-----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, WhFsLLPyvDO9tDqK1f1er2f/FizOBT7UVrSeFMiPc8I/DXNZxL0IVMiNBa4hAdXB Xfg46UUQwcvbYa5P38TxVw== 0000902561-97-000182.txt : 19970501 0000902561-97-000182.hdr.sgml : 19970501 ACCESSION NUMBER: 0000902561-97-000182 CONFORMED SUBMISSION TYPE: POS AMI PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUFF & PHELPS UTILITIES INCOME INC CENTRAL INDEX KEY: 0000806628 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363480989 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AMI SEC ACT: 1940 Act SEC FILE NUMBER: 811-04915 FILM NUMBER: 97591693 BUSINESS ADDRESS: STREET 1: PO BOX 32760 CITY: LOUISVILLE STATE: KY ZIP: 40232 BUSINESS PHONE: 3123685510 MAIL ADDRESS: STREET 1: PO BOX 32760 CITY: LOUISVILLE STATE: KY ZIP: 40232 FORMER COMPANY: FORMER CONFORMED NAME: DUFF & PHELPS SELECTED UTILITIES INC DATE OF NAME CHANGE: 19910429 POS AMI 1 As filed with the Securities and Exchange Commission on April 30, 1997 Investment Company Act file no. 811-4915 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______ FORM N-2 _______ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 38 [X] _______ DUFF & PHELPS UTILITIES INCOME INC. (Exact name of registrant as specified in charter) _______ 55 East Monroe Street Chicago, Illinois 60603 (Address of principal executive offices) Registrant's telephone number: 312/368-5510 Richard J. Spletzer John R. Sagan Duff & Phelps Utilities Income Inc. Mayer, Brown & Platt 55 East Monroe Street 190 South LaSalle Street Chicago, Illinois 60603 Chicago, Illinois 60603 (Names and addresses of agents for service) It is proposed that this filing will become effective: [X] immediately upon filing pursuant to Section 8(c). [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. ============================================================================= PART A INFORMATION REQUIRED IN A PROSPECTUS Item 1. Outside Front Cover - ------ Not applicable. Item 2. Inside front and Outside Back Cover Page - ------ Not applicable. Item 3. Fee Table and Synopsis - ------ 1. Shareholder Transaction Expenses Sales Load (as a percentage of offering price)................. N/A Dividend Reinvestment and Cash Purchase Plan Fees.............. (1) Annual Expenses (as a percentage of net assets attributable to common shares) Management Fees................................................57% Interest Payments on Borrowed Funds............................38% Other Expenses.................................................29% Total Annual Expenses...................................1.24% - ------------------------------------------------------------------------------ Example (2) 1 year 2 years 5 years 10 years - ------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming a 5% annual return: $13 $26 $68 $150 (1) Shareholders that reinvest dividends and/or capital gains distributions will be charged only brokerage fees in the event that shares are purchased in the open market. Investors investing cash in addition to any cash dividends reinvested will be charged $1.50 plus brokerage commissions. See Item 10.1(c). (2) This Example should not be considered a representation of future expenses, and actual expenses may be greater or lesser than those shown. The purpose of the foregoing table is to assist an investor in understanding the costs and expenses that an investor will bear directly or indirectly, and the information contained therein is not necessarily indicative of future performance. See Item 9. 2. Not applicable. 3. Not applicable. Item 4. Financial Highlights - ------ -------------------- Not applicable. Item 5. Plan of Distribution - ------ -------------------- Not applicable. Item 6. Selling Shareholders - ------ -------------------- Not applicable. Item 7. Use of Proceeds - ------ --------------- Not applicable. Item 8. General Description of the Registrant - ------ ------------------------------------- 1. General ------- (a) The Registrant, Duff & Phelps Utilities Income Inc. (the "Fund"), is a corporation organized under the laws of the State of Maryland on November 26, 1986. (b) The Fund is a diversified closed-end investment company. 2. Investment Objectives and Policies ---------------------------------- Investment objectives ---------------------- The Fund's primary investment objectives are current income and long-term growth of income. Capital appreciation is a secondary objective. The Fund seeks to achieve its investment objectives by investing primarily in a diversified portfolio of equity and fixed income securities of companies in the public utilities industry. Under normal conditions, more than 65% of the Fund's total assets will be invested in securities of public utility companies engaged in the production, transmission or distribution of electric energy, gas or telephone services. The Fund's investment objectives stated in the preceding sentence and its policy of concentrating its investments in the utilities industry are fundamental policies and may not be changed without the approval of the holders of a "majority" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the outstanding shares of the common stock and the preferred stock voting separately by class. Fundamental investment restrictions ----------------------------------- The following are fundamental investment restrictions of the Fund that may be changed only with approval of the holders of a "majority" of the outstanding shares of the common stock and the preferred stock voting separately by class, which means for each class the lesser of (i) 67% of the shares of the class represented at a meeting at which more than 50% of the outstanding shares of the class are represented or (ii) more than 50% of the outstanding shares of the class: 1. The Fund may not invest more than 25% of its total assets (valued at the time of investment) in securities of companies engaged principally in any one industry other than the utilities industry, which includes companies engaged in the production, transmission or distribution of electric energy or gas or in telephone services, except that this restriction does not apply to securities issued or guaranteed by the United States Government or its agencies or instrumentalities. 2. The Fund may not: (a) invest more than 5% of its total assets (valued at the time of the investment) in the securities of any one issuer, except that this restriction does not apply to United States Government securities; or (b) acquire more than 10% of the outstanding voting securities of any one issuer (at the time of acquisition); except that up to 25% of the Fund's total assets (at the time of investment) may be invested without regard to the limitations set forth in this restriction. 3. The Fund may borrow money on a secured or unsecured basis for any purpose of the Fund in an aggregate amount not exceeding 15% of the value of the Fund's total assets at the time of any such borrowing (exclusive of all obligations on amounts held as collateral for securities loaned to other persons to the extent that such obligations are secured by assets of at least equivalent value). 4. The Fund may not pledge, mortgage or hypothecate its assets, except to secure indebtedness permitted by restriction 3 above. (The deposit in escrow of securities in connection with the writing of put and call options, collateralized loans of securities and collateral arrangements with respect to margin requirements for futures transactions and with respect to segregation of securities in connection with forward contracts are not deemed to be pledges or hypothecations for this purpose.) 5. The Fund may make loans of securities to other persons to the extent of not more than 33 1/3% of its total assets (valued at the time of the making of loans), and may invest without limitation in short-term obligations and publicly distributed obligations. 6. The Fund may not underwrite the distribution of securities of other issuers, although it may acquire securities that, in the event of a resale, might be required to be registered under the Securities Act of 1933, as amended, because the Fund could be regarded as an underwriter as defined in that act with respect to the resale. 7. The Fund may not purchase or sell real estate or any interest therein, except that the Fund may invest in securities secured by real estate or interests therein, such as mortgage pass-throughs, pay-throughs, collateralized mortgage obligations, and securities issued by companies (including partnerships and real estate investment trusts) that invest in real estate or interests therein. 8. The Fund may acquire securities of other investment companies to the extent (at the acquisition) of (i) not more than 3% of the outstanding voting stock of any one investment company, (ii) not more than 5% of the assets of the Fund in any one investment company and (iii) not more than 10% of the assets of the Fund in all investment companies (exclusive in each case of securities received as a dividend or as a result of a merger, consolidation or other plan of reorganization). 9. The Fund may not invest for the purpose of exercising control over or management of any company. 10. The Fund may not purchase securities on margin, or make short sales of securities, except the use of short-term credit necessary for the clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with transactions in options, futures and options on futures. 11. The Fund may not purchase or sell commodities or commodity contracts, except that it may enter into (i) stock index futures transactions, interest rate futures transactions and options on such future transactions and (ii) forward contracts on foreign currencies to the extent permitted by applicable law. 12. The Fund may not issue any security senior to its common stock, except that the Fund may borrow money subject to investment restriction 3 and except as permitted by the Fund's Charter. If a percentage restriction set forth above is adhered to at the time a transaction is effected, later changes in percentages resulting from changes in value or in the number of outstanding securities of an issuer will not be considered a violation. Other Significant Investment Policies ------------------------------------- Fixed Income Securities. The Fund purchases a fixed income security only if, at time of purchase, it is (i) rated investment grade by at least two of the following three nationally recognized rating services: Phoenix Duff & Phelps Corporation ("Phoenix Duff & Phelps"), the parent of the Fund's investment adviser, Moody's Investors Service, Inc. ("Moody's"), and Standard & Poor's Corporation ("S&P"), or (ii) determined by the Adviser to be of investment grade and not rated below investment grade by any of the aforementioned rating services. A fixed income security rated investment grade has a rating of BBB by Phoenix Duff & Phelps, Baa or better by Moody's, or BBB or better by S&P. In making its determination that a fixed income security is investment grade, the Adviser will use the standards used by Phoenix Duff & Phelps. Leverage. The Fund is authorized to borrow money in amounts of up to 15% of the value of its total assets at the time of such borrowings. However, for so long as the Fund's preferred stock is rated by S&P, the Fund will limit the aggregate amount of its borrowings to 10% of the value of its total assets and will not incur any borrowings, unless advised by S&P that such borrowings would not adversely affect S&P's then-current rating of the preferred stock. Lending of Portfolio Securities. In order to generate additional income, the Fund may from time to time lend securities from its portfolio, with a value not in excess of 33 1/3% of its total assets, to brokers, dealers and financial institutions such as banks and trust companies for which it will receive collateral in cash, United States Government securities or an irrevocable letter of credit that will be maintained in an amount equal to at least 100% of the current market value of the loaned securities. Rating Agency Guidelines. The Fund's preferred stock is currently rated by Moody's and S&P, nationally recognized statistical ratings organizations, which issue ratings for various securities reflecting the perceived creditworthiness of those securities. The Fund intends that, so long as shares of its preferred stock are outstanding, the composition of its portfolio will reflect guidelines established by Moody's and S&P in connection with the Fund's receipt of a rating for its preferred stock of "Aaa" from Moody's and "AAA" from S&P. Options and Futures Transactions. The Fund may seek to increase its current return by writing covered options. In addition, through the writing and purchase of options and the purchase and sale of futures contracts and related options, the Fund may at times seek to hedge against a decline in the value of securities owned by it or an increase in the price of securities which it plans to purchase. However, for so long as shares of the Fund's preferred stock are rated either by Moody's or S&P, the Fund will not purchase or sell futures contracts or related options or engage in other hedging transactions unless Moody's or S&P, as the case may be, advises the Fund that such action or actions will not adversely affect its then-current rating of the Fund's preferred stock. Temporary Investments. For temporary defensive purposes, the Fund may be invested primarily in money market securities. These securities include securities issued or guaranteed by the United States Government and its agencies and instrumentalities, commercial paper and certificates of deposit. Nonfundamental Restrictions. The Fund may not (i) invest in securities subject to legal or contractual restrictions on resale, if, as a result of such investment, more than 10% of the Fund's total assets would be invested in such securities, or (ii) acquire 5% or more of the outstanding voting securities of a public utility company. Each of the policies and restrictions described above may be changed by the Board of Directors without the approval of the Fund's shareholders. If a percentage restriction set forth above is adhered to at the time a transaction is effected, later changes in percentages resulting from changes in value or in the number of outstanding securities of an issuer will not be considered a violation. 3. Risk Factors ------------ Leverage. As of December 31, 1996, the Fund has outstanding indebtedness of $98,360,808 and five series of preferred stock with an aggregate liquidation preference of $500 million. The dividend rate on each series of preferred stock is reset every 49 days through a remarketing procedure. As of April 18, 1997, the dividend rate on the five series of preferred stock averaged 3.94% and the interest rate on the Fund's outstanding indebtedness averaged 5.50%. The Fund must experience an annual return of 1.13% on its portfolio in order to cover annual interest and dividend payments on the Fund's outstanding indebtedness and preferred stock. Leverage creates certain risks for holders of common stock, including higher volatility of both the net asset value and market value of the common stock. Fluctuations in dividend rates on the preferred stock and interest rates on the Fund's indebtedness will affect the dividend to holders of common stock. Holders of the common stock receive all net income from the Fund remaining after payment of dividends on the preferred stock and interest on the Fund's indebtedness, and generally are entitled to a pro rata share of net realized capital gains, if any. Upon any liquidation of the Fund, the holders of shares of preferred stock will be entitled to liquidating distributions (equal to $100,000 per share of preferred stock plus any accumulated and unpaid dividends thereon) and the holders of the Fund's indebtedness will be entitled to receive repayment of outstanding principal plus accumulated and unpaid interest thereon before any distribution is made to holders of common stock. The leverage obtained through the issuance of the preferred stock and from the Fund's presently outstanding indebtedness has provided holders of common stock with a higher dividend than such holders would have otherwise received. However, there can be no assurance that the Fund will be able to continue to realize such a higher net return on its investment portfolio. Changes in certain factors could cause the relationship between the dividends paid on the preferred stock and interest paid on the Fund's indebtedness to increase relative to the dividend and interest rates on the portfolio securities in which the Fund may be invested. Under such conditions the benefit of leverage to holders of common stock will be reduced and the Fund's leveraged capital structure could result in a lower rate of return to holders of common stock than if the Fund were not leveraged. The Fund is required by the 1940 Act to maintain an asset coverage of 200% on outstanding preferred stock and 300% on outstanding indebtedness. If the asset coverage declines below those levels (as a result of market fluctuations or otherwise), the Fund may be required to sell a portion of its investments at a time when it may be disadvantageous to do so. The following table illustrates the effects of leverage on a return to common stockholders. The figures appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table. Assumed return on portfolio -10.00% -5.00% 0.00% 5.00% 10.00% (net of expenses) Corresponding return to common -14.99% -8.25% -1.51% 5.23% 11.98% Stockholder Investments in Securities of Foreign Issuers. While the Fund is prohibited from investing 10% or more of its assets in securities of foreign issuers, the Fund may be exposed to certain risks as a result of foreign investments. Investing in securities of foreign issuers involves certain considerations not typically associated with investing in securities of U.S. companies, including (a) controls on foreign investment and limitations on repatriation of invested capital and on the Fund's ability to exchange local currencies for U.S. dollars, (b) greater price volatility, substantially less liquidity and significantly smaller market capitalization of securities markets, (c) currency devaluations and other currency exchange rate fluctuations, (d) more substantial government involvement in the economy, (e) higher rates of inflation, (f) less government supervision and regulation of the securities markets and participants in those markets and (g) political uncertainty and other considerations. The Fund will treat investments in countries with repatriation restrictions as illiquid for purposes of any applicable limitations under the 1940 Act; however, as a closed-end fund, the Fund is not currently limited under that Act in the amount of illiquid securities it may acquire. Because of the limited forward market for the purchase of U.S. dollars in most foreign countries and the limited circumstances in which the Fund expects to hedge against declines in the value of foreign country currencies generally, the Fund will be adversely affected by devaluations of foreign country currencies against the U.S. dollar to the extent the Fund is invested in securities denominated in currencies experiencing a devaluation. The Fund's fundamental investment policies permit the Fund to enter into currency hedging transactions. In addition, accounting, auditing and financial reporting standards in foreign countries are different from U.S. standards. As a result, certain material disclosures may not be made and less information may be available to the Fund and other investors than would be the case if the Fund's investments were restricted to securities of U.S. issuers. Moreover, it may be more difficult to obtain a judgment in a court outside the United States. Interest and dividends paid on securities held by the Fund and gains from the disposition of such securities may be subject to withholding taxes imposed by foreign countries. Anti-takeover Provisions. Certain provisions of the Fund's charter may be regarded as "anti-takeover" provisions because they could have the effect of limiting the ability of other entities or persons to acquire control of the Fund. See Item 10.l(e). Premium/Discount From Net Asset Value. Shares of closed-end investment companies trade in the market above, at and below net asset value. This characteristic of shares of closed-end investment companies is a risk separate and distinct from the risk that the Fund's net asset value will decline. Since inception, the Fund's common stock has generally traded at a premium to net asset value. For example, in the two-year period ended December 31, 1996, as of the close of business of the New York Stock Exchange on the last day in each week on which the New York Stock Exchange was open (the date the Fund calculates its net asset value per share), the Fund's shares were trading at a premium to net asset value 100% of the time. The Fund usually does not calculate its net asset value per share on any other day and does not know whether the Fund's shares were trading at a premium to net asset value on such days. The Fund is not able to predict whether its shares will trade above, below or at net asset value in the future. 4. Other Policies -------------- None. 5. Share Price Data ---------------- The Fund's common stock has been listed on the New York Stock Exchange since January 21, 1987 (trading symbol DNP). Since the commencement of trading, the Fund's common stock has most frequently traded at a premium to net asset value, but has periodically traded at a slight discount. The following table shows the range of the market prices of the Fund's common stock, net asset value of the Fund's shares corresponding to such high and low prices and the premium to net asset value presented by such high and low prices:
Market Premium (Discount) Market Price Net Asset Value at to Net Asset Value at ------------ ------------------ --------------------- Quarter Ended Market Market Market Market High Low High Low High Low ---- --- ---- --- ---- --- 1997 March 31 $9.250 $8.500 $8.38 $8.34 10.38% 1.92% 1996 December 31 8.875 8.438 8.42 7.99 5.40% 5.60% September 30 8.875 8.500 8.04 7.85 10.39% 8.28% June 30 9.000 8.375 8.14 8.05 10.57% 4.04% March 31 9.750 8.750 8.90 8.22 9.55% 6.45% 1995 December 31 9.125 8.750 8.50 8.39 7.35% 4.29% September 30 8.875 8.625 7.84 7.80 13.20% 10.58% June 30 9.000 8.125 8.01 7.56 12.36% 7.47% March 31 8.750 7.875 7.56 7.25 15.74% 8.62%
On April 18, 1997, the net asset value was $8.07, trading prices ranged between $8.875 and $8.625 (representing a premium to net asset value of 9.98% and 6.88%, respectively), the closing price was $8.750 (representing a premium to net asset value of 8.43%). 6. Business Development Companies ------------------------------ Not applicable. Item 9. Management - ------ ---------- 1. General ------- (a) Board of Directors The business and affairs of the Fund are managed under the direction of the board of directors. (b) Investment Adviser ------------------ The Fund's investment adviser (the "Adviser") is Duff & Phelps Investment Management Co., 55 East Monroe Street, Chicago, Illinois 60603. The Adviser (together with its predecessor) has been in the investment advisory business for more than 60 years and, excluding the Fund, currently has more than $10 billion in client accounts under discretionary management. The Adviser also provides non-discretionary investment advisory and portfolio consulting services to corporate and public retirement funds and endowment funds aggregating more than $29 billion. The Adviser acts as adviser to two other closed-end investment companies registered under the 1940 Act and as sub-adviser to six open-end investment companies registered under the 1940 Act. The Adviser is a wholly-owned subsidiary of Phoenix Duff & Phelps, which is an indirect, majority-owned subsidiary of Phoenix Home Life Mutual Insurance Company. Phoenix Duff & Phelps, through its subsidiaries, provides investment management, investment research, financial consulting and investment banking services. The Adviser is responsible for the management of the Fund's investment portfolio, subject to the overall control of the board of directors of the Fund. Under the terms of an investment advisory agreement between the Fund and the Adviser (the "Advisory Agreement"), the Adviser receives from the Fund a quarterly fee at an annual rate of .60% of the average weekly net asset value of the Fund (i.e., the average weekly value of total assets of the Fund, minus the sum of accrued liabilities of the Fund, including accumulated dividends on shares of the Fund's preferred stock) up to $1.5 billion and .50% of average weekly net assets in excess of $1.5 billion. The net assets for each weekly period are determined by averaging the net assets at the end of a week with the net assets at the end of the prior week. Under the terms of a service agreement among the Adviser, Phoenix Duff & Phelps, and the Fund (the "Service Agreement"), Phoenix Duff & Phelps makes available to the Adviser the services, on a part-time basis, of its employees and various facilities to enable the Adviser to perform certain of its obligations to the Fund. However, the obligation of performance under the Advisory Agreement is solely that of the Adviser, for which Phoenix Duff & Phelps assumes no responsibility, except as described in the preceding sentence. The Adviser reimburses Phoenix Duff & Phelps for any costs, direct or indirect, fairly attributable to the services performed and the facilities provided by Phoenix Duff & Phelps under the Service Agreement. The Fund does not pay any fees pursuant to the Service Agreement. (c) Portfolio Management -------------------- The Fund's portfolio is managed by Richard J. Spletzer and T. Brooks Beittel. See Item 18 for a description of the position and business experience of Messrs. Spletzer and Beittel. Mr. Spletzer has been responsible for the management of the equity investments in the Fund's portfolio since the Fund's inception in 1987. Mr. Beittel has been responsible for the management of the fixed income investments in the Fund's portfolio since April 1994. (d) Administrator ------------- The Fund's administrator (the "Administrator") is J.J.B. Hilliard, W.L. Lyons, Inc., Hilliard Lyons Center, Louisville, Kentucky 40202. Under the terms of an administration agreement (the "Administration Agreement"), the Administrator provides all management and administrative services required in connection with the operation of the Fund not required to be provided by the Adviser pursuant to the Advisory Agreement, as well as the necessary office facilities, equipment and personnel to perform such services. For its services, the Administrator receives from the Fund a quarterly fee at annual rates of .25% of the Fund's average weekly net assets up to $100 million, .20% of the Fund's average weekly net assets from $100 million to $1.0 billion, .10% of average weekly net assets from $1.0 billion to $1.5 billion, and .06% of average weekly net assets in excess of $1.5 billion. (e) Custodian --------- The Fund's custodian is The Bank of New York, Church Street Station, Post Office Box 11258, New York, New York 10286. The transfer agent and dividend disbursing agent for the Fund's common stock is The Bank of New York, Church Street Station, P.O. Box 11258, New York, New York 10286. The transfer agent and dividend disbursing agent for the Fund's preferred stock is IBJ Schroeder Bank & Trust Company, One State Street, New York, New York 10004. (f) Expenses -------- The Fund is responsible for all expenses not paid by the Adviser or the Administrator, including brokerage fees. (g) Affiliated Brokerage -------------------- The Fund has paid, and in the future may pay, broker commissions to the Administrator. See Item 21.2. 2. Non-resident Managers. --------------------- Not applicable. 3. Control Persons. --------------- The Fund does not consider that any person "controls" the Fund within the meaning of this item. For information concerning the Fund's officers and directors, see Item 18. No person is known by the Fund to own of record or beneficially five percent or more of any class of the Fund's outstanding equity securities. Item 10. Capital Stock, Long-Term Debt, and Other Securities - ------- --------------------------------------------------- 1. Capital Stock. ------------- (a) Common Stock. Holders of common stock, $.001 par value, of the Fund are entitled to dividends when and as declared by the Board of Directors, to one vote per share in the election of Directors (with no right of cumulation), and to equal rights per share in the event of liquidation. They have no preemptive rights. There are no redemption, conversion or sinking fund provisions. The shares are not liable to further calls or to assessment by the Fund. (b) Preferred Stock. Holders of preferred stock, $.001 par value, of the Fund are entitled to receive dividends before the holders of the common stock and are entitled to receive the liquidation value of their shares ($100,000 per share) before any distributions are made to the holders of the common stock, in the event the Fund is ever liquidated. Each share of preferred stock is entitled to one vote per share. The holders of the preferred stock have the right to elect two directors of the Fund at all times and to elect a majority of the directors if at any time dividends on the preferred stock are unpaid for two years. In addition to any approval by the holders of the shares of the Fund that might otherwise be required, the approval of the holders of a majority of the outstanding shares of the preferred stock, voting separately as a class, will be required under the 1940 Act to adopt any plan of reorganization that would adversely affect the holders of preferred stock and to approve, among other things, changes in the Fund's sub-classification as a closed-end investment company, changes in its investment objectives or changes in its fundamental investment restrictions. Subject to certain restrictions, the Fund may, and under certain circumstances is required to, redeem shares of its preferred stock at a price of $100,000 per share, plus accumulated but unpaid dividends. The shares of preferred stock are not liable to further calls or to assessment by the Fund. There are no preemptive rights or sinking fund or conversion provisions. The Fund, may, however, upon the occurrence of certain events, authorize the exchange of its current preferred stock on a share-for-share basis for a separate series of authorized but unissued preferred stock having different dividend privileges. (c) Dividend Reinvestment Plan. Under the Fund's dividend reinvestment plan shareholders may elect to have all dividends and capital gains distributions paid on their common stock automatically reinvested by The Bank of New York, as agent for shareholders, in additional shares of common stock of the Fund. Registered shareholders may participate in the plan. The plan permits a nominee, other than a depository, to participate on behalf of those beneficial owners for whom it is holding shares who elect to participate. However, some nominees may not permit a beneficial owner to participate without transferring the shares into the owner's name. Shareholders who do not elect to participate in the plan will receive all distributions in cash paid by check mailed directly to the shareholder (or, if the shareholder's shares are held in street or other nominee name, then to such shareholder's nominee) by The Bank of New York as dividend disbursing agent. Registered shareholders may also elect to have cash dividends deposited directly into their bank accounts. When a dividend or distribution is reinvested under the plan, the number of shares of common stock equivalent to the cash dividend or distribution is determined as follows: (i) If shares of the common stock are trading at net asset value or at a premium above net asset value at the valuation date, the Fund issues new shares of common stock at the greater of net asset value or 95% of the then current market price. (ii) If shares of the common stock are trading at a discount from net asset value at the valuation date, The Bank of New York receives the dividend or distribution in cash and uses it to purchase shares of common stock in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. Shares are allocated to participants' accounts at the average price per share, plus commissions, paid by The Bank of New York for all shares purchased by it. If, before The Bank of New York has completed its purchases, the market price exceeds the net asset value of a share, the average purchase price per share paid by The Bank of New York 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. The valuation date is the business day immediately preceding the date of payment of the dividend or distribution. On that date, the Administrator compares that day's net asset value per share and the closing price per share on the New York Stock Exchange and determines which of the two alternative procedures described above will be followed. The reinvestment shares are credited to the participant's plan account in the Fund's stock records maintained by The Bank of New York, including a fractional share to four decimal places. The Bank of New York will send participants written confirmation of all transactions in the participant's plan account, including information participants will need for tax records. Shares held in the participant's plan account have full dividend and voting rights. Dividends and distributions paid on shares held in the participant's plan account will also be reinvested. The cost of administering the plan is borne by the Fund. There is no brokerage commission on Shares issued directly by the Fund. However, participants do pay a pro rata share of brokerage commissions incurred on any open market purchases of shares by The Bank of New York. The automatic reinvestment of dividends and distributions does not relieve participants of any income taxes that may be payable (or required to be withheld) on dividends or distributions. If the closing market price of shares of the Fund's common stock should be equal to or greater than their net asset value on the valuation date, the participants in the plan would receive shares priced at the higher of net asset value or 95% of the market price. Consequently they would receive more shares at a lower per share price than if they had used the cash distribution to purchase Fund shares on the payment date in the market at the market price plus commission. If the market price should be less than net asset value on the valuation date, the cash distribution for the plan participants would be used by The Bank of New York to purchase the shares to be received by the participants, which would be at a discount from net asset value unless the market price should rise during the purchase period so that the average price and commission exceeded net asset value as of the payment date. Also, since the Fund does not redeem its shares, the price on resale may be less or more than the net asset value. Plan participants may purchase additional shares of common stock through the plan by delivering to The Bank of New York a check for at least $100, but not more than $1,000, in any month. The Bank of New York will use such funds to purchase shares in the open market or in private transactions. The purchase price of such shares may be more than or less than net asset value per share. The Fund will not issue new shares or supply treasury shares for such voluntary additional share investment. Purchases will be made commencing with the time of the first distribution payment following the second business day after receipt of the funds for additional purchases, and may be aggregated with purchases of shares for reinvestment of the distribution. Shares will be allocated to the accounts of participants purchasing additional shares at the average price per share, plus a service charge of $1.50 imposed by The Bank of New York and a pro rata share of any brokerage commission (or equivalent purchase costs) paid by The Bank of New York in connection with such purchases. Funds sent to the bank for voluntary additional share reinvestment may be recalled by the participant by written notice received by The Bank of New York not later than two business days before the next dividend payment date. If for any reason a regular monthly dividend is not paid by the Fund, funds for voluntary additional share investment will be returned to the participant, unless the participant specifically directs that such funds continue to be held by The Bank of New York for subsequent investment. Participants will not receive interest on voluntary additional funds held by The Bank of New York pending investment. A shareholder may leave the plan at any time by written notice to The Bank of New York. To be effective for any given distribution, notice must be received by the Bank at least seven business days before the record date for that distribution. When a shareholder leaves the plan: (i) such shareholder may request that The Bank of New York sell such shareholder's shares held in such shareholder's plan account and send such shareholder a check for the net proceeds (including payment of the value of a fractional share, valued at the closing price of the Fund's common stock on the New York Stock Exchange on the date discontinuance is effective) after deducting The Bank of New York's $2.50 charge and any brokerage commission (or equivalent sale cost) or (ii) if no request is made, such shareholder will receive a certificate for the number of full shares held in such shareholder's plan account, along with a check for any fractional share interest, valued at the closing price of the Fund's common stock on the New York Stock Exchange on the date discontinuance is effective. If and when it is determined that the only balance remaining in a shareholder's plan account is a fraction of a single share, such shareholder's participation will be deemed to have terminated, and The Bank of New York will send to such shareholder a check for the value of such fractional share, valued at the closing price of the Fund's common stock on the New York Stock Exchange on the date discontinuance is effective. The Fund may change, suspend or terminate the plan at any time upon mailing a notice to participants. For more information regarding, and an authorization form for, the dividend reinvestment plan, please contact The Bank of New York at 1-800-432-8224. You may also contact The Bank of New York by calling the Fund's toll free number at 1-800-680-4DNP. (d) Capital Gains Distribution Reinvestment Plan. Unless otherwise indicated by a holder of shares of common stock of the Fund that does not participate in the Fund's dividend reinvestment plan, all distributions in respect of capital gains distributions on shares of common stock held by such holder will be automatically invested by The Bank of New York, as agent of the common shareholders participating in the plan, in additional shares of common stock of the Fund. Distributions in respect of capital gains distributions on shares of common stock that participate in the Fund's dividend reinvestment plan will be reinvested in accordance with the terms of such plan. In any year in which the Fund declares a capital gains distribution, the Fund after the declaration of such dividend and prior to its payment, will provide to each registered holder of Fund common stock that does not participate in the Fund's dividend reinvestment plan a cash election card. A registered shareholder may elect to receive cash in lieu of shares in respect of a capital gains distribution by signing the cash election card in the name(s) of the registered shareholder(s), and mailing the card to The Bank of New York. If a holder's shares of common stock, or some of them, are registered in the name of a broker or other nominee, and the holder wishes to receive a capital gains distribution in cash in lieu of shares of common stock, such shareholder must exercise that election through its nominee (including any depositor of shares held in a securities depository). When a distribution is reinvested under the plan, the number of reinvestment shares is determined as follows: (i) If, at the time of valuation, the shares are being traded in the securities markets at net asset value or at a premium over net asset value, the reinvestment shares are obtained by The Bank of New York directly from the Fund, at a price equal to the greater of net asset value or 95% of the then current market price, without any brokerage commissions (or equivalent purchase costs). (ii) If, at the time of valuation, the shares are being traded in the securities markets at a discount from net asset value, The Bank of New York receives the distribution in cash, and uses it to purchase shares in the open market, including on the New York Stock Exchange, or in private purchases. Shares of common stock are allocated to participants at the average price per share, plus any brokerage commissions (or equivalent transaction costs), paid by The Bank of New York for all shares purchased by it in reinvestment of the distribution(s) paid on a particular day. The time of valuation is the close of trading on the New York Stock Exchange on the most recent day preceding the date of payment of the dividend or distribution on which that exchange is open for trading. As of that time, J.J.B. Hilliard, W.L. Lyons, Inc., the Fund's administrator, compares the net asset value per share as of the time of the close of trading on the New York Stock Exchange on that day and the last reported sale price per share on the New York Stock Exchange, and determines which of the alternative procedures described above are to be followed. If as of any day on which the last reported sale price of the Fund's shares on the New York Stock Exchange is required to be determined pursuant to this plan, no sales of the shares are reported on that exchange, the mean of the bid prices and of the asked prices on that exchange as of the time of the close of trading on the exchange will be substituted. No certificates will be issued representing fractional shares, nor will The Bank of New York purchase fractional shares in the market. The Bank of New York will send to all registered holders of common stock that do not participate in the Fund's dividend reinvestment plan certificates for all shares of common stock purchased or issued pursuant to the capital gains distribution plan and cash in lieu of fractional shares of common stock. The Fund may change, suspend or terminate the plan at any time upon mailing a notice to participants. (e) Anti-takeover provisions of charter and bylaws. The Fund's charter includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Directors and could have the effect of depriving shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. The Board of Directors is divided into three classes, each having a term of three years. At each annual meeting of shareholders, the term of one class will expire. This provision could delay for up to two years the replacement of a majority of the Board of Directors. A Director may be removed from office only by vote of the holders of at least 75% of the shares of preferred stock or of common stock, as the case may be, entitled to be voted on the matter. The Fund's charter requires the favorable vote of the holders of at least 75% of the shares of preferred stock and common stock of the Fund entitled to be voted on the matter, voting together as a single class, to approve, adopt or authorize the following: (i) a merger or consolidation of the Fund with another corporation, (ii) a sale of all or substantially all of the Fund's assets (other than in the regular course of the Fund's investment activities), or (iii) a liquidation or dissolution of the Fund, unless such action has been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed in accordance with the bylaws, in which case the affirmative vote of the holders of a majority of the outstanding shares of preferred stock and common stock entitled to be voted on the matter, voting together as a single class, is required. In addition, the holders of a majority of the outstanding shares of the preferred stock, voting separately as a class, would be required under the 1940 Act to adopt any plan of reorganization that would adversely affect the holders of the preferred stock. Finally, conversion of the Fund to an open-end investment company would require an amendment to the charter. Such an amendment would require the favorable vote of the holders of a majority of the shares of preferred stock and common stock entitled to be voted on the matter voting separately by class. At any time, 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 of common stock 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. In addition, conversion to an open-end investment company would require redemption of all outstanding shares of the preferred stock. The Board of Directors has determined that the 75% voting requirements described above, which are greater than the minimum requirements under Maryland law or the 1940 Act, are in the best interests of shareholders generally. Reference should be made to the charter on file with the Securities and Exchange Commission for the full text of these provisions. 2. Long-Term Debt. -------------- Not applicable. 3. General ------- Not applicable. 4. Taxes. The Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code of 1986, as it has in each year since the inception of its operations, so as to be relieved of Federal income tax on net investment income and net capital gains distributed to shareholders. Dividends paid by the Fund from its ordinary income and distributions of the Fund's net realized short-term capital gains are taxable to shareholders as ordinary income. Shareholders may be proportionately liable for taxes on income and gains of the Fund but shareholders not subject to tax on their income will not be required to pay tax on amounts distributed to them. The Fund will inform shareholders of the amount and nature of the income or gains. Dividends from ordinary income may be eligible for the dividends-received deduction available to corporate shareholders. Under its Charter, the Fund is required to designate dividends paid on its preferred stock as qualifying for the dividends-received deduction to the extent such dividends do not exceed the Fund's qualifying income. In the event the Fund is required to allocate all of its qualifying income to dividends on the preferred stock, dividends payable on the common stock will not be eligible for the dividends-received deduction. Any distributions attributable to the Fund's net realized long-term capital gains are taxable to shareholders as long-term capital gains, regardless of the holding period of shares of the Fund. The Fund intends to distribute substantially all its net investment income and net realized capital gains in the year earned or realized. A dividend reinvestment plan is available to all holders of common stock of the Fund. Under the dividend reinvestment plan, all cash distributions to participating shareholders are reinvested in additional shares of common stock. See Item 10.1(c). 5. Outstanding Stock -----------------
(4) (3) Amount Outstanding Amount Held by at 3/31/97 Exclusive (1) (2) the Fund or for its of Amount Shown Title of Class Amount Authorized Account Under (3) -------------- ----------------- ------------------- -------------------- Common, $.001 par value 250,000,000 -0- 200,609,418 Preferred, $.001 100,000,000 -0- 5.000 par value
6. Securities Ratings. ------------------ Not applicable. Item 11. Defaults and Arrears on Senior Securities - ------- ------------------------------------------ Not applicable. Item 12. Pending Legal Proceedings - ------- ------------------------- There are no pending legal proceedings to which the Fund, any subsidiary of the Fund, or the Adviser is a party. Item 13. Table of Contents of the Statement of Additional Information Not applicable. PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 14. Cover Page - ------- ---------- Not applicable. Item 15. Table of Contents - ------- ----------------- Not applicable. Item 16. General Information and History - ------- ------------------------------- During the past five years, the Fund has not engaged in any business other than that of an investment company and has not been the subject of any bankruptcy, receivership or similar proceedings, or any other material reorganization, readjustment or succession. The Fund's name was changed from Duff & Phelps Selected Utilities Inc. on November 1, 1990. Item 17. Investment Objective and Policies - ------- --------------------------------- 1. See Item 8.2. 2. See Item 8.2. 3. See Item 8.2. 4. The Fund's portfolio turnover rate was 129.56% in 1994, 188.28% in 1995 and 226.21% in 1996. The increase in the portfolio turnover rate has been due to the Fund's proactive response to changes in the telecommunication and electric generation business. During calendar year 1996, the value of electric company and telecommunication company securities were buffeted by the impact of changes in long term interest rates and an increasingly competitive environment. In response to these developments, the Fund has shifted more investments to faster growing companies in the telecommunication and power industries, both domestically and internationally, and to real estate investment trusts. This activity has resulted in an increase in the Fund's portfolio turnover rate. Item 18. Management - ------- ---------- 1.
Name, Address and Age Position(s) Held Principal Occupation(s) - --------------------- With the Fund During Past 5 Years ------------- ----------------------- Claire V. Hansen (1)(2) Director and Chairman Senior Advisor to the Board Three First National Plaza of Directors, Phoenix Duff & Suite 1400 Phelps Corporation since Chicago, Illinois November 1995; Senior Advisor Age: 71 to the Board of Directors, Duff & Phelps Corporation, 1988-November 1995 (Chairman of the Board, 1987-1988; Chairman of the Board and Chief Executive Officer prior thereto); Chairman of the Board, Duff Research Inc. and Duff & Phelps Investment Management Co., 1985-1987 Wallace B. Behnke(3) Director Consulting engineer since July 323 Glen Eagle 1989; prior thereto, Vice Kiawah Island, Chairman, Commonwealth Edison South Carolina 29455 Company (public utility) Age: 71 Harry J. Bruce(3) Director Private investor; Chairman, 88 Woodley Road Roman Holdings, Inc.; former Winnetka, Illinois 60093 Chairman and Chief Executive Age: 65 Officer, Illinois Central Railroad Co.; director, General Binding Corporation Franklin A. Cole(2) Director Chairman, Croesus Corporation 11 South LaSalle St. (private management and Chicago, Illinois 60602 investment company); former Age: 70 Chairman and Chief Executive Officer, Amerifin Corporation (formerly named Walter E. Heller International Corporation); director, American National Bank and Trust Company of Chicago, American National Corporation, Aon Corporation, CNA Income Shares, GATX Corporation and People's Energy Corporation Gordon B. Davidson Director Senior Counsel, Wyatt, Tarrant Citizens Plaza & Combs (law firm) since Louisville, Kentucky 40202 September 1995 (Chairman of Age: 70 the Executive Committee prior thereto) Beryl W. Sprinkel (3)(4) Director Consulting economist since 20140 St. Andrews Drive January 1989; Chairman of the Olympia Fields, Illinois 60461 Council of Economic Advisers Age: 73 under President Reagan (1985-1989); member of President Reagan's cabinet (1987-1989); Under Secretary of the Treasury for Monetary Affairs (1981-1985); director, US Life Corp. Robert J. Day Director Retired Chairman and Director, 125 South Franklin Street USG Corporation (manufacturer Chicago, Illinois 60606 of construction materials) Age: 72 since June 1990 (Chairman and Chief Executive Officer prior thereto); former Chairman of the Board, Federal Reserve Bank of Chicago Francis E. Jeffries (1)(2) Director Retired Chairman, Phoenix Duff 55 East Monroe Street & Phelps Corporation Chicago, Illinois 60603 (Chairman, November 1995- Age: 66 December 1996); Chairman and Chief Executive Officer, Duff & Phelps Corporation, June 1993-November 1995 (President and Chief Executive Officer, January 1992-June 1993); President and Chief Executive Officer, Duff & Phelps Illinois Inc. since 1987 (President and Chief Operating Officer, 1984-1987); and Chairman of the Board, Duff & Phelps Investment Management Co. (1988-1993); director, Phoenix Duff & Phelps Corporation, The Empire District Electric Company, Duff & Phelps Utilities Tax-Free Income Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.; director/trustee, Phoenix Funds Nancy Lampton(4) Director Chairman and Chief Executive 3 Riverfront Plaza Officer, American Life and Louisville, Kentucky 40202 Accident Insurance Company of Age: 54 Kentucky; director, BancOne Kentucky Corporation and Baltimore Gas and Electric Richard J. Spletzer Executive Vice Executive Vice President, Duff 55 East Monroe Street President and Chief & Phelps Investment Management Chicago, Illinois 60603 Investment Officer Co. since 1993 (Senior Vice Age: 59 President, 1986-1993); Senior Vice President and Head of Public Utility Research, Duff & Phelps Corporation, prior thereto Joseph C. Curry, Jr. Vice President Senior Vice President, J.J.B. Hilliard Lyons Center Hilliard, W.L. Lyons, Inc. Louisville, Kentucky 40202 since 1994 (Vice President Age: 52 1982-1994); Vice President Hilliard Lyons Trust Company; President and Director, Hilliard-Lyons Government Fund, Inc.; Vice President, Hilliard Lyons Growth Fund, Inc. Calvin J. Pedersen President and Chief President, Phoenix Duff & 55 East Monroe Street Executive Officer Phelps Corporation since Chicago, Illinois 60603 November 1995; President, Duff Age: 55 & Phelps Corporation, 1993-November 1995 (Senior Vice President, 1986-1988 and Executive Vice President, 1988-1993); Executive Vice President and Director, Duff & Phelps Investment Management Co. since 1988 (Senior Vice President, 1986-1988); President and Chief Executive Officer, Duff & Phelps Utilities Tax-Free Income Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc. Director, Phoenix group of Funds T. Brooks Beittel Secretary, Treasurer Senior Vice President, Duff & 55 East Monroe Street and Senior Vice Phelps Investment Management Chicago, Illinois 60603 President Co. since 1993 (Vice President 1987-1993) Nathan I. Partain Senior Vice Executive Vice President, President and Duff & Phelps Investment Assistant Secretary Management Co. since January 1997; Director of Utility Research, Phoenix Duff & Phelps Corporation, 1989-1996 (Director of Equity Research, 1993-1996 and Director of Fixed Income Research, 1993) Director, Otter Tail Power Company Michael Schatt Vice President Senior Vice President, Duff & Phelps Investment Management Co. since January 1997; Managing Director, Phoenix Duff & Phelps Corporation, 1994-1996; Self-employed consultant, 1994; Director of Real Estate Advisory Practice, Coopers & Lybrand, 1990-1994 Dianna P. Wengler Assistant Secretary Vice President, J.J.B. Hilliard Lyons Center Hilliard, W.L. Lyons, Inc. Louisville, Kentucky 40202 since 1990; Vice President and Age: 36 Treasurer, Hilliard-Lyons Government Fund, Inc.; Vice President, Hilliard Lyons Growth Fund, Inc. - ----------------------------------------------------------- (1) Interested director of the Fund, as defined in the Investment Company Act of 1940. (2) Member of Executive Committee of the Board of Directors, which has authority, with certain exceptions, to exercise the powers of the Board between Board meetings. (3) Member of the Audit Committee of the Board of Directors. (4) Director elected by holders of preferred stock.
2. Not applicable. The Fund has not paid an amount in excess of $60,000 during 1996 to any director, officer, any affiliated person of the Fund, any affiliated person of an affiliate or principal underwriter of the Fund. The following table shows the compensation paid by the Fund to the Fund's current directors during 1996:
COMPENSATION TABLE (1) ------------------ Aggregate Compensation from the Name of Director Fund - ---------------- --------------- Wallace B. Behnke............................. $27,500 Harry J. Bruce................................ 25,000 Franklin A. Cole.............................. 25,500 Gordon B. Davidson............................ 24,000 Robert J. Day................................. 27,500 Claire V. Hansen.............................. 0 Francis E. Jeffries........................... 0 Nancy Lampton................................. 23,000 Beryl W. Sprinkel............................. 25,000 - ------------------------ (1) During 1996, each director not affiliated with the Adviser received an annual fee of $15,000 (and an additional $2,500 if the director served as chairman of a committee of the board of directors) plus an attendance fee of $1,000 for each meeting of the board of directors or of a committee of the board of directors attended in person or by telephone. Directors and officers affiliated with the Adviser receive no compensation from the Fund for their services as such. In addition to the amounts shown in the table above, all directors and officers who are not interested persons of the Fund, the Adviser or the Administrator are reimbursed for the expenses incurred by them in connection with their attendance at a meeting of the board of directors or a committee of the board of directors. The Fund does not have a pension or retirement plan applicable to directors or officers of the Fund.
Item 19. Control Persons and Principal Holders of Securities - ------- --------------------------------------------------- 1. The Fund does not consider that any person "controls" the Fund within the meaning of this item. For information concerning the Fund's officers and directors, see Item 18. 2. No person is known by the Fund to own of record or beneficially five percent or more of any class of the Fund's outstanding equity securities. 3. As of January 9, 1997, the officers and directors of the Fund owned in the aggregate 264,178 shares of Common Stock, representing less than 1% of the Fund's outstanding Common Stock. Item 20. Investment Advisory and Other Services - ------- -------------------------------------- 1. The Adviser is a wholly-owned subsidiary of Phoenix Duff & Phelps, which is an indirect, majority-owned subsidiary of Phoenix Home Life Mutual Insurance Company. The Phoenix Duff & Phelps organization has provided investment research regarding public utility securities since its founding in 1932. Phoenix Duff & Phelps is one of the nation's largest independent investment research organizations, providing to institutional investors equity and fixed-income investment research. Through other subsidiaries it provides financial consulting and investment banking services. See Item 18 for the names and capacities of affiliated persons of the Fund who are also affiliated persons of the Adviser. For a discussion of the method of calculating the advisory fee under the Advisory Agreement, see Item 9.1(b). The investment advisory fees paid by the Fund totaled $12,254,315 in 1996, $11,689,418 in 1995 and $11,375,557 in 1994. 2. See Item 9.1(b) for a discussion of the Service Agreement. 3. No fees, expenses or costs of the Fund were paid by persons other than the Adviser or the Fund. 4. See Item 9.1 (d) for a discussion of the Administration Agreement. The administrative fees paid by the Fund totalled $2,944,545 in 1996, $2,872,728 in 1995 and $2,835,067 in 1994. 5. Not applicable. 6. See Item 9.1 (e). 7. The Fund's independent public accountant is Arthur Andersen LLP. 8. Not applicable. Item 21. Broker Allocation and Other Practices - ------- ------------------------------------- 1. The Adviser has discretion to select brokers and dealers to execute portfolio transactions initiated by the Adviser. The Fund paid brokerage commissions in the aggregate amount of $7,057,947, $5,876,415 and $6,105,176 during 1996, 1995 and 1994, respectively, not including the gross underwriting spread on securities purchased in underwritten public offerings. 2. The Administrator, received $74,016 and $69,195 or approximately 1.0% and 1.2% of total brokerage commissions in 1996 and 1995, respectively, for effecting transactions involving approximately 0.7% and 0.5% of the aggregate dollar amount of transactions in which the Fund paid brokerage commissions. Duff & Phelps Securities Co. received $51,750 or approximately 0.7% of total brokerage commissions in 1996 for effecting transactions involving approximately 0.6% of the aggregate dollar amount of transactions in which the Fund paid brokerage commissions. No brokerage commissions were paid to Duff & Phelps Securities Co. during 1994 or 1995. The differences between the respective percentages of brokerage commissions paid to the Administrator and Duff & Phelps Securities Co. and the corresponding percentages of aggregate dollar amount of transactions in which the Fund paid brokerage commissions resulted from the fact that the Fund generally pays a fixed commission per share of common stock, regardless of the price paid for a particular share. 3. In selecting brokers or dealers to execute portfolio transactions and in evaluating the best net price and execution available, the Adviser is authorized to consider "brokerage and research services" (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), statistical quotations, specifically the quotations necessary to determine the Fund's net asset value, and other information provided to the Fund and/or to the Adviser (or their affiliates). The Adviser is also authorized to cause the Fund to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction. The Adviser must determine in good faith, however, that such commission was reasonable in relation to the value of the brokerage and research services provided, viewed in terms of that particular transaction or in terms of all the accounts over which the Adviser exercises investment discretion. It is possible that certain of the services received by the Adviser attributable to a particular transaction will benefit one or more other accounts for which investment discretion is exercised by the Adviser. 4. Neither the Fund nor the Adviser, during the last fiscal year, pursuant to an agreement or understanding with a broker or otherwise through an internal allocation procedure, directed the Fund's brokerage transactions to a broker or brokers because of research services. 5. The Fund has not acquired during its most recent fiscal year securities of its regular brokers or dealers as defined in Rule 10b-1 under the 1940 Act, or their parents. Item 22. Tax Status - ------- ---------- The Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code of 1986, as it has in each year since the inception of its operations, so as to be relieved of Federal income tax on net investment income and net capital gains distributed to shareholders. Dividends paid by the Fund from its ordinary income and distributions of the Fund's net realized short-term capital gains are taxable to shareholders as ordinary income. Dividends from ordinary income may be eligible for the dividends-received deduction available to corporate shareholders. Under its Charter, the Fund is required to designate dividends paid on its preferred stock as qualifying for the dividends-received deduction to the extent such dividends do not exceed the Fund's qualifying income. In the event the Fund is required to allocate all of its qualifying income to dividends on the preferred stock, dividends payable on the common stock will not be eligible for the dividends-received deduction. Any distributions attributable to the Fund's net realized long-term capital gains are taxable to shareholders as long-term capital gains, regardless of the holding period of shares of the Fund. The Fund intends to distribute substantially all its net investment income and net realized capital gains in the year earned or realized. A dividend reinvestment plan is available to all holders of common stock of the Fund. Under the dividend reinvestment plan, all cash distributions to participating shareholders are reinvested in additional shares of common stock. See Item 10.1(c). As of December 31, 1996, the Fund had capital loss carryforwards of $142,893,126 which expire beginning on December 31, 2002. Item 23. Financial Statements - ------- -------------------- The financial statements listed below are filed as Exhibit o hereto and incorporated by reference herein. - Report of independent public accountants - Schedule of Investments at December 31, 1996 - Balance Sheet at December 31, 1996 - Statement of Operations for the year ended December 31, 1996 - Statement of Changes in Net Assets for the years ended December 31, 1996 and 1995 - Statement of Cash Flows for the year ended December 31, 1996 - Notes to Financial Statements - Financial Highlights - Selected Per Share Data and Ratios PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits - ------- --------------------------------- 1. Financial Statements In Part B: Report of independent public accountants Schedule of Investments at December 31, 1996 Balance Sheet at December 31, 1996 Statement of Operations for the year ended December 31, 1996 Statement of Changes in Net Assets for the years ended December 31, 1996 and 1995 Statement of Cash Flows for the year ended December 31, 1996 Notes to Financial Statements Financial Highlights - Selected Per Share Data and Ratios In Part C: None 2. Exhibits a.1 Articles of Incorporation a.2 Amendment to Articles of Incorporation a.3 Second Amendment to Articles of Incorporation a.4 Form of Articles Supplementary creating Remarketed Preferred Stock, Series A, B, C, D and E a.5 Form of Articles Supplementary creating Remarketed Preferred Stock, Series I a.6 Third Amendment to Articles of Incorporation a.7 Fourth Amendment to Articles of Incorporation a.8 Fifth Amendment to Articles of Incorporation b. Bylaws (as amended through February 15, 1995) (Incorporated by reference from post-effective amendment no. 36 to Registrant's registration statement under the Investment Company Act of 1940 on Form N-2, no. 811-4915) c. None d.1 Specimen common stock certificate (Incorporated by reference from Registrant's registration statement on Form N-2, no. 33-10421) d.2 Form of certificate of Remarketed Preferred Stock, Series A (Incorporated by reference from pre-effective amendment no. 2 to Registrant's registration statement on Form N-2, no. 33-22933) d.3 Form of certificate of Remarketed Preferred Stock, Series B (Incorporated by reference from pre-effective amendment no. 1 to Registrant's registration statement on Form N-2, no. 33-24101) d.4 Form of certificate of Remarketed Preferred Stock, Series C (Incorporated by reference from pre-effective amendment no. 1 to Registrant's registration statement on Form N-2, no. 33-24100) d.5 Form of certificate of Remarketed Preferred Stock, Series D (Incorporated by reference from pre-effective amendment no. 1 to Registrant's registration statement on Form N-2, no. 33-24102) d.6 Form of certificate of Remarketed Preferred Stock, Series E (Incorporated by reference from pre-effective amendment no. 1 to Registrant's registration statement on Form N-2, no. 33-24099) d.7 Form of certificate of Remarketed Preferred Stock, Series I (Incorporated by reference from pre-effective amendment no. 2 to Registrant's registration statement on Form N-2, no. 33-22933) e. None f. None g.1 Advisory Agreement (Incorporated by reference from post-effective amendment no. 37 to Registrant's registration statement on Form N-2, no. 811-4915) g.2 Service Agreement (Incorporated by reference from post-effective amendment no. 37 to Registrant's registration statement on Form N-2, no. 811-4915) g.3 Administration Agreement (Incorporated by reference from post-effective amendment no. 37 to Registrant's registration statement on Form N-2, no. 811-4915) h. Not applicable i. Not applicable j. Custodian agreement (Incorporated by reference from Registrant's registration statement on Form N-2, no. 33-10421) k.1 Loan agreement (Incorporated by reference from Registrant's registration statement on Form N-2, no. 33-10421) k.2 Amendment dated November 15, 1988 to Loan Agreement (Incorporated by reference from post-effective amendment no. 1 to Registrant's registration statement on Form N-2, no. 33-20433) k.3 Form of Remarketing Agreement (Incorporated by reference from pre-effective amendment no. 3 to Registrant's registration statement on Form N-2, no. 33-22933) k.4 Form of Paying Agent Agreement (Incorporated by reference from pre-effective amendment no. 3 to Registrant's registration statement on Form N-2, no. 33-22933) l. Not applicable m. Not applicable n. Not applicable o. Financial statements, as of December 31, 1996 and for the years ended December 31, 1996 and 1995, required by Item 23 p. Subscription Agreement for initial capital (Incorporated by reference from Registrant's registration statement on Form N-2, no. 33-10421) q. Not applicable r. Financial Data Schedule Item 25. Marketing Arrangements - ------- ---------------------- Not applicable. Item 26. Other Expenses of Issuance and Distribution - ------- ------------------------------------------- Not applicable. Item 27. Persons Controlled by or Under Common Control - ------- --------------------------------------------- The Fund does not consider that it is controlled, directly or indirectly, by any person. The information on Item 20 is incorporated by reference. Item 28. Number of Holders of Securities - ------- ------------------------------- Number of Record Holders Title of Class March 31, 1997 -------------- -------------- Common Stock, $.001 par value 47,496 Preferred Stock, $.001 par value 1 Item 29. Indemnification - ------- --------------- Section 2-418 of the General Corporation Law of Maryland authorizes the indemnification of directors and officers of Maryland corporations under specified circumstances. Article Ninth of the Articles of Incorporation (exhibit 1.1 to the Registrant's registration statement no. 33-10421, which is incorporated by reference) provides that the Registrant shall indemnify its directors and officers under specified circumstances; the provision contains the exclusion required by section 17(h) of the Investment Company Act of 1940. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "1933 Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person in connection with the securities being registered), the Registrant 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 1933 Act and will be governed by the final adjudication of such issue. Registrant, its directors and officers, its Adviser and persons affiliated with them are insured under a policy of insurance maintained by Registrant and its Adviser, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such directors or officers. The policy expressly excludes coverage for any director or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. Item 30. Business and Other Connections of Investment Adviser - ------- ---------------------------------------------------- Neither Duff & Phelps Investment Management Co., nor any of its directors or executive officers, has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its or his own account or in the capacity of director, officer, employee, partner or trustee, except as indicated in this Registration Statement. Item 31. Location of Accounts and Records - ------- -------------------------------- All accounts, books and other documents required to be maintained by Section 31 (a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are maintained at the offices of the Fund (55 East Monroe Street, Chicago, Illinois 60603), the Adviser, the Administrator and the Fund's custodian and transfer agents. See Items 9.1(b), 9.1(d) and 9.1(e) for the addresses of the Adviser, the Administrator and the Funds custodian and transfer agents. Item 32. Management Services - ------- ------------------- Not applicable. Item 33. Undertakings - ------- ------------ Not applicable. SIGNATURE Pursuant to the requirements of the Investment Company Act of 1940, the Registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, and State of Illinois, on April 30, 1997. DUFF & PHELPS UTILITIES INCOME INC. By /s/ Richard J. Spletzer ------------------------------------ Richard J. Spletzer Executive Vice President and Chief Investment Officer EXHIBIT INDEX ------------- Exhibit Sequential No. Description Page No. - ------- -------------------------------------- ----------- a.1 Articles of Incorporation a.2 Amendment to Articles of Incorporation a.3 Second Amendment to Articles of Incorporation a.4 Form of Articles Supplementary creating Remarketed Preferred Stock, Series A,B,C,D and E a.5 Form of Articles Supplementary creating Remarketed Preferred Stock, Series I a.6 Third Amendment to Articles of Incorporation a.7 Fourth Amendment to Articles of Incorporation a.8 Fifth Amendment to Articles of Incorporation o. Financial statements, as of December 31, 1996 and for the years ended December 31, 1996 and 1995, required by Item 23 r. Financial Data Schedule EX-99.2A(A1) 2 ARTICLES OF INCORPORATION Exhibit a.1 DUFF & PHELPS SELECTED UTILITIES INC. Articles of Incorporation The undersigned, being a natural person and acting as incorporator, hereby adopts the following articles of incorporation for the purpose of forming a business corporation under and by virtue of the general laws of the State of Maryland. FIRST. Incorporation. The incorporator is Cameron S. Avery, who is at least eighteen years of age and whose address is 70 West Madison Street, Suite 3200, Chicago, Illinois 60602. He is forming the corporation named in these articles of incorporation under the general laws of the State of Maryland. SECOND. Name. The name of the corporation is Duff & Phelps Selected Utilities Inc. THIRD. Purposes. The purposes for which the corporation is formed are: 1. To engage in the business of a closed-end management investment company. 2. To invest and reinvest in, to buy or otherwise acquire, to hold for investment or otherwise, and to sell or otherwise dispose of: a. Securities of all kinds, however evidenced, and rights or warrants to acquire securities, of private and public companies, corporations, associations, trusts and other enterprises and organizations; b. Obligations issued or guaranteed by national and state governments and their instrumentalities and subdivisions; c. Deposits in banks, savings banks, trust companies and savings and loan associations; d. Assets and interests other than securities or deposits. FOURTH. Principal office and resident agent. The post office address of the principal office of the corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name and post office address of the resident agent of the corporation in the State of Maryland is The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The resident agent is a Maryland corporation. FIFTH. Capital Stock. A. Authorized stock. The total number of shares of capital stock that the corporation shall have authority to issue is 100,000,000 shares, all of one class called common stock, $.001 par value per share (common stock), having an aggregate par value of $100,000. B. Sale of shares. The board of directors may authorize the sale and issuance from time to time of shares of common stock, whether now or hereafter authorized, for such consideration as the board of directors considers advisable, but not less than par value, subject to such limitations as may be set forth in these articles of incorporation, the bylaws, the General Laws of the State of Maryland, the Investment Company Act of 1940 and other applicable laws. C. Fractional shares. Stock may be issued in fractions of whole shares, to which attach pro rata all of the rights of whole shares, including the right of voting and of receipt of dividends, except that there shall be no right of receipt of a certificate representing any fraction of a whole share. D. No preemptive rights. No holder of shares of the corporation, whether now or hereafter authorized, shall be entitled as of right to acquire from the corporation any shares of the corporation, whether now or hereafter authorized. SIXTH. Bylaws. The board of directors is authorized to adopt, alter and repeal the bylaws of the corporation, except to the extent that the bylaws provide otherwise. SEVENTH. Board of Directors. 1. The total number of directors constituting the board of directors of the corporation shall be three, which number may be increased from time to time in accordance with the bylaws of the corporation but shall not be less than three. No decrease in the number of directors shall have the effect of shortening the term of any director then in office. 2. The names of the persons who will serve as the initial directors of the corporation are as follows: Claire V. Hansen Francis E. Jeffries Robert D. Milne 3. Beginning with the first annual meeting of shareholders held after the initial public offering of the shares of the corporation ("the initial annual meeting"), the board of directors shall be divided into three classes: class I, class II, and class III. The terms of office of the classes of directors elected at the initial annual meeting shall expire at the times of the annual meetings of the stockholders as follows-class I in 1988, class II in 1989, and class III in 1990-or thereafter in each case when their respective successors are elected and qualified. At each subsequent annual election, the directors chosen to succeed those whose terms are expiring shall be identified as being of the same class as the directors whom they succeed, and shall be elected for a term expiring at the time of the third succeeding annual meeting of stockholders, or thereafter in each case when their respective successors are elected and qualified. The number of directorships shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible. 4. Any vacancy occurring in the board of directors may be filled by a majority of the directors in office. A new directorship resulting from an increase in the number of directors shall be construed not to be a vacancy. Any director elected to fill a vacancy shall be in the same class and have the same remaining term as that of the predecessor. 5. A director may be removed with or without cause, but only by action of the shareholders taken by the holders of at least 75% of the shares then entitled to vote in an election of directors. 6. A majority of the total number of directors fixed in the bylaws shall be required to constitute a quorum at meetings of the board of directors. EIGHTH. Majority votes of stockholders. Notwithstanding any provision of the laws of the State of Maryland requiring approval by the stockholders of any action by the affirmative vote of a greater proportion than a majority of the votes entitled to be cast on the matter, any such action may be taken or authorized upon the concurrence of a majority of the number of votes entitled to be cast thereon. NINTH. Indemnification. Each person who is or was a director or officer of the corporation, and each person who serves or served at the request of the corporation as a director or officer of another enterprise, shall be indemnified by the corporation in accordance with, and to the fullest extent authorized by, the General Corporation Law of the State of Maryland as it may be in effect from time to time, provided that this section shall not protect any director or officer of the corporation against any liability to the corporation or to its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; and provided further that this article shall not apply as to any action, suit or proceeding brought by or on behalf of a director or officer without prior approval of the board of directors. TENTH. Liability of directors and officers. The directors and officers of the corporation shall not be liable to the corporation or to any of its stockholders or creditors because of any action taken by them in good faith, and in taking any such action the directors and officers shall be fully protected in relying in good faith upon the books of account of the corporation or statements or reports prepared by any of its officials or employees or by others who they believe in good faith are qualified to make such statements or reports; provided that this sentence shall not protect any director or officer of the corporation against any liability to the corporation or to its stockholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. ELEVENTH. Merger, sale of assets, liquidation. Notwithstanding any other provisions of these articles of incorporation, a favorable vote of the holders of at least 75% of the shares of the corporation then entitled to be voted on the matter shall be required to approve, adopt or authorize (i) a merger or consolidation of the corporation with any other corporation, (ii) a sale of all or substantially all of the assets of the corporation (other than in the regular course of its investment activities), or (iii) a liquidation or dissolution of the corporation, unless such action has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed in accordance with the bylaws. TWELFTH. Conversion to open-end company. Notwithstanding any other provisions of these articles of incorporation, at any time prior to January 1, 1992, a favorable vote of the holders of at least 75% of the shares of the corporation entitled to be voted on the matter shall be required to approve, adopt or authorize an amendment to the articles of incorporation of the corporation that makes the common stock a redeemable security (as that term is defined in the Investment Company Act of 1940), unless such action has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed in accordance with the bylaws. THIRTEENTH. Amendment of articles of incorporation. The corporation reserves the right to amend, alter change or repeal any provision contained in its articles of incorporation, in the manner now or hereafter prescribed by statute, and any rights conferred upon the stockholders are granted subject to this reservation. Notwithstanding any other provisions of these articles of incorporation or the bylaws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, the articles of incorporation or the bylaws of the corporation), the amendment or repeal of article seventh, eighth, ninth, tenth, eleventh, twelfth or of this article thirteenth, of the articles of incorporation shall require the affirmative vote of the holders of at least 75% of the shares then entitled to be voted on the matter. IN WITNESS WHEREOF, I have signed these articles of incorporation and have acknowledged the same to be my act on this 25th day of November, 1986. /s/ Cameron S. Avery ------------------------------- Cameron S. Avery WITNESS: /s/ Janet D. Olsen - -------------------- Janet D. Olsen EX-99.2A(A2) 3 AMENDMENT TO ARTICLES OF INCORPORATION Exhibit a.2 DUFF & PHELPS SELECTED UTILITIES INC. Articles of Amendment Duff & Phelps Selected Utilities Inc., a Maryland corporation having its principal office in Baltimore, Maryland (hereinafter called the corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The Articles of Incorporation of the corporation are amended as follows: Article FIFTH, Paragraph A of the Articles of Incorporation is deleted, and the following is inserted in lieu thereof: A. Authorized Stock. The total number of shares of stock that the corporation shall have the authority to issue is 250,000,000 shares, all of one class called common stock, $.001 par value per share (common stock), having an aggregate par value of $250,000. SECOND: The board of directors of the corporation, including all of the directors of the corporation, on January 12, 1987 duly adopted a resolution in which was set forth the foregoing amendment to the Articles of Incorporation and approved the foregoing amendment. THIRD: The organizational meeting of the board of directors was held on November 26, 1986. There is no stock of the corporation outstanding or subscribed for entitled to be voted on the amendment. FIFTH:(a) The total number of shares of stock which the corporation has heretofore authorized to issue is 100,000,000 shares, all of one class, of the par value of $.001 per share and of the aggregate par value of $100,000. (b) The total number of shares of stock which the corporation is authorized to issue is increased by this amendment to 250,000,000 shares, $.001 par value per share, and the aggregate par value of the authorized shares is increased to $250,000. IN WITNESS WHEREOF, Duff & Phelps Selected Utilities Inc. has caused these articles to be signed in its name and on its behalf by its president and attested by its secretary on January 13, 1987. DUFF & PHELPS SELECTED UTILITIES INC. By /s/ Richard J. Spletzer ------------------------------- Richard J. Spletzer Senior Vice President Attest: /s/ Calvin J. Pedersen - ----------------------- Calvin J. Pedersen Assistant Secretary The undersigned, senior vice president of Duff & Phelps Selected Utilities Inc., who executed on behalf of the corporation the foregoing articles of amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of the corporation, the foregoing articles of amendment to be the corporate act of the corporation and further certifies that to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. /s/ Richard J. Spletzer --------------------------- Richard J. Spletzer EX-99.2A(A3) 4 SECOND AMENDMENT TO ARTICLES OF INCORP Exhibit a.3 DUFF & PHELPS SELECTED UTILITIES INC. Articles of Amendment Duff & Phelps Selected Utilities Inc., a Maryland corporation, having its principal office in Baltimore, Maryland (hereinafter called the corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The charter of the corporation is hereby amended as follows: (a) Article Fifth of the charter is amended in its entirety to read as follows: FIFTH. Capital Stock. ------------- The total number of shares of all classes of stock which the corporation shall have authority to issue is 350,000,000 shares with an aggregate par value of $350,000, divided into two classes, of 250,000,000 shares of common stock, $.001 par value per share (common stock), and of 100,000,000 shares of preferred stock, $.001 par value per share (preferred stock). The preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the common stock and the preferred stock are as follows: A. Common stock ------------ 1. Dividends. Subject to law and to the preferences of the preferred stock, the holders of the common stock shall be entitled to receive dividends at such time and in such amounts as may be determined by the board of directors. 2. Voting. Except as provided by law and in or pursuant to this article fifth, the holders of the common stock shall have one vote for each share on each matter submitted to a vote of the stockholders of the corporation. 3. Liquidation. In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and the preferential amounts to which the holders of the preferred stock shall be entitled upon liquidation, the holders of the common stock shall be entitled to share in the remaining assets of the corporation according to their respective interests. B. Preferred stock --------------- 1. Authority of the board of directors to issue in series. The preferred stock may be issued from time to time in one or more series. All shares of any one series of preferred stock shall be identical except as to the respective dates of their issue, the dates from which dividends on shares of the series issued on different dates shall cumulate, dividend rates, dividend periods and dividend payment dates. Subject to the charter, authority is expressly granted to the board of directors to authorize the issue of one or more series of preferred stock, and to fix by resolution or resolutions providing for the issue of each such series the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemptions, of such series, to the full extent now or hereafter permitted by law, including but not limited to the following: a. The number of shares of such series, which may subsequently be increased (except as otherwise provided by the resolution or resolutions of the board of directors providing for the issue of such series) or decreased (to a number not less than the number of shares then outstanding) by resolution or resolutions of the board of directors, and the distinctive designation of the series; b. The rates or amounts, the periods, and the times of payment, of dividends on shares of such series; c. The voting powers, if any, of the holders of such series in addition to the voting powers provided by law and in this article fifth; d. The terms and conditions, if any, upon which the shares of such series shall be convertible into or exchangeable for shares of any other series, class or classes, or any other securities, to the full extent now or hereafter permitted by law; e. The time or times during which, the price or prices at which, and the terms and conditions on which, the shares of such series may be redeemed by the corporation; f. The terms of any sinking fund to be applied to the purchase or redemption, or both, of shares of such series, and the terms and amount of any sinking fund payments and the manner of their application; and g. The amount which the holders of each series shall be entitled to receive in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation. Except as stated above in this part 1, all shares of preferred stock shall be identical. All shares of preferred stock, regardless of series, shall be of equal rank, and there shall be no priority of one series over any other series in any payment of dividends nor upon any distribution of assets. 2. Dividends. The holders of preferred stock of each series shall be entitled to receive, when and as declared by the board of directors, cumulative cash dividends at the rates or amounts, for the periods, and at the times, determined as, or in the manner, specified for such series by the board of directors as authorized in the preceding part 1. No dividends shall be paid or declared or set apart for payment on any share of preferred stock of any series for any dividend period unless at or prior to such time all dividends accumulated on all shares of preferred stock then outstanding shall have been declared through the most recently ended dividend period of the respective shares, and terminating on the same and any earlier date shall have been paid or declared and set apart for payment. 3. Voting. At any meeting of stockholders of the corporation at which directors are to be elected, the holders of preferred stock of all series, voting separately as a single class, shall be entitled to elect two members of the board of directors, and the holders of common stock, voting separately as a single class, shall be entitled to elect the balance of the members of the board of directors. If at any time dividends on any outstanding preferred stock of any series shall be unpaid in an amount equal to two full years' dividends, the number of directors constituting the board of directors shall automatically be increased by the smallest number that, when added to the number of directors then constituting the board of directors, shall constitute a majority of such increased number, including the two directors elected by the holders of preferred stock pursuant to the preceding paragraph; and at a special meeting of stockholders which shall be called and held as soon as practicable, and at all subsequent meetings at which directors are to be elected, the holders of preferred stock of all series, voting separately as a single class, shall be entitled to elect the smallest number of additional directors of the corporation who will constitute a majority of the total number of directors of the corporation so increased. The terms of office of the persons who are directors at the time of that election shall continue. If the corporation thereafter shall pay, or declare and set apart for payment, in full all dividends payable on all outstanding shares of preferred stock of all series for all past dividend periods, the voting rights stated in the preceding sentence shall cease, and the terms of office of all of the directors elected by the holders of preferred stock (but not of the directors elected by the holders of common stock) shall terminate automatically. A special meeting of stockholders shall be called and held as soon thereafter as practicable for the election of two directors by the holders of the preferred stock, as provided in the preceding paragraph; and at such meeting, and at all subsequent meetings of stockholders at which directors are to be elected, the holders of shares of preferred stock and of common stock shall have the right to elect the members of the board of directors as stated in the preceding paragraph, subject to the revesting of the rights of the holders of the preferred stock as provided in the first sentence of this paragraph in the event of any subsequent arrearage in the payment of two full years' dividends on the shares of preferred stock of any series. Any vacancy in the office of any director elected by the holders of shares of preferred stock may be filled by the remaining directors (or director) so elected or, if not so filled, by the holders of shares of preferred stock of all series, voting separately as a single class, at any meeting of stockholders for the election of directors held thereafter. A director elected by the holders of preferred stock or of common stock may be removed with or without cause, but only by action taken by the holders of at least 75% of the shares of preferred stock or of common stock, respectively, then entitled to vote in an election to fill that directorship. Except to the extent stated otherwise in this article fifth, the provisions of article seventh shall apply to this article fifth. 4. Liquidation. In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, the holders of preferred stock of each series shall be entitled to receive only such amount or amounts, including accumulated and unpaid dividends, as shall have been fixed by the charter or by the resolution or resolutions of the board of directors providing for the issue of such series. If, upon any such liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, the assets of the corporation available for distribution among the holders of all outstanding shares of preferred stock of all series should be insufficient to permit the payment in full to such holders of the amounts to which they are entitled, then such available assets shall be distributed among the holders of shares of preferred stock ratably in any such distribution of assets according to the respective amounts that would be payable on all such shares if all amounts thereon were paid in full. A consolidation or merger of the corporation with or into one or more other corporations or a sale, lease or exchange of all or substantially all of the assets of the corporation shall not be deemed to be a voluntary or involuntary liquidation, dissolution or winding up, within the meaning of this article fifth. C. All stock --------- 1. Sale of shares. The board of directors may authorize the sale and issuance from time to time of shares of stock, whether now or hereafter authorized, for such consideration as the board of directors considers advisable, but not less than par value, subject to such limitations as may be set forth in the charter of the corporation, the bylaws, the General Laws of the State of Maryland, the Investment Company Act of 1940, and other applicable laws. 2. Fractional shares. Except as may be provided otherwise by the board of directors in authorizing the issuance of a series of preferred stock, stock may be issued in fractions of whole shares, to which attach pro rata all of the rights of whole shares, including the right of voting and of receipt of dividends, except that there shall be no right of receipt of a certificate representing any fraction of a whole share. 3. No preemptive rights. No holder of shares of the corporation, whether now or hereafter authorized, shall be entitled as of right to acquire from the corporation any shares of the corporation, whether now or hereafter authorized. (b) A new Article Fourteenth is added to the charter to read in its entirety as follows: FOURTEENTH. Limitation of Liability. To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of the corporation shall be personally liable to the corporation or to its stockholders for money damages; provided, however, that this article shall not protect any director or officer of the corporation against any liability to the corporation or to its stockholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. No amendment of the charter of the corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. SECOND: The board of directors of the corporation on March 4, 1988 duly adopted a resolution in which was set forth each of the foregoing amendments to the charter, declaring that each amendment as proposed was advisable and directing that each amendment be submitted for consideration at the 1988 annual meeting of stockholders of the corporation. THIRD: Notice setting forth the proposed amendments to the charter and a summary of the changes to be effected by each amendment and stating that a purpose of the meeting of the stockholders called to be held on April 8, 1988 (which meeting, having been convened was adjourned to May 17, 1988) would be to take action thereon was given, as required by law, to all stockholders entitled to vote thereon. Each amendment to the charter of the corporation as hereinabove set forth was approved by the stockholders of the corporation at the adjourned session of said meeting by the affirmative vote of a majority of all the votes entitled to be cast thereon. FOURTH: Each amendment to the charter of the corporation as hereinabove set forth has been duly advised by the board of directors and duly approved by the stockholders of the corporation. FIFTH: (a) The total number of shares of stock which the corporation has heretofore been authorized to issue is 250,000,000 shares, all of one class called common stock, of the par value of $.001 per share and of the aggregate par value of $250,000. (b) The total number of shares of stock which the corporation is authorized to issue is increased by the amendment to Article Fifth of the charter to 350,000,000 shares, of which 250,000,000 shares are common stock, par value $.001 per share, and of which 100,000,000 shares are preferred stock, par value $.001 per share. The aggregate par value of the authorized shares is increased to $350,000. (c) The description of each class of stock of the corporation as amended is fully contained in the text of the amendment to Article Fifth of the charter set out in its entirety in subsection (a) of Article First hereof. IN WITNESS WHEREOF, Duff & Phelps Selected Utilities Inc. has caused these articles to be signed in its name and on its behalf by its president and attested to by its secretary on May 17, 1988. DUFF & PHELPS SELECTED UTILITIES INC. By: /s/Richard J. Spletzer ---------------------------- Richard J. Spletzer Senior Vice President ATTEST: /s/ Calvin J. Pedersen - ------------------------------ Calvin J. Pedersen Secretary THE UNDERSIGNED, senior vice president of Duff & Phelps Selected Utilities Inc., who executed on behalf of the corporation the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of the corporation, the foregoing Articles of Amendment to be the corporate act of the corporation and further certifies that to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects, under the penalties of perjury. /s/ Richard J. Spletzer ------------------------------- Richard J. Spletzer EX-99.2A(A4) 5 FORM OF ARTICLES SUPPL, SERIES A,B,C,D AND E Exhibit a.4 DUFF & PHELPS SELECTED UTILITIES INC. Articles Supplementary creating five series of Remarketed Preferred Stock DUFF & PHELPS SELECTED UTILITIES INC., a Maryland corporation having its principal Maryland office in the City of Baltimore (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by article fifth of its Charter, the Board of Directors has classified its preferred stock and has authorized the issuance of five series of 1,000 shares each of its authorized preferred stock, par value $.001 per share, liquidation preference $100,000 per share, designated respectively: Remarketed Preferred Stock, Series A; Remarketed Preferred Stock, Series B; Remarketed Preferred Stock, Series C; Remarketed Preferred Stock, Series D; and Remarketed Preferred Stock, Series E. SECOND: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of such series of preferred stock are as follows: DESIGNATION SERIES A: A series of 1,000 shares of preferred stock, par value $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated "Remarketed Preferred Stock, Series A." Each share of Remarketed Preferred Stock, Series A shall be issued on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; have an Initial Dividend Payment Date (as herein defined) to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; be redeemed (unless such share shall have been otherwise redeemed pursuant to paragraph 4 of Part I of these Articles Supplementary or exchanged prior thereto for a share of Remarketed Preferred Stock, Series I, pursuant to paragraph 11 of Part I of these Articles Supplementary) by the Corporation on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof at a redemption price of $100,000 per share plus accumulated but unpaid dividends to the date fixed for redemption (whether or not earned or declared); and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Corporation's Charter applicable to preferred stock of the Corporation, as are set forth in Part I and Part II of these Articles Supplementary. The Remarketed Preferred Stock, Series A shall constitute a separate series of preferred stock of the Corporation, and each share of Remarked Preferred Stock, Series A shall be identical except as provided in paragraph 4 of Part I of these Articles Supplementary. SERIES B: A series of 1,000 shares of preferred stock, par value $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated "Remarketed Preferred Stock, Series B." Each share of Remarketed Preferred Stock, Series B shall be issued on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; have an Initial Dividend Payment Date (as herein defined) to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; be redeemed (unless such share shall have been otherwise redeemed pursuant to paragraph 4 of Part I of these Articles Supplementary or exchanged prior thereto for a share of Remarketed Preferred Stock, Series I, pursuant to paragraph 11 of Part I of these Articles Supplementary) by the Corporation on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof at a redemption price of $100,000 per share plus accumulated but unpaid dividends to the date fixed for redemption (whether or not earned or declared); and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Corporation's Charter applicable to preferred stock of the Corporation, as are set forth in Part I and Part II of these Articles Supplementary. The Remarketed Preferred Stock, Series B shall constitute a separate series of preferred stock of the Corporation, and each share of Remarketed Preferred Stock, Series B shall be identical except as provided in paragraph 4 of Part I of these Articles Supplementary. SERIES C: A series of 1,000 shares of preferred stock, par value of $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated "Remarketed Preferred Stock, Series C." Each share of Remarketed Preferred Stock, Series C shall be issued on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; have an Initial Dividend Payment Date (as herein defined) to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; be redeemed (unless such share shall have been otherwise redeemed pursuant to paragraph 4 of Part I of these Articles Supplementary or exchanged prior thereto for a share of Remarketed Preferred Stock, Series I, pursuant to paragraph 11 of Part I of these Articles Supplementary) by the Corporation on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof at a redemption price of $100,000 per share plus accumulated but unpaid dividends to the date fixed for redemption (whether or not earned or declared); and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Corporation's Charter applicable to preferred stock of the Corporation, as are set forth in Part I and Part II of these Articles Supplementary. The Remarketed Preferred Stock, Series C shall constitute a separate series of preferred stock of the Corporation, and each share of Remarketed Preferred Stock, Series C shall be identical except as provided in paragraph 4 of Part I of these Articles Supplementary. SERIES D: A series of 1,000 shares of preferred stock, par value $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated "Remarketed Preferred Stock, Series D." Each share of Remarketed Preferred Stock, Series D shall be issued on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; have an Initial Dividend Payment Date (as herein defined) to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; be redeemed (unless such share shall have been otherwise redeemed pursuant to paragraph 4 of Part I of these Articles Supplementary or exchanged prior thereto for a share of Remarketed Preferred Stock, Series I, pursuant to paragraph 11 of Part I of these Articles Supplementary) by the Corporation on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof at a redemption price of $100,000 per share plus accumulated but unpaid dividends to the date fixed for redemption (whether or not earned or declared); and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth on the Corporation's Charter applicable to preferred stock of the Corporation, as are set forth in Part I and Part II of these Articles Supplementary. The Remarketed Preferred Stock, Series D shall constitute a separate series of preferred stock of the Corporation, and each share of Remarketed Preferred Stock, Series D shall be identical except as provided in paragraph 4 of Part I of these Articles Supplementary. SERIES E: A series of 1,000 shares of preferred stock, par value $.001 per share, liquidation preference $100,000 per share plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is hereby designated "Remarketed Preferred Stock, Series E." Each share of Remarketed Preferred Stock, Series E shall be issued on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; have an Initial Dividend Payment Date (as herein defined) to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; be redeemed (unless such share shall have been otherwise redeemed pursuant to paragraph 4 of Part I of these Articles Supplementary or exchanged prior thereto for a share of Remarketed Preferred Stock, Series I, pursuant to paragraph 11 of this Part I of these Articles Supplementary) by the Corporation on a date to be determined by the Board of Directors of the Corporation of a duly authorized committee thereof at a redemption price of $100,000 per share plus accumulated but unpaid dividends to the date fixed for redemption (whether or not earned or declared); and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Corporation's Charter applicable to preferred stock of the Corporation, as are set forth in Part I and Part II of these Articles Supplementary. The Remarketed Preferred Stock, Series E shall constitute a separate series of preferred stock of the Corporation, and each share of Remarketed Preferred Stock, Series E shall be identical except as provided in paragraph 4 of Part I of these Articles Supplementary. PART I. ------ 1. Definitions. Unless the context or use indicates another or different meaning or intent, the following terms shall have the following meanings, whether used in the singular or plural: "`AA' Composite Commercial Paper Rate," on any date, means (i) the Interest Equivalent of the rate on commercial paper placed for the number of days specified in the succeeding sentence on behalf of issuers whose corporate bonds are rated "AA" by S&P and "Aa" by Moody's, or the equivalent of such rating by another nationally recognized statistical rating organization, as such rate is made available by the Federal Reserve Bank of New York on a discount basis or otherwise for the Business Day immediately preceding such date, or (ii) if the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the Interest Equivalent of such rates on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by the Commercial Paper Dealers to the Remarketing Agent for the close of business on the Business Day immediately preceding such date. In respect of any Dividend Period (determined without regard to any adjustment in the remarketing schedule in respect of non-Business Days, as provided herein), the "AA" Composite Commercial Paper Rate shall be the Interest Equivalent of the 60-day rate. If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer or Dealers or, if none of the Commercial Paper Dealers quotes such a rate, by any Substitute Commercial Paper Dealer or Dealers selected by the Corporation to provide such rate or rates not being supplied by any Commercial Paper Dealer. "Accountant's Confirmation" has the meaning set forth in paragraph 8(a) (iii) of this Part I. "Adviser" means Duff & Phelps Investment Management Co., the Corporation's investment adviser. "Agent Member" means a designated member of the Securities Depository that will maintain records for a Beneficial Owner of shares of RP that has identified such Agent Member in its Master Purchaser's Letter and that will be authorized and instructed to disclose information to the Remarketing Agent and the Paying Agent with respect to such Beneficial Owner. "Applicable Dividend Rate" means, with respect to the Initial Dividend Period, the rate of cash dividend per annum established by the Board of Directors and, for each subsequent Dividend Period, means the rate of cash dividend per annum that (i) except for a Dividend Period commencing during a Non-Payment Period, will be equal to the lower of the rate of cash dividend per annum that the Remarketing Agent advises results on the Dividend Reset Date preceding the first day of such Dividend Period from implementation of the remarketing procedures set forth in Part II hereof and the Maximum Dividend Rate or (ii) for each Dividend Period commencing during a Non-Payment Period, will be equal to the Non-Payment Period Rate. "Applicable Percentage" has the meaning set forth under "Maximum Dividend Rate" below. "Authorized Newspaper" means a newspaper of general circulation in the English language generally published on Business Days in The City of New York. "Beneficial Owner" means a person that has signed a Master Purchaser's Letter and is listed as the beneficial owner of one or more shares of RP in the records of the Paying Agent or, with respect to any share not registered in the name of the Securities Depository on the stock transfer books of the Corporation, the person in whose name such share is so registered. "Board of Directors" means the Board of Directors of the Corporation. "Business Day" means a day on which the New York Stock Exchange, Inc. is open for trading, and is not a day on which banks in The City of New York are authorized or obligated by law to close. "Certificate of Minimum Liquidity" has the meaning set forth in paragraph 8(b) (i) of this Part I. "Charter" means the Articles of Incorporation, as amended, of the Corporation, including these Articles Supplementary and the Articles Supplementary relating to the Serial RP (if any) on file in the State Department of Assessments and Taxation of the State of Maryland. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and such other Commercial Paper Dealer or Dealers as the Corporation may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors. "Common Stock" means the common stock, par value $.001 per share, of the Corporation. "Conventional Mortgage Pass-Through Certificate" means an instrument publicly issued in bearer or registered form, that is one of a class or series or by its terms is divisible into a class or series, and that is of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment, evidencing (directly or indirectly) a proportional undivided interest in specified pools of whole loans that are secured by a valid first lien on each mortgagor's fee or leasehold interest in related mortgaged property (except for Permitted Tax Liens and other matters to which like properties are commonly subject which neither individually nor in the aggregate materially interfere with the benefits of the security intended to be provided by such mortgages or deeds of trust, and standard exceptions and exclusions in title insurance policies) on one- to four-unit residences (including, without limitation, owner-occupied attached or detached single-unit residences, one- to four-unit primary residences, condominiums, second/vacation homes and non-owner occupied residences) and with respect to which the Required Documentation is required to be held by a trustee or independent custodian, which mortgage loans are serviced pursuant to servicing agreements with servicers that have either expressed the intention to advance funds to meet deficiencies (to the extent such servicers reasonably believe such advances are recoverable) or provided for alternative credit enhancement in lieu thereof, and which instruments (a) have been rated AA or better by S&P or Aa or better by Moody's or (b) do not qualify pursuant to clause (a) above, but the inclusion of which in the Eligible Portfolio Property will not, in and of itself, impair, or cause the RP to fail to retain, the then-current ratings assigned to the RP by the Rating Agencies, as evidenced by letters to the Corporation to such effect from the Rating Agencies which letters shall be delivered to the Remarketing Agent and the Paying Agent at the time each such Conventional Mortgage Pass-Through Certificate is to be included in the Eligible Portfolio Property; provided that, a Conventional Mortgage Pass-Through Certificate shall be eligible for inclusion in the Eligible Portfolio Property as of any Valuation Date only if it continues to satisfy as of such Valuation Date the requirements of at least one clauses (a) or (b) above, as the Corporation may confirm, verbally or in writing, directly or indirectly, or by reference to publications of the Rating Agencies, by confirmation from a nationally recognized securities dealer having a minimum capitalization of $25 million or by such other means as the Rating Agencies shall approve. The Remarketing Agent and the Paying Agent shall be entitled to rely on the representation of the Corporation contained in the RP Basic Maintenance Report with respect to any Valuation Date that, as of such Valuation Date, the Corporation has confirmed that the Conventional Mortgage Pass-Through Certificates included in the Corporation's Eligible Portfolio Property are within the scope of this paragraph. "Corporation" means Duff & Phelps Selected Utilities Inc., a Maryland corporation and the issuer of the shares of RP. "Date of Original Issue" means, with respect to any share of RP, the date on which the Corporation originally issues such share. "Debt Obligations" has the meaning set forth under "Utility Stocks" below. "Deposit Securities" means cash, U.S. Government Obligations and Short Term Money Market Instruments. Except for purposes of determining compliance with the RP Basic Maintenance Amount, each Deposit Security shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Security but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made. "Discount Factor" means Discount Factor Supplied by Moody's or Discount Factor supplied by S&P, as the case may be. "Discount Factor Supplied By S&P" means, initially, for any asset held by the Corporation, the number set forth opposite such type of asset in the following table (it being understood that any asset held by the Corporation and not listed in the following table or in an amendment or supplement thereto shall have a Discounted Value of zero):
Discounted Factor(1) -------------------- Type A Utility Bonds: 1.80 Type B Utility Bonds: 1.85 Type A Utility Stocks: 2.25 Type B Utility Stocks: 2.35 GNMA Certificates with fixed interest rates: 1.40 GNMA Certificates with adjustable interest rates: 1.40 FHLMC and FNMA Certificates with fixed interest rates: 1.50 FHLMC and FNMA Certificates with adjustable interest rates: 1.50 FHLMC Multifamily Securities: 1.50 FHLMC and FNMA Certificates with variable interest rates: 1.50 GNMA Graduated Payment Securities: 1.60 Conventional Mortgage Pass-Through Certificates (2) 1.55 U.S. Government Obligations having a remaining term to maturity of 90 days or less: 1.00 U.S. Government Obligations having a remaining term to maturity of more than 90 days but not more than five years: 1.28 U.S. Government Obligations having a remaining term to maturity of more than five years but not more than 10 years: 1.35 U.S. Government Obligations having a remaining term to maturity of more than 10 years but not more than 15 years: 1.40 U.S. Government Obligations having a remaining term to maturity of more than 15 years but not more than 30 years: 1.50 Cash and Short Term Money Market Instruments: 1.00 - ------------------------ (1) In the case of Eligible Portfolio Property rated by Moody's but not rated by S&P, the Discount Factor Supplied by S&P shall be the Discount Factor determined therefor in writing by S&P. Absent such written notification, the asset shall have a Discounted Value of zero. (2) In the event such asset is not rated AA or better by S&P, such asset shall have a Discounted Value of zero.
Notwithstanding the foregoing, for so long as is required by S&P to maintain its then-current credit rating of the RP, the Discount Factor Supplied by S&P with respect to Eligible Portfolio Property sold pursuant to a reverse repurchase agreement with a remaining term to maturity of more than 25 days on the date of determination of the Discounted Value of such Eligible Portfolio Property shall be the then-current Discount Factor provided by S&P to the Corporation in writing for the purpose of such determination. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial Discount Factor Supplied by S&P listed above applied to calculate the Discounted Value of any item of Eligible Portfolio Property or may specify from time to time a Discount Factor Supplied by S&P for any asset constituting Eligible Portfolio Property if the Board of Directors determines and S&P advises the Corporation in writing that such adjustment, modification, alteration, change or specification will not adversely affect S&P's then-current rating of the RP. "Discount Factor Supplied By Moody's" means initially, for any asset held by the Corporation, the number set forth opposite such type of asset in the following table (it being understood that any asset held by the Corporation and not listed in the following table or in an amendment or supplement thereto shall have a Discounted Value of zero):
Discount Factor(1) ------------------ Type I Utility Bonds having a remaining term to maturity of one year or less: 1.20 Type I Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.27 Type I Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.32 Type I Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.38 Type I Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.44 Type I Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.53 Type I Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.61 Type I Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.69 Type I Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 1.76 Type I Utility Bonds having a remaining term to maturity of more than 20 years but less than 30 years: 1.79 Type II Utility Bonds having a remaining term to maturity of one year or less: 1.24 Type II Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.31 Type II Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.38 Type II Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.44 Type II Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.50 Type II Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.60 Type II Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.70 Type II Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.76 Type II Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 1.84 Type II Utility Bonds having a remaining term to maturity of more than 20 years but not more than 30 years: 1.87 Type III Utility Bonds having a remaining term to maturity of one year or less: 1.29 Type III Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.38 Type III Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.44 Type III Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.51 Type III Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.57 Type III Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.67 Type III Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.77 Type III Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.84 Type III Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 1.92 Type III Utility Bonds having a remaining term to maturity of more than 20 years but not more than 30 years: 1.95 Type IV Utility Bonds having a remaining term to maturity of one year or less: 1.36 Type IV Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.44 Type IV Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.50 Type IV Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.57 Type IV Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.63 Type IV Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.74 Type IV Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.83 Type IV Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.92 Type IV Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 2.02 Type IV Utility Bonds having a remaining term to maturity of more than 20 years but not more than 30 years: 2.03 Type I Utility Stocks 2.00 Discount Factor (Fixed (Adjustable Rate FHLMC or FNMA Certificate Mortgages) Mortgage) - ------------------------- ---------- ----------- FHLMC or FNMA Certificates with interest rates less than 6% but equal to or greater than 5%: 1.71 1.68 FHLMC or FNMA Certificates with interest rates less than 7% but equal to or greater than 6%: 1.66 1.68 FHLMC or FNMA Certificates with interest rates less than 8% but equal to or greater than 7%: 1.61 1.68 FHLMC or FNMA Certificates with interest rates less than 9% but equal to or greater than 8%: 1.57 1.68 FHLMC or FNMA Certificates with interest rates less than 10% but equal to or greater than 9%: 1.52 1.68 FHLMC or FNMA Certificates with interest rates less than 11% but equal to or greater than 10%: 1.49 1.68 FHLMC or FNMA Certificates with interest rates less than 12% but equal to or greater than 11%: 1.45 1.68 FHLMC or FNMA Certificates with interest rates less than 13% but equal to or greater than 12%: 1.43 1.68 FHLMC or FNMA Certificates with interest rates equal to or greater than 13%: 1.40 1.68 Discount GNMA Certificates Factor - ----------------- -------- GNMA Certificates with interest rates less than 6% but equal to or greater than 5%: 1.63 GNMA Certificates with interest rates less than 7% but equal to or greater than 6%: 1.57 GNMA Certificates with interest rates less than 8% but equal to or greater than 7%: 1.52 GNMA Certificates with interest rates less than 9% but equal to or greater than 8%: 1.48 GNMA Certificates with interest rates less than 10% but equal to or greater than 9%: 1.45 GNMA Certificates with interest rates less than 11% but equal to or greater than 10%: 1.43 GNMA Certificates with interest rates less than 12% but equal to or greater than 11%: 1.40 GNMA Certificates with interest rates less than 13% but equal to or greater than 12%: 1.38 GNMA Certificates with interest rates equal to or greater than 13%: 1.36 GNMA Certificates with adjustable interest rates: 1.64 FHLMC Multifamily Securities: (2) FHLMC and FNMA Certificates with variable interest rates: (4) GNMA Graduated Payment Securities (seasoned): (3) Conventional Mortgage Pass-Through Certificates: (5) U.S. Government Obligations having a remaining term to maturity of up to one year: 1.09 U.S. Government Obligations having a remaining term to maturity of more than one year but not more than two years: 1.15 U.S. Government Obligations having a remaining term to maturity of more than two years but not more than three years: 1.20 U.S. Government Obligations having a remaining term to maturity of more than three years but not more than four years: 1.27 U.S. Government Obligations having a remaining term to maturity of more than four years but not more than five years: 1.32 U.S. Government Obligations having a remaining term to maturity of more than five years but not more than seven years: 1.41 U.S. Government Obligations having a remaining term to maturity of more than seven years but not more than 10 years: 1.49 U.S. Government Obligations having a remaining term to maturity of more than 10 years but not more than 15 years: 1.56 U.S. Government Obligations having a remaining term to maturity of more than 15 years but not more than 20 years: 1.64 U.S. Government Obligations having a remaining term to maturity of more than 20 years but not more than 30 years: 1.65 Cash and Short Term Money Market Instruments: 1.00 _______________________ (1) In the case of Eligible Portfolio Property rated by S&P but not by Moody's, the Discount Factor Supplied by Moody's shall be the Discount Factor Supplied by Moody's applicable to Eligible Portfolio Property with a corresponding maturity but of the next lower rating category (e.g., a bond rated AAA by S&P but not rated by Moody's shall have a Discount Factor Supplied by Moody's equal to a bond of comparable maturity rated Aa by Moody's). (2) The applicable Discount Factor set forth under "FHLMC or FNMA Certificates" above. (3) The same Discount Factor shall apply in the case of GNMA Graduated Payment Securities as applies to GNMA Certificates with fixed interest rates determined at the point the certificates become seasoned. (4) The Discount Factor determined therefor in writing by Moody's. (5) The Discount Factor determined therefor in writing by Moody's. In the event such asset is not rated Aa or better by Moody's, such asset shall have a Discounted Value of zero.
Notwithstanding the foregoing, for so long as is required by Moody's to maintain its then-current credit rating of the RP, the Discount Factor Supplied by Moody's with respect to Eligible Portfolio Property sold pursuant to a reverse repurchase agreement with a remaining term to maturity of more than 25 days on the date of determination of the Discounted Value of such Eligible Portfolio Property shall be the then-current discount factor provided by Moody's to the Corporation in writing for the purpose of such determination. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial Discount Factor Supplied by Moody's listed above applied to calculate the Discounted Value of any item of Eligible Portfolio Property or may specify from time to time a Discount Factor Supplied by Moody's for any asset constituting Eligible Portfolio Property if the Board of Directors determines and Moody's advises the Corporation in writing that such adjustment, modification, alteration, change or specification will not adversely affect Moody's then-current rating of the RP. "Discounted Value," with respect to any asset held by the Corporation as of any date, means the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by S&P (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall be zero) or the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by Moody's (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall mean the quotient of the lower of the Market Value of such asset and the exercise price of such call option divided by the applicable Discount Factor Supplied by Moody's), as the case may be, provided that in no event shall the Discounted Value of any asset constituting Eligible Portfolio Property as of any date exceed the unpaid principal balance or face amount of such asset as of that date. With respect to the calculation of the Discounted Value of any Utility Bond included in the Corporation's Eligible Portfolio Property, such calculation shall be made using the criteria set forth in the definitions of Utility Bonds and Market Value. With respect to the calculation of the Discounted Value of any Utility Stock included in the Corporation's Eligible Portfolio Property, such calculation shall be made using the criteria set forth in the definitions of Utility Stocks and Market Value. With respect to the calculation of the aggregate Discounted Value of the Corporation's Eligible Portfolio Property for comparison with the RP Basic Maintenance Amount, such aggregate Discounted Value shall be the aggregate Discounted Value calculated using the Discount Factors Supplied by S&P or the aggregate Discounted Value calculated using the Discount Factors Supplied by Moody's whichever aggregate Discounted Value is lower; provided that, in calculating for such purpose the aggregate Discounted Value of the Corporation's Eligible Portfolio Property using the applicable Discount Factor Supplied by Moody's, the amount of Utility Stocks issued by public utility companies with nuclear facilities under construction (as determined by the Adviser) which may be included in such calculation shall be limited to five percent of the Market Value of the Corporation's Eligible Portfolio Property. Notwithstanding any other provision of these Articles Supplementary, any Utility Bond that has a remaining term to maturity of more than 30 years, and any asset as to which there is no Discount Factor Supplied by Moody's or Discount Factor Supplied by S&P either in these Articles Supplementary or in an amendment or supplement hereof, shall have a Discounted Value for purposes of determining the aggregate Discounted Value of the Corporation's Eligible Portfolio Property calculated using the Discount Factor Supplied by Moody's or S&P, as the case may be, of zero. "Divided Coverage Amount," as of any Valuation Date, means (a) the aggregate amount of cash dividends that will accumulate on shares of RP to (but not including) the Dividend Payment Date that follows such Valuation Date less (b) the Combined value of any Deposit Securities irrevocably deposited by the Corporation for the payment of cash dividends on the RP. "Dividend Coverage Assets," as of any date of determination, means Deposit Securities with maturity dates not later than the day preceding the next Dividend Payment Date; provided, that, if the applicable date of determination is a Dividend Payment Date, any Deposit Securities to be applied to the dividends payable on the RP on such date shall not be included in Dividend Coverage Assets. "Dividend Payment Date" means the day after the last day of the applicable Dividend Period; provided that, if any such date shall not be a Business Day, the Dividend Payment Date shall be the Business Day next succeeding such day. "Dividend Period" means, with respect to any share of RP, the Initial Dividend Period for such share and thereafter a period which shall commence on each (but not the final) Dividend Payment Date for such share (which, except during a Non-Payment Period, shall be a Settlement Date for such share). Each such subsequent Dividend Period for such share will comprise, beginning with and including the day upon which it commences, 49 consecutive days (or such other number of consecutive days as are specified by the Board of Directors in the event of a change in law altering the Minimum Holding Period, as provided herein). Notwithstanding the foregoing, any adjustment of the remarketing schedule by the Remarketing Agent which includes an adjustment of a Settlement Date shall lengthen or shorten the related Dividend Period by causing it to end on and include the day before the Settlement Date as so adjusted. "Dividend Reset Date" means any date on which the Remarketing Agent (i) determines the Applicable Dividend Rate for the ensuing Dividend Period, (ii) notifies holders, purchasers and tendering holders of shares of RP by telephone, telex or otherwise of the results of the Remarketing and (iii) announces such Applicable Dividend Rate. "Dividends-Received Deduction" means the deduction allowed to corporate holders of certain preferred stock with respect to dividends received on such stock by Section 243(a)(1) of the Code, or any successor thereto. "Eligible Portfolio Property" shall include Utility Bonds, Utility Stocks, cash, U.S. Government Obligations, Short Term Money Market Instruments, FNMA Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA Certificates, GNMA Multifamily Securities, GNMA Graduated Payment Securities, Conventional Mortgage Pass-Through Certificates and any other assets held by the Corporation that has been assigned a Discount Factor by the Rating Agencies and is included within the definition of Eligible Portfolio Property set forth herein or pursuant to an amendment or supplement hereto. "Exchange Date" has the meaning set forth in paragraph 11, of this Part I. "Exchange Event" has the meaning set forth in paragraph 11 of this Part I. "FHLMC" means the Federal Home Loan Mortgage Corporation created by Title III of the Emergency Home Finance Act of 1970, and includes any successor thereto. "FHLMC Certificate" means a mortgage participation certificate in physical or book-entry form, the timely payment of interest on and the ultimate collection of principal of which is guaranteed by FHLMC, and which evidences a proportional undivided interest in, or participation interest in, specified pools of fixed-, variable- or adjustable-rate, level payment fully amortizing mortgage loans secured by first-priority mortgages on one- to four-family residences. "FHLMC Multifamily Security" means a "Plan B Multifamily Security" in physical or book-entry form, the timely payment of interest on and the ultimate collection of principal of which is guaranteed by FHLMC, and which evidences a proportional undivided interest in, or participation interest in, specified pools of fixed-, variable- or adjustable-rate level payment fully amortizing mortgage loans secure by first-priority mortgages on multi-family residences, the inclusion of which in the Eligible Portfolio Property will not, in and of itself, impair or cause the RP to fail to retain the ratings assigned to the RP by the Rating Agencies, as evidenced by letters to such effect delivered to the Corporation by the Rating Agencies. "FNMA" means the Federal National Mortgage Association, a United States Government-sponsored private corporation established pursuant to Title VIII of the Housing and Urban Development Act of 1968, and includes any successor thereto. "FNMA Certificate" means a mortgage pass-through certificate in physical or book-entry form, the full and timely payment of principal of and interest on which is guaranteed by FNMA, and which evidences a proportional undivided interest in specified pools of fixed-, variable- or adjustable-rate, level payment fully amortizing mortgage loans secured by first-priority mortgages on single-family and multi-family residences. "GNMA" means the Government National Mortgage Association, and includes any successor thereto. "GNMA Certificate" means a fully modified pass-through certificate in physical or book-entry form, the full and timely payment of principal of and interest on which is guaranteed by GNMA and which evidences a proportional undivided interest in specified pools of fixed-, variable- or adjustable-rate, level payment fully amortizing mortgage loans secured by first-priority mortgages on single-family and multi-family residences. "GNMA Graduated Payment Security" means a fully modified pass-through certificate in physical or book-entry form, the full and timely payment of principal of and interest on which is guaranteed by GNMA, which obligation is backed by the full faith and credit of the United States, and which evidences a proportional undivided interest in specified pools of graduated payment mortgage loans with payments that increase annually at a predetermined rate for up to the first five or ten years of the mortgage loan and that are secured by first-priority mortgages on one- to four-unit residences. "Holder" means, with respect to any share of RP, unless the context otherwise requires, the person whose name appears on the stock transfer books of the Corporation as the registered holder of such share. "Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is with respect to the Corporation an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended. "Initial Dividend Period" means, with respect to any share of RP, the period commencing on and including the Date of Original Issue of such share and ending on the day prior to the Initial Dividend Payment Date. "Interest Equivalent" means a yield on a 360-day basis of a discount basis security which is equal to the yield on an equivalent interest-bearing security. "Market Value" means, initially, the amount determined with respect to specific assets of the Corporation in the manner set forth below: (a) as to any Utility Bond, (i) the product of (A) the unpaid principal balance of such Utility Bond as of the Reporting Date, and (B)(1) if the Utility Bond is traded on a national securities exchange or quoted on the NASDAQ System, the last sales price reported on the date of valuation or (2) if there was no reported sales price on the date of valuation or if the Utility Bond is not traded on a national securities exchange or quoted on the NASDAQ System, the lower of two bid prices for such Utility Bond provided by two nationally recognized securities dealers with a minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be provided to the Paying Agent and the Remarketing Agent by the Corporation with the related RP Basic Maintenance Report), plus (ii) accrued interest on such Utility Bond, or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property shall have a Market Value of zero; (b) as to any Utility Stock, (i) if the Utility Stock is traded on a national securities exchange or quoted on the NASDAQ System, the last sales price reported on the date of valuation or, (ii) if there was no reported sales price on the date of valuation, the lower of two bid prices for such Utility Stock provided by two nationally recognized securities dealers with a minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the then-current ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be provided to the Remarketing Agent by the Corporation with the related RP Basic Maintenance Report), or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property shall have a Market Value of zero; (c) the product of (i) as to GNMA Certificates, GNMA Graduated Payment Securities, GNMA Multifamily Securities, FNMA Certificates, FHLMC Certificates and FHLMC Multifamily Securities, the aggregate unpaid principal amount of the mortgage loans evidenced by each such certificate or security, as the case may be, which may include amounts shown on the most recent report related to the certificate or security received by the Corporation prior to the Reporting Date, and as to U.S. Government Obligations and Short Term Money Market Instruments (other than demand deposits, federal funds, bankers' acceptances and next Business Day's repurchase agreements), the face amount or aggregate principal amount of such U.S. Government Obligations or Short Term Money Market Instruments, as the case may be, and (ii) the lower of the bid prices for the same kind of certificates, securities or instruments, as the case may be, having, as nearly as practicable, comparable interest rates and maturities provided by two nationally recognized securities dealers having minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the then-current ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be delivered to the Remarketing Agent with the related RP Basic Maintenance Report), or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property will have a Market Value of zero; (d) as to Conventional Mortgage Pass-Through Certificates, the product of (i) the outstanding aggregate principal balance of the mortgage loans underlying such certificates as determined by the Corporation by any method which the Corporation believes reliable, which may include amounts based on verbal reports of the servicers of the related mortgage loans to the Corporation, as of the applicable Reporting Date and (ii) the dollar value of the lower of two bid prices per dollar of outstanding principal amount as of such applicable Reporting Date for such certificates, provided by two nationally recognized securities dealers having minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the then-current ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be delivered to the Remarketing Agent with the related RP Basic Maintenance Report), or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property shall have a Market Value of zero; and (e) as to cash, demand deposits, federal funds, bankers' acceptances and next Business Day's repurchase agreements included in Short Term Money Market Instruments, the face value thereof. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial method of calculation of the Market Value of an asset constituting Eligible Portfolio Property described above and the Board of Directors may specify from time to time the method for calculating the Market Value of any asset identified as Eligible Portfolio Property if the Board of Directors of the Corporation determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration, change or specification will not adversely affect their then-current ratings of the RP. "Master Purchaser's Letter" means a letter substantially in the form of Appendix B to the Corporation's prospectus relating to the shares of RP, or such other form as may be approved by the Remarketing Agent, which is required to be executed by each purchaser of shares of RP. "Maximum Dividend Rate" for any Dividend Period at any Dividend Reset Date shall apply to a cash dividend, and be the Applicable Percentage of the applicable "AA" Composite Commercial Paper Rate. The Applicable Percentage shall vary with the lower of the credit rating or ratings assigned to the shares of RP by Moody's and S&P (or if Moody's or S&P or both shall not make such rating available, the equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event that only one such rating shall be available, such rating) on each Dividend Reset Date as follows: Credit Ratings Applicable Percentage - ------------------------------------------ --------------------- Moody's S&P ------- --- "aa3" or higher AA- or higher 110% "a3" to "a1" A- to A+ 125% "baa3" to "baa1" BBB- to BBB+ 150% Below "baa3" Below BBB- 200% The Remarketing Agent shall round each applicable Maximum Dividend Rate to the nearest one-thousandth (0.001) of one percent per annum, with any such number ending in five ten-thousandths (0.005) of one percent being rounded upwards to the nearest one-thousandth (0.001) of one percent. The Remarketing Agent shall not round the applicable "AA" Composite Commercial Paper Rate as part of their calculation of any Maximum Dividend Rate. "Minimum Holding Period" means 46 days or such other minimum holding period required for corporate taxpayers to be entitled to the Dividends-Received Deduction as provided in Section 246(c) of the Code or any successor thereto. "Minimum Liquidity Level is met" means, as of any date of determination, that the aggregate Market Value of the Dividend Coverage Assets equals or exceeds the Dividend Coverage Amount. "Moody's" means Moody's Investors Service, Inc.; and includes any successor thereto. "1940 Act" means the Investment Company Act of 1940, as amended from time to time. "NASDAQ System" has the meaning set forth under "Type I Utility Stocks" below. "1940 Act RP Asset Coverage" means asset coverage, as defined in section 18(h) of the 1940 Act, of at least 200% of the aggregate liquidation preference with respect to all outstanding senior securities of the Corporation which are stock, including all outstanding shares of RP and Other RP (or such other asset coverage as may be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of paying dividends on its common stock). "1940 Act Cure Date," with respect to the failure by the Corporation to maintain the 1940 Act RP Asset Coverage (as required by paragraph 7 of this Part I) as of the last day of each month, means the last Business Day of the following such month. "Non-Payment Period" means any period beginning on and including the day on which the Corporation shall fail to (i) declare, prior to 12:00 noon, New York City time, on the second Business Day preceding any Dividend Payment Date for any shares of RP, for payment on such Dividend Payment Date to the Beneficial Owners of such shares of RP as of 12:00 noon, New York City time, on the Business Day preceding such Dividend Payment Date, the full amount of any dividend on such shares of RP payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day funds, with the Paying Agent by 12:00 noon, New York City time, (A) on any Dividend Payment Date the full amount of any declared cash dividend (whether or not earned) payable on such Dividend Payment Date or (B) on any redemption date for any shares of RP, the redemption price of such shares of $100,000 per share plus the full amount of any cash dividends thereon (whether or not earned or declared) accumulated but unpaid to such redemption date after a Notice of Redemption with respect to such shares of RP has been given pursuant to paragraph 4(e) of Part I hereof, and ending on and including the Business Day on which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid redemption prices shall have been so deposited or shall have otherwise been made available to Beneficial Owners in same-day funds; provided that a Non-Payment Period shall not end during the first seven days thereof unless the Corporation shall have given at least three days' written notice to the Paying Agent, the Remarketing Agent and the Securities Depository and thereafter shall not end unless the Corporation shall have given at least fourteen days' written notice to the Paying Agent, the Remarketing Agent, the Securities Depository and all Beneficial Owners. "Non-Payment Period Rate" means, initially, 200% of the applicable "AA" Composite Commercial Paper Rate, provided that the Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial Non-Payment Period Rate if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the RP. "Notice of Redemption" means any notice with respect to the redemption of shares of RP pursuant to paragraph 4 of this Part I. "Other RP" means the remarketed preferred stock of the Corporation, other than the RP. "Paying Agent" means Bankers Trust Company, or any successor company or entity, which has entered into a Paying Agent Agreement with the Corporation to act for the Corporation, among other things, as the transfer agent, registrar, dividend and redemption price disbursing agent, settlement agent and agent for certain notifications in connection with the shares of RP in accordance with such agreement. "Paying Agent Agreement" means an agreement to be entered into between the Corporation and the Paying Agent. "Permitted Tax Liens" means liens for general and special taxes and assessments on the property in question. "Preferred Stock" means the preferred stock of the Corporation, and includes RP and Other RP. "Projected Dividend Amount" for the RP and the Other RP shall mean, initially, if the date of determination is a Valuation Date, the amount of cash dividends, based on the number of shares of RP and the Other RP outstanding on such Valuation Date, projected to accumulate on such shares from such Valuation Date until the 70th day after such Valuation Date, at the following dividend rates: (a) If the Valuation Date is the Date of Original Issue or a Dividend Payment Date (which terms, for purposes of this definition, shall refer to the equivalent date in the case of Other RP), (i) for the Dividend Period beginning on the Date of Original Issue or such Dividend Payment Date and ending on (but not including) the first following Dividend Payment Date, the Applicable Dividend Rate (which terms, for purposes of this definition, shall refer to the equivalent date in the case of Other RP) in effect on such Valuation Date, and (ii) for the period beginning on (and including) the first following Dividend Payment Date and ending on (and including) the 70th day following such Valuation Date, the product of 2.32 and (x) the Maximum Dividend Rate (which terms, for purposes of this definition, shall refer to the equivalent date in the case of Other RP) on the Date of Original Issue (in the case of the Date of Original Issue) or (y) the Maximum Dividend Rate as of the last occurring Settlement Date or, in the case of Other RP, the equivalent date (in the case of any Dividend Payment Date); and (b) If such Valuation Date is not the Date of Original Issue or a Dividend Payment Date, (i) for the period beginning on such Valuation Date and ending on (but not including) the first following Dividend Payment Date, the Applicable Dividend Rate in effect on such Valuation Date, and (ii) for the period beginning on (and including) the first following Dividend Payment Date and ending on (but not including) the sooner of the second following Dividend Payment Date or the 71st day following such Valuation Date, the product of 2.32 and (x) the Maximum Dividend Rate on the Date of Original Issue (in the case of a Valuation Date occurring prior to the first Settlement Date) or (y) the Maximum Dividend Rate on the last occurring Settlement Date or, in the case of Other RP, the equivalent date (in the case of any other Valuation Date) and (iii) for the period, if any, beginning on (and including) the second following Dividend Payment Date and ending on (but not including) the 71st day following such Valuation Date, the product of 3.20 and the rate specified in clause (x) or (y) above. If the date of determination is not a Valuation Date, then the Projected Dividend Amount on such date of determination shall equal the Projected Dividend Amount therefor on the immediately preceding Valuation Date, adjusted to reflect any decrease in the number of shares of RP and Other RP outstanding. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial bases for the calculation of the Projected Dividend Amount if the Board of Directors determines and the Rating Agencies shall have advised the Corporation in writing that such adjustment, modification, alteration or change would not adversely affect their then-current ratings of the RP. "Quarterly Valuation Date" means, for so long as any shares of RP are outstanding, the last Business Day of March, June, September and December of each year, commencing December 31, 1988, or, if such day is not a Valuation Date, the next preceding Valuation Date. "Rating Agencies" means S&P and Moody's for so long as S&P and Moody's issue ratings for the RP, and, at such time as S&P and/or Moody's no longer issues a rating for the RP, the Substitute Rating Agency or Substitute Rating Agencies, as the case may be. "Remarketing" means each periodic operation of the process for remarketing shares of RP as described in Part II hereof. "Remarketing Agent" means MLPF&S and any additional or successor companies or entities which have entered into an agreement with the Corporation to carry out the remarketing procedures for the purpose of determining the Applicable Dividend Rates. "Reporting Date," with respect to any price referred to in the definition of the Market Value of an item of Eligible Portfolio Property, shall mean the date as of which the Market Value of such item of Eligible Portfolio Property is to be determined or, if no such price is available as provided above under "Market Value" for such date, the next closest prior date as of which such price is so available; provided that, no such price shall be deemed to be available as of a Reporting Date if such price is not available as of a date within five Business Days next preceding the date as of which the determination of such Market Value is to be made. "Required Documentation," with respect to a mortgage loan underlying a Conventional Mortgage Pass-Through Certificate means: (a) the mortgage note or other evidence of indebtedness secured by the mortgage endorsed without recourse in blank or other trustee or other custodian and accompanied by an assignment thereof; (b) the mortgage, deed of trust, deed to secure debt or similar security instruments encumbering real property or related documentation, with evidence of recording or filing thereof, in each case accompanied by assignments thereof, executed in blank or to the trustee or other custodian, in recordable form as may be appropriate in the jurisdiction where the property is located and evidence that such assignment has been recorded in the name of the trustee or other custodian, and such trustee or other custodian receives an opinion of counsel (containing only such exceptions as may be permissible under the indenture or other agreement pursuant to which the mortgage loan is pledged to the trustee in connection with the related Conventional Mortgage Pass-Through Certificate) to the effect that, notwithstanding that the assignment of the mortgage has not been recorded, the actions taken with respect to the mortgage loan are sufficient to permit the trustee or other custodian to avail itself of all protection available under applicable law against the claims of any present or future creditors of the issuer, and are sufficient to prevent any other sale, transfer, assignment, pledge or hypothecation of the mortgage and the related mortgage note by the issuer from being enforceable, or will create a valid assignment of and a valid and perfected lien upon and security interest in a mortgage and related mortgage note, which lien and security interest is (except for the trustee's lien securing certain obligations of the issuer to the trustee as provided in the indenture pursuant to which the mortgage loan is pledged to the trustee in connection with the related Conventional Mortgage Pass-Through Certificate) prior in right to all other security interests therein created or perfected under the Uniform Commercial Code (as in effect in the jurisdiction where the property is located); (c) in the case of mortgage notes covered by private mortgage insurance, evidence that such mortgage notes are so insured; and (d) a copy of the title insurance policy or an opinion or certificate of counsel stating that the mortgage constitutes a first lien on the premises described in such mortgage (which opinion or certificate may be subject to exceptions for Permitted Tax Liens and other matters to which like properties are commonly subject which neither individually nor in the aggregate materially interfere with the benefits of the security interest intended to be provided by such mortgage and standard exceptions and exclusions from mortgage title insurance policies). "Right" has the meaning set forth in paragraph 3(1) of this Part I. "RP" means either the Remarketed Preferred Stock, Series A; the Remarketed Preferred Stock, Series B; the Remarketed Preferred Stock, Series C; the Remarketed Preferred Stock, Series D; or the Remarketed Preferred Stock, Series E. "RP Basic Maintenance Amount" means, initially, as of any date, the sum of (i) the aggregate liquidation preference of the shares of RP outstanding and shares of Other RP outstanding, (ii) to the extent no covered in (i), the aggregate amount of accumulated but unpaid cash dividends with respect to the shares of RP outstanding and shares of Other RP outstanding, (iii) any Rights due and payable and any equivalent rights to receive cash with respect to Other RP which are due and payable, (iv) the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (v) an amount equal to accrued but unpaid interest on the principal amount of the Corporation's loan from the Aid Association For Lutherans then outstanding, (vi) the aggregate principal amount of, and an amount equal to accrued but unpaid interest on, any other then outstanding indebtedness of the Corporation for money borrowed, (vii) the aggregate Projected Dividend Amount, (viii) redemption premium, if any, and (ix) the greater of $200,000 or an amount equal to projected expenses of the Corporation for the next three month period. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial elements comprising the RP Basic Maintenance Amount if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the RP. "RP Basic Maintenance Cure Date," with respect to the failure by the Corporation to maintain the RP Basic Maintenance Amount (as required by paragraph 8 of this Part I) as of each Valuation Date, means the eighth Business Day following such Valuation Date. "RP Basic Maintenance Report" means a report signed by the President, the Treasurer, any Senior Vice President or any Vice President of the Corporation which sets forth, as of the related Valuation Date, the assets of the Corporation, the Market Value and the Discounted Value thereof (seriatum and in the aggregate), and the RP Basic Maintenance Amount. "S&P" means Standard & Poor's Corporation, and includes any successor thereto. "Securities Depository" means The Depository Trust Company, a securities depository, or any successory company or other entity selected by the Corporation for the shares of RP that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of RP. "Service" means the Internal Revenue Service. "Settlement Date" means any date on which (i) a new Dividend Period begins, and (ii) shares of RP which have been tendered and sold in a Remarketing are delivered through the Securities Depository. "Short Term Money Market Instruments" means the following kinds of instruments, if on the date of purchase or other acquisition by the Corporation of any such instrument the remaining term to maturity thereof is not more than 30 days: (a) demand deposits in, certificates of deposit of, bankers' acceptances issued by, or federal funds sold to, any depository institution, the deposits of which are insured by the Federal Deposit Insurance Corporation (or any successor thereto) or the Federal Savings and Loan Insurance Corporation (or any successor thereto), provided that, at the time of the Corporation's investment therein, the commercial paper or other unsecured short-term debt obligations of such depository institution are rated at least A-1+ by S&P and Prime-1 by Moody's; (b) repurchase obligations with respect to a U.S. Government Obligation, FNMA Certificate, FHLMC Certificate or GNMA Certificate entered into with a depository institution, the deposits of which are insured by the Federal Deposit Insurance Corporation (or any successor thereto) or the Federal Savings and Loan Insurance Corporation (or any successor thereto) and the commercial paper or other unsecured short-term debt obligations of which are rated at least A-1+ by S&P and Prime-1 by Moody's, which must be repurchased within one Business Day from the date such repurchase obligation was entered into; and (c) commercial paper rated at the time of the Corporation's investment therein at least A-1+ by S&P and Prime-1 by Moody's. "Substitute Commercial Paper Dealers" means such Substitute Commercial Paper Dealer or Dealers as the Corporation may from time to time appoint or, in lieu of any thereof, their respective affiliates or successors. "Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally recognized statistical rating organization or two nationally recognized statistical rating organizations, respectively, selected by the Corporation to act as the substitute rating agency or substitute rating agencies, as the case may be, to determine the credit ratings of the shares of RP. "Tender and Dividend Reset" means the process pursuant to which shares of RP may be tendered or deemed tendered in a Remarketing or held and become subject to the new Applicable Dividend Rate determined by the Remarketing Agency in such Remarketing. "Tender Date" means any date on which (i) each holder of shares of RP must provide to the Remarketing Agent irrevocable telephonic notice of intent to tender shares of RP in a Remarketing, and (ii) such Remarketing formally commences. "Type A Utility Bonds" as of any date means Utility Bonds rated A- or higher by S&P. "Type B Utility Bonds" as of any date means (a) Utility Bonds held by the Corporation at such date and continuously since at least September 30, 1988 which are rated from BBB- to BBB+ by S&P or (b) Utility Bonds rated BBB- to BBB+ by S&P provided that the Utility Bonds rated BBB- shall be limited to twenty-five percent of the Market Value of the Corporation's Eligible Portfolio Property. "Type I Utility Bonds" as of any date means Utility Bonds rated Aaa by Moody's. "Type II Utility Bonds" as of any date means Utility Bonds rated Aa3 to Aa1 by Moody's. "Type III Utility Bonds" as of any date means Utility Bonds rated A3 to A1 by Moody's. "Type IV Utility Bonds" as of any date means Utility Bonds rated Baa3 to Baa1 by Moody's. "Type A Utility Stocks" as of any date means Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., are currently paying cash dividends, and have been issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P of A- or higher. "Type B Utility Stocks" as of any date means (a) Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., are currently paying cash dividends, are held by the Corporation at such date and continuously since at least September 30, 1988 and have been issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P of BBB- to BBB+ or (b) Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., are currently paying cash dividends and have been issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P from BBB- to BBB+ provided that Utility Stocks issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P of BBB- shall be limited to twenty-five percent of the Market Value of the Corporation's Eligible Portfolio Property. "Type I Utility Stocks" as of any date means Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. or are quoted on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System and have been issued by public utility companies having debt obligations outstanding with senior or subordinated debt ratings from Moody's of Baa3 or higher. "U.S. Government Obligations" means direct obligations of the United States, provided that such direct obligations are entitled to the full faith and credit of the United States and that any such obligations, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption. "Utility Bonds" means, initially, corporate debt obligations issued by state regulated public utility companies rated from BBB- to AAA by S&P and from Baa3 to Aaa by Moody's, which corporate debt obligations (a) provide for the periodic payment of interest thereon in cash in U.S. dollars, (b) do not provide for conversion or exchange into equity capital at any time over their respective lives, (c) have been registered under the Securities Act of 1933, as amended, and (d) have not had notice given in respect thereof that any such corporate debt obligations are the subject of an offer by the issuer thereof of exchange or tender for cash, securities or any other type of consideration. In addition, so long as the shares of RP are rate by S&P or Moody's, no corporate debt obligation held by the Corporation shall be deemed a Utility Bond (i) if it fails to meet the criteria in column (1) below or (ii) to the extent (but only to the proportionate extent) the acquisition or holding thereof by the Corporation causes the Corporation to exceed any applicable limitation set forth in column (2) below in the event the shares of RP are rated by S&P or column (2), (3) or (4) below in the event the shares to RP are rated by Moody's as of any relevant date of determination (provided that, in the event that the Corporation shall exceed any such limitation, the Corporation shall designate, in its sole discretion, the particular Utility Bond(s) and/or portions thereof which shall be deemed to have caused the Corporation to exceed such limitation):
Column (1) Column(2) Column(3) Column(4) Maximum Percent Maximum of Market Percent of Value Market Value of Corpora- of Corpora- tion's Assets tion's Assets, Including S&P and Maximum Percent Including Eli- Eligible Moody's of Market Value gible Portfolio Portfolio Rating of of Eligible Property, Property, Utility Minimum Portfolio Issued by Issued Bonds or Original Property Issuers in any by Issuers Debt Obli- Issue Size of Issued by any One Industry Regulated by gations (1) Each Issue(2) One Issuer(3) Category(4) any One (5) - ---------- ---------------- ---------------- -------------- ------------ ($ in millions) S&P Moody's --- ------- $100 10.0% 100.0% 100.0% 100.0% 100 10.0 20.0 60.0 20.0 100 10.0 10.0 50.0 10.0 100 5.0 4.0 50.0 7.0 - -------------------------- (1) Rating designations include (+) or (-) modifiers to the S&P rating where appropriate. Rating designations include modifiers of 1 to 3 to the Moody's rating where appropriate. (2) This restriction is applicable only to Utility Bonds. (3) The referenced S&P percentages represent maximum percentages only for the related S&P rating category. The referenced Moody's percentages represent maximum cumulative totals only for the Moody's rating category and each lower Moody's rating category. (4) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category. There are two industry categories -- telecommunications and all other utilities. (5) Referenced percentages represent maximum cumulative totals only for the related Moody's and each lower Moody's rating category.
The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the assets (and/or the characteristics thereof) included initially within the definition of Utility Bonds for purposes of determining compliance with the RP Basic Maintenance Amount if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings of the RP. "Utility Stocks" means, initially, common stocks issued by state regulated public utility companies having debt obligations outstanding with senior debt ratings of BBB to AAA from S&P or subordinated debt ratings of BBB- to AAA from S&P and senior or subordinated debt ratings of Baa3 to Aaa from Moody's, which debt obligations have been registered under the Securities Act of 1933, as amended ("Debt Obligations"). In addition, so long as the shares of RP are rated by S&P or Moody's, no common stock held by the Corporation shall be deemed a Utility Stock to the extent (but only to the proportionate extent) the acquisition or holding thereof by the Corporation causes the Corporation to exceed any applicable limitation set forth in column (2) of the table set forth in "Utility Bonds" above in the event the shares of RP are rated by S&P or column (2), (3) or (4) of such table in the event the shares of RP are rated by Moody's as of any relevant date of a termination (provided that, in the event that the Corporation shall exceed any such limitation, the Corporation shall designate, in its sole discretion, the particular Utility Stock(s) and/or portions thereof which shall be deemed to have caused the Corporation to exceed such limitation). The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the assets (and/or the characteristics thereof) initially included within the definition of Utility Stocks for purposes of determining compliance with the RP Basic Maintenance Amount if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings of the RP. "Valuation Date" means (i) the fifteenth day of each month or, if such day is not a Business Day, the next succeeding Business Day, and (ii) the last Business Day of each month (or, in the case of the first Valuation Date, a date selected by the Corporation within fifteen days after the Original Issue Date). "Voting Period" has the meaning set forth in paragraph 6(b) of this Part I. 2. Fractional Shares. No fractional shares of RP shall be issued or recognized by the Corporation. 3. Dividends. (a) The Holders as of 12:00 noon, New York City time, on the Business Day preceding the applicable Dividend Payment Dates, shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available transfer, cumulative dividends each consisting of (i) cash at the Applicable Dividend Rate and (ii) a Right to receive cash determined as set forth in paragraph 3(1) below and payable as set forth therein. The Board of Directors shall designate, in accordance with the applicable provisions of the Code, the cash dividends on the shares of RP so declared and paid or payable and on the shares of Other RP declared and payable for any fiscal year as qualifying for the Dividends-Received Deduction in an amount equal to the lesser of (i) the amount of the Corporation's income for such fiscal year which qualifies for the Dividends-Received Deduction, or (ii) the amount of such cash dividends. (b) Dividends on shares of RP shall accumulate from their Date of Original Issue and will be payable, when, as and if declared by the Board of Directors, on each Dividend Payment Date. (c) Each declared dividend, including each Right, shall be payable on the applicable Dividend Payment Date to the Holder or Holders of such shares of RP as set forth in paragraph 3(a). Dividends on any share in arrears for any past Dividend Payment Date may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holder of such share on a date not exceeding five Business Days preceding the payment date thereof, as may be fixed by the Board of Directors. Any dividend payment made on any share of RP shall first be credited against the earliest dividends accumulated but unpaid (whether or not earned) with respect to such share. (d) Neither Holders nor Beneficial Owners of shares of RP shall be entitled to any dividends on the shares of RP, whether payable in cash, property or stock, in excess of full cumulative dividends (including Rights) thereon. Except as provided in paragraph 3(h) or 3(l) of this Part I, neither Holders nor Beneficial Owners of shares of RP shall be entitled to any interest, or other additional amount, on any dividend payment (including Rights) on any share of RP which may be in arrears. (e) Except as otherwise provided herein, the Applicable Dividend Rate on each share of RP for each Dividend Period with respect to such share shall be equal to the rate per annum that results from implementation of the remarketing procedures described in Part II hereof. (f) The amount of cash dividends for shares of RP payable (if declared) on each Dividend Payment Date shall be computed by the Corporation by multiplying the Applicable Dividend Rate in effect with respect to cash dividends payable on such share on such Dividend Payment Date by a fraction the numerator of which shall be the number of days such share was outstanding from and including its Date of Original Issue or the preceding Dividend Payment Date on which a cash dividend was paid, as the case may be, to and including the last day of such Dividend Period, and the denominator of which shall be 360, and then multiplying the percentage so obtained by $100,000. (g) No later than by 12:00 noon, New York City time, on each Dividend Payment Date, the Corporation shall deposit in same-day funds with the Paying Agent the full amount of any dividend declared and payable on such Dividend Payment Date on any share of RP. For the purposes of the foregoing, payment in New York Clearing House (next-day) funds at any time on any Business Day shall be considered equivalent to payment in same-day funds on the next Business Day at the same time, and any payment made after 12:00 noon, New York City time, on any Business Day shall be considered to have been made instead in the form of funds before 12:00 noon, New York City time, on the next Business Day. (h) The Applicable Dividend Rate for each Dividend Period commencing during a Non-Payment Period shall be equal to the Non-Payment Period Rate. (i) So long as any shares of RP are outstanding, the Corporation shall not, subject to the requirements of the 1940 Act and Maryland law, without the affirmative vote or consent of the holders of at least two-thirds of the votes of the shares of RP outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as one class): (a) authorize, create or issue, or increase the authorized or issued amount, of any class or series of stock ranking prior to the RP with respect to payment of dividends or the distribution of assets on liquidation, or (b) amend, alter or repeal the provisions of the Corporation's Charter including these Articles Supplementary, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of such shares of RP or the Holders thereof; provided that, any increase in the amount of the authorized RP or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of such series or of any other series remarketed preferred stock, in each case ranking on a parity with or junior to the RP, will not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers unless such issuance would cause the Corporation not to satisfy the 1940 Act RP Asset Coverage or the RP Basic Maintenance Amount. Unless a higher percentage is provided for under the Charter, the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock, including RP, voting together as a single class, will be required to approve any plan of reorganization adversely affecting such shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred Stock, including RP, described above will in each case be in addition to a separate vote of the requisite percentage of shares of Common Stock and shares of Preferred Stock, including RP, necessary to authorize the action in question. The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of RP shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption. (j) Except during a Non-Payment Period, by 1:00 p.m. on the Tender Date at the end of the Initial Dividend Period and by 1:00 p.m. on the Tender Date at the end of each subsequent Dividend Period, the Beneficial Owner of a share of RP may elect to tender such share or to hold such share for the next Dividend Period. If the Beneficial Owner of such share of PR fails to elect to tender or hold such share by 1:00 p.m. on such Tender Date, such Beneficial Owner shall continue to hold such share at the Applicable Dividend Rate determined in such Remarketing for the next Dividend Period; provided that, if there is no Remarketing Agent, the Remarketing Agent does not conduct a Remarketing or the Remarketing Agent is unable to remarket in such Remarketing all shares of RP tendered to it at a price of $100,000 per share, then such Beneficial Owner shall hold such share for the next Dividend Period and the Applicable Dividend Rate therefor shall be the Maximum Dividend Rate. (k) In the event of a change in law altering the Minimum Holding Period, the Board of Directors may increase or decrease the period of time between Dividend Payment Dates so as to adjust uniformly the number of days in any Dividend Period commencing after the date of such change in law to equal or exceed the then current Minimum Holding Period; provided that, the number of days for any Dividend Period as so adjusted shall not exceed 98 and shall be evenly divisible by seven (except as required from time to time by adjustments in the remarketing schedule as provided herein). Upon any such adjustment by the Board of Directors, the Corporation shall notify the Remarketing Agent and the Paying Agent, and the Paying Agent shall in turn notify the Securities Depository, of such adjustment; provided that, during a Non-Payment Period, the Corporation also shall notify the Beneficial Owners of shares of RP directly of such adjustment. (l) Each dividend shall consist of (i) cash at the Applicable Dividend Rate and (ii) a right (a "Right") to receive cash (as determined below). Each Right shall thereafter be independent of the share or shares of RP on which the dividend was paid. The Corporation shall cause to be maintained a record of each Right received by the respective Holders. The Corporation shall not be required to recognize any transfer of a Right. If all or any part of the cash dividends on the shares of RP during any fiscal year does not qualify for the Dividends-Received Deduction ("Nonqualifying Distributions") because (i) the Corporation does not have income for such fiscal year eligible for the Dividends-Received Deduction at least equal to the dividends paid on the RP and the Other RP for such year, or (ii) the Corporation does not properly designate dividends on the RP as being eligible for the Dividends-Received Deduction, the applicable Rights shall entitle the holders thereof ("Right Holders") to additional cash (as set forth below), and the Corporation will, within 270 days after the end of such fiscal year, provide notice thereof to the Paying Agent. The Paying Agent will mail a copy of such notice to each Right Holder at the address specified in such Right Holder's Master Purchaser's Letter as promptly as practicable after its receipt of such notice from the Corporation. The Corporation will within 30 days after such notice is given to the Paying Agent pay to the Paying Agent (who will then distribute to Right Holders), out of funds legally available therefor, cash in satisfaction of the applicable Rights in an amount specified below with respect to all Nonqualifying Distributions made during such fiscal year. Cash payable pursuant to a Right shall be paid to the Right Holder thereof in an amount which, when taken together with the aggregate Nonqualifying Distributions paid to such Right Holder during any fiscal year, would cause such Right Holder's net yield in dollars (after Federal income tax consequences) from the aggregate of both the Nonqualifying Distributions and the cash receivable pursuant to such Right to be equal to the net yield in dollars (after Federal income tax consequences) which would have been received by such Right Holder if the amount of the aggregate Nonqualifying Distributions would have qualified for the Dividends-Received Deduction in the hands of such Right Holder. Such cash receivable on such Right shall be calculated without consideration being given to the time value of money and using the applicable maximum marginal corporate Federal tax rate in effect at the time such Right was declared. The Corporation may estimate the amount payable in respect of any Right and pay all or any portion of such estimated amount prior to the end of the fiscal year in which such Right was declared. If, for any fiscal year, all cash dividends paid at the Applicable Dividend Rate on the shares of RP are eligible in full for the Dividends-Received Deduction, then the amount payable to holders of Rights applicable to that year shall be zero. 4. Redemption. Shares of RP shall be redeemable by the Corporation as provided below: (a) To the extent permitted under the 1940 Act and Maryland law, the Corporation at its option, upon giving a Notice of Redemption, may redeem shares of RP, in whole or in part, on the next succeeding scheduled Dividend Payment Date, out of funds legally available therefor, at a redemption price equal to $100,000 per share plus an amount equal to cash dividends thereon (whether or not earned or declared) accumulated but unpaid to the date fixed for redemption. (b) The Corporation shall redeem, out of funds legally available therefor, at a redemption price of $100,000 per share plus an amount equal to cash dividends thereon (whether or not earned or declared) accumulated but unpaid to the date of redemption, shares of RP to the extent permitted under the 1940 Act and Maryland law, on a date fixed by the Board of Directors, if the Corporation fails to maintain the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage and such failure is not cured on or before the RP Basic Maintenance Cure Date or the 1940 Act Cure Date (herein referred to respectively as the "Cure Date"), as the case may be. The number of shares to be redeemed shall be equal to the lesser of (i) the minimum number of shares of RP the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, together with all shares of other Preferred Stock subject to redemption or retirement, would result in the satisfaction of the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, on such Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all shares of RP then outstanding shall be redeemed), and (ii) the maximum number of shares of RP that can be redeemed out of funds expected to be legally available therefor on such redemption date. In determining the number of shares of RP required to be redeemed in accordance with the foregoing, the Corporation shall locate the amount required to achieve the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, pro rata among the RP and the Other RP. The Corporation shall effect such redemption not later than 41 days after such Cure Date, except that if the Corporation does not have funds legally available for the redemption of all of the required number of shares of RP which are subject to mandatory redemption or the Corporation otherwise is unable to effect such redemption on or prior to such Cure Date, the Corporation shall redeem those shares of RP which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption. (c) Subject to paragraph 4(d) of this Part I, if fewer than all the outstanding shares of RP are to be redeemed pursuant to this paragraph 4, the number of shares of RP so to be redeemed shall be a whole number of shares and shall be determined by the Board of Directors, and the Corporation shall give a Notice of Redemption as provided in paragraph 4(e) of this Part I. Unless certificates representing shares of RP are held by Holders other than the Securities Depository or its nominee, the Securities Depository, upon receipt of such notice, shall determine by lot the number of shares of RP to be redeemed from the account of each Agent Member (which may include an Agent Member holding shares for its own account, including the Remarketing Agent) and notify the Paying Agent of such determination. The Paying Agent, upon receipt of such notice, shall in turn determine by lot the number of shares of RP to be redeemed from the accounts of the Beneficial Owners of the shares of RP whose Agent Members have been selected by the Securities Depository and give notice of such determination to the Remarketing Agent. In doing so, the Paying Agent may determine that shares of RP shall be redeemed from the accounts of some Beneficial Owners, which may include the Remarketing Agent, without shares of RP being redeemed from the accounts of other Beneficial Owners. (d) Notwithstanding paragraph 4(c) of this Part I, if certificates representing shares of RP are held by Holders other than the Securities Depository or its nominee, then the number of shares of RP to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected by the Corporation by lot. (e) Any Notice of Redemption shall be given by the Corporation to the Paying Agent, the Securities Depository (and any other Holder) and the Remarketing Agent, by telephone, not later than 3:00 p.m., New York City time (and later confirmed in writing) on (A) in the case of optional redemption pursuant to paragraph 4(a) of this Part I (i) the Settlement Date in the case of a partial redemption of the shares of RP, (ii) the Tender Date in the case of a redemption in whole of the shares of RP or (iii) during a Non-Payment Period, the later of the Dividend Payment Date and the seventh day, in each case prior to the earliest date upon which any such redemption shall occur and (B) in the case of mandatory redemption pursuant to paragraph 4(b) of this Part I, on the fifth Business Day prior to the redemption date. In the case of a partial redemption of the shares of PR, the Paying Agent shall use reasonable efforts to provide telephonic notice to each Beneficial Owner of shares of RP called for redemption not later than the close of business on the Business Day on which the Paying Agent determines the shares to be redeemed, as described in paragraph 4(c) if this Part I (or, during a Non-Payment Period, not later than the close of business on the Business Day immediately following the day on which the Paying Agent receives a Notice of Redemption from the Corporation). In the case of a redemption in whole of the shares of RP, the Paying Agent shall use reasonable efforts to provide telephonic notice to each Beneficial Owner not later than the close of business on the Business Day immediately following the day on which it receives a Notice of Redemption from the Corporation. In any case described in clause (i) or (iii) of the first sentence of this paragraph 4(e), such telephonic notice shall be confirmed promptly in writing not later than the close of business on the third Business Day preceding the redemption date by notice sent by the Paying Agent to each Beneficial Owner of shares of RP called for redemption, the Remarketing Agent and the Securities Depository. (f) Every Notice of Redemption and other redemption notice shall state: (i) the redemption date; (ii) the number of shares of RP to be redeemed; (iii) the redemption price; (iv) that dividends on the shares of RP to be redeemed shall cease to accumulate as of such redemption date; and (v) the provision pursuant to which such shares are being redeemed. In addition, notice of redemption given to a Beneficial Owner shall state the CUSIP number, if any, of the shares of RP to be redeemed and the manner in which the Beneficial Owners of such shares may obtain payment of the redemption price. No defect in the Notice of Redemption or other redemption notice or in the transmittal or the mailing thereof shall affect the validity of the redemption proceedings, except as required by applicable law. The Paying Agent shall use its reasonable efforts to cause the publication of a redemption notice in an Authorized Newspaper within two Business Days of the date of the Notice of Redemption, but failure so to publish such notification shall not affect the validity or effectiveness of any such redemption proceedings. Shares of RP the Beneficial Owners of which shall have been given Notice of Redemption shall not be subject to transfer outside a Remarketing. (g) On any redemption date, the Corporation shall deposit, irrevocably in trust, in same-day funds, with the Paying Agent, by 12:00 noon, New York City time, the price to be paid on such redemption date of any shares of RP plus an amount equal to cash dividends thereon accumulated but unpaid to such redemption date (whether or not earned or declared). For the purposes of the foregoing, payment in New York Clearing House (next-day) funds at any time on any Business Day shall be considered equivalent to payment in same-day funds on the next Business Day at the same time, and any payment made after 12:00 noon, New York City time, on any Business Day shall be considered to have been made instead in the same form of funds before 12:00 noon, New York City time, on the next Business Day. (h) In connection with any redemption, upon the giving of a Notice of Redemption and the deposit of the funds necessary for such redemption with the Paying Agent in accordance with this paragraph 4, all rights of the Holders of shares of RP so called for redemption shall cease and terminate, except the right of the Holders thereof to receive the redemption price thereof, inclusive of an amount equal to cash dividends (whether or not earned or declared) accumulated but unpaid to the redemption date but without any interest or other additional amount (except as provided in paragraph 3(h) or 3(l) of this Part I), and such shares shall no longer be deemed outstanding for any purpose. The Corporation shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent as aforesaid in excess of the sum of (i) the aggregate redemption price of the shares of RP called for redemption on such date and (ii) all other amounts to which Holders of shares of RP called for redemption may be entitled. Any funds so deposited with the Paying Agent which are unclaimed at the end of ninety days from such redemption date shall, to the extent permitted by law, be repaid to the Corporation, after which time the Holders of shares of RP so called for redemption shall look only to the Corporation for payment of the redemption price and all other amounts to which they may be entitled. The Corporation shall be entitled to receive, from time to time after the date fixed for redemption, any interest on the funds so deposited. (i) To the extent that any redemption for which Notice of Redemption has been given is not made by reason of the absence of legally available funds therefor, such redemption shall be made as soon as practicable to the extent such funds become available. Failure to redeem shares of RP shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Corporation shall have failed, for any reason whatsoever, to deposit funds with the Paying Agent pursuant to paragraph 4(g) of this Part I with respect to any shares for which such Notice of Redemption has been given. Notwithstanding the fact that the Corporation shall not have redeemed shares of RP for which a Notice of Redemption has been given, dividends may be declared and paid on shares of RP and shall include those shares of RP for which a Notice of Redemption has been given. (j) Notwithstanding the foregoing, (i) no share of RP may be redeemed pursuant to paragraph 4(a) of this Part I unless the full amount of accumulated but unpaid cash dividends to the date fixed for redemption for each such share of RP called for redemption shall have been declared, and (ii) no share of RP may be redeemed unless all outstanding shares of RP are simultaneously redeemed, nor may any shares of RP be purchased or otherwise acquired by the Corporation except in accordance with a purchase offer made on substantially equivalent terms by the Corporation for all outstanding shares of RP, unless, in each such instance, cash dividends on all outstanding shares of RP through the end of their most recently ended Dividend Period (or, if such transaction is on a Dividend Payment Date, through the Dividend Period ending on the day prior to such Dividend Payment Date) shall have been paid or declared and sufficient funds for the payment thereof deposited with the Payment Agent. (k) Except as set forth in this paragraph 4 with respect to redemptions and subject to paragraph 4(j) hereof, nothing contained herein shall limit any legal right of the Corporation or any affiliate to purchase or otherwise acquire any share of RP at any price. Any shares of RP which have been redeemed, purchased or otherwise acquired by the Corporation or any affiliate thereof may be resold. In lieu of redeeming shares called for redemption, the Corporation shall have the right to arrange for other purchasers to purchase from Beneficial Owners all shares of RP to be redeemed pursuant to this paragraph 4 by their paying to such Beneficial Owners on or before the close of business on the redemption date an amount equal to not less than the redemption price payable by the Corporation on the redemption of such shares, and the obligation of the Corporation to pay such redemption price shall be satisfied and discharged to the extent such payment is so made by such purchasers. (l) Notwithstanding any of the foregoing provisions of this paragraph 4, the Remarketing Agent may, in its sole discretion modify the procedures set forth above with respect to notification of redemption, provided that, any such modification does not adversely affect any Holder or Beneficial Owner of shares of RP. 5. Liquidation. (a) Upon a liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders shall be entitled, whether from capital or surplus, before any assets of the Corporation shall be distributed among or paid over to holders of Common Stock or any other class or series of stock of the Corporation junior to the RP as to liquidation payments, to be paid the amount of $100,000 per share of RP, plus an amount equal to all accumulated but unpaid dividends thereon (whether or not earned or declared) to and including the date of final distribution. After any such payment, the Holders shall not be entitled to any further participation in any distribution of assets of the Corporation. (b) If, upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be insufficient to make such full payments to the Holders and the holders of any Preferred Stock ranking as to liquidation, dissolution or winding up on a parity with the RP, then such assets shall be distributed among the Holders and such parity holders ratably in accordance with the respective amounts which would be payable on such shares of RP and any other such Preferred Stock if all amounts thereon where paid in full. (c) Neither the consolidation nor the merger of the Corporation with or into any corporation or corporations nor a reorganization of the Corporation alone nor the sale or transfer by the Corporation of all or substantially all of its assets shall be deemed to be a dissolution or liquidation of the Corporation. 6. Voting Rights. (a) General. Each Holder of shares of RP shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation and, except as otherwise provided in the 1940 Act, the Charter or the Bylaws or as described below, the holders of shares of Preferred Stock, including RP, and of shares of Common Stock shall vote together as one class. Prior to the issuance of any RP, the Board of Directors by resolution shall designate two existing directors representing holders of Preferred Stock. At the first meeting of stockholders for which the record date is a date on which shares of Preferred Stock are outstanding, the holders of Preferred Stock entitled to vote at such meeting shall have the right as a class, to the exclusion of the holders of the common stock, to elect two directors of the Corporation who shall serve for the unexpired terms of the directors originally designated by the Board of Directors as directors representing holders of Preferred Stock; except that, if such meeting is an annual meeting of stockholders at which the term of one of such designated directors expires, the director so elected to succeed the designated director shall be elected for a term expiring at the time of the third succeeding annual meeting of stockholders, or thereafter when his successor is elected and qualified. Thereafter, the holders of Preferred Stock shall have the right as a class, to the exclusion of the holders of the common stock, to elect directors to succeed either of the directors representing the Preferred Stock whose terms are expiring or whose seats on the Board of Directors are vacant. Subject to paragraph 6(b) hereof, the holders of a majority of the shares of Common Stock shall elect the balance of the directors. (b) Right to Elect Majority of Board of Directors. During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the number of directors then constituting the Board of Directors, shall (together with the two directors elected by the holders of Preferred Stock, including RP, pursuant to paragraph 6(a)) constitute a majority of such increased number, and the holders of a majority of Preferred Stock, including RP, shall be entitled, voting as a single class on a one-vote-per-share basis (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect the smallest number of additional directors of the Corporation that shall constitute a majority of the total number of directors of the Corporation so increased. A Voting Period shall commence if at the close of business on any Dividend Payment Date accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the outstanding shares of RP equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Paying Agent for the payment of such accumulated dividends. Upon the termination of a Voting Period, the voting rights described in this paragraph 6(b) shall cease, subject always, however, to the revesting of such voting rights in the holders of Preferred Stock, including RP, upon the further occurrence of any of the events described in this paragraph 6(b). (c) Voting Procedures. ----------------- (i) As soon as practicable after the accrual of any right of the holders of Preferred Stock, including RP, to elect a majority of directors, the Corporation shall notify the Paying Agent and Paying Agent shall call a special meeting of the holders of Preferred Stock, including RP, and shall mail a notice of such special meeting to such holders not less than 10 nor more than 20 days after the date of mailing of such notice. If the Corporation fails to send such notice to the Paying Agent or if the Paying Agent does not call such a special meeting, it may be called by any holder of Preferred Stock, including RP, on like notice. The record date for determining the holders of Preferred Stock, including RP, entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting held during a Voting Period, the holders of Preferred Stock, including RP, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph 6(b) above on a one-vote-per-share basis. At any such meeting or adjournment thereof in the absence of a quorum, a majority of the holders of Preferred Stock, including RP, present in person or by proxy, shall have the power to adjourn the meeting without notice, other than an announcement at the meeting, until a quorum is present; provided, however, that no such meeting may be adjourned to a date more than 120 days from the original record date without notice. (ii) For purposes of determining any rights of the Holders to vote on any matter, whether such right is created by these Articles Supplementary, by statute or otherwise, no Holder shall be entitled to vote and no share of RP shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum, if, prior to or concurrently with the time of determination of shares entitled to vote or shares deemed outstanding for quorum purposes, as the case may be, sufficient funds for the redemption of such shares have been deposited in trust with the Paying Agent for that purpose and the requisite Notice of Redemption with respect to such shares shall have been given as provided in paragraph 4 of this Part I. No share of RP held by the Corporation or any affiliate of the Corporation shall have any voting rights or be deemed to be outstanding for voting purposes. (iii) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of holders of Preferred Stock, including RP, to elect directors shall continue, notwithstanding the election at such meeting by such holders of the number of directors that they are entitled to elect, and the persons so elected by such holders, together with the incumbent directors elected by the holders of the Common Stock, shall constitute the duly elected directors of the Corporation. (iv) Simultaneously with the expiration of a Voting Period, the terms of office of the additional directors elected by the holders of Preferred Stock, including RP, shall terminate, the incumbent directors who shall have been elected by the holders of the Common Stock (or by the Board of Directors at a time which was not during a Voting Period) and the two incumbent directors the holders of Preferred Stock, including RP, have the right to elect in any event shall constitute the directors of the Corporation and the voting rights of such holders to elect additional directors shall cease. (v) The directors elected by the holders of Preferred Stock, including RP, shall (subject to the provisions of any applicable law) be subject to removal only by the vote of the holders of a majority of the shares of Preferred Stock, including RP, outstanding. Any vacancy on the Board of Directors occurring by reason of such removal or otherwise may be filled only by vote of the holders of at least a majority of shares of Preferred Stock, including RP, outstanding, and if not so filled such vacancy shall (subject to the provisions of any applicable law) be filled by a majority of the remaining directors (or the remaining director) who were elected by such holders. Any other vacancy on the Board of Directors during a Voting Period shall be filled by a vote of the holder or holders of Common Stock. (d) Exclusive Remedy. Unless otherwise required by law, the Holders of shares of RP shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. The Holders of shares of RP shall have no preemptive rights. In the event that the Corporation fails to pay any dividends on the shares of RP, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this paragraph 6. In no event shall the Holders of shares of RP have any right to sue for, or bring a proceeding with respect to, such dividends or redemptions or damages for the failure to receive the same. 7. 1940 Act RP Asset Coverage. The Corporation shall maintain, as of the last Business Day of each month in which any share of RP is outstanding, the 1940 Act RP Asset Coverage. 8. Asset and Liquidity Coverage. ---------------------------- (a) RP Basic Maintenance Amount. (i) The Corporation shall maintain, on each Valuation Date, Eligible Portfolio Property having an aggregate Discounted Value at least equal to the RP Basic Maintenance Amount. (ii) On or before 5:00 p.m., New York City time, on the third Business Day after each Valuation Date, the Corporation shall complete and deliver to the Remarketing Agent and the Paying Agent an RP Basic Maintenance Report, which will be deemed to have been delivered to the Remarketing Agent and the Paying Agent if the Remarketing Agent and the Paying Agent receive a copy or telecopy, telex or other electronic transcription thereof and on the same day the Corporation mails to the Remarketing Agent and the Paying Agent for delivery on the next Business Day the full RP Basic Maintenance Report. A failure by the Corporation to deliver an RP Basic Maintenance Report under this paragraph 8(a)(ii) without the prior consent of the Remarketing Agent and the Paying Agent shall be deemed to be delivery of an RP Basic Maintenance Report indicating the Discounted Value for all assets of the Corporation is less than the RP Basic Maintenance Amount, as of the relevant Valuation Date. (iii) Within ten Business Days after the date of delivery to the Remarketing Agent and the Paying Agent of an RP Basic Maintenance Report in accordance with paragraph 8(a)(ii) above relating to a Quarterly Valuation Date, the Independent Accountant will confirm in writing to the Remarketing Agent and the Paying Agent (A) the mathematical accuracy of the calculations reflected in such Report, (B) that, in such Report, the Corporation determined in accordance with these Articles Supplementary the assets of the Corporation which constitute Eligible Portfolio Property at such Quarterly Valuation Date, (C) that, in such Report, the Corporation determined in accordance with these Articles Supplementary whether the Corporation had, at such Quarterly Valuation Date, Eligible Portfolio Property of an aggregate Discounted Value at least equal to the RP Basic Maintenance Amount, (D) with respect to the S&P rating on Utility Bonds and Senior Debt Obligations, issuer name, issue size and coupon rate listed in such Report, that information has been traced and agrees with the information listed in The Standard & Poor's Bond Guide (in the event such information does not agree or such information is not listed in The Standard & Poor's Bond Guide, the Independent Accountant will inquire of S&P what such information is, and provide a listing in their letter of such differences, if any), (E) with respect to the Moody's ratings on Utility Bonds and Senior Debt Obligations, issuer name, issue size and coupon rate listed in such Report, that information has been traced and agrees with the information listed in Moody's Bond Record (in the event such information does not agree or such information is not listed in Moody's Bond Record, the Independent Accountant will inquire of Moody's what such information is, and provide a listing in their letter of such differences), and (F) with respect to the lower of two bid prices (or alternative permissible factors used in calculating the Market Value) provided by the custodian of the Corporation's assets to the Corporation for purposes of valuing securities in the Corporation's portfolio, the Independent Accountant has traced the price used in such Report to the lower of the two bid prices listed in the Report provided by such custodian and verified that such information agrees (in the event such information does not agree, the Independent Accountant will provide a listing in its letter of such differences) (such confirmation is herein called the "Accountant's Confirmation"). If any Accountant's Confirmation delivered pursuant to this paragraph 8(a)(iii) shows that an error was made in the RP Basic Maintenance Report for a Quarterly Valuation Date, or shows that a lower aggregate Discounted Value for the aggregate of all Eligible Portfolio Property of the Corporation was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Corporation, and the Corporation shall accordingly amend the RP Basic Maintenance Report to the Remarketing Agent and Paying Agent promptly following receipt by the Remarketing Agent and the Paying Agent of such Accountant's Confirmation. (b) Liquidity Coverage. ------------------ (i) As of each Valuation Date as long as any share of RP is outstanding, the Corporation shall determine (A) the Market Value of the Dividend Coverage Assets owned by the Corporation as of that Valuation Date, (B) the Dividend Coverage Amount on that Valuation Date, and (C) whether the Minimum Liquidity Level is met as of that Valuation Date. The calculations of the Dividend Coverage Assets, the Dividend Coverage Amount and whether the Minimum Liquidity Level is met shall be set forth in a certificate (a "Certificate of Minimum Liquidity") dated as of the Valuation Date. The RP Basic Maintenance Report and the Certificate of Minimum Liquidity may be combined in one certificate. The Corporation shall cause the Certificate of Minimum Liquidity to be delivered to the Remarketing Agent and the Paying Agent not later than the close of business on the third Business Day after the Valuation Date. The Minimum Liquidity Level shall be deemed to be met as of any date of determination if the Corporation has timely delivered a Certificate of Minimum Liquidity relating to such date, which states that the same has been met and which is not manifestly inaccurate. In the event that a Certificate of Minimum Liquidity is not delivered to the Remarketing Agent and the Paying Agent when required, the Minimum Liquidity Level shall be deemed not to have been met as of the applicable date. (ii) If the Minimum Liquidity Level is not met as of any Valuation Date, then the Corporation shall purchase or otherwise acquire Dividend Coverage Assets (with the proceeds from the liquidation of Eligible Portfolio Property or otherwise) to the extent necessary so that the Minimum Liquidity Level is met as of the fifth Business Day following such Valuation Date. The Corporation shall, by such fifth Business Day, provide to the Paying Agent and the Remarketing Agent a Certificate of Minimum Liquidity setting forth the calculations of the Dividend Coverage Assets and the Dividend Coverage Amount and showing that the Minimum Liquidity Level is met as of such fifth Business Day together with a report of the custodian of the Corporation's assets confirming the amount of the Corporation's Dividend Coverage Assets as of such fifth Business Day. 9. Restrictions on Certain Distributions. For so long as any share of RP is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Stock or other stock, if any, ranking junior to the shares of RP as to dividends or upon liquidation) in respect of the Common Stock or any other stock of the Corporation ranking junior to or on a parity with the shares of RP as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of the Common Stock or any other such junior stock (except by conversion into or exchange for stock of the Corporation ranking junior to the shares of RP as to dividends and upon liquidation) or any other such parity stock (except by conversion into or exchange for stock of the Corporation ranking junior to or on a parity with the shares of RP as to dividends and upon liquidation), unless (A) immediately after such transaction, the RP Basic Maintenance Amount and the 1940 Act RP Asset Coverage would be achieved, (B) full cumulative dividends on shares of RP and shares of Other RP due on or prior to the date of the transaction have been declared and paid or shall have been declared and sufficient funds for the payment thereof deposited with the Paying Agent, (C) any Right required to be paid under paragraph 3(l) of this Part I on or before the date of such declaration or payment has been paid and (D) the Corporation has redeemed the full number of shares of RP required to be redeemed by any provision for mandatory redemption contained herein. 10. Notice. All notices or communications, unless otherwise specified in the Bylaws of the Corporation or these Articles Supplementary, shall be sufficiently given if in writing and delivered in person or mailed by first-class mail, postage prepaid. Notice shall be deemed given on the earlier of the date received or the date seven days after which such notice is mailed. 11. Exchange Provisions. (a) Upon receipt by the Corporation of an opinion of legal counsel, in form and substance satisfactory to the Board of Directors, that dividends on the Corporation's Remarketed Preferred Stock, Series I will not be considered preferential under section 562(c) of the Code, which opinion may, but is not required to, rely upon a ruling on the matter by the Service, the Board of Directors may, but is not required to, adopt a resolution authorizing (such authorization shall be referred to herein as an "Exchange Event") that, on the first Dividend Payment Date for the RP which is at least 45 days after the occurrence of an Exchange Event and as of which the conditions described below have been satisfied (the "Exchange Date"), the RP will be exchanged automatically, and without any action or choice on the part of Holders thereof, on a share-for-share basis for the Corporation's Remarketed Preferred Stock, Series I. However, shares of RP will not be exchanged for shares of the Corporation's Remarketed Preferred Stock, Series I unless Moody's and S&P shall have issued on or before the Exchange Date ratings on the Corporation's Remarketed Preferred Stock, Series I equivalent to the ratings on the RP, provided that, if Moody's or S&P shall not make a rating available, such exchange will take place if a Substitute Rating Agency or Agencies shall have issued a rating or ratings which is/are equivalent to such then-current rating or ratings on the Exchange Date. Holders of outstanding shares of RP will receive one share of the Corporation's Remarketed Preferred Stock, Series I for each share of RP held and exchanged by them on the Exchange Date. (b) The Fund will cause the publication of an exchange notice in an Authorized Newspaper, and cause the Paying Agent to mail an exchange notice to each Holder, not less than 10 nor more than 30 days prior to the Exchange Date. Such notice will state: (i) the Exchange Date, (ii) that on the Exchange Date all shares of Original RP will be exchanged automatically, and without any action or choice on the part of the Holders, on a share-for-share basis for the Corporation's Remarketed Preferred Stock, Series I, (iii) that the Initial Dividend Period for the Corporation's Remarketed Preferred Stock, Series I issuable in exchange for the RP will be a 49-day Dividend Period commencing on the Exchange Date, and (iv) that dividends on shares of RP will cease to accumulate on the Exchange Date. (c) On the Exchange Date, the RP will cease to accumulate dividends, the shares of RP will no longer be deemed outstanding, the rights of the Holders (except the right to receive accumulated but unpaid dividends to the Exchange Date) will cease, and the person or persons entitled to receive the Corporation's Remarketed Preferred Stock, Series I upon the exchange will be treated for all purposes as the holder or holders of such Remarketed Preferred Stock, Series I. 12. Borrowings. For so long as the shares of RP are rated by S&P, the aggregate amount of borrowings by the Corporation (including guarantees made by the Corporation) shall be limited to an amount equal to 10% of the value of the Corporation's assets; provided, further, that the Corporation shall not incur any such borrowings subsequent to the issuance of the RP unless S&P advises the Corporation in writing that such borrowings will not adversely affect its then-current rating on the RP. 13. Options and Futures Transactions. For so long as the shares of RP are rated by either Moody's or S&P, the Corporation will not purchase or sell futures contracts or related options or engage in reverse repurchase agreement transactions unless Moody's and/or S&P, as the case may be, advise the Corporation in writing that such action or actions will not adversely affect their then-current ratings on the RP. 14. Other Restrictions. For so long as the shares of RP are rated by S&P, the Corporation may not (i) engage in transactions involving repurchase obligations which do not constitute Short Term Money Market Instruments, (ii) engage in transactions involving short sales of portfolio securities or (iii) overdraw any bank accounts of the Corporation, unless, in each case, S&P advises the Corporation in writing that such action or actions will not adversely affect its then-current ratings on the RP. PART II. -------- REMARKETING PROCEDURES 1. Remarketing Schedule. Each Remarketing shall take place over a three-day period consisting of the Tender Date, the Dividend Reset Date and the Settlement Date. Such dates or the method of establishing such dates shall be determined by the Board of Directors from time to time. 2. Procedure for Tendering. (a) Each share of RP is subject to Tender and Dividend Reset only at the end of each Dividend Period applicable to such shares and may be tendered in a Remarketing only on the Tender Date immediately prior to the end of the current Dividend Period with respect thereto. By 12:00 noon, New York City time, on each such Tender Date, the Remarketing Agent shall, after canvassing the market and considering prevailing market conditions at the time for shares of RP and similar securities, provide Beneficial Owners non-binding indications of Applicable Dividend Rates for the next succeeding 7-day Dividend Period, 49-day Dividend Period and any Optional Dividend Period or designated Special Dividend Period provided that if the next Dividend Period has been designated a Special Dividend Period, the Remarketing Agent will provide to holders thereof a non-binding indication of the Applicable Dividend Rate only for such Special Dividend Period. The actual Applicable Dividend Rate for such Dividend Period may be greater than or less than the rate per annum indicated in such non-binding indications (but not greater than the applicable Maximum Dividend Rate). By 1:00 p.m., New York City time, on such Tender Date, each Beneficial Owner of shares of RP subject to Tender and Dividend Reset must notify the Remarketing Agent of its desire, on a share-by-share basis, either to tender such share of RP at a price of $100,000 per share or to continue to hold such share of RP and elect either a 7-day Dividend Period, a 49-day Dividend Period or a specific available Optional Dividend Period or, if applicable, accept a designated Special Dividend Period, at the new Applicable Dividend Rate for the selected or designated, as the case may be, Dividend Period. Any notice given to the Remarketing Agent to tender or hold shares for a particular Dividend Period shall be irrevocable and shall not be conditioned upon the level at which the Applicable Dividend Rate is established. Any such notice may not be waived by the Remarketing Agent, except that prior to 4:00 p.m., New York City time, on the Dividend Reset Date, the Remarketing Agent may, in its sole discretion (i) at the request of a Beneficial Owner that has tendered one or more shares of RP to the Remarketing Agent, contingently waive such Beneficial Owner's tender and thereby enable such Beneficial Owner to continue to hold the share or shares for a 7-day Dividend Period, 49-day Dividend Period or available Optional Dividend Period or a designated Special Dividend Period as agreed to by such Beneficial Owner and the Remarketing Agent at such time, so long as such tendering Beneficial Owner has indicated to the Remarketing Agent that it would accept the new Applicable Dividend Rate for such Dividend Period, such waiver to be contingent upon the Remarketing Agent's ability to remarket all shares of RP tendered in such Remarketing, and (ii) at the request of a Beneficial Owner that has elected to hold one or more of its shares of RP, waive such Beneficial Owner's election with respect thereto. (b) The right of each Beneficial Owner to tender shares of RP in a Remarketing therefor shall be limited to the extent that (i) the Remarketing Agent conducts a Remarketing pursuant to the terms of the Remarketing Agreement, (ii) shares tendered have not been called for redemption and (iii) the Remarketing Agent is able to find a purchaser or purchasers for tendered shares of RP at an Applicable Dividend Rate for the next Dividend Period that is not in excess of the Maximum Dividend Rate. 3. Determination of Applicable Dividend Rates. (a) Between 1:00 p.m., New York City time, on each Tender Date and 4:00 p.m., New York City time, on the succeeding Dividend Reset Date, the Remarketing Agent shall determine (i) unless the Board of Directors has designated such next Dividend Period as a Special Dividend Period with respect to all shares subject to Tender and Dividend Reset, the allocation of tendered shares of RP among a 7-day Dividend Period, a 49-day Dividend Period and each available Optional Dividend Period, if any, and any Special Dividend Period provided that, if the Remarking Agent is unable to remarket on such Dividend Reset Date all such tendered shares in a Remarketing allocate no shares to any Optional Dividend Period of more than 98 days and no share will be assigned to any Special Dividend Period of more than 98 days), and (ii) the Applicable Dividend Rates to the nearest one-thousandth (0.001) of one percent per annum for the next 7-day Dividend Period, the next 49-day Dividend Period and the next Optional Dividend Period or Periods, or the next designated Special Dividend Period, as the case may be. The Applicable Dividend Rates for such Dividend Periods, except as otherwise required herein, shall be the rate per annum which the Remarketing Agent determines, in its sole judgment, to be the lowest rates, giving effect to such allocation, that will enable it to remarket on behalf of the Beneficial Owners thereof all shares of RP tendered to it at a price of $100,000 per share. (b) If no Applicable Dividend Rate shall have been established on a Dividend Reset Date in a Remarketing for a 7-day Dividend Period, a 49-day Dividend Period, or any Optional Dividend Period or Periods or Special Dividend Period, or for any or all of the foregoing, for any reason (other than because there is no Remarketing Agent or the Remarketing Agent is not required to conduct a Remarketing pursuant to the terms of the Remarketing Agreement), then the Remarketing Agent, except during a Non-Payment Period, in its sole discretion, shall, after taking into account market conditions as reflected in the prevailing yields of fixed and variable rate taxable and tax-exempt debt securities and the prevailing dividend yields of fixed and variable rate preferred stock, if necessary, determine the Applicable Dividend Rate or Rates, as the case may be, that would be the initial dividend rate or rates fixed in an offering on such Dividend Reset Date, assuming in each case a comparable dividend period or periods, issuer and security. If there is no Remarketing because there is no Remarketing Agent or the Remarketing Agent is not required to conduct a Remarketing pursuant to the Remarketing Agreement, then, except during a Non-Payment Period, the Applicable Dividend Rate for each subsequent Dividend Period for which no Remarketing takes place because of the foregoing shall be the applicable Maximum Dividend Rate for a 7-day Dividend Period and the next succeeding Dividend Period shall be a 7-day Dividend Period. In a Remarketing, the Applicable Dividend Rates for different Dividend Periods need not be equal. (c) In determining such Applicable Dividend Rate or Rates, the Remarketing Agent shall, after taking into account market conditions as reflected in the prevailing yields of fixed and variable rate taxable and tax-exempt debt securities and the prevailing dividend yields of fixed and variable rate preferred stock, in providing non-binding indications of the Applicable Dividend Rates to Beneficial Owners and potential purchasers of shares of RP, (i) consider the number of shares of RP tendered and the number of shares of RP potential purchasers are willing to purchase and (ii) contact by telephone or otherwise current and potential Beneficial Owners of shares of RP and ascertain the dividend rates at which they would be willing to hold shares of RP. (d) The Applicable Dividend Rate or Rates, as well as the allocation of tendered shares of RP, shall be determined as aforesaid by the Remarketing Agent in its sole discretion (except as otherwise provided in these Articles Supplementary with respect to Applicable Dividend Rates that shall be the Non-Payment Period Rate and Maximum Dividend Rate) and shall be conclusive and binding on Holders and Beneficial Owners. (e) As a condition precedent to purchasing shares of RP in any offering, in any Remarketing or outside any Remarketing, each purchaser of shares of RP shall sign and deliver a Master Purchaser's Letter, the sufficiency of any Master Purchaser's Letter to be determined by the Remarketing Agent in its sole discretion. (f) Except during a Non-Payment Period, the Applicable Dividend Rate for any Dividend Period shall not be more than the applicable Maximum Dividend Rate. 4. Allocation of Shares; Failure to Remarket at $100,000 Per Share. (a) If the Remarketing Agent is unable to remarket by 4:00 p.m., New York City time, on any Dividend Reset Date all shares of RP tendered to it in the related Remarketing at a price of $100,000 per share (i) each Beneficial Owner that tendered shares of RP for sale shall sell a number of shares of RP on a pro rata basis, to the extent practicable, or by lot, as determined by the Remarketing Agent in its sole discretion based on the number of orders to purchase shares of RP in such Remarketing; and (ii) the next Dividend Period shall be a 7-day Dividend Period for all tendered (or deemed tendered) but unsold shares and for all other shares the Beneficial Owners of which shall have elected or been deemed to have elected to hold such shares for a Dividend Period of more than 98 days; and (iii) the Applicable Dividend Rates for the next 7-day Dividend Period (including the 7-day Dividend Period referred to in the preceding clause (ii)), next 49-day Dividend Period and, if applicable, next Optional Dividend Period or Periods of 98 or fewer days or Special Dividend Period of 98 or fewer days shall be the applicable Maximum Dividend Rates for such Dividend Periods. (b) If the allocation procedures described above would result in the sale of a fraction of a share of RP, the Remarketing Agent shall, in its sole discretion, round up or down the number of shares of RP sold by each Beneficial Owner on such Dividend Reset Date so that each share sold by a Beneficial Owner shall be a whole share of RP and the total number of shares sold equals the total number of shares bought on such Dividend Reset Date. 5. Notification of Results; Settlement. (a) By telephone at approximately 4:30 p.m., New York City time, on each Dividend Reset Date the Remarketing Agent shall advise each Beneficial Owner of tendered shares and each purchaser thereof (or the Agent Member thereof) (i) of the number of shares such Beneficial Owner or purchaser is to sell or purchase and (ii) to give instructions to its Agent Member to deliver such shares against payment therefor or to pay the purchase price against delivery as appropriate. The Remarketing Agent will also advise each Beneficial Owner or purchaser that is to continue to hold, or to purchase, shares for the Dividend Periods beginning on the Business Day following such Dividend Reset Date of the Applicable Dividend Rate for such shares. (b) In accordance with the Securities Depository's normal procedures, on the Settlement Date, the transactions described above with respect to each share of RP shall be executed through the Securities Depository, if the Securities Depository or its nominee holds or is to hold the certificates relating to the shares to be purchased, and the accounts of the respective Agent Members of the Securities Depository shall be debited and credited and shares delivered by book entry as necessary to effect the purchases and sales of shares of RP and the changes in types of Dividend Periods as determined in the related Remarketing. Purchasers of shares of RP shall make payment to the Paying Agent in same-day funds against delivery to other purchasers or their nominees of one or more certificates representing shares of RP, or, if the Securities Depository or its nominee holds or is to hold the certificates relating to the shares to be purchased, through their Agent Members in same-day funds to the Securities Depository against delivery through their Agent Members by book entry of shares of RP or as otherwise required by the Securities Depository. The Securities Depository shall make payment in accordance with its normal procedures. (c) If any Beneficial Owner selling shares of RP in a Remarketing fails to deliver such shares, the Agent Member of such selling Beneficial Owner and of any other person that was to have purchased shares of RP in such Remarketing may deliver to any such other person a number of whole shares of RP that is less than the number of shares that otherwise was to be purchased by such person. In such event, the number of shares of RP to be so delivered shall be determined by such Agent Member. Delivery of such lesser number of shares of RP shall constitute good delivery. (d) The Remarketing Agent, the Paying Agent and the Securities Depository each will use its reasonable commercial efforts to meet the timing requirements set forth in paragraphs (a) and (b) above; provided that, in the event that there is a delay in the occurrence of any delivery or other event connected with a Remarketing, the Remarketing Agent, the Paying Agent and the Securities Depository each will use its reasonable commercial efforts to accommodate such delay in furtherance of the Remarketing. (e) Notwithstanding any of the foregoing provisions of this paragraph 5, the Remarketing Agent may, in its sole discretion, modify the settlement procedures set forth above with respect to settlement, provided any such modification does not adversely affect the Beneficial Owners or the Holders of RP or the Corporation. 6. Purchase of Shares of RP by Remarketing Agent. The Remarketing Agent may purchase for its own account shares of RP in a Remarketing, provided that it purchases all tendered (or deemed tendered) shares of RP not sold in such Remarketing to other purchasers and that the Applicable Dividend Rate established with respect to such shares in such Remarketing are no higher than the Applicable Dividend Rate or Rates that would have been established if the Remarketing Agent had not purchased such shares. Except as provided in the previous sentence, the Remarketing Agent shall not be obligated to purchase any shares of RP that would otherwise remain unsold in a Remarketing. If the Remarketing Agent owns any shares of RP subject to a Remarketing immediately prior to a Remarketing and if all other shares subject to such Remarketing and tendered for sale by other Beneficial Owners of shares of RP have been sold in such Remarketing, then the Remarketing Agent may sell such number of its shares in such Remarketing as there are outstanding orders to purchase that have not been filled by such shares tendered for sale by other Beneficial Owners. Neither the Corporation, the Paying Agent nor the Remarketing Agent shall be obligated in any case to provide funds to make payment to a Beneficial Owner upon such Beneficial Owner's tender of its shares of RP in a Remarketing. 7. Applicable Dividend Rate During a Non-Payment Period. So long as a Non-Payment Period shall continue, paragraphs 1, 2, 3, 4, 5, and 6 of this Part II shall not be applicable to any of the shares of RP and the shares of RP shall not be subject to Tender and Dividend Reset. 8. Transfers. As a condition precedent to purchasing shares of RP in any offering, in any Remarketing or outside any Remarketing, each purchaser of shares of RP shall be required to sign and deliver a Master Purchaser's Letter, the sufficiency of any Master Purchaser's Letter to be determined by the Remarketing Agent in its sole discretion, in which such purchaser shall agree, among other things, (i) unless the Corporation has elected, during a Non-Payment Period, to waive this requirement, to have its ownership of such shares of RP maintained in book entry form by the Securities Depository, in the account of a designated Agent Member which, in turn, shall maintain records of such purchaser's beneficial ownership, (ii) to be conclusively bound by the remarketing procedures, including the Remarketing Agent's determination of the Applicable Dividend Rates, pursuant to the remarketing procedures, (iii) that its notice to tender shares of RP in a Remarketing will constitute an irrevocable offer, except as set forth in such Master Purchaser's Letter, to sell the shares specified in such notice and authorization to the Remarketing Agent to sell, transfer or otherwise dispose of such shares as set forth herein and (v) unless the Corporation shall have elected, during a Non-Payment Period, to waive this requirement, to sell, transfer or otherwise dispose of any share of RP held by it only pursuant to orders placed in a Remarketing therefor or to a person that has signed and delivered a Master Purchaser's Letter as provided herein, and, in the case of any transfer other than pursuant to a Remarketing, to ensure that an Agent Member advises the Remarketing Agent of such transfer. The Agent Member shall be authorized and instructed to disclose to the Remarketing Agent and/or the Paying Agent such information with respect to such purchaser's beneficial ownership as the Remarketing Agent or Paying Agent shall request. 9. Miscellaneous. To the extent permitted by applicable law, the Board of Directors of the Corporation may interpret or adjust the provisions hereof to resolve any inconsistency or ambiguity, remedy any formal defect or make any other change or modification which does not adversely affect the rights of Holders or Beneficial Owners of shares of RP and if such inconsistency or ambiguity reflects an incorrect provision hereof then the Board of Directors may authorize the filing of a Certificate of Amendment or a Certificate of Correction, as the case may be. 10. Securities Depository; Stock Certificates. (a) If there is a Securities Depository, an appropriate number of certificates for all of the shares of RP shall be issued to the Securities Depository and registered in the name of the Securities Depository or its nominee. Additional certificates may be issued as necessary to represent shares of RP having Optional Dividend Periods or Special Dividend Periods. All such certificates shall bear a legend to the effect that such certificates are issued subject to the provisions contained in these Articles Supplementary and each Master Purchaser's Letter. Unless the Corporation shall have elected, during a Non-Payment Period, to waive this requirement, the Corporation will also issue stop-transfer instructions to the Paying Agent for the shares of RP. Except as provided in paragraph (b) below, the Securities Depository or its nominee will be the Holder, and no Beneficial Owner shall receive certificates representing its ownership interest in such shares. (b) If the Applicable Dividend Rate applicable to all shares of RP shall be the Non-Payment Period Rate or there is no Securities Depository, the Corporation may at its option issue one or more new certificates with respect to such shares (without the legend referred to in paragraph 10(a) of this Part II) registered in the names of the Beneficial Owners or their nominees and rescind the stop-transfer instruction referred to in paragraph 10(a) of this Part II with respect to such shares. IN WITNESS WHEREOF, DUFF & PHELPS SELECTED UTILITIES INC. has caused these presents to be signed in its name and on its behalf by its President, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Corporation further acknowledged said instrument to be the corporate act of the Corporation, and stated under the penalties of perjury that to the best of their knowledge, information and belief the matters and facts therein set forth with respect to approval are true in all material respects, all on November 15, 1988. DUFF & PHELPS SELECTED UTILITIES INC. By /s/ Charles V. Hansen ------------------------- Chairman, President Attest: /s/ Calvin J. Pedersen - ----------------------- Secretary EX-99.2A(A5) 6 FORM OF ARTICLES SUPPL, SERIES I Exhibit a.5 DUFF & PHELPS SELECTED UTILITIES INC. Articles Supplementary creating one series of Remarketed Preferred Stock DUFF & PHELPS SELECTED UTILITIES INC., a Maryland corporation having its principal Maryland office in the City of Baltimore (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by article fifth of its Charter, the Board of Directors has classified its preferred stock and has authorized the issuance of a series of 5,000 shares of its authorized preferred stock, par value $.001 per share, liquidation preference $100,000 per share, designated Remarketed Preferred Stock, Series I. SECOND: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of such series of preferred stock are as follows: DESIGNATION This series of 5,000 shares of preferred stock, par value $.001 per share, liquidation preference $100,000 per share plus premium, if any, resulting from the designation of a Premium Call Period (as herein defined), plus accumulated but unpaid dividends, if any, thereon (whether or not earned or declared), is designated "Remarketed Preferred Stock, Series I" and is referred to below as "RP" 1/. Each share of RP shall be issued on a date to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; have an Initial Dividend Payment Date (as herein defined) to be determined by the Board of Directors of the Corporation or a duly authorized committee thereof; and have such other redemption provisions, preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Corporation's Charter applicable to preferred stock of the Corporation, as are set forth in Part I and Part II of these Articles Supplementary. Except as to Dates of Original Issue (as defined herein), Dividend Periods (as defined herein), Dividend Payment Dates (as defined herein), and redemption dates, if any, each share of RP shall be identical to every other share of RP. - ----------------------- 1 Registered trademark of Merrill Lynch & Co., Inc. PART I. ------ 1. Definitions. Unless the context or use indicates another or different meaning or intent, the following terms shall have the following meanings, whether used in the singular or plural: "`AA' Composite Commercial Paper Rate," on any date, means (i) the Interest Equivalent of the rate on commercial paper placed for the number of days specified in the succeeding sentence on behalf of issuers whose corporate bonds are rated "AA" by S&P and "Aa" by Moody's, or the equivalent of such rating by another nationally recognized statistical rating organization, as such rate is made available by the Federal Reserve Bank of New York on a discount basis or otherwise for the Business Day immediately preceding such date, or (ii) if the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the Interest Equivalent of such rates on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by the Commercial Paper Dealers to the Remarketing Agent for the close of business on the Business Day immediately preceding such date. In respect of any Dividend Period (or other period) of 98 or fewer days (determined without regard to any adjustment in the remarketing schedule in respect of non-Business Days, as provided herein), the "AA" Composite Commercial Paper Rate shall be as follows: if the number of days in such Dividend Period is (i) less than 8, the Interest Equivalent of the 5-day rate, (ii) 8 or more but less than 20, the Interest Equivalent of the 15-day rate, (iii) 20 or more but less than 49, the Interest Equivalent of the 30-day rate, (iv) 49 or more but less than 70, the Interest Equivalent of the 60-day rate, (v) 70 or more but less than 85, the arithmetic average of the Interest Equivalent of the 60-day and 90-day rates and (vi) 85 or more but less than 99, the Interest Equivalent of the 90-day rate. If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer or Dealers or, if none of the Commercial Paper Dealers quotes such a rate, by any Substitute Commercial Paper Dealer or Dealers selected by the Corporation to provide such rate or rates not being supplied by any Commercial Paper Dealer. "Accountant's Confirmation" has the meaning set forth in paragraph 8(a)(iii) of this Part I. "Adviser" means Duff & Phelps Investment Management Co., the Corporation's investment adviser. "Agent Member" means designated member of the Securities Depository that will maintain records for a Beneficial Owner of shares of RP that has identified such Agent Member in its Master Purchaser's Letter and that will be authorized and instructed to disclose information to the Remarketing Agent and the Paying Agent with respect to such Beneficial Owner. "Applicable Dividend Rate" means, with respect to the initial Dividend Period, the rate of cash dividend per annum established by the Board of Directors and, for each subsequent Dividend Period for each share of RP, means the rate of cash dividend per annum that (i) except for a Dividend Period commencing during a Non-Payment Period will be equal to the lower of the rate of cash dividend per annum that the Remarketing Agent advises results on the Dividend Reset Date preceding the first day of such Dividend Period from implementation of the remarketing procedures set forth in Part II hereof and the Maximum Dividend Rate or (ii) for each Dividend Period commencing during a Non-Payment Period, will be equal to the Non-Payment Period Rate. "Applicable Percentage" has the meaning set forth under "Maximum Dividend Rate" below. "Authorized Newspaper" means a newspaper of general circulation in the English language generally published on Business Days in The City of New York. "Beneficial Owner" means a person that has signed a Master Purchaser's Letter and is listed as the beneficial owner of one or more shares of RP in the records of the Paying Agent or, with respect to any share not registered in the name of the Securities Depository on the stock transfer books of the Corporation, the person in whose name such share is so registered. "Board of Directors" means the Board of Directors of the Corporation. "Business Day" means a day on which the New York Stock Exchange, Inc. is open for trading, and is not a day on which banks in The City of New York are authorized or obligated by law to close. "Certificate of Minimum Liquidity" has the meaning set forth in paragraph 8(b)(i) of this Part I. "Charter" means the Articles of Incorporation, as amended, of the Corporation, including these Articles Supplementary, on file in the State Department of Assessments and Taxation of the State of Maryland. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and such other Commercial Paper Dealer or Dealers as the Corporation may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors. "Common Stock" means the common stock, par value $.001 per share, of the Corporation. "Conventional Mortgage Pass-Through Certificate" means an instrument publicly issued in bearer or registered form, that is one of a class or series or by its terms is divisible into a class or series, and that is of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment, evidencing (directly or indirectly) a proportional undivided interest in specified pools of whole loans that are secured by a valid first lien on each mortgagor's fee or leasehold interest in related mortgaged property (except for Permitted Tax Liens and other matters to which like properties are company subject which neither individually nor in the aggregate materially interfere with the benefits of the security intended to be provided by such mortgages or deeds of trust, and standard exceptions and exclusions in title insurance policies) on one- to four-unit primary residences (including, without limitation, owner-occupied attached or detached single-unit residences, one- to four-unit primary residences, condominiums, second/vacation homes and non-owner occupied residences) and with respect to which the Required Documentation is required to be held by a trustee or independent custodian, which mortgage loans are serviced pursuant to servicing agreements with servicers that have either expressed the intention to advance funds to meet deficiencies (to the extent such servicers reasonably believe such advances are recoverable) or provided for alternative credit enhancement in lieu thereof, and which instruments (a) have been rated AA or better by S&P or Aa or better by Moody's or (b) do not qualify pursuant to clause (a) above, but the inclusion of which in the Eligible Portfolio Property will not, in and of itself, impair, or cause the RP to fail to retain, the then-current ratings assigned to the RP by the Rating Agencies, as evidenced by letters to the Corporation to such effect from the Rating Agencies which letters shall be delivered to the Remarketing Agent and the Paying Agent at the time each such Conventional Mortgage Pass-Through Certificate is to be included in the Eligible Portfolio Property; provided that, a Conventional Mortgage Pass-Through Certificate shall be eligible for inclusion in the Eligible Portfolio Property as of any Valuation Date only if it continues to satisfy as of such Valuation Date the requirements of at least one of clauses (a) or (b) above, as the Corporation may confirm verbally or in writing, directly or indirectly, or by reference to publications of the Rating Agencies, by confirmation from a nationally recognized securities dealer having a minimum capitalization of $25 million or by such other means as the Rating Agencies shall approve. The Remarketing Agent and the Paying Agent shall be entitled to rely on the representation of the Corporation contained in the RP Basic Maintenance Report with respect to any Valuation Date that, as of such Valuation Date, the Corporation has confirmed that the Conventional Mortgage Pass-Through Certificates included in the Corporation's Eligible Portfolio Property are within the scope of this paragraph. "Corporation" means Duff & Phelps Selected Utilities Inc., a Maryland corporation and the issuer of the shares of RP. "Date of Original Issue" means, with respect to any share of RP, the date on which the Corporation originally issues such share. "Debt Obligations" has the meaning set forth under "Utility Stocks" below. "Deposit Securities" means cash, U.S. Government Obligations and Short Term Money Market Instruments. Except for purposes of determining compliance with the RP Basic Maintenance Amount, each Deposit Security shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Security but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made. "Discount Factor" means Discount Factor Supplied by Moody's or Discount Factor supplied by S&P, as the case may be. "Discount Factor Supplied By S&P" means, initially, for any asset held by the Corporation, the number set forth opposite such type of asset in the following table (it being understood that any asset held by the Corporation and not listed in the following table or in an amendment or supplement thereto shall have a Discounted Value of zero):
Discount Factor(1) ------------------- Type A Utility Bonds: 1.80 Type B Utility Bonds: 1.85 Type A Utility Stocks: 2.25 Type B Utility Stocks: 2.35 GNMA Certificates with fixed interest rates: 1.40 GNMA Certificates with adjustable interest rates: 1.40 FHLMC and FNMA Certificates with fixed interest rates: 1.50 FHLMC and FNMA Certificates with adjustable interest rates: 1.50 FHLMC Multifamily Securities: 1.50 FHLMC and FNMA Certificates with variable interest rates: 1.50 GNMA Graduated Payment Securities: 1.60 Conventional Mortgage Pass-Through Certificates 2 1.55 U.S. Government Obligations having a remaining term to maturity of 90 days or less: 1.00 U.S. Government Obligations having a remaining term to maturity of more than 90 days but not more than five years: 1.28 U.S. Government Obligations having a remaining term to maturity of more than five years but not more than 10 years: 1.35 U.S. Government Obligations having a remaining term to maturity of more than 10 years but not more than 15 years: 1.40 U.S. Government Obligations having a remaining term to maturity of more than 15 years but not more than 30 years: 1.50 Cash and Short Term Money Market Instruments: 1.00 ____________________ (1) In the case of Eligible Portfolio Property rated by Moody's but not rated by S&P, the Discount Factor Supplied by S&P shall be the Discount Factor determined therefor in writing by S&P. Absent such written notification, the asset shall have a Discounted Value of zero. (2) In the event such asset is not rated AA or better by S&P, such asset shall have a Discounted Value of zero.
Notwithstanding the foregoing, for so long as is required by S&P to maintain its then-current credit rating of the RP, the Discount Factor Supplied by S&P with respect to Eligible Portfolio Property sold pursuant to a reverse repurchase agreement with a remaining term to maturity of more than 25 days on the date of determination of the Discounted Value of such Eligible Portfolio Property shall be the then-current Discount Factor provided by S&P to the Corporation in writing for the purpose of such determination. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial Discount Factor Supplied by S&P listed above applied to calculate the Discounted Value of any item of Eligible Portfolio Property or may specify from time to time a Discount Factor Supplied by S&P for any asset constituting Eligible Portfolio Property if the Board of Directors determines and S&P advises the Corporation in writing that such adjustment, modification, alteration, change or specification will not adversely affect S&P's then-current rating of the RP. "Discount Factor Supplied By Moody's" means, initially, for any asset held by the Corporation, the number set forth opposite such type of asset in the following table (it being understood that any asset held by the Corporation and not listed in the following table or in an amendment or supplement thereto shall have a Discounted Value of zero):
Discount Factor(1) ------------------ Type I Utility Bonds having a remaining term to maturity of one year or less: 1.20 Type I Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.27 Type I Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.32 Type I Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.38 Type I Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.4__ Type I Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.53 Type I Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.61 Type I Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.69 Type I Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 1.76 Type I Utility Bonds having a remaining term to maturity of more than 20 years but less than 30 years: 1.79 Type II Utility Bonds having a remaining term to maturity of one year or less: 1.24 Type II Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.31 Type II Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.38 Type II Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.44 Type II Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.50 Type II Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.60 Type II Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.70 Type II Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.76 Type II Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 1.84 Type II Utility Bonds having a remaining term to maturity of more than 20 years but not more than 30 years: 1.87 Type III Utility Bonds having a remaining term to maturity of one year or less: 1.29 Type III Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.38 Type III Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.44 Type III Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.51 Type III Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.57 Type III Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.67 Type III Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.77 Type III Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.84 Type III Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 1.92 Type III Utility Bonds having a remaining term to maturity of more than 20 years but not more than 30 years: 1.95 Type IV Utility Bonds having a remaining term to maturity of one year or less: 1.36 Type IV Utility Bonds having a remaining term to maturity of more than one year but not more than two years: 1.44 Type IV Utility Bonds having a remaining term to maturity of more than two years but not more than three years: 1.50 Type IV Utility Bonds having a remaining term to maturity of more than three years but not more than four years: 1.57 Type IV Utility Bonds having a remaining term to maturity of more than four years but not more than five years: 1.63 Type IV Utility Bonds having a remaining term to maturity of more than five years but not more than seven years: 1.74 Type IV Utility Bonds having a remaining term to maturity of more than seven years but not more than ten years: 1.83 Type IV Utility Bonds having a remaining term to maturity of more than ten years but not more than 15 years: 1.92 Type IV Utility Bonds having a remaining term to maturity of more than 15 years but not more than 20 years: 2.02 Type IV Utility Bonds having a remaining term to maturity of more than 20 years but not more than 30 years: 2.03 Type I Utility Stocks 2.00 Discount Discount Factor Factor (Fixed (Adjustable Rate Rate FHLMC or FNMA Certificates Mortgages) Mortgages) - -------------------------- ----------- ----------- FHLMC or FNMA Certificates with interest rates less than 6% but equal to or greater than 5%: 1.71 1.68 FHLMC or FNMA Certificates with interest rates less than 7% but equal to or greater than 6%: 1.66 1.68 FHLMC or FNMA Certificates with interest rates less than 8% but equal to or greater than 7%: 1.61 1.68 FHLMC or FNMA Certificates with interest rates less than 9% but equal to or greater than 8%: 1.57 1.68 FHLMC or FNMA Certificates with interest rates less than 10% but equal to or greater than 9%: 1.52 1.68 FHLMC or FNMA Certificates with interest rates less than 11% but equal to or greater than 10%: 1.49 1.68 FHLMC or FNMA Certificates with interest rates less than 12% but equal to or greater than 11%: 1.45 1.68 FHLMC or FNMA Certificates with interest rates less than 13% but equal to or greater than 12%: 1.43 1.68 FHLMC or FNMA Certificates with interest rates equal to or greater than 13%: 1.40 1.68 Discount Factor -------- GNMA Certificates with interest rates less than 6% but equal to or greater than 5%: 1.63 GNMA Certificates with interest rates less than 7% but equal to or greater than 6%: 1.57 GNMA Certificates with interest rates less than 8% but equal to or greater than 7%: 1.52 GNMA Certificates with interest rates less than 9% but equal to or greater than 8%: 1.48 GNMA Certificates with interest rates less than 10% but equal to or greater than 9%: 1.45 GNMA Certificates with interest rates less than 11% but equal to or greater than 10%: 1.43 GNMA Certificates with interest rates less than 12% but equal to or greater than 11%: 1.40 GNMA Certificates with interest rates less than 13% but equal to or greater than 12%: 1.38 GNMA Certificates with interest rates equal to or greater than 13%: 1.36 GNMA Certificates with adjustable interest rates: 1.64 FHLMC Multifamily Securities: (2) FHLMC and FNMA Certificates with variable interest rates: (4) GNMA Graduated Payment Securities (seasoned): (3) Conventional Mortgage Pass-Through Certificates: (5) U.S. Government Obligations having a remaining term to maturity of up to one year: 1.09 U.S. Government Obligations having a remaining term to maturity of more than one year but not more than two years: 1.1__ U.S. Government Obligations having a remaining term to maturity of more than two years but not more than three years: 1.20 U.S. Government Obligations having a remaining term to maturity of more than three years but not more than four years: 1.27 U.S. Government Obligations having a remaining term to maturity of more than four years but not more than five years: 1.32 U.S. Government Obligations having a remaining term to maturity of more than five years but not more than seven years: 1.41 U.S. Government Obligations having a remaining term to maturity of more than seven years but not more than 10 years: 1.49 U.S. Government Obligations having a remaining term to maturity of more than 10 years but not more than 15 years: 1.56 U.S. Government Obligations having a remaining term to maturity of more than 15 years but not more than 20 years: 1.64 U.S. Government Obligations having a remaining term to maturity of more than 20 years but not more than 30 years: 1.65 Cash and Short Term Money Market Instruments: 1.00 __________________ (1) In the case of Eligible Portfolio Property rated by S&P but not by Moody's, the Discount Factor Supplied by Moody's shall be the Discount Factor Supplied by Moody's applicable to Eligible Portfolio Property with a corresponding maturity but of the next lower rating category (e.g., a bond rated AAA by S&P but not rated by Moody's shall have a Discount Factor Supplied by Moody's equal to a bond of comparable maturity rated Aa by Moody's). (2) The applicable Discount Factor set forth under "FHLMC or FNMA Certificates" above. (3) The same Discount Factor shall apply in the case of GNMA Graduated Payment Securities as applies to GNMA Certificates with fixed interest rates determined at the point the certificates become seasoned. (4) The Discount Factor determined therefor in writing by Moody's. (5) The Discount Factor determined therefor in writing by Moody's. In the event such asset is not rated Aa or better by Moody's, such asset shall have a Discounted Value of zero.
Notwithstanding the foregoing, for so long as is required by Moody's to maintain its then-current credit rating of the RP, the Discount Factor Supplied by Moody's with respect to Eligible Portfolio Property sold pursuant to a reverse repurchase agreement with a remaining term to maturity of more than 25 days on the date of determination of the Discounted Value of such Eligible Portfolio Property shall be the then-current discount factor provided by Moody's to the Corporation in writing for the purpose of such determination. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial Discount Factor Supplied by Moody's listed above applied to calculate the Discounted Value of any item of Eligible Portfolio Property or may specify from time to time a Discount Factor Supplied by Moody's for any asset constituting Eligible Portfolio Property if the Board of Directors determines and Moody's advises the Corporation in writing that such adjustment, modification, alteration, change or specification will not adversely affect Moody's then-current rating of the RP. "Discounted Value," with respect to any asset held by the Corporation as of any date, means the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by S&P (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall be zero) or the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by Moody's (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall mean the quotient of the lower of the Market Value of such asset and the exercise price of such call option divided by the applicable Discount Factor Supplied by Moody's), as the case may be, provided that in no event shall the Discounted Value of any asset constituting Eligible Portfolio Property as of any date exceed the unpaid principal balance or face amount of such asset as of the date. With respect to the calculation of the Discounted Value of any Utility Bond included in the Corporation's Eligible Portfolio Property, such calculation shall be made using the criteria set forth in the definitions of Utility Bonds and Market Value. With respect to the calculation of the Discounted Value of any Utility Stock included in the Corporation's Eligible Portfolio Property, such calculation shall be made using the criteria set forth in the definitions of Utility Stocks and Market Value. With respect to the calculation of the aggregate Discounted Value of the Corporation's Eligible Portfolio Property for comparison with the RP Basic Maintenance Amount, such aggregate Discounted Value shall be the aggregate Discounted Value calculated using the Discount Factors Supplied by S&P or the aggregate Discounted Value calculated using the Discount Factors Supplied by Moody's whichever aggregate Discounted Value is lower; provided that, in calculating for such purpose the aggregate Discounted Value of the Corporation's Eligible Portfolio Property using the applicable Discount Factor Supplied by Moody's, the amount of Utility Stocks issued by public utility companies with nuclear facilities under construction (as determined by the Adviser) which may be included in such calculation shall be limited to five percent of the Market Value of the Corporation's Eligible Portfolio Property. Notwithstanding any other provision of these Articles Supplementary, any Utility Bond that has a remaining term to maturity of more than 30 years, and any asset as to which there is no Discount Factor Supplied by Moody's or Discount Factor Supplied by S&P either in these Articles Supplementary or in an amendment or supplement hereof, shall have a Discounted Value for purposes of determining the aggregate Discounted Value of the Corporation's Eligible Portfolio Property calculated using the Discount Factor Supplied by Moody's or S&P, as the case may be, of zero. "Dividend Coverage Amount," as of any Valuation Date, means (a) the aggregate amount of cash dividends that will accumulate on shares of RP to (but not including) the respective Dividend Payment Dates therefor that follow such Valuation Date less (b) the combined value of any Deposit Securities irrevocably deposited by the Corporation for the payment of cash dividends on the RP. "Dividend Coverage Assets," as of any date of determination, means Deposit Securities with maturity dates not later than the day preceding the next Dividend Payment Dates for all shared of RP; provided that, if the applicable date of determination is a Dividend Payment Date, any Deposit Securities to be applied to the dividends payable on the RP on such date shall not be included in the Dividend Coverage Assets. "Dividend Payment Date" means (i) with respect to any Optional Dividend Period or Special Dividend Period of more than 91 but fewer than 365 days, the 92nd day thereof, the 183rd day thereof, if any, the 274th day thereof, if any, and the day after the last day thereof; (ii) with respect to any Optional Dividend Period of 365 or more days or Special Dividend Period of 365 or more days, the third Wednesday of each January, April, July and October therein and the day after the last day thereof; and (iii) with respect to any other Dividend Period, the day after the last day thereof; provided that, if any such date shall not be a Business Day, the Dividend Payment Date shall be the Business Day next succeeding such day. "Dividend Period" means, with respect to any share of RP, the Initial Dividend Period for such share and thereafter a period which shall commence on each (but not the final) Dividend Payment Date for such share (which, except during a Non-Payment Period, shall be a Settlement Date for such share). Each such subsequent Dividend Period for such share will comprise, beginning with and including the day upon which it commences, 7 consecutive days in the case of a 7-day Dividend Period; 49 consecutive days (or such other number of consecutive days as are specified by the Board of Directors in the event of a change in law altering the Minimum Holding Period, as provided herein) in the case of a 49-day Dividend Period; or such number of consecutive days as shall be designated by the Board of Directors in the case of any Optional Dividend Period or Special Dividend Period at the time such Optional Dividend Period is made available or the Board of Directors designates a Special Dividend Period, as the case may be. Notwithstanding the foregoing, any adjustment of the remarketing schedule by the Remarketing Agent which includes an adjustment of a Settlement Date shall lengthen or shorten the related Dividend Periods by causing them always to end on and include the day before the Settlement Date as so adjusted. "Dividend Reset Date" means any date on which the Remarketing Agent (i) determines the Applicable Dividend Rates for the ensuing Dividend Periods, (ii) notifies holders, purchasers and tendering holders of shares of RP by telephone, telex or otherwise of the results of the Remarketing and (iii) announces such Applicable Dividend Rates. "Dividends-Received Deduction" means the deduction allowed to corporate holders of certain preferred stock with respect to dividends received on such stock by Section 243(a)(1) of the Code, or any successor thereto. "Eligible Portfolio Property" shall include Utility Bonds, Utility Stocks, cash, U.S. Government Obligations, Short Term Money Market Instruments, FNMA Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA Certificates, GNMA Multifamily Securities, GNMA Graduated Payment Securities, Conventional Mortgage Pass-Through Certificates and any other asset held by the corporation that has been assigned a Discount Factor by the Rating Agencies and is included within the definition of Eligible Portfolio Property set forth herein or pursuant to an amendment or supplement hereto. "FHLMC" means the Federal Home Loan Mortgage Corporation created by Title III of the Emergency Home Finance Act of 1970, and includes any successor thereto. "FHLMC Certificate" means a mortgage participation certificate in physical or book-entry form, the timely payment of interest on and the ultimate collection of principal of which is guaranteed by FHLMC, and which evidences a proportional undivided interest in, or participation interest in, specified pools of fixed-, variable- or adjustable-rate, level payment fully amortizing mortgage loans secured by first-priority mortgages on one- to four-family residences. "FHLMC Multifamily Security" means a "Plan B Multifamily Security" in physical or book-entry form, the timely payment of interest on and the ultimate collection of principal of which is guaranteed by FHLMC, and which evidences a proportional undivided interest in, or participation interest in, specified pools of fixed-, variable- or adjustable-rate level payment fully amortizing mortgage loans secured by first-priority mortgages on multi-family residences, the inclusion of which in the Eligible Portfolio Property will not, in and of itself, impair or cause the RP to fail to retain the ratings assigned to the RP by the Rating Agencies, as evidenced by letters to such effect delivered to the Corporation by the Rating Agencies. "FNMA" means the Federal National Mortgage Association, a United States Government-sponsored private corporation established pursuant to Title VIII of the Housing and Urban Development Act of 1968, and includes any successor thereto. "FNMA Certificate" means a mortgage pass-through certificate in physical or book-entry form, the full and timely payment of principal of and interest on which is guaranteed by FNMA, and which evidences a proportional undivided interest in specified pools of fixed-, variable- or adjustable-rate, level payment fully amortizing mortgage loans secured by first-priority mortgages on single-family and multi-family residences. "49-day Dividend Period" means (i) a Dividend Period designated as such by a Beneficial Owner of a share of RP or (ii) any Dividend Period commencing after the first day of, and during, a Non-Payment Period, and, in all such cases, generally containing 49 days. "GNMA" means the Government National Mortgage Association, and includes any successor thereto. "GNMA Certificate" means a fully modified pass-through certificate in physical or book-entry form, the full and timely payment of principal of and interest on which is guaranteed by GNMA and which evidences a proportional undivided interest in specified pools of fixed-, variable- or adjustable-rate, level payment fully amortizing mortgage loans secured by first-priority mortgages on single-family and multi-family residences. "GNMA Graduated Payment Security" means a fully modified pass-through certificate in physical or book-entry form, the full and timely payment of principal of and interest on which is guaranteed by GNMA, which obligation is backed by the full faith and credit of the United States, and which evidences a proportional undivided interest in specified pools of graduated payment mortgage loans with payments that increase annually at a predetermined rate for up to the first five or ten years of the mortgage loan and that are secured by first-priority mortgages on one- to four-unit residences. "Holder" means, with respect to any share of RP, unless the context otherwise requires, the person whose name appears on the stock transfer books of the Corporation as the registered holder of such share. "Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is with respect to the Corporation an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended. "Initial Dividend Period" means, with respect to any share of RP, a 49-day Dividend Period commencing on and including the Date of Original Issue of such share and ending on the day prior to the Initial Dividend Payment Date. "Interest Equivalent" means a yield on a 360-day basis of a discount basis security which is equal to the yield on an equivalent interest-bearing security. "Market Value" means, initially, the amount determined with respect to specific assets of the Corporation in the manner set forth below: (a) as to any Utility Bond, (i) the product of (A) the unpaid principal balance of such Utility Bond as of the Reporting Date, and (B) (1) if the Utility Bond is traded on a national securities exchange or quoted on the NASDAQ System, the last sales price reported on the date of valuation or (2) if there was no reported sales price on the date of valuation or if the Utility Bond is not traded on a national securities exchange or quoted on the NASDAQ System, the lower of two bid prices for such Utility Bond provided by two nationally recognized securities dealers with a minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be provided to the Paying Agent and the Remarketing Agent by the Corporation with the related RP Basic Maintenance Report), plus (ii) accrued interest on such Utility Bond, or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property shall have a Market Value of zero; (b) as to any Utility Stock, (i) if the Utility Stock is traded on a national securities exchange or quoted on the NASDAQ System, the last sales price reported on the date of valuation or (ii) if there was no reported sales price on the date of valuation, the lower of two bid prices for such Utility Stock provided by two nationally recognized securities dealers with a minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the then-current ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be provided to the Remarketing Agent by the Corporation with the related RP Basic Maintenance Report), or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property shall have a Market Value of zero; (c) the product of (i) as to GNMA Certificates, GNMA Graduated Payment Securities, GNMA Multifamily Securities, FNMA Certificates, FHLMC Certificates and FHLMC Multifamily Securities, the aggregate unpaid principal amount of the mortgage loans evidenced by each such certificate or security, as the case may be, which may include amounts shown on the most recent report related to the certificate or security received by the Corporation prior to the Reporting Date, and as to U.S. Government Obligations and Short Term Money Market Instruments (other than demand deposits, federal funds, bankers' acceptances and next Business Day's repurchase agreements), the face amount or aggregate principal amount of such U.S. Government Obligations or Short Term Money Market Instruments, as the case may be, and (ii) the lower of the bid prices for the same kind of certificates, securities or instruments, as the case may be, having, as nearly as practicable, comparable interest rates and maturities provided by two nationally recognized securities dealers having minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the then-current ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be delivered to the Remarketing Agent with the related RP Basic Maintenance Report), or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property will have a Market Value of zero; (d) as to Conventional Mortgage Pass-Through Certificates, the product of (i) the outstanding aggregate principal balance of the mortgage loans underlying such certificates as determined by the Corporation by any method which the Corporation believes reliable, which may include amounts based on verbal reports of the servicers of the related mortgage loans to the Corporation, as of the applicable Reporting Date and (ii) the dollar value of the lower of two bid prices per dollar of outstanding principal amount as of such applicable Reporting Date for such certificates, provided by two nationally recognized securities dealers having minimum capitalization of $25 million or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect the then-current ratings of the RP) to the custodian of the Corporation's assets, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such custodian (provided that evidence of the bid quotes furnished by such custodian shall be delivered to the Remarketing Agent with the related RP Basic Maintenance Report), or, if two bid prices cannot be obtained, such item of Eligible Portfolio Property shall have a Market Value of zero; and (e) as to cash, demand deposits, federal funds, bankers' acceptances and next Business Day's repurchase agreements included in Short Term Money Market Instruments, the face value thereof. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial method of calculation of the Market Value of an asset constituting Eligible Portfolio Property described above and the Board of Directors may specify from time to time the method for calculating the Market Value of any asset identified as Eligible Portfolio Property if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration, change or specification will not adversely affect their then-current ratings of the RP. "Master Purchaser's Letter" means a letter substantially in the form of Appendix B to the Corporation's prospectus relating to the shares of RP, or such other form as may be approved by the Remarketing Agent, which is required to be executed by each purchaser of shares of RP. "Maximum Dividend Rate" for any 7-day Dividend Period, 49-day Dividend Period or Optional Dividend Period of 98 or fewer days or Special Dividend Period of 98 or fewer days at any Dividend Reset Date shall apply to a cash dividend, and be the Applicable Percentage of the applicable "AA" Composite Commercial Paper Rate. The Applicable Percentage shall vary with the lower of the credit rating or ratings assigned to the shares of RP by Moody's and S&P (or if Moody's or S&P or both shall not make such rating available, the equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event that only one such rating shall be available, such rating) on each Dividend Reset Date as follows: Credit Ratings Applicable Percentage ---------------------------------------- --------------------- Moody's S&P ------- --- "aa3" or higher AA- or higher 110% "a3" to "a1" A- to A+ 125% "baa3" to "baa1" BBB- to BBB+ 150% Below "baa3" Below BBB- 200% The applicable Maximum Dividend Rate or Rates for any Optional Dividend Period of more than 98 days or Special Dividend Period of more than 98 days at any Dividend Reset Date shall be a fixed or variable rate or rates determined from time to time by formula or other means as designated by the Board of Directors in respect of such Optional Dividend Period or Special Dividend Period. The Remarketing Agent shall round each applicable Maximum Dividend Rate to the nearest one-thousandth (0.001) of one percent per annum, with any such number ending in five ten-thousandths (0.0005) of one percent being rounded upwards to the nearest one-thousandth (0.001) of one percent. The Remarketing Agent shall not round the applicable "AA" Composite Commercial Paper Rate as part of their calculation of any Maximum Dividend Rate. "Minimum Holding Period" means 46 days or such other minimum holding period required for corporate taxpayers to be entitled to the Dividends-Received Deduction as provided in Section 246(c) of the Code or any successor thereto. "Minimum Liquidity Level is Met" means, as of any date of determination, that the aggregate Market Value of the Dividend Coverage Assets equals or exceeds the Dividend Coverage Amount. "Moody's" means Moody's Investors Service, Inc., and includes any successor thereto. "1940 Act" means the Investment Company Act of 1940, as amended from time to time. "NASDAQ System" has the meaning set forth under "Type I Utility Stocks" below. "1940 Act RP Asset Coverage" means asset coverage, as defined in section 18(h) of the 1940 Act, of at least 200% of the aggregate liquidation preference with respect to all outstanding senior securities of the Corporation which are stock, including all outstanding shares of RP and Other RP (or such other asset coverage as may be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of paying dividends on its common stock). "1940 Act Cure Date," with respect to the failure by the Corporation to maintain the 1940 Act RP Asset Coverage (as required by paragraph 7 of this Part I) as of the last day of each month, means the last Business Day of the following such month. "Non-Call Period" has the meaning set forth under "Specific Redemption Provisions" below. "Non-Payment Period" means any period beginning on and including the day on which the Corporation shall fail to (i) declare, prior to 12:00 noon, New York City time, on the second Business Day preceding any Dividend Payment Date for any shares of RP, for payment on such Dividend Payment Date to the Beneficial Owners of such shares of RP as of 12:00 noon, New York City time, on the Business Day preceding such Dividend Payment Date, the full amount of any dividend on such shares of RP payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day funds, with the Paying Agent by 12:00 noon, New York City time, (A) on any Dividend Payment Date for any shares of RP the full amount of any declared cash dividend on such shares (whether or not earned) payable on such Dividend Payment Date or (B) on any redemption date for any shares of RP, the redemption price of such shares of $100,000 per share plus the full amount of any cash dividends thereon (whether or not earned or declared) accumulated but unpaid to such redemption date after a Notice of Redemption with respect to such shares of RP has been given pursuant to paragraph 4(e) of Part I hereof, and ending on and including the Business Day on which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid redemption prices shall have been so deposited or shall have otherwise been made available to Beneficial Owners in same-day funds; provided that a Non-Payment Period shall not end during the first seven days thereof unless the Corporation shall have given at least three days' written notice of the Paying Agent, the Remarketing Agent and the Securities Depository and thereafter shall not end unless the Corporation shall have given at least fourteen days' written notice to the Paying Agent, the Remarketing Agent, the Securities Depository and all Beneficial Owners. "Non-Payment Period Rate" means, initially, 200% of the applicable "AA" Composite Commercial Paper Rate, provided that the Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial Non-Payment Period Rate if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the RP. "Notice of Redemption" means any notice with respect to the redemption of shares of RP pursuant to paragraph 4 of this Part I. "Optional Dividend Period" means a Dividend Period established by the Board of Directors pursuant to paragraph 3(1) of this Part I. "Other RP" means the remarketed preferred stock of the Corporation, other than the RP. "Paying Agent" means Bankers Trust Company, or any successor company or entity, which has entered into a Paying Agent Agreement with the Corporation to act for the Corporation, among other things, as the transfer agent, registrar, dividend and redemption price disbursing agent, settlement agent and agent for certain notifications in connection with the shares of RP in accordance with such agreement. "Paying Agent Agreement" means an agreement to be entered into between the Corporation and the Paying Agent. "Permitted Tax Liens" means liens for general and special taxes and assessments on the property in question. "Preferred Stock" means the preferred stock of the Corporation, and includes RP and Other RP. "Premium Call Period" has the meaning set forth under "Specific Redemption Provisions" below. "Projected Dividend Amount" for the RP and the Other RP shall mean, initially, if the date of determination is a Valuation Date, the amount of cash dividends, based on the number of shares of RP and the Other RP outstanding on such Valuation Date, projected to accumulate on such shares from such Valuation Date until the 70th day after such Valuation Date, at the following dividend rates: (a) If the Valuation Date is the Date of Original Issue or a Dividend Payment Date (which terms, for purposes of this definition, shall refer to the equivalent dates in the case of Other RP), (i) for the Dividend Period beginning on the Date of Original Issue or such Dividend Payment Date and ending on (but not including) the first following Dividend Payment Date, the Applicable Dividend Rate (which term, for the purposes of this definition, shall refer to the equivalent rate in the case of Other RP) in effect on such Valuation Date, and (ii) for the period beginning on (and including) the first following Dividend Payment Date and ending on (and including) the 70th day following such Valuation Date, the product of 2.32 and (x) the Maximum Dividend Rate (which term, for the purposes of this definition, shall refer to the equivalent rate in the case of Other RP) on the Date of Original Issue (in the case of the Date of Original Issue) or (y) the Maximum Dividend Rate as of the last occurring Settlement Date or, in the case of Other RP, the equivalent date (in the case of any Dividend Payment Date); and (b) If such Valuation Date is not the Date of Original Issue or a Dividend Payment Date, (i) for the period beginning on such Valuation Date and ending on (but not including) the first following Dividend Payment Date, the Applicable Dividend Rate in effect on such Valuation Date, and (ii) for the period beginning on (and including) the first following Dividend Payment Date and ending on (but not including) the sooner of the second following Dividend Payment Date or the 71st day following such Valuation Date, the product of 2.32 and (x) the Maximum Dividend Rate on the Date of Original Issue (in the case of a Valuation Date occurring prior to the first Settlement Date) or (y) the Maximum Dividend Rate on the last occurring Settlement Date or, in the case of Other RP, the equivalent date (in the case of any other Valuation Date) and (iii) for the period, if any, beginning on (and including) the second following Dividend Payment Date and ending on (but not including) the 71st day following such Valuation Date, the product of 3.20 and the rate specified in clause (x) or (y) above. If the date of determination is not a Valuation Date, then the Projected Dividend Amount on such date of determination shall equal the Projected Dividend Amount therefor on the immediately preceding Valuation Date, adjusted to reflect any decrease in the number of shares of RP and Other RP outstanding. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial bases for the calculation of the Projected Dividend Amount if the Board or Directors determines and the Rating Agencies shall have advised the Corporation in writing that such adjustment, modification, alteration or change would not adversely affect their then-current ratings of the RP. "Quarterly Valuation Date" means, for so long as any shares of RP are outstanding, the last Business Day of March, June, September and December of each year, commencing December 31, 1988, or, if such day is not a Valuation Date, the next preceding Valuation Date. "Rating Agencies" means S&P and Moody's for so long as S&P and Moody's issue ratings for the RP, and, at such time as S&P and/or Moody's no longer issues a rating for the RP, the Substitute Rating Agency or Substitute Rating Agencies, as the case may be. "Remarketing" means each periodic operation of the process for remarketing shares of RP as described in Part II hereof. "Remarketing Agent" means MLPF&S and any additional or successor companies or entities which have entered into an agreement with the Corporation to carry out the remarketing procedures for the purpose of determining the Applicable Dividend Rates. "Reporting Date," with respect to any price referred to in the definition of the Market Value of an item of Eligible Portfolio Property, shall mean the date as of which the Market Value of such item of Eligible Portfolio Property is to be determined or, if no such price is available as provided above under "Market Value" for such date, the next closest prior date as of which such price is so available; provided that, no such price shall be deemed to be available as of a Reporting Date if such price is not available as of a date within five Business Days next preceding the date as of which the determination of such Market Value is to be made. "Required Documentation," with respect to a mortgage loan underlying a Convention Mortgage Pass-Through Certificate means: (a) the mortgage note or other evidence of indebtedness secured by the mortgage endorsed without recourse in blank or to the trustee or other custodian and accompanied by an assignment thereof; (b) the mortgage, deed of trust, deed to secure debt or similar security instruments encumbering real property or related documentation, with evidence of recording or filing thereof, in each case accompanied by assignments thereof, executed in blank or to the trustee or other custodian, in recordable form as may be appropriate in the jurisdiction where the property is located and evidence that such assignment has been recorded in the name of the trustee or other custodian, and such trustee or other custodian receives an opinion of counsel (containing only such exceptions as may be permissible under the indenture or other agreement pursuant to which the mortgage loan is pledged to the trustee in connection with the related Conventional Mortgage Pass-Through Certificate) to the effect that, notwithstanding that the assignment of the mortgage has not been recorded, the actions taken with respect to the mortgage loan are sufficient to permit the trustee or other custodian to avail itself of all protection available under applicable law against the claims of any present or future creditors of the issuer, and are sufficient to prevent any other sale, transfer, assignment, pledge or hypothecation of the mortgage and the related mortgage note by the issuer from being enforceable, or will create a valid assignment of and a valid and perfected lien upon and security interest in a mortgage and related mortgage note, which lien and security interest is (except for the trustee's lien securing certain obligations of the issuer to the trustee as provided in the indenture pursuant to which the mortgage loan is pledged to the trustee in connection with the related Conventional Mortgage Pass-Through Certificate) prior in right to all other security interests therein created or perfected under the Uniform Commercial Code (as in effect in the jurisdiction where the property is located); (c) in the case of mortgage notes covered by private mortgage insurance, evidence that such mortgage notes are so insured; and (d) a copy of the title insurance policy or an opinion or certificate of counsel stating the mortgage constitutes a first lien on the premises described in such mortgage (which opinion or certificate may be subject to exceptions for Permitted Tax Liens and other matters to which like properties are commonly subject which neither individually nor in the aggregate materially interfere with the benefits of the security interest intended to be provided by such mortgage and standard exceptions and exclusions from mortgage title insurance policies). "Right" has the meaning set forth in paragraph 3(n) of this Part I. "RP" means the Remarketed Preferred Stock, Series I of the Corporation to be issued pursuant hereto. "RP Basic Maintenance Amount" means, initially, as of any date, the sum of (i) the aggregate liquidation preference of the shares of RP outstanding and shares of Other RP outstanding, (ii) to the extent not covered in (i) above, the aggregate amount of accumulated but unpaid cash dividends with respect to the shares of RP outstanding and shares of Other RP outstanding, (iii) any Rights due and payable and any equivalent rights to receive cash with respect to Other RP which are due and payable, (iv) the principal amount of the Corporation's loan from the Aid Association For Lutherans then outstanding, (v) an amount equal to accrued but unpaid interest on the principal amount of the Corporation's loan from the Aid Association For Lutherans then outstanding, (vi) the aggregate principal amount of, and an amount equal to accrued but unpaid interest on, any other then outstanding indebtedness of the Corporation for money borrowed, (vii) the aggregate Projected Dividend Amount, (viii) redemption premium, if any, and (ix) the greater of $200,000 or an amount equal to projected expenses of the Corporation for the next three month period. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial elements comprising the RP Basic Maintenance Amount if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the RP. "RP Basic Maintenance Cure Date," with respect to the failure by the Corporation to maintain the RP Basic Maintenance Amount (as required by paragraph 8 of this Part I) as of each Valuation Date, means the eighth Business Day following such Valuation Date. "RP Basic Maintenance Report" means a report signed by the President, the Treasurer, any Senior Vice President or any Vice President of the Corporation which sets forth, as of the related Valuation Date, the assets of the Corporation, the Market Value and the Discounted Value thereof (seriatum and in the aggregate), and the RP Basic Maintenance Amount. "S&P" means Standard & Poor's Corporation, and includes any successor thereto. "Securities Depository" means The Depository Trust Company, a securities depository, or any successor company or other entity selected by the Corporation for the shares of RP that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of RP. "Service" means the Internal Revenue Service. "Settlement Date" means any date on which (i) a new Dividend Period begins, and (ii) shares of RP which have been tendered and sold in a Remarketing are delivered through the Securities Depository. "7-day Dividend Period" means a Dividend Period designated as such by a Beneficial Owner and generally containing seven days. "Short Term Money Market Instruments" means the following kinds of instruments, if on the date of purchase or other acquisition by the Corporation of any such instrument the remaining term to maturity thereof is not more than 30 days: (a) demand deposits in, certificates of deposit of, bankers' acceptances issued by, or federal funds sold to, any depository institution, the deposits of which are insured by the Federal Deposit Insurance Corporation (or any successor thereto) or the Federal Savings and Loan Insurance Corporation (or any successor thereto), provided that, at the time of the Corporation's investment therein, the commercial paper or other unsecured short-term debt obligations of such depository institution are rated at least A-1+ by S&P and Prime-1 by Moody's; (b) repurchase obligations with respect to a U.S. Government Obligation, FNMA Certificate, FHLMC Certificate or GNMA Certificate entered into with a depository institution, the deposits of which are insured by the Federal Deposit Insurance Corporation (or any successor thereto) or the Federal Savings and Loan Insurance Corporation (or any successor thereto) and the commercial paper or other unsecured short-term debt obligations of which are rated at least A-1+ by S&P and Prime-1 by Moody's, which must be repurchased within one Business Day from the date such repurchase obligation was entered into; and (c) commercial paper rated at the time of the Corporation's investment therein at least A-1+ by S&P and Prime-1 by Moody's. "Special Dividend Period" means a Dividend Period established by the Board of Directors pursuant to paragraph 3(m) of this Part I. "Specific Redemption Provisions" means, with respect to any Optional Dividend Period of 365 or more days or Special Dividend Period of 365 or more days, either, or any combination of, (i) a period (a "Non-Call Period") determined by the Corporation, after consultation with the Remarketing Agent, during which the shares subject to such Dividend Period shall not be subject to redemption at the option of the Corporation and (ii) a period (a "Premium Call Period"), consisting of a number of whole years and determined by the Board of Directors, after consultation with the Remarketing Agent, during each year of which the shares subject to such Dividend Period shall be redeemable at the Corporation's option at a price per share equal to $100,000 plus accumulated but unpaid dividends plus a premium expressed as a percentage of $100,000, as determined by the Board or Directors after consultation with the Remarketing Agent. "Substitute Commercial Paper Dealers" means such Substitute Commercial Paper Dealer or Dealers as the Corporation may from time to time appoint or, in lieu of any thereof, their respective affiliates or successors. "Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally recognized statistical rating organization or two nationally recognized statistical organizations, respectively, selected by the Corporation to act as the substitute rating agency or substitute rating agencies, as the case may be, to determine the credit ratings of the shares of RP. "Tender and Dividend Reset" means the process pursuant to which shares of RP may be tendered or deemed tendered in a Remarketing or held and become subject to the new Applicable Dividend Rate or Rates determined by the Remarketing Agent in such Remarketing. "Tender Date" means any date on which (i) a holder of shares of RP must provide to the Remarketing Agent irrevocable telephonic notice of intent to tender shares of RP in a Remarketing or to change Dividend Periods for shares, and (ii) such Remarketing formally commences. "Type A Utility Bonds" as of any date means Utility Bonds rated A- or higher by S&P. "Type B Utility Bonds" as of any date means (a) Utility Bonds held by the Corporation at such date and continuously since at least September 30, 1988 which are rated from BBB- to BBB+ by S&P or (b) Utility Bonds rated BBB- to BBB+ by S&P provided that the Utility Bonds rated BBB- shall be limited to twenty-five percent of the Market Value of the Corporation's Eligible Portfolio Property. "Type I Utility Bonds" as of any date means Utility Bonds rated Aaa by Moody's. "Type II Utility Bonds" as of any date means Utility Bonds rated Aa3 to Aa1 by Moody's. "Type III Utility Bonds" as of any date means Utility Bonds rated A3 to A1 by Moody's. "Type IV Utility Bonds" as of any date means Utility Bonds rated Baa3 to Baa1 by Moody's. "Type A Utility Stocks" as of any date means Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., are currently paying cash dividends, and have been issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P of A- or higher. "Type B Utility Stocks" as of any date means (a) Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., are currently paying cash dividends, are held by the Corporation at such date and continuously since at least September 30, 1998 and have been issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P of BBB- to BBB+ or (b) Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., are currently paying cash dividends and have been issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P from BBB- to BBB+ provided that Utility Stocks issued by public utility companies having debt obligations outstanding with implied senior debt ratings from S&P of BBB- shall be limited to twenty-five percent of the Market Value of the Corporation's Eligible Portfolio Property. "Type I Utility Stocks" as of any date means Utility Stocks which are traded on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. or are quoted on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System and have been issued by public utility companies having debt obligations outstanding with senior or subordinated debt ratings from Moody's of Baa3 or higher. "U.S. Government Obligations" means direct obligations of the United States, provided that such direct obligations are entitled to the full faith and credit of the United States and that any such obligations, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption. "Utility Bonds" means, initially, corporate debt obligations issued by state regulated public utility companies rated from BBB- to AAA by S&P and from Baa3 to Aaa by Moody's, which corporate debt obligations (a) provide for the periodic payment of interest thereon in cash in U.S. dollars, (b) do not provide for conversion or exchange into equity capital at any time over their respective lives, (c) have been registered under the Securities Act of 1933, as amended, and (d) have not had notice given in respect thereof that any such corporate debt obligations are the subject of an offer by the issuer thereof of exchange or tender for cash, securities or any other type of consideration. In addition, so long as the shares of RP are rated by S&P or Moody's, no corporate debt obligation held by the Corporation shall be deemed a Utility Bond (i) if it fails to meet the criteria in column (1) below or (ii) to the extent (but only to the proportionate extent) the acquisition or holding thereof by the Corporation causes the Corporation to exceed any applicable limitation set forth in column (2) below in the event the shares of RP are rated by S&P or column (2), (3) or (4) below in the event the shares to RP are rated by Moody's as of any relevant date of determination (provided that, in the event that the Corporation shall exceed any such limitation, the Corporation shall designate, in its sole discretion, the particular Utility Bond(s) and/or portions thereof which shall be deemed to have caused the Corporation to exceed such limitation):
Column (1) Column (2) Column (3) Column (4) Maximum Percent Maximum of Market Percent of Value Market Value of Corpora- Maximum of Corpora- tion's Assets Percent tion's Assets Including of Market Including Eligible Eligible S&P and Value of Portfolio Portfolio Moody's Eligible Property Property Rating of Minimum Portfolio Issued by Issued Utility Bonds Original Property Issuers in any by Issuers or Debt Issue Size of Issued by any One Industry Regulated by Obligations(1) Each Issue(2) One Issuer(3) Category(4) any One [Strategy] - -------------- ------------- ------------- ------------- ------------------ ($ in millions) S&P Moody's --- ------- AAA, Aaa...... $100 10.0% 100.0% 100.0% 100.0% AA1, Aa....... 100 10.0 20.0 60.0 20.0 Aa, A......... 100 10.0 10.0 50.0 10.0 BBB, Baa...... 100 5.0 4.0 50.0 2.0 - ------------------ (1) Rating designations include (+) or (-) modifiers to the S&P rating where appropriate. Rating designations include modifiers of 1 to 3 to the Moody's rating where appropriate. (2) This restriction is applicable only to Utility Bonds. (3) The referenced S&P percentages represent maximum percentages only for the related S&P rating category. The referenced Moody's percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category. (4) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category. There are two Industry categories -- telecommunications and all other utilities. (5) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the assets (and/or the characteristics thereof) included initially within the definition of Utility Bonds for purposes of determining compliance with the RP Basic Maintenance Amount if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings of the RP. "Utility Stocks" means, initially, common stocks issued by state regulated public utility companies having debt obligations outstanding with senior debt ratings of BBB to AAA from S&P or subordinated debt ratings of BBB- to AAA from S&P and senior or subordinated debt ratings of Baa3 to Aaa from Moody's, which debt obligations have been registered under the Securities Act of 1933, as amended ("Debt Obligations"). In addition, so long as the shares of RP are rated by S&P or Moody's, no common stock held by the Corporation shall be deemed a Utility Stock to the extent (but only to the proportionate extent) the acquisition or holding thereof by the Corporation causes the Corporation to exceed any applicable limitation set forth in column (2) of the table set forth in "Utility Bonds" above in the event the shares of RP are rated by S&P or column (2), (3) or (4) of such table in the event the shares of RP are rated by Moody's as of any relevant date of determination (provided that, in the event that the Corporation shall exceed any such limitation, the Corporation shall designate, in its sole discretion, the particular Utility Stock(s) and/or portions thereof which shall be deemed to have caused the Corporation to exceed such limitation). The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the assets (and/or the characteristics thereof) initially included within the definition of Utility Stocks for purposes of determining compliance with the RP Basic Maintenance Amount if the Board of Directors determines and the Rating Agencies advise the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings of the RP. "Valuation Date" means (i) the fifteenth day of each month or, if such day is not a Business Day, the next succeeding Business Day, and (ii) the last Business Day of each month (or, in the case of the first Valuation Date, a date selected by the Corporation within fifteen days after the Original Issue Date). "Voting Period" has the meaning set forth in paragraph 6(b) of this Part I. 2. Fractional Shares. No fractional shares of RP shall be issued or recognized by the Corporation. 3. Dividends. (a) The Holders as of 12:00 noon, New York City time, on the Business Day preceding the applicable Dividend Payment Dates, shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative dividends each consisting of (i) cash at the Applicable Dividend Rate and (ii) a Right to receive cash determined as set forth in paragraph 3(l) below and payable as set forth therein. Dividends on the shares of RP so declared and payable shall be paid, to the extent available and permitted by law, and in preference to and priority over any dividends declared and payable on the Common Stock, out of income of the Corporation which constitutes qualifying income for purposes of the Dividends-Received Deduction. (b) Dividends on shares of RP shall accumulate from the applicable Date of Original Issue and will be payable, when, as and if declared by the Board of Directors, on each Dividend Payment Date applicable to each such share of RP. (c) Each declared dividend, including each Right, shall be payable on the applicable Dividend Payment Date to the Holder or Holders of such shares of RP as set forth in paragraph 3(a). Dividends on any share in arrears for any past Dividend Payment Date may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holder of such share on a date not exceeding five Business Days preceding the payment date thereof, as may be fixed by the Board of Directors. Any dividend payment made on any share of RP shall first be credited against the earliest dividends accumulated but unpaid (whether or not earned) with respect to such share. (d) Neither Holders nor Beneficial Owners of shares of RP shall be entitled to any dividends on the shares of RP, whether payable in cash, property or stock, in excess of full cumulative dividends (including Rights) thereon. The Board of Directors shall designate, in accordance with the applicable provisions of the Code, the cash dividends on the shares of RP so declared and paid or payable and on the shares of Other RP declared and paid or payable for any fiscal year as qualifying for the Dividends-Received Deduction in an amount equal to the lesser of (i) the amount of the Corporation's income for such fiscal year which qualifies for the Dividends-Received Deduction, or (ii) the amount of such cash dividends. (e) Except as otherwise provided herein, the Applicable Dividend Rate on each share of RP for each Dividend Period with respect to such share shall be equal to the rate per annum that results from implementation of the remarketing procedures described in Part II hereof. (f) The amount of cash dividends for shares of RP payable (if declared) on each Dividend Payment Date in respect of Dividend Periods of fewer than 365 days shall be computed by the Corporation by multiplying the Applicable Dividend Rate in effect with respect to cash dividends payable on such share on such Dividend Payment Date by a fraction the numerator of which shall be the number of days such share was outstanding from and including its Date of Original Issue or the preceding Dividend Payment Date on which a cash dividend was paid, as the case may be, to and including the last day of such Dividend Period, and the denominator of which shall be 360, and then multiplying the percentage so obtained by $100,000. The amount of cash dividends for each share of RP payable on each Dividend Payment Date in respect of an Optional Dividend Period of 365 or more days or a Special Dividend Period of 365 or more days shall be computed on the basis of a 360-day year of twelve 30-day months. In accordance with the remarketing procedures set forth in Part II hereof, there may exist at any given time a number of Dividend Payment Dates for all outstanding shares of RP, and dividends on any share shall be payable only on a Dividend Payment Date applicable to such share of RP. (g) No later than by 12:00 noon, New York City time, on each Dividend Payment Date, the Corporation shall deposit in same-day funds with the Paying Agent the full amount of any dividend declared and payable on such Dividend Payment Date on any share of RP. For the purposes of the foregoing, payment in New York Clearing House (next-day) funds at any time on any Business Day shall be considered equivalent to payment in same-day funds on the next Business Day at the same time, and any payment made after 12:00 noon, New York City time, on any Business Day shall be considered to have been made instead in the same form of funds before 12:00 noon, New York City time, on the next Business Day. (h) The Applicable Dividend Rate for each Dividend Period commencing during a Non-Payment Period shall be equal to the Non-Payment Period Rate; any share of RP for which an Optional Dividend Period of more than 98 days or Special Dividend Period of more than 98 days would otherwise have commenced on the first day of a Non-Payment Period shall have, instead, a 7-day Dividend Period; and each Dividend Period commencing after the first day of, and during, a Non-Payment Period shall be a 49-day Dividend Period. (i) So long as any shares of RP are outstanding, the Corporation shall not, subject to the requirements of the 1940 Act and Maryland law, without the affirmative vote or consent of the holders of at least two-thirds of the votes of the shares of RP outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as one class): (a) authorize, create or issue, or increase the authorized or issued amount, of any class or series of stock ranking prior to the RP with respect to payment of dividends or the distribution of assets on liquidation, or (b) amend, alter or repeal the provisions of the Corporation's Charter including these Articles Supplementary, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of such shares of RP or the Holders thereof; provided that, any increase in the amount of the authorized RP or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of such series or of any other series of remarketed preferred stock, in each case ranking on a parity with or junior to the RP, will not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers unless such issuance would cause the Corporation not to satisfy the 1940 Act RP Asset Coverage or the RP Basic Maintenance Amount. Unless a higher percentage is provided for under the Charter, the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock, including RP, voting together as a single class, will be required to approve any plan of reorganization adversely affecting such shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred Stock, including RP, described above will in each case be in addition to a separate vote of the requisite percentage of shares of Common Stock and shares of Preferred Stock, including RP, necessary to authorize the action in question. The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of RP shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption. (j) Except during a Non-Payment Period, by 1:00 p.m. on the Tender Date at the end of the Initial Dividend Period applicable to a share of RP and by 1:00 p.m. on the Tender Date at the end of each subsequent Dividend Period applicable to a share of RP, the Beneficial Owner of such share may elect to tender such share or to hold such share. If the Beneficial Owner of such share of RP elects to hold such share, such Beneficial Owner may, unless the Board of Directors has designated a Special Dividend Period commencing on the Settlement Date next following such Tender Date and such share is subject to such Special Dividend Period, elect to hold such share of RP for a 7-day Dividend Period, a 49-day Dividend Period or any available Optional Dividend Period; provided that, in the event that (i) such Beneficial Owner elects an available Optional Dividend Period of more than 98 days with respect to such share or the Board of Directors has designated the next succeeding Dividend Period as a Special Dividend Period of more than 98 days and such share is subject to such Special Dividend Period and (ii) there is no Remarketing Agent, the Remarketing Agent does not conduct a Remarketing or the Remarketing Agent is unable to remarket in the Remarketing on the Dividend Reset Date following such Tender Date all shares of RP tendered (or deemed tendered) to it at a price of $100,000 per share, then the Dividend Period in respect of such share shall be a 7-day Dividend Period and the Applicable Dividend Rate shall be the Maximum Dividend Rate for a 7-day Dividend Period. If the Beneficial Owner of such share of RP fails to elect to tender or hold such share, or to elect a Dividend Period for such share, by 1:00 p.m. on such Tender Date, such Beneficial Owner shall continue to hold such share at the Applicable Dividend Rate determined in such Remarketing for a Dividend Period of the same type as the current Dividend Period for such share; provided that (i) if such current Dividend Period is an Optional Dividend Period of 98 or fewer days which is not available on such Tender Date, such Beneficial Owner shall hold such share for a 7-day Dividend Period, (ii) if such current Dividend Period is a 7-day Dividend Period, a 49-day Dividend Period or an Optional Dividend Period of 98 or fewer days which is available on such Tender Date but (a) there is no Remarketing Agent or the Remarketing Agent does not conduct a Remarketing, then such Beneficial Owner shall hold such share for a 7-day Dividend Period and the Applicable Dividend Rate shall be the Maximum Dividend Rate for a 7-day Dividend Period, or (b) the Remarketing Agent is unable to remarket in such Remarketing all shares of RP tendered (or deemed tendered) to it at a price of $100,000 per share, such Beneficial Owner will hold such share for the same Dividend Period as the then current Dividend Period with respect to such share and the applicable Dividend Rate therefor will be the applicable Maximum Dividend Rate, and (iii) if such current Dividend Period is an Optional Dividend Period of more than 98 days or a Special Dividend Period, or the succeeding Dividend Period has been designated by the Board of Directors as a Special Dividend Period and such share is subject to such Special Dividend Period, then such Beneficial Owner shall be deemed to have elected to tender such share. If such share of RP is tendered (or deemed tendered) but not sold in such Remarketing, the Beneficial Owner thereof shall hold such share at the applicable Maximum Dividend Rate for a 7-day Dividend Period. If such share of RP is tendered (or deemed tendered) and purchased in such Remarketing, the next Dividend Period for such share shall be the Dividend Period elected by the purchaser of such share in such Remarketing or the Special Dividend Period designated by the Board of Directors, as the case may be, at the Applicable Dividend Rate therefor, except that, if the Remarketing Agent is unable to remarket in such Remarketing all shares of RP tendered (or deemed tendered) to it at a price of $100,000 per share, no purchaser in such Remarketing shall be permitted to acquire shares having an Optional Dividend Period of more than 98 days or a Special Dividend Period of more than 98 days. (k) In the event of a change in law altering the Minimum Holding Period, the Board of Directors may increase or decrease the period of time between Dividend Payment Dates so as to adjust uniformly the number of days in any 49-day Dividend Period commencing after the date of such change in law to equal or exceed the then current Minimum Holding Period; provided that, the number of days for any Dividend Period as so adjusted shall not exceed 98 and shall be evenly divisible by seven (except as required from time to time by adjustments in the remarketing schedule as provided herein). Upon any such adjustment by the Board of Directors, the Corporation shall notify the Remarketing Agent and the Paying Agent, and the Paying Agent shall in turn notify the Securities Depository, of such adjustment; provided that, during a Non-Payment Period, the Corporation also shall notify the Beneficial Owners of shares of RP directly of such adjustment. (l) Except during a Non-Payment Period, the Board of Directors may at any time and from time to time institute one or more Optional Dividend Periods with such number of days, and which shall be available for such period, as the Board of Directors shall specify; provided that (i) in respect of any Optional Dividend Period of more than 98 days, the Board of Directors shall also determine a Maximum Dividend Rate or Rates in respect of such period which rate or rates, as determined from time to time by formula or other means, may be fixed or variable and (ii) in respect of an Optional Dividend Period of 365 or more days, the Board of Directors, after consultation with the Remarketing Agent, may establish Specific Redemption Provisions. An Optional Dividend Period shall be available after seven days' written notice thereof and, if applicable, of the Maximum Dividend Rate or Rates and Specific Redemption Provisions, if any, in respect thereof shall have been given to the Remarketing Agent, the Paying Agent and the Securities Depository. The Corporation also shall publish promptly notice of any designation of an Optional Dividend Period, and related Maximum Dividend Rate or Rates and Specific Redemption Provisions, if any, at least once in an Authorized Newspaper, but the failure so to publish shall not affect the validity or effectiveness of any such designation or determination. After an Optional Dividend Period becomes available, such Optional Dividend Period shall be available in each Remarketing and, if elected by any Beneficial Owner of shares of RP, shall commence on each Settlement Date and continue until rescinded by the Board of Directors, which rescission shall be effective after seven days' written notice thereof shall have been given to the Remarketing Agent, the Paying Agent, the Securities Depository and Beneficial Owners. The existence or rescission of any Optional Dividend Period shall not affect any current Dividend Period or prevent the Board of Directors from establishing other Optional Dividend Periods of similar duration or in any way restrict the Maximum Dividend Rate or Rates or Specific Redemption Provisions which may be designated in connection with any other Optional Dividend Period. (m) The Board of Directors may at any time designate a subsequent Dividend Period with respect to all or any specified fewer number of shares of RP eligible for Tender and Dividend Reset on the Tender Date next preceding the commencement of such Dividend Period as a Special Dividend Period with such number of days as the Board of Directors shall specify; provided that (i) written notice of any such designation, of the Maximum Dividend Rate or Rates, if applicable, and Specific Redemption Provisions, if any, in respect thereof and of the consequences of failure to tender or to elect to hold shares, must be given at least seven days prior to such Tender Date to the Remarketing Agent, the Paying Agent, the Securities Depository and the Beneficial Owners or shares of RP which are to be subject to such Special Dividend Period; (ii) no Special Dividend Period may commence for any share of RP during a Non-Payment Period: (iii) if such Special Dividend Period contains 365 or more days, (x) the shares of RP subject to such Special Dividend Period shall have an aggregate liquidation preference (exclusive of accumulated but unpaid dividends, premium, if any, and Rights, if any) of at least $35,000,000 or such greater or lesser amount as may be specified by the Board of Directors and (y) the shares, if any, and Rights, if any) of at least $35,000,000 or such greater or lesser amount as may be specified by the Board of Directors; (iv) in respect of any Special Dividend Period of more than 98 days, the Board of Directors shall also determine a Maximum Dividend Rate or Rates, which rate or rates, as determined from time to time by formula or other means, may be fixed or variable; and (v) in respect of any Special Dividend Period of 365 or more days, the Board of Directors, after consultation with the Remarketing Agent, may establish Specific Redemption Provisions. In the event the Board of Directors designates a Special Dividend Period with respect to less than all shares of RP eligible for Tender and Dividend Reset in the Remarketing prior to such Special Dividend Period, the shares subject to such Special Dividend Period will be selected by the Paying Agent by lot. The existence or rescission of any Special Dividend Period shall not affect any current Dividend period or prevent the Board of Directors from establishing other Special Dividend Periods of similar duration or in any way restrict the Maximum Dividend Rate or Rates or Specific Redemption Provisions which may be designated in connection with any other Special Dividend Period. If the Remarketing Agent is unable to remarket sufficient shares of RP at the commencement of a Special Dividend Period to satisfy the requirement described in clause (iii) of the preceding paragraph, then the Dividend Period in respect of any share of RP which otherwise would have been subject to such Special Dividend Period shall be a 7-day Dividend Period and an Applicable Dividend Rate shall be set by the Remarketing Agent in accordance with the remarketing procedures. (n) Each dividend shall consist of (i) cash at the Applicable Dividend Rate and (ii) a right (a "Right") to receive cash (as determined below). Each Right shall thereafter be independent of the share or shares of RP on which the dividend was paid. The Corporation shall cause to be maintained a record of each Right received by the respective Holders. The Corporation shall not be required to recognize any transfer of a Right. If all or any part of the cash dividends on the shares of RP during any fiscal year does not qualify for the Dividends-Received Deduction ("Nonqualifying Distributions") because (i) the Corporation does not have income for such fiscal year eligible for the Dividends-Received Deduction at least equal to the dividends paid on the RP and the Other RP for such year, or (ii) the Corporation does not properly designate dividends on the RP as being eligible for the Dividends-Received Deduction, the applicable Rights shall entitle the holders thereof ("Right Holders") to additional cash (as set forth below), and the Corporation will, within 270 days after the end of such fiscal year, provide notice thereof to the Paying Agent. The Paying Agent will mail a copy of such notice to each Right Holder at the address specified in such Right Holder's Master Purchaser's Letter as promptly as practicable after its receipt of such notice from the Corporation. The Corporation will within 30 days after such notice is given to the Paying Agent pay to the Paying Agent (who will then distribute to Right Holders), out of funds legally available therefor, cash in satisfaction of the applicable Rights in an amount specified below with respect to all Nonqualifying Distributions made during such fiscal year. Cash payable pursuant to a Right shall be paid to the Right Holder thereof in an amount which, when taken together with the aggregate Nonqualifying Distributions paid to such Right Holder during any fiscal year, would cause such Right Holder's net yield in dollars (after Federal income tax consequences) from the aggregate of both the Nonqualifying Distributions and the cash receivable pursuant to a Right to be equal to the net yield in dollars (after Federal income tax consequences) which would have been received by such Right Holder if the amount of the aggregate Non-qualifying Distributions would have qualified for the Dividends-Received Deduction in the hands of such Right Holder. Such cash receivable on a Right shall be calculated without consideration being given to the time value of money and using the applicable maximum marginal corporate Federal tax rate in effect at the time such Right was declared. The Corporation may estimate the amount payable in respect of any Right and pay all or any portion of such estimated amount prior to the end of the fiscal year in which such Right was declared. If, for any fiscal year, all cash dividends paid at the Applicable Dividend Rate on the shares of RP are eligible in full for the Dividends-Received Deduction, then the amount payable to holders of Rights applicable to that year shall be zero. 4. Redemption. Shares of RP shall be redeemable by the Corporation as provided below: (a) To the extent permitted under the 1940 Act and Maryland law, the Corporation at its option, upon giving a Notice of Redemption, may redeem shares of RP, in whole or in part, on the next succeeding scheduled Dividend Payment Dates for those shares of RP called for redemption, out of funds legally available therefor, at a redemption price equal to $100,000 per share plus premium, if any, resulting from the designation of a Premium Call Period, plus an amount equal to cash dividends thereon (whether or not earned or declared) accumulated but unpaid to the date fixed for redemption; provided that (i) no share of RP will be subject to redemption at the option of the Corporation during a Non-Call Period to which it is subject and (ii) if any share of RP is subject to any Optional Dividend Period or Special Dividend Period containing at least as many days as the then Minimum Holding Period at the time such Optional Dividend Period or Special Dividend Period was selected and a redemption at such time would have the effect that a Beneficial Owner who purchased such share in the preceding Remarketing therefor would not satisfy such Minimum Holding period solely by reason of such redemption, such share shall be redeemed on a date specified by the Board of Directors at least five days in advance thereof when such condition shall not longer apply (which date may be after the date fixed for redemption of the other shares called for redemption), but shall not be later than the next succeeding Dividend Payment Date upon which such Beneficial Owner would not fail to satisfy such Minimum Holding Period for such share solely by reason of such redemption. (b) The Corporation shall redeem, out of funds legally available therefor, at a redemption price of $100,000 per share plus an amount equal to premium, if any, resulting from the designation of a Premium Call Period, plus cash dividends thereon (whether or not earned or declared) accumulated but unpaid to the date of redemption, shares of RP to the extent permitted under the 1940 Act and Maryland law, on a date fixed by the Board of Directors, if the Corporation fails to maintain the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage and such failure is not cured on or before the RP Basic Maintenance Cure Date or the 1940 Act Cure Date (herein referred to respectively as the "Cure Date"), as the case may be. The number of shares to be redeemed shall be equal to the lesser of (i) the minimum number of shares of RP the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, together with all shares of other Preferred Stock subject to redemption or retirement, would result in the satisfaction of the RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, on such Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all shares of RP then outstanding shall be redeemed), and (ii) the maximum number of shares of RP that can be redeemed out of funds expected to be legally available therefor on such redemption date. In determining the number of shares of RP required to be redeemed in accordance with the foregoing, the Corporation shall allocate the amount required to achieve the RP basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, pro rata among the RP and the Other RP. The Corporation shall effect such redemption not later than 41 days after such Cure Date, except that if the Corporation does not have funds legally available for the redemption of all of the required number of shares of RP which are subject to mandatory redemption or the Corporation otherwise is unable to effect such redemption on or prior to such Cure Date, the Corporation shall redeem those shares of RP which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption. Any share of RP shall be subject to mandatory redemption regardless of whether such share is subject to a Non-Call Period provided that shares of RP subject to a Non-Call Period will only be subject to redemption to the extent that the other shares of RP are not available to satisfy the number of shares required to be redeemed. In such event, such shares subject to a Non-Call Period will be selected for redemption in an ascending order of outstanding Non-Call Period (with shares with the lowest number of days remaining in the period to be called first) and by lot in the event of equal outstanding Non-Call Periods. However, if any share of RP is subject to any Optional Dividend Period or Special Dividend Period containing at least as many days as the then Minimum Holding Period at the time such Optional Dividend Period or Special Dividend Period was selected and a redemption at such time would have the effect that a person who purchased such share in the preceding Remarketing therefor would not satisfy such Minimum Holding Period solely by reason of such redemption, such share shall be redeemed on a date specified by the Corporation at least five days in advance thereof when such condition shall no longer apply (which date may be after the date fixed for redemption of the other shares called for redemption), but shall not be later than the next succeeding Dividend Payment Date upon which such person would not fail to satisfy such Minimum Holding Period for such share solely by reason of redemption. (c) Subject to paragraph 4(d) of this Part I, if fewer than all the outstanding shares of RP are to be redeemed pursuant to this paragraph 4, the number of shares of RP so to be redeemed shall be a whole number of shares and shall be determined by the Board of Directors, and the Corporation shall give a Notice of Redemption as provided in paragraph 4(e) of this Part I provided that no share of RP will be subject to optional redemption on any Dividend Payment Date during a Non-Call Period to which it is subject and shares of RP subject to a Non-Call Period will be subject to mandatory redemption only on the basis described under paragraph 4(b) of this Part I. Unless certificates representing shares of RP are held by Holders other than the Securities Depository or its nominee, the Paying Agent, upon receipt of such notice, shall determine, from among shares eligible for redemption, the number of shares of RP to be redeemed pro rata from each current Dividend Period which is then eligible for redemption and shall give notice of such determination to the Securities Depository; the Securities Depository thereupon shall determine by lot on a Dividend Period basis pursuant to the allocation provided by the Paying Agent the number of shares of RP to be redeemed from the account of each Agent Member (which may include an Agent Member holding shares for its own account, including the Remarketing Agent) and notify the Paying Agent of such determination. The Paying Agent, upon receipt of such notice, shall in turn determine by lot the number of shares of RP from each Dividend Period to be redeemed from the accounts of the Beneficial Owners of the shares of RP whose Agent Members have been selected by the Securities Depository and give notice of such determination to the Remarketing Agent. In doing so, the Paying Agent may determine that shares of RP shall be redeemed from the accounts of some Beneficial Owners, which may include the Remarketing Agent, without shares of RP being redeemed from the accounts of other Beneficial Owners. (d) Notwithstanding paragraph 4(c) of this Part I, if the redemption of shares of RP is to take place during a Non-Payment Period with respect to such shares or certificates representing shares of RP are held by Holders other than the Securities Depository or its nominee, then the number of shares of RP to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected by the Corporation pro rata from among current Dividend Periods and by lot from among shares within each current Dividend Period. (e) Any Notice or Redemption shall be given by the Corporation to the Paying Agent, the Securities Depository (and any other Holder) and the Remarketing Agent, by telephone, not later than 3:00 p.m., New York City time (and later confirmed in writing) on (A) in the case of optional redemption pursuant to paragraph 4(a) of this Part I (i) the Settlement Date in the case of a partial redemption of the shares of RP, (ii) the Tender Date in the case of a redemption in whole of the shares of RP or (iii) during a Non-Payment Period, the later of the Dividend Payment Date and the seventh day, in each case prior to the earliest date upon which any such redemption shall occur and (B) in the case of mandatory redemption pursuant to paragraph 4(b) of this Part I, the fifth Business Day prior to the redemption date. In the case of a partial redemption of the shares of RP, the Paying Agent shall use reasonable efforts to provide telephonic notice to each Beneficial Owner of shares of RP called for redemption not later than the close of business on the Business Day on which the Paying Agent determines the shares to be redeemed, as described in paragraph 4(c) if this Part I (or, during a Non-Payment Period, not later than the close of business on the Business Day immediately following the day on which the Paying Agent receives a Notice of Redemption from the Corporation). In the case of a redemption in whole of the shares of RP, the Paying Agent shall use reasonable efforts to provide telephonic notice to each Beneficial Owner not later than the close of business on the Business Day immediately following the day on which it receives a Notice of Redemption from the Corporation. In any case described in clause (i) or (iii) of the first sentence of this paragraph 4(e), such telephonic notice shall be confirmed promptly in writing not later than the close of business on the third Business Day preceding the redemption date by notice sent by the Paying Agent to each Beneficial Owner of shares of RP called for redemption, the Remarketing Agent and the Securities Depository. (f) Every Notice of Redemption and other redemption notice shall state: (i) the redemption date; (ii) the number of shares of RP to be redeemed; (iii) the redemption price; (iv) that dividends on the shares of RP to be redeemed shall cease to accumulate as of such redemption date; and (v) the provision pursuant to which such shares are being redeemed. In addition, notice of redemption given to a Beneficial Owner shall state the CUSIP number, if any, of the shares of RP to be redeemed and the manner in which the Beneficial Owners of such shares may obtain payment of the redemption price. No effect in the Notice of Redemption or other redemption notice or in the transmittal or the mailing hereof shall affect the validity of the redemption proceedings, except as required by applicable law. The Paying Agent shall use its reasonable efforts to cause the publication of a redemption notice in an Authorized Newspaper within two Business Days of the date of the Notice of Redemption, but failure so to publish such notification shall not affect the validity or effectiveness of any such redemption proceedings. Shares of RP the Beneficial Owners of which shall have been given Notice of Redemption shall not be subject to transfer outside of a Remarketing. (g) On any redemption date, the Corporation shall deposit, irrevocably in trust, in same-day funds, with the Paying Agent, by 12:00 noon, New York City time, the price to be paid on such redemption date (including premium, if any, resulting from the designation of a Premium-Call Period) of any share of RP plus an amount equal to cash dividends thereon accumulated but unpaid to such redemption date (whether or not earned or declared). For the purposes of the foregoing, payment in New York Clearing House (next-day) funds at any time on any Business Day shall be considered equivalent to payment in same-day funds on the next Business Day at the same time, and any payment made after 12:00 noon, New York City time, on any Business Day shall be considered to have been made instead in the same form of funds before 12:00 noon, New York City time, on the next Business Day. (h) In connection with any redemption, upon the giving of a Notice of Redemption and the deposit of the funds necessary for such redemption with the Paying Agent in accordance with this paragraph 4, all rights of the Holders of shares of RP so called for redemption shall cease and terminate, except the right of the Holders thereof to receive the redemption price thereof, inclusive of an amount equal to the premium, if any, resulting from the designation of a Premium-Call Period plus cash dividends (whether or not earned or declared) accumulated but unpaid to the redemption date but without any interest or other additional amount (except as provided in paragraph 3(h) or 3(n) of this Part I), and such shares shall no longer be deemed outstanding for any purpose. The Corporation shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent as aforesaid in excess of the sum of (i) the aggregate redemption price of the shares of RP called for redemption on such date and (ii) all other amounts to which Holders of shares of RP called for redemption may be entitled. Any funds so deposited with the Paying Agent which are unclaimed at the end of ninety days from such redemption date shall, to the extent permitted by law, be repaid to the Corporation, after which time the Holders of shares of RP so called for redemption shall look only to the Corporation for payment of the redemption price and all other amounts to which they may be entitled. The Corporation shall be entitled to receive, from time to time after the date fixed for redemption, any interest on the funds so deposited. (i) To the extent that any redemption for which Notice of Redemption has been given is not made by reason of the absence of legally available funds therefor, such redemption shall be made as soon as practicable to the extent such funds become available. Failure to redeem shares of RP shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Corporation shall have failed, for any reason whatsoever, to deposit funds with the Paying Agent pursuant to paragraph 4(g) of this Part I with respect to any shares for which such Notice of Redemption has been given. Notwithstanding the fact that the Corporation shall not have redeemed shares of RP for which a Notice of Redemption has been given, dividends may be declared and paid on shares of RP and shall include those shares of RP for which a Notice of Redemption has been given. (j) Notwithstanding the foregoing, (i) no share of RP may be redeemed pursuant to paragraph 4(a) of this Part I unless the full amount of accumulated but unpaid cash dividends to the date fixed for redemption for each such share of RP called for redemption shall have been declared, and (ii) no share of RP may be redeemed unless all outstanding shares of RP are simultaneously redeemed, nor may any shares of RP be purchased or otherwise acquired by the Corporation except in accordance with a purchase offer made on substantially equivalent terms by the Corporation for all outstanding shares of RP, unless, in each such instance, cash dividends on all outstanding shares of RP through the end of their most recently ended Dividend Periods (or, if such transaction is on a Dividend Payment Date, through the Dividend Periods ending on the day prior to such Dividend Payment Date) shall have been paid or declared and sufficient funds for the payment thereof deposited with the Paying Agent. (k) Except as set forth in this paragraph 4 with respect to redemptions and subject to paragraph 4(j) hereof, nothing contained herein shall limit any legal right of the Corporation or any affiliate to purchase or otherwise acquire any share of RP at any price. Any shares of RP which have been redeemed, purchased or otherwise acquired by the Corporation or any affiliate thereof may be resold. In lieu of redeeming shares called for redemption, the Corporation shall have the right to arrange for other purchasers to purchase from Beneficial Owners all shares of RP to be redeemed pursuant to this paragraph 4 by their paying to such Beneficial Owners on or before the close of business on the redemption date an amount equal to not less than the redemption price payable by the Corporation on the redemption of such shares, and the obligation of the Corporation to pay such redemption price shall be satisfied and discharged to the extent such payment is so made by such purchasers. (l) Notwithstanding any of the foregoing provisions of this paragraph 4, the Remarketing Agent may, in its sole discretion, modify the procedures set forth above with respect to notification of redemption, provided that, any such modification does not adversely affect any Holder or Beneficial Owner of shares of RP. 5. Liquidation. Upon a liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders shall be entitled, whether from capital or surplus, before any assets of the Corporation shall be distributed among or paid over to holders of Common Stock or any other class or series of stock of the Corporation junior to the RP as to liquidation payments, to be paid the amount of $100,000 per share of RP, plus premium, if any, plus an amount equal to all accumulated but unpaid dividends thereon (whether or not earned or declared) to and including the date of final distribution. After any such payment, the Holders shall not be entitled to any further participation in any distribution of assets of the Corporation. (a) If, upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be insufficient to make such full payments to the Holders and the holders of any Preferred Stock ranking as to liquidation, dissolution or winding up on a parity with the RP, then such assets shall be distributed among the Holders and such parity holders ratably in accordance with the respective amounts which would be payable on such shares of RP and any other such Preferred Stock if all amounts thereon were paid in full. (b) Neither the consolidation nor the merger of the Corporation with or into any corporation or corporations nor a reorganization of the Corporation alone nor the sale or transfer by the Corporation of all or substantially all of its assets shall be deemed to be a dissolution or liquidation of the Corporation. 6. Voting Rights. (a) General. Each Holder of shares of RP shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation and, except as otherwise provided in the 1940 Act, the Charter or the Bylaws or as described below, the holders of shares of Preferred Stock, including RP, and of shares of Common Stock shall vote together as one class. Prior to the issuance of any RP, the Board of Directors by resolution shall designate two existing directors representing holders of Preferred Stock. At the first meeting of stockholders for which the record date is a date on which shares of Preferred Stock are outstanding, the holders of Preferred Stock entitled to vote at such meeting shall have the right as a class, to the exclusion of the holders of the common stock, to elect two directors of the Corporation who shall serve for the unexpired terms of the directors originally designated by the Board of Directors as directors representing holders of Preferred Stock; except that, if such meeting is an annual meeting of stockholders at which the term of one of such designated directors expires, the director so elected to succeed the designated director shall be elected for a term expiring at the time of the third succeeding annual meeting of stockholders, or thereafter when his successor is elected and qualified. Thereafter, the holders of Preferred Stock shall have the right as a class, to the exclusion of the holders of the common stock, to elect directors to succeed either of the directors representing the Preferred Stock whose terms are expiring or whose seats on the Board of Directors are vacant. Subject to paragraph 6(b) hereof, the holders of a majority of the shares of Common Stock shall elect the balance of the directors. (b) Right to Elect Majority of Board of Directors. During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the number of directors then constituting the Board of Directors, shall (together with the two directors elected by the holders of Preferred Stock, including RP, pursuant to paragraph 6(a)) constitute a majority of such increased number, and the holders of a majority of Preferred Stock, including RP, shall be entitled, voting as a single class on a one-vote-per-share basis (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect the smallest number of additional directors of the Corporation that shall constitute a majority of the total number of directors of the Corporation so increased. A Voting Period shall commence if at the close of business on any Dividend Payment Date accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the outstanding shares of RP equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Paying Agent for the payment of such accumulated dividends. Upon the termination of a Voting period, the voting rights described in this paragraph 6(b) shall cease, subject always, however, to the revesting of such voting rights in the holders of Preferred Stock, including RP, upon the further occurrence of any of the events described in this paragraph 6(b). (c) Voting Procedures. ----------------- (i) As soon as practicable after the accrual of any right of the holders of Preferred Stock, including RP, to elect a majority of directors, the Corporation shall notify the Paying Agent and Paying Agent shall call a special meeting of the holders of Preferred Stock, including RP, and shall mail a notice of such special meeting to such holders not less than 10 nor more than 20 days after the date of mailing of such notice. If the Corporation fails to send such notice to the Paying Agent or if the Paying Agent does not call such a special meeting, it may be called by any holder of Preferred Stock, including RP, on like notice. The record date for determining the holders of Preferred Stock, including RP, entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting held during a Voting Period, the holders of Preferred Stock, including RP, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph 6(b) above on a one-vote-per-share basis. At any such meeting or adjournment thereof in the absence of a quorum, a majority of the holders of Preferred Stock, including RP, present in person or by proxy, shall have the power to adjourn the meeting without notice, other than an announcement at the meeting, until a quorum is present; provided, however, that no such meeting may be adjourned to a date more than 120 days from the original record date without notice. (ii) For purposes of determining any rights of the Holders to vote on any matter, whether such right is created by these Articles Supplementary, by statute or otherwise, no Holder shall be entitled to vote and no share of RP shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum, if, prior to or concurrently with the time of determination of shares entitled to vote or shares deemed outstanding for quorum purposes, as the case may be, sufficient funds for the redemption of such shares have been deposited in trust with the Paying Agent for that purpose and the requisite Notice of Redemption with respect to such shares shall have been given as provided in paragraph 4 of this Part I. No share of RP held by the Corporation or any affiliate of the Corporation shall have any voting rights or be deemed to be outstanding for voting purposes. (iii) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of holders of Preferred Stock, including RP, to elect directors shall continue, notwithstanding the election at such meeting by such holders of the number of directors that they are entitled to elect, and the persons so elected by such holders, together with the incumbent directors elected by the holders of the Common Stock, shall constitute the duly elected directors of the Corporation. (iv) Simultaneously with the expiration of a Voting Period, the terms of office of the additional directors elected by the holders of Preferred Stock, including RP, shall terminate, the incumbent directors who shall have been elected by the holders of the Common Stock (or by the Board of Directors at a time which was not during a Voting Period) and the two incumbent directors the holders of Preferred Stock, including RP, have the right to elect in any event shall constitute the directors of the Corporation and the voting rights of such holders to elect additional directors shall cease. (v) The directors elected by the holders of Preferred Stock, including RP, shall (subject to the provisions of any applicable law) be subject to removal only by the vote of the holders of a majority of the shares of Preferred Stock, including RP, outstanding. Any vacancy on the Board of Directors occurring by reason of such removal or otherwise may be filled only by vote of the holders of at least a majority of shares of Preferred Stock, including RP, outstanding, and if not so filled such vacancy shall (subject to the provisions of any applicable law) be filled by a majority of the remaining directors (or the remaining director) who were elected by such holders. Any other vacancy on the Board of Directors during a Voting Period shall be filled by a vote of the holder or holders of Common Stock. (d) Exclusive Remedy. Unless otherwise required by law, the Holders of shares of RP shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. The Holders of shares of RP shall have no preemptive rights. In the event that the Corporation fails to pay any dividends on the shares of RP, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this paragraph 6. In no event shall the Holders of shares of RP have any right to sue for, or bring a proceeding with respect to, such dividends or redemptions or damages for the failure to receive the same. 7. 1940 Act RP Asset Coverage. The Corporation shall maintain, as of the last Business Day of each month in which any share of RP is outstanding, the 1940 Act RP Asset Coverage. 8. Asset and Liquidity Coverage. ---------------------------- (a) RP Basic Maintenance Amount. (i) The Corporation shall maintain, on each Valuation Date, Eligible Portfolio Property having an aggregate Discounted Value at lease equal to the RP Price Maintenance Amount. (ii) On or before 5:00 p.m., New York City time, on the third Business Day after each Valuation Date, the Corporation shall complete and deliver to the Remarketing Agent and the Paying Agent an RP Basic Maintenance Report, which will be deemed to have been delivered to the Remarketing Agent and the Paying Agent if the Remarketing Agent and the Paying Agent receive a copy or telecopy, telex or other electronic transcription thereof and on the same day the Corporation mails to the Remarketing Agent and the Paying Agent for delivery on the next Business Day the full RP Basic Maintenance Report A failure by the Corporation to deliver an RP Basic Maintenance Report under this paragraph 8(a)(ii) without the prior consent of the Remarketing Agent and the Paying Agent shall be deemed to be delivery of an RP Basic Maintenance Report indicating the Discounted Value for all assets of the Corporation is less than the RP Basic Maintenance Amount, as of the relevant Valuation Date. (iii) Within ten Business Days after the date of delivery to the Remarketing Agent and the Paying Agent of an RP Basic Maintenance Report in accordance with paragraph 8(a)(ii) above relating to a Quarterly Valuation Date, the Independent Accountant will confirm in writing to the Remarketing Agent and the Paying Agent (A) the mathematical accuracy of the calculations reflected in such Report, (B) that, in such Report, the Corporation determined in accordance with these Articles Supplementary the assets of the corporation which constitute Eligible Portfolio Property at such Quarterly Valuation Date, (C) that, in such Report, the Corporation has determined in accordance with these Articles Supplementary the assets of the Corporation had, at such Quarterly Valuation Date, Eligible Portfolio Property of an aggregate Discounted Value at least equal to the RP Basic Maintenance Amount, (D) with respect to the S&P rating on Utility Bonds and Senior Debt Obligations, issuer name, issue size and coupon rate listed in such Report, that information has been traced and agrees with the information listed in The Standard & Poor's Bond Guide (in the event such information does not agree or such information is not listed in The Standard & Poor's Bond Guide, the Independent Accountant will inquire of S&P what such information is, and provide a listing in their letter of such differences, if any), (E) with respect to the Moody's ratings on Utility Bonds and Senior Debt Obligations, issuer name, issue size and coupon rate listed in such Report, that information has been traced and agrees with the information listed in Moody's Bond Record (in the event such information does not agree or such information is not listed in Moody's Bond Record, the Independent Accountant will inquire of Moody's what such information is, and provide a listing in their letter of such differences), and (F) with respect to the lower of two bid prices (or alternative permissible factors used in calculating the Market Value) provided by the custodian of the Corporation's assets to the Corporation for purposes of valuing securities in the Corporation's portfolio, the Independent Accountant has traced the price used in such Report to the lower of the two bid prices listed in the Report provided by such custodian and verified that such information agrees (in the event such information does not agree, the Independent Accountant will provide a listing in its letter of such differences) (such confirmation is herein called the "Accountant's Confirmation"). If any Accountant's Confirmation delivered pursuant to this paragraph 8(a)(iii) shows that an error was made in the RP Basic Maintenance Report for a Quarterly Valuation Date, or shows that a lower aggregate Discounted Value for the aggregate of all Eligible Portfolio Property of the Corporation was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Corporation, and the Corporation shall accordingly amend the RP Basic Maintenance Report to the Remarketing Agent and Paying Agent promptly following receipt by the Remarketing Agent and the Paying Agent of such Accountant's Confirmation. (b) Liquidity Coverage. ------------------ (i) As of each Valuation Date as long as any share of RP is outstanding, the Corporation shall determine (A) the Market Value of the Dividend Coverage Assets owned by the Corporation as of that Valuation Date, (B) the Dividend Coverage Amount on that Valuation Date, and (C) whether the Minimum Liquidity Level is met as of that Valuation Date. The calculations of the Dividend Coverage Assets, the Dividend Coverage Amount and whether the Minimum Liquidity Level is met shall be set forth on a certificate (a "Certificate of Minimum Liquidity") dated as of the Valuation Date. The RP Basic Maintenance Report and the Certificate of Minimum Liquidity may be combined in one certificate. The Corporation shall cause the Certificate of Minimum Liquidity to be delivered to the Remarketing Agent and the Paying Agent not later than the close of business on the third Business Day after the Valuation Date. The Minimum Liquidity Level shall be deemed to be met as of any date of determination if the Corporation has timely delivered a Certificate of Minimum Liquidity relating to such date, which states that the same has been met and which is not manifestly inaccurate. In the event that a Certificate of Minimum Liquidity is not delivered to the Remarketing Agent and the Paying Agent when required, the Minimum Liquidity Level shall be deemed not to have been met as of the applicable date. (ii) If the Minimum Liquidity Level is not met as of any Valuation Date, then the Corporation shall purchase or otherwise acquire Dividend Coverage Assets (with the proceeds from the liquidation of Eligible Portfolio Property or otherwise) to the extent necessary so that the Minimum Liquidity Level is met as of the fifth Business Day following such Valuation Date. The Corporation shall, by such fifth Business Day, provide to the Paying Agent and the Remarketing Agent a Certificate of Minimum Liquidity setting forth the calculations of the Dividend Coverage Assets and the Dividend Coverage Amount and showing that the Minimum Liquidity Level is met as of such fifth Business Day together with a report of the custodian of the Corporation's assets confirming the amount of the Corporation's Dividend Coverage Assets as of such fifth Business Day. 9. Restrictions on Certain Distributions. For so long as any share of RP is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase Common Stock or other stock, if any, ranking junior to the shares of RP as to dividends or upon liquidation) in respect of the Common Stock or any other stock of the Corporation ranking junior to or on a parity with the shares of RP as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of the Common Stock or any other such junior stock (except by conversion into or exchange for stock of the Corporation ranking junior to or on a parity with the shares of RP as to dividends and upon liquidation), unless (A) immediately after such transaction, the RP Basic Maintenance Amount and the 1940 Act RP Asset Coverage would be achieved, (B) full cumulative dividends on shares of RP and shares of Other RP due on or prior to the date of the transaction have been declared and paid or shall have been declared and sufficient funds for the payment thereof deposited with the Paying Agent, (C) any debt required to be paid under paragraph 3(n) of this Part I on or before the date of such declaration or payment has been paid and (D) the Corporation has redeemed the full number of shares of RP required to be redeemed by any provision for mandatory redemption contained herein. 10. Notice. All notices or communications, unless otherwise specified in the Bylaws of the Corporation or these Articles Supplementary, shall be sufficiently given if in writing and delivered in person or mailed by first-class mail, postage prepaid. Notice shall be deemed given on the earlier of the date received or the date seven days after which such notice is mailed. 11. Borrowings. For so long as the shares of RP are rated by S&P, the aggregate amount of borrowings by the Corporation (including guarantees made by the Corporation) shall be limited to an amount equal to 10% of the value of the Corporation's assets; provided, further, that the Corporation shall not incur any such borrowings subsequent to the issuance of the RP unless S&P advises the Corporation in writing that such borrowings will not adversely affect its then-current rating on the RP. 12. Options and Futures Transactions. For so long as the shares of RP are rated by either Moody's or S&P, the Corporation will not purchase or sell futures contracts or related options or engage in reverse repurchase agreement transactions unless Moody's and/or S&P, as the case may be, advise the Corporation in writing that such action or actions will not adversely affect their then-current ratings on the RP. 13. Other Restrictions. For so long as the shares of RP are rated by S&P, the Corporation may not (i) engage in transactions involving repurchase obligations which do not constitute Short Term Money Market Instruments, (ii) engage in transactions involving short sales of portfolio securities or (iii) overdraw any bank accounts of the Corporation, unless, in each case, S&P advises the Corporation in writing that such action or actions will not adversely affect its then current ratings on the RP. PART II. -------- REMARKETING PROCEDURES 1. Remarketing Schedule. Each Remarketing shall take place over a three-day period consisting of the Tender Date, the Dividend Reset Date and the Settlement Date. Such dates or the method of establishing such dates shall be determined by the Board of Directors from time to time. 2. Procedure for Tendering. (a) Each share of RP is subject to Tender and Dividend Reset only at the end of each Dividend Period applicable to such share and may be tendered in a Remarketing only on the Tender Date immediately prior to the end of the current Dividend Period with respect thereto. By 12:00 noon, New York City time, on each such Tender Date, the Remarketing Agent shall, after canvassing the market and considering prevailing market conditions at the time for shares of RP and similar securities, provide Beneficial Owners non-binding indications of Applicable Dividend Rates for the next succeeding 7-day Dividend Period, 49-day Dividend Period and any Optional Dividend Period or designated Special Dividend Period provided that if the next Dividend Period has been designated a Special Dividend Period, the Remarketing Agent will provide to holders thereof a non-binding indication of the Applicable Dividend Rate only for such Special Dividend Period. The actual Applicable Dividend Rate for such Dividend Period may be greater than or less than the rate per annum indicated in such non-binding indications (but not greater than the applicable Maximum Dividend Rate). By 1:00 p.m., New York City time, on such Tender Date, each Beneficial Owner of shares of RP subject to Tender and Dividend Reset must notify the Remarketing Agent of its desire, on a share-by-share basis, either to tender such share of RP at a price of $100,000 per share or to continue to hold such share of RP and elect either a 7-day Dividend Period, a 49-day Dividend Period or a specific available Optional Dividend Period or, if applicable, accept a designated Special Dividend Period, at the new Applicable Dividend Rate for the selected or designated, as the case may be, Dividend Period. Any notice given to the Remarketing Agent to tender or hold shares for a particular Dividend Period shall be irrevocable and shall not be conditioned upon the level at which the Applicable Dividend Rate is established. Any such notice may not be waived by the Remarketing Agent, except that prior to 4:00 p.m., New York City time, on the Dividend Reset Date, the Remarketing Agent may, in its sole discretion (i) at the request of a Beneficial Owner that has tendered one or more shares of RP to the Remarketing Agent, contingently waive such Beneficial Owner's tender and thereby enable such Beneficial Owner to continue to hold the share or shares for a 7-day Dividend Period, 49-day Dividend Period or available Optional Dividend Period or a designated Special Dividend Period as agreed to by such Beneficial Owner and the Remarketing Agent at such time, so long as such tendering Beneficial Owner has indicated to the Remarketing Agent that it would accept the new Applicable Dividend Rate for such Dividend Period, such waiver to be contingent upon the Remarketing Agent's ability to remarket all shares of RP tendered in such Remarketing, and (ii) at the request of a Beneficial Owner that has elected to hold one or more of its shares of RP, waive such Beneficial Owner's election with respect thereto. (b) The right of each Beneficial Owner to tender shares of RP in a Remarketing therefor shall be limited to the extent that (i) the Remarketing Agent conducts a Remarketing pursuant to the terms of the Remarketing Agreement, (ii) shares tendered have not been called for redemption and (iii) the Remarketing Agent is able to find a purchaser or purchasers for tendered shares of RP at an Applicable Dividend Rate for the next Dividend Period that is not in excess of the Maximum Dividend Rate. 3. Determination of Applicable Dividend Rates. (a) Between 1:00 p.m., New York City time, on each Tender Date and 4:00 p.m., New York City time, on the succeeding Dividend Reset Date, the Remarketing Agent shall determine (i) unless the Board of Directors has designated such next Dividend Period as a Special Dividend Period with respect to all shares subject to Tender and Dividend Reset, the allocation of tendered shares of RP among a 7-day Dividend Period, a 49-day Dividend Period and each available Option Dividend Period, if any, and any Special Dividend Period provided that, if the Remarketing Agent is unable to remarket on such Dividend Reset Date all such tendered shares in a Remarketing at a price of $100,000 per share, then the Remarketing Agent shall allocate no shares to any Optional Dividend Period of more than 98 days and no share will be assigned to any Special Dividend Period of more than 98 days, and (ii) the Applicable Dividend Rates to the nearest one-thousandth (0.001) of one percent per annum for the next 7-day Dividend Period, the next 49-day Dividend Period and the next Optional Dividend Period or Periods, or the next designated Special Dividend Period, as the case may be. The Applicable Dividend Rates for such Dividend Periods, except as otherwise required herein, shall be the rate per annum which the Remarketing Agent determines, in its sole judgment, to be the lowest rates, giving effect to such allocation, that will enable it to remarket on behalf of the Beneficial Owners thereof all shares of RP tendered to it at a price of $100,000 per share. (b) If no Applicable Dividend Rate shall have been established on a Dividend Reset Date on a Remarketing for a 7-day Dividend Period, a 49-day Dividend Period, or any Optional Dividend Period or Periods or Special Dividend Period, or for any or all of the foregoing, for any reason (other than because there is no Remarketing Agent or the Remarketing Agent is not required to conduct a Remarketing pursuant to the terms of the Remarketing Agreement), then the Remarketing Agent, except during a Non-Payment Period, in its sole discretion, shall, after taking into account market conditions as reflected in the prevailing yields of bond and variable rate taxable and tax-exempt debt securities and the prevailing dividend yields of fixed and variable rate preferred stock, if necessary, determine the Applicable Dividend Rate or Rates, as the case may be, that would be the initial dividend rate or rates fixed in an offering on such Dividend Reset Date, assuming in each case a comparable dividend period or periods, issuer and security. If there is no Remarketing because there is no Remarketing Agent or the Remarketing Agent is not required to conduct a Remarketing pursuant to the Remarketing Agreement, then, except during a Non-Payment Period, the Applicable Dividend Rate for each subsequent Dividend Period for which no Remarketing takes place because of the foregoing shall be the applicable Maximum Dividend Rate for a 7-day Dividend Period and the next succeeding Dividend Period shall be a 7-day Dividend Period. In a Remarketing, the Applicable Dividend Rates for different Dividend Periods need not be equal. (c) In determining such Applicable Dividend Rate or Rates, the Remarketing Agent shall, after taking into account market conditions as reflected in the prevailing yields of fixed and variable rate taxable and tax-exempt debt securities and the prevailing dividend yields of fixed and variable rate preferred stock, in providing non-binding indications of the Applicable Dividend Rates to Beneficial Owners and potential purchasers of shares of RP, (i) consider the number of shares of RP tendered and the number of shares of RP potential purchasers are willing to purchase and (ii) contact by telephone or otherwise current and Potential Beneficial Owners of shares of RP and ascertain the dividend rates at which they would be willing to hold shares of RP. (d) The Applicable Dividend Rate or Rates, as well as the allocation of tendered shares of RP, shall be determined as aforesaid by the Remarketing Agent in its sole discretion (except as otherwise provided in these Articles Supplementary with respect to Applicable Dividend Rates that shall be the Non-Payment Period Rate and Maximum Dividend Rate) and shall be conclusive and binding on Holders and Beneficial Owners. (e) As a condition precedent to purchasing shares of RP in any offering, in any Remarketing or outside any Remarketing, each purchaser of shares of RP shall sign and deliver a Master Purchaser's Letter, the sufficiency of any Master Purchaser's Letter to be determined by the Remarketing Agent in its sole discretion. (f) Except during a Non-Payment Period, the Applicable Dividend Rate for any Dividend Period shall not be more than the applicable Maximum Dividend Rate. 4. Allocation of Shares; Failure to Remarket at $100,000 Per Share. (a) If the Remarketing Agent is unable to remarket by 4:00 p.m., New York City time, on any Dividend Reset Date all shares of RP tendered to it in the related Remarketing at a price of $100,000 per share (i) each Beneficial Owner that tendered shares of RP for sale shall sell a number of shares of RP on a pro rata basis, to the extent practicable, or by lot, as determined by the Remarketing Agent in its sole discretion based on the number of orders to purchase shares of RP in such Remarketing; and (ii) the next Dividend Period shall be a 7-day Dividend Period for all tendered (or deemed tendered) but unsold shares and for all other shares the Beneficial Owners of which shall have elected or been deemed to have elected to hold such shares for a Dividend Period of more than 98 days; and (iii) the Applicable Dividend Rates for the next 7-day Dividend Period (including the 7-day Dividend Period referred to in the preceding clause (ii)), next 49 day Dividend Period and, if applicable, next Optional Dividend Period or Periods of 98 or fewer days or Special Dividend Period of 98 or fewer days shall be the applicable Maximum Dividend Rates for such Dividend Periods. (b) If the allocation procedures described above would result in the sale of a fraction of a share of RP, the Remarketing Agent shall, in its sole discretion, round up or down the number of shares of RP sold by each Beneficial Owner on such Dividend Reset Date so that each share sold by a Beneficial Owner shall be a whole share of RP and the total number of shares sold equals the total number of shares bought on such Dividend Reset Date. 5. Notification of Results; Settlement. (a) By telephone at approximately 4:30 p.m., New York City time, on each Dividend Reset Date the Remarketing Agent shall advise each Beneficial Owner of tendered shares and each purchaser thereof (or the Agent Member thereof, (i) of the number of shares such Beneficial Owner or purchaser as to sell or purchase and (ii) to give instructions to its Agent Member to deliver such shares against payment therefor or to pay the purchase price against delivery as appropriate. The Remarketing Agent will also advise each Beneficial Owner or purchaser that is to continue to hold, or to purchase, shares with Dividend Periods beginning on the Business Day following such Dividend Reset Date of the Applicable Dividend Rates for such shares. (b) In accordance with the Securities Depository's normal procedures, on the Settlement Date, the transactions described above with respect to each share of RP shall be executed through the Securities Depository, if the Securities Depository or its nominee holds or is to hold the certificates relating to the shares to be purchased, and the accounts of the respective Agent Members of the Securities Depository shall be debited and credited and shares delivered by book entry as necessary to effect the purchases and sales of shares of RP and the changes in types of Dividend Periods as determined in the related Remarketing. Purchasers of shares of RP shall make payment to the Paying Agent in same-day funds against delivery to other purchasers or their nominees of one or more certificates representing shares of RP, or, if the Securities Depository or its nominee holds or is to hold the certificates relating to the shares to be purchased, through their Agent Members in same-day funds to the Securities Depository against delivery through their Agent Members by book entry of shares of RP or as otherwise required by the Securities Depository. The Securities Depository shall make payment in accordance with its normal procedures. (c) If any Beneficial Owner selling shares of RP in a Remarketing fails to deliver such shares, the Agent Member of such selling Beneficial Owner and of any other person that was to have purchased shares of RP in such Remarketing may deliver to any such other person a number of whole shares of RP that is less than the number of shares that otherwise was to be purchased by such person. In such event, the number of shares of RP to be so delivered shall be determined by such Agent Member. Delivery of such lesser number of shares of RP shall constitute good delivery. (d) The Remarketing Agent, the Paying Agent and the Securities Depository each will use its reasonable commercial efforts to meet the timing requirements set forth in paragraphs (a) and (b) above; provided that, in the event that there is a delay in the occurrence of any delivery or other event connected with a Remarketing, the Remarketing Agent, the Paying Agent and the Securities Depository each will use its reasonable commercial efforts to accommodate such delay in furtherance of the Remarketing. (e) Notwithstanding any of the foregoing provisions of this paragraph 5, the Remarketing Agent may, in its sole discretion, modify the settlement procedures set forth above with respect to settlement, provided any such modification does not adversely affect the Beneficial Owners or the Holders of RP or the Corporation. 6. Purchase of Shares of RP by Remarketing Agent. The Remarketing Agent may purchase for its own account shares of RP in a Remarketing, provided that it purchases all tendered (or deemed tendered) shares of RP not sold in such Remarketing to other purchasers and that the Applicable Dividend Rate or Rates established with respect to such shares in such Remarketing are no higher than the Applicable Dividend Rate or Rates that would have been established if the Remarketing Agent had not purchased such shares. Except as provided in the previous sentence, the Remarketing Agent shall not be obligated to purchase any shares of RP that would otherwise remain unsold in a Remarketing. If the Remarketing Agent owns any shares of RP subject to a Remarketing immediately prior to a Remarketing and if all other shares subject to such Remarketing and tendered for sale by other Beneficial Owners of shares of RP have been sold in such Remarketing, then the Remarketing Agent may sell such number of its such shares in such Remarketing as there are outstanding orders to purchase that have not been filled by such shares tendered for sale by other Beneficial Owners. Neither the Corporation, the Paying Agent nor the Remarketing Agent shall be obligated in any case to provide funds to make payment to a Beneficial Owner upon such Beneficial Owner's tender of its shares of RP in a Remarketing. 7. Applicable Dividend Rate During a Non-Payment Period. So long as a Non-Payment Period shall continue, paragraphs 1, 2, 3, 4, 5 and 6 of this Part II shall not be applicable to any of the shares of RP and the shares of RP shall not be subject to Tender and Dividend Reset. 8. Transfers. As a condition precedent to purchasing shares of RP in any offering, in any Remarketing or outside any Remarketing, each purchaser of shares of RP shall be required to sign and deliver a Master Purchaser's Letter, the sufficiency of any Master Purchaser's Letter to be determined by the Remarketing Agent in its sole discretion, in which such purchaser shall agree, among other things, (i) unless the Corporation has elected, during a Non-Payment Period, to waive this requirement, to have its ownership of such shares of RP maintained in book entry form by the Securities Depository, in the account of a designated Agent Member which, in turn, shall maintain records of such purchaser's beneficial ownership, (ii) to be conclusively bound by the remarketing procedures, including the Remarketing Agent's determination of the Applicable Dividend Rates, pursuant to the remarketing procedures, (iii) that its notice to tender shares of RP in a Remarketing will constitute an irrevocable offer, except as set forth in such Master Purchaser's Letter, to sell the shares specified in such notice and authorization to the Remarketing Agent to sell, transfer or otherwise dispose of such shares as set forth herein and (iv) unless the Corporation shall have elected, during a Non-Payment Period, to waive this requirement, to sell, transfer or otherwise dispose of any share of RP held by it only pursuant to orders placed in a Remarketing therefor or to a person that has signed and delivered a Master Purchaser's Letter as provided herein, and, in the case of any transfer other than pursuant to a Remarketing, to ensure that an Agent Member advises the Remarketing Agent of such transfer. The Agent Member shall be authorized and instructed to disclose to the Remarketing Agent and/or the Paying Agent such information with respect to such purchaser's beneficial ownership as the Remarketing Agent or Paying Agent shall request. 9. Miscellaneous. To the extent permitted by applicable law, the Board of Directors of the Corporation may interpret or adjust the provisions hereof to resolve any inconsistency or ambiguity, remedy any formal defect or make any other change or modification which does not adversely affect the rights of Holders or Beneficial Owners of shares of RP and if such inconsistency or ambiguity reelects an incorrect provision hereof then the Board of Directors may authorize the filing of a Certificate of Amendment or a Certificate of Correction, as the case may be. 10. Securities Depository; Stock Certificates. (a) If there is a Securities Depository, an appropriate number of certificates for all of the shares of RP shall be issued to the Securities Depository and registered in the name of the Securities Depository or its nominee. Additional certificates may be issued as necessary to represent shares of RP having Optional Dividend Periods or Special Dividend Periods. All such certificates shall bear a legend to the effect that such certificate are issued subject to the provisions contained in these Articles Supplementary and each Master Purchaser's Letter. Unless the Corporation shall have elected, during a Non-Payment Period, to waive this requirement, the Corporation will also issue stop-transfer instructions to the Paying Agent for the shares of RP. Except as provided in paragraph (b) below, the Securities Depository or its nominee will be the Holder, and no Beneficial Owner shall receive certificates representing its ownership interest in such shares. (b) If the Applicable Dividend Rate applicable to all shares of RP shall be the Non-Payment Period Rate or there is no Securities Depository, the Corporation may at its option issue one or more new certificates with respect to such shares (without the legend referred to in paragraph 10(a) of this Part II) registered in the names of the Beneficial Owners or their nominees and rescind the stop-transfer instruction referred to in paragraph 10(a) of this Part II with respect to such shares. IN WITNESS WHEREOF, DUFF & PHELPS SELECTED UTILITIES INC. has caused these presents to be signed in its name and on its behalf by its President, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Corporation further acknowledged said instrument to be the corporate act of the Corporation, and stated under the penalties of perjury that to the best of their knowledge, information and belief the matters and facts therein set forth with respect to approval are true in all material respects, all on November 15, 1988. DUFF & PHELPS SELECTED UTILITIES INC. By /s/ Charles V. Hansen --------------------------- President Attest: /s/ Calvin J. Pederson - ------------------------- Secretary EX-99.2A(A6) 7 THIRD AMENDMENT TO ARTICLES OF INCORP Exhibit a.6 DUFF & PHELPS SELECTED UTILITIES INC. Articles of Amendment --------------------- Duff & Phelps Selected Utilities Inc., a Maryland corporation having its principal office in Chicago, Illinois (hereinafter called the corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The charter of the corporation, as heretofore amended, is hereby further amended as follows: The Articles Supplementary creating five series of Remarketed Preferred Stock of the corporation are amended as follows: 1. Part I, paragraph 1, Definitions, is amended by deleting the definition of "Eligible Portfolio Property" and replacing it with the following: "Eligible Portfolio Property" shall include Utility Bonds, Utility Stocks, cash, U.S. Government Obligations, Short Term Money Market Instruments, FNMA Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA Certificates, GNMA Multifamily Securities, GNMA Graduated Payment Securities, Conventional Mortgage Pass-Through Certificates, Other Permitted Securities and any other asset held by the Corporation that has been assigned a Discount Factor by the Rating Agencies and is included within the definition of Eligible Portfolio Property set forth herein or pursuant to an amendment or supplement hereto. 2. Part I, paragraph 1, Definitions, is further amended by the addition thereto of the following definition of "Other Permitted Securities": ""Other Permitted Securities" shall include any asset held or proposed to be acquired by the Corporation (i) not coming within the definition of Utility Bonds, Utility Stocks, cash, U.S. Government Obligations, Short Term Money Market Instruments, FNMA Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA Certificates, GNMA Multifamily Securities, GNMA Graduated Payment Securities or Conventional Mortgage Pass-Through Certificates and (ii) that has been assigned a Discount Factor by the Rating Agencies, provided that the Board of Directors determines and the Rating Agencies advise the Corporation in writing that the acquisition or holding of the asset will not adversely affect their then-current ratings of the RP. 3. Part I, paragraph 6, Voting, is amended by the addition thereto of the following sub-paragraph (e): (e) Voting by Series. In addition to any vote of the requisite percentage of shares of Common Stock and shares of Preferred Stock, including RP, otherwise necessary to authorize any proposed action under the Charter or the 1940 Act, on any matter therein the Preferred Stock has the right to vote as a class, the approval of the holders of a majority of the outstanding shares of any series of Preferred Stock, including any series of RP, voting separately as a series, shall be necessary to approve such proposed action if such series would be affected by the proposed action in a manner materially different from any other series. SECOND: The board of directors of the corporation on October 11, 1989 duly adopted a resolution in which was set forth the foregoing amendment to the charter, declaring that the said amendment to the charter as proposed was advisable and directing that it be submitted for consideration at the 1989 annual meeting of stockholders of the corporation. THIRD: Notice setting forth said amendment to the charter and a summary of the changes to be effected by said amendment and stating that a purpose of the meeting of the stockholders called to be held on December 13, 1989 would be to take action thereon, was given, as required by law, to all stockholders entitled to vote thereon. The amendment to the charter of the corporation as hereinabove set forth was approved by the stockholders of the corporation at said meeting by the affirmative vote of a majority of all the votes entitled to be cast thereon. FOURTH: The amendment to the charter of the corporation as hereinabove set forth has been duly advised by the board of directors and duly approved by the stockholders of the corporation. IN WITNESS WHEREOF, Duff & Phelps Selected Utilities Inc., has caused these articles to be signed in its name and on its behalf by its chairman and attested by its secretary, on December 13, 1989. DUFF & PHELPS SELECTED UTILITIES INC. By /s/ Claire V. Hansen ----------------------------------- Claire V. Hansen, Chairman Attest: /s/ Calvin J. Pedersen - -------------------------- Calvin J. Pedersen, Secretary THE UNDERSIGNED, chairman of Duff & Phelps Selected Utilities Inc., who executed on behalf of said corporation the foregoing articles of amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing articles of amendment to be the corporate act of said corporation and further certifies that to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. /s/ Claire V. Hansen ------------------------ Claire V. Hansen EX-99.2A(A7) 8 FOURTH AMENDMENT TO ARTICLES OF INCORP Exhibit a.7 DUFF & PHELPS SELECTED UTILITIES INC. Articles of Amendment --------------------- Duff & Phelps Selected Utilities Inc., a Maryland corporation having its principal office in Chicago, Illinois (hereinafter called the corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The charter of the corporation, as heretofore amended, is hereby further amended as follows: Article SECOND of the charter is hereby amended to read as follows: SECOND. Name. The name of the corporation is Duff & Phelps Utilities Income Inc. SECOND: The board of directors of the corporation on August 23, 1990 duly adopted a resolution by unanimous written consent in which was set forth the foregoing amendment to the charter, declaring that the said amendment to the charter as proposed was advisable and directing that it be submitted for consideration at the 1990 annual meeting of stockholders of the corporation. THIRD: Notice setting forth said amendment to the charter and the change to be effected by said amendment and stating that a purpose of the meeting of the stockholders called to be held on October 17, 1990 would be to take action thereon, was given, as required by law, to all stockholders entitled to vote thereon. The amendment to the charter of the corporation as hereinabove set forth was approved by the stockholders of the corporation at said meeting by the affirmative vote of a majority of all the votes entitled to be cast thereon. FOURTH: The amendment to the charter of the corporation as hereinabove set forth has been duly advised by the board of directors and duly approved by the stockholders of the corporation. FIFTH: This amendment does not increase the authorized stock of the corporation. SIXTH: This amendment shall become effective on November 1, 1990. IN WITNESS WHEREOF, Duff & Phelps Selected Utilities Inc., has caused these articles to be signed in its name and on its behalf by its chairman and attested by its secretary, on October 17, 1990. DUFF & PHELPS SELECTED UTILITIES INC. By /s/ Claire V. Hansen ----------------------------------- Claire V. Hansen, Chairman Attest: /s/ Calvin J. Pedersen - ----------------------------- Calvin J. Pedersen, Secretary THE UNDERSIGNED, chairman of Duff & Phelps Selected Utilities Inc., who executed on behalf of said corporation the foregoing articles of amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing articles of amendment to be the corporate act of said corporation and further certifies that to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. /s/ Claire V. Hansen ---------------------- Claire V. Hansen EX-99.2A(A8) 9 FIFTH AMENDMENT TO ARTICLES OF INCORP Exhibit a.8 DUFF & PHELPS UTILITIES INCOME INC. Articles of Amendment --------------------- Duff & Phelps Utilities Income Inc., a Maryland corporation having its principal office in Baltimore City, Maryland and its principal executive office in Chicago, Illinois (the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST:The Corporation's Articles Supplementary creating Remarketed Preferred Stock Series A, Series B, Series C, Series D and Series E are hereby amended as follows: 1. Part I, Paragraph 1, Definitions, is amended by deleting the definitions of "Deposit Securities," "Discounted Value," "RP Basic Maintenance Amount" and "RP Basic Maintenance Cure Date" and replacing them with the following definitions: "Deposit Securities" means cash, U.S. Government Obligations and Short Term Money Market Instruments. Except for purposes of determining compliance with either RP Basic Maintenance Amount, each Deposit Security shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Security but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made. "Discounted Value," with respect to any asset held by the Corporation as of any date, means the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by S&P (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall be zero) or the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by Moody's (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall mean the quotient of the lower of the Market Value of such asset and the exercise price of such call option divided by the applicable Discount Factor Supplied by Moody's), as the case may be, provided that in no event shall the Discounted Value of any asset constituting Eligible Portfolio Property as of any date exceed the unpaid principal balance or face amount of such asset as of that date. With respect to the calculation of the Discounted Value of any Utility Bond included in the Corporation's Eligible Portfolio Property, such calculation shall be made using the criteria set forth in the definitions of Utility Bonds and Market Value. With respect to the calculation of the Discounted Value of any Utility Stock included in the Corporation's Eligible Portfolio Property such calculation shall be made using the criteria set forth in the definitions of Utility Stocks and Market Value. When calculating the aggregate Discounted Value of the Corporation's Eligible Portfolio Property for comparison with the Moody's RP Basic Maintenance Amount, the Discount Factors Supplied by Moody's shall be used; provided that, in making such calculation, the amount of Utility Stocks issued by public utility companies with nuclear facilities under construction (as determined by the Adviser) which may be included in such calculation shall be limited to five percent of the Market Value of the Corporation's Eligible Portfolio Property. When calculating the aggregate Discounted Value of the Corporation's Eligible Portfolio Property for comparison with the S&P Basic Maintenance Amount, the Discount Factors Supplied by S&P shall be used. Notwithstanding any other provision of these Articles Supplementary, any Utility Bond that has a remaining maturity of more than 30 years, and any asset as to which there is no Discount Factor Supplied by Moody's or Discount Factor Supplied by S&P either in these Articles Supplementary or in an amendment or supplement thereof, shall have a Discounted Value for purposes of determining the aggregate Discounted Value of the Corporation's Eligible Portfolio Property calculated using the Discount Factor Supplied by Moody's or S&P, as the case may be, of zero. "RP Basic Maintenance Amount" means the Moody's RP Basic Maintenance Amount or the S&P RP Basic Maintenance Amount, as the case may be. "RP Basic Maintenance Cure Date," with respect to the failure by the Corporation to maintain either RP Basic Maintenance Amount (as required by paragraph 8 of this Part I) as of each Valuation Date, means the eighth Business Day following such Valuation Date. "RP Basic Maintenance Report" means a report signed by the President, the Treasurer, any Senior Vice President or any Vice President of the Corporation which sets forth, as of the related Valuation Date, the assets of the Corporation, the Market Value and the Discounted Value thereof (seriatim and in the aggregate), and each RP Basic Maintenance Amount. 2. Part I, Paragraph 1, Definitions, is further amended by the addition thereto of the following definitions of "Moody's RP Basic Maintenance Amount" and "S&P RP Basic Maintenance Amount": "Moody's RP Basic Maintenance Amount" means, initially, as of any date, the sum of (i) the aggregate liquidation preference of the shares of RP outstanding and shares of Other RP outstanding, (ii) to the extent not covered in (i), the aggregate amount of accumulated but unpaid cash dividends with respect to the shares of RP outstanding and shares of Other RP outstanding, (iii) any Rights due and payable and any equivalent rights to receive cash with respect to Other RP which are due and payable, (iv) an amount equal to the product of (x) three and (y) the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (v) an amount equal to the sum of (x) the amount of accrued but unpaid interest on the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding and (y) an amount equal to 70 days of additional accrued interest on such loan at the then-current interest rate borne by such loan, (vi) an amount equal to the product of (x) three and (y) the aggregate principal amount of any other then outstanding indebtedness of the Corporation for money borrowed, (vii) an amount equal to the sum of (x) the aggregate accrued but unpaid interest on the indebtedness referred to in the foregoing clause (vi) and (y) an amount equal to 70 days of additional accrued interest on such indebtedness at the then-current interest rate(s) borne by such indebtedness, (viii) the aggregate Projected Dividend Amount, (ix) redemption premium, if any, and (x) the greater of $200,000 or an amount equal to projected expenses of the Corporation (including, without limitation, fee and indemnification obligations of the Corporation incurred in connection with any commercial paper program undertaken by the Corporation or with any credit facility related thereto) for the next three month period. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial elements comprising the Moody's RP Basic Maintenance Amount if the Board of Directors determines and Moody's advises the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect its then-current rating on the RP. "S&P RP Basic Maintenance Amount" means, initially, as of any date, the sum of (i) the aggregate liquidation preference of the shares of RP outstanding and shares of Other RP outstanding, (ii) to the extent not covered in (i), the aggregate amount of accumulated but unpaid cash dividends with respect to the shares of RP outstanding and shares of Other RP outstanding, (iii) any Rights due and payable and any equivalent rights to receive cash with respect to Other RP which are due and payable, (iv) the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (v) an amount equal to accrued but unpaid interest on the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (vi) the aggregate principal amount of, and an amount equal to accrued but unpaid interest on, any other then outstanding indebtedness of the Corporation for money borrowed, (vii) the aggregate Projected Dividend Amount, (viii) redemption premium, if any, and (ix) the greater of $200,000 or an amount equal to projected expenses of the Corporation (including, without limitation, fee and indemnification obligations of the Corporation incurred in connection with any commercial paper program undertaken by the Corporation or with any credit facility related thereto) for the next three month period. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial elements comprising the S&P RP Basic Maintenance Amount if the Board of Directors determines and S&P advises the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect its then-current rating on the RP. 3. Part I, Paragraph 3, Dividends, is amended by deleting paragraph (i) thereof and replacing it with the following: (i) So long as any shares of RP are outstanding, the Corporation shall not, subject to the requirements of the 1940 Act and Maryland law, without the affirmative vote or consent of the holders of at least two-thirds of the votes of the shares of RP outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as one class): (a) authorize, create or issue, or increase the authorized or issued amount, of any class or series of stock ranking prior to the RP with respect to payment of dividends or the distribution of assets on liquidation, or (b) amend, alter or repeal the provisions of the Corporation's Charter including these Articles Supplementary, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privileges or voting power of such shares of RP or the Holders thereof; provided that, any increase in the amount of the authorized RP or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of such series or of any other series of remarketed preferred stock, in each case ranking on a parity with or junior to the RP, will not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers unless such issuance would cause the Corporation not to satisfy the 1940 Act RP Asset Coverage or either RP Basic Maintenance Amount. Unless a higher percentage is provided for under the Charter, the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock including RP, voting together as a single class, will be required to approve any plan of reorganization adversely affecting such shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred Stock, including RP, described above will in each case be in addition to a separate vote of the requisite percentage of shares of Common Stock and shares of Preferred Stock, including RP, necessary to authorize the action in question. The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of RP shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption. 4. Part I, Paragraph 4, Redemption, is amended by deleting paragraph (b) thereof and replacing it with the following: (b) The Corporation shall redeem, out of funds legally available therefor, at a redemption price of $100,000 per share plus an amount equal to cash dividends thereon (whether or not earned or declared) accumulated but unpaid to the date of redemption, shares of RP to the extent permitted under the 1940 Act and Maryland law, on a date fixed by the Board of Directors, if the Corporation fails to maintain either RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage and such failure is not cured on or before the RP Basic Maintenance Cure Date or the 1940 Act Cure Date (herein referred to as the "Cure Date"), as the case may be. The number of shares to be redeemed shall be equal to the lesser of (i) the minimum number of shares of RP the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, together with all shares of other Preferred Stock subject to redemption or retirement, would result in the satisfaction of the relevant RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, on such Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all shares of RP then outstanding shall be redeemed), and (ii) the maximum number of shares of RP that can be redeemed out of funds expected to be legally available therefor on such redemption date. In determining the number of shares of RP required to be redeemed in accordance with the foregoing, the Corporation shall allocate the amount required to achieve the relevant RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, pro rata among the RP and the Other RP. The Corporation shall effect such redemption not later than 41 days after such Cure Date, except that if the Corporation does not have funds legally available for the redemption of all of the required number of shares of RP which are subject to mandatory redemption or the Corporation otherwise is unable to effect such redemption on or prior to such Cure Date, the Corporation shall redeem those shares of RP which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption. 5. Part I, Paragraph 8, Asset and Liquidity Coverage, is amended by deleting the text of Paragraph (i) of Paragraph (a), RP Basic Maintenance Amount, thereof and replacing it with the following text: (i) The Corporation shall maintain, on each Valuation Date, (A) Eligible Portfolio Property having an aggregate Discounted Value (calculated using the Discount Factors Supplied by Moody's) at least equal to the Moody's RP Basic Maintenance Amount and (B) Eligible Portfolio Property having an aggregate Discounted Value (calculated using the Discount Factors Supplied by S&P) at least equal to the S&P RP Basic Maintenance Amount. SECOND: The Corporation's Articles Supplementary creating Remarketed Preferred Stock Series I are hereby amended as follows: 1. Part I, Paragraph 1, Definitions, is amended by deleting the definitions of "Deposit Securities," "Discounted Value," "RP Basic Maintenance Amount" and "RP Basic Maintenance Cure Date" and replacing them with the following definitions: "Deposit Securities" means cash, U.S. Government Obligations and Short Term Money Market Instruments. Except for purposes of determining compliance with either RP Basic Maintenance Amount, each Deposit Security shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Security but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made. "Discounted Value," with respect to any asset held by the Corporation as of any date, means the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by S&P (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall be zero) or the quotient of the Market Value of such asset divided by the applicable Discount Factor Supplied by Moody's (provided that, in the event the Corporation has written a call option on such asset, the Discounted Value of such asset shall mean the quotient of the lower of the Market Value of such asset and the exercise price of such call option divided by the applicable Discount Factor Supplied by Moody's), as the case may be, provided that in no event shall the Discounted Value of any asset constituting Eligible Portfolio Property as of any date exceed the unpaid principal balance or face amount of such asset as of that date. With respect to the calculation of the Discounted Value of any Utility Bond included in the Corporation's Eligible Portfolio Property, such calculation shall be made using the criteria set forth in the definitions of Utility Bonds and Market Value. With respect to the calculation of the Discounted Value of any Utility Stock included in the Corporation's Eligible Portfolio Property such calculation shall be made using the criteria set forth in the definitions of Utility Stocks and Market Value. When calculating the aggregate Discounted Value of the Corporation's Eligible Portfolio Property for comparison with the Moody's RP Basic Maintenance Amount, the Discount Factors Supplied by Moody's shall be used; provided that, in making such calculation, the amount of Utility Stocks issued by public utility companies with nuclear facilities under construction (as determined by the Adviser) which may be included in such calculation shall be limited to five percent of the Market Value of the Corporation's Eligible Portfolio Property. When calculating the aggregate Discounted Value of the Corporation's Eligible Portfolio Property for comparison with the S&P Basic Maintenance Amount, the Discount Factors Supplied by S&P shall be used. Notwithstanding any other provision of these Articles Supplementary, any Utility Bond that has a remaining maturity of more than 30 years, and any asset as to which there is no Discount Factor Supplied by Moody's or Discount Factor Supplied by S&P either in these Articles Supplementary or in an amendment or supplement thereof, shall have a Discounted Value for purposes of determining the aggregate Discounted Value of the Corporation's Eligible Portfolio Property calculated using the Discount Factor Supplied by Moody's or S&P, as the case may be, of zero. "RP Basic Maintenance Amount" means the Moody's RP Basic Maintenance Amount or the S&P RP Basic Maintenance Amount, as the case may be. "RP Basic Maintenance Cure Date," with respect to the failure by the Corporation to maintain either RP Basic Maintenance Amount (as required by paragraph 8 of this Part I) as of each Valuation Date, means the eighth Business Day following such Valuation Date. "RP Basic Maintenance Report" means a report signed by the President, the Treasurer, any Senior Vice President or any Vice President of the Corporation which sets forth, as of the related Valuation Date, the assets of the Corporation, the Market Value and the Discounted Value thereof (seriatim and in the aggregate), and each RP Basic Maintenance Amount. 2. Part I, Paragraph 1, Definitions, is further amended by the addition thereto of the following definitions of "Moody's RP Basic Maintenance Amount" and "S&P RP Basic Maintenance Amount": "Moody's RP Basic Maintenance Amount" means, initially, as of any date, the sum of (i) the aggregate liquidation preference of the shares of RP outstanding and shares of Other RP outstanding, (ii) to the extent not covered in (i), the aggregate amount of accumulated but unpaid cash dividends with respect to the shares of RP outstanding and shares of Other RP outstanding, (iii) any Rights due and payable and any equivalent rights to receive cash with respect to Other RP which are due and payable, (iv) an amount equal to the product of (x) three and (y) the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (v) an amount equal to the sum of (x) the amount of accrued but unpaid interest on the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding and (y) an amount equal to 70 days of additional accrued interest on such loan at the then-current interest rate borne by such loan, (vi) an amount equal to the product of (x) three and (y) the aggregate principal amount of any other then outstanding indebtedness of the Corporation for money borrowed, (vii) an amount equal to the sum of (x) the aggregate accrued but unpaid interest on the indebtedness referred to in the foregoing clause (vi) and (y) an amount equal to 70 days of additional accrued interest on such indebtedness at the then-current interest rate(s) borne by such indebtedness, (viii) the aggregate Projected Dividend Amount, (ix) redemption premium, if any, and (x) the greater of $200,000 or an amount equal to projected expenses of the Corporation (including, without limitation, fee and indemnification obligations of the Corporation incurred in connection with any commercial paper program undertaken by the Corporation or with any credit facility related thereto) for the next three month period. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial elements comprising the Moody's RP Basic Maintenance Amount if the Board of Directors determines and Moody's advises the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect its then-current rating on the RP. "S&P RP Basic Maintenance Amount" means, initially, as of any date, the sum of (i) the aggregate liquidation preference of the shares of RP outstanding and shares of Other RP outstanding, (ii) to the extent not covered in (i), the aggregate amount of accumulated but unpaid cash dividends with respect to the shares of RP outstanding and shares of Other RP outstanding, (iii) any Rights due and payable and any equivalent rights to receive cash with respect to Other RP which are due and payable, (iv) the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (v) an amount equal to accrued but unpaid interest on the principal amount of the Corporation's loan from the Aid Association for Lutherans then outstanding, (vi) the aggregate principal amount of, and an amount equal to accrued but unpaid interest on, any other then outstanding indebtedness of the Corporation for money borrowed, (vii) the aggregate Projected Dividend Amount, (viii) redemption premium, if any, and (ix) the greater of $200,000 or an amount equal to projected expenses of the Corporation (including, without limitation, fee and indemnification obligations of the Corporation incurred in connection with any commercial paper program undertaken by the Corporation or with any credit facility related thereto) for the next three month period. The Board of Directors shall have the authority to adjust, modify, alter or change from time to time the initial elements comprising the S&P RP Basic Maintenance Amount if the Board of Directors determines and S&P advises the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect its then-current rating on the RP. 3. Part I, Paragraph 3, Dividends, is amended by deleting paragraph (i) thereof and replacing it with the following: (i) So long as any shares of RP are outstanding, the Corporation shall not, subject to the requirements of the 1940 Act and Maryland law, without the affirmative vote or consent of the holders of at least two-thirds of the votes of the shares of RP outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as one class): (a) authorize, create or issue, or increase the authorized or issued amount, of any class or series of stock ranking prior to the RP with respect to payment of dividends or the distribution of assets on liquidation, or (b) amend, alter or repeal the provisions of the Corporation's Charter including these Articles Supplementary, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privileges or voting power of such shares of RP or the Holders thereof; provided that, any increase in the amount of the authorized RP or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of such series or of any other series of remarketed preferred stock, in each case ranking on a parity with or junior to the RP, will not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers unless such issuance would cause the Corporation not to satisfy the 1940 Act RP Asset Coverage or either RP Basic Maintenance Amount. Unless a higher percentage is provided for under the Charter, the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock including RP, voting together as a single class, will be required to approve any plan of reorganization adversely affecting such shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred Stock, including RP, described above will in each case be in addition to a separate vote of the requisite percentage of shares of Common Stock and shares of Preferred Stock, including RP, necessary to authorize the action in question. The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of RP shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption. 4. Part I, Paragraph 4, Redemption, is amended by deleting paragraph (b) thereof and replacing it with the following: (b) The Corporation shall redeem, out of funds legally available therefor, at a redemption price of $100,000 per share plus an amount equal to cash dividends thereon (whether or not earned or declared) accumulated but unpaid to the date of redemption, shares of RP to the extent permitted under the 1940 Act and Maryland law, on a date fixed by the Board of Directors, if the Corporation fails to maintain either RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage and such failure is not cured on or before the RP Basic Maintenance Cure Date or the 1940 Act Cure Date (herein referred to as the "Cure Date"), as the case may be. The number of shares to be redeemed shall be equal to the lesser of (i) the minimum number of shares of RP the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, together with all shares of other Preferred Stock subject to redemption or retirement, would result in the satisfaction of the relevant RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, on such Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all shares of RP then outstanding shall be redeemed), and (ii) the maximum number of shares of RP that can be redeemed out of funds expected to be legally available therefor on such redemption date. In determining the number of shares of RP required to be redeemed in accordance with the foregoing, the Corporation shall allocate the amount required to achieve the relevant RP Basic Maintenance Amount or the 1940 Act RP Asset Coverage, as the case may be, pro rata among the RP and the Other RP. The Corporation shall effect such redemption not later than 41 days after such Cure Date, except that if the Corporation does not have funds legally available for the redemption of all of the required number of shares of RP which are subject to mandatory redemption or the Corporation otherwise is unable to effect such redemption on or prior to such Cure Date, the Corporation shall redeem those shares of RP which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption. 5. Part I, Paragraph 8, Asset and Liquidity Coverage, is amended by deleting the text of Paragraph (i) of Paragraph (a), RP Basic Maintenance Amount, thereof and replacing it with the following text: (i) The Corporation shall maintain, on each Valuation Date, (A) Eligible Portfolio Property having an aggregate Discounted Value (calculated using the Discount Factors Supplied by Moody's) at least equal to the Moody's RP Basic Maintenance Amount and (B) Eligible Portfolio Property having an aggregate Discounted Value (calculated using the Discount Factors Supplied by S&P) at least equal to the S&P RP Basic Maintenance Amount. THIRD: The amendments as herein above set forth have been duly advised by the Board of Directors of the Corporation and duly approved by the Corporation's stockholders. FOURTH: These amendments do not increase the authorized stock of the Corporation. FIFTH: These amendments shall become effective as of the time that the State Department of Assessments and Taxation of Maryland accepts these Articles of Amendment for record. IN WITNESS WHEREOF, Duff & Phelps Utilities Income Inc. has caused these Articles of Amendment to be signed in its name and on its behalf by its chairman and attested by its secretary on this 30th day of November, 1993. Duff & Phelps Utilities Income Inc. By: /s/ Claire V. Hansen ------------------------------ Claire V. Hansen Chairman ATTEST: /s/ Calvin J. Pedersen - ------------------------- Calvin J. Pedersen Secretary THE UNDERSIGNED, chairman of Duff & Phelps Utilities Income Inc., who executed on behalf of said corporation the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on the behalf of said corporation, the foregoing Articles of Amendment to be the corporate act of said corporation and further certifies that to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects, under the penalties of perjury. /s/ Claire V. Hansen ---------------------------- Claire V. Hansen EX-99.2O 10 FINANCIAL STATEMENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Duff & Phelps Utilities Income Inc.: We have audited the accompanying balance sheet of DUFF & PHELPS UTILITIES INCOME INC. (a Maryland corporation), including the schedule of investments, as of December 31, 1996, and the related statements of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for the years indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. As to securities purchased but not received, we requested confirmation from brokers and, when replies were not received, we carried out alternative auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Duff & Phelps Utilities Income Inc. as of December 31, 1996, the results of its operations and cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the years indicated thereon, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois, January 31, 1997 DUFF & PHELPS UTILITIES INCOME INC. SCHEDULE OF INVESTMENTS DECEMBER 31, 1996 COMMON STOCKS--69.4%
MARKET VALUE SHARES COMPANY (NOTE 1) --------- ------- -------------- ELECTRIC--45.5% 1,733,000 Baltimore Gas & Electric Co......................... $ 46,357,750 1,818,600 Boston Edison Co.................................... 48,874,875 2,017,900 Carolina Power & Light Co........................... 73,653,350 1,036,000 Central and South West Corp......................... 26,547,500 1,635,000 CINergy Corp........................................ 54,568,125 705,000 CIPSCO Inc.......................................... 25,468,125 1,352,700 CMS Energy Corp..................................... 45,484,537 1,265,000 DQE Incorporated.................................... 36,685,000 215,500 DTE Energy Co....................................... 6,976,812 780,000 Duke Power Co....................................... 36,075,000 1,025,900 Eastern Utilities Associates........................ 17,825,012 550,000 Edison International................................ 10,931,250 560,000 Empresa National De Electricidad ADR................ 39,200,000 1,447,800 FPL Group Inc....................................... 66,598,800 2,050,000 GPU Inc............................................. 68,931,250 1,865,400 Illinova Corp....................................... 51,298,500 1,600,800 IPALCO Enterprises Inc.............................. 43,621,800 1,141,800 LG&E Energy Corp.................................... 27,974,100 686,500 National Power PLC ADR.............................. 23,255,188 1,278,300 NIPSCO Industries Inc............................... 50,652,638 1,600,000 PECO Energy Co...................................... 40,400,000 302,000 Powergen PLC ADR.................................... 11,929,000 3,341,700 Southern Co......................................... 75,605,963 1,319,700 TECO Energy Inc..................................... 31,837,762 825,000 Texas Utilities Co.................................. 33,618,750 -------------- 994,371,087 GAS--2.0% 661,600 Brooklyn Union Gas Co............................... 19,930,700 225,000 CMS Energy Corp. Class G............................ 4,134,375 444,700 NICOR Inc........................................... 15,898,025 200,000 Washington Gas Light Co............................. 4,525,000 -------------- 44,488,100
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. SCHEDULE OF INVESTMENTS--(CONTINUED) DECEMBER 31, 1996
MARKET VALUE SHARES COMPANY (NOTE 1) --------- ------- -------------- TELECOMMUNICATION--12.7% 1,143,100 Ameritech Corp...................................... $ 69,300,438 565,000 Bellsouth Corp...................................... 22,811,875 115,800 British Telecommunications PLC ADR.................. 7,946,775 50,000 Frontier Corp....................................... 1,131,250 600,000 GTE Corp............................................ 27,300,000 150,000 Portugal Telecom SA ADS............................. 4,237,500 200,000 Royal PTT Nederland ADS............................. 7,575,000 1,318,615 SBC Communications Inc.............................. 68,238,326 664,400 Telefonica De Espana ADS............................ 46,009,700 575,000 Sprint Corp......................................... 22,928,125 -------------- 277,478,989 NON-UTILITY--9.2% 50,000 Arden Realty Inc.................................... 1,387,500 253,800 CBL & Associates Properties Inc..................... 6,567,075 200,000 Centerpoint Properties Corporation.................. 6,550,000 120,000 Chelsea GCA Realty Inc.............................. 4,155,000 100,000 Colonial Properties Trust........................... 3,037,500 400,000 Crescent Real Estate Equities Inc................... 21,100,000 150,000 Developers Diversified Realty Corp.................. 5,568,750 400,000 Equity Residential Properties Trust................. 16,500,000 478,100 First Industrial Realty Trust....................... 14,522,288 426,300 Gables Residential Trust............................ 12,362,700 455,000 Highwoods Properties Inc............................ 15,356,250 200,000 Meditrust........................................... 8,000,000 175,000 Macerich Co......................................... 4,571,875 154,400 Merry Land & Investment Inc......................... 3,319,600 590,000 Nationwide Health Properties........................ 14,307,500 250,000 Patriot American Hospitality........................ 10,781,250 200,000 Reckson Associates Realty Corp...................... 8,450,000 275,000 Starwood Lodging Trust.............................. 15,159,375 273,400 TriNet Corporate Realty Trust....................... 9,705,700 200,000 Urban Shopping Centers Inc.......................... 5,800,000 160,600 Vornado Realty Trust................................ 8,431,500 150,000 Weeks Corp.......................................... 4,987,500 -------------- 200,621,363 -------------- Total Common Stocks (Cost--$1,437,647,045).......... 1,516,959,539 --------------
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. SCHEDULE OF INVESTMENTS--(CONTINUED) DECEMBER 31, 1996
MARKET VALUE SHARES COMPANY (NOTE 1) --------- ------- ---------- CONVERTIBLE PREFERRED STOCKS--0.0% NON-UTILITY--0.0% 47,000 Tanger Factory Outlet Centers Inc. Series A............. $1,157,375 ---------- Total Convertible Preferred Stocks (Cost--$989,350)..... 1,157,375 ----------
BONDS--27.9%
RATINGS -------------------------- STANDARD MARKET DUFF & AND VALUE PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1) ----------- ------- --------- ------- -------- ---------- ELECTRIC--16.1% $24,920,000 Alabama Power Co. 9%, due 12/01/24........ AA- A1 A+ 27,570,712 14,500,000 Commonwealth Edison Co. 9 3/4%, due 2/15/20..... BBB Baa2 BBB 16,003,678 7,500,000 Commonwealth Edison Co. 9 7/8%, due 6/15/20..... BBB Baa2 BBB 8,518,161 10,000,000 Commonwealth Edison Co. 8 3/8%, due 2/15/23..... BBB Baa2 BBB 10,179,860 35,000,000 CTC Mansfield Funding Corp. 10 5/8%, due 9/30/16.... Not Rated Aaa AAA 37,421,262 8,000,000 Duquesne Light Co. 7.55%, due 6/15/25...... A- Baa1 BBB+ 7,748,672 5,000,000 Gulf States Utilities 8.94%, due 1/01/22...... Not Rated Baa3 BBB- 5,189,220 20,000,000 Illinois Power Co. 8%, due 2/15/23......... BBB+ Baa1 BBB 20,025,000 15,000,000 New York State Electric & Gas Corp. 9 7/8%, due 11/01/20.... Not Rated Baa1 BBB+ 16,264,453 4,000,000 New York State Electric & Gas Corp. 8 7/8%, due 11/01/21.... Not Rated Baa1 BBB+ 4,217,808 6,500,000 Ohio Edison Co. 8 3/4%, due 2/15/98..... BBB+ Baa2 BBB- 6,651,794
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. SCHEDULE OF INVESTMENTS--(CONTINUED) DECEMBER 31, 1996
RATINGS -------------------------- STANDARD MARKET DUFF & AND VALUE PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1) ----------- ------- --------- ------- -------- ------------ $14,105,000 Pennsylvania Power & Light Co. 9 1/4%, due 10/01/19..... Not Rated A3 A- $ 15,412,829 16,850,000 Pennsylvania Power & Light Co. 9 3/8%, due 7/01/21...... Not Rated A3 A- 18,636,217 26,750,000 Philadelphia Electric 8 3/4%, due 4/01/22...... Not Rated Baa1 BBB+ 28,072,998 20,950,000 Potomac Electric Power Co. 9%, due 6/01/21.......... AA- A1 A 23,228,207 3,000,000 Rochester Gas & Electric Corp. 9 3/8%, due 4/01/21...... BBB+ Baa1 BBB+ 3,321,354 29,830,000 Texas Utilities Electric Co. 9 3/4%, due 5/01/21...... Not Rated Baa2 BBB+ 33,783,754 10,000,000 Texas Utilities Electric Co. 8 3/4%, due 11/01/23..... Not Rated Baa2 BBB+ 10,693,939 12,000,000 UtiliCorp United Inc. 8%, due 3/01/23.......... BBB Baa3 BBB 12,014,507 4,000,000 Union Electric Co. 8 3/4%, due 12/01/21..... AA- A1 AA- 4,408,024 29,780,000 Virginia Electric & Power Co. 9 3/8%, due 6/01/98...... A A2 A 31,031,532 11,500,000 Virginia Electric & Power Co. 8 1/4%, due 3/01/25...... A A2 A 12,129,692 ------------ 352,523,673 GAS--3.4% 13,000,000 Enron Corp. 8 1/2%, due 2/01/00...... BBB+ Baa2 BBB+ 12,896,791 8,875,000 Enron Corp. 9.65%, due 5/15/01....... BBB+ Baa2 BBB+ 9,859,742 6,000,000 Northwest Pipeline Corp. 10.65%, due 11/15/18..... BBB+ Baa1 BBB 6,402,731 10,000,000 Phillips Petroleum Co. 9.18%, due 9/15/21....... Not Rated A3 A- 11,184,039 9,500,000 Transco Energy 9 1/8%, due 5/01/98...... BBB Baa2 BBB- 9,858,121
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. SCHEDULE OF INVESTMENTS--(CONTINUED) DECEMBER 31, 1996
RATINGS ----------------------- STANDARD MARKET DUFF & AND VALUE PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1) ----------- ------- ------ ------- -------- ------------ $14,500,000 Transcontinental Gas Pipe Line Corp. 9 1/8%, due 2/01/17............... BBB+ Baa1 BBB $ 15,153,513 7,000,000 Williams Co. 10 1/4%, due 7/15/20.............. BBB Baa2 BBB- 9,070,754 ------------ 74,425,691 TELECOMMUNICATION--7.2% 8,000,000 AT & T Corp. 8.35%, due 1/15/25................ AA+ Aa3 AA 8,522,776 13,500,000 Bellsouth Capital Funding Corp. 9 1/4%, due 1/15/98............... AA+ Aa1 AAA 13,939,572 16,500,000 GTE Corp. 8.85%, due 3/01/98................ A- A3 BBB+ 16,994,142 17,428,000 GTE Corp. 9 3/8%, due 12/01/00.............. A- A3 BBB+ 19,134,062 6,000,000 GTE Corp. 10 1/4%, due 11/01/20............. A- A3 BBB+ 6,835,955 11,995,000 Mountain States Telephone 9 1/2%, due 5/01/00............... AA Aa3 AA- 13,062,626 13,750,000 New England Telephone & Telegraph 9%, due 8/01/31................... AA Aa2 AA- 15,230,269 10,000,000 New York Telephone Co. 7 5/8%, due 2/01/23............... A A2 A 9,962,500 20,000,000 New York Telephone Co. 7%, due 8/15/25................... A A2 A 18,598,578 20,740,000 New York Telephone Co. 9 3/8%, due 7/15/31............... A A2 A 23,457,913 5,000,000 Pacific Bell 8 1/2%, due 8/15/31............... AA- A1 AA- 5,303,909 5,000,000 US West Communications 8 7/8%, due 6/01/31............... AA- Aa3 A+ 5,424,940 ------------ 156,467,242
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. SCHEDULE OF INVESTMENTS--(CONTINUED) DECEMBER 31, 1996
RATINGS ----------------------- STANDARD MARKET DUFF & AND VALUE PAR VALUE COMPANY PHELPS MOODY'S POOR'S (NOTE 1) ----------- ------- ------ ------- -------- -------------- NON-UTILITY--1.2% $15,700,000 American General Corp. 9 5/8%, due 2/01/18........ AA- A1 AA- $ 16,840,540 8,000,000 Dayton Hudson Corp. 9 7/8%, due 7/01/20........ A- Baa1 BBB+ 9,882,479 -------------- 26,723,019 -------------- Total Bonds (Cost--$600,850,852).................... 610,139,625 -------------- U.S. TREASURY OBLIGATIONS--1.6% 29,000,000 U.S. Treasury Bonds 11 3/4%, due 2/15/01................................ 34,827,201 -------------- Total U.S. Treasury Obligations (Cost-- $35,325,625)........................................ 34,827,201 -------------- U.S. GOVERNMENT AGENCY OBLIGATIONS--0.1% 1,659,167 Federal National Mortgage Association 8%, due 5/01/05..................................... 1,689,240 -------------- Total U.S. Government Agency Obligations (Cost-- $1,714,646)......................................... 1,689,240 -------------- COMMERCIAL PAPER--1.4% 30,000,000 General Electric Capital Corp. 5.50%, due 1/07/97.................................. 29,972,500 -------------- Total Commercial Paper (Amortized cost-- $29,972,500)........................................ 29,972,500 -------------- TOTAL INVESTMENTS (Cost--$2,106,500,018) (100.4%)... $2,194,745,480 ==============
The percentage shown for each investment category is the total value of that category as a percentage of the total net assets of the Fund. The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. BALANCE SHEET DECEMBER 31, 1996 ASSETS: Investments at market value: Common stocks (cost $1,437,647,045).......................... $1,516,959,539 Convertible preferred stock (cost $989,350).................. 1,157,375 Bonds (cost $600,850,852).................................... 610,139,625 U.S. Treasury obligations (cost $35,325,625)................. 34,827,201 U.S. Government agency obligations (cost $1,714,646)......... 1,689,240 Commercial paper (amortized cost $29,972,500)................ 29,972,500 Interest-bearing deposits with custodian...................... 473,409 Receivables: Securities sold.............................................. 165,296,837 Interest..................................................... 15,495,521 Dividends.................................................... 16,530,179 Pre-paid expenses............................................. 52,300 --------------- Total Assets................................................ $2,392,593,726 =============== LIABILITIES: Payable for investments purchased............................. $ 85,341,315 Due to Adviser (Note 2)....................................... 3,076,344 Due to Administrator (Note 2)................................. 739,682 Dividends payable on common stock............................. 15,979,316 Dividends payable on remarketed preferred stock............... 1,299,126 Accrued expenses.............................................. 1,353,877 Commercial paper outstanding (Note 6)......................... 98,360,808 --------------- Total Liabilities........................................... 206,150,468 --------------- CAPITAL: Remarketed preferred stock ($.001 par value; 100,000,000 shares authorized and 5,000 shares issued and outstanding, liquidation preference $100,000 per share) (Note 5)........... 500,000,000 --------------- Common stock ($.001 par value; 250,000,000 shares authorized and 199,741,443 shares issued and outstanding) (Note 4)....... 199,741 Paid-in surplus (Note 4)...................................... 1,777,499,706 Accumulated net realized loss on investments.................. ( 180,110,936) Undistributed net investment income........................... 609,285 Net unrealized appreciation on investments.................... 88,245,462 --------------- Net assets applicable to common stock (equivalent to $8.44 per share based on 199,741,443 shares outstanding).......... 1,686,443,258 --------------- Total Capital (Net Assets).................................. 2,186,443,258 --------------- Total Liabilities and Capital............................... $2,392,593,726 ===============
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME: Interest....................................................... $ 59,253,073 Dividends (less withholding tax of $1,344,225)................. 133,108,024 ------------- Total investment income....................................... 192,361,097 EXPENSES: Commercial paper interest expense (Note 6)..................... 6,215,933 Management fees (Note 2)....................................... 12,254,315 Administrative fees (Note 2)................................... 2,944,545 Transfer agent fees............................................ 714,200 Custodian fees................................................. 286,800 Remarketing agent fees......................................... 1,270,833 Shareholder reports............................................ 549,000 Legal and audit fees........................................... 159,950 Directors' fees (Note 2)....................................... 201,400 Other expenses................................................. 635,281 ------------- Total expenses................................................ 25,232,257 ------------- Net investment income......................................... 167,128,840 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments............................... 10,386,225 Net change in unrealized appreciation on investments........... ( 90,555,515) ------------- Net loss on investments....................................... ( 80,169,290) ------------- Net increase in net assets resulting from operations.......... $ 86,959,550 =============
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31 -------------------------------- 1996 1995 --------------- --------------- FROM OPERATIONS: Net investment income........................ $ 167,128,840 $ 164,486,063 Net realized gain (loss) on investments..... 10,386,225 11,609,834 Net change in unrealized appreciation (depreciation) on investments............... ( 90,555,515) 305,307,239 --------------- --------------- Net increase in net assets resulting from operations................................. 86,959,550 481,403,136 DISTRIBUTIONS TO STOCKHOLDERS FROM: Net investment income--preferred stock (Note 5).......................................... ( 20,294,342) ( 22,621,518) Net investment income--common stock (Note 3).......................................... ( 146,738,947) ( 142,377,331) --------------- --------------- Total distributions........................ ( 167,033,289) ( 164,998,849) FROM CAPITAL STOCK TRANSACTIONS (NOTE 4): Shares issued to common stockholders from dividend reinvestment....................... 27,186,063 26,836,422 --------------- --------------- Net increase in net assets derived from capital share transactions.................. 27,186,063 26,836,422 --------------- --------------- Total increase (decrease).................. ( 52,887,676) 343,240,709 TOTAL NET ASSETS: Beginning of year........................... 2,239,330,934 1,896,090,225 --------------- --------------- End of year (including undistributed net investment income of $609,285 and $513,734 respectively)............................... $2,186,443,258 $2,239,330,934 =============== ===============
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 CASH FLOWS FROM (FOR): OPERATING ACTIVITIES Interest received.............................. $ 59,709,844 Income dividends received...................... 127,243,954 Operating expenses paid (excluding interest)... ( 18,718,205) Interest paid on commercial paper.............. ( 6,110,998) -------------- Net cash provided by operating activities.................... $162,124,595 INVESTING ACTIVITIES Purchase of investment securities.............. (5,727,593,679) Proceeds from sale/redemption of investment securities..................................... 5,687,336,013 Return of capital on investments............... 3,220,304 Long-term capital gains dividends received..... 373,891 -------------- Net cash used in investing activities........................ ( 36,663,471) FINANCING ACTIVITIES Dividends paid................................. ( 165,383,848) Proceeds from issuance of common stock under dividend reinvestment plan..................... 27,186,063 Change in net proceeds from issuance of commercial paper............................... ( 14,949,804) -------------- Net cash used in financing activities........................ ( 153,147,589) ------------- Net decrease in cash and cash equivalents...................... ( 27,686,465) ------------- Cash and cash equivalents--beginning of year................... 28,159,874 ------------- Cash and cash equivalents--end of year......................... $ 473,409 ============= Reconciliation of net investment income to net cash provided by operating activities: Net investment income......................................... $167,128,840 Adjustments to reconcile net investment income to net cash provided by operating activities:.. Decrease in interest receivable............... 456,772 Increase in dividends receivable.............. ( 5,864,071) Increase in accrued expenses.................. 403,054 -------------- Total adjustments........................................... ( 5,004,245) ------------- Net cash provided by operating activities..................... $162,124,595 =============
The accompanying notes are an integral part of the financial statements. DUFF & PHELPS UTILITIES INCOME INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (1) SIGNIFICANT ACCOUNTING POLICIES: Duff & Phelps Utilities Income Inc. (the "Fund") was incorporated under the laws of the State of Maryland on November 26, 1986. The Fund commenced operations on January 21, 1987, as a closed-end diversified management investment company registered under the Investment Company Act of 1940. The primary investment objectives of the Fund are current income and long-term growth of income. Capital appreciation is a secondary objective. The following are the significant accounting policies of the Fund: (a) The market values for securities are determined as follows: Securities traded on a national securities exchange or traded over-the- counter and quoted on the NASDAQ System are valued at last sales prices. Securities so traded for which there were no sales and other securities are valued at the mean of the most recent bid-asked quotations. Bonds not traded on a securities exchange nor quoted on the NASDAQ System are valued at a fair value using a procedure determined in good faith by the Board of Directors which includes the use of a pricing service. Each money market instrument having a maturity of 60 days or less is valued on an amortized cost basis, which approximates market value. Other assets and securities are valued at a fair value, as determined in good faith by the Board of Directors. (b) No provision is made for Federal income taxes since the Fund has elected to be taxed as a "regulated investment company" and has made such distributions to its shareholders deemed necessary to be relieved of all Federal income taxes under provisions of current Federal tax law. The Fund intends to utilize provisions of Federal income tax laws which allow a realized capital loss to be carried forward for eight years following the year of loss and offset such losses against any future realized gains. At December 31, 1996, the Fund had tax capital loss carryforwards of $142,893,126 which expire beginning on December 31, 2002. In 1993, the Fund adopted the American Institute of Certified Public Accountants' Statement of Position 93-2, "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies". In conformance with this statement, the Fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with federal income tax regulations. As a result, the accumulated net realized loss and undistributed net investment income captions on the balance sheet reflect book/tax temporary differences. These differences are a result of the deferral of wash sale losses, the accretion of market discount and the cash basis recognition of preferred dividends for tax purposes. (c) The accounts of the Fund are kept on the accrual basis of accounting. Security transactions are recorded on the trade date. Realized gains or losses from sales of securities are determined on the specific identified cost basis. Dividend income is recognized on the ex-dividend date. Interest income and expense are recognized on the accrual basis. (d) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and DUFF & PHELPS UTILITIES INCOME INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. (2) MANAGEMENT ARRANGEMENTS: The Fund has engaged Duff & Phelps Investment Management Co. (the "Adviser") to provide professional investment management services for the Fund and has engaged J. J. B. Hilliard, W. L. Lyons, Inc. (the "Administrator") to provide administrative and management services for the Fund. The Adviser receives a quarterly fee at an annual rate of .60% of the average weekly net assets of the Fund up to $1.5 billion and .50% of average weekly net assets in excess thereof. The Administrator receives a quarterly fee at annual rates of .25% of average weekly net assets up to $100 million, .20% of average weekly net assets from $100 million to $1 billion, .10% of average weekly net assets from $1 billion to $1.5 billion, and .06% of average weekly net assets in excess thereof. Directors of the Fund not affiliated with the Adviser receive a fee of $17,500 per year plus $1,000 per board or committee meeting attended. Committee Chairmen receive an additional fee of $3,000 per year. Transfer agent and custodian fees are paid to The Bank of New York. (3) DIVIDENDS: The Board of Directors has authorized the following distributions to common stockholders from investment income in 1996:
RECORD PAYABLE DIVIDEND DATE DATE PER SHARE ------ ------- --------- 01-31-96 02-12-96 $.06 02-29-96 03-11-96 .06 03-29-96 04-10-96 .06 04-30-96 05-10-96 .06 05-31-96 06-10-96 .06 06-28-96 07-10-96 .06
RECORD PAYABLE DIVIDEND DATE DATE PER SHARE ------ ------- --------- 07-31-96 08-12-96 $.06 08-30-96 09-10-96 .06 09-30-96 10-10-96 .06 10-31-96 11-12-96 .06 11-29-96 12-10-96 .06 12-31-96 01-10-97 .08
(4) CAPITAL STOCK TRANSACTIONS: The Fund may purchase shares of its own stock in open market or private transactions, from time to time and in such amounts and at such prices (not exceeding $100,000 plus accumulated and unpaid dividends in the case of the Fund's remarketed preferred stock and less than net asset value in the case of the Fund's common stock) as management may deem advisable. Since any such purchases of the Fund's common stock would be made at prices below net asset value, they would increase the net asset value per share of the remaining shares of common stock outstanding. The Fund has not purchased any shares of its common stock. DUFF & PHELPS UTILITIES INCOME INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 Transactions in common stock and paid-in surplus during 1995 and 1996 were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31 DECEMBER 31 -------------------------- -------------------------- 1995 1996 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ----------- -------------- ----------- -------------- Beginning capitalization. 193,221,697 $1,723,676,962 196,502,240 $1,750,513,384 Dividend reinvestment.... 3,280,543 26,836,422 3,239,203 27,186,063 ----------- -------------- ----------- -------------- Total capitalization.... 196,502,240 $1,750,513,384 199,741,443 $1,777,699,447 =========== ============== =========== ==============
(5) REMARKETED PREFERRED STOCK: In 1988, the Fund issued 5,000 shares of Remarketed Preferred Stock ("RP") in five series of 1,000 shares each at a public offering price of $100,000 per share. The underwriting discount and other expenses incurred in connection with the issuance of the RP were recorded as a reduction of paid-in surplus on common stock. Dividends on the RP are cumulative at a rate which was initially established for each series at its offering. Since the initial offering of each series, the dividend rate on each series has been reset every 49 days by a remarketing process. Dividend rates ranged from 3.800% to 4.385% during the year ended December 31, 1996. The RP is redeemable at the option of the Fund on any dividend payment date at a redemption price equal to $100,000 per share, plus accumulated and unpaid dividends. The Fund is required to maintain certain asset coverage with respect to the RP, and the RP is subject to mandatory redemption if that asset coverage is not maintained. Each series of RP is also subject to mandatory redemption on a date certain as follows: Series A--November 28, 2012; Series B--November 18, 2015; Series C--November 7, 2018; Series D--December 22, 2021; and Series E--December 11, 2024. In general, the holders of the RP and of the Common Stock have equal voting rights of one vote per share, except that the holders of the RP, as a class, vote to elect two members of the Board of Directors, and separate class votes are required on certain matters that affect the respective interests of the RP and the Common Stock. The RP has a liquidation preference of $100,000 per share plus accumulated and unpaid dividends. (6) COMMERCIAL PAPER: The Board of Directors has authorized the Fund to issue up to $200,000,000 of Commercial Paper Notes (the "Notes") in minimum denominations of $100,000 with maturities up to 270 days. The Notes generally will be sold on a discount basis, but may be sold on an interest-bearing basis. The Notes are not redeemable by the Fund nor are they subject to voluntary prepayment prior to maturity. The aggregate amount of Notes outstanding changes from time to time. The Notes are unsecured, general obligations of the Fund. The Fund has entered into a credit agreement to provide liquidity. The Fund is able to request loans under the credit agreement of up to $100,000,000 at any one time, subject to certain restrictions. Interest rates on the Notes ranged from 4.93% to 5.61% during the year ended December 31, 1996. At December 31, 1996, the Fund had Notes outstanding of $98,360,808. (7) INVESTMENT TRANSACTIONS: For the year ended December 31, 1996, purchases and sales of investment securities (excluding short-term securities) were $4,879,330,059 and $4,866,319,355, respectively. For federal income tax purposes, at December 31, 1996, the gross unrealized depreciation on investments was $65,646,446 and gross unrealized appreciation was $110,959,120. The cost of investments for financial reporting and Federal income tax purposes was $2,106,500,018 and $2,149,432,806, respectively. FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS The table below provides information about income and capital changes for a share of common stock outstanding throughout the years indicated:
FOR THE YEAR ENDED DECEMBER 31 ----------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- ---------- Net asset value: Beginning of year....... $ 8.85 $ 7.23 $ 9.65 $ 9.67 $ 9.55 $ 8.29 ------ ------ ------ ------ ------ ------ Net investment income.... 0.84 0.85 0.82 0.81 0.89 0.95 Net realized gain (loss) and change in unrealized appreciation/depreciation ( 0.41) 1.62 ( 2.42) 0.09 0.11 1.25 on investments........... ------- ---- ------- ---- ---- ---- Total from investment operations............... 0.43 2.47 ( 1.60) 0.90 1.00 2.20 Dividends on preferred stock from net investment income ( 0.10) ( 0.12) ( 0.10) ( 0.08) ( 0.10) ( 0.17) Dividends on common stock from net investment income ( 0.74) ( 0.73) ( 0.72) ( 0.74) ( 0.78) ( 0.77) Dividends on common stock from net realized capital ( 0.00) ( 0.00) ( 0.00) ( 0.10) ( 0.00) ( 0.00) gains.................... ------- ------- ------- ------- ------- ------- Total distributions..... ( 0.84) ( 0.85) ( 0.82) ( 0.92) ( 0.88) ( 0.94) Net asset value: End of year............. $ 8.44 $ 8.85 $ 7.23 $ 9.65 $ 9.67 $ 9.55 ====== ====== ====== ====== ====== ====== Per share market value: End of year............. $8.625 $ 9.00 $ 7.88 $10.50 $10.50 $10.00 Ratio of expenses to average net assets....... 1.18% 1.23% 1.18% 1.04% 1.04% 1.17% Total investment return.. 4.68% 24.77% (18.04%) 8.43% 13.81% 24.56% Ratio of net investment income to average net assets................... 7.79% 8.13% 7.66% 6.09% 6.99% 7.75% Portfolio turnover rate.. 226.21% 188.28% 129.56% 56.11% 43.30% 41.09% Average commission rate paid per share........... $0.0232 ** ** ** ** ** Net assets, end of year (000s omitted)........... $2,186,443 $2,239,331 $1,896,090 $2,017,833 $1,997,984 $1,863,427
- -------- **Not required for years beginning before September 1, 1995 EX-27 11
6 0000806628 DUFF & PHELPS UTILITIES INCOME, INC. 12-MOS DEC-31-1996 DEC-31-1996 2,106,500,018 2,194,745,480 197,322,537 525,709 0 2,392,593,726 85,341,315 0 120,809,153 206,150,468 500,000,000 1,777,499,706 199,741,443 196,502,240 609,285 0 (180,110,936) 0 88,245,462 2,186,443,258 133,108,024 29,253,073 0 25,232,257 167,128,840 10,386,225 (90,555,515) 86,959,550 0 167,033,289 0 0 0 0 27,186,063 (52,887,676) 513,734 (190,497,161) 0 0 12,254,315 6,215,933 25,232,257 2,145,147,651 8.85 0,84 (0.41) 0.84 0 0 8.44 .012 112,000,000 0.57
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