certain of the Fund's reports to the Securities and Exchange Commission. ESTIMATED EXPENSES BEA Associates and the Administrator are each obligated to pay expenses associated with providing the services contemplated by the agreements to which they are parties, including compensation of and office space for their respective officers and employees connected with investment and economic research, trading and investment management and administration of the Fund, as well as the fees of all directors of the Fund who are affiliated with those companies or any of their affiliates. The Fund pays all other expenses incurred in the operation of the Fund including, among other things, expenses for legal and independent accountants' services, costs of printing proxies, stock certificates and shareholder reports, charges of the custodians, any sub-custodians and the transfer and dividend-paying agent, expenses in connection with the Plan, Securities and Exchange Commission fees, fees and expenses of unaffiliated directors, accounting and pricing costs, membership fees in trade associations, fidelity bond coverage for the Fund's officers and employees, directors' and officers' errors and omissions insurance coverage, interest, brokerage costs and stock exchange fees, taxes, stock exchange listing fees and expenses, expenses of qualifying the Fund's shares for sale in various states, litigation and other extraordinary or non-recurring expenses and other expenses properly payable by the Fund. PORTFOLIO TRANSACTIONS The Fund may utilize CS First Boston Corporation and other affiliates of Credit Suisse in connection with the purchase or sale of securities in accordance with rules or exemptive orders adopted by the Securities and Exchange Commission when BEA Associates believes that the charge for the transaction does not exceed usual and customary levels. For a more detailed discussion of the Fund's brokerage allocation practice, see the SAI under "Portfolio Transactions." DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Fund's policy is to make distributions of net investment income to shareholders monthly on or about the fifteenth day of each month and to make distributions at least annually of any net capital gains in excess of applicable capital losses, including capital loss carryforwards. 26 All dividends and distributions, net of any applicable U.S. withholding tax, are automatically reinvested in additional shares of the Fund unless a shareholder has instructed Chase Manhattan, as the Plan Agent (the "Plan Agent"), otherwise in writing. A shareholder whose shares are held by a broker or nominee that does not provide a dividend reinvestment program may be required to have his shares registered in his own name to participate in the Plan. The receipt of dividends and distributions in shares under the Plan will not relieve participants of any income tax (including withholding tax) that may be payable on such dividends or distributions. Certain distributions of cash attributable to (a) some of the dividends and interest amounts paid to the Fund and (b) certain capital gains earned by the Fund that are derived from securities of certain foreign issuers are subject to taxes payable by the Fund at the time amounts are remitted. Such taxes, if any, will be borne by the Fund and allocated to all shareholders in proportion to their interests in the Fund. The Plan Agent serves as agent for the shareholders in administering the Plan. If the Board of Directors of the Fund declares an income dividend or a capital gains distribution payable either in Common Stock or in cash, as shareholders may have elected, non-participants in the Plan will receive cash and participants in the Plan will receive Common Stock. Whenever the market price per share on the valuation date equals or exceeds net asset value per share at the time shares are valued for the purpose of determining the number of shares equivalent to the cash dividend or distribution, the Fund will issue new shares to participants valued at net asset value or, if the net asset value is less than 95% of the market price on that date, then valued at 95% of the market price. If net asset value per share as determined at the time of purchase exceeds the market price per share on that date, or if the Fund should declare a dividend or other distribution payable only in cash, the Plan Agent, as agent for the participants, will buy shares of Common Stock on the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. The valuation date generally is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next preceding trading day. If the Fund should declare an income dividend or capital gains distribution payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts on, or shortly after, the payment date. Participants in the Plan have the option of making additional cash payments to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment in the Fund's Common Stock through purchases on the open market. There is no charge to participants for reinvesting dividends or capital gains distributions payable in either shares or cash. However, each participant will be charged by the Plan Agent a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with voluntary cash payments made by the participant or the reinvestment of dividends or capital gains distributions payable only in cash. All correspondence concerning the Plan should be directed to The Chase Manhattan Bank, Dividend Reinvestment Department--Retail Processing, 770 Broadway, 7th Floor, New York, New York 10003-9598 or by telephone at 1-800-428-8890. For a more complete description of the Plan, see "Dividend Reinvestment and Cash Purchase Plan" in the SAI. TAXATION The Fund has qualified and intends to continue to qualify and elect to be treated as a regulated investment company for each taxable year under the Code. The Fund pays monthly dividends of net investment income and makes distributions at least annually of any net realized long-term and short-term capital gains in excess of applicable capital losses, including capital loss carryforwards. The Board of Directors of the Fund will determine annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). The Fund currently expects to distribute any excess annually to its shareholders. However, if the Fund retains for investment an amount equal to its net realized long-term capital gains in excess of its net realized short-term capital losses and capital loss carryovers, it will be subject to a corporate tax (currently at a rate of 35%) on the amount retained. In that event, the Fund expects to designate such retained amounts as undistributed capital gains in 27 a notice to its shareholders who (a) will be required to include in income for United States federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund on the undistributed amount against their United States federal income tax liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for United States federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital gains included in the shareholder's income. Shareholders will be notified annually by the Fund as to the United States federal income tax status of the dividends, distributions and deemed distributions made by the Fund to its shareholders. Furthermore, shareholders will also receive, if appropriate, various written notices after the close of the Fund's taxable year regarding the United States federal income tax status of certain dividends, distributions and deemed distributions that were paid (or that are treated as having been paid) by the Fund to its shareholders during the preceding taxable year. For a more detailed discussion of tax matters affecting the Fund and its shareholders, see "Taxation" in the SAI. NET ASSET VALUE The net asset value per share is determined as of the close of the New York Stock Exchange on the last business day of each week, by dividing the value of the Fund's net assets (the value of its assets less its liabilities, exclusive of capital stock and surplus) by the total number of shares of Common Stock outstanding. Net asset value includes interest on fixed-income securities which is accrued daily. Securities which are traded over-the-counter and on a stock exchange will be valued according to the broadest and most representative market, and it is expected that for bonds and other fixed-income securities this ordinarily will be the over-the-counter market. Notwithstanding the above, bonds and other fixed-income securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. The prices provided by a pricing service are determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities and any developments related to specific securities. Securities not priced in this manner are valued at the most recent current quoted bid price, or when stock exchange valuations are used, at the latest quoted sale price on the date of valuation. Short-term debt securities which mature in less than 60 days are valued at amortized cost if their term to maturity from date of purchase by the Fund was less than 60 days, or by amortizing their value on the 61st day if their term to maturity on the date acquired by the Fund was more than 60 days, unless this is determined by the Board of Directors not to represent fair value. The value of other assets and securities for which no current quotations are readily available are determined in good faith at fair value using methods approved by the Directors. COMMON STOCK The authorized capital stock of the Fund is 100,000,000 shares of Common Stock, $.001 par value per share. All shares of Common Stock have equal rights as to dividends and voting privileges and, when issued, will be fully paid and nonassessable. There are no conversion, preemptive or other subscription rights. In the event of liquidation, each share of Common Stock is entitled to its proportion of the Fund's assets after debts and expenses. Shareholders are entitled to one vote per share and do not have cumulative voting rights. Set forth below is information with respect to the Common Stock as of August 31, 1996:
AMOUNT HELD BY FUND AMOUNT AUTHORIZED FOR ITS OWN ACCOUNT AMOUNT OUTSTANDING - --------------------- -------------------- ------------------- 100,000,000 Shares 0 Shares 24,385,367
The number of shares outstanding as of August 31, 1996, adjusted to give effect to the issuance of all the Shares pursuant to the Offer, including up to 25% of the Shares available for issuance pursuant to the Over-Subscription Privilege, would be 34,545,937. The Fund's shares are listed and traded on the New York Stock Exchange. The average weekly trading volume of the Common Stock on the New York Stock Exchange during the year ended December 31, 1995 was 124,877 shares. The following table sets forth for the quarters indicated the high and low sales prices on 28 the New York Stock Exchange per share of Common Stock and the net asset value and the premium or discount from net asset value at which the Common Stock was trading, expressed as a percentage of net asset value, at each of the high and low sales prices provided.
DISCOUNT AS % OF NAV(2) MARKET PRICE(1) NET ASSET VALUE -------------------- -------------------- ------------------------ QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW - ---------------------------------------------------- --------- --------- --------- --------- ----------- ----------- March 31, 1994...................................... $ 8.50 $ 7.75 $ 9.08 $ 8.91 6.39% 13.02% June 30, 1994....................................... 8.00 7.38 8.67 8.48 7.73 13.03 September 30, 1994.................................. 7.75 7.00 8.36 8.17 7.30 14.32 December 31, 1994................................... 7.25 6.75 8.11 8.11 10.60 16.77 March 31, 1995...................................... 7.63 7.00 8.24 7.95 7.46 11.95 June 30, 1995....................................... 7.75 7.25 8.54 8.36 9.25 13.28 September 30, 1995.................................. 7.75 7.50 8.55 8.59 9.36 12.69 December 31, 1995................................... 8.00 7.50 8.63 8.58 7.30 12.59 March 31, 1996...................................... 8.50 7.88 8.60 8.49 1.16 7.24 June 30, 1996....................................... 8.25 7.75 8.51 8.53 3.06 9.14 September 30, 1996*................................. 8.63 8.00 8.54 8.42 (1.05) 4.99
- --------- (1) As reported by the New York Stock Exchange. (2) Based on the Fund's computations. * Through September 20, 1996. The Fund's By-laws provide that if, for any fiscal quarter, the average discount from net asset value at which shares of the Fund's Common Stock have traded is substantial in the determination of the Board of Directors, the Board of Directors of the Fund will consider, at its next regularly scheduled quarterly meeting, taking actions designed to eliminate the discount, including periodic repurchases of shares or amendments to the Fund's Articles of Incorporation to convert the Fund to an open-end investment company. Any such amendment would require a favorable vote of a majority of the shares entitled to vote on the matter and the amendment would have to be declared advisable by the Board of Directors prior to its submission to shareholders. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of a redemption. The Fund's Board of Directors has approved a share repurchase program authorizing the Fund from time to time to make open-market purchases of shares of the Fund on the New York Stock Exchange up to 10% of the number of shares of the Fund that were outstanding as of December 11, 1990. There were no repurchases of shares during the year ended December 31, 1995. CUSTODIAN AND TRANSFER AND DIVIDEND-PAYING AGENT AND REGISTRAR The Chase Manhattan Bank, 770 Broadway, New York, New York 10003, acts as the custodian for the Fund's assets. The Chase Manhattan Bank, 73 Tremont Street, Boston, Massachusetts 02108, also acts as the Fund's accounting agent, dividend-paying agent, transfer agent and registrar. 29 DISTRIBUTION ARRANGEMENTS Smith Barney Inc., located at 388 Greenwich Street, New York, New York 10013, will act as Dealer Manager for the Offer. Under the terms and subject to the conditions contained in a Dealer Manager Agreement, the Dealer Manager will provide financial advisory services and marketing assistance in connection with the Offer and will solicit the exercise of Rights by Record Date Shareholders. The Offer is not contingent upon any number of Rights being exercised. The Fund has agreed to pay the Dealer Manager a fee for financial advisory and marketing services equal to 1.25% of the Subscription Price per Share for shares issued upon exercise of the Rights and the Over-Subscription Privilege and to pay broker-dealers, including the Dealer Manager, fees for their soliciting efforts ("Soliciting Fees") of 2.50% of the Subscription Price per Share for each Share issued upon exercise of the Rights and the Over-Subscription Privilege. Soliciting Fees will be paid to the broker-dealer designated on the applicable portion of the Subscription Certificates, or if no broker-dealer is so designated, to the Dealer Manager. The Fund has also agreed to reimburse the Dealer Manager up to $100,000 for its reasonable expenses incurred in connection with the Offer. The Fund and BEA Associates have agreed to indemnify the Dealer Manager or to contribute for losses arising out of certain liabilities including liabilities under the Securities Act. The Dealer Manager Agreement also provides that the Dealer Manager will not be subject to any liability to the Fund in rendering the services contemplated by the Agreement except in instances involving the bad faith, willful misfeasance, or gross negligence of the Dealer Manager or the reckless disregard by the Dealer Manager of its obligations and duties under the Agreement. The Fund has agreed, subject to certain exceptions, not to offer or sell, or enter into any agreement to sell, any equity or equity related securities of the Fund or securities convertible into such securities for a period of 180 days after the date of the Dealer Manager Agreement without the prior consent of the Dealer Manager. LEGAL MATTERS With respect to matters of United States law, the validity of the shares offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, New York, New York. Certain legal matters will be passed on for the Dealer Manager by Skadden, Arps, Slate, Meagher & Flom, Boston, Massachusetts. Counsel for the Fund and the Dealer Manager may rely, as to matters of Maryland law, on Venable, Baetjer and Howard, LLP, Baltimore, Maryland. EXPERTS The financial statements of the Fund as of December 31, 1995 have been incorporated by reference into the SAI in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. Price Waterhouse LLP is located at 1177 Avenue of the Americas, New York, New York 10036. FURTHER INFORMATION Further information concerning these securities and their issuer may be found in the Registration Statement of which this Prospectus constitutes a part on file with the Securities and Exchange Commission. The Commission maintains a World Wide Web site on the Internet at http://www.sec.gov. that contains the Prospectus, material incorporated by reference and other information regarding registrants, such as the Fund, that file electronically with the Commission. 30 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE ----- General Information........................................................................................ 2 Investment Objectives and Policies......................................................................... 2 Investment Restrictions.................................................................................... 6 Management of the Fund..................................................................................... 8 Portfolio Transactions..................................................................................... 11 Dividend Reinvestment and Cash Purchase Plan............................................................... 12 Taxation................................................................................................... 14 Net Asset Value............................................................................................ 18 Common Stock............................................................................................... 18 Financial Statements....................................................................................... 18
31 APPENDIX CORPORATE BOND RATINGS MOODY'S INVESTORS SERVICE, INC. Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than in Aaa securities. A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds that are rated Baa are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2, and 3) with respect to the bonds rated "Aa" through "B." The modifier 1 indicates that the bond being rated ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower end of its generic rating category. Ba Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds that are rated Caa are of poor standing. These issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds that are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds that are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
STANDARD & POOR'S RATINGS GROUP AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
A-1 AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from AAA issues only in small degree. A Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
SPECULATIVE GRADE Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the lowest degree of speculation, and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated D is in payment default. BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating. B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. CI The rating 'CI' is reserved for income bonds on which no interest is being paid. D Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
In July 1994, Standard & Poor's initiated an "r" symbol to its ratings. The "r" symbol is attached to derivative, hybrid and certain other obligations that Standard & Poor's believes may experience high variability in expected returns due to non-credit risks created by the terms of the obligation. A-2 MODIFIERS Standard & Poor's may apply plus (+) or minus (-) modifiers with respect to bonds rated "AA" through "CCC." These modifiers show the bond's relative standing within the major rating categories. A-3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE FUND'S INVESTMENT ADVISER OR THE DEALER MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS AS SET FORTH IN THE PROSPECTUS OR IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY. -------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................... 3 Fee Table........................................ 8 Financial Highlights............................. 9 The Offer........................................ 10 The Fund......................................... 16 Use of Proceeds.................................. 18 Risk Factors and Special Considerations.......... 18 Investment Objective and Policies................ 23 Management of the Fund........................... 25 Portfolio Transactions........................... 26 Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan............. 26 Taxation......................................... 27 Net Asset Value.................................. 28 Common Stock..................................... 28 Custodian and Transfer and Dividend-Paying Agent and Registrar................................... 29 Distribution Arrangements........................ 30 Legal Matters.................................... 30 Experts.......................................... 30 Further Information.............................. 30 Table of Contents of Statement of Additional Information..................................... 31 Appendix......................................... A-1
BEA INCOME FUND, INC. 8,278,456 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF RIGHTS TO SUBSCRIBE TO SUCH SHARES --------- PROSPECTUS SEPTEMBER 26, 1996 --------- SMITH BARNEY INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BEA INCOME FUND, INC. ------------ STATEMENT OF ADDITIONAL INFORMATION BEA Income Fund, Inc. (the "Fund") is a diversified, closed-end management investment company seeking current income consistent with the preservation of capital. The Fund seeks to achieve this objective primarily through investment in fixed-income securities, such as bonds, debentures and preferred stocks. Under normal circumstances, at least 75% of the Fund's total assets will be invested in fixed-income securities. This Statement of Additional Information ("SAI") is not a prospectus, but should be read in conjunction with the Prospectus for the Fund dated September 27, 1996 (the "Prospectus"). This SAI does not include all information that a prospective investor should consider before purchasing shares of the Fund, and investors should obtain and read the Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained without charge, by calling (800) 733-8481, extension 349, and from ouside the United States, by calling (212) 805-7000. This SAI incorporates by reference the entire prospectus. ------------------- TABLE OF CONTENTS
PAGE ----- GENERAL INFORMATION........................................................................................ 2 INVESTMENT OBJECTIVE AND POLICIES.......................................................................... 2 INVESTMENT RESTRICTIONS.................................................................................... 6 MANAGEMENT OF THE FUND..................................................................................... 8 PORTFOLIO TRANSACTIONS..................................................................................... 11 DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN............................................................... 12 TAXATION................................................................................................... 14 NET ASSET VALUE............................................................................................ 18 COMMON STOCK............................................................................................... 18 FINANCIAL STATEMENTS....................................................................................... 18
------------------- The Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange Commission, Washington, D.C. The registration statement may be obtained from the Securities and Exchange Commission upon payment of the fee prescribed, or inspected at the Securities and Exchange Commission's office at no charge. ------------------- This Statement of Additional Information is dated September 27, 1996. GENERAL INFORMATION The Fund changed its name from First Boston Income Fund, Inc. to CS First Boston Income Fund, Inc. in June 1994 and to BEA Income Fund, Inc. in June 1995. INVESTMENT OBJECTIVE AND POLICIES INVESTMENT OBJECTIVE The Fund's investment objective is current income consistent with the preservation of capital. The Fund seeks to achieve this objective by investing primarily in fixed-income securities, such as bonds, debentures and preferred stocks. The Fund's investment portfolio will not be managed for capital appreciation. The Fund's investment objective and the investment limitations described below under the caption "Investment Restrictions" are fundamental and may not be changed without the approval of a majority of the Fund's outstanding voting securities, as such term is defined in the Investment Company Act of 1940 (the "Act"). All other policies and percentage limitations of the Fund as described below may be modified by the Board of Directors if, in the reasonable exercise of the Board's business judgment, modification is determined to be necessary or appropriate to carry out the Fund's investment objective. INVESTMENT POLICIES Under normal circumstances, the Fund will invest at least 75% of its total assets in fixed-income securities, such as bonds, debentures and preferred stocks. In January 1992, the Board of Directors removed the requirement that two-thirds of the Fund's fixed-income securities be comprised of investment grade securities. Accordingly, the Fund's investments in fixed-income securities are no longer subject to any rating quality limitation and may consist of securities that are rated below investment grade by a nationally recognized rating service or that are unrated and of comparable quality in the opinion of BEA Associates. Lower rated securities generally provide yields superior to those of more highly rated securities, but involve greater risks and are speculative in nature. See "Risk Factors and Special Considerations--Lower-Rated Securities" in the Prospectus. The market value of lower-rated securities may be more volatile than the market value of higher-rated securities and generally tends to reflect the market's perception of the creditworthiness of the issuer and short-term market developments to a greater extent than more highly rated securities, which reflect primarily fluctuations in general levels of interest rates. For a description of the corporate bond ratings of Moody's Investors Service, Inc. ("Moodys") and Standard & Poor's Ratings Group ("S&P"), see the Appendix to the Prospectus. Depending on market conditions, the Fund may also invest a substantial portion of its assets in mortgage-backed securities. Mortgage-backed securities are collateralized by mortgages or interests in mortgages and may be issued by government or non-government entities. Mortgage-backed securities issued by government entities typically provide a monthly payment consisting of interest and principal payments, and additional payments will be made out of unscheduled prepayments of principal. Non-government issued mortgage backed securities may offer higher yields than those issued by government entities, but may be subject to greater price fluctuations. The Fund intends that its portfolio, under normal market conditions, will consist principally of fixed-income securities. Subject to the limitations described under "Other Investment Techniques" below, the Fund may also invest up to 25% of its total assets in money market instruments such as certificates of deposit, commercial paper, bankers' acceptances and repurchase agreements; the Fund, however, currently does not intend to invest more than 5% in such assets. The Fund may also, for bona fide hedging purposes, invest in interest rate futures and related options. It is expected that the average weighted maturity of the Fund's investment portfolio will be 5 to 10 years. The Fund's policy is to diversify its investments among various securities and industries only to the extent such diversification appears to enhance the opportunity to achieve its investment objective. Under the 1940 Act and the Internal Revenue Code (the "Code"), the Fund is also subject to certain asset diversification requirements. The Fund may not invest in a security if after such investment 25% or more of its total assets, at market value, would be invested in any one industry. 2 Under the 1940 Act, the Fund is restricted in its ability to purchase any security of which BEA Associates or any of its affiliate is a principal underwriter during the public offering of such security. OTHER INVESTMENT TECHNIQUES The Fund may enter into repurchase agreements, lend portfolio securities, purchase securities on a when-issued basis and invest in interest rate futures and related options. REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements collateralized by U.S. Government securities, certificates of deposit and certain bankers' acceptances for the purpose of realizing additional income. Repurchase agreements are transactions by which the Fund purchases a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed upon price on an agreed upon date (usually within seven days of purchase). The resale price reflects the purchase price plus an agreed-upon market rate of interest which is unrelated to the coupon rate or date of maturity of the purchased security. In these transactions, the seller is required to deliver additional securities to the Fund, if necessary, so that the current total market value of the securities subject to the repurchase agreement will be at all times in excess of the agreed upon repurchase price including any accrued interest earned on the repurchase agreement. Securities subject to such repurchase agreements will be held by the Fund's custodian bank until repurchased. Use of repurchase agreements can permit the Fund to keep its assets at work while retaining short-term flexibility in pursuit of investments of a longer-term nature. BEA Associates will continually monitor the value of the underlying securities to ensure that their value always equals or exceeds the repurchase price. LENDING OF SECURITIES. The Fund may lend its portfolio securities to banks, brokers, dealers and other financial institutions who need to borrow securities in order to complete certain transactions, such as covering short sales, avoiding failures to deliver securities or completing arbitrage operations. By lending its portfolio securities, the Fund attempts to increase its income through the receipt of interest on the loan. Any gain or loss in the market price of the securities lent that might occur during the term of the loan would be for the account of the Fund. The Fund may lend its portfolio securities so long as the terms and the structure of such loans are not inconsistent with the 1940 Act or the rules and regulations or interpretations of the Securities and Exchange Commission (the "Commission") thereunder, which currently require that (a) the borrower pledge and maintain with the Fund collateral consisting of cash, a letter of credit issued by a domestic U.S. bank, or securities issued or guaranteed by the United States Government or its agencies having a value at all times not less than 102% of the value of the securities lent, (b) the borrower adds to such collateral whenever the price of the securities lent rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan be made subject to termination by the Fund at any time and (d) the Fund receives reasonable interest on the loan (which may include the Fund's investing any cash collateral in interest-bearing short-term investments), any distribution on the securities lent and any increase in their market value. The Fund will not lend portfolio securities if, as a result, the aggregate of such loans exceeds 33 1/3% of the value of the Fund's total assets. Loan arrangements made by the Fund will comply with all other applicable regulatory requirements, including the rules of the New York Stock Exchange, which rules presently require the borrower, after notice, to redeliver the securities within the normal settlement time of three business days. All relevant facts and circumstances, including the creditworthiness of the borrower, will be considered by BEA Associates in making decisions with respect to the lending of securities, subject to review by the Fund's Board of Directors. The creditworthiness of such bank, broker, dealer or other financial institution will be monitored by the Adviser during the time any securities are loaned. In addition, voting rights may pass with the loaned securities but if a material event were to occur affecting an investment on a loan, the loan must be called and the securities voted by the Fund. SHORT SALE. The Fund may engage in short sales (the sale of securities that it does not own), but only when it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short ("short sales against the box"), and only if not more than 5% of the Fund's net assets (taken at current value) is held as collateral for such sales at any one time. 3 INTEREST RATE FUTURES AND RELATED OPTIONS. The Fund may purchase and sell interest rate futures contracts and options thereon that are traded on U.S. futures exchanges. Futures contracts are commodities contracts that obligate the buyer to take and the seller to make delivery at a future date of a specified quantity of the underlying financial instrument. However, some interest rate futures contracts provide for settlement in cash rather than by delivery of the securities underlying the contract. Each futures contract is traded on a commodity exchange that has been designated a "contract market" by the Commodity Futures Trading Commission (the "CFTC"). A call option for a futures contract is a short term contract (having a duration of nine months or less) pursuant to which a purchaser, in return for a premium paid, has the right to buy the futures contract underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying futures contract against payment of the exercise price. A put option for a futures contract is a similar contract which gives the purchaser, in return for a premium, the right to sell the underlying futures contract at a specified price during the term of the option. The writer of the put, who receives the premium, has the obligation to buy the underlying futures contract, upon exercise, at the exercise price. The Fund only intends to engage in futures contracts or options for bona fide hedging purposes. In instances where the Fund purchases futures, the Fund will segregate with its custodian an amount of cash, U.S. Government securities or other high-grade, liquid debt securities equal to the market value of the interest rate futures contracts and thereby insure that the use of interest rate futures contracts is unleveraged. In accordance with current CFTC rules, the Fund will not enter into any interest rate futures contract or option thereon if, immediately thereafter, the aggregate initial margin for all existing futures contracts and options thereon and for premiums paid for such options not entered into for bona fide hedging purposes would exceed 5% of the Fund's total assets. The Fund will not enter into any such contract or option thereon, if, as a result thereof, more than 50% of the Fund's total assets would be hedged. In contrast to the purchase or sale of a security, the full purchase price of the futures contract is not paid or received by the Fund upon its purchase or sale. Instead, the Fund will deposit in a segregated custodial account as an initial margin an amount of cash or U.S. Treasury bills equal to approximately 5% of the value of the contract. The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the customer to finance the transactions. Rather, the initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to the Fund upon termination of the futures contract assuming all contractual obligations have been satisfied. Subsequent payments to and from the broker, called variation margin, will be made on a daily basis as the price of the underlying security fluctuates making the long and short positions in the futures contract more or less valuable, a process known as "mark to the market." For example, when the Fund has purchased an interest rate futures contract and the price of the futures contract has risen, that position will have increased in value and the Fund will receive from the broker a variation margin payment equal to that increase in value. Conversely, where the Fund has purchased an interest rate futures contract and the price of the futures contract has declined, the position would be less valuable and the Fund would be required to make a variation margin payment to the broker. At any time prior to expiration of the futures contract, the Fund may elect to terminate the position by taking an opposite position. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or gain. No assurance can be given that the Fund will be able to take an opposite position. Interest rate futures contracts are currently available on several types of fixed-income securities, including U.S. Treasury Bonds, U.S. Treasury Notes and GNMA securities on The Chicago Board of Trade, and on U.S. Treasury Bills on the International Monetary Market Division of The Chicago Mercantile Exchange. The Fund may enter into interest rate futures contracts consistent with the Fund's investment objectives and in compliance with applicable regulations of the CFTC. The purpose of selling an interest rate futures contract is to protect the Fund's portfolio from fluctuations in asset value resulting from interest rate changes. Selling a futures contract has an effect similar to selling a portion of the Fund's portfolio securities. If interest rates were to increase, the value of the 4 securities in the portfolio would decline, but the gains on the Fund's futures strategy would increase, thereby keeping the net asset value of the Fund from declining as much as it otherwise might have. In this way, selling futures contracts acts as a hedge against the effects of rising interest rates. However, a decline in interest rates resulting in an increase in the value of portfolio securities tends to be offset by losses resulting from the Funds' futures strategy. Similarly, when interest rates are expected to decline, futures contracts may be purchased to hedge against anticipated subsequent purchases of portfolio securities at higher prices. By buying futures, the Fund could effectively hedge against an increase in the price of the securities it intends to purchase at a later date in order to permit the purchase to be effected in an orderly manner. At that time, the futures contracts could be liquidated at a profit if rates had in fact declined as expected, and the Fund's cash position could be used to purchase securities. Although most interest rate futures contracts call for making or taking delivery of the underlying securities, these obligations are typically canceled or closed out before the scheduled settlement date. The closing is accomplished by purchasing (or selling) an identical futures contract to offset a short (or long) position. Such an offsetting transaction cancels the contractual obligations established by the original futures transaction. Other financial futures contracts call for cash settlements rather than delivery of securities. If the price of an offsetting futures transaction varies from the price of the original futures transaction, the Fund will realize a gain or loss corresponding to the difference. That gain or loss will tend to offset the unrealized loss or gain on the hedged securities transaction, but may not always or completely do so. The selection of futures and option strategies requires skills different than those needed to select portfolio securities; however, BEA Associates does have experience in the use of futures and options. DIRECT PLACEMENT. As noted under "Investment Restrictions," the Fund may invest up to 10% of its assets in securities that are not readily marketable. The portion of the Fund's portfolio that may be invested in such securities (other than in repurchase agreements) may be purchased in placements from the securities' issuer or in the secondary market for such directly placed securities ("Direct Placement Securities"). The purchase of Direct Placement Securities will depend on the relative attractiveness of those securities as compared to securities which have been publicly offered. Direct Placement Securities have frequently resulted in higher yields and restrictive covenants providing greater protection for the purchaser, such as longer call or refunding protection, than typically would be available with publicly offered securities of the same type. An issuer is often willing to create more attractive features in its securities issued privately, because it has avoided the expense and delay involved in a public offering of its securities. For various reasons, an issuer may prefer or be required as a practical matter to obtain private financing. At certain times adverse conditions in the public securities markets may preclude a public offering of an issuer's securities. On the other hand, Direct Placement Securities are subject to statutory or contractual restrictions and delays on resale. They are, therefore, often referred to as "restricted securities." Restricted securities may generally be resold only in a privately negotiated transaction with a limited number of purchasers or in a public offering registered under the Securities Act of 1933. Such securities are therefore unlike securities which are traded in the open market and which can be expected to be sold immediately if the market is adequate. TEMPORARY INVESTMENTS The Fund may, for temporary defensive purposes, invest its assets in money market instruments and interest rate futures and related options without regard to any percentage limitation on total assets invested or hedged, as the case may be. The Fund may also, for temporary defensive purposes, invest in short-term (less than twelve months to maturity) debt securities rated at least A by Moody's or S&P. Subject to its limitation on investments in money market instruments, the Fund will also invest in short-term debt securities rated at least Baa by Moody's or BBB by S&P to commit overnight cash balances. 5 PORTFOLIO TURNOVER The Fund has no restrictions on portfolio turnover, but it is not the Fund's policy to engage in transactions with the objective of seeking profits from short-term trading. It is anticipated that the Fund's annual portfolio turnover will not exceed 100%. For information regarding the Fund's portfolio turnover rate, see "Financial Highlights" in the Prospectus. This rate is calculated by dividing the lesser of sales or purchases of portfolio securities for any given year by the average monthly value of the Fund's portfolio securities for such year. For purposes of this calculation, portfolio securities exclude purchase and sales of debt securities having a maturity at the date of purchase of one year or less. The rate of portfolio turnover will not be a limiting factor when BEA Associates deems it appropriate to purchase or sell securities for the Fund. Portfolio turnover, however, directly affects the amount of transaction costs that will be borne by the Fund. In addition, the sale of securities held by the Fund for not more than one year will give rise to short-term capital gain or loss for U.S. federal income tax purposes. The U.S. federal income tax requirement that the Fund derive less than 30% of its gross income from the sale or other disposition of stock or securities held less than three months may limit the Fund's ability to dispose of its securities. See "Taxation--United States Federal Income Taxes." INVESTMENT RESTRICTIONS The Fund is subject to the following restrictions which may not be changed without the approval of at least a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. The Fund will not (1) invest more than 5% of the value of its total assets in the securities of any one issuer, excluding obligations of the U.S. Government or any agency or instrumentality thereof and except that up to 25% of the value of its total assets may be invested without regard to this limitation; (2) own more than 10% of the outstanding voting stock or other securities (other than securities of the U.S. Government or any agency or instrumentality thereof), or both, of any one issuer; (3) purchase shares of other investment companies except as part of a plan of reorganization, merger, consolidation or an offer of exchange; (4) borrow money except as a temporary measure for extraordinary or emergency purposes, and in no event in excess of 10% of the lower of the market value or cost of its total assets, except that for the purpose of this restriction, short-term credits necessary for settlement of securities transactions are not considered borrowings (the Fund will not purchase any securities at any time while such borrowings exceed 5% of total assets); (5) purchase securities on margin; (6) sell securities short unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, with payment of any further consideration, for securities of the same issue as, and equal in amount, to the securities sold short, and unless not more than 5% of the Fund's net assets (taken at current value) are held as collateral for such sales at any one time; (7) invest in the aggregate more than 5% of the value of its total assets in securities denominated in a currency other than the United States dollar; (8) invest for the purpose of exercising control over management of any company; (9) make loans, except (i) by purchasing bonds, debentures or similar obligations (including repurchase agreements, subject to the limitation described in (11) below), which are either publicly distributed or customarily purchased by institutional investors, and (ii) by lending its securities to banks, brokers, dealers and other financial institutions so long as such loans are not inconsistent with the 1940 Act or the rules and regulations or interpretations of the Commission thereunder; (10) underwrite the securities of other issuers, except to the extent that in connection with the disposition of portfolio securities the Fund may be deemed to be an underwriter; (11) invest more than 10% of its total assets in securities subject to legal or contractual restrictions on resale or in securities which are not readily marketable, including repurchase agreements having maturities of more than 7 days and Direct Placement Securities (as defined under Investment Objective and Policies--Other Investment Techniques); (12) except as described under "Investment Objective and Policies", purchase real estate, commodities or commodity contracts, although the Fund may purchase or sell securities of companies which deal in real estate or interests therein; (13) except as described under "Investment Objective and Policies", invest in or write put, call, straddle or spread options; (14) invest directly in interests in oil, gas or other mineral exploration development programs; or (15) invest in non-dividend paying equity securities if after such investment, total non- 6 dividend paying equity securities would comprise more than 10% of the Fund's total assets. The deposit of initial and variation margin in connection with interest rate futures contracts and related options shall not be deemed to be in violation of any of the foregoing investment restrictions. If a percentage restriction on investment or use of assets set forth above is adhered to at the time a transaction is effected, later changes in percentages resulting from changing values will not be considered a violation. Under the 1940 Act, the Fund may neither invest more than 5% of its total assets in the securities of any one investment fund, nor acquire more than 3% of the outstanding voting securities of any such fund. In addition, the Fund may not invest more than 10% of its total assets in securities issued by all investment funds. As a shareholder in any investment company, the Fund will bear its ratable share of that investment company's expenses, and would remain subject to payment of the Fund's advisory, sub-advisory and administrative fees with respect to assets so invested. See "Taxation--United States Federal Income Taxes." 7 MANAGEMENT OF THE FUND DIRECTORS AND OFFICERS The names of the directors and principal officers of the Fund are set forth below, together with their positions and their principal occupations during the past five years.
NAME, ADDRESS AND AGE POSITION WITH THE FUND - --------------------------------------- ----------------------------------------------------- Daniel H. Sigg (40) ................... Director, Chairman of the Board and Chief Executive One Citicorp Center Officer 153 East 53rd Street New York, New York 10022 Prof. Enrique R. Arzac (54) ........... Director Columbia University Graduate School of Business New York, New York 10027 Lawrence J. Fox (53) .................. Director 110 PNB Building Broad and Chestnut Streets Philadelphia, Pennsylvania 19107 James S. Pasman, Jr. (65) ............. Director 29 The Trillium Pittsburgh, Pennsylvania 15238 Robert Moore (39) ..................... President and Chief Investment Officer One Citicorp Center 153 East 53rd Street New York, New York 10022 Richard J. Lindquist (35) ............. Vice President One Citicorp Center 153 East 53rd Street New York, New York 10022 Paul P. Stamler (35) .................. Treasurer One Citicorp Center 153 East 53rd Street New York, New York 10022 Michael A. Pignataro (36) ............. Secretary One Citicorp Center 153 East 53rd Street New York, New York 10022
- --------- * Mr. Sigg is an "interested person" of the Fund within the meaning of the 1940 Act by virtue of his position as a director and officer of BEA Associates. Daniel H. Sigg is a member of the Executive Committee, Chief Financial Officer, and an Executive Director of BEA Associates (since May 1995). From February 1992 to April 1995, Mr. Sigg was a member of the Executive Committee and a Managing Director of BEA Associates. He was Vice President of Marketing of BEA Associates from January 1991 to January 1992. Mr. Sigg has been President of Credit Suisse Advisors Corporation since December 1995 and President of Credit Suisse Capital Corporation since December 1994. He was Director and Vice President of Credit Suisse Capital Corporation from December 1990 to November 1994. From 1987 to December 1990, Mr. Sigg was Vice President and Head of International Equity Sales and Trading at Swiss American Securities. Mr. Sigg is also a Director and Senior Vice President of The Brazilian Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund, Inc., The 8 Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc. and is Chairman of the Board, Chief Executive Officer and a Director of BEA Strategic Income Fund, Inc. Prof. Enrique R. Arzac is Professor of Finance and Director of the Financial Management Program at the Graduate School of Business of Columbia University (since 1971). He is also a Director of The Adam Express Company and Petroleum and Resources Corp. Dr. Arzac is also a director of The Brazilian Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund, Inc., The Chile Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc., The Emerging Markets Infrastructure Fund, Inc. and BEA Strategic Income Fund, Inc. Lawrence J. Fox is Managing Partner and Chairman of Professional Responsibility Committee of the law firm of Drinker Biddle & Reath (since January 1992). He has been a partner of Drinker Biddle & Reath since 1976. He is a director of BEA Strategic Income Fund, Inc. James S. Pasman, Jr. was the President and Chief Operating Officer of National InterGroup, Inc. from April 1989 to March 1991. He is a director of BEA Strategic Income Fund, Inc., of ADT, Ltd. and a trustee of BT Insurance Funds Trust. Robert Moore is a member of the Executive Committee, Executive Director and Chief Operating Officer of BEA Associates (since December 1995). From February 1992 to December 1995, Mr. Moore was a Managing Director and Portfolio Manager of BEA Associates, and from December 1990 to January 1992 he was Vice President and Portfolio Manager of BEA Associates. Richard J. Lindquist is a Managing Director of BEA Associates (since April 1995) and a Vice President of BEA Strategic Income Fund, Inc. From March 1993 to March 1995, he was Chief Compliance Officer of CS First Boston Investment Management Corporation ("CSIM"). He was director of CSIM from April 1992 to February 1993 and Vice President of CSIM from July 1989 to March 1992. Paul P. Stamler is a Vice President of BEA Associates (since June 1993) and the Treasurer of BEA Strategic Income Fund, Inc. From April 1992 to May 1993, Mr. Stamler was self-employed as a certified public accountant. From June 1988 to March 1992, Mr. Stamler was Vice President of Bear, Stearns & Co. Inc. Mr. Stamler is also a Senior Vice President of The Brazilian Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc. and Treasurer of BEA Strategic Income Fund, Inc. Michael A. Pignataro has been Vice President of BEA Associates since December 1995. He was Assistant Vice President and Chief Administrative Officer for Investment Companies of BEA Associates from September 1989 to December 1995. Mr. Pignataro is also the Chief Financial Officer and Secretary of The Brazilian Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund, Inc., The Chile Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc. and Chief Financial Officer and Assistant Secretary of The Indonesia Fund, Inc. and Secretary of BEA Strategic Income Fund, Inc. The Fund pays each of its directors who is not a director, officer or employee of BEA Associates or any affiliate thereof an annual fee of $10,000 plus $500 for each Board of Directors meeting attended. In addition, the Fund will reimburse those directors for travel and out-of-pocket expenses incurred in connection with Board of Directors meetings. The aggregate remuneration paid to all such unaffiliated directors by the Fund during the fiscal year ended December 31, 1995 was $39,358. 9 The following table shows certain compensation information for the directors of the Fund for the fiscal year ended December 31, 1995. None of the Fund's executive officers or directors who are also officers or directors of BEA Associates received any compensation from the Fund for such period. The Fund has no bonus, profit sharing, pension or retirement plans.
TOTAL PENSION OR ESTIMATED COMPENSATION AGGREGATE RETIREMENT BENEFITS ANNUAL BENEFITS FROM FUND AND COMPENSATION ACCRUED AS PART OF UPON FUND COMPLEX NAME OF DIRECTOR FROM FUND FUND EXPENSES RETIREMENT PAID TO DIRECTORS - ------------------------------------ ------------- ------------------------- --------------------- ----------------- Enrique R. Arzac *.................. $ 13,000 0 0 $ 26,000 Lawrence J. Fox..................... $ 13,000 0 0 $ 26,000 James S. Pasman, Jr................. $ 13,000 0 0 $ 26,000 TOTAL NUMBER OF BOARDS OF BEA ASSOCIATES ADVISED INVESTMENT COMPANIES NAME OF DIRECTOR SERVED - ------------------------------------ --------------------- Enrique R. Arzac *.................. 10 Lawrence J. Fox..................... 2 James S. Pasman, Jr................. 2
- --------- * On February 13, 1996, Prof. Arzac was elected as a director of eight other BEA Associates-advised investment companies. Because the election took place after the 1995 fiscal year-end, Prof. Arzac did not receive any compensation with respect to these BEA-advised investment companies for the year ended December 31, 1995. The Articles of Incorporation and Bylaws of the Fund provide that the Fund will indemnify directors, officers, of the Fund against liabilities and expenses incurred in connection with litigation in which they may be involved because of their positions with the Fund to the fullest extent permitted by law. In addition, the Fund's Articles of Incorporation provide that the Fund's directors and officers will not be liable to the shareholders for money damages, except in limited instances. However, nothing in the Articles of Incorporation or the Bylaws of the Fund protects or indemnifies a director, officer, employee or agent against any liability to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office. ADVISORY ARRANGEMENTS BEA Associates acts as the Fund's investment adviser pursuant to an Advisory Agreement with the Fund (the "Advisory Agreement") which became effective on June 13, 1995. Prior to this date, CSIM provided investment advisory services to the Fund under substantially the same terms, conditions and fees. The Advisory Agreement provides that BEA Associates shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of BEA Associates in the performance of its duties or from reckless disregard of its obligations and duties under the Advisory Agreement. For the fiscal period from June 13, 1995 (effective date of the Advisory Agreement) through December 31, 1995, BEA Associates was paid $568,039 for advisory services rendered to the Fund. For the fiscal period from January 1, 1995 through June 12, 1995 and the fiscal years ended December 31, 1994 and December 31, 1993, CSIM was paid for advisory services rendered to the Fund $458,394, $1,032,360 and $1,066,979, respectively. ADMINISTRATIVE ARRANGEMENT Chase Global Funds Services Company (the "Administrator") serves as the Fund's administrator pursuant to an agreement with the Fund (the "Administration Agreement"). DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES The Advisory Agreement became effective on June 13, 1995. Unless earlier terminated as described below, the Advisory Agreement remains in effect if approved annually (a) by the Board of Directors of the Fund or by the holders of a majority of the Fund's outstanding voting securities (as defined in the 1940 Act) and (b) by a majority of the directors who are not parties to the Advisory Agreement or "interested persons" 10 (as defined in the 1940 Act) of any such party. The Advisory Agreement terminates on its assignment by any party and may be terminated without penalty on 60 days' written notice at the option of the Board of Directors of the Fund or by the vote of the majority of the holders of the Fund's shares, or upon 90 days' written notice, by BEA Associates. The Administration Agreement is terminable upon 60 days' notice by either party. The services of BEA Associates and the Administrator are not deemed to be exclusive, and nothing in the relevant service agreements will prevent any of them or their affiliates from providing similar services to other investment companies and other clients (whether or not such clients' investment objectives and policies are similar to those of the Fund) or from engaging in other activities. PORTFOLIO TRANSACTIONS Decisions to buy and sell securities for the Fund are made by BEA Associates, subject to the overall review of the Fund's Board of Directors. Portfolio securities transactions for the Fund are placed on behalf of the Fund by persons authorized by BEA Associates. BEA Associates manages other investment companies and accounts (the "BEA Accounts") that invest in fixed-income securities. Although investment decisions for the Fund are made independently from those of the other BEA Accounts, investments of the type the Fund may make may also be made on behalf of the BEA Accounts. When the Fund and one or more of the BEA Accounts is prepared to invest in, or desires to dispose of, the same security, available investments or opportunities for each will be allocated in a manner believed by BEA Associates to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. The Fund may utilize CS First Boston Corporation and other affiliates of Credit Suisse in connection with the purchase or sale of securities in accordance with rules or exemptive orders adopted by the Securities and Exchange Commission when BEA Associates believes that the charge for the transaction does not exceed usual and customary levels. Transactions on U.S. and some foreign stock exchanges involve the payment of negotiated brokerage commissions, which may vary among different brokers. The cost of securities purchased from underwriters includes an underwriter's commission or concession, and the prices at which securities are purchased from and sold to dealers in the over-the-counter markets include a dealer's mark-up or mark-down, which normally is not disclosed. Fixed-income securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security will likely include a profit to the dealer. In selecting brokers or dealers to execute portfolio transactions on behalf of the Fund, BEA Associates will seek the best overall terms available. In addition, unless otherwise directed by the Board of Directors of the Fund, the Advisory Agreement authorizes BEA Associates, in selecting brokers or dealers to execute a particular transaction and in evaluating the best overall terms available, to consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) and cause the Fund to pay a broker-dealer which furnishes such services a higher commission than that which might be charged by another broker-dealer for effecting the same transaction, provided that such commission is deemed reasonable in terms of either that particular transaction or the overall responsibilities of BEA Associates to the Fund. The fees payable under the Advisory Agreement are not reduced as a result of BEA Associates' receiving such brokerage and research services. It is currently the Fund's policy that BEA Associates may at times pay higher commissions than might otherwise be obtainable in recognition of brokerage services felt necessary for the achievement of best available price and most favorable execution of certain securities transactions. BEA Associates will only pay such higher commissions if it believes this to be in the best interest of the Fund. Some brokers or dealers who may receive such higher commissions in recognition of brokerage services related to execution of securities transactions are also providers of research information to BEA Associates and/or the Fund. Subject to the primary objective set forth above, BEA Associates has informed the Fund that it may pay higher commission rates specifically for the purpose of obtaining research services. The Fund will not pay to any affiliates of BEA Associates a higher commission rate specifically for the purpose of obtaining research services. 11 The Fund paid no affiliated brokerage commissions in any of the fiscal years ended December 31, 1995, December 31, 1994 and December 31, 1993. DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have elected, unless The Chase Manhattan Bank ("Chase Manhattan") as the Plan Agent (the "Plan Agent"), is otherwise instructed by the shareholder in writing, to have all distributions, net of any applicable U.S. withholding tax, automatically reinvested in additional shares of the Fund. Shareholders who do not participate in the Plan will receive all dividends and distributions in cash, net of any applicable U.S. withholding tax, paid in dollars by check mailed directly to the shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have dividends and distributions automatically reinvested should notify Chase Manhattan, as the Plan Agent for BEA Income Fund, Inc., Dividend Reinvestment Department - Retail Processing, 770 Broadway, 7th Floor, New York, New York 10003-9598 or by telephone at 1-800-428-8890. Dividends and distributions with respect to shares registered in the name of a broker-dealer or other nominee (i.e., in "street name") will be reinvested under the Plan unless such service is not provided by the broker or nominee or the shareholder elects to receive dividends and distributions in cash. A shareholder whose shares are held by a broker or nominee that does not provide a dividend reinvestment program may be required to have his shares registered in his own name to participate in the Plan. Investors who own shares of the Fund's Common Stock registered in street name should contact the broker or nominee for details concerning participation in the Plan. Certain distributions of cash attributable to (a) some of the dividends and interest amounts paid to the Fund and (b) certain capital gains earned by the Fund that are derived from securities of certain foreign issuers are subject to taxes payable by the Fund at the time amounts are remitted. Such taxes, if any, will be borne by the Fund and allocated to all shareholders in proportion to their interests in the Fund. The Plan Agent serves as agent for the shareholders in administering the Plan. If the Board of Directors of the Fund declares an income dividend or a capital gains distribution payable either in the Fund's common stock or in cash, as shareholders may have elected, nonparticipants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares of the Fund valued at the lower of market price or net asset value as determined at the time of purchase (generally on the payable date of the dividend) as set forth below. Whenever market price is equal to or exceeds net asset value at the time shares are valued for the purpose of determining the number of shares equivalent to the cash dividend or distribution, participants will be issued shares of the Fund at a price equal to net asset value but not less than 95% of the then current market price of the Fund shares. The Fund will not issue shares under the Plan below net asset value. If net asset value determined as at the time of purchase exceeds the market price of Fund shares at such time, or if the Fund should declare a dividend or other distribution payable only in cash (i.e., if the Board of Directors should preclude reinvestment at net asset value), the Agent will, as agent for the participants, endeavor to buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, on behalf of all participants, and will allocate to each shareholder its pro rata portion based on the average price paid (including brokerage commissions) for all shares purchased. Shares acquired on behalf of participants in the open market will be purchased at the prevailing market price. If, before the Agent has completed its purchases, the market price exceeds the net asset value of a Fund share, the average per share purchase price paid by the Agent may exceed the net asset value of the Fund's shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. For all purposes of the Plan, (a) the market price of the Common Stock on a dividend payment date shall be the last sale price on the New York Stock Exchange on that date, or, if there is no such sale, then the mean between the closing bid and asked quotations for such stock, and (b) net asset value per share of the Common Stock on a particular date shall be as determined by or on behalf of the Fund. Participants in the Plan have the option of making additional cash payments to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment in the Fund's Common Stock. Cash contributions are used to purchase shares of Common Stock in the open market regardless of whether such shares are selling above, at or below the net asset value of the Fund. As a result, shareholders may be purchasing shares at a 12 market price that reflects a premium to the Fund's net asset value. Voluntary cash payments received after five business days before the dividend payment date will be invested by the Plan Agent on the next succeeding dividend payment date. Dividend payment dates are expected to be the 15th (or next business day) of each month. A participant may withdraw a voluntary cash payment by written notice, if the notice is received by the Plan Agent not less than 48 hours before the next succeeding dividend payment. A participant's tax basis in his shares acquired through this optional investment right will equal his cash payments to the Plan, including any cash payments used to pay brokerage commissions allocable to his acquired shares. The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in the name of the participant and each shareholder's proxy will include those shares purchased pursuant to the Plan. In the case of a shareholder, such as a bank, broker or nominee, that holds shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholder as representing the total amount registered in the shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There is no charge to participants for reinvesting dividends or capital gains distributions payable in either stock or cash. The Plan Agent's fees for the handling of reinvestment of such dividends and capital gains distributions will be paid by the Fund. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in stock or in cash. However, each participant will be charged by the Plan Agent a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with voluntary cash payments made by the participant or the reinvestment of dividends or capital gains distributions. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions because the Plan Agent will be purchasing stock for all participants in blocks and prorating the lower commission thus obtainable. Brokerage commissions will vary based on, among other things, the broker selected to effect a particular purchase and the number of participants on whose behalf such purchase is being made. The Fund cannot predict, therefore, whether the cost to a participant who makes a voluntary cash payment will be less than if a participant were to make an open market purchase of the Fund's Common Stock on his own behalf. The receipt of dividends and distributions in stock under the Plan will not relieve participants of any income tax (including withholding tax) that may be payable on such dividends or distributions. The Fund reserves the right to terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to notice of the termination sent to the members of the Plan at least 30 days before the record date for such dividend or distributions. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law, rules or policies of a regulatory authority) only by at least 30 days' written notice to members of the Plan. All correspondence concerning the Plan should be directed to The Chase Manhattan Bank, Dividend Reinvestment Department - Retail Processing, 770 Broadway, 7th Floor, New York, New York 10003-9598. TAXATION The following is a summary of the material United States federal income tax considerations, regarding the purchase, ownership and disposition of shares in the Fund. Each prospective shareholder is urged to consult his own tax adviser with respect to the specific federal, state, local and foreign tax consequences of investing in the Fund. The summary is based on the laws in effect on the date of this SAI, which are subject to change. UNITED STATES FEDERAL INCOME TAXES THE FUND AND ITS INVESTMENTS. The Fund has qualified and intends to continue to qualify and elect to be treated as a regulated investment company for each taxable year under the Code. To so qualify, the Fund 13 must, among other things: (a) derive at least 90% of its gross income in each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock or securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) derive less than 30% of its gross income in each taxable year from the sale or other disposition of (i) stock or securities held for less than three months, (ii) options, futures or forward contracts (other than options, futures or forward contracts on foreign currencies) held for less than three months and (iii) foreign currencies (or options, futures or forward contracts on such foreign currencies) held for less than three months but only if such currencies (or options, futures or forward contracts) are not directly related to the Fund's principal business of investing in stock or securities (or options or futures with respect to stock or securities); and (c) diversify its holdings so that, at the end of each quarter of the Fund's taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash, securities of other regulated investment companies, United States government securities and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the Fund's assets and not greater than 10% of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of its assets is invested in the securities (other than United States government securities or securities of other regulated investment companies) of any one issuer or any two or more issuers that the Fund controls and are determined to be engaged in the same or similar trades or businesses or related trades or businesses. The Fund expects that all of its foreign currency gains will be directly related to its principal business of investing in stocks and securities. Although legislation that would repeal the 30% limitation on a regulated investment company's ability to make short-term investments has been proposed in Congress, it is unclear when, if ever, such legislation will be enacted or the form of such legislation if enacted. As a regulated investment company, the Fund will not be subject to United States federal income tax on its net investment income (i.e., income other than its net realized long- and short-term capital gains) and its net realized long- and short-term capital gains, if any, that it distributes to its shareholders, provided that an amount equal to at least 90% of the sum of its investment company taxable income (i.e., 90% of its taxable income minus the excess, if any, of its net realized long-term capital gains over its net realized short-term capital losses (including any capital loss carryovers), plus or minus certain other adjustments as specified in section 852 of the Code) and its net tax-exempt income for the taxable year is distributed, but will be subject to tax at regular corporate rates on any taxable income or gains that it does not distribute. Furthermore, the Fund will be subject to a United States corporate income tax with respect to such distributed amounts in any year that it fails to qualify as a regulated investment company or fails to meet this distribution requirement. Any dividend declared by the Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar year and to have been paid by the Fund not later than such December 31, provided that such dividend is actually paid by the Fund during January of the following calendar year. The Fund pays dividends of net investment income monthly and makes distributions at least annually of any net realized long-term and short-term capital gains in excess of applicable capital losses, including capital loss carryforwards. The Board of Directors of the Fund will determine annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). The Fund currently expects to distribute any excess annually to its shareholders. However, if the Fund retains for investment an amount equal to all or a portion of its net realized long-term capital gains in excess of its net realized short-term capital losses and capital loss carryovers, it will be subject to a corporate tax (currently at a rate of 35%) on the amount retained. In that event, the Fund expects to designate such retained amounts as undistributed capital gains in a notice to its shareholders who (a) will be required to include in income for United States federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund on the undistributed amount against their United States federal income tax 14 liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for United States federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital gains included in the shareholder's income. The Code imposes a 4% nondeductible excise tax on the Fund to the extent the Fund does not distribute by the end of any calendar year at least 98% of its net investment income for that year and 98% of the net amount of its capital gains (both long-and short-term) for the one-year period ending, as a general rule, on October 31 of that year. For this purpose, however, any income or gain retained by the Fund that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. The Fund anticipates that it will pay such dividends and will make such distributions as are necessary in order to avoid the application of this tax. If, in any taxable year, the Fund fails to qualify as a regulated investment company under the Code, the Fund would be taxed in the same manner as an ordinary corporation and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In addition, in the event of a failure to qualify, the Fund's distributions, to the extent derived from the Fund's current or accumulated earnings and profits, would constitute dividends (eligible for the corporate dividends-received deduction) which are taxable to shareholders as ordinary income, even though those distributions might otherwise (at least in part) have been treated in the shareholders' hands as long-term capital gains. If the Fund fails to qualify as a regulated investment company in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a regulated investment company. In addition, if the Fund failed to qualify as a regulated investment company for a period greater than one taxable year, the Fund may be required to recognize any net built-in gains (the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized if it had been liquidated) in order to qualify as a regulated investment company in a subsequent year. The Fund's transactions in options and futures contracts will be subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out) and (b) may cause the Fund to recognize income without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. The Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate entries in its books and records when it acquires any option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund as a regulated investment company. DIVIDENDS AND DISTRIBUTIONS. Dividends of net investment income and distributions of net realized short-term capital gains are taxable to a United States shareholder as ordinary income, whether paid in cash or in shares. Distributions of net long-term capital gains, if any, that the Fund designates as capital gains dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a shareholder has held shares of the Fund. Dividends and distributions paid by the Fund (except for the portion thereof, if any, attributable to dividends on stock of U.S. corporations received by the Fund) will not qualify for the deduction for dividends received by corporations. Distributions in excess of the Fund's current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital, to the extent of a shareholder's basis in his shares of the Fund, and as a capital gain thereafter (if the shareholder holds his shares of the Fund as capital assets). Shareholders receiving dividends or distributions in the form of additional shares pursuant to the Plan should be treated for United States federal income tax purposes as receiving a distribution in the amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive, and should have a cost basis in the shares received equal to such amount. 15 Investors considering buying shares just prior to a dividend or capital gain distribution should be aware that, although the price of shares just purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to them. If the Fund is the holder of record of any stock on the record date for any dividends payable with respect to such stock, such dividends are included in the Fund's gross income not as of the date received but as of the later of (a) the date such stock became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the stock would not be entitled to receive the declared, but unpaid, dividends) or (b) the date the Fund acquired such stock. Accordingly, in order to satisfy its income distribution requirements, the Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be the case. SALES OF SHARES. Upon the sale or exchange of his shares, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and his basis in his shares. Such gain or loss will be treated as capital gain or loss, if the shares are capital assets in the shareholder's hands, and will be long-term capital gain or loss if the shares are held for more than one year and short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and capital gains distributions in the Fund under the Plan, within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of a Fund share held by the shareholder for six months or less will be treated for United States federal income tax purposes as a long- term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. BACKUP WITHHOLDING. The Fund may be required to withhold, for United States federal income tax purposes, 31% of the dividends and distributions payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. Corporate shareholders and certain other shareholders are or may be exempt from backup withholding. Backup withholding is not an additional tax and any amount withheld may be credited against a shareholder's United States federal income tax liabilities. Additional tax withholding requirements which apply with respect to foreign investors are discussed below. FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United States, is a foreign investor (such as a nonresident alien individual, a foreign trust or estate, a foreign corporation or a foreign partnership) depends, in part, on whether the shareholder's income from the Fund is "effectively connected" with a United States trade or business carried on by the shareholder. If the foreign investor is not a resident alien and the income from the Fund is not effectively connected with a United States trade or business carried on by the foreign investor, distributions of net investment income and net realized short-term capital gains will be subject to a 30% (or lower treaty rate) United States withholding tax. Distributions to a non-resident alien of net realized long-term capital gains, amounts retained by the Fund which are designated as undistributed capital gains, and gains realized upon the sale of shares of the Fund generally will not be subject to United States tax unless the foreign investor who is a nonresident alien individual is physically present in the United States for more than 182 days during the taxable year and, in the case of gain realized upon the sale of Fund shares, unless (a) such gain is attributable to an office or fixed place of business in the United States or (b) such nonresident alien individual has a tax home in the United States and such gain is not attributable to an office or fixed place of business located outside the United States. However, a determination by the Fund not to distribute long-term capital gains will cause the Fund to incur a U.S. federal tax liability with respect to retained long-term capital gains, thereby reducing the amount of cash held by the Fund that is available for investment, and the foreign investor may not be able to claim a credit or deduction with respect to such taxes. In general, if a foreign investor is a resident alien or if dividends or distributions from the Fund are effectively connected with a United States trade or business carried on by the foreign investor, then 16 dividends of net investment income, distributions of net short-term and long-term capital gains, amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale of shares of the Fund will be subject to United States income tax at the rates applicable to United States citizens or domestic corporations. If the income from the Fund is effectively connected with a United States trade or business carried on by a foreign investor that is a corporation, then such foreign investor may also be subject to the 30% (or lower treaty rate) branch profits tax. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described in this section. Shareholders may be required to provide appropriate documentation to establish their entitlement to the benefits of such a treaty. Foreign investors are advised to consult their own tax advisers with respect to (a) whether their income from the Fund is or is not effectively connected with a United States trade or business carried on by them, (b) whether they may claim the benefits of an applicable tax treaty, and (c) any other tax consequences to them of an investment in the Fund. NOTICES. Shareholders will be notified annually by the Fund as to the United States federal income tax status of the dividends, distributions and deemed distributions made by the Fund to its shareholders. Furthermore, shareholders will also receive, if appropriate, various written notices after the close of the Fund's taxable year regarding the United States federal income tax status of certain dividends, distributions and deemed distributions that were paid (or that are treated as having been paid) by the Fund to its shareholders during the preceding taxable year. OTHER TAXATION. Distributions also may be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND. NET ASSET VALUE The net asset value per share is determined as of the close of the New York Stock Exchange on the last business day of each week, by dividing the value of the Fund's net assets (the value of its assets less its liabilities, exclusive of capital stock and surplus) by the total number of shares of Common Stock outstanding. Net asset value includes interest on fixed-income securities which is accrued daily. Securities which are traded over-the-counter and on a stock exchange will be valued according to the broadest and most representative market, and it is expected that for bonds and other fixed income securities this ordinarily will be the over-the-counter market. Notwithstanding the above, bonds and other fixed-income securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. The prices provided by a pricing service are determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities and any developments related to specific securities. Securities not priced in this manner are valued at the most recent current quoted bid price, or when stock exchange valuations are used, at the latest quoted sale price on the date of valuation. Short-term debt securities which mature in less than 60 days are valued at amortized cost if their term to maturity from date of purchase by the Fund was less than 60 days, or by amortizing their value on the 61st day if their term to maturity on the date acquired by the Fund was more than 60 days, unless this is determined by the Board of Directors not to represent fair value. The value of other assets and securities for which no current quotations are readily available are determined in good faith at fair value using methods determined by the Directors. COMMON STOCK The authorized capital stock of the Fund is 100,000,000 shares of Common Stock. The Fund has no present intention of offering additional shares other than pursuant to the Offer, except that additional shares may be issued under the Plan. See "Dividend Reinvestment and Cash Purchase Plan." Other offerings of shares, if made, will require approval of the Fund's Board of Directors. Any additional offering will be 17 subject to the requirement of the 1940 Act that shares not be sold at a price below the then current net asset value (exclusive of underwriting discounts and commissions) except in connection with an offering to existing shareholders or with the consent of the holders of a majority of the Fund's outstanding voting securities, as such term is defined under the 1940 Act. BENEFICIAL OWNER There are no persons known to the Fund who may be deemed beneficial owners of 5% or more of the shares of the Fund's Common Stock because they possessed or shared voting or investment power with respect to shares of the Fund's Common Stock. The officers and directors of the Fund, in the aggregate, own less than 1% of the outstanding shares of the Fund's Common Stock. FINANCIAL STATEMENTS The Fund's Annual Report for the fiscal year ended December 31, 1995 and its unaudited Semi-Annual Report for the fiscal period ended June 30, 1996 (the "Reports"), which either accompany this SAI or have previously been provided to the person to whom this Prospectus is being sent, are incorporated herein by reference with respect to all information other than the information set forth in the Letter to Shareholders included therein. The Fund will furnish, without charge, a copy of its Reports upon request to Shareholder Relations at BEA Associates, One Citicorp Center, 153 East 53rd Street, New York, New York 10022, (800) 293-1232. 18 PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (1) Financial Statements (i)* -- Schedule of Investments as of December 31, 1995 (ii)* -- Statement of Assets and Liabilities as of December 31, 1995 (iii)* -- Statement of Operations for the fiscal year ended December 31, 1995 (iv)* -- Statement of Changes in Net Assets for the fiscal year ended December 31, 1995 (v)* -- Selected Per Share Data and Ratios for the fiscal year ended December 31, 1995 (vi)* -- Notes to Financial Statements for the fiscal year ended December 31, 1995 (vii)* -- Report of Independent Accountants (viii)* -- Schedule of Investments as of June 30, 1996 (ix)* -- Statement of Assets and Liabilities as of June 30, 1996 (x)* -- Statement of Operations for the fiscal year ended June 30, 1996 (xi)* -- Statement of Changes in Net Assets for the fiscal year ended June 30, 1996 (xii)* -- Selected Per Share Data and Ratios for the fiscal year ended June 30, 1996 (xiii)* -- Notes to Financial Statements for the fiscal year ended June 30, 1996
- --------- * Incorporated by reference to filing made with the Commission. (2) Exhibits (a)* -- Articles of Incorporation of the Fund (b) -- By-Laws of the Fund (c) -- Not applicable (d)(1) -- Specimen certificate for Common Stock, par value $.001 per share (2) -- Form of Subscription Certificate (3) -- Form of Notice of Guaranteed Delivery (4) -- Form of DTC Participant Over-Subscription Certificate (5) -- Form of Nominee Holder Over-Subscription Certificate (6) -- Form of Beneficial Listing Certification (7) -- Subscription Agent Agreement (e) -- Dividend Reinvestment and Cash Purchase Plan (f) -- Not applicable (g)* -- Investment Advisory Agreement between the Fund and BEA Associates ("BEA") (h)(1) -- Form of Dealer Manager Agreement between the Fund, BEA and Smith Barney Inc. (2) -- Form of Soliciting Dealer Agreement (i) -- Not applicable (j)* -- Mutual Fund Custody Agreement between the Fund and The Chase Manhattan Bank (k)(1) -- Shareholder Transfer Agency Agreement between the Fund and The Chase Manhattan Bank (2) -- Mutual Funds Service Agreement between the Fund and Chase Global Funds Services Company (3) -- Credit Agreement among the Fund, the First National Bank of Boston and certain other funds (l)(1) -- Opinion and consent of Willkie Farr & Gallagher (2) -- Opinion and consent of Venable, Baetjer and Howard, LLP (m) -- Not applicable (n) -- Consent of Price Waterhouse LLP (o) -- Not applicable (p) -- Purchase Agreement between the Fund and CS First Boston
C-1 (q) -- Not applicable (r) -- Financial Data Schedule
- --------- * Previously filed. ITEM 25. MARKETING ARRANGEMENTS Not applicable. ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses to be incurred in connection with the Offer described in this Registration Statement: Registration fees.............................................. $ 29,115.29 New York Stock Exchange listing fee............................ 38,500.00 Printing (other than stock certificates)....................... 100,000.00 Engraving and printing stock certificates...................... 12,000.00 Fees and expenses of qualification under state securities laws (including fees of counsel)................................... 20,000.00 Accounting fees and expenses................................... 15,000.00 Legal fees and expenses........................................ 100,000.00 Dealer Manager's expenses...................................... 100,000.00 Information Agent's fees and expenses.......................... 28,000.00 Subscription Agent's fees and expenses......................... 33,000.00 NASD fees...................................................... 9,000.00 Postage........................................................ 50,000.00 Miscellaneous.................................................. $ 15,384.71 ------------ Total...................................................... $ 550,000.00 ------------ ------------
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. ITEM 28. NUMBER OF HOLDERS OF SECURITIES Common Stock, par value $.001 per share: 4,630 record holders as of August 7, 1996. ITEM 29. INDEMNIFICATION Section 2-418 of the General Corporation Law of the State of Maryland, Article VIII of the Fund's Articles of Incorporation, Article VII of the Fund's Bylaws and the Dealer Manager Agreement to be filed as Exhibit (h)(1) provide for indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Fund, pursuant to the foregoing provisions or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission (the "SEC") such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a director, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER Registrant is fulfilling the requirement of this Item 30 to provide a list of the officers and directors of its investment adviser, together with information as to any other business, profession, vocation or employment C-2 of a substantial nature engaged in by that entity or those of its officers and directors during the past two years, by incorporating by reference the information contained in the Form ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by BEA Associates (SEC File No. 801-37170). ITEM 31. LOCATION OF ACCOUNTS AND RECORDS BEA Income Fund, Inc. c/o BEA Associates One Citicorp Center, 57th Floor 153 East 53rd Street New York, New York 10022 (Registrant's Articles of Incorporation and By-Laws) BEA Associates One Citicorp Center, 57th Floor 153 East 53rd Street New York, New York 10022 (with respect to its services as investment adviser) Chase Global Funds Services Company 73 Tremont Street Boston, Massachusetts 02108 (with respect to its services as Administrator) The Chase Manhattan Bank 770 Broadway 10th Floor New York, New York 10003 (with respect to its services as Custodian for the Fund's assets) The Chase Manhattan Bank 770 Broadway 7th Floor New York, New York 10003 (with respect to its services as dividend-paying agency, transfer agent and registrar) ITEM 32. MANAGEMENT SERVICES Not applicable. ITEM 33. UNDERTAKINGS (a) Registrant undertakes to suspend offering its shares until it amends its prospectus contained herein if (1) subsequent to the effective date of its Registration Statement, the net asset value per share declines more than 10 percent from its net asset value per share as of the effective date of this Registration Statement, or (2) the net asset value per share increases to an amount greater than its net proceeds as stated in the prospectus contained herein. (b) Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; or C-3 (ii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) that, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (c) Registrant hereby undertakes to send by, first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information. C-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 27th day of September, 1996. BEA INCOME FUND, INC. By: /s/ DANIEL H. SIGG ----------------------------------- Daniel H. Sigg CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated. SIGNATURE TITLE DATE - ------------------------------------------------------ --------------------------------- ---------------------- * ------------------------------------------- Chairman of the Board and Chief September 27, 1996 Daniel H. Sigg Executive Officer /s/ PAUL P. STAMLER ------------------------------------------- Treasurer , 1996 Paul P. Stamler * ------------------------------------------- Director , 1996 Enrique R. Arzac * ------------------------------------------- Director , 1996 James S. Pasman, Jr. ------------------------------------------- Director Lawrence J. Fox * /s/ PAUL P. STAMLER ------------------------------------------- Paul P. Stamler as Attorney-In-Fact
EXHIBIT INDEX
PAGE IN SEQUENTIAL NUMBERING SYSTEM --------------- (a)* -- Articles of Incorporation of the Fund...................................................... (b) -- By-Laws of the Fund........................................................................ (d)(1) -- Specimen certificate for Common Stock, par value $.001 per share........................... (2) -- Form of Subscription Certificate........................................................... (3) -- Form of Notice of Guaranteed Delivery...................................................... (4) -- Form of DTC Participant Over-Subscription Certificate...................................... (5) -- Form of Nominee Holder Over-Subscription Certificate....................................... (6) -- Form of Beneficial Listing Certification................................................... (7) -- Subscription Agent Agreement............................................................... (e) -- Dividend Reinvestment and Cash Purchase Plan............................................... (g)* -- Investment Advisory Agreement between the Fund and BEA Associates ("BEA").................. (h)(1) -- Form of Dealer Manager Agreement between the Fund, BEA and Smith Barney Inc.......................................................................... (2) -- Form of Soliciting Dealer Agreement........................................................ (j)* -- Mutual Fund Custody Agreement between the Fund and The Chase Manhattan Bank................ (k)(1) -- Shareholder Transfer Agency Agreement between the Fund and The Chase Manhattan Bank........ (2) -- Mutual Funds Service Agreement between the Fund and Chase Global Funds Services Company.... (3)* -- Credit Agreement among the Fund, the First National Bank of Boston and certain other funds..................................................................................... (l)(1) -- Opinion and consent of Willkie Farr & Gallagher............................................ (2) -- Opinion and consent of Venable, Baetjer and Howard, LLP.................................... (n) -- Consent of Price Waterhouse LLP............................................................ (p) -- Purchase Agreement between the Fund and CS First Boston.................................... (r) -- Financial Data Schedule....................................................................
- --------- * Previously filed. EX-99.B 2 EX-99.B BEA INCOME FUND, INC. A MARYLAND CORPORATION BY-LAWS TABLE OF CONTENTS Page Article I. STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . .1 Section 1. Place of Meeting. . . . . . . . . . . . . . . .1 Section 2. Annual Meetings . . . . . . . . . . . . . . . .1 Section 3. Special or Extraordinary Meetings . . . . . . .1 Section 4. Notice of Meetings of Stockholders. . . . . . .2 Section 5. Record Dates. . . . . . . . . . . . . . . . . .3 Section 6. Quorum, Adjournment of Meetings . . . . . . . .3 Section 7. Voting and Inspectors . . . . . . . . . . . . .4 Section 8. Conduct of Stockholders' Meetings . . . . . . .4 Section 9. Concerning Validity of Proxies, Ballots, etc .5 Section 10. Action without Meeting . . . . . . . . . . . .5 Article II. BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . .5 Section 1. Number and Tenure of Office . . . . . . . . . .5 Section 2. Vacancies . . . . . . . . . . . . . . . . . . .6 Section 3. Increase or Decrease in Number of Directors . .6 Section 4. Place of Meeting. . . . . . . . . . . . . . . .6 Section 5. Regular Meetings. . . . . . . . . . . . . . . .7 Section 6. Special Meetings; Waiver of Notice. . . . . . .7 Section 7. Quorum. . . . . . . . . . . . . . . . . . . . .7 Section 8. Executive Committee . . . . . . . . . . . . . .8 Section 9. Other Committees. . . . . . . . . . . . . . . .8 Section 10. Telephone Meetings . . . . . . . . . . . . . .9 Section 11. Action Without a Meeting . . . . . . . . . . .9 Section 12. Compensation of Directors. . . . . . . . . . .9 Article III. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1. Executive Officers. . . . . . . . . . . . . . 10 Section 2. Term of Office. . . . . . . . . . . . . . . . 10 Section 3. Powers and Duties . . . . . . . . . . . . . . 11 Section 4. Surety Bonds. . . . . . . . . . . . . . . . . 11 Article IV. CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 12 Section 1. Certificates for Shares . . . . . . . . . . . 12 Section 2. Transfer of Shares. . . . . . . . . . . . . . 12 Section 3. Stock Ledgers . . . . . . . . . . . . . . . . 12 Section 4. Transfer Agents and Registrars. . . . . . . . 12 Section 5. Lost, Stolen or Destroyed Certificates. . . . 13 Section 6. Discount from Net Asset Value . . . . . . . . 13 Article V. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . 14 Article VI. FISCAL YEAR AND ACCOUNTANT. . . . . . . . . . . . . . . . . 14 Section 1. Fiscal Year . . . . . . . . . . . . . . . . . 14 Section 2. Accountant. . . . . . . . . . . . . . . . . . 14 Article VII. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 14 Article VIII. CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 1. Designation of Custodian, Subcustodians . . . 15 Section 2. Termination of Custodian. . . . . . . . . . . 15 Article IX. AMENDMENT OF BY-LAWS. . . . . . . . . . . . . . . . . . . . 16 (ii) BEA INCOME FUND, INC. AMENDED AND RESTATED BY-LAWS ARTICLE I. STOCKHOLDERS Section 1. PLACE OF MEETING. All meetings of the stockholders shall be held at the principal office of the Corporation in the State of Maryland or at such other place within the United States as may from time to time be designated by the Board of Directors and stated in the notice of such meeting. Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of the Corporation shall be held during the month of May of each year on such date and at such hour as may from time to time be designated by the Board of Directors and stated in the notice of such meeting, for the purpose of electing directors for the ensuing year and for the transaction of such other business as may properly be brought before the meeting. Section 3. SPECIAL OR EXTRAORDINARY MEETINGS. Special or extraordinary meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board, the President or a majority of the Board of Directors, and shall be called by the Secretary upon receipt of the request in writing signed by stockholders holding not less than 25% of the common stock issued and outstanding and entitled to vote thereat. Such request shall state the purpose or purposes of the proposed meeting. The Secretary shall inform such stockholders of the reasonably estimated costs of preparing and mailing such notice of meeting and upon payment to the Corporation of such costs, the Secretary shall give notice stating the purpose or purposes of the meeting as required in this Article and by-law to all stockholders entitled to notice of such meeting. No special meeting need be called upon the request of the holders of shares entitled to cast less than a majority of all votes entitled to be cast at such meeting to consider any matter which is substantially the same as a matter voted upon at any special meeting of stockholders held during the preceding twelve months. Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten days' and not more than ninety days' written or printed notice of every meeting of stockholders, stating the time and place thereof (and the general nature of the business proposed to be transacted at any special or extraordinary meeting), shall be given to each stockholder entitled to vote thereat by leaving the same with such stockholder or at such stockholder's residence or usual place of business or by mailing it, postage prepaid, and addressed to such stockholder at such stockholders' address as it appears upon the books of the Corporation. If mailed, notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder as aforesaid. No notice of the time, place or purpose of any meeting of stockholders need be given to any stockholder who attends in person or by proxy or to any stockholder who, in writing executed and filed with the records of the meeting, either before or after the holding thereof, waives such notice. -2- Section 5. RECORD DATES. The Board of Directors may fix, in advance, a date not exceeding ninety days preceding the date of any meeting of stockholders, any dividend payment date or any date for the allotment of rights, as a record date for the determination of the stockholders entitled to notice of and to vote at such meeting or entitled to receive such dividends or rights, as the case may be; and only stockholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. In the case of a meeting of stockholders, such date shall not be less than ten days prior to the date fixed for such meeting. Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or by proxy of the holders of record of one-third of the shares of the common stock of the Corporation issued and outstanding and entitled to vote thereat shall constitute a quorum at all meetings of the stockholders except as otherwise provided in the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the holders of a majority of the stock present in person or by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote at such meeting shall be present. At such adjourned meeting at which the requisite amount of stock entitled to vote thereat shall be represented any business may be transacted which might have been transacted at the meeting as originally notified. -3- Section 7. VOTING AND INSPECTORS. At all meetings, stockholders of record entitled to vote thereat shall have one vote for each share of common stock standing in his name on the books of the Corporation (and such stockholders of record holding fractional shares, if any, shall have proportionate voting rights) on the date for the determination of stockholders entitled to vote at such meeting, either in person or by proxy appointed by instrument in writing subscribed by such stockholder or his duly authorized attorney. All elections shall be had and all questions decided by a majority of the votes cast at a duly constituted meetings, except for the election of the directors which shall be by a plurality of votes cast except as otherwise provided by statute or by the Articles of Incorporation or by these By-Laws. At any election of Directors, the Chairman of the meeting may, and upon the request of the holders of ten percent (10%) of the stock entitled to vote at such election shall, appoint two inspectors of election who shall first subscribe an oath or affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability, and shall after the election make a certificate of the result of the vote taken. No candidate for the office of Director shall be appointed such Inspector. Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the stockholders shall be presided over by the Chairman of the Board, or if he is not present, by the President, or if he is not present, by a Vice-President, or if none of them -4- is present, by a Chairman to be elected at the meeting. The Secretary of the Corporation, if present, shall act as a Secretary of such meetings, or if he is not present, an Assistant Secretary shall so act; if neither the Secretary nor the Assistant Secretary is present, then the meeting shall elect its Secretary. Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every meeting of the stockholders, all proxies shall be received and taken in charge of and all ballots shall be received and canvassed by the Secretary of the meeting, who shall decide all questions touching the qualification of voters, the validity of the proxies and the acceptance or rejection of votes, unless inspectors of election shall have been appointed by the Chairman of the meeting, in which event such inspectors of election shall decide all such questions. Section 10. ACTION WITHOUT MEETING. Any action to be taken by stockholders may be taken without a meeting if (1) all stockholders entitled to vote on the matter consent to the action in writing, (2) all stockholders entitled to notice of the meeting but not entitled to vote at it sign a written waiver of any right to dissent and (3) said consents and waivers are filed with the records of the meetings of stockholders. Such consent shall be treated for all purposes as a vote at the meeting. ARTICLE II. BOARD OF DIRECTORS Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of the Corporation shall be conducted and managed by -5- a Board of Directors of not less than three nor more than fourteen Directors, as may be determined from time to time by vote of a majority of the Directors then in office. Directors need not be stockholders. Section 2. VACANCIES. In case of any vacancy in the Board of Directors through death, resignation or other cause, other than an increase in the number of Directors, a majority of the remaining Directors, although a majority is less than a quorum, by an affirmative vote, may elect a successor to hold office until the next annual meeting of stockholders or until his successor is chosen and qualifies. Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of Directors, by the vote of a majority of the entire Board, may increase the number of Directors and may elect Directors to fill the vacancies created by any such increase in the number of Directors until the next annual meeting or until their successors are duly chosen and qualified. The Board of Directors, by the vote of a majority of the entire Board, may likewise decrease the number of Directors to a number not less than three. Section 4. PLACE OF MEETING. The Directors may hold their meetings, have one or more offices, and keep the books of the Corporation, outside the State of Maryland, at any office or offices of the Corporation or at any other place as they may from time to time by resolution determine, or in the case of meetings, as they may from time to time by resolution determine or as shall -6- be specified or fixed in the respective notices or waivers of notice thereof. Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such time and on such notice as the Directors may from time to time determine. The annual meeting of the Board of Directors shall be held as soon as practicable after the annual meeting of the stockholders for the election of Directors. Section 6. SPECIAL MEETINGS; WAIVER OF NOTICE. Special meetings of the Board of Directors may be held from time to time upon call of the Chairman of the Board, the President, the Secretary or two or more of the Directors, by oral or telegraphic or written notice duly served on or sent or mailed to each Director not less than one day before such meeting. No notice need be given to any Director who attends in person or to any Director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Such notice or waiver of notice need not state the purpose or purposes of such meeting. Section 7. QUORUM. One-third of the Directors then in office shall constitute a quorum for the transaction of business, provided that a quorum shall in no case be less than two Directors. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. The act of the majority of the Directors present at any meeting at which there is a quorum shall be the act of the -7- Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these By-Laws. Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the affirmative vote of a majority of the whole Board, appoint from the Directors an Executive Committee to consist of such number of Directors (not less than three) as the Board may from time to time determine. The Chairman of the Committee shall be elected by the Board of Directors. The Board of Directors by such affirmative vote shall have power at any time to change the members of such Committee and may fill vacancies in the Committee by election from the Directors. When the Board of Directors is not in session, to the extent permitted by law the Executive Committee shall have and may exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation. The Executive Committee may fix its own rules of procedure, and may meet when and as provided by such rules or by resolution of the Board of Directors, but in every case the presence of a majority shall be necessary to constitute a quorum. During the absence of a member of the Executive Committee, the remaining members may appoint a member of the Board of Directors to act in his place. Section 9. OTHER COMMITTEES. The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint from the Directors other committees which shall in each case consist of such number of Directors (not less than two) and shall have and may exercise such powers as the Board may determine in the resolution appointing them. A majority of all -8- the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the members and powers of any such committee, to fill vacancies and to discharge any such committee. Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a committee of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means constitutes presence in person at the meeting. Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board or such committee. Section 12. COMPENSATION OF DIRECTORS. No Director shall receive any stated salary or fees from the Corporation for his services as if such Director is, otherwise than by reason of being such Director, an interested person (as such term is defined by the Investment Company Act of 1940, as amended) of the Corporation or of its investment manager or principal underwriter. Except as provided in the preceding sentence, -9- Directors shall be entitled to receive such compensation from the Corporation for their services as may from time to time be voted by the Board of Directors. ARTICLE III. OFFICERS Section 1. EXECUTIVE OFFICERS. The executive officers of the Corporation shall be chosen by the Board of Directors as soon as may be practicable after the annual meeting of the stockholders. These may include a Chairman of the Board of Directors (who shall be a Director) and shall include a President (who shall be a Director), one or more Vice-Presidents (the number thereof to be determined by the Board of Directors), a Secretary and a Treasurer. The Board of Directors or the Executive Committee may also in its discretion appoint Assistant Secretaries, Assistant Treasurers and other officers, agents and employees, who shall have such authority and perform such duties as the Board or the Executive Committee may determine. The Board of Directors may fill any vacancy which may occur in any office. Any two offices, except those of President and Vice-President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law or these By-Laws to be executed, acknowledged or verified by two or more officers. Section 2. TERM OF OFFICE. The term of office of all officers shall be one year and until their respective successors are chosen and qualified. Any officer may be removed from office at any time with or without cause by the vote of a majority of -10- the whole Board of Directors. Any officer may resign his office at any time by delivering a written resignation to the Board of Directors, the President, the Secretary, or any Assistant Secretary, unless otherwise specified therein, such resignation shall take effect upon delivery. Section 3. POWERS AND DUTIES. The officers of the Corporation shall have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as may from time to time be conferred by the Board of Directors or the Executive Committee. Section 4. SURETY BONDS. The Board of Directors may require any officer or agent of the Corporation to execute a bond (including, without limitation, any bond required by the Investment Company Act of 1940, as amended, and the rules and regulations of the Securities and Exchange Commission) to the Corporation in such sum and with such surety or sureties as the Board of Directors may determine, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting of any of the Corporation's property, fund or securities that may come into his hands. -11- ARTICLE IV. CAPITAL STOCK Section 1. CERTIFICATES FOR SHARES. Each stockholder of the Corporation shall be entitled to a certificate or certificates for the full shares of stock of the Corporation owned by him in such form as the Board may from time to time prescribe. Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by his duly authorized attorney or legal representative, upon surrender and cancellation of certificates, if any, for the same number of shares, duly endorsed or accompanied by proper instruments of assignment and transfer, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require; in the case of shares not represented by certificates, the same or similar requirements may be imposed by the Board of Directors. Section 3. STOCK LEDGERS. The stock ledgers of the Corporation, containing the names and addresses of the stockholders and the number of shares held by them respectively, shall be kept at the principal offices of the Corporation or, if the Corporation employs a Transfer Agent, at the offices of the Transfer Agent of the Corporation. Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may from time to time appoint or remove transfer agents and/or registrars of transfers of shares of stock of the Corporation, and it may appoint the same person as both transfer -12- agent and registrar. Upon any such appointment being made all certificates representing shares of capital stock thereafter issued shall be countersigned by one of such transfer agents or by one of such registrars of transfers or by both and shall not be valid unless so countersigned. If the same person shall be both transfer agent and registrar, only on countersignature by such person shall be required. Section 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors or the Executive Committee may determine the conditions upon which a new certificate of stock of the Corporation or any class may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in its discretion, require the owner of such certificate or such owner's legal representative to give bond, with sufficient surety, to the Corporation and each Transfer Agent, if any, to indemnify it and each such Transfer Agent against any and all loss or claims which may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed. Section 6. DISCOUNT FROM NET ASSET VALUE. If, for a fiscal quarter during or after the fifth year following the first effective date of the Company's Registration Statement on Form N-2, the average discount from net asset value at which shares of the Company's Common Stock have traded is in the determination of the Board of Directors, substantial, the Board of Directors of the Company will consider, at its next regularly scheduled quarterly meeting, taking actions designed to eliminate the discount, including periodic repurchases of shares or amendments -13- to the Company's Articles of Incorporation to convert the Company to an open-end investment company. ARTICLE V. CORPORATE SEAL The Board of Directors may provide for a suitable corporate seal, in such form and bearing such inscriptions as it may determine. ARTICLE VI. FISCAL YEAR AND ACCOUNTANT Section 1. FISCAL YEAR. The fiscal year of the Corporation, unless otherwise ordered by the Board of Directors, shall begin on the first day of January and shall end on the last day of December in each year. Section 2. ACCOUNTANT. The Corporation shall employ an independent public accountant or a firm of independent public accountants as its Accountants to examine the accounts of the Corporation and to sign and certify financial statements filed by the Corporation. The employment of the Accountant shall be conditioned upon the right of the Corporation to terminate the employment forthwith without any penalty by vote of a majority of the outstanding voting securities at any stockholders' meeting called for that purpose. ARTICLE VII. INDEMNIFICATION The Corporation shall indemnify its directors and officers against judgments, fines, -14- settlements and expenses to the fullest extent authorized and in the manner permitted, by applicable federal and state law and the Articles of Incorporation of the Corporation. ARTICLE VIII. CUSTODIAN Section 1. DESIGNATION OF CUSTODIAN, SUBCUSTODIANS. The Corporation shall have as custodian or custodians one or more trust companies or banks of good standing, each having a capital, surplus and undivided profits aggregating not less than fifty million dollars ($50,000,000), and, to the extent required by the Investment Company Act of 1940, as amended, the funds and securities held by the Corporation shall be kept in the custody of one or more such custodians, provided such custodian or custodians can be found ready and willing to act, and further provided that the Corporation may use as subcustodians, for the purpose of holding any foreign securities and related funds of the Corporation, such foreign banks as the Board of Directors may approve and as shall be permitted by law. Section 2. TERMINATION OF CUSTODIAN. The Corporation shall upon the resignation or inability to serve of its custodian or upon change of the custodian: (i) in case of such resignation or inability to serve, use its best efforts to obtain a successor custodian; (ii) require that the cash and securities owned by the Corporation be delivered directly to the successor custodian; and (iii) in the event that no successor custodian can be found, submit to the stockholders before permitting delivery -15- of the cash and securities owned by the Corporation otherwise than to a successor custodian, the question whether or not this Corporation shall be liquidated or shall function without a custodian. ARTICLE IX. AMENDMENT OF BY-LAWS The By-Laws of the Corporation may be altered, amended, added to or repealed by the stockholders or by majority vote of the entire Board of Directors; but any such alteration, amendment, addition or repeal of the By-Laws by action of the Board of Directors may be altered or repealed by stockholders. September 24, 1996 -16- EX-99.D(1) 3 EX-99.D(1) [NUMBER ] [FB 0705] COMMON STOCK COMMON STOCK [LOGO] SHARES INCORPORATED UNDER THE LAWS [SEE REVERSE SIDE OF THE STATE OF MARYLAND FOR CERTAIN DEFINITIONS] [CUSIP 054916 10 1] BEA INCOME FUND, INC. THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 PER SHARE OF THE COMMON STOCK OF BEA INCOME FUND, INC., TRANSFERABLE ON THE BOOKS OF SAID CORPORATION IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR. IN WITNESS WHEREOF, BEA INCOME FUND, INC. HAS CAUSED ITS CORPORATE SEAL TO BE HERETO AFFIXED AND THIS CERTIFICATE TO BE EXECUTED IN ITS NAME AND BEHALF BY ITS DULY AUTHORIZED OFFICERS. DATED: COUNTERSIGNED AND REGISTERED: THE CHASE MANHATTAN BANK, N.A. TRANSFER AGENT AND REGISTRAR [BY] AUTHORIZED OFFICER SECRETARY CHAIRMAN [ CORPORATE ] [ SEAL ] [CERTIFICATE OF STOCK] BEA INCOME FUND, INC. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. _______________ The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT -- __________ Custodian ____________ TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of (Cust) (Minor) survivorship and not as tenants in common Under Uniform Gifts to Minors Act ________________________________ (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, __________________________, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE / / - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- _________________________________________________________________________ shares OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT _______________________________________________________________________ Attorney TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED ____________________________ - --------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OF ENLARGEMENT OR ANY CHANGE WHATEVER. OR SIGNATURE(S) GUARANTEED BY _____________________________________________________________________ THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-99.D(2) 4 EX-99.D(2) EXHIBIT 99.d(2) FORM OF SUBSCRIPTION CERTIFICATE THIS OFFER EXPIRES AT 5:00 P.M. NEW YORK CITY TIME ON OCTOBER 22, 1996* BEA INCOME FUND, INC. SUBSCRIPTION RIGHTS FOR COMMON STOCK SUBSCRIPTION CERTIFICATE Dear Shareholder: As the registered owner of this Subscription Certificate, you are entitled to exercise the Rights issued to you as of September 27, 1996, the Record Date for the Fund's rights offering, to subscribe for the number of shares of Common Stock of BEA Income Fund, Inc. shown on this Certificate pursuant to the Primary Subscription upon the terms and conditions and at the Subscription Price for each share of Common Stock as specified in the Fund's Prospectus dated September 27, 1996 (the "Prospectus"). The terms and conditions of the rights offering (the "Offer") set forth in the Prospectus are incorporated herein by reference. In accordance with the Over-Subscription Privilege described in the Prospectus, Record Date shareholders are entitled to subscribe for additional shares if shares remaining after exercise of Rights pursuant to Primary Subscription are available and such holder's Primary Subscription Rights have been fully exercised. If there are not sufficient shares remaining to satisfy all over- subscriptions, the available shares will be allocated among Record Date shareholders who oversubscribe generally in proportion to the number of shares you own on the Record Date. As described in the Prospectus, the Fund may in its discretion issue up to an additional 25% of the shares available pursuant to the Offer subject to the Offer to satisfy over-subscriptions. SAMPLE CALCULATION - -------------------------------------------------------------------------------- FULL PRIMARY SUBSCRIPTION ENTITLEMENT (one share for every three Rights) No. of whole shares 100 DIVIDED BY 3 = 33 new shares owned on the Record ------------------------- --------------- Date (equals no. of Rights (ignore issued) fractions)
- -------------------------------------------------------------------------------- METHOD OF EXERCISE OF RIGHTS IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST EITHER (i) COMPLETE THE SECTIONS ON THE BACK OF THIS SUBSCRIPTION CERTIFICATE AND RETURN IT TOGETHER WITH PAYMENT, OR (ii) PRESENT A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY TO THE SUBSCRIPTION AGENT, THE CHASE MANHATTAN BANK, BEFORE 5:00 P.M. ON THE EXPIRATION DATE.* BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER: The Chase Manhattan Bank Retail Processing 770 Broadway 7th Floor New York, New York 10003 Full payment of the Estimated Subscription Price of $7.96 per share for all shares subscribed for pursuant to both the Primary Subscription and Over-Subscription Privilege must accompany this Subscription Certificate and must be made payable in United States dollars by money order or check drawn on a bank located in the United States payable to BEA INCOME FUND, INC. Alternatively, if a Notice of Guaranteed Delivery is used, a properly completed Subscription Certificate, together with payment in full, as described above, must be received by the Subscription Agent by no later than the close of business on the third business day after the Expiration Date. See pages 13 and 14 of the Prospectus. Within ten business days following the Pricing Date (the "Confirmation Date"), a confirmation will be sent by the Subscription Agent to each Record Date Shareholder (or, if the shareholder's shares are held by Cede or any other depository or nominee, to Cede or such depository or nominee), showing (i) the number of Shares acquired pursuant to the Primary Subscription, (ii) the number of Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per Share and total purchase price for the Shares, and (iv) any additional amount payable by such shareholder to the Fund or any excess to be refunded by the Fund to such shareholder. No other evidence of title will be sent to shareholders unless delivery of a stock certificate is requested pursuant to this certificate. (See Item D on reverse) Shares subscribed for pursuant to the Primary Subscription and Over-Subscription Privilege will be evidenced by book-entry registration only. Any refund in connection with your subscription will be delivered as soon as practicable after the Expiration Date. THIS SUBSCRIPTION RIGHT IS NON-TRANSFERABLE BEA INCOME FUND, INC. [SIG] By: ------------------------------------------- Daniel H. Sigg CHAIRMAN AND CHIEF EXECUTIVE OFFICER - ---------------------------------------- * Unless the Offer is extended. Subscription Certificate #: -------------------------------- Number of Primary Subscription Rights: -------------------------------- Number of Shares Available for Primary Subscription: -------------------------------- PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY SECTION 1: DETAILS OF SUBSCRIPTION: IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT: A: I apply for ALL of my entitlement of new shares pursuant to the Primary Subscription X $7.96 * = $ (no. of new shares) (Estimated (amount required Subscription to be paid) Price) B: I apply for new shares pursuant to the Over-Subscription Privilege+ X $7.96 * = $ (no. of additional shares) (Estimated (amount required Subscription to be paid) Price) AMOUNT ENCLOSED $ (make check payable to BEA Income Fund, Inc.)
+ YOU CAN ONLY OVER-SUBSCRIBE IF YOU HAVE FULLY EXERCISED YOUR PRIMARY SUBSCRIPTION RIGHTS. IF YOU DO NOT WISH TO APPLY FOR YOUR FULL ENTITLEMENT: C: I apply for - -------------------------------- X $7.96* = $___________________________________ (no. of new shares) (AMOUNT ENCLOSED) D: I wish to receive stock certificates for the shares I have applied for. / / (Please check) SECTION 2: TO SUBSCRIBE: I acknowledge that I have received the Prospectus for the Offer, and I hereby irrevocably subscribe for the number of new shares indicated above on the terms and conditions set forth in the Prospectus. I UNDERSTAND AND AGREE THAT I WILL BE OBLIGATED TO PAY ANY ADDITIONAL AMOUNT TO THE FUND IF THE SUBSCRIPTION PRICE AS DETERMINED ON THE PRICING DATE IS IN EXCESS OF 95% THE $7.96 ESTIMATED SUBSCRIPTION PRICE PER SHARE. I hereby agree that if I fail to pay in full for the shares for which I have subscribed, the Fund may exercise any of the remedies provided for in the Prospectus. Signature of Subscriber(s)______________________________________________________ ____________________________________________________________ Please give your telephone # ( ) _____________________________________________ If you wish to have your confirmation and refund check (if any) delivered to an address other than that listed on this Certificate you must have your signature guaranteed by a member of the New York Stock Exchange or a bank or trust company. Please provide the delivery address below and note if it is a permanent change. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTION 3: DESIGNATION OF BROKER-DEALER: The following broker-dealer is hereby designated as having been instrumental in the exercise of the Subscription Rights: FIRM: __________________________________________________________________________ REPRESENTATIVE NAME: ___________________________________________________________ REPRESENTATIVE NUMBER: _________________________________________________________ * NOTE: $7.96 per share is an estimated price only. The final Subscription Price will be determined on October 22, 1996, the Pricing Date, (which is also the Expiration Date), and could be higher or lower depending on changes in the net asset value and share price of the Common Stock. 2 EX-99.D(3) 5 EX-99.D(3) EXHIBIT 99.d (3) NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON STOCK OF THE BEA INCOME FUND, INC. SUBSCRIBED FOR PURSUANT TO THE PRIMARY SUBSCRIPTION AND THE OVER-SUBSCRIPTION PRIVILEGE BEA INCOME FUND, INC. RIGHTS OFFERING As set forth in the Fund's Prospectus dated September 27, 1996 (the "Prospectus") under "The Offer-Payment for Shares," this form or one substantially equivalent hereto may be used as a means of effecting subscription and payment for all shares of BEA Income Fund, Inc. Common Stock subscribed for by exercise of Rights pursuant to the Primary Subscription and the Over-Subscription Privilege. Such form may be delivered by hand or sent by facsimile transmission, overnight courier or mail to the Subscription Agent and must be received prior to 5:00 p.m. New York City time on October 22, 1996 (the "Expiration Date")*. The terms and conditions of the Offer set forth in the Prospectus are incorporated by reference herein. Capitalized terms not defined here have the meanings attributed to them in the Prospectus. THE SUBSCRIPTION AGENT IS: THE CHASE MANHATTAN BANK BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER: The Chase Manhattan Bank Retail Processing 770 Broadway 7th Floor New York, New York 10003 BY FACSIMILE (TELECOPY): 1-212-979-0658, with the original Subscription Certificate to be sent by one of the three methods above. Confirm facsimile by telephone at 1-212-388-5764. DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. The New York Stock Exchange member firm or bank or trust company which completes this form must communicate the guarantee and the number of shares subscribed for under both the Primary Subscription and the Over-Subscription Privilege to the Subscription Agent and must deliver this Notice of Guaranteed Delivery guaranteeing delivery of (i) payment in full for all subscribed shares and (ii) a properly completed and executed Subscription Certificate to the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date.* The Subscription Certificate and full payment must then be delivered by the close of business on the third business day after the Expiration Date* to the Subscription Agent. Failure to do so will result in a forfeiture of the Rights. (CONTINUED ON OTHER SIDE) - ----------------------------- * Unless extended by the Fund. GUARANTEE The undersigned, a member firm of the New York Stock Exchange or a bank or trust company guarantees delivery of payment to the Subscription Agent by the close of business (5:00 p.m., New York City time) on the third business day after the Expiration Date (October 25, 1996, unless extended) of (i) a properly completed and executed Subscription Certificate and (ii) payment of the full Subscription Price for shares subscribed for on Primary Subscription and pursuant to the Over-Subscription Privilege, if applicable, as subscription for such shares is indicated herein or in the Subscription Certificate. Number of Primary Subscription Shares for Which You are Guaranteeing Delivery of Rights and Payment: - --------------------------------------------------- Number of Over-Subscription Shares for Which You are Guaranteeing Delivery of Payment: - --------------------------------------------------- Number of Rights to be Delivered: - --------------------------------------------------- Total Subscription Price Payment to be delivered: - --------------------------------------------------- Method of Delivery of Rights (circle one) A. Through The Depository Trust Company ("DTC")* B. Direct to the Subscription Agent Please note that if you are guaranteeing for Over-Subscription shares, and are a DTC participant, you must also execute and forward to The Chase Manhattan Bank a Nominee Holder Over-Subscription Certification. - --------------------------------------------- --------------------------------------------- Name of Firm Authorized Signature - --------------------------------------------- --------------------------------------------- Address Title - --------------------------------------------- --------------------------------------------- Zip Code Name (Please Type or Print) - --------------------------------------------- Name of Registered Holder (If Applicable) - --------------------------------------------- --------------------------------------------- Telephone Number Date
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE SUBSCRIPTION AGENT WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE COMMUNICATED BY YOU TO DTC. 2 EX-99.D(4) 6 EX-99.D(4) EXHIBIT 99.d (4) BEA INCOME FUND, INC. RIGHTS OFFERING DTC PARTICIPANT OVER-SUBSCRIPTION CERTIFICATE THIS FORM IS TO BE USED ONLY BY THE DEPOSITORY TRUST COMPANY PARTICIPANTS TO EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE PRIMARY SUBSCRIPTION WAS EXERCISED AND DELIVERED THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATE. ------------------------ THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S PROSPECTUS DATED SEPTEMBER 27, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE INFORMATION AGENT AND THE SUBSCRIPTION AGENT. ------------------------ VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BY 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 22, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED. ------------------------ 1. The undersigned hereby certifies to the Fund and the Subscription Agent that it is a participant in The Depository Trust Company ("DTC") and that it has either (i) exercised the Primary Subscription in respect of Rights and delivered such exercised Rights to the Subscription Agent by means of transfer to the DTC account of the Subscription Agent or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of Rights pursuant to the Primary Subscription (the "Primary Subscription Rights") and will deliver the Rights called for in such Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to such DTC account of the Subscription Agent. The undersigned hereby certifies to the Fund and the Subscription Agent that it owned shares of Common Stock on the Record Date. 2. The undersigned hereby exercises the Over-Subscription Privilege to purchase, to the extent available, shares of Common Stock and certifies to the Fund and the Subscription Agent that such Over-Subscription Privilege is being exercised for the account or accounts of persons (which may include the undersigned) on whose behalf all Primary Subscription Rights have been exercised. 3. The undersigned understands that (i) payment of the Estimated Subscription Price of $7.96 per share for each share of Common Stock subscribed for pursuant to the Over-Subscription Privilege must be received by the Subscription Agent before 5:00 p.m., New York City time, on the Expiration Date (unless extended) or (ii) if a Notice of Guaranteed Delivery is used as referred to above, payment in full must be made by the close of business on the third business day after the Expiration Date. $7.96 is an estimated price only. The Subscription Price to be determined on October 22, 1996, the Pricing Date (unless extended), could be higher or lower depending on the movement in net asset value and share price of the Fund's Common Stock. Payment of any additional amounts must be made by November 15, 1996 (unless the Offer is extended). The undersigned represents that such payment, in the aggregate amount of $ either (check appropriate box): / / has been or is being delivered to the Subscription Agent pursuant to the Notice of Guaranteed Delivery referred to above or / / is being delivered to the Subscription Agent herewith or / / has been delivered separately to the Subscription Agent; (CONTINUED ON OTHER SIDE) and, in the case of funds not delivered pursuant to a Notice of Guaranteed Delivery, is or was delivered in the manner set forth below (check appropriate box and complete the following information): / / uncertified check / / certified check / / bank draft ............................................................................... Primary Subscription Confirmation Number ............................................................................... DTC Participant Number ............................................................................... Name of DTC Participant Registration into which shares of Common Stock, interest and/or refund checks should be issued: Name: ................................................................. ................................................................. Address: ....................................................................... ................................................................. ................................................................. Certified TIN: ................................................................. By:............................................................................. Name: Title: Contact Name: .................................................................. Phone Number: .................................................................. Date: ...................................................................., 1996 PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION OF RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF OVER- SUBSCRIPTION SHARES REQUESTED BY EACH OWNER. 2 EX-99.D(5) 7 EX-99.D(5) EXHIBIT 99.d(5) BEA INCOME FUND, INC. RIGHTS OFFERING NOMINEE HOLDER OVER-SUBSCRIPTION CERTIFICATION PLEASE COMPLETE ALL APPLICABLE INFORMATION BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER To: The Chase Manhattan Bank Retail Processing 770 Broadway 7th Floor New York, New York 10003 THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE PRIMARY SUBSCRIPTION WAS EXERCISED IN FULL AND DELIVERED THROUGH THE FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES. THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S PROSPECTUS DATED SEPTEMBER 27, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE INFORMATION AGENT AND THE SUBSCRIPTION AGENT. VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BY 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 22, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE FUND. 1. The undersigned hereby certifies to the Subscription Agent that it is a participant in [Name of Depository] (the "Depository") and that it has either (i) exercised the Primary Subscription in respect of Rights and delivered such exercised Rights to the Subscription Agent by means of transfer to the Depository Account of the Fund or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of the Primary Subscription Privilege and will deliver the Rights called for in such Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to such Depository Account of the Fund. 2. The undersigned hereby exercises the Over-Subscription Privilege to purchase, to the extent available, shares of Common Stock and certifies to the Subscription Agent that such Over-Subscription Privilege is being exercised for the account or accounts of persons (which may include the undersigned) on whose behalf all Primary Subscription Rights have been exercised.* 3. The undersigned understands that payment of the Estimated Subscription Price of $7.96 per share for each share of Common Stock subscribed for pursuant to the Over-Subscription Privilege must be received by the Subscription Agent before 5:00 p.m., New York City time, on the Expiration Date, unless a Notice of Guaranteed Delivery is used, in which case, payment in full must be received by the Subscription Agent not later than the close of business on the third business day after the Expiration Date and represents that such payment, in the aggregate amount of $ either (check appropriate box): / / has been or is being delivered to the Subscription Agent pursuant to the Notice of Guaranteed Delivery referred to above or / / is being delivered to the Subscription Agent herewith or / / has been delivered separately to the Subscription Agent; and, in the case of funds not delivered pursuant to a Notice of Guaranteed Delivery, is or was delivered in the manner set forth below (check appropriate box and complete the following information): / / uncertified check / / certified check / / bank draft - ------------------------------------------ ---------------------------------- Primary Subscription Confirmation Number Name of Nominee Holder - ------------------------------------------ ---------------------------------- Depository Participant Number Address Contact Name: ____________________________ __________________________________ City State Zip Code Phone Number: ____________________________ By: ______________________________ Name: __________________________ Dated: , 1996 Title: _________________________ * PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION OF RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF OVER- SUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH OWNER. 2 EX-99.D(6) 8 EX-99.D(6) EXHIBIT 99.d (6) BENEFICIAL OWNER LISTING CERTIFICATION The undersigned, a bank, broker or other nominee holder of Rights ("Rights") to purchase shares of Common Stock, $0.001 par value ("Common Stock"), of BEA INCOME FUND, Inc. (the "Fund") pursuant to the Rights Offering (the "Offer") described and provided for in the Fund's Prospectus dated September 27, 1996 (the "Prospectus"), hereby certifies to the Fund and to The Chase Manhattan Bank, as Subscription Agent for such Offer, that for each numbered line filled in below, the undersigned has exercised, on behalf of the beneficial owner thereof (which may be the undersigned), the number of Rights specified on such line pursuant to the Primary Subscription (as defined in the Prospectus) and such beneficial owner wishes to subscribe for the purchase of additional shares of Common Stock pursuant to the Over-Subscription Privilege (as defined in the Prospectus), in the amount set forth in the third column of such line.
NUMBER OF SHARES NUMBER OF RIGHTS EXERCISED REQUESTED PURSUANT TO THE NUMBER OF RECORD DATE SHARES OWNED PURSUANT TO PRIMARY SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE 1) ----------------------------------- -------------------------------------- -------------------------------------- 2) ----------------------------------- -------------------------------------- -------------------------------------- 3) ----------------------------------- -------------------------------------- -------------------------------------- 4) ----------------------------------- -------------------------------------- -------------------------------------- 5) ----------------------------------- -------------------------------------- -------------------------------------- 6) ----------------------------------- -------------------------------------- -------------------------------------- 7) ----------------------------------- -------------------------------------- -------------------------------------- 8) ----------------------------------- -------------------------------------- -------------------------------------- 9) ----------------------------------- -------------------------------------- -------------------------------------- 10) ---------------------------------- -------------------------------------- --------------------------------------
______________________________________ Name of Nominee Holder By: __________________________________ Name: _____________________________ Title: ____________________________ Dated: _________________________, 1996 Provide the following information, if applicable: ______________________________________ Name of Broker: ________________________ Depository Trust Corporation ("DTC") Participant Number ______________________________________ Address: _______________________________ DTC Primary Subscription Confirmation Number(s) EX-99.D(7) 9 EX-99.D(7) SUBSCRIPTION AGENT AGREEMENT This Subscription Agent Agreement (the "Agreement") is made as of September 27, 1996 between BEA Income Fund, Inc. (the "Fund") and The Chase Manhattan Bank, as subscription agent (the "Agent"). All terms not defined herein shall have the meaning given in the prospectus (the "Prospectus") included in the (Registration Statement on Form N-2 (File No. 333-10851; 811-05012) filed by the Fund with the Securities and Exchange Commission on August 26, 1996, as amended by any amendment filed with respect thereto (the "Registration Statement"). WHEREAS, the Fund proposes to make subscription offer by issuing certificates or other evidences of subscription rights, in the form designated by the Fund (the "Subscription Certificates") to shareholders of record (the "Shareholders") of its Common Stock, par value $.001 per share ("Common Stock"), as of a record date specified by the Fund (the "Record Date"), pursuant to which each Shareholder will have certain rights (the "Rights") to subscribe for shares of Common Stock, as described in and upon such terms as are set forth in the Prospectus, a final copy of which has been or, upon availability will promptly be, delivered to the Agent; and WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of the Fund, and the Agent is willing to so act, in connection with the distribution of the Subscription Certificates and the issuance and exercise of the Rights to subscribe therein set forth, all upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements set forth herein, the parties agree as follows: 1. APPOINTMENT. The fund hereby appoints the Agent to act as subscription agent in connection with the distribution of Subscription Certificates and the issuance and exercise of the Rights and the Over-Subscription Privilege (as hereinafter defined) in accordance with the terms set forth in this Agreement and the Agent hereby accepts such appointment. 2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES. (a) Each Subscription Certificate shall be irrevocable and non- transferable. The Agent shall, in its capacity as Transfer Agent of the Fund, maintain a register of Subscription Certificates and the holders of record thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of determining the rights of holders of Subscription Certificates). Each Subscription Certificate shall, subject to the provisions thereof, entitle the Shareholder in whose name it is recorded to the following: (1) With respect to Record Date Shareholders only, the right to acquire during the Subscription Period, as defined in the Prospectus, at the Subscription Price, as defined in the Prospectus, a number of shares of Common Stock equal to one share of Common Stock for every three Rights (the "Primary Subscription Right"); and (2) With respect to Record Date Shareholders only, the right to subscribe for additional shares of Common Stock, subject to the availability of such shares and to the allotment of such shares as may be available among Record Date Shareholders who exercise Over-Subscription Rights on the basis specified in the Prospectus; provided, however, that such Record Date Shareholder has exercised all Primary Subscription Rights issued to him or her (the "Over- Subscription Privilege"). 3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES. (a) Each Subscription Certificate shall evidence the Rights of the Shareholder therein named to purchase Common Stock upon the terms and conditions therein and herein set forth. (b) Upon the written advice of the Fund, signed by any of its duly authorized officers, as to the Record Date, the Agent shall, from a list of the Fund Shareholders as of the Record Date to be prepared by the Agent in its capacity as Transfer Agent of the Fund, prepare and record Subscription Certificates in the names of the Shareholders, setting forth the number of Rights to subscribe for the Fund's Common Stock calculated on the basis of one Right for each share of Common Stock recorded on the books in the name of each such Shareholder as of the Record Date. Each Subscription Certificate shall be dated as of the Record Date. Upon the written advice, signed as aforesaid, as to the effective date of the Registration Statement, the Agent shall, within two business days of the Agent's receipt of the blank Subscription Certificates, place in the U.S. mail the Subscription Certificates, together with a copy of the Prospectus, instruction letter and any other document as the Fund deems necessary or appropriate, to all Shareholders with record addresses in the United States (including its territories and possessions and the District of Columbia). Delivery shall be by first class mail (without registration or insurance), except for those Shareholders having a registered address outside the United States, which delivery method shall be as specified in paragraph (c) below. No Subscription Certificate shall be valid for any purpose unless so executed. (c) The Agent will mail a copy of the Prospectus, instruction letter, a special notice and other documents as the Fund deems necessary or appropriate, within two business days of their receipt by the Agent from the Fund, if any, but not Subscription Certificates (the form for which complete except for Shareholders' names and shareholdings, shall be supplied to the Agent by the Fund) to Record Date Shareholders whose record addresses are outside the United States (including its territories and possessions and the District of Columbia ) ("Foreign Record Date Shareholders") by air mail (without insurance or registration) provided that delivery shall be made by first class mail (without insurance or registration ) to Shareholders having APO or FPO addresses. The Rights to which such Subscription Certificates relate will be held by the Agent for such Foreign Record - 2 - Date Shareholders' accounts until instructions are received to exercise, sell or transfer the Rights. 4. EXERCISE. (a) Record Date Shareholders may acquire shares of Common Stock on Primary Subscription and pursuant to the Over-Subscription Privilege by delivery to the Agent as specified in the Prospectus of (i) the Subscription Certificate with respect thereto, duly executed by such Shareholder in accordance with and as provided by the terms and conditions of the Subscription Certificate, together with (ii) the estimated purchase price of $7.96 for each share of Common Stock subscribed for by exercise of such Rights and the Over-Subscription Privilege, in U.S. dollars by money order or check drawn on a bank in the United States, in each case payable to the order of the Fund. (b) Rights may be exercised at any time after the date of issuance of the Subscription Certificates with respect thereto but no later than 5:00 P.M. New York time on such date as the Fund shall designate to the Agent in writing (the "Expiration Date"). For the purpose of determining the time of the exercise of any Rights, delivery of any material to the Agent shall be deemed to occur when such materials are received at the address of the Agent of the Agent specified in the Prospectus. (c) Notwithstanding the provisions of Section 4 (a) and 4 (b) regarding delivery of an executed Subscription Certificate to the Agent prior to 5:00 P.M. New York time on the Expiration Date, if prior to such time the Agent receives a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank, a trust company or a New York Stock Exchange member guaranteeing delivery of (i) payment of the full Subscription Price for the shares of Common Stock subscribed for on Primary Subscription and any additional shares of Common Stock subscribed for pursuant to the Over-Subscription Privilege, and (ii) a properly completed and executed Subscription Certificate, then such exercise of Primary Subscription Rights and Over-Subscription Rights shall be regarded as timely, subject, however, to receipt by the Agent of the duly executed Subscription Certificate and full payment for the Common Stock within three business days after the Expiration Date. (d) Within five business days following the Expiration Date (the "Confirmation Date"), the Agent shall send a confirmation to each Record Date Shareholder (or, if shares of Common Stock on the Record Date are held by Cede & Co. Inc. or any other depository or nominee, to Cede & Co. Inc. or such other depository or nominee), showing (i) the number of shares of common stock acquired pursuant to the Primary Subscription Right, (ii) the number of shares of common stock, if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per share and total purchase price for the shares of common stock subscribed for, and (iv) any additional amount payable by such Shareholder to the Fund or any excess to be refunded by the Fund to such Shareholder ("Excess Payment"), in each case based on the Subscription Price as determined on the Expiration Date. Any excess - 3 - payment to be refunded by the Fund to a Record Date Shareholder shall be mailed by the Agent to the Shareholder within a reasonable period after the Expiration Date. 5. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered by specific instructions herein shall be submitted to an appropriate officer of the Fund and handled in accordance with his or her instructions. Such instructions will be documented by the Agent indicating the instructing officer and the date thereof. 6. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to Record Date Shareholders, there remain unexercised Rights, then the Agent shall allot the shares issuable upon exercise of such unexercised Rights (the "Remaining Shares") to Shareholders who have exercised all the Rights initially issued to them and who wish to acquire more than the number of shares for which the Rights issued to them are exercisable. Shares subscribed for pursuant to the Over-Subscription Privilege will be allocated in the amounts of such over- subscriptions. If the number of shares for which the Over-Subscription Privilege has been exercised is greater than the Remaining Shares, the Agent shall allocate the Remaining Shares to the Shareholders exercising Over- Subscription Privilege based on the number of Rights originally issued to them by the Fund so that the number of shares issued to Record Date Shareholders who subscribe pursuant to the Over-Subscription Privilege will generally be in proportion to the number of shares of Common Stock owned by them on the Record Date. The percentage of Remaining Shares each over-subscribing Record Date Shareholder may acquire will be rounded up or down to result in delivery of whole shares of Common Stock. The Agent shall advise the Fund immediately upon the completion of the allocation set forth above as to the total number of shares subscribed and distributable. 7. ISSUANCE OF SHARES BY BOOK-ENTRY REGISTRATION. Ownership of shares purchased pursuant to exercise of Primary Subscription Rights and of the Over-Subscription Privilege shall be evidenced by registration on the transfer ledger of the Agent as Transfer Agent (i) as to shares purchased pursuant to exercise of Primary Subscription Rights as soon as practicable after the corresponding Rights have been validly exercised and full payment for such shares has been received and cleared and (ii) as to shares purchasesd pursuant to the exercise of the Over-Subscription-Privilege as soon as practicable after all locations have been effected and full payment for such shares has been received and cleared. Shareholders may request a certificate or certificates evidencing such shares in accordance with the Transfer Agent's customary procedures relating to dividend reinvestment. 8. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW. (a) All proceeds received by the Agent from Shareholders in respect of the exercise of Rights shall be held by the Agent, on behalf of the Fund, in a segregated, interest-bearing escrow account (the "Escrow Account"). Pending disbursement in the manner described in Section 8(b) below above, funds held in the Escrow Account shall be invested by the Agent at the direction of the Fund. - 4 - (b) The Agent shall deliver all proceeds received in respect of the exercise of Rights (including interest earned thereon if such proceeds are delivered after the beginning of the calendar month immediately following the month during which the offering expires) to the Fund or pursuant to its directions as promptly as practicable, but in no event later than fifteen business days after the Expiration Date. Proceeds held in respect of Excess Payments (including interest earned thereon) shall belong to the Fund after any refunds to Shareholders as set forth in Section 4(d) above. 9. REPORTS. (a) Daily, during the period commencing on September 27, 1996, until termination of the Subscription Period, the Agent will report by telephone or telecopier (by 5:30 p.m., New York time), confirmed by letter, to an Officer designated to the Agent by the Fund, data regarding Rights exercised, the total number of shares of Common Stock subscribed for, and payments received therefor, bringing forward the figures from the previous day's report in each case so as to show the cumulative totals and any such other information as may be mutually determined by the Fund and the Agent. 10. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen, mutilated or destroyed, the Agent may, on such terms which will indemnify and protect the Fund and the Agent as the Agent may in its discretion impose (which shall, in the case of a mutilated Subscription Certificate include the surrender and cancellation thereof), issue a new Subscription Certificate of like denomination in substitution for the Subscription Certificate so lost, stolen, mutilated or destroyed. 11. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent compensation for its services as such in accordance with its Fee Schedule to act as Agent, dated September 27, 1996 and set forth hereto as Exhibit A. The Fund further agrees that it will reimburse the Agent for its reasonable and documented out-of-pocket expenses incurred in the performance of its duties as such. 12. RIGHT AND LIABILITIES OF AGENT; INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions: The Agent shall not be responsible for the form, sufficiency, validity or accuracy of the Subscription Certificates (except that the Agent shall be responsible for the accuracy of the names of Shareholders of record and their respective shareholdings on the Record Date), the Prospectus, or any other communication, instruction or other document prepared by the Fund or pursuant to its direction and shall have no duties or responsibilities other than those expressly set forth herein. The Agent shall have no duty to enforce any obligation of any person to make any payment required under a Subscription Agreement, or to direct or eause any payment to be made, or to enforce any obligation of any person to perform any other act. The Agent shall be under no liability to the Fund or to any other person or party by reason of any failure on the part of any drawer, maker, guarantor, endorser or other signatory of any document or any other person to perform such person's obligations under any such document. (a) The Agent and its sub-agents and sub-contractors shall be entitled to rely upon any instructions or directions furnished to it by an appropriate officer of the Fund, whether in conformity with the provisions of this Agreement or constituting a modification hereof or a supplement hereto and shall have no liability or responsibility for any loss or depreciation arising, therefrom. Without limiting the generality of the foregoing or any other provision of this Agreement, the Agent, in connection with its duties hereunder, shall not be under any duty or obligation to inquire into the validity or invalidity or authority or lack thereof of any instruction or direction from an officer of the Fund which conforms to the applicable requirements of this Agreement and which the Agent reasonably believes to be genuine and shall not be liable for any delays, errors or loss - 5 - of data occurring by reason of circumstances beyond the Agent's control. Anything in this agreement to the contrary notwithstanding, in no event shall the Agent be liable for special, indirect, or consequential damages of any kind whatsoever whether or not the Agent has been advised as to the possibility of such damage and regardless of the form of action in which any such claims for damages may be made. (b) The Fund will indemnify the Agent and its sub-agents, subcontractors and nominees against, and hold it harmless from, all liability and expense including reasonable attorneys' fees and disbursements which sub-agents subcontactors and arise out of or in connection with the services described in this Agreement or the instructions or directions furnished to the Agent relating to this Agreement by an appropriate officer of the Fund, except for any liability or expense which shall arise out of the negligence, bad faith or willful misconduct of the Agent or such nominees. 13. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or concurrence of the Shareholders in whose names Subscription Certificates are registered, by supplemental agreement or otherwise, concur with the Fund in making any changes or corrections in a Subscription Certificate that it shall have been advised by counsel (who may be counsel for the Fund) is appropriate to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error therein or herein contained, and which shall not be inconsistent with the provision of the Subscription Certificate except insofar as any such change may confer additional rights upon the Shareholders. 14. ASSIGNMENT, DELEGATION. (a) Except as hereunder provided, neither this Agreement nor any rights or obligations hereunder may be assigned or delegated by either party without the written consent of the other party. The Agent may subcontract for the performance hereof with any subsidiary or other affiliate of the Agent, and may, with the Fund's consent, subcontract for the performance hereof with third parties other than a subsidiary or affiliate of the Agent; provided, however, that the Agent shall be as fully responsible to the Fund for the acts or omissions of any subcontractor as it is for its own acts and omissions, and shall be responsible for its choice of subcontractors. (b) This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose upon any other person any duty, liability or obligation. 15. GOVERNING LAW. The validity, interpretation and performance of this Agreement shall be governed by the law of the State of New York. 16. SEVERABILITY. The parties hereto agree that if any of the provisions contained in this Agreement shall be determined invalid, unlawful or unenforceable to any extent, such provisions shall be deemed modified to the extent necessary to render such provisions enforceable. The parties hereto further agree that this Agreement shall be deemed severable, and the invalidity, unlawfulness or unenforceability of any term or provision thereof shall not affect the validity, legality or enforceability of this Agreement or of any term or provision hereof. 17. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. - 6 - 18. CAPTIONS. The captions and descriptive headings herein are for the convenience of the parties only. They do not in any way modify, amplify, alter or give full notice of the provisions hereof. 19. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto shall constitute a legal, valid and binding execution hereof by such party. 20. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effect the purposes of this Agreement. 21. ADDITIONAL PROVISIONS. Except as specifically modified by this Agreement, the Agent's rights and responsibilities set forth in the Agreement for Stock Transfer Services between the Fund and the Agent are hereby ratified and confirmed and continue in effect. THE CHASE MANHATTAN BANK BEA INCOME FUND, INC. /s/ LIONEL COTTINO /s/ MICHAEL A. PIGNATARO - ---------------------------------- ----------------------------------- SIGNATURE SIGNATURE 2d Vice-President Secretary - ---------------------------------- ----------------------------------- TITLE TITLE - 7 - Exhibit A $15,000 plus all disbursements EX-99.E 10 EX-99.E DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to the BEA Income Fund, Inc.'s (the "Fund") Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have elected, unless the Fund's transfer agent as the Plan Agent (the "Plan Agent"), is otherwise instructed by the shareholder in writing, to have all dividends and distributions, net of any applicable U.S. withholding tax, automatically reinvested in additional shares of the Fund. Shareholders who do not participate in the Plan will receive all dividends and distributions in cash, net of any applicable U.S. withholding tax, paid in dollars by check mailed directly to the shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have dividends and distributions automatically reinvested should notify the Plan Agent for the Fund, at the address set forth below. Dividends and distributions with respect to shares registered in the name of a broker-dealer or other nominee (i.e., in "street name") will be reinvested under the Plan unless such service is not provided by the broker or nominee or the shareholder elects to receive dividends and distributions in cash. A shareholder whose shares are held by a broker or nominee that does not provide a dividend reinvestment program may be required to have his shares registered in his own name to participate in the Plan. Investors who own shares of the Fund's common stock registered in street name should contact the broker or nominee for details concerning participation in the Plan. Certain distributions of cash attributable to (a) some of the dividends and interest amounts paid to the Fund and (b) certain capital gains earned by the Fund that are derived from securities of certain foreign issuers are subject to taxes payable by the Fund at the time amounts are remitted. Such taxes, if any, will be borne by the Fund and allocated to all shareholders in proportion to their interests in the Fund. The Plan Agent serves as agent for the shareholders in administering the Plan. If the Board of Directors of the Fund declares an income dividend or a capital gains distribution payable either in the Fund's common stock or in cash, as shareholders may have elected, nonparticipants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares of the Fund valued at the lower of market price or net asset value as determined at the time of purchase (generally on the payable date of the dividend) as set forth below. Whenever market price is equal to or exceeds net asset value at the time shares are valued for the purpose of determining the number of shares equivalent to the cash dividend or distribution, participants will be issued shares of the Fund at a price equal to net asset value but not less than 95% of the then current market price of the Fund shares. The Fund will not issue shares under the Plan below net asset value. If net asset value determined as at the time of purchase exceeds the market price of Fund shares at such time, or if the Fund should declare a dividend or other distribution payable only in cash (i.e., if the Board of Directors should preclude reinvestment at net asset value), the Agent will, as agent for the participants, endeavor to buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, on behalf of all participants, and will allocate to you your pro rata portion based on the average price paid (including brokerage commissions) for all shares purchased. Shares acquired on behalf of participants in the open market will be purchased at the prevailing market price. Fractions of a share allocated to you will be computed to four decimal places. If, before the Agent has completed its purchases, the market price exceeds the net asset value of a Fund share, the average per share purchase price paid by the Agent may exceed the net asset value of the Fund's shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. For all purposes of the Plan: (a) the market price of the Fund's common stock on a dividend payment date shall be the last sale price on the New York Stock Exchange on that date, or, if there is no such sale, then the mean between the closing bid and asked quotations for such stock, and (b) net asset value per share of the Fund's commons stock on a particular date shall be as determined by or on behalf of the Fund. Participants in the Plan have the option of making additional cash payments to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment in the Fund's common stock. Shareholders should be aware that cash contributions will be used to purchase shares of the Fund in the open market regardless of whether such shares are selling above, at or below the net asset value of the Fund. As a result, shareholders may be purchasing shares at a market price that reflects a premium to the Fund's net asset value. Cash contributions should be in the form of a check or money order and made payable in U.S. dollars and directed to The Chase Manhattan Bank, Dividend Reinvestment Department-Retail, 770 Broadway, New York, NY 10003-9598. Deliveries to any other address do not constitute valid delivery. A detachable form for use in making voluntary cash payments will be attached to each Dividend Reinvestment Plan statement you receive. The same amount of money need not be sent each month and there is no obligation to make an optional cash payment each month. Payments received by the Agent will be used to purchase stock under Plan. Prior to such purchase of stock by the Agent, no interest will be paid on such funds sent to the Agent. Therefore, voluntary cash payments should be sent to reach the Agent shortly (but at least five business days) before the dividend payment date. Voluntary cash payments received after the five business day deadline will be invested by the Agent on the next succeeding dividend payment date. Dividend payment dates are expected to be the 15th (or next business day) of each month. You may obtain a refund of any voluntary cash payment if a request for such a refund is received in writing by the Agent not less than 48 hours before the next succeeding dividend payment. - 2 - There is no charge to participants for reinvesting dividends or capital gains distributions. The Agent's fees for the handling of reinvestment of dividends and distributions will be paid by the Fund. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Agent's open market purchases in connection with the reinvestment of dividends, capital gains distributions, or voluntary cash payments. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions because the Agent will be purchasing stock for all participants in blocks and pro rating the lower commissions thus attainable. The receipt of dividends and distributions in stock under the Plan will not relieve participants of any income tax (including withholding tax) that may be payable on such dividends and distributions. While the Fund presently intends to continue the Plan indefinitely, experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to notice of the change sent to all shareholders of the Fund at least 30 days before the record date for such dividend or distribution The Plan also may be amended or terminated by the Agent by at least 30 days' written notice to all shareholders of the Fund. Any notices, questions or other correspondence regarding the Plan should be addressed to The Chase Manhattan Bank, Customer Service Department, 770 Broadway, New York, NY 10003-9598. Be sure to include a reference to BEA Income Fund, Inc. Or you may call (800) 428-8890. - 3 - EX-99.H(1) 11 EXHIBIT 99.H(1) BEA INCOME FUND, INC. 8,128,456 Shares of Common Stock Issuable Upon Exercise of Non-Transferable Rights to Subscribe for Such Shares of Common Stock DEALER MANAGER AGREEMENT New York, New York September 27, 1996 SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: Each of BEA Income Fund, Inc., a Maryland corporation (the "Company"), and BEA Associates, a New York general partnership (the "Investment Adviser"), confirms its agreement with and appointment of Smith Barney Inc. to act as dealer manager (the "Dealer Manager") in connection with the issuance by the Company to the holders of record at the close of business on September 27, 1996, or such other date as is established as the record date for such purpose (each a "Holder" and collectively the "Holders"), of 24,385,367 non-transferable rights entitling such Holders to subscribe for 8,128,456 shares (each a "Share" and collectively the "Shares") of common stock, par value $0.001 per share (the "Common Stock"), of the Company (the "Offer"). Pursuant to the terms of the Offer, the Company is issuing each Holder one non-transferable right (each a "Right" and collectively the "Rights") for each share of Common Stock held by such Holder on the record date (the "Record Date") set forth in the Prospectus (as defined herein). Such Rights entitle Holders to acquire during the subscription period (the "Subscription Period") set forth in the Prospectus, at the price (the "Subscription Price") set forth in such Prospectus, one Share for each three Rights exercised on the terms and conditions set forth in such Prospectus. No fractional shares will be issued. Any Holder who fully exercises all Rights initially issued to such Holder will be entitled to subscribe for, subject to allotment, additional Shares (the "Over-Subscription Privilege"). Pursuant to the Over-Subscription Privilege, the Company may, at its discretion, increase the number of Shares subject to subscription by up to 25%, or 2,032,114 Shares, for an aggregate total of 10,160,570 Shares. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form N-2 (File Nos. 333-10851 and 811-5012) and a related preliminary prospectus and preliminary statement of additional information for the registration of the Shares under the Securities Act of 1933, as amended (the "Securities Act"), the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations of the Commission under the Securities Act and the Investment Company Act (the "Rules and Regulations"), and has filed such amendments to such registration statement on Form N-2, if any, and such amended preliminary prospectuses and preliminary statements of additional information as may have been required to the date hereof. If the registration statement has not become effective, a further amendment to such registration statement, including forms of a final prospectus and final statement of additional information necessary to permit such registration statement to become effective will promptly be filed by the Company with the Commission. If the registration statement has become effective and any prospectus or statement of additional information constituting a part thereof omits certain information at the time of effectiveness pursuant to Rule 430A of the Rules and Regulations, a final prospectus and final statement of additional information containing such omitted information will promptly be filed by the Company with the Commission in accordance with Rule 497(h) of the Rules and Regulations. The term "Registration Statement" means the registration statement, as amended (if applicable), at the time it becomes or became effective, including financial statements and all exhibits and all documents, if any, incorporated therein by reference, and any information deemed to be included by Rule 430A. The term "Prospectus" means the final prospectus and final statement of additional information in the forms filed with the Commission pursuant to Rule 497(c), (h) or (j) of the Rules and Regulations, as the case may be, as from time 2 to time amended or supplemented pursuant to the Securities Act. The Prospectus and letters to beneficial owners of the shares of Common Stock of the Company, forms used to exercise rights, any letters from the Company to securities dealers, commercial banks and other nominees and any newspaper announcements, press releases and other offering materials and information that the Company may use or approve or authorize in writing for use in connection with the Offer are collectively referred to hereinafter as the "Offering Materials". 1. REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The Company represents and warrants to, and agrees with, the Dealer Manager as of the date hereof (such date being hereinafter referred to as the "Representation Date") that: (i) The Company meets the requirements for use of Form N-2 under the Securities Act and the Investment Company Act and the Rules and Regulations. At the time the Registration Statement becomes effective, the Registration Statement will contain all statements required to be stated therein in accordance with and will comply in all material respects with the requirements of the Securities Act, the Investment Company Act and the Rules and Regulations and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. From the time the Registration Statement becomes effective through the latest date that a prospectus is required to be delivered under the Securities Act, the Prospectus and the other Offering Materials will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement, Prospectus or other Offering Materials made in reliance upon and in conformity with information furnished to the Company in writing by the Dealer Manager ex- 3 pressly for use in the Registration Statement, Prospectus or other Offering Materials. (ii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, has full power and authority (corporate and other) to conduct its business as described in the Registration Statement and the Prospectus, and is duly qualified to do business as a foreign corporation in each jurisdiction wherein it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to be so qualified would not result in a material adverse effect upon the business, properties, financial position or results of operations of the Company (a "Material Adverse Effect"). The Company has no subsidiaries. (iii) The Company is registered with the Commission under the Investment Company Act as a closed-end, diversified management investment company; no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission; all required action has been taken under the Securities Act and the Investment Company Act to make the public offering and consummate the issuance of the Rights and the issuance and sale of the Shares by the Company upon exercise of the Rights, and the provisions of the Company's charter and by-laws comply as to form in all material respects with the requirements of the Investment Company Act. (iv) Price Waterhouse LLP, the accountants who certified the financial statements of the Company set forth or incorporated by reference in the Registration Statement and the Prospectus, are independent public accountants as required by the Securities Act, the Investment Company Act and the Rules and Regulations. (v) The financial statements of the Company set forth or incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the financial condition of the Company as of the dates or for the periods 4 indicated in conformity with generally accepted accounting principles applied on a consistent basis; and the information set forth in the Prospectus under the headings "Fee Table" and "Financial Highlights" presents fairly in all material respects the information stated therein. (vi) The Company has an authorized capitalization as set forth in the Prospectus; the outstanding shares of Common Stock have been duly authorized and are validly issued, fully paid and non-assessable and conform in all material respects to the description thereof in the Prospectus under the heading "Common Stock"; the Rights have been duly authorized by all requisite action on the part of the Company for issuance pursuant to the Offer; the Shares have been or, with respect to the Shares to be issued pursuant to the Oversubscription Privilege, will be duly authorized by all requisite action on the part of the Company for issuance and sale pursuant to the terms of the Offer and, when issued and delivered by the Company pursuant to the terms of the Offer against payment of the consideration set forth in the Prospectus, will be validly issued, fully paid and non-assessable; the Shares and the Rights conform in all material respects to all statements relating thereto contained in the Registration Statement, the Prospectus and the other Offering Materials; and the issuance of each of the Rights and the Shares is not subject to any preemptive rights. (vii) Except as set forth in the Prospectus, subsequent to the respective date(s) as of which information is given in the Registration Statement and the Prospectus, (A) the Company has not incurred any liabilities or obligations, direct or contingent, or entered into any transactions, other than in the ordinary course of business, that are material to the Company, (B) there has not been any material change in the capital stock or long-term debt of the Company, or any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or other), business, prospects, net worth or results of operations of the Company and (C) there has been no dividends or distributions paid or, except with 5 respect to a dividend to shareholders of record as of October 7, 1996 declared on September __, 1996, declared in respect of the Company's capital stock. (viii) There is no pending or, to the knowledge of the Company, threatened or contemplated action, suit or proceeding affecting the Company or to which the Company is a party before or by any court or governmental agency, authority or body or any arbitrator, whether foreign or domestic. (ix) There are no contracts or other documents of the Company required to be described in the Registration Statement or the Prospectus, or to be filed or incorporated by reference as exhibits which are not described or filed or incorporated by reference therein as permitted by the Securities Act, the Investment Company Act or the Rules and Regulations. (x) Each of this agreement (the "Agreement"), the Subscription Agency Agreement (the "Subscription Agency Agreement") dated as of September 27, 1996 between the Company and The Chase Manhattan Bank (the "Subscription Agent"), the Information Agent Agreement (the "Information Agent Agreement") dated as of August 27, 1996 between the Company and Shareholders Communication Corporation (the "Information Agent"), the Advisory Agreement (the "Advisory Agreement") dated as of June 13, 1995 between the Company and the Investment Adviser, the Mutual Funds Service Agreement (the "Administration Agreement") dated as of September 25, 1996 between the Company and Chase Global Funds Services Company, the Mutual Fund Custody Agreement (the "Custodian Agreement") dated as of May 1, 1993 between the Company and The Chase Manhattan Bank, the Shareholder Transfer Agency Services Agreement (the "Transfer Agent Agreement") dated as of April 30, 1993, between the Company and The Chase Manhattan Bank and the Second Amended and Restated Credit Agreement (the "Credit Agreement") dated as of April 1, 1996 among the Company and others and The First National Bank of Boston (the Subscription Agency Agreement, Information Agent Agreement, the Advisory Agreement, the Administration Agreement, the Custodian Agreement, the Transfer Agent Agreement and the Credit Agreement are collectively referred to herein as the 6 "Company Agreements") has been duly authorized, executed and delivered by the Company; each of this Agreement and the Company Agreements complies with all applicable provisions of the Investment Company Act; and, assuming due authorization, execution and delivery by the other parties thereto, each of this agreement and the Company Agreements constitutes a legal, valid, binding and enforceable obligation of the Company, subject to the qualification that the enforceability of the Company's obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights, and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and subject to the qualification that the right to indemnity hereunder and thereunder may be limited by federal or state laws. (xi) Neither the issuance of the Rights, nor the issuance and sale of the Shares, nor the performance and consummation by the Company of any other of the transactions contemplated in this Agreement and the Company Agreements nor the consummation of the transactions contemplated in the Registration Statement will result in a breach or violation of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company under the charter or by-laws of the Company, or the terms and provisions of any agreement, indenture, mortgage, lease or other instrument to which the Company is a party or by which it may be bound or to which any of the property or assets of the Company is subject, nor will such action result in any violation of any order, law, rule or regulation of any court or governmental agency or body, whether foreign or domestic, having jurisdiction over the Company or any of its properties. (xii) No consent, approval, authorization, notification or order of, or any filing with, any court or governmental agency or body, whether foreign or domestic, is required for the consummation by the Company of the transactions contemplated by this Agreement, the Company Agreements or the Regis- 7 tration Statement, except such as have been obtained, or if the registration statement filed with respect to the Shares is not effective under the Securities Act as of the time of execution hereof, such as may be required (and shall be obtained as provided in this Agreement) under the Securities Act, Investment Company Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state securities laws. (xiii) The Company owns or possesses all material governmental licenses, permits, consents, orders, approvals or other authorizations, whether foreign or domestic, to enable the Company to continue to carry on its business and to invest in securities as contemplated in the Prospectus. (xiv) The Common Stock has been duly listed on the New York Stock Exchange and prior to their issuance the Shares will have been duly approved for listing, subject to official notice of issuance, on the New York Stock Exchange. (xv) The Company (A) has not taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the issuance of the Rights or the sale or resale of the Shares, (B) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, shares of Common Stock of the Company and (C) will not, until the later of the expiration of the Rights or the completion of the distribution (within the meaning of Rule 10b-6 under the Exchange Act) of the Shares, sell, bid for or purchase, pay or agree to pay to any person any compensation for soliciting another to purchase any other securities of the Company (except for the solicitation of the exercise of Rights and the Over Subscription Privilege pursuant to this Agreement); PROVIDED THAT any action authorized by and taken pursuant to the Company's dividend reinvestment and cash purchase plan will not be deemed to be within the terms of this Section 1(a)(xv). 8 (xvi) The Company intends to direct the investment of the proceeds of the offering described in the Registration Statement and the Prospectus in such a manner as to continue to comply, with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the Code"), and has at all times since its inception qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Code. (xvii) There are no material restrictions, limitations or regulations with respect to the ability of the Company to invest its assets as described in the Prospectus other than as described therein. (b) The Investment Adviser represents and warrants to, and agrees with, the Dealer Manager as of the date hereof that: (i) The Investment Adviser has been duly organized and is validly existing as a general partnership under the laws of the State of New York, has full power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, and is duly qualified to do business as a foreign entity in each jurisdiction wherein it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to be so qualified does not involve a material adverse risk to the business, properties, financial position or results of operations of the Investment Adviser or the ability of the Investment Adviser to perform its obligations under the Advisory Agreement (an "Adviser Material Adverse Effect"). (ii) The Investment Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such Acts, from acting as an investment adviser for the Company as contemplated in the Prospectus and the Advisory Agreement. 9 (iii) Each of this Agreement, the Advisory Agreement and any other Company Agreement to which the Investment Adviser is a party has been duly authorized, executed and delivered by the Investment Adviser and complies with all applicable provisions of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the Investment Company Act, and the rules and regulations under such Acts, and is, assuming due authorization, execution and delivery by the other parties thereto, a legal, valid, binding and enforceable obligation of the Investment Adviser, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights, and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (iv) Neither the performance by the Investment Adviser of its obligations under this Agreement, the Advisory Agreement or any other Company Agreement to which the Investment Adviser is a party nor the consummation of the transactions contemplated therein or in the Registration Statement nor the fulfillment of the terms thereof will result in a breach or violation of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Investment Adviser under the partnership agreement of the Investment Adviser, or the terms and provisions of any material agreement, indenture, mortgage, lease or other instrument to which the Investment Adviser is a party or by which it may be bound or to which any of the property or assets of the Investment Adviser is subject, nor will such action result in any violation of any order, law, rule or regulation of any court or governmental agency or body, whether foreign or domestic, having jurisdiction over the Investment Adviser or any of its properties. (v) There is no pending or, to the knowledge of the Investment Adviser, threatened action, suit or proceeding to which the Investment Adviser is a party before or by any court or governmental agency, authority or body or any arbitrator, whether foreign 10 or domestic, which reasonably might result in a Material Adverse Effect or might materially and adversely affect the ability of the Investment Adviser to perform its obligations under the Advisory Agreement. (vi) No consent, approval, authorization, notification or order of, or any filing with, any court or governmental agency or body, whether foreign or domestic, is required for the consummation by the Investment Adviser of the transactions contemplated by this Agreement. (vii) The Investment Adviser owns or possesses all material governmental licenses, permits, consents, orders, approvals or other authorizations, whether foreign or domestic, to enable the Investment Adviser to perform its obligations under the Advisory Agreement. (viii) The Investment Adviser (a) has not taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the issuance of the Rights or the sale or resale of the Shares, (b) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, shares of Common Stock of the Company and (c) will not, until the later of the expiration of the Rights or the completion of the distribution (within the meaning of Rule 10b-6 under the Exchange Act) of the Shares, sell, bid for or purchase, pay or agree to pay any person any compensation for soliciting another to purchase any other securities of the Company (except for the solicitation of the exercise of Rights and the Over Subscription Privilege pursuant to this Agreement); PROVIDED THAT any action authorized by and taken pursuant to the Company's dividend reinvestment and cash purchase plan will not be deemed to be within the terms of this Section 1(b)(viii). (ix) The information regarding the Investment Adviser in the Registration Statement and the Pro- 11 spectus complies with the requirements of Form N-2 and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) Any certificate required by this Agreement that is signed by any officer of the Company or the Investment Adviser and delivered to the Dealer Manager or counsel for the Dealer Manager shall be deemed a representation and warranty by the Company or the Investment Adviser, as the case may be, to the Dealer Manager, as to the matters covered thereby. 2. AGREEMENT TO ACT AS DEALER MANAGER. (a) On the basis of the representations and warranties contained herein, and subject to the terms and conditions of the Offer: (i) The Company appoints the Dealer Manager as the exclusive dealer manager in connection with the Offer and the Dealer Manager accepts that appointment. The Company also authorizes the Dealer Manager to form and manage a group of securities dealers (each, a "Soliciting Dealer" and, collectively, the "Soliciting Group") to solicit the exercise of Rights pursuant to a Soliciting Dealer Agreement, in the form attached hereto as Exhibit A. The Dealer Manager represents and warrants that it is a broker- dealer registered under the Exchange Act. (ii) The Dealer Manager agrees to solicit, in accordance with the Securities Act, the Investment Company Act and the Exchange Act and the Rules and Regulations thereunder and its customary practice, the exercise of the Rights, subject to the terms and conditions of this Agreement, the Subscription Agent Agreement and the procedures described in the Registration Statement; and (B) form and manage the Soliciting Group to solicit, in accordance with the Securities Act, the Investment Company Act and the Exchange Act and the Rules and Regulations thereunder and its customary practice the exercise of the Rights, subject to the terms and conditions of this 12 Agreement, the Subscription Agent Agreement and the procedures described in the Registration Statement. No securities dealer shall be considered a Soliciting Dealer until it shall have entered into a Soliciting Dealer Agreement with the Dealer Manager in the form of Exhibit A hereto. (iii) The Company agrees to furnish, or cause to be furnished, to the Dealer Manager, lists, or copies of those lists, showing the names and addresses of, and number of shares of Common Stock held by, Holders as of the Record Date, and the Dealer Manager agrees to use such information only in connection with the Offer. (b) The Dealer Manager agrees to provide to the Company, in addition to the services described in paragraph (a) of this Section 2, financial advisory and marketing services in connection with the Offer. No advisory fee, other than the fees provided for in Section 3 of this Agreement and the reimbursement of the Dealer Manager's out-of-pocket expenses as described in Section 5 of this Agreement, will be payable by the Company to the Dealer Manager in connection with the financial advisory and marketing services provided by the Dealer Manager pursuant to this Section 2(b). (c) The Company and the Dealer Manager agree that the Dealer Manager is an independent contractor with respect to the solicitation of the exercise of Rights and the Over Subscription Privilege and the performance of financial advisory and marketing services for the Company contemplated by this Agreement and the Dealer Manager represents and warrants that it is acting on its own behalf in entering into this Agreement and performing its obligations hereunder. (d) In rendering the services contemplated by this Agreement, the Dealer Manager will not be subject to any liability to the Company, the Investment Adviser, any of their affiliates or any other person, for any act or omission on the part of any soliciting broker or dealer or any other person, and the Dealer Manager will not be liable for acts or omissions in performing its obligations under this Agreement, except as otherwise set forth in Section 7 hereto and except for any losses, claims, damages, liabilities and expenses that are finally judi- 13 cially determined to have resulted primarily from the bad faith, willful misconduct or gross negligence of the Dealer Manager or by reason of the reckless disregard of the obligations and duties of the Dealer Manager under this Agreement. 3. DEALER MANAGER AND SOLICITATION FEES. In full payment for the financial advisory and marketing services rendered and to be rendered hereunder by the Dealer Manager, the Company agrees to pay the Dealer Manager a fee (the "Dealer Manager Fee"), equal to 1.25% of the aggregate Subscription Price for the Shares issued pursuant to the exercise of Rights and the Over Subscription Privilege. The Company also agrees to pay Soliciting Dealers and the Dealer Manager, in full payment for their soliciting efforts, fees (the "Solicitation Fees") (such Solicitation Fees paid to the Dealer Manager are in addition to the Dealer Manager Fee) equal to 2.50% of the Subscription Price per Share for each Share issued pursuant to the exercise of Rights and the Over Subscription Privilege. The Company agrees to pay the Solicitation Fees to the broker-dealer designated on the applicable portion of the form used by the Holder to exercise Rights and the Over Subscription Privilege, and if no broker-dealer is so designated or a broker-dealer is otherwise not entitled to receive compensation pursuant to the terms of the Soliciting Dealer Agreement, then to pay the Dealer Manager the Solicitation Fee for such exercise of Rights and the Over Subscription Privilege. Payment to the Dealer Manager by the Company will be in the form of a wire transfer of same day funds to an account or accounts identified by the Dealer Manager. Such payment will be made on each date on which the Company issues Shares. Payment to a Soliciting Dealer will be made by the Company directly to such Soliciting Dealer by check to an address identified by such Soliciting Dealer. Such payments shall be made in next day funds on or before November 20, 1996. 4. OTHER AGREEMENTS. (a) The Company covenants with the Dealer Manager as follows: (i) The Company will use its best efforts to cause the Registration Statement to become effective under the Securities Act, and will advise the Dealer 14 Manager promptly as to the time at which the Registration Statement and any amendments thereto (including any post-effective amendment) becomes so effective. (ii) The Company will notify the Dealer Manager immediately, and confirm the notice in writing, (A) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (B) of the receipt of any comments from the Commission, (C) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (E) of the suspension of the qualification of the Shares or the Rights for offering or sale in any jurisdiction or (F) of the occurrence of any event that necessitates the making of any change in the Registration Statement or the Prospectus in order to make any statement therein or omission therefrom not misleading. The Company will make every reasonable effort to prevent the issuance of any stop order described in subsection (D) hereunder and, if any such stop order is issued, to obtain the lifting thereof at the earliest possible moment. (iii) The Company will give the Dealer Manager notice of its intention to file any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Dealer Manager in connection with the Offer, which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 497(c) or Rule 497(h) of the Rules and Regulations), whether pursuant to the Investment Company Act, the Securities Act, or otherwise, and will furnish the Dealer Manager with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or 15 supplement to which the Dealer Manager or counsel for the Dealer Manager shall reasonably object. (iv) The Company will, without charge, deliver to the Dealer Manager, as soon as practicable, the number of copies of the Registration Statement as originally filed and of each amendment thereto as it may reasonably request, in each case with the exhibits filed therewith. (v) The Company will, without charge, furnish to the Dealer Manager, from time to time during the period when the Prospectus is required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as the Dealer Manager may reasonably request for the purposes contemplated by the Securities Act or the Rules and Regulations thereunder. (vi) If any event shall occur as a result of which it is necessary, in the judgment of the Company or the reasonable opinion of counsel for the Dealer Manager, to amend or supplement the Registration Statement or the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a Holder, the Company will forthwith amend or supplement the Prospectus by preparing and filing with the Commission (and furnishing to the Dealer Manager a reasonable number of copies of) an amendment or amendments of the Registration Statement or an amendment or amendments of or a supplement or supplements to, the Prospectus (in form and substance satisfactory to counsel for the Dealer Manager), at the Company's expense, which will amend or supplement the Registration Statement or the Prospectus so that the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a Holder, not misleading; provided, however, that if the Company does not promptly amend or supplement the Registration Statement or the Prospectus in form and substance satisfactory to counsel for the Dealer Manager, then the Dealer Manager may terminate this 16 Agreement pursuant to Section 9(a)(vi) and the Company shall, at the Company's expense, amend or supplement the Registration Statement or the Prospectus to state the Dealer Manager has terminated this Agreement with respect to the Offer. (vii) The Company will endeavor, in cooperation with the Dealer Manager and its counsel, to assist such counsel to qualify the Rights and the Shares for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Dealer Manager may designate and maintain such qualifications in effect for the duration of the Offer; PROVIDED, HOWEVER, that the Company will not be obligated to qualify in any jurisdiction in which the Company would be required to (x) file any general consent to service of process, (y) qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not now so qualified or (z) be subject to taxation in such jurisdiction. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Rights and the Shares have been qualified as above provided. (viii) The Company will make generally available to its security holders as soon as practicable, but no later than 60 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the Rules and Regulations of the Securities Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the "effective" date (as defined in said Rule 158) of the Registration Statement. (ix) For a period of 180 days from the date of this Agreement, the Company will not, without the prior consent of the Dealer Manager, offer or sell, or enter into any agreement to sell, any equity or equity-related securities of the Company or securities convertible into such securities, other than the Rights and the Shares or Common Stock issued pursuant to reinvestment of dividends or distributions in accordance with the dividend investment plan, pursuant to the cash purchase plan or pursuant 17 to any distribution of dividends or capital gains payable in Common Stock declared by the Company or pursuant to a Common Stock split declared by the Company. (x) The Company will apply the net proceeds from the Offer as set forth under "Use of Proceeds" in the Prospectus. (xi) The Company will use its best efforts to cause the Shares to be duly authorized for listing by the New York Stock Exchange prior to the time the Shares are issued. (xii) The Company will use its best efforts to maintain its qualification as a regulated investment company under Subchapter M of the Code. (xiii) The Company will advise or cause the Subscription Agent to advise the Dealer Manager and each Soliciting Dealer from day to day during the period of, and promptly after the termination of, the Offer, as to the names and addresses of all Holders exercising Rights, the total number of Rights exercised and the number of Shares, including Shares requested pursuant to the Over Subscription Privilege, related thereto by each Holder during the immediately preceding day, indicating the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed and, for the Dealer Manager and each Soliciting Dealer, the number of Rights exercised and the number of Shares, including Shares requested pursuant to the Over Subscription Privilege, related thereto on subscription certificates indicating the Dealer Manager or such Soliciting Dealer, as the case may be, as the broker-dealer with respect thereto, and as to such other information as the Dealer Manager may reasonably request; and will notify the Dealer Manager and each Soliciting Dealer, not later than 5:00 P.M., New York City time, on the first business day following the expiration date of the Offer set forth in the Prospectus (the "Expiration Date"), of the total number of Rights exercised and the number of Shares, including Shares requested pursuant to the Over Subscription Privilege, related thereto, the total number of Rights 18 verified to be in proper form for exercise, rejected for exercise and being processed and, for the Dealer Manager and each Soliciting Dealer, the number of Rights exercised and the number of Shares, including Shares requested pursuant to the Over Subscription Privilege, related thereto on subscription certificates indicating the Dealer Manager or such Soliciting Dealer, as the case may be, as the broker-dealer with respect thereto, and as to such other information as the Dealer Manager may reasonably request. (xiv) The Company will comply with the undertaking contained in paragraph (c) of Item 33 in Part C of the Registration Statement. (xv) In the event that at any time on or prior to the final issuance and sale of Shares pursuant to the Offer any of the representations, warranties or agreements of the Company would not be true and correct in all material respects as if given or made at such time, the Company shall promptly notify the Dealer Manager thereof. The Company shall also promptly notify the Dealer Manager of its failure to perform any obligation on its part required to be performed or to satisfy any condition on its part required to be satisfied on or before any of the date hereof, the Representation Date, the Expiration Date and any date of the issuance and sale of Shares pursuant to the Offer. (b) The Company and the Investment Adviser will not take, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the issuance of the Rights or the sale or resale of the Shares; PROVIDED that any action authorized by and taken pursuant to the Company's dividend reinvestment plan and cash purchase will not be deemed to be within the meaning of this Section 4(b). (c) In the event that at any time on or prior to the final issuance and sale of Shares pursuant to the Offer any of the representations, warranties or agreements of the Investment Adviser would not be true and 19 correct in all material respects as if given or made at such time, the Investment Adviser shall promptly notify the Dealer Manager thereof. The Investment Adviser shall also promptly notify the Dealer Manager of its failure to perform any obligation on its part required to be performed or to satisfy any condition on its part required to be satisfied on or before any of the date hereof, the Representation Date, the Expiration Date and any date of issuance and sale of the Shares pursuant to the Offer. 5. PAYMENT OF EXPENSES. (a) The Company will pay all expenses incident to the performance of its obligations under this Agreement, including, but not limited to, expenses relating to (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation, issuance and delivery of the certificates for the Shares and subscription certificates relating to the Rights, (iii) the fees and disbursements of the Company's counsel (including the fees and disbursements of local counsel) and accountants, (iv) the qualification of the Rights and the Shares under securities laws in accordance with the provisions of Section 4(a)(vii) of this Agreement, including filing fees and the preparation of the Blue Sky Survey by counsel to the Dealer Manager, (v) the printing or other production and delivery to the Dealer Manager of copies of the Registration Statement as originally filed and of each amendment thereto and of the Prospectus and any amendments or supplements thereto, (vi) the printing and other production and delivery of copies of the Blue Sky Survey, (vii) the fees and expenses incurred with respect to filing with the National Association of Securities Dealers, Inc. ("NASD"), (viii) the fees and expenses incurred in connection with the listing of the Shares on the New York Stock Exchange, (ix) the printing or other production, mailing and delivery expenses incurred in connection with Offering Materials and (x) the fees and expenses incurred with respect to the Subscription Agent and Information Agent. (b) In addition to any fees that may be payable to the Dealer Manager under this Agreement, the Company agrees to reimburse the Dealer Manager upon request made from time to time for its reasonable expenses incurred in connection with its activities under this 20 Agreement, including the reasonable fees and disbursements of its legal counsel (excluding Blue Sky and NASD fees and expenses which are paid directly by the Company), in an amount up to $100,000. (c) If this Agreement is terminated by the Company for any reason (other than a material breach by the Dealer Manager of its duties hereunder) or by the Dealer Manager in accordance with the provisions of Section 6 or Section 9(a), the Company agrees to reimburse the Dealer Manager for all of its reasonable out-of-pocket expenses incurred in connection with its performance hereunder, including the reasonable fees and disbursements of counsel for the Dealer Manager. In the event the transactions contemplated hereunder are not consummated, the Company agrees to pay all of the costs and expenses set forth in paragraph (a) of this Section 5 which the Company would have paid if such transactions had been consummated. 6. CONDITIONS OF THE DEALER MANAGER'S OBLIGATIONS. The obligations of the Dealer Manager hereunder are subject to the accuracy of the respective representations and warranties of the Company and the Investment Adviser contained herein on the date hereof and as if made on each date up to and including the final issuance and sale of Shares pursuant to the Offer, to the performance by the Company and the Investment Adviser of their respective obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York City time, on September 27, 1996, or at such later time and date as may be approved in writing by the Dealer Manager; the Prospectus and any amendment or supplement thereto shall have been filed with the Commission in the manner and within the time period required by Rule 497(c), (e) or (h), as the case may be, under the Securities Act; no stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued, and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company, the Investment Adviser or the Dealer Manager, shall be contemplated by the Commission; and the Company shall have complied with any request of the Commission 21 for additional information (to be included in the Registration Statement or the Prospectus or otherwise). (b) On the Representation Date, the Dealer Manager shall have received: (1) The favorable opinion, dated the Representation Date, of Willkie, Farr & Gallagher, counsel for the Company, in form and substance satisfactory to counsel for the Dealer Manager, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, has full corporate power and authority to conduct its business as described in the Registration Statement and Prospectus, except that counsel need express no opinion as to securities or "blue sky" laws of any state, and is duly qualified to do business as a foreign corporation in each jurisdiction wherein it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to be so qualified would not result in a Material Adverse Effect. (ii) The Company is registered with the Commission under the Investment Company Act as a closed-end, diversified management investment company; to the knowledge of such counsel, no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission; all required action has been taken under the Securities Act and the Investment Company Act to make the public offering and consummate the issuance of the Rights and the issuance and sale of the Shares by the Company upon exercise of the Rights, and the provisions of the Company's charter and by-laws comply as to form in all material respects with the requirements of the Investment Company Act. (iii) The Company has an authorized capitalization as set forth in the Prospectus under 22 the heading "Common Stock"; the outstanding shares of Common Stock have been duly authorized and are validly issued, fully paid and non- assessable and conform in all material respects to the description thereof in the Prospectus under the heading "Common Stock"; the Rights have been duly authorized by all requisite action on the part of the Company for issuance pursuant to the Offer; the Shares have been or, with respect to Shares to be issued pursuant to the Oversubscription Privilege, will be duly authorized by all requisite action on the part of the Company for issuance and sale pursuant to the terms of the Offer and, when issued and delivered by the Company pursuant to the terms of the Offer against payment of the consideration set forth in the Prospectus, will be validly issued, fully paid and non-assessable; the Rights conform in all material respects to all statements relating thereto contained in the Prospectus under the heading "The Offer"; and, to the knowledge of such counsel, the issuance of each of the Rights and the Shares is not subject to any preemptive rights. (iv) To the knowledge of such counsel, there is no pending or threatened action, suit or proceeding affecting the Company or to which the Company is a party before or by any court or governmental agency, authority or body or any arbitrator, whether foreign or domestic. (v) There are no contracts or other documents of the Company required to be described in the Registration Statement or the Prospectus, or to be filed or incorporated by reference as exhibits which are not described or filed or incorporated by reference therein as permitted by the Securities Act, the Investment Company Act or the Rules and Regulations. (vi) Each of this Agreement, the Subscription Agency Agreement, the Information Agent Agreement and the Advisory Agreement has been duly authorized, executed and delivered by the Company; each of this Agreement, the Sub- 23 scription Agency Agreement, the Information Agent Agreement and the Advisory Agreement complies with all applicable provisions of the Investment Company Act and the Advisers Act; and, assuming due authorization, execution and delivery by the other parties thereto, each of this Agreement, the Subscription Agency Agreement, the Information Agent Agreement and the Advisory Agreement constitutes a legal, valid, binding and enforceable obligation of the Company, subject to the qualification that the enforceability of the Company's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights, and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and subject to the qualification that the right to indemnity may be limited by federal or state laws. (vii) Neither the issuance of the Rights, nor the issuance and sale of the Shares, nor the consummation by the Company of any other of the transactions contemplated in this Agreement, the Subscription Agency Agreement, the Information Agent Agreement and the Advisory Agreement nor the consummation of the transactions contemplated in the Registration Statement will result in a breach or violation of, or constitute a default under, the charter or by-laws of the Company, or, to the knowledge of such counsel, result in a breach or violation of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company under the terms and provisions of any agreement, indenture, mortgage, lease or other instrument to which the Company is a party or by which it may be bound or to which any of the property or assets of the Company is subject, nor, to the knowledge of such counsel, will such action result in any violation of any order, law, rule or regulation of any court or governmental agency or body under the laws of New York, federal law or the laws of any other 24 jurisdiction in the United States having jurisdiction over the Company or any of its properties. (viii) No consent, approval, authorization, notification or order of, or any filing with, any court or governmental agency or body is required under the laws of New York, federal law or, to such counsel's knowledge, the laws of any other jurisdiction in the United States for the consummation by the Company of the transactions contemplated by this Agreement or the Registration Statement, except (A) such as have been obtained and (B) such as may be required under the blue sky laws of any jurisdiction in connection with the transactions contemplated hereby. (ix) The Common Stock has been duly listed on the New York Stock Exchange and the Shares have been duly approved for listing, subject to official notice of issuance, on the New York Stock Exchange. (x) The Registration Statement has become effective under the Securities Act; to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Prospectus and each amendment thereof or supplement thereto (other than the financial statements and the notes thereto and the schedules and other financial and statistical data contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Securities Act and the Investment Company Act and the Rules and Regulations. (xi) The statements in the Prospectus under the heading "Taxation" fairly summarize the matters therein described. 25 In rendering such opinion, such counsel may rely (A) as to matters involving the application of the laws of Maryland to the extent they deem proper and specified in such opinion, upon the opinion of Venable, Baetjer and Howard LLP or upon the opinion of other counsel of good standing whom such counsel believes to be reliable and who are satisfactory to counsel for the Dealer Manager, (B) as to matters regarding the organization of the Company and its initial offering of its shares of capital stock, upon the opinion dated April 15, 1987 of Sullivan & Cromwell, counsel to the Company in connection therewith, to the extent that Willkie, Farr & Gallagher, the Dealer Manager and counsel to the Dealer Manager are entitled pursuant to the terms of such opinion or the express written authorization of Sullivan & Cromwell to rely thereon, and (C) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such counsel shall also have stated that, while they have not themselves checked the accuracy and completeness of or otherwise verified, and are not passing upon and assume no responsibility for the accuracy or completeness of, the statements contained in the Registration Statement or the Prospectus, in the course of their review and discussion of the contents of the Registration Statement and Prospectus with certain officers and employees of the Company and its independent accountants, no facts have come to their attention which cause them to believe that the Registration Statement (except as to such financial statements or schedules or other financial or statistical data included or incorporated by reference in the Registration Statement or the Prospectus, as to which such counsel expresses no belief), on the date it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading or that the Prospectus, as of its date and on such Representation Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (2) The favorable opinion, dated the Representation Date, of Venable, Baetjer and Howard, LLP, 26 special Maryland counsel to the Company, addressed to Willkie Farr & Gallagher and in form and substance satisfactory to counsel for the Dealer Manager, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, and has full corporate power and authority to conduct its business in the State of Maryland as described in the Registration Statement and Prospectus, except that counsel need express no opinion as to securities or "blue sky" laws of the State of Maryland. (ii) The Company has an authorized capitalization as set forth in the Prospectus under the heading "Common Stock"; the outstanding shares of Common Stock of the Company have been duly authorized and are validly issued and are fully paid and nonassessable and, with respect to statements pertaining to Maryland law thereto, the Shares conform in all material respects to the description thereof in the Prospectus under the heading "Common Stock"; the Rights have been duly authorized by all requisite action on the part of the Company for issuance pursuant to the Offer; the Shares have been or, with respect to the Shares to be issued pursuant to the Over-Subscription Privilege will be, duly authorized by all requisite action on the part of the Company for issuance and sale pursuant to the terms of the Offer and, when issued and delivered by the Company pursuant to the terms of the Offer against payment of the consideration set forth in the Prospectus, will be validly issued, fully paid and nonassessable; the Rights conform in all material respects to all statements with respect to Maryland law relating thereto contained in the Prospectus under the heading "The Offer"; and the issuance of each of the Rights and the Shares is not subject to any preemptive rights under the Company's charter or bylaws or under Maryland law or, to their knowledge, otherwise. 27 (iii) To the knowledge of such counsel, there is no pending or threatened action, suit or proceeding affecting the Company or to which the Company is a party before or by any Maryland court or Maryland governmental agency, authority or body or any arbitrator in the State of Maryland. (iv) Each of this Agreement and the Company Agreements has been duly authorized by the Company. (v) Neither the issuance of the Rights, nor the issuance and sale of the Shares by the Company, nor the consummation by the Company of any other of the transactions contemplated in this Agreement and the Company Agreements nor the consummation of the transactions contemplated in the Registration Statement will result in a breach or violation of, or constitute a default under the charter or by-laws of the Company nor to our knowledge will such action result in any violation of any order, law, rule or regulation of any Maryland court or Maryland governmental agency or body. (vi) No consent, approval, authorization, notification or order of, or any filing with, any Maryland court or Maryland governmental agency or body is required under the Maryland General Corporation Law for the consummation by the Company of the transactions contemplated by this Agreement or the Registration Statement in connection with the issuance of the Rights and the sale of the Shares by the Company, except (A) such as have been obtained and (B) such as may be required under the securities and "Blue Sky" laws of the State of Maryland in connection with the transactions contemplated hereby. In rendering such opinion, such counsel may rely as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. (3) The favorable opinion, dated the Representation Date, of Willkie, Farr & Gallagher, counsel 28 for the Investment Adviser, in form and substance satisfactory to counsel for the Dealer Manager, to the effect that: (i) The Investment Adviser is validly existing as a general partnership under the laws of the State of New York, with partnership power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, and is duly qualified to do business as a foreign entity in each jurisdiction wherein it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to be so qualified does not result in an Adviser Material Adverse Effect. (ii) The Investment Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such Acts, from acting as an investment adviser for the Company as contemplated in the Prospectus and the Advisory Agreement. (iii) Each of this Agreement and the Advisory Agreement has been duly authorized, executed and delivered by the Investment Adviser; each of this Agreement and the Advisory Agreement complies with all applicable provisions of the Advisers Act, the Investment Company Act and the rules and regulations under such Acts; and each of this Agreement and the Advisory Agreement is, assuming due authorization, execution and delivery by the other parties thereto, a legal, valid, binding and enforceable obligation of the Investment Adviser, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights, and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). 29 (iv) Neither the performance by the Investment Adviser of its obligations under this Agreement nor the consummation of the transactions contemplated therein or in the Registration Statement nor the fulfillment of the terms thereof will result in a breach or violation of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Investment Adviser under the partnership agreement of the Investment Adviser, or, to the knowledge of such counsel, the terms and provisions of any agreement, indenture, mortgage, lease or other instrument to which the Investment Adviser is a party or by which it may be bound or to which any of the property or assets of the Investment Adviser is subject, or any order, law, rule or regulation of any court or governmental agency or body under the laws of New York, federal law or the laws of any other jurisdiction in the United States having jurisdiction over the Investment Adviser or any of its properties. (v) To the knowledge of such counsel, there is no pending or threatened action, suit or proceeding to which the Investment Adviser is a party before or by any court or governmental agency, authority or body or any arbitrator, whether foreign or domestic, which reasonably might result in a Material Adverse Effect or might materially and adversely affect the ability of the Investment Adviser to perform its obligations under the Advisory Agreement. (vi) No consent, approval, authorization, notification or order of, or any filing with, any court or governmental agency or body, under the laws of New York, federal law or the laws of any other jurisdiction in the United States is required for the consummation by the Investment Adviser of the transactions contemplated by this Agreement. In rendering such opinion, such counsel may rely as to matters of fact, to the extent such counsel deems proper, 30 on certificates of responsible officers of the Investment Adviser and public officials. (c) The Dealer Manager shall have received from Skadden, Arps, Slate, Meagher & Flom, counsel for the Dealer Manager, such opinion, dated the Representation Date, with respect to the Offer, the Registration Statement, the Prospectus and other related matters as the Dealer Manager may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (d) The Company shall have furnished to the Dealer Manager a certificate of the Company, signed by the Chairman of the Board, the President or a Vice President of the Company, dated the Representation Date, to the effect that the signers of such certificate have examined the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement and that, to the best of their knowledge: (i) The representations and warranties of the Company in this Agreement are true and correct in all material respects on and as of the Representation Date with the same effect as if made on the Representation Date and the Company has complied with all the agreements and satisfied all the conditions in this Agreement on its part to be performed or satisfied at or prior to the Representation Date. (ii) No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened. (iii) Since the date of the most recent balance sheet included or incorporated by reference in the Prospectus, there has been no material adverse change in the condition (financial or other), earnings, business or properties of the Company, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus. (e) The Investment Adviser shall have furnished to the Dealer Manager a certificate, signed by a 31 Managing Director, dated the Representation Date, to the effect that the signer of such certificate has read the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement and, to the best knowledge of such signer, the representations and warranties of the Investment Adviser in this Agreement are true and correct in all material respects on and as of the Representation Date with the same effect as if made on the Representation Date and the Investment Adviser has complied with all the agreements and satisfied all the conditions in this Agreement on its part to be performed or satisfied at or prior to the Representation Date. (f) Price Waterhouse LLP shall have furnished to the Dealer Manager a Letter, dated the Representation Date, in form and substance satisfactory to the Dealer Manager, and stating in effect that: (i) They are independent accountants with respect to the Company within the meaning of the Securities Act and the applicable Rules and Regulations. (ii) In their opinion, the audited financial statements examined by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Investment Company Act and the respective Rules and Regulations with respect to registration statements on Form N-2. (iii) They have performed specified procedures, not constituting an audit, including a reading of the latest available interim financial information of the Company, a reading of the minute books of the Company, inquiries of officials of the Company responsible for financial or accounting matters and such other inquiries and procedures which shall be specified in such letter, and on the basis of such inquiries and procedures nothing came to their attention that caused them to believe that at the date of the latest available financial information read by such accountants, or at a subsequent specified date not more than five business days prior to the Representation Date, there was any change in the capital stock, increase in long-term debt or de- 32 crease in net assets of the Company as compared with amounts shown in the most recent statement of assets and liabilities included or incorporated by reference in the Registration Statement, except as the Registration Statement discloses has occurred or may occur or as disclosed in their letter. (iv) In addition to the procedures referred to in clause (iii) above, they have performed other specified procedures, not constituting an audit, with respect to certain amounts, percentages, numerical data and financial information appearing in the Registration Statement, which have previously been specified by the Dealer Manager and which shall be specified in such letter, and have compared such items with, and have found such items to be in agreement with, the accounting and financial records of the Company. (g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 6, or (ii) any change, or any development involving a prospective change, in or affecting the business, condition (financial or otherwise) or properties of the Company, the effect of which, in any case referred to in clause (i) or (ii) above, makes it, in the reasonable judgment of the Dealer Manager, impractical or inadvisable to proceed with the Offer as contemplated by the Registration Statement and the Prospectus. (h) Prior to the Representation Date, the Company shall have furnished to the Dealer Manager such further information, certificates and documents as the Dealer Manager may reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects satisfactory in form and substance to the Dealer Manager and its counsel, this Agreement and all obligations of the Dealer Manager hereunder may be canceled at, or at any time prior to, the Representation Date by the 33 Dealer Manager. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and hold harmless the Dealer Manager, the directors, officers, employees and agents of the Dealer Manager and each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act or other statutory law or regulation, at common law or otherwise, whether foreign or domestic, insofar as such losses, claims, damages or liabilities arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus or the Offering Materials, and any amendment or supplement thereto, or the omission or alleged omission to state in any or all such documents a material fact required to be stated therein or necessary to make the statements in it not misleading (in the case of the Prospectus, in light of the circumstances under which such statements were made), (ii) the failure by the Company to make the Offer, including the withdrawal or termination of the Offer by the Company or (iii) the failure of the Company to comply with the undertaking contained in paragraph (c) of Item 33 in Part C of the Registration Statement; provided that the Company will not be liable to the extent that such loss, claim, damage or liability arises from an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information furnished in writing to the Company by the Dealer Manager expressly for use in the document. (b) The Investment Adviser will indemnify and hold harmless the Dealer Manager, the directors, officers, employees and agents of the Dealer Manager and each person, if any, who controls the Dealer Manager within 34 the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which they or any of them may become subject under the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act or other statutory law or regulation, at common law or otherwise, whether foreign or domestic, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus or the Offering Materials and any amendment or supplement thereto, or the omission or alleged omission to state in any or all such documents a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that the Investment Adviser shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Dealer Manager specifically for use in connection with the preparation thereof; and PROVIDED FURTHER that (x) the obligation of the Investment Adviser under this Section 7(b) shall not apply to any loss, claim, damage or liability to the extent arising out of or based upon any untrue statement or alleged untrue statement of or omission or alleged omission contained in the Registration Statement, the Prospectus or the Offering Materials (or any amendment or supplement thereto) except in respect of statements contained under the captions "Management of the Fund -- BEA Associates" or under the caption "Prospectus Summary" insofar as the statements under such second caption relate to the information under the first caption referred to in this proviso, and (y) the Investment Adviser will be liable to any party to be indemnified by it under this Section 7(b) in any case only to the extent that the Company fails to indemnify and hold harmless such indemnified party pursuant to Section 7(a). The foregoing indemnity agreement is in addition to any liability which the Investment Adviser may otherwise have to the Dealer Manager or any controlling person of the 35 Dealer Manager. This Section 7(b) is not intended to diminish in any way the Company's obligation timely to indemnify and hold harmless any indemnified party pursuant to Section 7(a). Each indemnified party agrees that the Investment Adviser may bring suit, or take any other appropriate action in law or in equity, against the Company in the name of such indemnified party to enforce the Company's indemnity obligation to such indemnified party pursuant to Section 7(a) in respect of any amount that the Investment Adviser has paid to such indemnified party pursuant to this Section 7(b). Such indemnified party will cooperate with and assist the Investment Adviser in the conduct of any such action and the Investment Adviser will pay all expenses of such action and will reimburse such indemnified party for all reasonable out-of-pocket expenses. The Investment Adviser will be entitled to all amounts recovered in any such action. (c) The Dealer Manager will indemnify and hold harmless the Company, the Investment Adviser, each director and officer of the Company who signs the Registration Statement and each person, if any, who controls the Company or the Investment Adviser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company or the Investment Adviser to the Dealer Manager, but only insofar as losses, claims, damages or liabilities arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information furnished in writing to the Company by the Dealer Manager expressly for use in preparation of the documents in which the statement or omission is made or alleged to be made. This indemnity agreement will be in addition to any liability that the Dealer Manager might otherwise have. (d) Any party that proposes to assert the right to be indemnified under this Section 7 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 7, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission to notify such indemnifying party will not, except to the extent set forth below, relieve it from liability that it may have to any 36 indemnified party. No indemnification provided for in Sections 7(a) - (c) hereof shall be available to any party who shall fail to give notice as provided in this Section 7(d) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the omission to notify such indemnifying party of such action shall not relieve it from any liability that it may have to any indemnified party for contribution or otherwise on account of the provisions in Sections 7(a) - (c). If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in, and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and, after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its counsel in any such action, but the fees and expenses of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (3) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees and expenses of counsel will be at the expense of the indemnifying party or parties. All such fees and expenses will be reimbursed promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected 37 without its written consent or, in connection with any proceeding or related proceeding in the same jurisdiction, for the fees and expenses of more than one separate counsel for all indemnified parties except to the extent provided herein. (e) In no case shall the indemnification provided in this Section 7 be available to protect any person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its or his obligations or duties hereunder, or by reason of its or his reckless disregard of its or his obligations and duties hereunder. (f) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 7 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), the Company, the Investment Adviser and the Dealer Manager, in order to provide for just and equitable contribution, agree as provided below. The Company and the Dealer Manager shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportions as are appropriate to reflect the relative benefits received by the Company on the one hand and by the Dealer Manager on the other from the offering of the Shares; PROVIDED, HOWEVER, that neither the Company nor the Dealer Manager shall contribute to the amount paid or payable by such indemnified party as a result of any such losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission contained in the Prospectus (or any amendment or supplement thereto) in respect of statements contained under the captions "Management of the Fund -- BEA Associates" or under the caption "Prospectus Summary" insofar as the statements under the second caption related to the information under the first caption referred to above, which amounts shall be contributed by the Investment Adviser to the amount paid or payable by the indemnified party. If the allocation between the Company and the Dealer 38 Manager provided by the immediately preceding sentence is unavailable for any reason, the Company and the Dealer Manager shall contribute in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Dealer Manager, respectively, in connection with the statements or omissions that result in such loss, claim, damage or liability (or actions in respect thereof) as well as any other relevant equitable considerations, subject, however, to the proviso contained in the immediately preceding sentence. The relative benefits received by the Company on the one hand and the Dealer Manager on the other shall be deemed to be in the same proportion as the aggregate net proceeds from the subscription for the Shares (before deducting expenses) received by the Company bears to the amounts received by the Dealer Manager pursuant to Section 3 hereof. The relative fault of the Company on the one hand and the Dealer Manager on the other shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Dealer Manager, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Investment Adviser and the Dealer Manager agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to above in this paragraph (f). Notwithstanding any other provision of this paragraph (f), the Dealer Manager shall not be obligated to make contribution hereunder that in the aggregate exceeds (i) the amount of the total fees paid to the Dealer Manager pursuant to Section 3 of this Agreement, less (ii) the aggregate amount of any damages that the Dealer Manager has otherwise been required to pay in respect of the same or any substantially similar claim, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (f), each person, if any, who controls the Investment Adviser or the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Investment Adviser or the Dealer Manager, respectively, and each director of the Company, each officer of 39 Company who signed the Registration Statement and each person, if any, who controls the Company, within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 7, notify such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have otherwise than under this Section 7. No party will be liable for contribution with respect to any action or claim settled without its written consent. (g) The Company and the Investment Adviser agree to indemnify each Soliciting Dealer, the directors, officers, employees and agents of each Soliciting Dealer and controlling persons of each Soliciting Dealer to the same extent and subject to the same conditions and to the same agreements, including with respect to contribution, provided for in subsections (a), (b), (c), (d), (e) and (f) of this Section 7. (h) The Company and the Investment Adviser acknowledge that the statements contained in the first two sentences under the caption "Distribution Arrangements" in the Prospectus constitute the only information furnished in writing to the Company by the Dealer Manager expressly for use in such document; and the Dealer Manager confirms that such statements are correct. 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers, of the Investment Adviser and of the Dealer Manager set forth in or made pursuant to this Agreement shall survive the Expiration Date and will remain in full force and effect, regardless of any investigation made by or on behalf of Dealer Manager, the Company or the Investment Adviser or any of the officers, directors or controlling persons referred to in Section 7 hereof, and will survive delivery of and payment for the Shares pursuant to the Offer; provided, however, that following delivery and payment for the Shares, the remedies against the Investment Adviser for breach of its 40 representations and warranties shall, in the absence of fraudulent misrepresentation by the Investment Adviser, which shall not include fraudulent misrepresentation attributed to the Investment Adviser solely by virtue of and in the event of its being a controlling person of the Company, be limited to those available pursuant to Section 7 hereof. The provisions of Section 5 and 7 hereof shall survive the termination or cancellation of this Agreement. 9. TERMINATION OF AGREEMENT. (a) This Agreement shall be subject to termination in the absolute discretion of the Dealer Manager, by notice given to the Company prior to the expiration of the Offer, if prior to such time (i) there has been a material change in general economic, political, social or financial conditions in the United States or the effect of international conditions on the financial markets in the United States such that, in the Dealer Manager's judgment, it is impracticable or inadvisable to proceed with the Offer, (ii) there has occurred any outbreak or material escalation of hostilities or other calamity or crisis the effect of which, in the Dealer Manager's judgment, renders it impracticable or inadvisable to proceed with the Offer, (iii) trading in the shares of Common Stock shall have been suspended by the Commission or the New York Stock Exchange, (iv) trading in securities generally on the New York Stock Exchange shall have been suspended or limited, (v) a banking moratorium shall have been declared either by Federal or New York State authorities or (vi) the Company shall fail to amend or supplement the Registration Statement or the Prospectus as provided in Section 4(a)(vi). (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 5. 10. NOTICES. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Dealer Manager, will be mailed, delivered or telegraphed and confirmed to Smith Barney Inc., Attn.: William B. Ogden, III, 388 Greenwich Street, New York, New York 10013; or if sent to the Company or the Investment Adviser will be mailed, or delivered or telegraphed and confirmed to them at: BEA Income Fund, Inc., c/o BEA 41 Associates, One Citicorp Center, 153 East 53rd Street, 58th Floor, New York, New York 10022 or BEA Associates, One Citicorp Center, 153 East 53rd Street, 57th Floor, New York, New York 10022, respectively. 11. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and will inure to the benefit of the officers and directors and controlling persons referred to in Section 7 hereof, and no other person will have any right or obligation hereunder. 12. APPLICABLE LAW. This Agreement will be governed by and construed in accordance with the laws of the State of New York. 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 42 If the foregoing is in accordance with your understanding of our agreement, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company, the Investment Adviser and the Dealer Manager. Very truly yours, BEA Income Fund, Inc. By: ----------------------------- Name: ------------------------ Title: ----------------------- BEA Associates By: ----------------------------- Name: ------------------------ Title: ----------------------- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. Smith Barney Inc. By: ------------------------------ Name: ------------------------- Title: ------------------------ EX-99.H(2) 12 EXHIBIT 99.H(2) EXHIBIT A BEA INCOME FUND, INC. Rights Offering for Shares of Common Stock SOLICITING DEALER AGREEMENT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, October 22, 1996.(1) To Securities Dealers and Brokers: BEA Income Fund, Inc. (the "Company") is issuing to its shareholders of record ("Record Date Shareholders") as of the close of business on September 27, 1996 (the "Record Date") non-transferable rights ("Rights") to subscribe for an aggregate of up to 8,128,456 shares (the "Shares") of common stock, par value $0.001 per share (the "Common Stock"), of the Company upon the terms and subject to the conditions set forth in the Company's Prospectus (the "Prospectus") dated September 27, 1996 (the "Offer"). Each such Record Date Shareholder is being issued one Right for each full share of Common Stock owned on the Record Date. The Rights entitle the Record Date Shareholder, during the Subscription Period (as hereinafter defined) to acquire at the Subscription Price (as hereinafter defined), one Share for each three Rights held in the primary subscription. No fractional Shares will be issued. The Subscription Price will be 95% of the lower of (i) the average of the last reported sales prices of a share of the Company's Common Stock on the New York Stock Exchange on the date of the expiration of the Offer (the "Pricing Date") and the four preceding business days and (ii) the net asset value per share as of the Pricing Date. The Subscription Period will commence on September 27, 1996 and end on the Expira- tion Date. (With respect to the Offer, the term "Expiration Date" means 5:00 p.m., New York City time, on October 22, 1996, unless and until the Company shall, in its sole discretion, have extended the - --------------- (1) Unless extended to a date no later than October 25, 1996. A-1 period for which the Offer is open, in which event the term "Expiration Date" with respect to the Offer will mean the latest time and date on which the Offer, as so extended by the Company, will expire.) Any Record Date Shareholder who fully exercises all Rights issued to such shareholder is entitled to subscribe for Shares which were not otherwise subscribed for by others on primary subscription (the "Over-Subscription Privilege"). Shares acquired pursuant to the Over-Subscription Privilege are subject to allotment, as more fully discussed in the Prospectus. For the duration of the Offer, the Company has agreed to pay Solicita- tion Fees to any qualified broker or dealer executing a Soliciting Dealer Agreement who solicits the exercise of Rights and the Over Subscription Privi- lege in connection with the Offer and who complies with the procedures described below (a "Soliciting Dealer"). Upon timely delivery to The Chase Manhattan Bank, the Company's Subscription Agent for the Offer, of payment for Shares purchased pursuant to the exercise of Rights and the Over Subscription Privilege and of properly completed and executed documentation as set forth in this Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to receive Solicitation Fees equal to 2.50% of the Subscription Price per Share so pur- chased; provided, however, that no payment shall be due with respect to the issuance of any Shares until payment therefor is actually received. A qualified broker or dealer is a broker or dealer which is a member of a registered national securities exchange in the United States or the National Association of Securities Dealers, Inc. ("NASD") or any foreign broker or dealer not eligible for membership who agrees to conform to the Rules of Fair Practice of the NASD, including Sections 8, 24, 25 and 36 thereof, in making solicitations in the United States to the same extent as if it were a member thereof. The Company has agreed to pay the Solicitation Fees payable to the undersigned Soliciting Dealer and to indemnify such Soliciting Dealer on the terms set forth in the Dealer Manager Agreement, dated September 27, 1996, among Smith Barney Inc. as the Dealer Manager, the Company and others (the "Dealer Manager Agreement"). Solicitation and other activities by Soliciting Dealers may be undertaken only in accordance with the applicable rules and regulations of the Securities and Exchange A-2 Commission and only in those states and other jurisdictions where such solicitations and other activities may lawfully be undertaken and in accordance with the laws thereof. Compensation will not be paid for solicitations in any state or other jurisdiction in which, in the opinion of counsel to the Company or counsel to the Dealer Manager, such compensation may not lawfully be paid. No Soliciting Dealer shall be paid Solicitation Fees with respect to Shares purchased pursuant to an exercise of Rights or the Over Subscription Privilege for its own account or for the account of any affiliate of the Soliciting Dealer, except that the Dealer Manager shall receive the Solicitation Fees with respect to Shares purchased pursuant to an exercise of Rights or the Over Subscription Privilege for its own account provided that such Shares are offered and sold by the Dealer Manager to its clients. No Soliciting Dealer or any other person is authorized by the Company or the Dealer Manager to give any information or make any representations in connection with the Offer other than those contained in the Prospectus and other authorized solicitation material furnished by the Company through the Dealer Manager. No Soliciting Dealer is authorized to act as agent of the Company or the Dealer Manager in any connection or transaction. In addition, nothing herein contained shall constitute the Soliciting Dealers partners with the Dealer Manager or with one another, or agents of the Dealer Manager or of the Company, or create any association between such parties, or shall render the Dealer Manager or the Company liable for the obligations of any Soliciting Dealer. The Dealer Manager shall be under no liability to make any payment to any Soliciting Dealer, and shall be subject to no other liabilities to any Soliciting Dealer, and no obligations of any sort shall be implied. In order for a Soliciting Dealer to receive Solicitation Fees, the Subscription Agent must have received from such Soliciting Dealer no later than 5:00 p.m., New York City time, on the Expiration Date, either (i) a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights or the Over Subscription Privilege and full payment for such Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the Subscription Agent by close of business on the third business day after the Expiration Date, of (a) full payment A-3 for such Shares with respect to Shares purchased pursuant to the exercise of Rights and the Over-Subscription Privilege and (b) a properly completed and duly executed Subscription Certificate with respect to such Shares. Solicitation Fees will only be paid after receipt by the Subscription Agent of a properly completed and duly executed Soliciting Dealer Agreement (or a facsimile thereof). In the case of a Notice of Guaranteed Delivery, Solicitation Fees will only be paid after delivery in accordance with such Notice of Guaranteed Delivery has been effected. Solicitation Fees will be paid by the Company to the Soliciting Dealer in next day funds to an address designated by the Soliciting Dealer below by November 20, 1996. All questions as to the form, validity and eligibility (including time of receipt) of this Soliciting Dealer Agreement will be determined by the Company, in its sole discretion, which determination shall be final and binding. Unless waived, any irregularities in connection with a Soliciting Dealer Agreement or delivery thereof must be cured within such time as the Company shall determine. None of the Company, the Dealer Manager, Subscription Agent, the Information Agent for the Offer (Shareholder Communications Corporation) or any other person will be under any duty to give notification of any defects or irregularities in any Soliciting Dealer Agreement or incur any liability for failure to give such notification. The acceptance of Solicitation Fees from the Company by the under- signed Soliciting Dealer shall constitute a representation by such Soliciting Dealer to the Company that: (i) it has received and reviewed the Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of the Rights and the Over Subscription Privilege, it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the applicable rules and regulations thereunder, any applicable securi- ties laws of any state or jurisdiction where such solicitations may lawfully be made, and the applicable rules and regulations of any self-regulatory organiza- tion or registered national securities exchange; (iii) in soliciting purchases of Shares pursuant to the exercise of the Rights and the Over Subscription Privilege, it has not published, circulated or used any soliciting materials other than the A-4 Prospectus and any other authorized solicitation material furnished by the Company through the Dealer Manager; (iv) it has not purported to act as agent of the Company or the Dealer Manager in any connection or transaction relating to the Offer; (v) the information contained in this Soliciting Dealer Agreement is, to its best knowledge, true and complete; (vi) it is not affiliated with the Company; (vii) it will not accept Solicitation Fees paid by the Company pursuant to the terms hereof with respect to Shares purchased by the Soliciting Dealer pursuant to an exercise of Rights and the Over Subscription Privilege for its own account; (viii) it will not remit, directly or indirectly, any part of Solicitation Fees paid by the Company pursuant to the terms hereof to any beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has agreed to the amount of the Solicitation Fees and the terms and conditions set forth herein with respect to receiving such Solicitation Fees. By returning a Soliciting Dealer Agreement and accepting Solicitation Fees, a Soliciting Dealer will be deemed to have agreed to indemnify the Company and the Dealer Manager against losses, claims, damages and liabilities to which the Company or the Dealer Manager may become subject as a result of the breach of such Soliciting Dealer's representations made herein and described above. In making the foregoing representations, Soliciting Dealers are reminded of the possible applicability of Rule 10b-6 under the Exchange Act if they have bought, sold, dealt in or traded in any Shares for their own account since the commencement of the Offer. Upon expiration of the Offer, no Solicitation Fees will be payable to Soliciting Dealers with respect to Shares purchased thereafter. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Dealer Manager Agreement or, if not defined therein, in the Prospectus. This Soliciting Dealer Agreement will be governed by the laws of the State of New York without reference to the choice of law principles thereof. Please execute this Soliciting Dealer Agreement below accepting the terms and conditions hereof and confirming that you are a member firm of a registered A-5 national securities exchange or of the NASD or a foreign broker or dealer not eligible for membership who has conformed to the Rules of Fair Practice of the NASD, including Sections 8, 24, 25 and 36 thereof, in making solicitations of the type being undertaken pursuant to the Offer in the United States to the same extent as if you were a member thereof, and certifying that you have solicited the purchase of the Shares pursuant to exercise of the Rights and the Over Subscription Privilege, all as described above, in accordance with the terms and conditions set forth in this Soliciting Dealer Agreement. Please forward two executed copies of this Soliciting Dealer Agreement to The Chase Manhattan Bank, Retail Processing, 770 Broadway, 7th Floor, New York, New York 10003. A signed copy of this Soliciting Dealer Agreement will be promptly returned to the Soliciting Dealer at the address set forth below. Very truly yours, BEA Income Fund, Inc. By: ---------------------------- Name: Title: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PLEASE COMPLETE THE INFORMATION BELOW: ACCEPTED AND CONFIRMED BY SOLICITING DEALER - ----------------------- ------------------------------ Printed Firm Name Address - ----------------------- ------------------------------ Authorized Signature Area Code and Telephone Number - ----------------------- ------------------------------ Name and Title Area Code and Facsimile Number A-6 Dated: ---------------- Payment of the Solicitation Fee shall be mailed by check to the following address: ________________________ ________________________ ________________________ A-7 EX-99.J(1) 13 EXHIBIT 99.J(1) MUTUAL FUND CUSTODY AGREEMENT FIRST BOSTON INCOME FUND, INC. UNITED STATES TRUST COMPANY OF NEW YORK MUTUAL FUND CUSTODY AGREEMENT FIRST BOSTON INCOME FUND, INC. TABLE OF CONTENTS SECTION/PARAGRAPH PAGE 1. Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . .1 3. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 4. Delivery and Registration of the Property. . . . . . . . . . . . . . . .5 5. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 6. Receipt and Disbursement of Money. . . . . . . . . . . . . . . . . . . .6 7. Receipt of Securities. . . . . . . . . . . . . . . . . . . . . . . . . .7 8. Use of Securities Depository or the Book-Entry System. . . . . . . . . .8 9. Instructions Consistent With The Articles, etc . . . . . . . . . . . . .9 10. Transactions Not Requiring Instructions. . . . . . . . . . . . . . . . 11 11. Transactions Requiring Instructions. . . . . . . . . . . . . . . . . . 16 12. Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . 17 13. Sales of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 18 14. Authorized Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 15. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16. Cooperation with Accountants . . . . . . . . . . . . . . . . . . . . . 19 17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 18. Equipment Failures . . . . . . . . . . . . . . . . . . . . . . . . . . 20 19. Right to Receive Advice. . . . . . . . . . . . . . . . . . . . . . . . 20 20. Compliance with Governmental Rules and Regulations . . . . . . . . . . 21 21. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 22. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 -i- 23. Responsibility of U.S. Trust . . . . . . . . . . . . . . . . . . . . . 23 24. Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 25. Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . 25 26. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 27. Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 28. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 29. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Attachment A -- Fees and Expenses A-1 Attachment B -- Authorized Persons B-1 -ii- MUTUAL FUND CUSTODY AGREEMENT THIS AGREEMENT is made as of May 1, 1993, by and between FIRST BOSTON INCOME FUND, INC., a Maryland corporation (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank trust company ("U.S. Trust"). W I T N E S S E T H WHEREAS, the Company is registered as a closed-end investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Company desires to retain U.S. Trust to serve as the Company's custodian and U.S. Trust is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Company hereby appoints U.S. Trust to act as custodian of its portfolio securities, cash and other property on the terms set forth in this Agreement. U.S. Trust accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Paragraph 21 of this Agreement. 2. DELIVERY OF DOCUMENTS. The Company will promptly furnish to U.S. Trust such copies, properly certified or authenticated, of contracts, documents and other related information that U.S. Trust may request or requires to properly -1- discharge its duties. Such documents may include but are not limited to the following: (a) Resolutions of the Company's Directors authorizing the appointment of U.S. Trust as Custodian of the portfolio securities, cash and other property of the Company and approving this Agreement; (b) Incumbency and signature certificates identifying and containing the signatures of the Company's officers and/or the persons authorized to sign Written Instructions, as hereinafter defined, on behalf of the Company; (c) The Company's Articles of Incorporation filed with the Department of Assessments and Taxation of the State of Maryland and all amendments thereto (such Articles of Incorporation, as currently in effect and as they shall from time to time be amended, are herein called the "Articles"); (d) The Company's By-Laws and all amendments thereto (such By-Laws, as currently in effect and as they shall from time to time be amended, are herein called the "By-Laws"); (e) Resolutions of the Company's Directors and/or the Company's stockholders approving the Investment Advisory Agreement between the Company and the Company's investment adviser (the "Advisory Agreement"); (f) The Advisory Agreement; (g) The Company's current Registration Statement on Form N-2 under the 1940 Act, as amended, as filed with the Securities and Exchange Commission (the "SEC"); and -2- (h) Each Fund's most recent prospectus including all amendments and supplements thereto (the "Prospectus"). The Company will furnish U.S. Trust from time to time with copies of all amendments of or supplements to the foregoing, if any. The Company will also furnish U.S. Trust with a copy of the opinion of counsel for the Company with respect to the validity of the shares of common stock, par value $.001 per share (the "Shares"), of the Company and the status of such Shares under the 1933 Act as registered with the SEC, and under any other applicable federal law or regulation. 3. DEFINITIONS. (a) "AUTHORIZED PERSON". As used in this Agreement, the term "Authorized Person" means the Company's President, Vice-President, Treasurer and any other person, whether or not any such person is an officer or employee of the Company, duly authorized by the Directors of the Company to give Written Instructions on behalf of the Company and listed on Attachment B hereto which may be amended from time to time. (b) "BOOK-ENTRY SYSTEM". As used in this Agreement, the term "Book- Entry System" means the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees. (c) "PROPERTY". The term "Property", as used in this Agreement, means: (i) any and all securities, cash, and other property of the Company which the Company may from time -3- to time deposit, or cause to be deposited, with U.S. Trust or which U.S. Trust may from time to time hold for the Company; (ii) all income in respect of any such securities or other property; (iii) all proceeds of the sales of any of such Securities or other property; and (iv) all proceeds of the sale of securities issued by the Company, which are received by U.S. Trust from time to time from or on behalf of the Company. (d) "SECURITIES DEPOSITORY". As used in this Agreement, the term "Securities Depository" shall mean The Depository Trust Company, a clearing agency registered with the SEC, or its successor or successors and its nominee or nominees; and shall also mean any other registered clearing agency, its successor or successors, specifically identified in a certified copy of a resolution of the Company's Directors approving deposits by U.S. Trust therein. (e) "WRITTEN INSTRUCTIONS". Means instructions (i) delivered by mail, tested telegram, cable, telex, facsimile sending device, and received by U.S. Trust, signed by two Authorized Persons or by persons reasonably believed by U.S. Trust to be Authorized Persons; or (ii) transmitted electronically through the U.S. Trust Asset Management System or any similar electronic instruction system acceptable to U.S. Trust. -4- 4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Company will deliver or cause to be delivered to U.S. Trust all Property owned by it, including cash received for the issuance of its Shares, at any time during the period of this Agreement, except for securities and monies to be delivered to any subcustodian appointed pursuant to Paragraph 7 hereof. U.S. Trust will not be responsible for such securities and such monies until actually received by U.S. Trust or by any subcustodian. All securities delivered to U.S. Trust or to any such subcustodian (other than in bearer form) shall be registered in the name of the Company or in the name of a nominee of the Company or in the name of U.S. Trust or any nominee of U.S. Trust (with or without indication of fiduciary status) or in the name of any subcustodian or any nominee of such subcustodian appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in form for transfer satisfactory to U.S. Trust. 5. VOTING RIGHTS. With respect to all securities, however registered, it is understood that the voting and other rights and powers shall be exercised by the Company. U.S. Trust's only duty shall be to mail to the Company any documents received, including proxy statements and offering circulars, with any proxies for securities registered in a nominee name executed by such nominee. Where warrants, options, tenders or other securities have fixed expiration dates, the Company understands that in order for U.S. Trust to act, U.S. Trust must receive the Company's instructions at its offices in New York City, addressed as U.S. Trust may from time to time request, by no later than noon (New York City time) -5- at least one business day prior to the last scheduled date to act with respect thereto (or such earlier date or time as permits the Company a reasonable period of time in which to respond after U.S. Trust notifies the Company of such date or time). Absent U.S. Trust's timely receipt of such instructions, such instruments will expire without liability to U.S. Trust. 6. RECEIPT AND DISBURSEMENT OF MONEY. (a) U.S. Trust shall open and maintain a custody account for the Company (the "Account") subject only to draft or order by U.S. Trust acting pursuant to the terms of this Agreement, and shall hold in such Account, subject to the provisions hereof, all cash received by it from or for the Company. U.S. Trust shall make payments of cash to, or for the account of, the Company from such cash only (i) for the purchase of securities for the Company as provided in paragraph 12 hereof; (ii) upon receipt of Written Instructions, for the payment of dividends or other distributions of shares, or for the payment of interest, taxes, administration, distribution or advisory fees or expenses which are to be borne by the Company under the terms of this Agreement, any Advisory Agreement, or any administration agreement of the Company; (iii) upon receipt of Written Instructions for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Company and held by or to be delivered to U.S. Trust; (iv) to a subcustodian pursuant to Paragraph 7 hereof; or (v) upon receipt of Written Instructions for other corporate purposes. -6- (b) U.S. Trust is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received as custodian for the Company. 7. RECEIPT OF SECURITIES. (a) Except as provided by Paragraph 8 hereof, U.S. Trust shall hold all securities and non-cash Property received by it for the Company. All such securities and non-cash Property are to be held or disposed of by U.S. Trust for the Company pursuant to the terms of this Agreement. In the absence of Written Instructions accompanied by a certified resolution authorizing the specific transaction by the Company's Directors, U.S. Trust shall have no power or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such securities and non-cash Property, except in accordance with the express terms provided for in this Agreement. In connection with its duties under this Paragraph 7, U.S. Trust may, at its own expense and with the consent of the Company, enter into subcustodian agreements with other banks, trust companies, or other qualified entities for the receipt of certain securities and cash to be held by U.S. Trust for the account of the Company pursuant to this Agreement; provided, that each such subcustodian shall meet the requirements established by the 1940 Act for U.S. domestic and foreign investment company custodians, including (i) the requirements of Rule 17f-5 under the 1940 Act and (ii) a requirement of approval by the Company's Board of Directors, if any, and that each such subcustodian agrees with U.S. Trust to comply with all relevant provisions of the 1940 Act and -7- applicable rules and regulations thereunder. U.S. Trust will be liable for acts or omissions of any such subcustodian. (b) Promptly after the close of business on each day, U.S. Trust shall furnish the Company with confirmations and a summary of all transfers to or from the account of the Company during said day. Where securities are transferred to the account of the Company established at a Securities Depository or the Book-Entry System pursuant to Paragraph 8 hereof, U.S. Trust shall also by book-entry or otherwise identify as belonging to the Company the quantity of securities that belongs to the Company that are part of a fungible bulk of securities registered in the name of U.S. Trust (or its nominee) or shown in U.S. Trust's account on the books of a Securities Depository or the Book-Entry System. At least monthly and from time to time, U.S. Trust shall furnish the Company with a detailed statement of the Property held for the Company under this Agreement. 8. USE OF SECURITIES DEPOSITORY OR THE BOOK-ENTRY SYSTEM. The Company shall deliver to U.S. Trust a certified resolution of the Directors of the Company approving, authorizing and instructing U.S. Trust on a continuous and ongoing basis until instructed to the contrary by Written Instructions actually received by U.S. Trust (1) to deposit in a Securities Depository or the Book- Entry System all securities of the Company eligible for deposit therein and (ii) to utilize a Securities Depository or the Book-Entry System to the extent possible in connection with the performance of its duties hereunder, including without limitation, settlements of purchases and sales of securities by -8- the Company, and deliveries and returns of securities collateral in connection with borrowings. Without limiting the generality of such use, it is agreed that the following provisions shall apply thereto: (a) Securities and any cash of the Company deposited in a Securities Depository or the Book-Entry System will at all times be segregated from any assets and cash controlled by U.S. Trust in other than a fiduciary or custodian capacity but may be commingled with other assets held in such capacities. U.S. Trust will effect payment for securities and receive and deliver securities in accordance with accepted industry practices in the place where the transaction is settled, unless the Company has given U.S. Trust Written Instructions to the contrary. (b) All Books and records maintained by U.S. Trust which relate to the Company's participation in a Securities Depository or the Book-Entry System will at all times during U.S. Trust's regular business hours be open to the inspection of the Company's duly authorized employees or agents, and the Company will be furnished with all information in respect of the services rendered to it as it may require. 9. INSTRUCTIONS CONSISTENT WITH THE ARTICLES, ETC. Unless otherwise provided in this Agreement, U.S. Trust shall act only upon Written Instructions. U.S. Trust may assume that any Written Instructions received hereunder are not in any way inconsistent with any provision of the Articles or By-Laws of the Company or any vote or resolution of the Company's Directors, or any committee thereof. U.S. Trust shall be entitled to rely upon -9- any Written Instructions actually received by U.S. Trust pursuant to this Agreement. The Company agrees that U.S. Trust shall incur no liability in acting upon Written Instructions given to U.S. Trust. In accord with instructions from the Company, as required by accepted industry practice or as U.S. Trust may elect in effecting the execution of Company instructions, advances of cash or other Property made by U.S. Trust, arising from the purchase, sale, redemption, transfer or other disposition of Property of the Company, or in connection with the disbursement of funds to any party, or in payment of fees, expenses, claims or liabilities owed to U.S. Trust by the Company, or to any other party which has secured judgment in a court of law against the Company which creates an overdraft in the accounts or over-delivery of Property shall be deemed a loan by U.S. Trust to the Company, payable on demand, bearing interest at such rate customarily charged by U.S. Trust for similar loans. The Company agrees that test arrangements, authentication methods or other security devices to be used with respect to instructions which the Company may give by telephone, telex, TWX, facsimile transmission, bank wire or through an electronic instruction system, shall be processed in accordance with terms and conditions for the use of such arrangements, methods or devices as U.S. Trust may put into effect and modify from time to time. The Company shall safeguard any test keys, identification codes or other security devices which U.S. Trust makes available to the Company and agrees that the Company shall be responsible for any loss, liability or damage incurred by U.S. Trust or by the -10- Company as a result of U.S. Trust's acting in accordance with instructions from any unauthorized person using the proper security device unless such loss, liability or damage was incurred as a result of U.S. Trust's negligence or willful misconduct. U.S. Trust may electronically record, but shall not be obligated to so record, any instructions given by telephone and any other telephone discussions with respect to the Account. In the event that the Company uses U.S. Trust's Asset Management System ("AMS"), the Company agrees that U.S. Trust is not responsible for the consequences of the failure of the AMS to perform for any reason, beyond the reasonable control of U.S. Trust, or the failure of any communications carrier, utility, or communications network. In the event the AMS is inoperable, the Company agrees that it will accept the communication of transaction instructions by telephone, facsimile transmission on equipment compatible to U.S. Trust's facsimile receiving equipment or by letter, at no additional charge to the Company. 10. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. U.S. Trust is authorized to take the following action without Written Instructions: (a) COLLECTION OF INCOME AND OTHER PAYMENT. U.S. Trust shall: (i) collect and receive for the account of the Company, all income and other payments and distributions, including (without limitation) stock dividends, rights, warrants and similar items, included or to be included in the Property of the Company, and -11- promptly advise the Company of such receipt and shall credit such income, as collected, to the Company. From time to time, U.S. Trust may elect, but shall not be so obligated, to credit the Account with interest, dividends or principal payments on payable or contractual settlement date, in anticipation of receiving same from a payor, central depository, broker or other agent employed by the Company or U.S. Trust. Any such crediting and posting shall be at the Company's sole risk, and U.S. Trust shall be authorized to reverse any such advance posting in the event U.S. Trust does not receive good funds from any such payor, central depository, broker or agent of the Company. (ii) with respect to securities of foreign issuers, effect collection of dividends, interest and other income, and to notify the Company of any call for redemption, offer of exchange, right of subscription, reorganization, or other proceedings affecting such securities, or any default in payments due thereon. It is understood, hovever, that U.S. Trust shall be under no responsibility for any failure or delay in effecting such collections or giving such notice with respect to securities of foreign issuers, regardless of whether or not the relevant information is published in any financial service available to U.S. Trust unless such failure or delay is due to its negligence or willful misconduct; provided that this subparagraph (ii) shall -12- not be construed as creating any such responsibility with respect to securities of non-foreign issuers. Collections of income in foreign currency are, to the extent possible, to be converted into United States Dollars unless otherwise instructed in writing, and in effecting such conversion U.S. Trust may use such methods or agencies as it may see fit, including the facilities of its own foreign Trust shall have no responsibility for fluctuations in exchange rates affecting any such conversion. (iii) endorse and deposit for collection in the name of the Company, checks, drafts, or other orders for the payment of money on the same day as received; (iv) receive and hold for the account of the Company all securities received by the Company as a result of a stock dividend, share split-up or reorganization, recapitalization, readjustment or other rearrangement or distribution of rights or similar securities issued with respect to any portfolio securities of the Company held by U.S. Trust hereunder; (v) present for payment and collect the amount payable upon all securities which may mature or be called, redeemed or retired, or otherwise become payable on the date such securities become payable; -13- (iv) take any action which may be necessary and proper in connection with the collection and receipt of such income and other payments and the endorsement for collection of checks, drafts and other negotiable instruments; (vii) with respect to domestic securities, to exchange securities in temporary form for securities in definitive form, to effect an exchange of the shares where the par value of stock is changed, and to surrender securities at maturity or when advised of earlier call for redemption, against payment therefor in accordance with accepted industry practice. The Company understands that U.S. Trust subscribes to one or more nationally recognized services that provide information with respect to calls for redemption of bonds or other corporate actions. U.S. Trust shall not be liable for failure to redeem any called bond or to take other action if notice of such call or action was not provided by any service to which it subscribes provided that U.S. Trust shall have acted in good faith without negligence and in accordance with "Street Practice" (as is customary in industry). U.S. Trust shall have no duty to notify the Company of any rights, duties, limitations, conditions or other information set forth in any security (including mandatory or optional put, call and similar provisions), but U.S. Trust shall forward to the Company any notices or other -14- documents subsequently received in regard to any such security. When fractional shares of stock of a declaring corporation are received as a stock distribution, unless specifically instructed to the contrary in writing, U.S. Trust is authorized to sell the fraction received and credit the Company's account. Unless specifically instructed to the contrary in writing, U.S. Trust is authorized to exchange securities in bearer form for securities in registered form. If any Property registered in the name of a nominee of U.S. Trust is called for partial redemption by the issuer of such Property, U.S. Trust is authorized to allot the called portion to the respective beneficial holders of the Property in such manner deemed to be fair and equitable by U.S. Trust in its sole discretion. (b) MISCELLANEOUS TRANSACTIONS. U.S. Trust is authorized to deliver or cause to be delivered Property against payment or other consideration or written receipt therefor in the following cases: (i) for examination by a broker selling for the account of the Company in accordance with street delivery custom; (ii) for the exchange of interim receipts or temporary securities for definitive securities; (iii) for transfer of securities into the name of the Company or U.S. Trust or a nominee of either, or -15- for exchange of securities for a different number of bonds, certificates, or other evidence, representing the same aggregate face amount or number of units bearing the same interest rate, maturity date and call provisions, if any; provided that, in any such case, the new securities are to be delivered to U.S. Trust. 11. TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Written Instructions and not otherwise, U.S. Trust, directly or through the use of a Securities Depository or the Book-Entry System, shall: (a) Execute and deliver to such persons as may be designated in such Written Instructions, proxies, consents, authorizations, and any other instruments whereby the authority of the Company as owner of any securities may be exercised; (b) Deliver any securities held for the Company against receipt of other securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; (c) Deliver any securities held for the Company to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, against receipt of such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; -16- (d) Make such transfers or exchanges of the assets of the Company and take such other steps as shall be stated in said instructions to be for the purpose of effectuating and duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Company; (e) Release securities belonging to the Company to any bank or trust company for the purpose of pledge or hypothecation to secure any loan incurred by the Company; provided, however, that securities shall be released only upon payment to U.S. Trust of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made, subject to proper prior authorization, further securities may be released for that purpose; and pay such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan; (f) Deliver any securities held for the Company upon the exercise of a covered call option written by the Company on such securities; and (g) Deliver securities held for the Company pursuant to separate security lending agreements concerning the lending of the Company's securities into which the Company may enter, from time to time. 12. PURCHASE OF SECURITIES. Promptly after each purchase of securities by the Investment Adviser (or any sub-adviser), the Company shall deliver to U.S. Trust (as Custodian) Written Instructions specifying with respect to each such purchase: (a) the name of the issuer and the title of the securities, (b) -17- the number of shares of the principal amount purchased and accrued interest, if any, (c) the dates of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase and (f) the name of the person from whom or the broker through whom the purchase was made. 13. SALES OF SECURITIES. Promptly after each sale of securities by the Investment Adviser, the Company shall deliver to U.S. Trust (as Custodian) Written Instructions, specifying with respect to each such sale: (a) the name of the issuer and the title of the security, (b) the number of shares or principal amount sold, and accrued interest, if any, (c) the date of sale, (d) the sale price per unit, (e) the total amount payable to the Company upon such sale and (f) the name of the broker through whom or the person to whom the sale was made. U.S. Trust shall deliver the securities upon receipt of the total amount payable to the Company upon such sale, provided that the same conforms to the total amount payable as set forth in such Written Instructions. Subject to the foregoing, U.S. Trust may accept payment in such form as shall be satisfactory to it, and may deliver securities and arrange for payment in accordance with the customs prevailing among dealers in securities. 14. AUTHORIZED SHARES. The Company has a fixed number of authorized shares of its securities, subject to the authority of the Board of Directors to increase or decrease the number of authorized shares and to reclassify authorized but unissued shares. -18- 15. RECORDS. The books and records pertaining to the Company which are in the possession of U.S. Trust shall be the property of the Company. Such books and records shall be prepared and maintained as required by the 1940 Act; other applicable federal and state securities laws and rules and regulations; and, any state or federal regulatory body having appropriate jurisdiction. The Company, or the Company's authorized representatives, shall have access to such books and records at all times during U.S. Trust's normal business hours, and such books and records shall be surrendered to the Company promptly upon request. Upon reasonable request of the Company, copies of any such books and records shall be provided by U.S. Trust to the Company or the Company's authorized representative at the Company's expense. 16. COOPERATION WITH ACCOUNTANTS. U.S. Trust shall cooperate with the Company's independent certified public accountants and shall take all reasonable action in the performance of its obligations under this Agreement to assure that the necessary information is made available to such accountants for the expression of their unqualified opinion, including but not limited to the opinion included in the Company's semiannual report on Form N-SAR. 17. CONFIDENTIALITY. U.S. Trust agrees on behalf of itself and its employees to treat confidentially and as the proprietary information of the Company all records and other information relative to the Company and its prior, present or potential Shareholders and relative to the investment advisers and its -19- prior, present or potential customers, and not to use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Company, which approval shall not be unreasonably withheld and may not be withheld where U.S. Trust may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Company. Nothing contained herein, however, shall prohibit U.S. Trust from advertising, or soliciting the public generally with respect to other products or services, regardless of whether such advertisement or solicitation may include prior, present or potential Shareholders of the Company. 18. EQUIPMENT FAILURES. In the event of equipment failures beyond U.S. Trust's control, U.S. Trust shall, at no additional expense to the Company, take reasonable steps to minimize service interruptions but shall not have liability with respect thereto. U.S. Trust shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provision for back up emergency use of electronic data processing equipment to the extent appropriate equipment is available. 19. RIGHT TO RECEIVE ADVICE (a) ADVICE OF FUND. If U.S. Trust shall be in doubt as to any action to be taken or omitted by it, it may request, and shall receive, from the Company clarification or advice. (b) ADVICE OF COUNSEL. If U.S. Trust shall be in doubt as to any question of law involved in any action to be -20- taken or omitted by U.S. Trust it may request advice at its own cost from counsel of its own choosing (who may be counsel for the Company or U.S. Trust, at the option of U.S. Trust). (c) CONFLICTING ADVICE. In case of conflict between directions or advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph and advice received by U.S. Trust pursuant to subparagraph (b) of this paragraph, U.S. Trust shall be entitled to rely on and follow the advice received pursuant to the latter provision alone. (d) PROTECTION OF U.S. TRUST. U.S. Trust shall be protected in any action or inaction which it takes or omits to take in reliance on any directions or advice received pursuant to subparagraph (a) of this section which U.S. Trust, after receipt of any such directions or advice, in good faith believes to be consistent with such directions or advice. However, nothing in this paragraph shall be construed as imposing upon U.S. Trust any obligation (i) to seek such directions or advice, or (ii) to act in accordance with such directions or advice when received, unless, under the terms or another provision of this Agreement, the same is a condition to U.S. Trust's properly taking or omitting to take such action. Nothing in this subparagraph shall excuse U.S. Trust when an action or omission on the part of U.S. Trust constitutes willful misfeasance, bad faith, negligence or reckless disregard by U.S. Trust of its duties under this Agreement. 20. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Company assumes full responsibility for insuring that the -21- contents of each Prospectus of the Company complies with all applicable requirements of the 1933 Act, the 1940 Act, and any laws, rules and regulations of governmental authorities having Jurisdiction. 21. COMPENSATION. As compensation for the services described within this Agreement and rendered by U.S. Trust during the term of this Agreement, the Company will pay to U.S. Trust, in addition to reimbursement of its out-of- pocket expenses, monthly fees as outlined in Attachment A. 22. INDEMNIFICATION. The Company, as sole owner of the Property, agrees to indemnify and hold harmless U.S. Trust and its nominees from all taxes, charges, expenses, assessments, claims, and liabilities (including, without limitation, liabilities arising under the 1933 Act, the Securities Exchange Act of 1934 as amended, the 1940 Act, and any state and foreign securities and blue sky laws, all as or to be amended from time to time) and expenses, including (without limitation) attorney's fees and disbursements, arising directly or indirectly (a) from the fact that securities included in the Property are registered in the name of any such nominee or (b) without limiting the generality of the foregoing clause (a) from any action or thing which U.S. Trust takes or does or omits to take or do (i) at the request or on the direction of or in reliance on the advice of the Company given in accordance with the terms of this Agreement, or (ii) upon Written Instructions; provided, that neither U.S. Trust nor any of its nominees or subcustodians shall be indemnified against any liability to the Company or to its -22- Shareholders (or any expenses incident to such liability) arising out of U.S. Trust's or such nominee's or subcustodian's own willful misfeasance, bad faith, negligence or reckless disregard of its duties under this Agreement or any agreement between U.S. Trust and any nominee or subcustodian. In the event of any advance of cash for any purpose made by U.S. Trust resulting from orders or Written Instructions of the Company, or in the event that U.S. Trust or its nominee or subcustodian shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's or subcustodian's own negligent action, negligent failure to act, willful misconduct, or reckless disregard of its duties under this Agreement or any agreement between U.S. Trust and any nominee or subcustodian, the Company shall promptly reimburse U.S. Trust for such advance of cash or such taxes, charges, expenses, assessments, claims or liabilities. 23. RESPONSIBILITY OF U.S. TRUST. U.S. Trust shall be under no duty to take any action on behalf of the Company except as specifically set forth herein or as may be specifically agreed to by U.S. Trust in writing. In the performance of its duties hereunder, U.S. Trust shall be obligated to exercise care and diligence and to act in good faith and to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement. U.S. Trust shall not be liable for any act or omission which does not constitute willful misfeasance, bad faith, or negligence on the part of U.S. Trust -23- or nominee or subcustodian or reckless disregard of the duties, obligations and responsibilities hereunder. Without limiting the generality of the foregoing or of any other provision of this Agreement, U.S. Trust in connection with its duties under this Agreement shall not be under any duty or obligation to inquire into and shall not be liable for or in respect of (a) the validity or invalidity or authority or lack thereof of any advice, direction, notice or other instrument which conforms to the applicable requirements of this Agreement, if any, and which U.S. Trust believes to be genuine, (b) the validity of the issue of any securities purchased or sold by the Company, the legality of the purchase or sale thereof or the propriety of the amount paid or received therefor, (c) the legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefor, (d) the legality of the redemption of any Shares, or the propriety of the amount to be paid therefor, (e) the legality of the declaration or payment of any dividend or distribution on Shares, or (f) delays or errors or loss of data occurring by reason of circumstances beyond U.S. Trust's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown (except as provided in Paragraph 18), flood or catastrophe, acts of God, insurrection, war, riots, or failure of the mail, transportation systems, communication systems or power supply. 24. COLLECTION. All collections of monies or other property in respect, or which are to become part, of the Property (but not the safekeeping thereof upon receipt by U.S. Trust) -24- shall be at the sole risk of the Company. In any case in which U.S. Trust does not receive any payment due the Company within a reasonable time after U.S. Trust has made proper demands for the same, it shall so notify the Company in writing, including copies of all demand letters, any written responses thereto, and memoranda of all oral responses thereto, and to telephonic demands, and await instructions from the Company. U.S. Trust shall not be obliged to take legal action for collection unless and until reasonably indemnified to its satisfaction. U.S. Trust shall also notify the Company as soon as reasonably practicable whenever income due on securities is not collected in due course. 25. DURATION AND TERMINATION. This Agreement shall be effective as of the date hereof and shall continue until termination by the Company or by U.S. Trust on 60 day's written notice. Upon any termination of this Agreement, pending appointment of a successor to U.S. Trust by the Company or a vote of the Shareholders of the Company to dissolve or a vote of its Board of Directors to function without a custodian of its cash, securities or other property, U.S. Trust shall not deliver cash, securities or other property of the Company to the Company, but may deliver them to a bank or trust company of its own selection, having aggregate capital, surplus and undivided profits, as shown by its last published report of not less than twenty million dollars ($20,000,000) as a successor custodian for the Company to be held under terms similar to those of this Agreement. Notwithstanding the making by U.S. Trust of any such delivery or payment, U.S. Trust will remain entitled to full payment by the -25- Company of all liabilities constituting a charge on or against the properties previously held by U.S. Trust or on or against U.S. Trust and full payment of all of its fees, compensation, costs and expenses, subject to the provisions of Paragraph 21 of this Agreement. 26. NOTICES. All notices and other communications (collectively referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or by confirming telegram, cable, telex, or facsimile sending device. Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W. 47th Street, New York, New York, 10036; (b) if to the Company, at the address of the Company; or (c) if to neither of the foregoing, at such other address as shall have been notified to the sender of any such Notice or other communication. If the location of the sender of a Notice and the address of the addressee thereof are, at the time of sending, more than 100 miles apart, the Notice may be sent by first-class mail, in which case it shall be deemed to have been given three days after it is sent, or if sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately, and, if the location of the sender of a Notice and the address of the addressee thereof are, at the time of sending, not more than 100 miles apart, the Notice may be sent by first-class mail, in which case it shall be deemed to have been given two days after it is sent, or if sent by messenger, it shall be deemed to have been given on the day it is delivered, or if sent by confirming telegram, cable, telex or facsimile sending device, -26- it shall be deemed to have been given immediately. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a Notice hereunder shall be paid by the Sender. 27. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 28. AMENDMENTS. This Agreement or any part hereof may be changed or waived only by an instrument in writing signed by the party against which enforcement of such change or waiver is sought. 29. MISCELLANEOUS. This Agreement embodies the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the parties hereto. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement shall be deemed to be a contract made in New York and governed by New York law. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. -27- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first above written. FIRST BOSTON INCOME FUND, INC. Attest: /s/ Susanne M. Dennis By: /s/ Jay T. Roelof ---------------------------- ------------------------ Name: Jay T. Roelof ------------------------ Title: Secretary ------------------------ UNITED STATES TRUST COMPANY OF NEW YORK Attest: /s/ Witness By: /s/ Donald P. Hearn --------------------------- ----------------------- Name: Donald P. Hearn ----------------------- Title: S.V.P. ----------------------- -28- MUTUAL FUND CUSTODY AGREEMENT FIRST BOSTON INCOME FUND, INC. MAY 1, 1993 ATTACHMENT A FEES AND EXPENSES For the services described in the Agreement, the Fund shall pay to U.S. Trust a custody safekeeping fee and custody transaction fees as follows: DOMESTIC CUSTODY SAFEKEEPING FEES 0.03% (3.0 Basis Points) of the first $50 million of the Fund's average daily net assets; plus 0.02% (2.0 Basis Points) of the second $50 million of the Fund's average daily net assets; plus 0.01% (1.0 Basis Points) of the Fund's average daily net assets in excess of $100 million. DOMESTIC CUSTODY TRANSACTION FEES $15.00 per DTC, PTC or Fed Book Entry transaction $25.00 per physical transaction $35.00 per future, option or swap transaction $40.00 per Cedel/Euroclear transaction $ 8.00 per wire transfer The Fund will be billed for all reasonable "out-of-pocket" expenses as they relate to the provision of services under this Agreement. International transactions and securities may involve additional fees and expenses. A-1 MUTUAL FUND CUSTODY AGREEMENT FIRST BOSTON INCOME FUND, INC. MAY 1, 1993 ATTACHMENT B AUTHORIZED PERSONS B-1 EX-99.K(1) 14 EX-99.K(1) SHAREHOLDER TRANSFER AGENCY AGREEMENT SHAREHOLDER TRANSFER AGENCY AGREEMENT This Agreement is made as of April 30, 1993, between United States Trust Company of New York ("U.S. Trust"), a New York corporation, and First Boston Income Fund, Inc., a closed-end investment company incorporated under the laws of the state of Maryland. I. SERVICES Commencing on May 3, 1993, U.S. Trust shall perform the (i) account maintenance services, (ii) mailing and reporting services, (iii) dividend and distribution payment services, (iv) dividend reinvestment plan services, and (v) recordkeeping services (collectively, the "Standard Services") in connection with the Fund's Common Stock, par value $.001 per share (the "Shares"), as more fully described herein. A. ACCOUNT MAINTENANCE SERVICES. U.S. Trust shall perform transfer agent, registrar and other account maintenance services in connection with the Shares. Such services are composed of (i) registering Share transfers on the Fund's records of the holders of Shares (the "Shareholders") upon receipt of instructions from the transferor and documentation in proper form to effect a transfer of Shares; (ii) cancelling the certificates representing such Shares, if any, and if so requested, countersigning, registering, issuing and mailing by insured first class mail new certificates for the same or a smaller whole number of Shares; (iii) issuing replacement certificates in lieu of certificates which have been lost, stolen or destroyed upon receipt of a properly executed affidavit with respect to such loss, theft or destruction and a lost certificate bond in form satisfactory to U.S. Trust; (iv) provide all reporting required regarding Escheat and Abandoned Property; (v) combining certificates into large denominations; (vi) maintaining stop-transfer orders, including placing and removing the same; (vii) processing new Shareholder accounts; (viii) posting address changes; and (ix) researching and responding to Shareholder inquiries. Shares will be transferred and new certificates issued in transfer upon surrender of the old certificates in form deemed by U.S. Trust to be properly endorsed for transfer accompanied by delivery of such documents as U.S. Trust may deem necessary to evidence the authority of the person making the transfer and payment of any applicable stock transfer taxes. U.S. Trust reserves the right to refuse to transfer shares until it is satisfied that the endorsement or signature on the certificate or any other document is valid and genuine, and for that purpose it may require a signature guarantee by a commercial bank or trust company having its principal office or correspondent in the City of New York, by a member firm of a major stock exchange or by a guarantor previously approved by U.S. Trust. U.S. Trust will mail all certificates representing shares of the "Fund" by insured first class mail. U.S. Trust will provide for the replacement of certificates if non-receipt 2 is reported in writing within one year of issuance, and an affidavit of non-receipt is provided. B. MAILING LIST AND REPORTING SERVICES. Mailing list and reporting services provided to the Fund are composed of (i) annual preparation of a list of Shareholders owning 5,000 or more Shares and (ii) quarterly distribution of a report to Shareholders. C. DIVIDEND AND DISTRIBUTION PAYMENT SERVICES. (1) Upon the declaration of any dividend or distribution payable either in Shares or cash, the Fund shall furnish to U.S. Trust a certified copy of a resolution of the Fund's Board setting forth the date of payment (the "Payment Date") of such dividend or distribution (which date shall be a date the New York Stock Exchange is open for trading), the record date as of which Shareholders entitled to payment thereof shall be determined (the "Record Date"), and the amount payable per Share to Shareholders of record as of the Record Date. In the case of dividends at regular intervals, such certified resolution may be a standing resolution setting forth the method of calculating such dividends and the Fund or its agent shall advise U.S. Trust of the amount of such dividend at the appropriate intervals. U.S. Trust shall notify the Fund and the entity then acting as the custodian (which entity may be U.S. Trust) for the portfolio securities and cash of the Fund (the "Custodian") of the amount of cash required to pay the dividend or distribution so that the Fund may instruct the Custodian to make sufficient funds available on or before the Payment Date. Upon receipt of such funds from the Custodian, 3 U.S. Trust shall prepare and mail to Shareholders who have elected to withdraw from the DRP (as hereinafter defined) in accordance with the terms of Section D, at their addresses as they appear on the records maintained by U.S. Trust or pursuant to any written order of a Shareholder on file with U.S. Trust, checks representing any dividends or distributions to which they are entitled. (2) In addition to the foregoing, dividend and distribution payment services are composed of (i) inserting an enclosure supplied by the Fund with each dividend or distribution check (all checks to be drawn on United States Trust Company of New York with good funds in-house on mailing date); (ii) replacing lost dividend checks; (iii) providing photocopies of cancelled checks when requested by Shareholders; (iv) reconciling paid and outstanding checks; (v) coding as "undeliverable" certain accounts to suppress mailing of dividend checks to same; (vi) processing and recordkeeping of accumulated uncashed dividends; (vii) furnishing requested dividend and distribution information to Shareholders; and (viii) performing the following duties required by the Interest and Dividend Tax Compliance Act of 1983: - Withholding taxes from Shareholders who are not in compliance with its provisions; - Reconciling and reporting taxes withheld to the Internal Revenue Service, including complying with additional 1099 reporting requirements; 4 - Responding to Shareholder inquiries regarding regulations promulgated pursuant to the Act; - Notifying Shareholders who have had taxes withheld of the procedures to be followed to curtail future withholding; and - Adjusting Shareholder account records to reflect subsequent compliance. D. DISTRIBUTION REINVESTMENT PLAN SERVICE. (1) U.S. Trust will act as agent for Shareholders under the Distribution Reinvestment Plan (the "DRP"), a copy of which is attached hereto as Exhibit A. (1) The terms and conditions of the DRP may be amended or supplemented by U.S. Trust or the Fund at any time but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 90 days prior to the Record Date for the applicable dividend or distribution. The amendment or supplement shall be deemed to be accepted by a Participant unless, prior to the effective date thereof, U.S. Trust receives written notice of the termination of the Participant's participation in the DRP. E. RECORDKEEPING SERVICES. U.S. Trust shall keep records relating to the Standard Services to be performed hereunder, in such form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act 5 of 1940, as amended, and the rules promulgated thereunder, U.S. Trust agrees that all such records prepared or maintained by U.S. Trust relating to the services to be performed by U.S. Trust hereunder are the property of the Fund and will be preserved for the periods prescribed under Rule 3la-2 of said rules, maintained at the expense of the Fund, and made available in accordance with such section and rules. U.S. Trust shall forthwith upon the Fund's demand surrender promptly to the Fund and cease to retain in its files those records and documents created and maintained by U.S. Trust pursuant to this Agreement. II. SHARE CERTIFICATES The Fund shall supply U.S. Trust with sufficient blank Share certificates. Such blank Share certificates shall be properly signed, manually or by facsimile signature, by the duly authorized officers of the Fund, and shall bear the seal or a facsimile thereof of the Fund. Notwithstanding the death, resignation or removal of any officer of the Fund authorized to sign such share certificates, U.S. Trust may continue to countersign certificates which bear the manual or facsimile signature of such officer until otherwise directed by the Fund. U.S. Trust shall establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of share certificates and facsimile signature imprinting devices, if any, and for the preparation or use and for keeping account of such certificates and devices. 6 III. FEES AND EXPENSES For the services to be performed by U.S. Trust pursuant to this Agreement, the Fund shall pay to U.S. Trust all fees and expenses described herein: A. SHAREHOLDER SERVICE FEE. The Fund shall pay U.S. Trust an annual service fee (the "Shareholder Service Fee") for each Shareholder account, as described more fully in Exhibit B hereto, but in no event less than the minimum Shareholder Service Fee specified in Exhibit B. For purposes of this Section A, a "Shareholder account" is an account holding at least a fraction of a Share and shall be deemed to exist after it is in fact terminated until the final tax filing for the calendar year in which termination occurs. The Shareholder Service Fee is prorated and payable quarterly based on the total number of accounts on the system on the last day of each quarter. The Shareholder Service Fee for a partial month's service will be prorated on a 30-day month basis. B. OUT-OF-POCKET EXPENSES. The Fund agrees to reimburse U.S. Trust for any equipment and supplies specially ordered by the Fund through U.S. Trust and for any other expenses U.S. Trust may incur at the request of or consented to by the Fund, including but not limited to expenses for stationery, postage, telephone and telegraph line toll charges, data communications lines, modems, direct access storage devices for account history longer than 18 months, terminal access charges, supplies, blank certificates, check stock, forms, envelopes, proxies and costs associated with the termination of services 7 pursuant to this Agreement. Postage and the cost of materials for mailings to Shareholder accounts shall be advanced to U.S. Trust by the Fund at least five business days prior to the mailing date of such materials. C. ADDITIONAL SERVICES. The Fund may request additional processing, special reports, changes in its DRP, or other additional services. The Fund shall submit such requests for additional services in writing together with such specifications as may be reasonably required by U.S. Trust, and U.S. Trust shall respond to such requests in the form of a price quotation. The Fund's written acceptance of the quotation must be received prior to implementation of such request. D. TERMS OF PAYMENT. All fees, out-of-pocket expenses, or additional charges of U.S. Trust shall be billed on a quarterly basis and shall be due and payable upon receipt of the invoice. U.S. Trust will render, after the close of each month in which services have been furnished, a statement reflecting all of the charges for such month. The Fund must notify U.S. Trust in writing of any contested amounts within 45 days of receipt of a billing for such amounts. E. TAXES. In addition to any other charges specified hereunder, the Fund shall pay any sales tax, use tax, transfer tax, excise tax, tariff, duty, or any other tax or payment in lieu thereof imposed by any governmental authority or agency as a direct result of the provision by U.S. Trust of goods or services hereunder, except for taxes based on U.S. Trust's net income. 8 IV. REPRESENTATIONS AND WARRANTIES A. U.S. TRUST. U.S. Trust represents and warrants to the Fund that: (1) It is a corporation duly organized and existing and in good standing under the laws of the State of New York as a trust company pursuant to Article III of the New York Banking Law; (2) It is empowered under applicable laws and by its organization certificate and by-laws to enter into and perform this Agreement; (3) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; and (4) Its entering into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of U.S. Trust. B. THE FUND. The Fund represents and warrants to U.S. Trust that: (1) It is a corporation duly organized and existing and in good standing under the laws of the State of Maryland; (2) It is empowered under applicable laws and by its certificate or articles of incorporation and by-laws (the "Organizational Documents") to enter into and perform this Agreement; 9 (3) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; (4) It is a closed-end investment company registered under the Investment Company Act of 1940, as amended; (5) Its entering into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund; and (6) A registration statement on Form N-2 (including a prospectus), as amended, is currently effective and will remain effective, and all necessary filings under the securities laws of the states have been made. V. DOCUMENTS FURNISHED BY THE FUND A. INITIALLY FURNISHED DOCUMENTS. The Fund has furnished to U.S. Trust the following documents: (1) A copy of the Organizational Documents of the Fund, attached hereto as Exhibit C; (2) A specimen certificate representing outstanding Shares in the form approved by the Board of the Fund, attached hereto as Exhibit D; and (3) Copies of the Fund's registration statement on Form N-2 as amended and declared effective by the Securities and Exchange Commission, attached hereto as Exhibit E. B. Prospectively Furnished Documents. The Fund shall furnish the following documents immediately upon their adoption 10 or effectiveness, or upon request by U.S. Trust, as the case may be: (1) Copies of all amendments to the Organizational Documents of the Fund; (2) Copies of all post-effective amendments to the Fund's registration statement on Form-N-2; and (3) Such other certificates, documents and opinions as U.S. Trust shall deem to be appropriate or necessary for the proper performance of its duties hereunder. VI. INDEMNIFICATION A. FUND INDEMNIFICATION OBLIGATION. U.S. Trust shall not be responsible for, and the Fund shall indemnify and hold U.S. Trust harmless from and against, any and all losses, damages, costs, charges, reasonable attorneys' fees, payments, expenses and liability arising out of or attributable to: (1) All actions of U.S. Trust or its agents or subcontractors required to be taken pursuant to this Agreement unless such actions are taken in bad faith or with negligence or willful misconduct; (2) The Fund's refusal or failure to comply with the terms of this Agreement, or the Fund's lack of good faith, negligence or willful misconduct, or the breach of any representation or warranty of the Fund hereunder; 11 (3) The reliance on or use by U.S. Trust or its agents or subcontractors of information, records or documents which are received by U.S. Trust or its agents or subcontractors and furnished to it by or on behalf of the Fund, and which have been prepared or maintained by the Fund or any other person or firm (other than U.S. Trust or its agents or subcontractors) on behalf of the Fund; (4) The reliance on, or the carrying out by U.S. Trust or its agents or subcontractors of, any instructions or requests of the Fund or recognition by U.S. Trust of any Share certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co- transfer agent or co-registrar; or (5) The offer or sale of Shares by the Fund in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state, or in violation of any stop order or other determination or ruling by any federal agency or any state agency with respect to the offer or sale of such Shares in such state. B. U.S. TRUST INDEMNIFICATION OBLIGATION. U.S. Trust shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, reasonable attorney's fees, payments, expenses and liability arising out of or attributable to U.S. Trust's refusal or failure to comply with the terms of this Agreement, or U.S. Trust's lack of good faith, 12 negligence or willful misconduct, or the breach of any representation or warranty of U.S. Trust hereunder. C. CLAIMS. Upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion and shall keep the other party advised with respect to all developments concerning such claim, but the failure to give such notice shall not affect rights to indemnification hereunder except to the extent that the indemnifying party demonstrates actual damage caused by such failure. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim but not to control such defense. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it, except with the indemnifying party's prior written consent. D. FORCE MAJEURE. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, interruption of electrical power or other utilities, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable to the other for any damages resulting from such failure to perform or otherwise from such causes. U.S. Trust shall use all reasonable efforts to minimize the likelihood of all damage, loss of data, delays and errors resulting from uncontrollable events, 13 and should such damage, loss of data, delays or errors occur, U.S. Trust shall use its reasonable efforts to mitigate the effects of such occurrence. VII. TERM AND TERMINATION A. NOTICE. This Agreement shall remain in effect until terminated by either party, without penalty, upon 90 days' prior written notice. B. BREACH. This Agreement may be terminated by either party if the other party is in material breach of this Agreement. In order to so terminate this Agreement, written notice shall be given to an officer of the other party of the non-breaching party's intention to terminate due to a failure to comply with, or breach of, a material term or condition of this Agreement. Said written notice shall specifically state the material term or condition claimed to be breached and shall provide at least 15 days in which to correct such alleged breach. If such breach is not corrected in the time period allowed, then the party giving notice may terminate this Agreement immediately, upon written notice. C. EXPENSES. Should this Agreement be terminated, all out-of-pocket expenses reasonably incurred by U.S. Trust in connection with the movement of records and materials to its successor or to the Fund shall be borne by the Fund. 14 VIII. USE OF U.S. TRUST NAME The Fund shall not use U.S. Trust's name in any prospectus, Shareholder report, advertisement or other material relating to the Fund, other than for the purpose of merely identifying and describing the functions of U.S. Trust hereunder, in a manner not approved by U.S. Trust in writing prior to such use; provided, however, that U.S. Trust shall consent to all uses of its name required by the Securities and Exchange Commission, any state securities commission, or any federal or state regulatory authority; and provided, further, that in no case will such approval be unreasonably withheld. IX. ASSIGNMENT Except as hereunder provided, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. U.S. Trust may, without further consent on the part of the Fund, subcontract for the performance hereof with third parties, or subsidiaries or other affiliates of U.S. Trust; provided, however, that U.S. Trust shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions and shall be responsible for its choice of subcontractor. 15 X. CONFIDENTIALITY The information contained in this Agreement is confidential and proprietary in nature. By receiving this Agreement, the Fund agrees that none of its directors, officers, employees, or agents, without the prior written consent of U.S. Trust, will divulge, furnish or make accessible to any third party, except as required by law or any regulatory authority or as permitted by the next sentence, any part of this Agreement or information in connection therewith which has been or may be made available to it. The Fund agrees that it will limit access to the Agreement and such information to only those officers or employees with responsibilities for analyzing the Agreement, to its counsel and to such independent consultants hired expressly for the purpose of assisting in such analysis. In addition, the Fund agrees that any persons to whom such information is properly disclosed shall be informed of the confidential nature of the Agreement and the information relating thereto, and shall be directed to treat the same appropriately. The terms set forth in this Article X shall continue without termination. XI. MISCELLANEOUS This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each 16 of which shall be deemed an original, but all of which taken together shall constitute the entire Agreement between the parties hereto and supersede any prior oral or written Agreement with respect to the subject matter hereof. This Agreement may not be amended or modified in any manner except by a written instrument executed by both parties. 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized as of the date first above written. UNITED STATES TRUST COMPANY FIRST BOSTON INCOME FUND, INC. OF NEW YORK By/s/ Paul J. Holland By/s/ Joseph F. Huber Name Paul J. Holland Name Joseph F. Huber Title Sr. Vice President Title Chairman 18 EXHIBITS A. Fund Distribution Reinvestment Plan B. Shareholder Service Fee C. Fund Organizational Documents D. Fund Specimen Share Certificate E. Fund Form N-2 Registration Statement 19 EXHIBIT B SHAREHOLDER SERVICE FEE These fees are subject to increase after three years from the date of the Agreement: - $16.00 per Shareholder account per annum Plus Out-of-Pocket Expenses Blank Certificates Check Stock Postage Proxy Services Forms/Stationery Envelopes 20 EX-99.K(2) 15 EX-99.K(2) MUTUAL FUNDS SERVICE AGREEMENT - FUND ADMINISTRATION SERVICES - FUND ACCOUNTING SERVICES CHASE GLOBAL FUNDS SERVICES COMPANY SEPTEMBER _____, 1996 MUTUAL FUNDS SERVICE AGREEMENT TABLE OF CONTENTS SECTION/PARAGRAPH. . . . . . . . . . . . . . . . . . . . . . . . . . PAGE 1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Representations and Warranties. . . . . . . . . . . . . . . . . 1 3. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . 2 4. Services Provided . . . . . . . . . . . . . . . . . . . . . . . 3 5. Fees; Expenses; Expense Reimbursement . . . . . . . . . . . . . 4 6 Proprietary and Confidential Information. . . . . . . . . . . . 6 7. Duties, Responsibilities and Limitation of Liability. . . . . . 6 8. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10. Assignability . . . . . . . . . . . . . . . . . . . . . . . . . 9 11. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 12. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 10 13. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 14. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 10 15. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 10 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 MUTUAL FUNDS SERVICE AGREEMENT TABLE OF CONTENTS (CONTINUED) SECTION/PARAGRAPH. . . . . . . . . . . . . . . . . . . . . . . . . . PAGE Schedule A -- Fees and Expenses. . . . . . . . . . . . . . . . . . A-1 Schedule B -- Fund Administration Services Description . . . . . . B-1 Schedule C -- Fund Accounting Services Description . . . . . . . . C-1 MUTUAL FUNDS SERVICE AGREEMENT AGREEMENT made as of ____, 1996 by and between BEA INCOME FUND, INC. (the "Fund") a Maryland corporation, and CHASE GLOBAL FUNDS SERVICES COMPANY ("Chase"), a Delaware corporation. W I T N E S S E T H: WHEREAS, the Fund is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Fund wishes to retain Chase to provide certain fund administration and fund accounting services with respect to the Fund; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Fund hereby appoints Chase to provide fund administration and fund accounting services for the Fund, subject to the supervision of the Board of Directors of the Fund (the "Board"), for the period and on the terms set forth in this Agreement. Chase accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Paragraph 5 of and Schedule A to this Agreement. 2. REPRESENTATIONS AND WARRANTIES. (a) Chase represents and warrants to the Fund that: (i) Chase is a corporation in good standing and existing under the laws of the State of Delaware; (ii) Chase is duly qualified to carry on its business in the Commonwealth of Massachusetts; (iii) Chase is empowered under applicable laws and by its Charter and By-Laws to enter into and perform this Agreement; (iv) all requisite corporate proceedings have been taken to authorize Chase to enter into and perform this Agreement; (v) Chase has, and will continue to have, access to the facilities, personnel and equipment required to fully perform its duties and obligations hereunder; 1 (vi) no legal or administrative proceedings have been instituted or threatened which would materially impair Chase's ability to perform its duties and obligations under this Agreement; and (vii) Chase's entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of Chase or any law or regulation applicable to Chase; (b) The Fund represents and warrants to Chase that: (i) the Fund is a Maryland corporation, duly organized and existing and in good standing under the laws of Maryland; (ii) the Fund is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (iii) all requisite proceedings have been taken to authorize the Fund to enter into and perform this Agreement; (iv) the Fund is an investment company registered under the 1940 Act; (v) no legal or administrative proceedings have been instituted or threatened which would materially impair the Fund's ability to perform its duties and obligations under this Agreement; and (vi) the Fund's entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it. 3. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to Chase such copies, properly certified or authenticated, of contracts, documents and other related information that Chase may request or requires to properly discharge its duties. Such documents may include but are not limited to the following: (a) Resolutions of the Board authorizing the appointment of Chase to provide certain fund administration and fund accounting services to the Fund and approving this Agreement; (b) The Fund's Articles of Incorporation ("Articles") as presently in effect; (c) The Fund's By-Laws; (d) The Fund's Notification of Registration on Form N-8A under the 1940 Act as filed with the Securities and Exchange Commission ("SEC"); 2 (e) The Fund's registration statement, including exhibits, on Form N-2 (the "Registration Statement") under the 1933 Act and the 1940 Act, as filed with, and declared effective by, the SEC, and all amendments and supplements thereto; (f) Copies of the Investment Advisory Agreement between the Fund and its investment adviser (the "Advisory Agreement"); (g) Opinions of counsel and auditors reports; and (h) Such other certificates, documents, contracts or opinions which the Administrator may in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties. The Fund will furnish to the Administrator from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, if any. 4. SERVICES PROVIDED (a) Chase will provide the following services subject to the control, direction and supervision of the Board and in compliance with the objectives, policies and limitations set forth in the Fund's Registration Statement, Articles of Incorporation, and By-Laws; applicable laws and regulations; and all resolutions and policies implemented by the Board: (i) Fund Administration (ii) Fund Accounting A detailed description of each of the above services is contained in Schedules B and C, respectively, to this Agreement. (b) Chase will also: (i) provide office facilities with respect to the provision of the services contemplated herein (which may be in the offices of Chase or a corporate affiliate of Chase ); (ii) provide the services of individuals to serve as officers of the Fund who will be designated by Chase and elected by the Board subject to reasonable Board approval; (iii) provide or otherwise obtain personnel sufficient, in Chase's sole discretion, for provision of the services contemplated herein; (iv) furnish equipment and other materials, which Chase, in its sole discretion, believes are necessary or desirable for provision of the services contemplated herein; and 3 (v) keep records relating to the services provided hereunder in such form and manner as set forth in Schedules B and C as Chase may otherwise deem appropriate or advisable, all in accordance with the 1940 Act. To the extent required by Section 31 of the 1940 Act and the rules thereunder, Chase agrees that all such records prepared or maintained by Chase relating to the services provided hereunder are the property of the Fund and will be preserved for the periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the Fund's expense, and made available in accordance with such Section and rules. Chase further agrees to surrender promptly to the Fund upon its request and cease to retain in its records and files those records and documents created and maintained by Chase pursuant to this Agreement. 5. FEES; EXPENSES; EXPENSE REIMBURSEMENT. (a) As compensation for the services rendered to the Fund pursuant to this Agreement the Fund shall pay Chase monthly fees determined as set forth in Schedule A to this Agreement. Such fees are to be billed monthly and shall be due and payable upon receipt of the invoice. Upon any termination of this Agreement before the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of termination of this Agreement. (b) For the purpose of determining fees calculated as a function of the Fund's assets, the value of the Fund's assets and net assets shall be computed as required by its Registration Statement, generally accepted accounting principles, and resolutions of the Board. (c) Chase may, in its sole discretion, from time to time employ or associate with such person or persons as may be appropriate to assist Chase in the performance of this Agreement. Such person or persons may be officers and employees who are employed or designated as officers by both Chase and the Fund. The compensation of such person or persons for such employment shall be paid by Chase and no obligation will be incurred by or on behalf of the Fund in such respect. (d) The Fund may request additional services, additional processing, or special reports. The Fund shall submit such requests in writing together with such specifications and requirements documentation as may be reasonably required by the Chase . If Chase elects to provide such services or arrange for their provision, it shall be entitled to additional fees and expenses at its customary rates and charges. 4 (e) Chase will bear all of its own expenses in connection with the performance of the services under this Agreement except as otherwise expressly provided herein. The Fund agrees to promptly reimburse Chase for any equipment and supplies specially ordered by or for the Fund through Chase and for any other expenses not contemplated by this Agreement that Chase may incur on the Fund's behalf at the Fund's request or as consented to by the Fund. Such other expenses to be incurred in the operation of the Fund and to be borne by the Fund, include, but are not limited to: taxes; interest; brokerage fees and commissions; salaries and fees of officers and directors who are not officers, directors, shareholders or employees of Chase, or the Fund's investment adviser or distributor; SEC and state Blue Sky registration and qualification fees, levies, fines and other charges; EDGAR filing fees, processing services and related fees; advisory and administration fees; charges and expenses of pricing and data services, independent public accountants and custodians; insurance premiums including fidelity bond premiums; legal expenses; costs of maintenance of corporate existence; expenses of typesetting and printing of prospectuses for regulatory purposes and for distribution to current shareholders of the Fund; expenses of printing and production costs of shareholders' reports and proxy statements and materials; costs and expenses of Fund stationery and forms; costs and expenses of special telephone and data lines and devices; costs associated with corporate, shareholder, and Board meetings; trade association dues and expenses; and any extraordinary expenses and other customary Fund expenses. In addition, Chase may utilize one or more independent pricing services, approved from time to time by the Board, to obtain securities prices and to act as backup to the primary pricing services, in connection with determining the net asset values of the Fund, and the Fund will reimburse Chase for the Fund's share of the cost of such services based upon the actual usage, or a pro-rata estimate of the use, of the services for the benefit of the Fund. (f) All fees, out-of-pocket expenses, or additional charges of Chase shall be billed on a monthly basis and shall be due and payable upon receipt of the invoice. Chase will render, after the close of each month in which services have been furnished, a statement reflecting all of the charges for such month. Charges remaining unpaid after thirty (30) days shall bear interest in finance charges equivalent to, in the aggregate, the Prime Rate (as publicly announced by Chase) plus two percent per year and all costs and expenses of effecting collection of any such sums, including reasonable attorney's fees, shall be paid by the Fund to Chase. 5 In the event that the Fund is more than sixty (60) days delinquent in its payments of monthly billings in connection with this Agreement (with the exception of specific amounts which may be contested in good faith by the Fund), this Agreement may be terminated upon thirty (30) days' written notice to the Fund by Chase. The Fund must notify Chase in writing of any contested amounts within thirty (30) days of receipt of a billing for such amounts. Disputed amounts are not due and payable while they are being investigated. The fees set forth in Schedule A may be changed from time to time upon agreement of the parties. 6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Chase agrees on behalf of itself and its employees to treat confidentially and as proprietary information of the Fund, all records and other information relative to the Fund's prior, present or potential shareholders, and to not use such records and information for any purpose other than performance of Chase 's responsibilities and duties hereunder. Chase may seek a waiver of such confidentiality provisions by furnishing reasonable prior notice to the Fund and obtaining approval in writing from the Fund, which approval shall not be unreasonably withheld and may not be withheld where Chase may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities. Waivers of confidentiality are automatically effective without further action by Chase with respect to Internal Revenue Service levies, subpoenas and similar actions, or with respect to any request by the Fund. 7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY. (a) In the performance of its duties hereunder, Chase shall be obligated to act in good faith in performing the services provided for under this Agreement. In performing its services hereunder, Chase shall be entitled to rely on any oral or written instructions, notices or other communications, including electronic transmissions, from the Fund and its custodians, officers and directors, investors, agents and other service providers which Chase reasonably believes to be genuine, valid and authorized. Chase shall also be entitled to consult with and rely on the advice and opinions of outside legal counsel retained by the Fund, as necessary or appropriate. (b) Chase shall not be liable for any error of judgment or mistake of law or for any loss or expense suffered by the Fund, in connection with the matters to which this Agreement relates, except for a loss or expense solely caused by or resulting from willful misfeasance, bad faith or negligence on Chase's part in the performance of its duties or from reckless disregard by Chase of its 6 obligations and duties under this Agreement. In no event shall Chase be liable for any indirect, incidental, special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if Chase has been advised of the likelihood of such loss or damage and regardless of the form of action. Subject to Paragraph 7 (c) below, the Fund shall not be liable to Chase to for any indirect, incidental, special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if Chase has been advised of the likelihood of such loss or damage and regardless of the form of action. Any person, even though also an officer, director, partner, employee or agent of Chase, who may be or become an officer, director, partner, employee or agent of the Fund, shall be deemed when rendering services to the Fund or acting on any business of the Fund (other than services or business in connection with Chase's duties hereunder) to be rendering such services to or acting solely for the Fund and not as an officer, director, partner, employee or agent or person under the control or direction of Chase even though paid by Chase. (c) Subject to Paragraph 7 (b) above, Chase shall not be responsible for, and the Fund shall indemnify and hold Chase harmless from and against, any and all losses, damages, costs, reasonable attorneys' fees and expenses, payments, expenses and liabilities arising out of or attributable to: (i) all actions of Chase or its officers or agents required to be taken pursuant to this Agreement; (ii) the reliance on or use by Chase or its officers or agents of information, records, or documents which are received by Chase or its officers or agents and furnished to it or them by or on behalf of the Fund, and which have been prepared or maintained by the Fund or any third party on behalf of the Fund; (iii) the Fund's refusal or failure to comply with the terms of this Agreement or the Fund's lack of good faith, or its actions, or lack thereof, involving negligence or willful misfeasance; (iv) the breach of any representation or warranty of the Fund hereunder; (v) the taping or other form of recording of telephone conversations or other forms of electronic communications with investors and shareholders, which is in compliance with applicable laws, or reliance by Chase on telephone or other electronic instructions of any person 7 acting on behalf of a shareholder or shareholder account for which telephone or other electronic services have been authorized; (vi) the reliance on or the carrying out by Chase or its officers or agents of any proper instructions reasonably believed to be duly authorized, or requests of the Fund or recognition by Chase of any share certificates which are reasonably believed to bear the proper signatures of the officers of the Fund and the proper countersignature of any transfer agent or registrar of the Fund; (vii) any delays, inaccuracies, errors in or omissions from data provided to Chase by data and pricing services; (viii) the offer or sale of shares by the Fund in violation of any requirement under the Federal securities laws or regulations or the securities laws or regulations of any state, or in violation of any stop order or other determination or ruling by any Federal agency or any state agency with respect to the offer or sale of such shares in such state (1) resulting from activities, actions, or omissions by the Fund or its other service providers and agents, or (2) existing or arising out of activities, actions or omissions by or on behalf of the Fund prior to the effective date of this Agreement; (ix) any failure of the Fund's registration statement to comply with the 1933 Act and the 1940 Act (including the rules and regulations thereunder) and any other applicable laws, or any untrue statement of a material fact or omission of a material fact necessary to make any statement therein not misleading in a Fund's prospectus; and (x) the actions taken by the Fund, its investment adviser, and its distributor in compliance with applicable securities, tax, commodities and other laws, rules and regulations, or the failure to so comply. 8. TERM. This Agreement shall become effective on the date first hereinabove written. This Agreement may be modified or amended from time to time by mutual agreement between the parties hereto. This Agreement shall continue in effect unless terminated by either party on 120 days' prior written notice. Upon termination of this Agreement, the Fund shall pay to Chase such compensation and any out-of-pocket or other reimbursable expenses which may become due or payable under the terms hereof as of the date of termination or after the date that the provision of services ceases, whichever is later. 8 9. NOTICES. Any notice required or permitted hereunder shall be in writing and shall be deemed to have been given when delivered in person or by certified mail, return receipt requested, to the parties at the following address (or such other address as a party may specify by notice to the other): If to the Fund: BEA Income Fund, Inc. 153 East 53rd Street New York, NY 10022 Attention: Paul Stamler Fax: (212) 355-2099 WITH A COPY TO: If to Chase : Chase Global Funds Services Company 73 Tremont Street Boston, MA 02108 Attention: Karl O. Hartmann, Esq., General Counsel Fax: (617) 557-8616 Notice shall be effective upon receipt if by mail, on the date of personal delivery (by private messenger, courier service or otherwise) or upon confirmed receipt of telex or facsimile, whichever occurs first. 10. ASSIGNABILITY. This Agreement shall not be assigned by either of the parties hereto without the prior consent in writing of the other party; provided, however, that Chase may in its own discretion and without limitation or prior consent of the Fund, whenever and on such terms and conditions as Chase deems necessary or appropriate, subcontract, delegate or assign its rights, duties, obligations and liabilities to subsidiaries or affiliates of Chase; provided, further, that any such subcontract, agreement or understanding shall not discharge Chase from its obligations hereunder. Similarly, Chase or its affiliated subcontractor, designee, or assignee may at its discretion, without notice to the Fund, enter into such subcontracts, agreements and understandings, whenever and on such terms and conditions as Chase or they deem necessary or appropriate to perform services hereunder, with non-affiliated third parties; provided, that such subcontract, agreement or understanding shall not discharge Chase, or its subcontractor, designee, or assignee, as the case may be, from Chase 's obligations hereunder. Chase or its affiliated subcontractor, designee, or assignee 9 shall, however, be discharged from Chase's obligations hereunder, if the Fund or its sponsor, or investment adviser require Chase or its affiliated subcontractor, designee, or assignee to enter into any subcontract, agreement or understanding to perform services hereunder with any non-affiliated third party; and the Fund shall indemnify and hold harmless Chase and its affiliated subcontractor, designee, or assignee from and against, any and all losses, damages, costs, reasonable attorneys' fees and expenses, payments, expenses and liabilities arising out of or attributable to such subcontract, agreement or understanding. 11. WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party. 12. FORCE MAJEURE. Chase shall not be responsible or liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control, including without limitation, acts of God, earthquakes, fires, floods, wars, acts of civil or military authorities, or governmental actions, nor shall any such failure or delay give the Fund the right to terminate this Agreement. 13. AMENDMENTS. This Agreement may be modified or amended from time to time by mutual written agreement between the parties. No provision of this Agreement may be changed, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought. 14. SEVERABILITY. If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances. 15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above. 10 BEA INCOME FUND, INC. Attest:____________________________ By:___________________________ Name:______________________________ Name:_________________________ Title:________________________ CHASE GLOBAL FUNDS SERVICES COMPANY Attest:____________________________ By:___________________________ Name:______________________________ Name:_________________________ Title:________________________ 11 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE A FEES AND EXPENSES FEES FOR FUND ADMINISTRATION AND FUND ACCOUNTING SERVICES: 15 Basis Points on the first $100 million in total assets 10 Basis Points on the next $300 million in total assets 5 Basis Points on total assets greater than $400 million Plus Out-of-Pocket expenses as set forth in Section 5. A-1 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE B GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES I. FINANCIAL AND TAX REPORTING A. Prepare management reports and Board of Directors [Trustees] materials, such as unaudited financial statements and summaries of dividends and distributions. B. Report Fund performance to outside services as directed by Fund management. C. Calculate dividend and capital gain distributions in accordance with distribution policies detailed in the Fund's prospectus(es). Assist Fund management in making final determinations of distribution amounts. D. Estimate and recommend year-end dividend and capital gain distributions necessary to establish Fund's status as a regulated investment company ("RIC") under Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code") regarding minimum distribution requirements. E. Working with the Fund's public accountants or other professionals, prepare and file Fund's Federal tax return on Form 1120-RIC along with all state and local tax returns where applicable. Prepare and file Federal Excise Tax Return (Form 8613). F. Prepare and file Fund's Form N-SAR with the SEC. G. Prepare and coordinate printing of Fund's Semiannual and Annual Reports to Shareholders. H. In conjunction with transfer agent, notify shareholders as to what portion, if any, of the distributions made by the Fund's during the prior fiscal year were exempt-interest dividends under Section 852 (b)(5)(A) of the Code. I. Provide Form 1099-MISC to persons other than corporations (i.e., Trustees [Directors]) to whom the Fund paid more than $600 during the year. J. Prepare and file California State Expense Limitation Report, if applicable. K. Provide financial information for Fund proxies and prospectuses (Expense Table). B-1 II. PORTFOLIO COMPLIANCE A. Assist with monitoring each Investment Fund's compliance with investment restrictions (e.g., issuer or industry diversification, etc.) listed in the current prospectus(es) and Statement(s) of Additional Information, although primary responsibility for such compliance shall remain with the Fund's investment adviser or investment manager. B. Assist with monitoring each Investment Fund's compliance with the requirements of Section 851 of the Code for qualification as a RIC (i.e., 90% Income, 30% Income - Short Three, Diversification Tests), although primary responsibility for such compliance shall remain with the Fund's investment adviser or investment manager. C. Assist with monitoring investment manager's compliance with Board directives such as "Approved Issuers Listings for Repurchase Agreements", Rule 17a-7, and Rule 12d-3 procedures, although primary responsibility for such compliance shall remain with the Fund's investment adviser or investment manager. D. Mail quarterly requests for "Securities Transaction Reports" to the Fund's Directors [Trustees] and Officers and "access persons" under the terms of the Fund's Code of Ethics and SEC regulations. III. REGULATORY AFFAIRS AND CORPORATE GOVERNANCE A. Prepare and file post-effective amendments to the Fund's registration statement and supplements as needed. B. Prepare and file proxy materials and administer shareholder meetings. C. Prepare and file all state registrations of the Fund's securities including annual renewals; registering new funds, portfolios, or classes; preparing and filing sales reports; filing copies of the registration statement, prospectus and statement of additional information; and increasing registered amounts of securities in individual states. D. Prepare Board materials for Board meetings. E. Assist with the review and monitoring of fidelity bond and errors and omissions insurance coverage and the submission of any related regulatory filings. F. Prepare and update documents such as charter document, by-laws, and foreign qualification filings. G. Provide support with respect to routine regulatory examinations or investigations of the Fund. B-2 H. File copies of financial reports to shareholders with the SEC under Rule 30b2-1. IV. GENERAL ADMINISTRATION A. Furnish officers of the Fund, subject to reasonable Board approval. B. Prepare fund, portfolio or class expense projections, establish accruals and review on a periodic basis, including expenses based on a percentage of average daily net assets (advisory and administrative fees) and expenses based on actual charges annualized and accrued daily (audit fees, registration fees, directors' fees, etc.). C. For new funds, portfolios and classes, obtain Employer or Taxpayer Identification Number and CUSIP numbers, as necessary. Estimate organizational costs and expenses and monitor against actual disbursements. D. Coordinate all communications and data collection with regard to any regulatory examinations and yearly audits by independent accountants. B-3 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE C DESCRIPTION OF FUND ACCOUNTING SERVICES I. GENERAL DESCRIPTION Chase shall provide the following accounting services to the Fund: A. Maintenance of the books and records for the Fund's assets, including records of all securities transactions. B. Calculation of each funds', portfolios' or classes' Net Asset Value in accordance with the Prospectus, and after the fund, portfolio or class meets eligibility requirements, transmission to NASDAQ and to such other entities as directed by the Fund. C. Accounting for dividends and interest received and distributions made by the Fund. D. Coordinate with the Fund's independent auditors with respect to the annual audit, and as otherwise requested by the Fund. E. As mutually agreed upon, Chase will provide domestic and/or international reports. C-1 EX-99.L(1) 16 EX-99.L(1) September 27, 1996 BEA Income Fund, Inc. One Citicorp Center 153 East 53rd Street 57th Floor New York, NY 10022 Ladies and Gentlemen, We have acted as counsel to BEA Income Fund, Inc. (the "Fund"), a corporation organized under the laws of the State of Maryland, in connection with the issuance of up to 10,160,570 shares, consisting of 8,128,456 shares to be issued under the Primary Subscription (the "Primary Subscription Shares") and up to 2,032,114 shares to be issued pursuant to the Over-Subscription Privilege (the "Additional Shares") of its common stock, par value $.001 per share (the "Common Stock"), pursuant to the exercise of rights (the "Rights") to purchase Common Stock to be distributed to shareholders of the Fund (the "Offer") in accordance with the Fund's Registration Statement on Form N-2 (File Nos. 333-10851 and 811-05102) under the Securities Act of 1933, as amended, and under the Investment Company Act of 1940, as amended (the "Registration Statement"). We have examined copies of the Articles of Incorporation and By-Laws of the Fund, as amended, the Registration Statement, resolutions adopted by the Fund's Board of Directors and other records and documents that we have deemed necessary for the purpose of this opinion, including certification of the initial directors of the Fund. We have also examined such other documents, papers, statutes and authorities as we have deemed necessary to form a basis for the opinion hereinafter expressed. In our examination, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to our opinion, we have relied upon statements and certificates of officers and representatives of the Fund and others. We have further assumed that if the Fund decides to extend the Offer, that extension will have been duly authorized by the Board of Directors pursuant to the authority that has heretofore been delegated to it by the Board of Directors. As to matters governed by the laws of BEA Income Fund, Inc. September 27, 1996 Page 2 the State of Maryland, we have relied upon the opinion of Venable, Baetjer and Howard, LLP that is attached to this opinion. Based upon the foregoing, we are of the opinion that when the Primary Subscription Shares have been issued and paid for as contemplated by the Registration Statement, the Primary Subscription Shares to be issued upon exercise of the Rights will have been validly and legally authorized and issued and will be fully paid and non-assessable. We are further of the opinion that when the Board of Directors of the Fund has taken appropriate further action to authorize the issuance of the Additional Shares, the Additional Shares to be issued upon exercise of the Rights will have been duly authorized and, upon such exercise, when the Additional Shares have been issued and paid for as contemplated by the Registration Statement, the Additional Shares will have been validly and legally authorized and issued and will be fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the prospectus included as part of the Registration Statement. Very truly yours, /s/ Willkie Farr & Gallagher EX-99.L(2) 17 EX-99.L(2) September 27, 1996 Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Re: BEA INCOME FUND, INC. --------------------- Ladies & Gentlemen: We have acted as special Maryland counsel to BEA Income Fund, Inc., a Maryland corporation (the "Company"), in connection with the issuance of up to 10,160,570 additional shares, consisting of 8,128,456 primary subscription shares (the "Primary Subscription Shares") and up to 2,032,114 additional over-subscription shares (the "Additional Over-Subscription Shares") that may, at the discretion of the Board of Directors, be issued pursuant to an over-subscription privilege, of the Company's common stock, par value $.001 per share (the "Common Stock"), pursuant to the exercise of non-transferable rights (the "Rights") to purchase Common Stock to be distributed to the Company's shareholders in accordance with the Company's Registration Statement on Form N-2 (Securities Act File No. 333-10851, Investment Company Act File No. 811-5012) (the "Registration Statement"). We have examined the Company's prospectus included in the Registration Statement substantially in the form in which it is to be come effective (the "Prospectus"), the form of subscription certificate for exercise of the Rights, the Company's Charter and Bylaws, and resolutions adopted by the Board of Directors of the Company with respect to the Rights, and have further examined and relied upon a certificate of the Maryland State Department of Assessments and Taxation to the effect that the Company is duly incorporated and existing under the laws of the State of Maryland and is in good standing and duly authorized to transact business in the State of Maryland. With respect to the due organization of the Company under Maryland law and with the consent of Willkie Willkie Farr & Gallagher September 27, 1996 Page 2 Farr & Gallagher, we have also relied on certifications of the initial directors of the Company. We have assumed that if the initial Expiration Date of the offering and the Rights is extended as described in the Registration Statement, such action will have been duly authorized by further action of the Board of Directors. We have also examined and relied upon such other corporate records of the Company and documents and certificates with respect to factual matters as we have deemed necessary for purposes of this opinion. With respect to the documents we have received, we have assumed, without independent verification, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with originals of all documents submitted to us as copies. Based on the foregoing, we are of the opinion that: 1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland. 2. The Primary Subscription Shares to be issued upon exercise of the Rights have been duly authorized, and, upon such exercise, when the Primary Subscription Shares have been issued and paid for as contemplated by the Registration Statement, the Primary Subscription Shares will have been validly and legally authorized and issued and will be fully paid and nonassessable. When the Board of Directors has taken appropriate further action to authorize the issuance of the Additional Over-Subscription Shares, the Additional Over-Subscription Shares to be issued upon exercise of the Rights will have been duly authorized and, upon such exercise, when the Additional Over-Subscription Shares have been issued and paid for as contemplated by the Registration Statement, the Additional Over-Subscription Shares will have been validly and legally authorized and issued and will be fully paid and nonassessable. This letter expresses our opinion with respect to the Maryland General Corporation Law governing matters such as due organization and the authorization and issuance of stock. It does not extend to the securities or "Blue Sky" laws of Maryland, to federal securities laws or to other laws. You may rely on this opinion in rendering your opinion to the Company that is to be filed as an exhibit to Willkie Farr & Gallagher September 27, 1996 Page 3 the Registration Statement. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus under the caption "Legal Matters." We do not thereby admit that we are "experts" within the meaning of the Securities Act of 1933 and the regulations thereunder. This opinion may not be relied upon by any other person or for any other purpose without our prior written consent. Very truly yours, /s/ Venable, Baetjer & Howard, LLP EX-99.N 18 EX-99.N CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Pre-Effective Amendment No. 1 to the registration statement on Form N-2 (the "Registration Statement") of our report dated February 13, 1996, relating to the financial statements and financial highlights appearing in the December 31, 1995 Annual Report to Shareholders of BEA Income Fund, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Experts" in the Prospectus. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, NY 10036 September 27, 1996 EX-99.P 19 EX-99.P ASSET PURCHASE AGREEMENT among CS FIRST BOSTON, INC., CS FIRST BOSTON INVESTMENT MANAGEMENT CORPORATION and CREDIT SUISSE CAPITAL CORPORATION Dated as of April 26, 1995 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of April 26, 1995, among CS First Boston, Inc., a Delaware corporation ("CS First Boston"), CS First Boston Investment Management Corporation, a New York corporation (the "Seller"), and Credit Suisse Capital Corporation, a New York corporation (the "Purchaser") and an 80% partner of BEA Associates, a New York general partnership ("BEA"). WHEREAS, the Seller desires to sell and transfer to the Purchaser, and the Purchaser desires to purchase and assume from the Seller, certain assets and liabilities all as more specifically provided herein; WHEREAS, CS First Boston and CS Holding, a corporation organized under the laws of Switzerland ("CS Holding"), have entered into a Memorandum of Understanding, dated as of April 12, 1995, with respect to the transfer of the investment and asset management activities of CS First Boston to CS Holding or the group companies designated by CS Holding (the "Memorandum"); and WHEREAS, this Agreement is being entered into pursuant to the terms and provisions of the Memorandum and it is the intent of the parties hereto that the investment and asset management business of the Seller be transferred to the Purchaser and BEA; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: SECTION ONE. PURCHASE AND SALE OF ASSETS. 1.1 THE PURCHASE. Upon the terms and subject to the conditions of this Agreement and on the basis of the representations, warranties and agreements contained herein, at the Closing (as defined in Section 2.1 hereof): (a) the Seller shall (i) sell, assign, transfer, convey and deliver to the Purchaser all of the Seller's right, title and interest in and to the Assets (as defined in Section 1.2 hereof) except for the Client Contracts (as defined in Section 1.2 hereof) and (ii) assign the Client Contracts to BEA at the direction of the Purchaser, and (b) the Purchaser shall (i) pay to the Seller the Purchase Price (as defined in Section 1.2 hereof) and (ii) assume and become responsible for the discharge and performance of the Assumed Liabilities (as defined in Section 1.2 hereof) in accordance with the respective terms thereof. Such transaction is hereinafter referred to as the "Purchase". 1.2 CERTAIN DEFINITIONS. As used herein, the following terms have the meanings indicated: "Assets" means those assets of the Seller listed in Exhibit A hereto. "Assumed Liabilities" means those liabilities of the Seller listed in Exhibit B hereto. "Advisee" means any advisory client of the Seller. "Advisers Act" means the Investment Advisers Act of 1940, as amended. "Authority" means any U.S. court, tribunal or arbitrator(s), U.S. government or agency thereof or U.S. governmental or non-governmental self-regulatory organization, agency or authority. "Client Consents" means all of the consents, including without limitation, the consents required to be obtained from an Advisee under the Advisers Act with respect to the transfer or assignment of a Client Contract to BEA or the execution and delivery of an investment advisory contract between the Advisee and BEA on terms substantially similar to the Client Contract (other than the term of such contract), as the case may be. "Client Contract" means any investment advisory contract between the Seller or any predecessor of the Seller and an Advisee listed on Annex I attached hereto. "Company Act" means the Investment Company Act of 1940, as amended. "Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. "Purchase Price" means an amount equal to U.S. $3,202,406, as such amount may be adjusted prior to the Closing Date in accordance with the terms of the Memorandum. "RIC" means a company that is registered as an investment company under the Company Act. SECTION TWO. THE CLOSING. 2.1 CLOSING. The closing of the Purchase (the "Closing") shall take place at the offices of the Seller, 599 Lexington Avenue, New York, New York at 10:00 a.m., New York City time, on June 14, 1995, or at such other time and location as the parties may agree. The day on which the Closing takes place is herein referred to as the "Closing Date". Notwithstanding the -2- Closing Date, the parties intend that for financial reporting purposes, the Purchase will be effective as of January 1, 1995 and all cost and income (except as otherwise agreed herein) incurred or realized by the Seller on or after January 1, 1995 will be for the account of the Purchaser. 2.2 DELIVERIES AND PAYMENTS BY THE PURCHASER. At the Closing, the Purchaser shall deliver to the Seller the Purchase Price payable to the Seller in immediately available funds by wire transfer to the Seller's designated account #066-004128 at Chemical Bank, New York, New York and an assumption agreement in the form attached hereto as Exhibit C. 2.3 DELIVERIES BY THE SELLER. At the Closing, the Seller shall deliver to the Purchaser the Assets (other than the Client Contracts that have heretofore been transferred or assigned to BEA), a bill of sale in the form attached hereto as Exhibit D, and such other instruments or documents as may be reasonably requested by the Purchaser to carry out the Purchase and to comply with the terms hereof, including without limitation, those specified in Section 4 hereof. SECTION THREE. REPRESENTATIONS AND WARRANTIES. 3.1 PURCHASER REPRESENTATIONS AND WARRANTIES. The Purchaser represents and warrants to, and agrees with, the Seller and CS First Boston as follows: (a) ORGANIZATION AND QUALIFICATION. The Purchaser is a corporation duly organized, validly existing and subsisting under the laws of its jurisdiction of incorporation. (b) AUTHORIZATION. The Purchaser has the full legal right and power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Purchaser and, assuming the due authorization, execution and delivery of this Agreement by the other parties hereto, constitutes a legal, valid and legally binding obligation of it enforceable against it in accordance with its terms. (c) NO CONFLICTS. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, and the performance by the Purchaser of this Agreement in accordance with its terms does not and, on the Closing Date, will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both constitute) a default under: (i) the Certificate of Incorporation or By-Laws of the Purchaser; (ii) any material instrument, contract or other agreement to which the Purchaser is a party or by or to which it or its assets or properties are bound or subject; or (iii) assuming that all Client Consents have been lawfully and properly obtained, in any material respect, any existing applicable law, rule, regulation, -3- judgment, order or decree of any Authority having jurisdiction over the Purchaser or any of its properties. (d) CONSENTS. No consent, approval, authorization, order, registration or qualification of or with any Authority is required to be obtained by the Purchaser or BEA for the execution and delivery by the Purchaser of this Agreement, the consummation by the Purchaser of the transactions contemplated by this Agreement and the performance by the Purchaser of this Agreement in accordance with its terms, other than the filing with the Securities and Exchange Commission of any proxy statement or other filings that may be required in connection with obtaining the approval of the shareholders of any RIC that is an Advisee and an amendment to the Form ADV of BEA and filings with the National Futures Association. 3.2 SELLER AND CS FIRST BOSTON REPRESENTATIONS AND WARRANTIES. Each of the Seller and CS First Boston represents and warrants to the Purchaser as follows: (a) ORGANIZATION. Each of the Seller and CS First Boston is a corporation duly organized, validly existing and subsisting or in good standing, as the case may be, under the laws of its jurisdiction of incorporation. (b) AUTHORIZATION. Each of the Seller and CS First Boston has the full legal right and power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. This Agreement has been duly authorized, executed and delivered by each of the Seller and CS First Boston and, assuming the due authorization, execution and delivery of this Agreement by the Purchaser, constitutes a legal, valid and legally binding obligation of it enforceable against it in accordance with its terms. (c) NO CONFLICTS. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, and the performance by CS First Boston and the Seller of this Agreement in accordance with its terms does not and, on the Closing Date, will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both constitute) a default under: (i) the Certificate of Incorporation or By-Laws of CS First Boston or the Seller; (ii) any material instrument, contract or other agreement to which CS First Boston or the Seller is a party or by or to which it or its assets or properties are bound or subject; or (iii) assuming that all Client Consents have been lawfully and properly obtained, in any material respect, any existing applicable law, rule, regulation, judgment, order or decree of any Authority having jurisdiction over CS First Boston or the Seller or any of their respective properties. (d) CONSENTS. Assuming that all Client Consents have been lawfully and properly obtained, no consent, approval, -4- authorization, order, registration or qualification of or with any Authority is required to be obtained by CS First Boston and the Seller for the execution and delivery by CS First Boston and the Seller of this Agreement, the consummation of the transactions contemplated by this Agreement and the performance by CS First Boston and the Seller of this Agreement in accordance with its terms, other than the filing with the Securities and Exchange Commission of any proxy statement or other filings that may be required in connection with obtaining the approval of the shareholders of any RIC that is an Advisee. (e) CLIENT CONTRACTS. Annex I, attached hereto, sets forth all of the Client Contracts, including the names of the parties thereto. (f) TITLE TO ASSETS; LIENS. The Seller owns outright and has good and marketable title to all of the Assets, in each case free and clear of any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, easement, transfer restriction or similar agreement, encumbrance or other restriction or limitation whatsoever (each, a "Lien"), except for: (i) Liens securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords and like Persons, which are not yet due and payable and (ii) minor Liens of a character which do not substantially impair the value of the Assets. (g) I&AM ENTITIES. No I&AM Entity (as defined in the Memorandum) other than the Seller is a party to any Client Contract or has any right, title or interest in any Client Contract or any of the Assets. SECTION FOUR. CONDITIONS PRECEDENT. 4.1 The obligations set forth herein of the Purchaser to consummate this Agreement and the transactions contemplated hereby shall be subject to the fulfillment, on or before the Closing Date, of the conditions that: (a) CS First Boston or the Seller shall deliver to the Purchaser: (i) true and fair copies of the management accounts and reports for the Seller for each of the fiscal years ended 1992, 1993 and 1994, including details of intercompany allocations for office services; (ii) the financial statements of the Seller as of and for each of the fiscal years ended 1992, 1993 and 1994 (the "1994 Financials"); (iii) copies of the 1995 business plan and budget for the Seller; -5- (iv) details as to assets and funds under management by Seller, in particular a list of the management contracts to which the Seller is a party; (v) a list of all Seller's employees and their respective functions and responsibilities whose total remuneration exceeds U.S. $200,000 (average of last three years); (vi) a description of any bonus or unit trust or share plan or fee split plan for key employees of Seller, including total remuneration (including share and unit trust awards and referral fees) for any employees covered by such a plan for the period 1992 through 1994; (vii) a certificate that, except as specifically disclosed in Schedule 4.1(a) attached hereto: (A) the 1994 Financials are complete and correct in all material respects; (B) the Seller does not have any liabilities or obligations of any nature, whether absolute, accrued or contingent that are not disclosed or provided for in the 1994 Financials or the March 1995 management reports; (C) no litigation is pending or threatened against the Seller or CS First Boston that would materially adversely affect the net equity and the business of the Seller; (D) the Seller conducted its business in material compliance with all applicable legislation and regulations; and (viii) all such documents, certificates and instruments as the Purchaser may reasonably request for the purpose of enabling it to evidence the accuracy and completeness of any of the representations and warranties or statements of CS First Boston and the Seller or the fulfillment of any of the conditions contained herein; (b) there shall not be any injunction, restraining or similar order issued by any Authority preventing consummation of the transactions contemplated by this Agreement or any part hereof; and (c) the representations and warranties of CS First Boston and the Seller contained in this Agreement shall be true and correct on and as of the Closing Date with the same -6- force and effect as though made on and as of the Closing Date. CS First Boston and the Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by the duly authorized officer of CS First Boston and the duly authorized officer of the Seller, to the foregoing effect. 4.2 The obligations set forth herein of the Seller and CS First Boston to consummate this Agreement and the transactions contemplated hereby shall be subject to the fulfillment, on or before the Closing Date, of the conditions that: (a) the Purchaser shall deliver to the Seller all such documents, certificates and instruments as the Seller may reasonably request for the purpose of enabling it to evidence the accuracy and completeness of any of the representations and warranties or statements of the Purchaser or the fulfillment of any of the conditions contained herein; (b) there shall not be any injunction, restraining or similar order issued by any Authority preventing consummation of the transactions contemplated by this Agreement or any part hereof; and (c) the representations and warranties of the Purchaser contained in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed by a duly authorized officer of the Purchaser to the foregoing effect. SECTION FIVE. ADDITIONAL AGREEMENTS. 5.1 INTERIM SERVICES AGREEMENT. The parties hereto acknowledge and agree that CS First Boston Corporation and the Seller shall negotiate in good faith an Interim Services Agreement on terms reasonably acceptable to and acknowledged by the Purchaser or BEA. 5.2 COOPERATION. (a) The Seller and the Purchaser shall, and the Purchaser shall use its best efforts to cause BEA to, cooperate with each other and shall cause their officers, employees, agents, auditors and representatives to cooperate with each other from the date hereof until the Closing to ensure the orderly transfer of the Assets from the Seller to the Purchaser or to BEA and to minimize any disruption to the respective businesses of the Seller and the Purchaser that might result from the transactions contemplated hereby. Neither party shall be required by this Section 5.2 to take any action that would unreasonably interfere with the conduct of its business. (b) CS First Boston and the Seller shall use their respective best efforts to obtain and deliver to the Purchaser such duly executed consents, authorizations, approvals -7- or other documents or instruments that are reasonably required in order for the Purchaser to use the premises leased by CS First Boston Corporation which are described on Schedule 5.2(b) attached hereto (collectively, the "Leased Office Space"), including the lessor of the Leased Office Space, as an authorized occupant or subtenant and to sublet the Leased Office Space to a third party. 5.3 CLIENT APPROVALS. (a) The parties hereto acknowledge and agree that, as heretofore agreed, the Seller, to the extent it may lawfully do so, has transferred all of its right, title and interest in the Client Contracts to BEA at the direction of the Purchaser. (b) Prior to the Closing, and thereafter as reasonably requested by the Purchaser, to the extent resources are available, each of the Seller, CS First Boston and the Purchaser shall, and the Purchaser shall use its best efforts to cause BEA to, use their respective best efforts to obtain the execution of consent letters relating to the consent of each Advisee that is not a RIC or an advisor to a RIC to the transfer or assignment of their respective Client Contract to BEA. (c) Prior to the Closing, and thereafter as necessary, each of the Seller, CS First Boston and the Purchaser shall, and the Purchaser shall use its best efforts to cause BEA to, use its reasonable best efforts as soon as practicable to obtain approvals from the directors and shareholders of the investment companies registered under the Investment Company Act of 1940, as amended, for which the Seller acts as investment adviser or investment sub-adviser (the "Registered Funds") to permit BEA to replace the Seller as investment adviser or investment sub-adviser for such Registered Funds. 5.4 REMITTANCE OF ADVISORY FEES. From and after the date hereof, the Seller shall: (i) promptly mail, in accordance with the Seller's past practice, all statements for any unbilled and/or unpaid fees which shall accrue prior to the Closing Date to BEA or the Seller by any party to a Client Contract and (ii) remit to the Purchaser, promptly upon receipt thereof, all amounts received by the Seller. 5.5 POST-CLOSING COOPERATION. Until December 31, 1995, as reasonably requested by the Purchaser, to the extent resources are available, CS First Boston shall cooperate with and assist the Purchaser and BEA in maintaining business relationships with each Advisee; PROVIDED, HOWEVER, that in providing such cooperation and assistance CS First Boston shall not be required to provide any services to any such Advisee subsequent to: (i) the assignment of the Client Contract of such Advisee to BEA, in the event such Advisee is not a RIC or an adviser to a RIC or (ii) BEA having entered into an advisory contract with such Advisee, in the event that such Advisee is a RIC or an advisor to a RIC. -8- 5.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated to the Assets in accordance with the provisions of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. 5.7 SATISFACTION OF CONDITIONS IN SECTION 15(f) OF THE COMPANY ACT. The Purchaser agrees to use its best efforts to comply, and shall use its best efforts to cause BEA to comply, with the provisions of Section 15(f) of the Company Act. SECTION SIX. INDEMNITY AND INSURANCE. 6.1 INDEMNITY BY THE PURCHASER. It is understood and agreed that the Purchaser is acquiring the Assets subject to the Assumed Liabilities and that the Purchaser is solely responsible for the Assumed Liabilities. Subject to Section 6.2, the Purchaser shall indemnify and hold the Seller and the Seller's successors, assigns, subsidiaries, affiliates and direct and indirect stockholders and their respective officers, directors, employees, agents and representatives ("Seller Indemnitees") harmless from and against any and all damages, losses, liabilities, actions, claims, costs and expenses (including, without limitation, fines, penalties, expenses of investigation and ongoing monitoring, and reasonable attorney's fees) ("Losses") directly or indirectly based upon, arising out of, resulting from or relating to (i) the Assumed Liabilities; (ii) the ownership of the Assets or the use of the "CS First Boston" name after the Closing Date; or (iii) a breach of any representation, warranty, agreement or covenant of the Purchaser contained herein. 6.2 INDEMNITY BY CS FIRST BOSTON. CS First Boston shall indemnify and hold the Purchaser and the Purchaser's successors, assigns, subsidiaries, affiliates and direct and indirect stockholders and their respective officers, directors, employees, agents and representatives ("Purchaser Indemnitees") harmless from and against any and all Losses directly or indirectly based upon, arising out of, resulting from or relating to: (i) any unprovided liabilities from activities of Seller prior to January 1, 1995; (ii) any future claim (except for claims which a reasonable person would consider to be "de minimis") against any Purchaser Indemnitee stemming from a contractual obligation, including undocumented intercompany arrangements between an affiliate of CS First Boston and the Seller, in existence on December 31, 1994 which was not specifically disclosed to the Purchaser prior to the signing of this Agreement; and (iii) any breach of any representation, warranty, agreement or covenant of CS First Boston or the Seller contained herein. 6.3 LOSSES ARISING OUT OF SELLER'S OPERATIONS. In the event of any Losses relating to the operations of the Seller for the period from January 1, 1995 to the later to occur of: (i) the Closing Date and (ii) the cessation of all operations of the -9- Seller that are not within the scope of the provisions of Sections 6.1 or 6.2, the Seller and the Purchaser shall cooperate to determine an appropriate allocation of any such Losses in such proportion as is appropriate to reflect: (i) the relative benefits received (or anticipated to be received) by Purchaser or Seller, with respect to the Purchase and (ii) other legal and equitable considerations such as the relative fault of the Purchaser on the one hand and of the Seller on the other hand. If the Purchaser and Seller are unable to reach agreement on an appropriate allocation for any such Losses, the Seller and the Purchaser agree to submit the question of such allocation to CS Holding and to be bound by any decision made by CS Holding concerning any such allocation. 6.4 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by a party entitled to indemnification under this Agreement (an "Indemnified Party") of notice of the commencement of any action, demand, claim or circumstances which, with the lapse of time, would give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an "Asserted Liability") that may result in a Loss, such Indemnified Party shall give prompt notice thereof (a "Claims Notice") to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, it shall within 30 days (or sooner, if the nature of the Asserted Liability so requires) notify the Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, at the expense of the indemnifying party, in the compromise of, or defense against, such Asserted Liability. The indemnifying party shall not be liable to the Indemnified Party for any fees of other counsel or any other expenses, in each case subsequently incurred by such Indemnified Party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Whether or not an indemnifying party elects to assume the defense of any action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). In any event, the Indemnified Party may engage at its own expense counsel to participate in the defense of such Asserted Liability, but in such event the defense shall remain under the control of the indemnifying party. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 6.5 INSURANCE PROCEEDS. Any future insurance proceeds, damage awards or settlement amounts paid to CS First Boston or any of its affiliates with respect to the trading losses sustained in 1994 by the CS First Boston Offshore Cash -10- Reserve Fund and certain managed accounts will be for CS First Boston's account. 6.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties, covenants and agreements shall survive any investigations made hereunder, the execution and delivery hereof and the Closing hereunder, and shall thereafter terminate and expire with respect to any claims theretofore unasserted on or prior to the date that is 3 years after the Closing Date. SECTION SEVEN. MISCELLANEOUS 7.1 EXPENSES. Except as otherwise expressly stated herein, the transaction costs, including without limitation, any sales and transfer taxes attributable in whole or in part to the Purchase, except for legal fees, associated with the Purchase will be shared equally by CS First Boston and the Purchaser. Legal fees will only be shared, if and to the extent that CS First Boston and the Purchaser so specifically agree. 7.2 NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed duly given if delivered or sent by hand, telecopy or registered or certified mail, postage prepaid, as follows, or to such other address or persons as any party may designate by notice to the other party or parties hereunder: If to CS First Boston or Seller: c/o First Boston Corporation Park Avenue Plaza New York, New York 10055 Telecopier: (212) 753-2390 Attn: Agnes Reicke -11- If to the Purchaser: Credit Suisse Capital Corporation 165 Broadway New York, New York 10006 Telecopier: (212) 238-2208 Attn: Daniel Sigg with a copy to: Schulte Roth & Zabel 900 Third Avenue New York, NY 10022 Telecopier: (212) 593-5955 Attn: Edward G. Eisert, Esq. 7.3 AMENDMENTS; WAIVERS. This Agreement may not be changed orally and no waiver of compliance with any provision or condition hereof and no consent provided for herein shall be effective unless evidenced by an instrument in writing duly executed by the proper party. 7.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 7.5 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Prior to the Closing, the rights and obligations under this Agreement may not be assigned, delegated or transferred to any other person other than a successor to the Purchaser and any attempt to do so shall be null and void. There shall be no third-party beneficiaries (other than the indemnified parties referred to in Section Six hereof) of the representations, warranties, covenants and other provisions hereof. 7.6 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. 7.7 SEVERABILITY. If any provision of this Agreement, or the application thereof to any person or circumstance, is invalid or unenforceable in any jurisdiction: (i) a suitable and equitable provision, consented to by the parties hereto (which consent shall not be unreasonably withheld), shall be substituted therefor in order to carry out, as far as may be valid and enforceable in such jurisdiction, the extent and purpose of the invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability -12- affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 7.8 HEADINGS. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the interpretation of this Agreement. 7.9 RELATIONSHIPS. Nothing herein shall be deemed to create any partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization or other similar arrangement between the Seller or CS First Boston and the Purchaser. -13- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. CS FIRST BOSTON, INC. By: /s/ Agnes Reicke ------------------------------- Name: Agnes Reicke Title: Director and Secretary CS FIRST BOSTON INVESTMENT MANAGEMENT CORPORATION By: /s/ Joseph F. Huber ------------------------------- Name: Joseph F. Huber Title: Co-Chairman CREDIT SUISSE CAPITAL CORPORATION By: /s/ Daniel Sigg ------------------------------- Name: Daniel Sigg Title: President -14- Exhibit A Assets Total As Reported Assets 12/31/94 3/31/95 Investment Securities at Market: CSFB Income Fund $ 75,600 $ 79,650 CSFB Strategic Income Fund $ 76,500 $ 76,500 Prepaid Insurance $343,603 $ 214,752 Funds Receivable (as described in Schedule I) $805,708 $ 116,478 MEI Receivable $ 287 $ -- Advisory fees receivable: Billed Advisory fees $201,118 $ 289,848 Unbilled Advisory fees (as described in $3,705,291 $ 3,078,814 Schedule II) Allowance for Doubtful Account $(166,922) $ (75,375) Investment Management Contracts Ricoh 3500L Model Facsimile Machine $ 875 Other Items: 19 AST Bravo 486/66 with 8mg RAM 34 AST Bravo 486/33 with 8mg RAM 2 Compaq Prosignia with 48mg RAM 3 Toshiba T4400C Laptop with 8mg RAM 3 Toshiba T4500C Laptop with 8mg RAM 2 Compaq Lite 486/26c with 8mg RAM 4 Hayes Ultra 14.4 External Data Modem 10 Hayes Ultra 9.6 External Data Modem 1 IPC TradeNet Phone System Computer Software (as described in Schedule V)* Total for Other Items $ 50,000 $ 50,000 * To the extent such items may be lawfully transferred by the Seller. Schedule I CS FIRST BOSTON INVESTMENT MANAGEMENT SCHEDULE OF OTHER ASSETS A/C #140025 3/31/95 11/30/94 Johnson & Higgins insurance expense 37,706.74 12/31/94 Rollins Hudig Hall insurance 71,292.80 10/31/94 Receivable from the FB Institutional Gov't Funds for legal fees from Sullivan 7,478.72 & Cromwell BALANCE AS OF 3/31/95 116,478.26 SCHEDULE II AMC UNBILLED ANALYSIS 3/31/95
ADVISORY MARCH 2/28/95 REVERSAL OF ACTUAL INCOME ENTRY ADVISORY 3/31/95 ACCOUNT ACCRUAL BAL PRIOR ACCR INVOICE (DR)/CR ACCRUAL ACCRUAL BAL Alexander Hamilton 26,600.00 0.00 14,209.00 40,800.00 Blue Cross Blue Shield of 14,808.22 0.00 7,404.11 22,212.33 Montana BNP 29,593.90 0.00 14,796.90 44,380.70 Boston I + 84,763.36 0.00 42,376.88 + 127,130.04 City Detroit 12,425.00 0.000 8,200.00 15,625.00 Collateralized Bond Corp. 463,875.25 (483,679.25) 472,685.27 (11,092.95) 118,146.31 118,146.31 Dallas Fund + 30,786.86 0.00 15,378.43 + 48,135.29 Dayton Power & Light 16,600.00 0.00 6,300.00 24,800.00 EMS - K-3 118,025.00 0.00 50,500.00 171,625.00 EMS - K-4 150,876.00 0.00 74,000.00 224,075.00 EMS - K-6 42,076.00 0.00 20,000.00 63,575.00 EMS Series - 1 21,800.82 0.00 10,000.00 31,000.82 Equitable Life of Iowa-MBS 7,500.00 0.00 1,500.00 9,000.00 Equitable Life of Iowa-MM 170.00 0.00 60.00 220.00 Executive Life Insurance 202,200.00 0.00 100,600.00 302,700.00 Co. FB Institutional Government 5,000.00 (5,000.00) 3,600.00 (1,310.00) 0.00 0.00 Fund FB Institutional Money Mkt 44,000.00 (44,000.00) 42,483.00 (1,517.00) 0.00 0.00 Fund FB Institutional Tax Exempt 0.00 0.00 0.00 0.00 0.00 0.00 Fund FB Libor Plus 40,000.00 0.00 20,000.00 80,000.00 FB Pension Plan 30,000.00 0.00 15,000.00 45,000.00 FB Short-Term Income Corp. 113,550.00 0.00 60,000.00 183,550.00 FB Strategic Income 66,214.12 0.00 33,107.00 99,321.00
AMC UNBILLED ANALYSIS 3/31/95
ADVISORY MARCH 2/28/95 REVERSAL OF ACTUAL INCOME ENTRY ADVISORY 3/31/95 ACCOUNT ACCRUAL BAL PRIOR ACCR INVOICE (DR)/CR ACCRUAL ACCRUAL BAL FB Mortgage Performance 33,000.00 0.00 10,500.00 49,500.00 Series 1 FB Mortgage Performance 45,000.00 0.00 22,500.00 67,500.00 Series 2 FB Mortgage Performance 32,084.50 0.00 16,042.25 48,126.75 Series 4 First Boston Income Fund 164,000.00 0.00 82,000.00 246,000.00 Gerber Life Insurance 34,192.11 0.00 17,200.00 51,382.11 Hedge Fund* 0.00 0.00 0.00* 0.00 Home Depot 57,600.00 (43,200.00) 49,002.41 5,602.41 10,500.00 25,200.00 Mimic 20,000.00 0.00 10,000.00 30,000.00 Montgomery County 34,000.00 0.00 17,000.00 51,000.00 New England Zenith Fund 700.00 (700.00) 1,042.50 342.50 1,000.00 1,000.00 NYC Employment Retirement 114,000.00 (66,400.00) 64,985.20 (3,434.72) 28,400.00 74,000.00 System NYC Police 94,200.00 (56,520.00) 63,819.44 (2,700.66) 23,100.00 66,760.00 Omaha School Empl. 16,000.00 0.00 8,000.00 24,000.00 Retirement Seventh Day Adventist* 0.00 0.00 0.00* 0.00 State of Florida 70,000.00 0.00 35,000.00 106,000.00 State of Oklahoma 28,325.00 0.00 14,200.00 42,525.00 Super Mtge-93 183,100.00 (193,100.00) 187,696.06 (5,403.95) 30,000.00 30,000.00 Teamsters Local 66 12,019.22 0.00 6,009.61 18,028.83 Teamsters Local 614 (Eagle 27,916.66 0.00 13,958.33 41,674.99 ___) Topeka # 0.00 0.00 0.00 # 0.00 Total Return Fund 9,300.00 0.00 2,000.00 11,300.00 Troon Limited 268,800.00 0.00 33,700.00 383,500.00
AMC UNBILLED ANALYSIS 3/31/95
ADVISORY MARCH 2/28/95 REVERSAL OF ACTUAL INCOME ENTRY ADVISORY 3/31/95 ACCOUNT ACCRUAL BAL PRIOR ACCR INVOICE (DR)/CR ACCRUAL ACCRUAL BAL Troon II 117,200.00 (70,320.80) 71,515.73 1,195.73 23,500.00 70,380.00 US Affinity Advance+ 384.66 (384.66) 460.23 75.63 0.00+ 0.00 Vail 76,000.00 0.00 36,000.00 114,000.00 ------------ ------------ ---------- ----------- ------------ ------------- 2,890,147.60 (985,302.93) 947,280.28 (16,642.57) 1,053,969.68 3,078,614.35
* See Deferred Income Schedule + Lost Client # Performance Based Fee (Billed annually each August) Schedule V 1. Netware o/s 3.12 100 users 3.11 250 users 3.11 250 users 2. 4 gb disks, 2 disk controllers on each Compaq Prosignia unit and a tape unit backup on each server. 3. Microsoft Excel for Windows 5.0: 30 licenses. 4. Microsoft Word for Windows 6.0: 30 licenses 5. Microsoft Access for Windows 2.0: 6 licenses 6. Lotus Freelance for Windows 2.01: 43 licenses Exhibit B ASSUMED LIABILITIES In addition to all obligations respecting the Assets from and after the Closing Date, the Purchaser will assume all of the current liabilities of the Seller set forth below: Total as Reported Assumed Liabilities 12/31/94 3/31/95 Other Payables (as described on Schedule$ 2,010,800 $ 1,283,862 III) Legal Reserves $ 1,680,053 $ 1,680,053 Deferred Income $ - $ - Other Reserves: Severance and Relocation $ 544,109 $ 554,962 225 Franklin Street Lease $ 350,000 $ 350,000 225 Franklin Street Tenant $ 450,000 $ 450,000 Improvements Reserve for CSFB Total Return $ 1,000,000 $ 800,000 Fund Property Leases (as described on Schedule IV): 599 Lexington Avenue (NY) (not including infrastructure systems) 225 Franklin Street (Boston) 100 Federal Street (Boston) (Three months of lease payments after 3/31/95) 101 California Street (San Francisco) (Three months of lease payments after 3/31/95) B1 All costs and liabilities associated with the following matters: Contingent Bonuses for Seller Employees Net Present Value of Accrued Pension Liabilities *Offshore Cash Reserve Fund settlements and related regulatory inquiries *Keith Walsh arbitration *SEC Examination of registered funds managed by CSFBIM State Street Research disputes concerning PMS-1 Fund and audit fees for Funds *Potential expenses for claims for expenses from SEI Kokusai Funds Deferred Compensation for CSFBIM employees Severance arrangements for CSFBIM employees Credit in the BEA retirement plans for time employed at CSFBIM for CSFBIM employees transferred to BEA Troon, Ltd. Position in treasury securities Vendor Contract with the Merrin System Bridge Data Services soft dollar arrangement Service arrangement with Wang Laboratories Ongoing salary and benefits payable pursuant to guaranteed employment arrangements with Robert Coby and similar payments payable pursuant to a separate side letter concerning the employment of Joseph Huber *Potential claim for legal expenses for The New England *Potential reimbursement for expenses for Equitable of Iowa * The Legal Reserves set forth in the table above were established to approximate these potential liabilities. B-2 Schedule III CS FIRST BOSTON INVESTMENT MANAGEMENT SCHEDULE OF OTHER PAYABLES A/C #220000 3/31/95 2/28/95 EXPENSE ACCRUALS (VARIOUS CATEGORIES)(1,351,562.45) 3/31/95 Price Waterhouse - Scorpion Fund 67,700.00 -------------- BALANCE AS OF 3/31/95 (1,283,862.45) -------------- -------------- Schedule IV CS First Boston Investment Management Corporation Analysis of Remaining Lease Obligation March 31, 1995
Location Sq. Ft. Rent/Sq.Ft. Annual Lease Cancellation Total Rent Termination Penalty Obligation 225 Franklin Street 19,708 $27.79 $547,685 12/31/2001 $410,000 $1,056,200 29th Floor Option for 5/31/96 Boston MA Sublease Offset (19,708) ($18.29) ($360,460) 05/31/96 ($414,900) 225 Franklin Street 29th Floor Boston MA Remaining Obligation 0 $9.50 $187,225 05/31/96 $410,000 $640,300 225 Franklin Street 29th Floor Boston MA
Notes Total obligation is calculated commencing on 4/1/95 through the end of the lease - 5/31/96. The penalty of $410M to cancel the lease on 5/31/96 is included in the total obligation calculation. All electric and maintenance expenses are paid by the subtenants. Schedule IV (cont.) CS First Boston Investment Management Corporation Analysis of Premise Lease Obligations March 31, 1995
Annual Light & Occupancy Cleaning & Deprecia- Lease Total Location Sq. Ft. Rent/Sq Rent Power/Sq. Tax/Sq. Maint/Sq. tion/ Total/Sq. Annual Termination Obligation Ft. Ft. Ft. Ft. Sq. Ft. Ft. Cost 599 Lexington 31,508 $34.27 $1,079,505 $3.69 $2.11 $1.85 -- $41.92 $1,320,480 12/31/96 $2,269,637 Avenue 35th & 36th Floors New York, NY 100 Federal 3,445 $32.04 $110,378 $1.49 -- $1.13 $12.59 $47.25 $162,776 12/31/03 $1,541,898 Street 30th Floor Boston, MA 101 California 4,445 $49.31 $219,183 $4.09 -- $0.99 $9.56 $83.95 $284,258 04/14/98 $910,139 Street 43rd Floor San Francisco, CA
Notes Total obligation is calculated commencing on 4/1/95 through the end of each location's lease. Total obligation calculations for each location include all increases to base rent as provided for in the location's lease; escalatable expenses are assumed to grow at 3% per year. Exhibit C ASSUMPTION AGREEMENT ASSUMPTION AGREEMENT, dated ___________________, 1995 by Credit Suisse Capital Corporation, a Delaware corporation (the "Purchaser"), in favor of CS First Boston Investment Management Corporation, a New York corporation (the "Seller"), and CS First Boston, Inc., a Delaware corporation ("CS First Boston"). WITNESSETH: WHEREAS, pursuant to the Asset Purchase Agreement (the "Purchase Agreement"), dated April 26, 1995, among the Seller, the Purchaser and CS First Boston, the Seller is concurrently herewith, selling, conveying, transferring, assigning, and delivering to the Purchaser, the assets listed on Exhibit A attached to the Purchase Agreement; WHEREAS, in partial consideration therefor, the Purchase Agreement requires the Purchaser to execute and deliver to the Seller and CS First Boston this Assumption Agreement; NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt of which by the Purchaser is hereby acknowledged, the Purchaser agrees as follows: 1. Subject to the terms and conditions of the Purchase Agreement, the Purchaser hereby assumes and shall be responsible for the discharge and performance of all liabilities and obligations constituting the Assumed Liabilities (as defined in the Purchase Agreement). 2. The terms hereof shall inure to the benefit of the Seller, CS First Boston, their respective officers, directors and shareholders and their successors and assigns and be binding upon the Purchaser and its successors and assigns. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Purchase Agreement. C-1 IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly executed this ____ day of __________, 1995. CREDIT SUISSE CAPITAL CORPORATION By:________________________ Name: Title: C-2 Exhibit D BILL OF SALE KNOW ALL MEN BY THESE PRESENTS that CS First Boston Investment Management Corporation (the "Seller"), a New York corporation having executive offices at 599 Lexington Avenue, New York, New York 10022, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, pursuant to the Asset Purchase Agreement (the "Purchase Agreement"), dated April 26, 1995, among CS First Boston, Inc., a Delaware corporation, the Seller and Credit Suisse Capital Corporation (the "Purchaser"), a New York corporation having executive offices at 165 Broadway, New York, New York 10006, does hereby sell, convey, transfer, assign and deliver to the Purchaser, all of the Seller's right, title and interest in the assets listed on Exhibit A attached to the Purchase Agreement other than the Client Contracts (as defined in the Purchase Agreement), which have been assigned to BEA Associates, a New York general partnership, at the direction of the Purchaser (the "Assets"). TO HAVE AND TO HOLD the Assets unto the Purchaser, its successors and assigns, forever, and the Seller does hereby bind itself, its successors and assigns, to forever warrant and defend the Assets unto the Purchaser, its successors and assigns, from and against every person whomsoever claiming or purporting to claim the same, or any part thereof, by, through or under the Seller. IN WITNESS WHEREOF, the Seller and the Purchaser have caused these presents to be signed by their respective proper officers thereunto duly authorized on this ____ day of _________, 1995. CS FIRST BOSTON INVESTMENT MANAGEMENT CORPORATION By:_______________________ Name: Title: CREDIT SUISSE CAPITAL CORPORATION By:________________________ Name: Title: D-1 SCHEDULE 5.2(b) 225 Franklin Street Boston, MA 599 Lexington Avenue New York, NY ACCOUNT TYPE PORTFOLIO Private HOME DEPOT, INC. Private HOMER BI Private HOMER TLC, INC. Private HOME DEPOT USA, INC. Private ALEXANDER HAMILTON Private CITY OF NEW YORK Private CITY OF DETROIT Private MONTGOMERY COUNTY Private AMERITECH Private TROON LTD, MATCHED FUND Private TROON LTD. Private DAYTON POWER AND LIGHT Private FB PENSION MGT-FIXED INCOME Private OKLAHOMA STATE INSURANCE FUND Private GERBER LIFE INSURANCE Private BLUE CROSS/BLUE SHIELD-MONTANA Private EXECUTIVE LIFE INS.-NY Advisory LOCAL 814 Private LOCAL 66 Private SEVENTH DAY ADVENTIST Private BNP Private BANK OF CHINA Private MINNESOTA MUTUAL LIFE INSURANCE Private OMAHA TEACHERS RETIREMENT SYSTEM Page 1 ACCOUNT TYPE PORTFOLIO Private CONNECTICUT MUTUAL LIFE Closed End Regist CSFB INCOME FUND Open End Fund-Sub Adviser EQUITABLE OF IOWA MORTGAGE Closed End Reg CSFB STRATEGIC INC FUND 2a-7 Fund CSFB INSTITUTIONAL MONEY MKT FUND Open End Reg CSFB INSTITUTIONAL GOVT FUND Open End Reg N.E. VARIABLE ANNUITY 2A-7 Sub Adviser EQUITABLE OF IOWA MONEY MKT Open End Fund-Sub Adviser BEI 2A-7 Fund CSFB INSTITUTIONAL TAX EXEMPT FUND Offshore Fund LIBOR Offshore Fund STIC Offshore Fund EMS 1 Offshore Fund EMS K5 Offshore Fund PERF 2 Offshore Fund PERF 4 Offshore Fund CBC Offshore Fund SUPER 93 Offshore Fund TOTAL RETURN Offshore Fund PERF 1 Page 2 EX-27.2 20 FDS 6 MONTH
6 0000810766 BEA INCOME FUND, INC. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 214,103 205,260 6,927 79 0 212,266 0 0 4,715 4,715 0 225,000 24,385 24,385 1,972 0 (10,578) 0 (8,843) 207,551 16 10,613 0 (996) 9,633 2,156 (1,511) 10,278 0 (13,168) 0 0 0 0 0 (2,890) 5,507 (12,734) 0 0 510 0 996 207,438 8.63 0.40 0.02 (0.54) 0 0 8.51 0.96 0 0
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