As filed with the Securities and Exchange Commission on December 9, 2003
1933 Act File No. 333-______
1940 Act File No. 811-21421
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
[ X ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and
[ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 6
Neuberger Berman Real Estate Securities Income Fund Inc.
(Exact Name of Registrant as Specified in Articles of Incorporation)
c/o Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
(Address of Principal Executive Offices)
(212) 476-8800
(Registrant's Telephone Number, including Area Code)
Peter E. Sundman
c/o Neuberger Berman Management Inc. 605 Third Avenue, 2nd Floor New York, New York 10158-0180
(Name and Address of Agent for Service)
Copies of Communications to:
Arthur C. Delibert, Esq. Ellen Metzger, Esq. Kirkpatrick & Lockhart LLP Neuberger Berman, LLC 1800 Massachusetts Avenue, N.W. 605 Third Avenue 2nd Floor New York, New York 10158-3698 Washington, DC 20036-1800 |
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box)
[ ] when declared effective pursuant to section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
---------------------- ------------------- ---------------------- ---------------------- ----------------------
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered (1) Offering Price Per Aggregate Offering Registration Fee
Unit (1) Price (1)
---------------------- ------------------- ---------------------- ---------------------- ----------------------
Preferred Stock 160 $25,000 $4,000,000 $323.60
---------------------- ------------------- ---------------------- ---------------------- ----------------------
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(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
dates as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY __, 2004
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
AUCTION MARKET PREFERRED SHARES
SHARES, SERIES A
SHARES, SERIES B
SHARES, SERIES C
SHARES, SERIES D
LIQUIDATION PREFERENCE, $25,000 PER SHARE
THE OFFERING. Neuberger Berman Real Estate Securities Income Fund Inc. ("Fund") is offering auction market preferred shares, Series A, auction market preferred shares, Series B, auction market preferred shares, Series C and auction market preferred shares, Series D. The shares are referred to in this Prospectus as "Preferred Shares."
THE FUND. The Fund is a recently organized, non-diversified, closed-end management investment company.
INVESTMENT OBJECTIVES. The Fund's primary investment objective is high current income. Capital appreciation is a secondary investment objective.
INVESTMENT PORTFOLIO. Under normal market conditions, the Fund invests:
o at least 90% of its total assets in income-producing common equity securities, preferred securities, securities convertible into equity securities and non-convertible debt securities issued by real estate companies (including real estate investment trusts ("REITs")); and
o at least 75% of its total assets in income-producing equity securities of REITs.
THE FUND'S INVESTMENT POLICY OF INVESTING IN REAL ESTATE COMPANIES, INCLUDING REITS, AND ITS EXPECTED USE OF FINANCIAL LEVERAGE INVOLVE A HIGH DEGREE OF RISK. YOU COULD LOSE SOME OR ALL OF YOUR INVESTMENT. SEE "RISKS" BEGINNING ON PAGE __. THE MINIMUM PURCHASE AMOUNT OF THE PREFERRED SHARES IS $25,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PER SHARE TOTAL
Price to Public $25,000 $
Sales Load $ $
Proceeds to the Fund $ $
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[UNDERWRITERS]
Prospectus dated January __, 2004
(CONTINUED FROM PREVIOUS PAGE)
The Fund intends initially to invest approximately 70% to 80% of its total assets in common equity securities, and 20% to 30% of its total assets in preferred securities, issued by REITs and other real estate companies. The Fund anticipates that, in current market conditions, it will invest primarily in "equity-oriented" REITs, which invest the majority of their assets directly in real property and derive their income primarily from rents. The Fund will not invest more than 10% of its total assets in the securities of any single issuer. The Fund may invest up to 25% of its total assets in below-investment grade debt securities (such debt securities are commonly known as "junk bonds") as well as below-investment grade convertible and non-convertible preferred securities.
LIMITED OPERATING HISTORY. The Fund is a recently organized, non- diversified, closed-end management investment company that has only been operational since October 31, 2003.
NEUBERGER BERMAN. Neuberger Berman Management Inc. ("NB Management") acts as the Fund's investment manager, and Neuberger Berman, LLC acts as its sub-adviser (collectively, the investment manager and the sub-adviser are referred to as "Neuberger Berman"). As of September 30, 2003, Neuberger Berman and its affiliates had approximately $______ billion in assets under management, including more than $_____ billion in real estate-related securities, and continue an asset management history that began in 1939.
The underwriters are offering the Preferred Shares subject to various conditions. The underwriters expect to deliver the Preferred Shares in book-entry form, through the facilities of The Depository Trust Company, on or about January __, 2004.
Investors in Preferred Shares will be entitled to receive cash dividends at an annual rate that may vary for the successive rate periods for the Preferred Shares. Preferred Shares have a liquidation preference of $25,000 per share, plus any accumulated, unpaid dividends. Preferred Shares also have priority over the Fund's common stock as to distribution of assets as described in this Prospectus. See "Description of Preferred Shares." The dividend rate for the initial rate period will be __% for Series A Preferred Shares, __% for Series B Preferred Shares, __% for Series C Preferred Shares and __% for Series D Preferred Shares. The initial rate period is from the date of issuance through January __, 2004 for Series A Preferred Shares, January __, 2004 for Series B Preferred Shares, January __, 2004 for Series C Preferred Shares and January __, 2004 for Series D Preferred Shares. For subsequent dividend periods, the Preferred Shares will pay dividends based on a rate set at auction. These auctions will usually be held every [seven] days for Series A Preferred Shares and Series B Preferred Shares and every [28] days for Series C Preferred Shares and Series D Preferred Shares.
After the initial rate period described in this Prospectus, investors may buy or sell Preferred Shares through an order placed at an auction with or through a broker-dealer in accordance with the procedures specified in this Prospectus.
Each prospective purchaser should review carefully the detailed information
regarding the auction procedures which appears in this Prospectus and the Fund's
Statement of Additional Information and should note that (i) an order placed at
an auction constitutes an irrevocable commitment to hold, purchase or sell
Preferred Shares based upon the results of the related auction, (ii) settlement
for purchases and sales will be on the business day following the auction and
(iii) ownership of Preferred Shares will be maintained in book-entry form by or
through The Depository Trust Company (or any successor securities depository).
The Preferred Shares are redeemable in whole or in part, at the option of the
Fund on the second business day prior to any date dividends are paid on the
Preferred Shares, and will be subject to mandatory redemption in certain
circumstances at a redemption price of $25,000 per share, plus accumulated
unpaid dividends to the date of redemption. See "Description of Preferred
Shares--Redemption."
The Preferred Shares will be senior to the Fund's outstanding common stock ("Common Shares"). The Preferred Shares are not listed on an exchange. The Common Shares are traded on the American Stock Exchange under the symbol "NRO." It is a condition of closing this offering that the Preferred Shares at the time of closing carry ratings of AAA from Fitch Ratings and of Aaa from Moody's Investors Service, Inc.
You should read this Prospectus, which contains important information about the Fund that you ought to know before deciding whether to invest, and retain it for future reference. A Statement of Additional Information, dated January __, 2004, containing additional information about the Fund, has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference in its entirety into (i.e., is legally considered a part of) this Prospectus. You may request a free copy of the Statement of Additional Information, the table of contents of which is on page of this Prospectus, by calling 1-877-461-1899 or by writing the Fund, or you may obtain a copy (and other information regarding the Fund) from the SEC's web site (http://www.sec.gov).
The Fund's Preferred Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. There can be no assurance that the Fund will achieve its investment objectives. See "Risks." For more information on the Fund's investment strategies, see "The Fund's Investments."
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE FUND'S PREFERRED STOCK. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE INTO IT, PARTICULARLY THE SECTION ENTITLED "RISKS" BEGINNING ON PAGE 22 AS WELL AS THE STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S ARTICLES SUPPLEMENTARY.
THE FUND Neuberger Berman Real Estate Securities Income Fund Inc.
("Fund") is a recently organized, non-diversified, closed-end
management investment company. Neuberger Berman Management
Inc. ("NB Management") acts as the Fund's investment manager,
and Neuberger Berman, LLC acts as its sub-adviser
(collectively, the investment manager and the sub-adviser are
referred to as "Neuberger Berman").
The Fund commenced investment operations on October 31, 2003
upon the closing of an initial public offering of shares of
its common stock, par value $.0001 per share ("Common
Shares"). The Common Shares of the Fund are traded on the
American Stock Exchange ("AMEX") under the symbol "NRO." See
"The Fund."
THE OFFERING OF
PREFERRED
SHARES The Fund is offering shares of preferred stock, par value
$.0001 per share, which have been designated Series A auction
preferred shares, Series B auction preferred shares, Series C
auction preferred shares and Series D auction preferred
shares, with a purchase price of $25,000 per share plus
dividends, if any, that have accumulated from the date the
Fund first issues the preferred stock. The shares of
preferred stock offered hereby are called "Preferred Shares"
in the rest of this Prospectus. The Preferred Shares are
offered through a group of underwriters (the "Underwriters")
led by ____________. See "Underwriting."
Issuance of the Preferred Shares represents leverage
financing of the Fund.
The Preferred Shares entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
rate periods for the Preferred Shares. In general, except as
described under "--Dividends and Rate Periods" below and
"Description of Preferred Shares - Dividends and Rate
Periods," the rate period for Series A Preferred Shares and
Series B Preferred Shares will be [seven] days and the rate
period for Series C Preferred Shares and Series D Preferred
Shares will be [28] days. The Bank of New York ("Auction
Agent") will determine the dividend rate for a particular
rate period by an auction conducted on the business day next
preceding to the start of that rate period. See "The
Auction."
The Preferred Shares are not listed on an exchange. Instead,
investors may buy or sell Preferred Shares in an auction by
submitting orders to a broker-dealer that has entered into an
agreement with the Auction Agent ("Broker-Dealer") or to a
broker-dealer that has entered into an agreement with a
Broker-Dealer.
Generally, investors in Preferred Shares will not receive
certificates representing ownership of their shares. The
Depository Trust Company or any successor securities
depository ("DTC") or its nominee for the account of the
investor's broker-dealer will maintain record ownership of
Preferred Shares in book-entry form. An investor's
broker-dealer, in turn, will maintain records of that
investor's beneficial ownership of Preferred Shares.
An investor may consider whether to invest in a particular
series of Preferred Shares based on the series' rate of
return, the investor's time horizon for investment, and the
investor's liquidity preference. The Series A Preferred
Shares and Series B Preferred Shares normally have a
[seven]-day rate period and Series C Preferred Shares and
Series D Preferred Shares normally have a [28]-day rate
period.
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INVESTMENT
OBJECTIVES OF THE
FUND The Fund's primary investment objective is high current
income. Capital appreciation is a secondary investment
objective. There can be no assurance that the Fund's
investment objectives will be achieved. See "The Fund's
Investments."
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INVESTMENT
PARAMETERS OF
THE FUND'S
PORTFOLIO Under normal market conditions, the Fund invests at least 90%
of its total assets in income-producing common equity
securities, preferred securities, securities convertible into
equity securities ("convertible securities") and
non-convertible debt securities issued by "Real Estate
Companies." A Real Estate Company is a company that generally
derives at least 50% of its revenue from the ownership,
construction, financing, management and/or sale of
commercial, industrial and/or residential real estate (or has
at least 50% of its assets invested in such real estate).
The Fund invests at least 75% of its total assets, under
normal market conditions, in income-producing equity
securities issued by real estate investment trusts ("REITs").
REITs historically have paid relatively high dividends (as
compared to other types of companies), and the Fund intends
to use these REIT dividends in an effort to meet its primary
investment objective of high current income.
The Fund intends initially to invest approximately 70% to 80%
of its total assets in common equity securities, and 20% to
30% of its total assets in preferred securities, issued by
REITs and other Real Estate Companies.
The Fund will not invest more than 10% of its total assets in
the securities of any one issuer.
The Fund has a fundamental policy of concentrating its
investments in the U.S. real estate industry and not
concentrating in any other industry. This policy cannot be
changed without stockholder approval. Neuberger Berman seeks
to maintain a portfolio that is representative of the major
property sectors and geographic regions.
Under normal market conditions, the Fund may invest up to 20%
of its total assets in debt securities (including convertible
and non-convertible debt securities), such as debt securities
issued by Real Estate Companies and U.S. government
obligations.
The convertible and non-convertible preferred and debt
securities in which the Fund may invest are sometimes
collectively referred to in this Prospectus as "Senior Income
Securities." The Fund may invest up to 25% of its total
assets in Senior Income Securities that are below-investment
grade quality (i.e., not rated in one of the four highest
grades), including unrated securities determined by the
Fund's investment manager to be of comparable quality.
Below-investment grade quality debt securities are commonly
referred to as "junk bonds."
The Fund may invest up to 10% of its total assets in
securities of non-U.S. issuers located in countries
considered by Neuberger Berman to be industrialized.
The Fund may, for cash management purposes, during a
reasonable period following this offering, or for defensive
purposes, temporarily hold all or a substantial portion of
its assets in cash or cash equivalents, money market
instruments, shares of money market funds that are managed by
Neuberger Berman, or debt securities. A reasonable period
following any offering is not expected to exceed three
months. See "The Fund's Investments" and "Risks."
The Fund's investments are subject to diversification,
liquidity and related guidelines that may be established in
connection with the Fund's efforts to receive and maintain
ratings of Aaa and AAA from Moody's Investors Service, Inc.
("Moody's") and Fitch Ratings ("Fitch"), respectively, for
the Preferred Shares. Ratings issued by Moody's, Fitch, or
any other rating agency do not eliminate or mitigate the risk
of investing in Preferred Shares.
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NEUBERGER Neuberger Berman's investment philosophy in managing the Fund
BERMAN'S APPROACH is driven by traditional on-site real estate analysis and
TO SECURITIES frequent meetings with company management; a combination of
fundamental securities analysis and direct real estate
analysis with property sector diversification; a disciplined
valuation methodology; and an investment strategy to develop
a portfolio with a broad mix of real estate securities:
Neuberger Berman focuses on quality of management, relative
equity valuation levels within the real estate securities
universe, and relative property sector performance
expectations.
RATINGS OF The Fund will issue Preferred Shares only if the shares carry
PREFERRED SHARES a credit quality rating of Aaa from Moody's and AAA from
Fitch at the time of closing. There can be no assurance that
the Preferred Shares will carry a rating of Aaa from Moody's
and AAA from Fitch at all times in the future. These ratings
are an assessment of the capacity and willingness of an
issuer to pay preferred stock obligations. The ratings are
not a recommendation to purchase, hold or sell those shares
inasmuch as the rating does not comment as to market price or
suitability for a particular investor. The ratings described
above also do not address the likelihood that an owner of
Preferred Shares will be able to sell such shares in an
auction or otherwise. The ratings are based on current
information furnished to Moody's and Fitch by the Fund and NB
Management and information obtained from other sources. The
ratings may be changed, suspended or withdrawn in the rating
agencies' discretion as a result of changes in, or the
unavailability of, such information. See "Description of
Preferred Shares--Rating Agency Guidelines and Asset
Coverage."
USE OF PROCEEDS The Fund anticipates that it will invest substantially all of
the net proceeds of this offering of Preferred Shares in
accordance with its investment objectives and policies within
three months after the completion of this offering. Pending
such investment, it is anticipated that the proceeds will be
invested in U.S. government securities or high quality,
short-term money market instruments, including shares of
money market funds that are managed by Neuberger Berman.
INTEREST RATE
TRANSACTIONS In connection with the Fund's use of financial leverage
through the issuance of Preferred Shares or through the
issuance of commercial paper and/or borrowing by the Fund
("Borrowings") (collectively, "Financial Leverage"), it may
seek to hedge the interest rate risks associated with the
Financial Leverage through interest rate swaps, caps or other
derivative transactions. These transactions involve
investment techniques and risks different from those
associated with portfolio transactions in securities of Real
Estate Companies. There is no assurance that any interest
rate hedging transactions, if undertaken, will be successful,
and such transactions may adversely affect the Fund's
achievement of its investment objectives and could enhance or
harm the overall performance of the Fund. See "Interest Rate
Transactions."
NEUBERGER BERMAN NB Management serves as the investment manager of the Fund.
Subject to the general supervision of the Fund's board of
directors (the "Board" or the "Board of Directors"), NB
Management is responsible for managing, either directly or
through others selected by it, the investment activities of
the Fund and the Fund's business affairs and other
administrative matters. NB Management will receive a fee,
payable monthly, in a maximum annual amount equal to 0.85% of
the Fund's average daily total assets minus liabilities other
than the aggregate indebtedness entered into for purposes of
leverage ("Managed Assets"). The liquidation preference of
the Preferred Shares is not a liability or permanent equity.
NB Management has contractually agreed to waive a portion of
the management fees it is entitled to receive from the Fund
at the annual rate of 0.25% of the Fund's average daily
Managed Assets from the commencement of operations through
October 31, 2008, and at a declining rate thereafter through
October 31, 2011.
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NB Management has retained Neuberger Berman, LLC to serve as
the Fund's sub-adviser, responsible for providing investment
recommendations and research. NB Management (and not the
Fund) pays a portion of the fees it receives to Neuberger
Berman, LLC in return for its services.
SERVICE
PROVIDERS A.G. Edwards serves as the Fund's Servicing Agent. State
Street Bank and Trust Company serves as custodian of the
Fund's assets. The Bank of New York serves as the Fund's
Auction Agent and transfer agent. See "Service Providers."
SPECIAL RISK
CONSIDERATIONS RISK IS INHERENT IN ALL INVESTING. Therefore, before
investing in the Preferred Shares of the Fund you should
consider certain risks carefully. The primary risks of
investing in Preferred Shares are:
LEVERAGE RISK. The Fund's leveraged capital structure creates
special risks not associated with unleveraged funds having
similar investment objectives and policies. These include the
possibility of higher volatility of the net asset value of
the Fund and the Preferred Shares' asset coverage.
The Fund will issue Preferred Shares, which typically pay
dividends based on short-term interest rates, and will use
the proceeds to buy portfolio securities. If short-term
interest rates rise, dividend rates on the Preferred Shares
may rise so that the amount of dividends to be paid to
holders of Preferred Shares ("Preferred Stockholders")
exceeds the income from the portfolio securities. Because
income from the Fund's entire investment portfolio (not just
the portion of the portfolio purchased with the proceeds of
the Preferred Shares offering) is available to pay dividends
on the Preferred Shares, however, dividend rates on the
Preferred Shares would need to greatly exceed the Fund's net
portfolio income before the Fund's ability to pay dividends
on the Preferred Shares would be jeopardized. If long-term
interest rates rise, this could negatively impact the value
of the Fund's investment portfolio, reducing the amount of
assets serving as asset coverage for the Preferred Shares.
Because the fees paid to NB Management are calculated on the
basis of the Fund's Managed Assets (which includes the
liquidation preference of the Preferred Shares), the fees
will be higher when leverage is utilized, giving NB
Management an incentive to favor the use of leverage.
AUCTION RISK. If an auction fails you may not be able to sell
some or all of your Preferred Shares. As a result, your
investment in Preferred Shares may be illiquid. Neither the
Broker-Dealers nor the Fund are obligated to purchase
Preferred Shares in an auction or otherwise, nor is the Fund
required to redeem Preferred Shares in the event of a failed
auction.
SECONDARY MARKET RISK. If you try to sell your Preferred
Shares between auctions you may not be able to sell any or
all of your shares or you may not be able to sell them for
$25,000 per share plus accumulated and unpaid dividends,
especially when market interest rates are rising. If the Fund
has designated a special rate period, changes in interest
rates are more likely to affect the price you would receive
if you sold your shares in the secondary market. You may
transfer your shares outside of auctions only to or through a
Broker-Dealer or a broker-dealer that has entered into an
agreement with a Broker-Dealer.
RATING AGENCY AND ASSET COVERAGE RISK. A rating agency could
downgrade the Preferred Shares, which could affect their
liquidity and their value in a secondary market. The value of
the Fund's investment portfolio may decline, reducing the
asset coverage for the Preferred Shares. The Fund may be
forced to redeem your Preferred Shares to meet regulatory or
rating agency requirements or may voluntarily redeem your
shares.
PAYMENT RESTRICTIONS. The Fund may not declare or pay any
dividends or other distributions on Preferred Shares or
Common Shares unless it satisfies certain conditions. See
"Description of Preferred Shares--Dividends and Rate
Periods--Restriction of Dividends and Other Distributions."
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These prohibitions on the payment of dividends or other
distributions might impair the Fund's ability to maintain its
qualification as a regulated investment company for federal
income tax purposes. The Fund intends to redeem Preferred
Shares if necessary to comply with the asset coverage
requirements. There can be no assurance, however, that such
redemptions can be effected in time to permit the Fund to
distribute its income as required to maintain its
qualification as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). See
"Tax Matters."
In addition to the risks described above, certain general
risks of investing in the Fund may under certain
circumstances limit the Fund's ability to pay dividends and
meet its asset coverage requirements on the Preferred Shares.
These risks include:
LIMITED OPERATING HISTORY. The Fund is a recently organized,
non-diversified, closed-end management investment company
that has only been operational since October 31, 2003.
INVESTMENT RISK. An investment in the Fund is subject to
investment risk, including the possible loss of the entire
amount that you invest.
STOCK MARKET RISK. Your investment in Fund shares will
represent an indirect investment in REIT shares and other
real estate securities owned by the Fund, substantially all
of which are traded on a national securities exchange or in
the over-the-counter markets. The value of the Fund's
portfolio securities will fluctuate, sometimes rapidly and
unpredictably. The Fund's use of Financial Leverage magnifies
stock market risk. See "Risks--Stock Market Risk."
RISKS OF SECURITIES LINKED TO THE REAL ESTATE MARKET.
Although the values of the securities of Real Estate
Companies and REITs reflect the perceived operating values of
these companies and do not always move in tandem with the
prices of real estate assets, because the Fund concentrates
its assets in the real estate industry, your investment in
the Fund may be closely linked to the performance of the real
estate markets. Property values may fall due to increasing
vacancies or declining rents resulting from economic, legal,
cultural or technological developments.
Values of the securities of Real Estate Companies may fall,
among other reasons, because of the failure of borrowers from
such Real Estate Companies to pay their loans or because of
poor management of the real estate properties owned by such
Real Estate Companies. Many Real Estate Companies, including
REITs, utilize leverage (and some may be highly leveraged),
which increases investment risk and could adversely affect a
Real Estate Company's operations and market value in periods
of rising interest rates. Since interest rates are at or near
historical lows, it is likely that they will rise in the near
future. Real Estate Companies may operate within particular
sectors of the real estate industry that are subject to
specific sector-related risks.
Real Estate Companies tend to be small to medium-sized
companies. Real Estate Company shares, like other smaller
company shares, may be more volatile than, and perform
differently from, larger company shares.
REITs are subject to highly technical and complex provisions
of the Code. There is a possibility that a REIT may fail to
qualify for conduit income tax treatment under the Code or
may fail to maintain exemption from registration under the
Investment Company Act of 1940, as amended ("1940 Act"),
either of which could adversely affect its operations. See
"Risks--Risks of Securities Linked to the Real Estate
Market."
Terrorist incidents may adversely affect the value of a
property or an entire area substantially and unexpectedly.
These incidents can also disrupt or depress the economy,
business, and tourism, which may adversely affect the value
of properties in particular industries, e.g., hotels and
retail establishments.
INTEREST RATE RISK. Interest rate risk is the risk that
fixed-income investments such as preferred stocks and debt
securities, and to a lesser extent dividend-paying common
stocks such as REIT common shares, will decline in value
because of changes in interest rates. When market interest
rates rise, the market value of such securities generally
will fall. The Fund's investment in such securities means
8
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that the Fund's net asset value and the asset coverage for
the Preferred Shares will tend to decline if market interest
rates rise. Since interest rates are at or near historical
lows, it is likely that they will rise in the near future.
The Fund's use of leverage magnifies the interest rate risks.
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See "Risks--Interest Rate Risk."
INTEREST RATE TRANSACTIONS RISK. If the Fund enters into interest rate hedging transactions, a decline in interest rates may result in a decline in the net amount receivable (or increase the net amount payable) by the Fund under the hedging transaction, which could result in a decline in the Fund's net assets. See "Interest Rate Transactions" and "Risks--Interest Rate Transactions Risk."
CREDIT RISK. Credit risk is the risk that an issuer of a debt security, or the counterparty to a derivative contract or other obligation, becomes unwilling or unable to meet its obligation to make interest and principal payments. In general, lower-rated debt securities carry a greater degree of credit risk. If nationally recognized statistical ratings organizations (each a "rating agency") lower their ratings of debt securities in the Fund's portfolio, the value of those obligations could decline, which could reduce the asset coverage on the Preferred Shares and negatively impact the rating agencies' ratings of the Preferred Shares. Even if an issuer does not actually default, adverse changes in the issuer's financial condition may negatively affect its credit rating or presumed creditworthiness. These developments would adversely affect the market value of the issuer's obligations and, correspondingly, the net asset value of the Fund. See "Risks--Credit Risk."
RISKS OF BELOW-INVESTMENT GRADE QUALITY SECURITIES. Securities that are below-investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal and may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-grade securities. See "Risks--Risks of Investing in Below-Investment Grade Quality Securities."
FOREIGN SECURITIES RISK. The Fund may invest up to 10% of its total assets in securities of issuers located outside of the United States, which may be denominated in currencies other than the U.S. dollar. The prices of foreign securities may be affected by factors not present with securities traded in U.S. markets, including currency exchange rates, foreign political and economic conditions, less stringent regulation and higher volatility. As a result, many foreign securities may be less liquid and more volatile than U.S. securities. To help control this risk, the Fund will invest in foreign issuers located only in industrialized countries. See "Risks--Foreign Security Risk."
PORTFOLIO TURNOVER. The Fund may engage in portfolio trading when considered appropriate by NB Management. Although in normal market conditions the Fund does not expect that its annual portfolio turnover rate will exceed 50%, the Fund has not established any limit on the rate of portfolio turnover. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transaction expenses that are borne by the Fund, which could reduce the amount of income available for distribution on the Preferred Shares. See "The Fund's Investments--Investment Strategies and Parameters of the Fund's Portfolio--Portfolio Turnover."
TERRORISM; EVENTS IN IRAQ. The terrorist attacks of September 11, 2001, the war with Iraq and its aftermath, continuing occupation of Iraq by coalition forces and related events have led to increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. A similar disruption of financial markets or other terrorist attacks could adversely impact interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Preferred Shares and adversely affect Fund service providers and the Fund's operations. See "Risks--Terrorism; Events in Iraq."
NON-DIVERSIFICATION RISK. Because the Fund is classified as "non-diversified" under the 1940 Act, it can invest a greater portion of its assets in the securities of a single issuer than a "diversified" fund. Although, the Fund has adopted a policy that it will not invest more than 10% of its total assets in the securities of any one issuer and intends to comply with the diversification requirements of the Code applicable to regulated investment companies, it will be more susceptible than a more widely diversified fund to any single corporate, economic, political or regulatory occurrence. See "The Fund's Investments," "Risks--Non-Diversified Risk" and "Tax Matters."
ANTI-TAKEOVER PROVISIONS. The Fund's Articles of Incorporation (which, as hereafter amended, restated or supplemented from time to time are, together with the Articles Supplementary, referred to as the "Articles") and Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. If the Fund were converted to open-end status, the Fund would have to redeem the Preferred Shares. See "Anti-takeover and Other Provisions in the Articles of Incorporation" and "Risks--Anti-takeover Provisions."
For further discussion of the risks associated with investing in the Preferred Shares and the Fund, see "Risks."
DIVIDENDS AND
RATE PERIODS The table below shows the dividend rate, the dividend payment
date and the number of days for the initial rate period for
each series of Preferred Shares offered in this Prospectus.
For subsequent rate periods, each series of Preferred Shares
will pay dividends based on rates set at auctions normally
held every [seven] days for Series A Preferred Shares and
Series B Preferred Shares and every [28] days for Series C
Preferred Shares and Series D Preferred Shares. In most
instances, dividends are payable on the first business day
following the end of the rate period. The rate set at an
auction will not exceed a maximum rate (which is determined
in accordance with procedures described in the Articles
Supplementary).
Dividends on Preferred Shares will be cumulative from the
date the shares are first issued and will be paid only out of
legally available funds.
-------------------------------------------------------------
Initial Dividend Payment Number of Days
Dividend Date for Initial of Initial
Rate Rate Period Rate Period
-------------------------------------------------------------
Series A % ,2004
-------------------------------------------------------------
Series B % ,2004
-------------------------------------------------------------
Series C % ,2004
-------------------------------------------------------------
Series D % ,2004
-------------------------------------------------------------
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The Fund may, subject to certain conditions, designate a special rate period of more than 7 days. These conditions include the Fund providing certain notices to the Auction Agent, an auction being held at which sufficient clearing bids exist, the Fund mailing any notices of redemption and depositing funds with the Auction Agent for any such redemption. In addition, full cumulative dividends, any amounts due with respect to mandatory redemptions and any additional dividends payable prior to such date must be paid in full. The dividend payment dates for special rate periods will be set out in the notice designating a special rate period. The Fund may designate a special rate period if market conditions indicate that a longer rate period would provide greater stability or attractive dividend rates.
See "Description of Preferred Shares--Dividends and Rate
Periods" and "The Auction."
TRADING MARKET The Preferred Shares are not listed on an exchange. Instead,
you may place orders to buy or sell Preferred Shares at an
auction that normally is held periodically at the end of the
preceding rate period by submitting the orders to a
Broker-Dealer, or to a broker-dealer that has entered into a
separate agreement with a Broker-Dealer. In addition to the
auctions, Broker-Dealers and other broker-dealers may
maintain a secondary trading market in Preferred Shares
outside of auctions, but may discontinue this activity at any
time. There is no assurance that a secondary market will
exist or, if one does exist, that it will provide Preferred
Stockholders with liquidity. You may transfer Preferred
Shares outside of auctions only to or through a
Broker-Dealer, or a broker-dealer that has entered into a
separate agreement with a Broker-Dealer.
The table below shows the first auction date for each series
of Preferred Shares and the day on which each subsequent
auction will normally be held for that series. The first
auction date for each series of Preferred Shares will be the
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business day before the dividend payment date for the initial
rate period for that series. The start date for subsequent
rate periods normally will be the business day following the
auction date unless the then-current rate period is a special
rate period, or the day that normally would be the auction
date or the first day of the subsequent rate period is not a
business day.
-------------------------------------------------------------
First Auction Date Subsequent Auction
-------------------------------------------------------------
Series A , 2004
-------------------------------------------------------------
Series B , 2004
-------------------------------------------------------------
Series C , 2004
-------------------------------------------------------------
Series D , 2004
-------------------------------------------------------------
ASSET
MAINTENANCE Under the Fund's Articles Supplementary for the Preferred
Shares, which establishes and fixes the rights and
preferences of the Preferred Shares, the Fund must maintain:
- asset coverage of the Preferred Shares as required by
Moody's and Fitch or by any other rating agency rating the
Preferred Shares, and
- asset coverage of at least 200% with respect to
senior securities that are stock, including the Preferred
Shares.
In the event that the Fund does not maintain these coverage
tests or cure any deficiencies in the time allowed, some or
all of the Preferred Shares will be subject to mandatory
redemption. See "Description of Preferred Shares--
Redemption--Mandatory Redemption."
Based on the composition of the Fund's portfolio as of
_____________, 2003, the asset coverage of the Preferred
Shares as measured pursuant to the 1940 Act would be
approximately ___% if the Fund were to issue all of the
Preferred Shares offered in this Prospectus, representing
approximately 33% of the Fund's average daily total assets
minus liabilities other than any aggregate indebtedness that
is entered into for purposes of leverage ("Managed Assets").
VOTING RIGHTS The 1940 Act requires that the holders of the Preferred Shares
and any other preferred stock of the Fund, voting as a
separate class, have the right to elect at least two Directors
of the Fund at all times and to elect a majority of the
Directors at any time when two years' dividends on the
Preferred Shares or any other preferred stock are unpaid. The
terms of the additional Directors shall end when the Fund pays
or declares and sets apart for payment, in full, all dividends
payable on all outstanding Preferred Shares.
As required under the Fund's Articles and the 1940 Act,
certain other matters must be approved by a vote of all
stockholders of all classes voting together and by a vote of
the holders of Preferred Shares and any other preferred stock
of the Fund tallied separately. Each Common Share, each
Preferred Share, and each share of any other series of
preferred stock of the Fund is entitled to one vote per share.
See "Description of Preferred Shares--Voting Rights" and
"Anti-Takeover and Other Provisions in the Articles of
Incorporation."
REDEMPTION Although the Fund will not ordinarily redeem Preferred Shares,
it may be required to redeem Preferred Shares if, for example,
the Fund does not meet an asset coverage ratio required by law
or required by the Articles Supplementary or in order to
correct a failure to meet a rating agency guideline in a
timely manner. See "Description of Preferred Shares--
Redemption--Mandatory Redemption." The Fund also may redeem
Preferred Shares voluntarily in certain circumstances.
See "Description of Preferred Shares--Redemption--Optional
Redemption."
LIQUIDATION The liquidation preference of the Preferred Shares is $25,000
per share, plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared by the Fund, but
excluding interest thereon). See "Description of Preferred
Shares--Liquidation."
FEDERAL INCOME The Fund believes that Preferred Shares will constitute stock
TAXATION of the Fund, and distributions by the Fund with respect to
the Preferred Shares (other than distributions in redemption
of Preferred Shares that are treated as exchanges of stock
under Section 302(b) of the Code) thus will constitute
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dividends to the extent of the Fund's current or accumulated
earnings and profits, as calculated for federal income tax
purposes. Such dividends generally will not qualify for the
recently enacted reduced maximum federal income tax rate on
certain dividends and thus will be taxable as ordinary income
to holders. Distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss)
that the Fund designates as capital gain dividends will be
treated as long-term capital gains in the hands of holders
receiving such distributions. The Internal Revenue Service
("IRS") currently requires that a regulated investment
company that has two or more classes of stock allocate to
each such class proportionate amounts of each type of its
income (such as ordinary income and capital gains) based upon
the percentage of total dividends distributed to each class
for the taxable year. Accordingly, the Fund intends each
taxable year to allocate capital gain dividends among its
Common Shares and Preferred Shares in proportion to the total
dividends paid to each class during or with respect to such
year. See "Tax Matters."
|
FINANCIAL HIGHLIGHTS
The following table includes selected data for a Common Share outstanding throughout the period and other performance information derived from the Fund's Unaudited Financial Information included in the Statement of Additional Information dated January __, 2004. It should be read in conjunction with the Unaudited Financial Information and notes thereto.
Information contained in the table below under the headings "Per Share Operating Performance" and "Ratios/Supplemental Data" shows the unaudited operating performance of the Fund from the commencement of the Fund's investment operations on October 31, 2003 through ___________, 2003. Because the Fund was recently organized and commenced investment operations on October 31, 2003, the table covers less than ___ weeks of operations, during which a substantial portion of the Fund's portfolio was held in temporary investments pending investment in real estate securities that meet the Fund's investment objectives and policies. Accordingly, the information presented may not provide a meaningful picture of the Fund's operating performance.
FOR THE PERIOD
OCTOBER 31, 2003*
THROUGH _______, 2003
(UNAUDITED)
-----------
PER SHARE OPERATING PERFORMANCE:
Common Share Net Asset Value, Beginning of Period ......................................... $ **
INCOME FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON STOCKHOLDERS:
Net Investment Income.....................................................................
Net Gains or Losses on Securities (both realized and unrealized).......................... _____
Common Share Equivalent of Distributions to Preferred Stockholders From Net
Investment Income
Total from Investment Operations Applicable to Common Stockholders........................
Less: Distributions to Common Stockholders:
From Net Investment Income
Less: Capital Charges:
Issuance of Common Shares ............................................................
Issuance of Preferred Shares ......................................................... ______
Total Capital Charges
Common Share Net Asset Value, End of Period .............................................. $
======
Common Share Market Value, End of Period ................................................. $
======
Total Investment Return on Common Share NAV............................................... %***
======
Total Investment Return on Common Share Market Value ..................................... %***
======
RATIOS/SUPPLEMENTAL DATA:
Net Assets Applicable to Common Stockholders, End of Period (in millions) (net of
expense offset and before expense waiver $
Preferred Shares, at Redemption Value ($25,000 per share liquidation preference) (in
millions)
Ratio of Expenses to Average Net Assets Applicable to Common Stockholders................ %****
Ratio of Expenses to Average Net Assets Applicable to Common Stockholders (before
expense offset arrangements and net of expense waiver) %****
Ratio of Expenses to Average Net Assets Applicable to Common Stockholders (net of
expense offset arrangements and expense waiver) %****
Ratio of Net Investment Income Excluding Preferred Share Dividends to Average Net
Assets Applicable to Common Stockholders (net of expense reduction) .................... %****
|
Ratio of Preferred Share Dividends to Average Net Assets Applicable to Common
Stockholders
Ratio of Net Investment Income Including Preferred Share Dividends to Average Net
Assets Applicable to Common Stockholders (net of expense reduction) ....................
Portfolio Turnover Rate (%) ............................................................ %
Asset Coverage per Preferred Share, End of Period
* Commencement of operations.
** Net asset value at beginning of period reflects the deduction of the sales load of $0.675 per share
paid by the holders of Common Shares ("Common Stockholders") from the $15.00 offering price. *** Total
investment return on net asset value is calculated assuming a purchase at the offering price of $15.00
less the sales load of $0.675 per share paid by the Common Stockholders on the first day and a sale at the
net asset value on the last day of the period reported. Total investment return on market value is
calculated assuming a purchase at the offering price of $15.00 per share paid by the Common Stockholders
on the first day and a sale at the current market price on the last day of the period reported. Total
investment return on net asset value and total investment return on market value are not computed on an
annualized basis.
**** Annualized. There were no Preferred Shares outstanding during the period shown, and these ratios do
not reflect the effect of dividend payments to Preferred Stockholders.
See accompanying notes to Unaudited Financial Information.
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THE FUND
The Fund is a recently organized, non-diversified, closed-end management investment company registered under the 1940 Act. The Fund was organized as a corporation on August 28, 2003 pursuant to Articles of Incorporation governed by the laws of the State of Maryland. The Fund issued an aggregate of 29,000,000 Common Shares, par value $.0001 per share, pursuant to the initial public offering thereof and commenced investment operations on October 31, 2003. On November 18, 2003 and November 26, 2003, respectively, the Fund issued 3,500,000 and 760,000 additional Common Shares in connection with partial exercises by the Underwriters of their over-allotment option. The Fund's Common Shares are traded on the AMEX under the symbol "NRO." Its principal office is located at 605 Third Avenue, Second Floor, New York, New York 10158-0180, and its telephone number is 877-461-1899.
The following provides information about the Fund's outstanding shares as of ___________, 2003:
--------------------------------------------------------------------------------------------------
Amount Held By the Fund
Title of Class Amount Authorized for its Account Amount Outstanding
--------------------------------------------------------------------------------------------------
Common * 0
--------------------------------------------------------------------------------------------------
Preferred
--------------------------------------------------------------------------------------------------
Series A 0 0
--------------------------------------------------------------------------------------------------
Series B 0 0
--------------------------------------------------------------------------------------------------
Series C 0 0
--------------------------------------------------------------------------------------------------
Series D 0 0
--------------------------------------------------------------------------------------------------
|
* A total of 1,000,000,000 shares of capital stock of the Fund are authorized under the Articles, all originally designated common stock pursuant to the Articles. The Board may classify or reclassify any unissued shares of capital stock from time to time without a stockholder vote into one or more classes of preferred or other stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock. The Board has reclassified ______ shares of common stock as Series A Preferred Shares, ________ shares of common stock as Series B Preferred Shares, ________ shares of common stock as Series C Preferred Shares and _______ shares of common stock as Series D Preferred Shares, and has authorized the issuance of those Preferred Shares.
USE OF PROCEEDS
The net proceeds of the offering of Preferred Shares will be approximately $________ after payment of the sales load and estimated offering costs. The Fund anticipates that it will invest substantially all of the net proceeds in accordance with its investment objectives and policies within three months after the completion of this offering. Pending such investment, it is anticipated that the proceeds will be invested in U.S. government securities or high-quality, short-term money market instruments, including shares of money market funds that are managed by Neuberger Berman.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund as of ___________, 2003, and as adjusted to give effect to the issuance of the Preferred Shares offered in this Prospectus.
--------------------------------------------------------------------------------
As on ___________, 2003 (Unaudited)
Actual As Adjusted
Preferred Shares, par value $.0001 per $ $
share (no shares issued; ________, as
adjusted, at $25,000 per share
liquidation preference)
--------------------------------------------------------------------------------
Stockholders' equity:
--------------------------------------------------------------------------------
Common Shares, par value, $.0001 per
share ( shares issued
and outstanding)
--------------------------------------------------------------------------------
15
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-------------------------------------------------------------------------------- Capital in excess of par value attributable to Common Shares -------------------------------------------------------------------------------- Undistributed investment income--net -------------------------------------------------------------------------------- Accumulated realized gain (loss)--net -- -- -------------------------------------------------------------------------------- Unrealized appreciation on investments--net -------------------------------------------------------------------------------- Net Assets attributable to Common $ Shares -------------------------------------------------------------------------------- Managed Assets $ $ -------------------------------------------------------------------------------- |
As used in this Prospectus, unless otherwise noted, the Fund's "net assets" include assets of the Fund attributable to any outstanding Common Shares and Preferred Shares, with no deduction for the liquidation preference of Preferred Shares. For financial reporting purposes, however, the Fund is required to deduct the liquidation preference of its outstanding Preferred Shares from net assets so long as the Preferred Shares have redemption features that are not solely within the control of the Fund. In connection with the rating of the Preferred Shares, the Fund has established in its Articles various portfolio covenants to meet third-party rating agency guidelines. These covenants include, among other things, investment diversification requirements and requirements that investments included in the Fund's portfolio meet specific industry and credit quality criteria. Market factors outside the Fund's control may affect its ability to meet the criteria of third-party rating agencies set forth in the Fund's portfolio covenants. If the Fund violates these covenants, it may be required to cure the violation by redeeming all or a portion of the Preferred Shares. For all regulatory purposes, the Preferred Shares will be treated as stock (rather than indebtedness).
THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVES
The Fund's primary investment objective is high current income. Capital appreciation is a secondary investment objective. There can be no assurance that the Fund will achieve its investment objectives.
INVESTMENT STRATEGIES AND PARAMETERS OF THE FUND'S PORTFOLIO
CONCENTRATION. The Fund has a fundamental policy of concentrating its investments in the U.S. real estate industry and not concentrating in any other industry. This policy cannot be changed without stockholder approval. See "-Fundamental Investment Policies" below.
REAL ESTATE COMPANIES. Under normal market conditions, the Fund invests at least 90% of its total assets in income-producing common equity securities, preferred securities, convertible securities and non-convertible debt securities issued by Real Estate Companies. A "Real Estate Company" is a company that generally derives at least 50% of its revenue from the ownership, construction, financing, management and/or sale of commercial, industrial and/or residential real estate (or has at least 50% of its assets invested in such real estate). The Fund may also invest in rights or warrants to purchase income-producing common and preferred securities of Real Estate Companies. REITs are considered to be Real Estate Companies. The Fund will not invest more than 10% of its total assets in the securities of any one issuer.
In addition, the Fund normally invests at least 80% of its net assets plus the amount of any borrowing for investment purposes in securities of Real Estate Companies. If because of market action, the Fund falls out of compliance with this policy, it will make future investments in such a manner as to bring the Fund back into compliance with the policy. Although this is a non-fundamental policy, the Board will not change this policy without at least 60 days' notice to the Fund's stockholders.
REITs. The Fund invests at least 75% of total assets under normal market conditions in income-producing equity securities issued by REITs. A REIT is a Real Estate Company that pools investors' funds for investment primarily in income-producing real estate or in real estate-related loans (such as mortgages) or other interests. REITs historically have paid relatively high dividends (as compared to other types of companies), and the Fund intends to use these REIT dividends in an effort to meet its primary investment objective of high current income.
REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs generally invest a majority of their assets in income-producing real estate properties in order to generate cash flow from rental income and a gradual asset appreciation. The income-producing real estate properties in which Equity REITs invest typically include properties such as office, retail, industrial, hotel and apartment buildings and healthcare facilities. Equity REITs can realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive their income primarily from interest payments on the mortgages. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs.
The Fund anticipates that, in current market conditions, its investment in REITs will consist primarily of Equity REITs. The Fund may invest up to 10% of its total assets in any combination of Mortgage REITs and Hybrid REITs.
Substantially all of the equity securities of Real Estate Companies, including REITs, in which the Fund intends to invest are traded on a national securities exchange or in the over-the-counter markets. The Fund may invest in both publicly and privately traded REITs.
COMMON EQUITY SECURITIES, PREFERRED SECURITIES AND CONVERTIBLE SECURITIES. Under normal market conditions, the Fund will invest at least 90% of its total assets in income-producing common equity securities, preferred securities, convertible securities and non-convertible debt securities issued by Real Estate Companies, including REITs.
o COMMON EQUITY SECURITIES. Common equity securities are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the corporation, if any, without preference over any other class of securities, including such entity's debt securities, preferred stock and other senior equity securities. Common equity securities usually carry with them the right to vote and frequently an exclusive right to do so.
o PREFERRED SECURITIES. Preferred securities generally has a preference as to dividends and liquidation over an issuer's common equity securities but ranks junior to debt securities in an issuer's capital structure. Unlike interest payments on debt securities, preferred security dividends are payable only if declared by the issuer's board of directors. Preferred securities also may be subject to optional or mandatory redemption provisions. Preferred securities in which the Fund invests generally have no voting rights or their voting rights are limited to certain extraordinary transactions or events.
o CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note, preferred stock, warrant or other security that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified price or formula. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both debt and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Convertible securities ordinarily provide a stream of income with generally higher yields than those of common equity securities of the same or similar issuers. Convertible securities generally rank senior to common equity securities in a corporation's capital structure but are usually subordinated to comparable non-convertible securities. Convertible securities generally do not participate directly in any dividend increases
or decreases of the underlying securities, although the market prices of convertible securities may be affected by any dividend changes or other changes in the underlying securities.
In current market conditions, the Fund intends initially to invest approximately:
o 70% to 80% of its total assets in common equity securities issued by Real Estate Companies; and
o 20% to 30% of its total assets in preferred securities issued by Real Estate Companies.
The actual initial investment percentages with respect to common equity, preferred and convertible securities are subject to market conditions at the time of such initial investment, the current market prices of such securities and Neuberger Berman's views on the marketplace for such securities. The Fund's portfolio composition can be expected to vary over time based on NB Management's assessment of market conditions.
DEBT SECURITIES. In normal market conditions, the Fund may invest up to 20% of its total assets in debt securities (including convertible and non-convertible debt securities), such as debt securities issued by Real Estate Companies and U.S. government obligations. As noted above, the Fund may exceed this limit during its initial three months of operation.
o DEBT SECURITIES OF REAL ESTATE COMPANIES. Debt securities in which the Fund may invest include all types of debt obligations having varying terms with respect to security or credit support, subordination, purchase price, interest payments and maturity. The debt securities in which the Fund invests may bear interest at fixed rates or variable rates of interest, and may involve equity features such as contingent interest or participation based on revenues, rents or profits. The prices of debt securities generally vary inversely with interest rates.
o U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S. government and its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as certain "stripped" or "zero coupon" U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their "face value" and may exhibit greater price volatility than interest-bearing securities since investors receive no payment until maturity. Obligations of certain agencies and instrumentalities of the U.S. government are supported by the full faith and credit of the U.S. Treasury; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary authority of the U.S. government to purchase the agency's obligations; still others, though issued by an instrumentality chartered by the U.S. government, are supported only by the credit of the instrumentality. The U.S. government may choose not to provide financial support to U.S. government-sponsored agencies or instrumentalities if it is not legally obligated to do so. Even where a security is backed by the full faith and credit of the U.S. Treasury, it does not guarantee the market price of that security, only the payment of principal and/or interest.
If interest rates rise, debt security prices generally fall; if interest rates fall, debt security prices generally rise. Debt securities with longer maturities generally offer higher yields than debt securities with shorter maturities assuming all other factors, including credit quality, are equal. For a given change in interest rates, the market prices of longer-maturity debt securities generally fluctuate more than the market prices of shorter-maturity debt securities. This potential for a decline in prices of debt securities due to rising interest rates is referred to herein as "interest rate risk."
BELOW-INVESTMENT GRADE QUALITY SECURITIES. The preferred securities and the convertible and non-convertible preferred and debt securities in which the Fund may invest are sometimes collectively referred to in this Prospectus as "Senior Income Securities." The Fund may invest in Senior Income Securities that are below-investment grade quality, including unrated securities determined by the Fund's investment manager to be of comparable quality. In the event that one rating agency assigns an investment grade rating and another rating agency assigns a below-investment grade rating to the same Senior Income Security, NB Management will determine which rating it considers more appropriate and categorize the Senior Income Security accordingly. Below-investment grade
quality Senior Income Securities are those that have received ratings lower than Baa or BBB by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P") or Fitch Ratings ("Fitch") and unrated securities determined by NB Management to be of comparable quality. Below-investment grade quality debt securities are commonly referred to as "junk bonds." The Fund will not invest in below-investment grade quality Senior Income Securities if, as a result of such investment, more than 25% of the Fund's total assets would be invested in such securities. If a downgrade of one or more investment grade quality Senior Income Securities causes the Fund to exceed this 25% limit, the Fund's portfolio manager will determine, in his discretion, whether to sell any below-investment grade quality Senior Income Securities to reduce the percentage to below 25% of the Fund's total assets. It is possible, therefore, that the value of below-investment grade quality Senior Income Securities could exceed 25% of the Fund's total assets for an indefinite period of time. NB Management will monitor the credit quality of the Fund's Senior Income Securities.
Securities that are below-investment grade quality are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. The Fund may only invest in below-investment grade quality securities that are rated CCC or higher by S&P, rated Caa or higher by Moody's or rated CCC or higher by Fitch, or are unrated but determined to be of comparable quality by the Fund's investment manager. The issuers of these securities have a currently identifiable vulnerability to default on their payments of principal and interest. Such issues may be in default or there may be present elements of danger with respect to principal or interest. The Fund will not invest in securities that are in default as to payment of principal and interest at the time of purchase. For a description of security ratings, see Appendix B of the Statement of Additional Information.
FOREIGN SECURITIES. At least 90% of the Fund's total assets will be invested in U.S. dollar-denominated securities of issuers located in the United States. The Fund may invest up to 10% of its total assets in securities of non-U.S. issuers located in countries considered by Neuberger Berman to be industrialized, which securities may be U.S. dollar-denominated or denominated in a currency other than the U.S. dollar.
ILLIQUID SECURITIES. Substantially all of the equity securities of Real Estate Companies in which the Fund intends to invest are traded on a national securities exchange or in the over-the-counter markets. The Fund may, however, invest in illiquid securities (i.e., securities that at the time of purchase are not readily marketable). For purposes of this restriction, illiquid securities include, but are not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may be resold only pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and that are not deemed to be liquid, privately traded REITs and repurchase agreements with maturities in excess of seven days. The Board of Directors has the authority to determine, to the extent permissible under the federal securities laws, which securities are liquid or illiquid. The Board of Directors has delegated to NB Management the day-to-day determination of the illiquidity of any security held by the Fund, although it has retained oversight of such determinations. Although no definitive liquidity criteria are used, the Board of Directors has directed NB Management to look for such factors as the nature of the market for a security (including the institutional private resale market); the frequency of trades and quotes for the security; the number of dealers willing to purchase or sell the security; the amount of time normally needed to dispose of the security; and other permissible relevant factors.
Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act. Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell.
Illiquid securities will be priced at fair value as determined in good faith by NB Management acting pursuant to procedures adopted by the Board of Directors. Valuing illiquid securities typically requires greater judgment than valuing securities for which there is an active trading market. See "Net Asset Value." If, through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund is in a position where a substantial portion of the value of its total assets are invested in illiquid securities, including restricted securities that are not readily marketable, the Fund will take steps NB Management deems advisable, if any, to protect liquidity.
As discussed below under "Interest Rate Transactions," the Fund intends to segregate cash or liquid securities with its custodian having a value at least equal to the Fund's net payment obligations under any interest rate swap transaction, marked to market daily. The Fund will treat such amounts as illiquid.
CASH POSITIONS. In anticipation of or in response to adverse market conditions, for cash management purposes, during a reasonable start-up period following the completion of this offering and any offering of Preferred Shares, or for defensive purposes, the Fund may temporarily hold all or a portion of its assets in cash or cash equivalents, money market instruments, shares of money market funds that are managed by Neuberger Berman or bonds or other debt securities. Doing so may help the Fund avoid losses but may mean lost opportunities for the Fund to achieve its investment objectives. A reasonable start up period following any offering would not be expected to exceed three months.
Money market instruments in which the Fund may invest its cash reserves will generally consist of obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, repurchase agreements collateralized by such obligations, commercial paper and shares of money market funds, including money market funds for which NB Management serves as investment manager ("Affiliated Money Market Funds"). To the extent the Fund purchases shares of a money market fund, the Fund will indirectly bear its proportionate share of the advisory fees and other operating expenses of such fund.
Cash reserves may be invested in Affiliated Money Market Funds if such investments are expected to produce higher net returns, reduce transaction costs, create more liquidity and/or increase diversification for the Fund as compared to comparable overnight investment vehicles. When assets are invested in an Affiliated Money Market Fund, NB Management waives a portion of its investment advisory fee on the Fund equal to the advisory fee paid on those assets by the Affiliated Money Market Fund.
SECURITIES LENDING. The Fund may lend its portfolio securities (principally to broker-dealers) when such loans are callable at any time and are continuously secured by segregated collateral equal to no less than the market value, determined daily, of the loaned securities. The Fund would continue to receive the income on the loaned securities and would at the same time earn interest on the collateral or on the investment of any cash collateral. The Fund may invest such cash collateral in Affiliated Money Market Funds, subject to the policies discussed above under "Cash Positions." (Because the collateral received by the Fund is not considered a part of Managed Assets for purposes of calculating the Fund's advisory fee, there is no waiver of the advisory fee for collateral invested in an Affiliated Money Market Fund.) The Fund will not lend portfolio securities representing more than one-third of its total assets.
Lending securities involves a risk of loss to the Fund if and to the extent that the market value of the securities loaned increases and the collateral is not increased accordingly, or if the Fund is prevented from disposing promptly of the collateral in the event the borrower defaults.
PORTFOLIO TURNOVER. The Fund may engage in portfolio trading when NB Management considers it to be appropriate, but the Fund will not use short-term trading as the primary means of achieving its investment objectives. Although the Fund cannot accurately predict its annual portfolio turnover rate, it is not expected to exceed 50% under normal circumstances. However, there are no limits on the rate of portfolio turnover, and investments may be sold without regard to the length of time held when, in the opinion of NB Management, investment considerations warrant such action. A higher turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover may result in the Fund's realization of net short-term capital gains that, when distributed to stockholders, will be taxable as ordinary income. See "Tax Matters."
FUNDAMENTAL INVESTMENT POLICIES
The Fund has adopted certain fundamental investment policies designed to limit investment risk. These fundamental policies, as well as the investment objectives of the Fund, may not be changed without the approval of the holders of a majority of the outstanding Common Shares and, if outstanding, Preferred
Shares voting as a single class, as well as by the vote of a majority of the outstanding Preferred Shares tabulated separately. A "majority of the outstanding" shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever of (i) or (ii) is less. See "Investment Objectives, Policies and Limitations" and "Investment Strategies, Techniques and Risks" in the Statement of Additional Information for a list of the fundamental and non-fundamental investment policies of the Fund. See "Description of Shares--Preferred Shares--Voting Rights" and the Statement of Additional Information under "Description of Shares--Preferred Shares--Voting Rights" for additional information with respect to the voting rights of holders of Preferred Shares.
The Fund may become subject to guidelines that are more limiting than the fundamental investment policies referenced above in order to obtain and maintain ratings from a rating agency in connection with the Fund's utilization of Financial Leverage. The Fund does not anticipate that such guidelines would have a material adverse effect on the Fund's Common Stockholders or the Fund's ability to achieve its investment objectives.
INVESTMENT PHILOSOPHY
Neuberger Berman's investment philosophy in managing the Fund is driven by:
o an experienced portfolio management staff that believes in traditional on-site real estate analysis and frequent meetings with company management;
o a distinct investment approach that combines fundamental securities analysis and direct real estate analysis with property sector diversification;
o a disciplined valuation methodology that seeks attractively priced real estate securities relative to their historical growth rates and alternative property sectors; and
o an investment strategy that seeks to develop a portfolio with a broad mix of real estate securities through quality stock selection and property sector allocation.
Neuberger Berman focuses on quality of management, relative equity valuation levels within the real estate securities universe, and relative property sector performance expectations. Neuberger Berman also considers the relative weighting of property sectors in the NAREIT index. Neuberger Berman anticipates that, under current market conditions, the Fund will invest in the following property sectors, among others: office, industrial, retail and apartments.
INVESTMENT PROCESS
The Neuberger Berman investment process for the Fund emphasizes internally-generated investment ideas derived from both top-down analysis of property sectors and bottom-up research on real estate securities. The investment process utilizes a relative valuation model that ranks securities on a daily basis and allows for a discrete buy/sell process.
Neuberger Berman's investment process for the Fund consists of four primary investment areas: (1) macro research; (2) property sector research; (3) company research; and (4) portfolio management.
Macro research consists of an overall assessment of the economy and expectations for economic growth on a national basis as well as a regional basis. Macro research is considered essential in the construction of a real estate securities portfolio as a result of the breadth of lease duration levels among the respective property sectors. Macro research is also required in determining the level of demand across the primary property sectors. The resources available to conduct macro research include in-house economic research, Wall Street analysts and numerous economic reports.
Property sector research is emphasized as a result of Neuberger Berman's belief that prudent property sector selection will produce consistent levels of investment performance versus an appropriate benchmark. Historically, there has been a material level of divergence in investment results among the core property sectors (multi-family, office, industrial, retail). The investment team seeks to identify property sector valuation disparities through the construction of and analysis of relative valuation models among the property sectors within the REIT industry. Property sector valuations are analyzed on both a relative and absolute basis. Relative valuation analysis is important because the investment team seeks to be fully invested in real estate securities at all times.
Neuberger Berman's real estate securities research endeavors to focus its investment efforts on those firms that demonstrate attractive prospects for satisfactory levels of earnings growth and earnings consistency, as well as dividend growth and coverage. The companies with the most attractive fundamental attributes are then screened according to pricing factors that may be important indicators of potential share price performance versus peers. Some of the pricing factors that Neuberger Berman focuses on include multiple-to-long-term earnings growth and net asset value-to-price. Neuberger Berman also assigns a quantitative score to its assessment of management and management strategy. A company's strategy and its ability to execute that strategy as well as the public market's acceptance of that strategy are considered a key company attribute in the investment review process. The fundamental research and pricing components of the investment process are combined to identify attractively priced securities of companies with relatively favorable long-term prospects. Neuberger Berman will also consider the relative liquidity of each security in the construction of the Fund's portfolio.
Portfolio construction consists of overweighting and underweighting specific property types, individual securities and geographic regions based on the previously described investment process. Portfolio weightings are measured against the appropriate benchmarks. In order to control risk, Neuberger Berman seeks to maintain a portfolio that is representative of the major property sectors and geographic regions.
INTEREST RATE TRANSACTIONS
The Fund may, but is not required to, enter into interest rate transactions, including those described below, to hedge against interest rate risks inherent in underlying investments and capital structure.
SWAPS AND CAPS
In connection with the Fund's use of Financial Leverage, the Fund may enter into interest rate swap or cap transactions. Interest rate swaps involve the Fund's agreement with the swap counterparty to pay a fixed-rate payment in exchange for the counterparty's paying the Fund a variable rate payment that is intended to approximate all or a portion of the Fund's variable-rate payment obligation on the Fund's Financial Leverage. The payment obligation would be based on the notional amount of the swap, which will not exceed the amount of the Fund's Financial Leverage.
Interest rate caps require the Fund to pay a premium to the cap counterparty and would entitle it, to the extent that a specified variable-rate index exceeds a predetermined fixed rate, to receive payment from the counterparty of the difference based on the notional amount. The Fund may use interest rate swaps or caps to reduce or eliminate the risk that an increase in short-term interest rates could have on the Fund's net earnings as a result of leverage.
The Fund will usually enter into interest rate swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund intends to segregate cash or liquid securities having a value at least equal to the Fund's net payment obligations under any interest rate swap or cap transaction, marked to market daily. The Fund will treat such amounts as illiquid.
The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the Fund's use of interest rate instruments could enhance or harm the overall performance of the Fund. To the extent that there is
a decline in interest rates, the net amount receivable by the Fund under the interest rate swap or cap could decline and thus could result in a decline in the net asset value of the Fund. In addition, if short-term interest rates are lower than the Fund's fixed rate of payment on the interest rate swap, the swap will reduce the Fund's net earnings if the Fund must make net payments to the counterparty. If, on the other hand, short-term interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance the Fund's net earnings if the Fund receives net payments from the counterparty. Buying interest rate caps could enhance the performance of the Fund by limiting the Fund's maximum leverage expense. Buying interest rate caps could also decrease the net earnings of the Fund if the premium paid by the Fund to the counterparty exceeds the additional cost of the Financial Leverage that the Fund would have been required to pay had it not entered into the cap agreement. The Fund has no current intention of entering into interest rate swaps or caps other than as described in this Prospectus. The Fund would not enter into interest rate swap or cap transactions in an aggregate notional amount that exceeds the outstanding amount of the Fund's Financial Leverage.
Interest rate swaps and caps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty defaults, the Fund would not be able to use the anticipated net receipts under the interest rate swap or cap to offset the costs of the Financial Leverage. Depending on whether the Fund would be entitled to receive net payments from the counterparty on the interest rate swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time, such a default could negatively impact the performance of the Fund.
Although this will not guarantee that the counterparty does not default, the Fund will not enter into an interest rate swap or cap transaction with any counterparty that NB Management believes does not have the financial resources to honor its obligation under the interest rate swap or cap transaction. Further, NB Management will regularly monitor public information about the financial stability of a counterparty to an interest rate swap or cap transaction in an effort proactively to protect the Fund's investments.
In addition, at the time the interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the performance of the Fund
The Fund may choose or be required to redeem some or all Preferred Shares or prepay any Borrowings. Such a redemption or prepayment would likely result in the Fund's seeking to terminate early all or a portion of any interest rate swap or cap transaction. Such early termination of a swap could result in a termination payment by or to the Fund. An early termination of a cap could result in a termination payment to the Fund. There may also be penalties associated with early termination.
FUTURES AND OPTIONS ON FUTURES
The Fund may also purchase and sell futures contracts and options on futures contracts. A futures contract is a two-party agreement to buy or sell a specified amount of a specified security, such as U.S. Treasury securities, for a specified price at a designated date, time and place. Brokerage fees are incurred when a futures contract is bought or sold, and margin deposits must be maintained at all times when a futures contract is outstanding. The Fund may sell futures contracts, for example, as an offset against the effect of expected increases in interest rates and may purchase futures contracts as an offset against the effect of expected declines in interest rates. The Fund will enter into futures contracts only if they are traded on domestic futures exchanges and are standardized as to maturity date and underlying financial instrument.
Options on futures contracts give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures contract position by the writer of the option to the holder of the option will be accompanied by delivery of any accumulated balance in the writer's futures contract margin account. If the Fund sells ("writes") options on futures contracts, it will segregate cash or liquid
securities in an amount necessary to cover its obligations under the option and will mark such amounts to market daily.
RISKS
Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing you should consider carefully the following risks that you assume when you invest in Preferred Shares.
LEVERAGE RISK
The Fund intends to use leverage for investment purposes by issuing Preferred Shares. It is currently anticipated that, taking into account the Preferred Shares being offered in this Prospectus, the amount of leverage will represent approximately 33% of the Fund's net assets.
The Fund's leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. These include the possibility of higher volatility of the net asset value of the Fund and the Preferred Shares' asset coverage. There can be no assurance that the Fund's leveraging strategies involving Preferred Shares or derivatives will be successful. While the Fund may from time to time consider reducing leverage in response to actual or anticipated changes in interest rates in an effort to mitigate the increased volatility of current income and net asset value associated with leverage, there can be no assurance that the Fund will actually reduce leverage in the future. As long as the Preferred Shares are outstanding, the Fund does not intend to utilize other forms of leverage.
The Fund may invest in the securities of other investment companies. Such securities may also be leveraged and will therefore be subject to the leverage risks described above. The shares of other investment companies are subject to the management fees and other expenses of those funds. Therefore, investments in other investment companies will cause the Fund to bear proportionately the costs incurred by the other investment companies' operations. If these other investment companies engage in leverage, the Fund, as a stockholder, would bear its proportionate share of the cost of such leveraging.
Because the fees paid to NB Management are calculated on the basis of the Fund's Managed Assets (which includes the liquidation preference of the Preferred Shares), the fees will be higher when leverage is utilized, giving NB Management an incentive to favor the use of leverage.
The Fund will issue Preferred Shares, which typically pay dividends based on short-term interest rates, and will use the proceeds to buy real estate equity securities that pay dividends based upon the performance of the issuing companies. The Fund also may buy real estate debt securities that pay interest based on longer-term yields. These dividends and interest payments are typically, although not always, higher than short-term interest rates. Real Estate Company dividends, as well as long-term and short-term interest rates, fluctuate. If short-term interest rates rise, dividend rates on the Preferred Shares may rise so that the amount of dividends to be paid to Preferred Stockholders exceeds the income from the portfolio securities. Because income from the Fund's entire investment portfolio (not just the portion of the portfolio purchased with the proceeds of the Preferred Shares offering) is available to pay dividends on the Preferred Shares, however, dividend rates on the Preferred Shares would need to greatly exceed the Fund's net portfolio income before the Fund's ability to pay dividends on the Preferred Shares would be jeopardized. If long-term interest rates rise, this could negatively impact the value of the Fund's investment portfolio, reducing the amount of assets serving as asset coverage for the Preferred Shares. The Fund anticipates entering into interest rate swap or cap transactions with the intent to reduce or eliminate the risk posed by an increase in short-term interest rates. There is no guarantee that the Fund will engage in these transactions or that these transactions will be successful in reducing or eliminating interest rate risk.
The Fund also may leverage for investment purposes or to finance common stock repurchases and tender offers through Borrowings. Such Borrowings would have seniority over the Preferred Shares, including with respect to any distributions of assets that the Fund might make, and could limit the amount of funds available for distributions of income. The Fund will not leverage through Borrowings if, immediately after such Borrowings, total Financial Leverage would exceed [ ]% of the Fund's total assets.
AUCTION RISK
Preferred Stockholders may not be able to sell Preferred Shares at an auction if the auction fails; that is, if there are more Preferred Shares offered for sale than there are buyers for those Preferred Shares. Also, if a hold order is placed at an auction (an order to retain Preferred Shares) only at a specified rate, and that bid rate exceeds the rate set at the auction, the Preferred Shares will not be retained. Additionally, if you elect to buy or retain Preferred Shares without specifying a rate below which you would not wish to continue to hold those Preferred Shares, and the auction sets a rate below the current market rate, you may receive a lower rate of return on your Preferred Shares than the market rate. Finally, the rate period may be changed, subject to certain conditions and with notice to the holders of the Preferred Shares, which could also affect the liquidity of your investment. Neither the Broker-Dealers nor the Fund are obligated to purchase Preferred Shares in an auction or otherwise, nor is the Fund required to redeem Preferred Shares in the event of a failed auction. As a result, your investment in Preferred Shares may be illiquid. See "Description of Preferred Shares" and "The Auction--Auction Procedures."
SECONDARY MARKET RISK
If you try to sell your Preferred Shares between auctions, you may not be
able to sell any or all of your shares, or you may not be able to sell them for
$25,000 per share or $25,000 per share plus accumulated dividends. The value of
income securities typically falls when market interest rates rise, and
securities with longer maturities or interest rate reset periods are affected
more than securities with shorter maturities or reset periods. Accordingly, if
the Fund has designated a special rate period (a rate period of more than
[seven] days in the case of each of Series A Preferred Shares and Series B
Preferred Shares and more than [28] days in the case of Series C Preferred
Shares and Series D Preferred Shares), changes in interest rates are more likely
to affect the price you would receive if you sold your shares in the secondary
market. You may transfer shares outside of auctions only to or through a
Broker-Dealer or a broker-dealer that has entered into an agreement with a
Broker-Dealer. If you sell your Preferred Shares to a broker-dealer between
auctions, you may receive less than the price you paid for them, especially when
market interest rates have risen since the last auction. The Fund does not
anticipate imposing significant restrictions on transfers to other persons.
However, unless any such other person has entered into a relationship with a
Broker-Dealer, that person will not be able to submit bids at auctions with
respect to Preferred Shares. Broker-Dealers that maintain a secondary trading
market for Preferred Shares are not required to maintain this market, and the
Fund is not required to redeem shares if either an auction or an attempted
secondary market sale fails because of a lack of buyers. Preferred Shares are
not listed on a stock exchange or the Nasdaq Stock Market.
RATINGS AND ASSET COVERAGE RISK
In order to obtain a rating of Aaa and AAA from Moody's and Fitch, respectively, the Fund must satisfy certain asset coverage and diversification requirements. See "Description of Preferred Shares--Rating Agency Guidelines and Asset Coverage" for a more detailed description of the asset tests the Fund must meet. While it is a condition to the closing of this offering that Moody's and Fitch assign a rating of Aaa and AAA, respectively, to the Preferred Shares, the ratings do not eliminate or necessarily mitigate the risks of investing in Preferred Shares. A rating agency could downgrade Preferred Shares, which may make Preferred Shares less liquid at an auction or in the secondary market, although the downgrade would probably result in higher dividend rates. If a rating agency downgrades Preferred Shares, the Fund will alter its portfolio or redeem Preferred Shares, if appropriate, to address rating agency concerns.
In certain circumstances the Fund may not earn sufficient income from its investments to pay dividends on the Preferred Shares. The value of the Fund's investment portfolio may decline, reducing the asset coverage for the Preferred Shares. The Fund may be forced to redeem Preferred Shares to meet regulatory requirements or may voluntarily redeem Preferred Shares in certain circumstances.
PAYMENT RESTRICTIONS
The Fund may not declare or pay any dividends or other distributions on Preferred Shares or Common Shares unless it satisfies certain conditions. See "Description of Preferred Shares--Dividends and Rate Periods--Restriction of Dividends and Other Distributions." These prohibitions on the payment of dividends or other distributions might impair the Fund's ability to maintain its qualification as a regulated investment company for federal income tax purposes.
The Fund intends to redeem Preferred Shares if necessary to comply with the asset coverage requirements. There can be no assurance, however, that such redemptions can be effected in time to permit the Fund to distribute its income as required to maintain its qualification as a regulated investment company under the Code. See "Tax Matters."
An investment in the Preferred Shares is also subject to, among other risks, stock market risk, interest rate risk, credit risk, inflation risk, liquidity risk and derivatives risk. An investment in Preferred Shares will also be subject to the risk associated with the fact that the Fund is recently organized. These risks are summarized below.
LIMITED OPERATIONAL HISTORY
The Fund is a recently organized, non-diversified closed-end management investment company that has been operational only since October 31, 2003.
INVESTMENT RISK
An investment in the Fund is subject to investment risk, including possible loss of the entire amount that you invest.
STOCK MARKET RISK
Your investment in Fund shares will represent an indirect investment in REIT shares and other real estate securities owned by the Fund, substantially all of which are traded on a national securities exchange or in the over-the-counter markets. The prices of the common securities of Real Estate Companies, including REITs, and other securities in which the Fund will invest, will fluctuate from day to day, sometimes rapidly and unpredictably, and may--either in the near term or over the long run--decline in value. The net asset value of the Fund and the asset coverage of the Preferred Shares may be affected by a decline in financial markets in general. The Fund's use of Financial Leverage magnifies stock market risks.
RISKS OF SECURITIES LINKED TO THE REAL ESTATE MARKET
The Fund invests in real estate indirectly through securities issued by Real Estate Companies, including REITs. Although the values of the securities of Real Estate Companies and REITs reflect the perceived operating values of these companies and do not always move in tandem with the prices of real estate assets, because of the Fund's policies of indirect investments in real estate and concentration in the securities of companies in the real estate industry, it is subject to risks associated with the direct ownership of real estate. These risks include:
o declines in the value of real estate;
o general and local economic conditions;
o unavailability of mortgage funds;
o overbuilding;
o extended vacancies of properties;
o increased competition;
o increases in property taxes and operating expenses;
o changes in zoning laws;
o losses due to costs of cleaning up environmental problems and contamination;
o limitations on, or unavailability of, insurance on economic terms;
o liability to third parties for damages resulting from environmental problems;
o casualty or condemnation losses;
o limitations on rents;
o changes in neighborhood values and the appeal of properties to tenants;
o changes in valuation due to the impact of terrorist incidents on a particular property or area, or on a segment of the economy;
o changes in interest rates. and
o legal, cultural or technological developments.
As a result of these factors, the net asset value of the Fund may change at different rates compared to the net asset value of a registered investment company with investments in a mix of different industries. The performance of the Fund will also depend on the general condition of the economy. An economic downturn could have a material adverse effect on the real estate markets and on the Real Estate Companies in which the Fund invests, which in turn could result in the Fund not achieving its investment objectives.
Real property investments are subject to varying types and degrees of risk. The yields available from investments in real estate depend on the amount of income and capital appreciation generated by the related properties. Income and real estate values may also be adversely affected by such factors as applicable laws (e.g., Americans with Disabilities Act and tax laws), quality of management, interest rate levels and the availability of financing.
If the properties do not generate sufficient income to meet operating expenses, including, where applicable, debt service, ground lease payments, tenant improvements, third-party leasing commissions and other capital expenditures, the income and ability of a Real Estate Company to make payments of any interest and principal on its debt securities, and its ability to pay dividends, will be adversely affected. In addition, real property may be subject to the quality of credit extended and defaults by borrowers and tenants.
The performance of the economy in each of the regions in which the real estate owned by a Real Estate Company is located affects occupancy, market rental rates and expenses and, consequently, has an impact on the income from such properties and their underlying values. The financial results of major local employers also may have an impact on the cash flow and value of certain properties. In addition, certain real estate valuations, including residential real estate values, are influenced by market sentiments, which can change rapidly and could result in a sharp downward adjustment from current valuation levels.
In addition, real estate investments are relatively illiquid and, therefore, the ability of Real Estate Companies to vary their portfolios promptly in response to changes in economic or other conditions is limited. A Real Estate Company may also have joint venture investments in certain of its properties, and consequently its ability to control decisions relating to such properties may be limited.
As discussed below, real property investments are also subject to risks that are specific to the investment sector or type of property in which the Real Estate Companies are investing.
RETAIL PROPERTIES. Retail properties are affected by the overall health of the economy. A retail property may be adversely affected by the growth of alternative forms of retailing (for example, catalog or on-line shopping), bankruptcy, decline in drawing power, a shift in consumer demand due to demographic changes and/or changes in consumer preference (for example, to discount retailers), spending patterns and other trends in the retail industry. A retail property may also be adversely affected if an anchor or significant tenant ceases operation at such location, voluntarily or otherwise. Certain tenants at retail properties may be entitled to terminate their leases if an anchor tenant ceases operations at such property. Retail properties in general may suffer from declines in consumer spending, which may result from economic downturns or changes in consumer habits. Changes in market rental rates, competitive market forces, the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise and changes in market rates of interest could also have an adverse effect on retail properties.
COMMUNITY CENTERS. Community center properties are dependent upon the successful operations and financial condition of their tenants, particularly certain of their major tenants, and could be adversely affected by the bankruptcy of those tenants. In some cases, a tenant may have a significant number of leases in one community center and the filing of bankruptcy could cause significant revenue loss. Like others in the commercial real estate industry, community centers are subject to environmental risks and interest rate risk. They also face the need to enter into new leases or renew leases on favorable terms to generate rental revenues. Community center properties could be adversely affected by changes in the local markets where their properties are located, as well as by adverse changes in national economic and market conditions.
OFFICE AND INDUSTRIAL PROPERTIES. Office and industrial properties generally require their owners to expend significant amounts for general capital improvements, tenant maintenance and improvements and costs of reletting space. Increases in real estate construction costs, insurance premiums and interest rates could adversely affect office and industrial properties. Industrial properties are also subject to tenant defaults and bankruptcies that could affect their collection of outstanding receivables. In addition, office and industrial properties that are not equipped to accommodate the needs of modern businesses may become functionally obsolete and thus non-competitive. Office and industrial properties may also be adversely affected if there is an economic decline in the businesses operated by their tenants or in the economy as a whole. The risk of such an adverse effect is increased if the property revenue is dependent on a single tenant or if there is a significant concentration of tenants in a particular business or industry.
HOTEL PROPERTIES. The risks of hotel properties include, among other things, the necessity of a high level of continuing capital expenditures to keep necessary furniture, fixtures and equipment updated, competition from other hotels, increases in operating costs (which increases may not necessarily be offset in the future by increased room rates), dependence on business and commercial travelers and tourism (which may be affected by terrorist activities), increases in fuel costs and other expenses of travel, changes to regulations of operating, liquor and other licenses, and adverse effects of general and local economic conditions. Because hotel rooms are generally rented for short periods of time, hotel properties tend to be more sensitive to adverse economic conditions and competition than many other commercial properties. Also, hotels may be operated pursuant to franchise, management and lease agreements that may be terminable by the franchiser, the manager or the lessee. Hotel properties may be adversely affected if there is an economic decline in the business of the franchiser, the manager or the lessee. On the other hand, it may be difficult to terminate an ineffective operator of a hotel property after a foreclosure of the property. Hotel properties may also be adversely affected by the bankruptcy or insolvency of their tenants.
HEALTHCARE PROPERTIES. Healthcare properties and healthcare providers are
affected by several significant factors, including: (1) federal, state and local
laws governing licenses, certification, adequacy of care, pharmaceutical
distribution, rates, equipment, personnel and other factors regarding
operations; (2) continued availability of revenue from government reimbursement
programs (primarily Medicaid and Medicare); (3) competition in terms of
appearance, reputation, quality and cost of care with similar properties on a
local and regional basis; (4) deterioration, including bankruptcy, of tenants;
(5) occupancy rates; and (6) the general distress of the healthcare industry.
These governmental laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. Changes may also be applied retroactively and the timing of such changes cannot be predicted. The failure of any healthcare operator to comply with governmental laws and regulations may affect its ability to operate its facility or receive
government reimbursement. In addition, in the event that a tenant is in default on its lease, a new operator or purchaser at a foreclosure sale will have to apply for all relevant licenses if such new operator does not already hold such licenses. There can be no assurance that such new licenses could be obtained, and, consequently, there can be no assurance that any healthcare property subject to foreclosure will be disposed of in a timely manner.
MULTIFAMILY/RESIDENTIAL PROPERTIES. The value and successful operation of a multifamily and residential property may be affected by a number of factors, such as changes in the national, regional and local economic climate, the location of the property, the ability of management to provide adequate maintenance and insurance, types of services provided by the property, the level of mortgage rates, presence of competing properties, the relocation of tenants to new projects with better amenities, adverse economic conditions in the locale, the amount of rent charged, oversupply of units due to new construction or a reduction in the demand for multifamily living and tenant competition. In addition, multifamily and residential properties may be subject to rent control laws or other laws affecting such properties, which could impact the future cash flows of such properties.
SELF-STORAGE PROPERTIES. The value and successful operation of a self-storage property may be affected by a number of factors, such as the ability of the management team, the location of the property, the presence of competing properties, changes in traffic patterns, and adverse effects of general and local economic conditions in general and with respect to rental rates and occupancy levels.
Other factors may contribute to the level of risk of real estate investments.
INSURANCE ISSUES. Certain Real Estate Companies may have disclosed in connection with the issuance of their securities that they carry comprehensive liability, fire, flood, extended coverage and rental loss insurance with policy specifications, limits and deductibles customarily carried for similar properties. However, such insurance is not uniform among Real Estate Companies. Moreover, there are certain types of extraordinary losses that may be uninsurable or not economically insurable. Substantial increases in certain insurance premiums since the terrorist attacks of September 11, 2001 may cause some Real Estate Companies to reduce their coverage. Certain of the properties may be located in areas that are subject to earthquake activity for which insurance may not be maintained. If a property sustains damage as a result of an earthquake, even if the Real Estate Company maintains earthquake insurance, it may incur substantial losses due to insurance deductibles, co-payments on insured losses or uninsured losses. A massive earthquake or other event could threaten the financial viability of some insurance companies. It may be difficult or impossible to find commercial insurance against certain types of losses, such as those stemming from floods or mold damage. If any type of uninsured loss occurs, the Real Estate Company could lose its investment in, and anticipated profits and cash flows from, a number of properties, which would adversely impact the Fund's investment performance.
FINANCIAL LEVERAGE. Real Estate Companies, including REITs, may be highly leveraged, and financial covenants may affect the ability of those companies to operate effectively. Real Estate Companies are subject to risks normally associated with debt financing. If the principal payments of a Real Estate Company's debt cannot be refinanced, extended or paid with proceeds from other capital transactions, such as new equity capital, the Real Estate Company's cash flow may not be sufficient to repay all maturing debt outstanding.
In addition, a Real Estate Company's obligation to comply with covenants contained in agreements with its lenders, such as debt-to-asset ratios and secured debt-to-total asset ratios, and other contractual obligations may restrict the Real Estate Company's range of operating activity. A Real Estate Company may therefore be limited from incurring additional indebtedness, selling its assets and engaging in mergers or making acquisitions that may be beneficial to the operation of the Real Estate Company.
ENVIRONMENTAL RISKS. In connection with the ownership (direct or indirect), operation, management and development of real properties that may contain hazardous or toxic substances, a Real Estate Company may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as governmental fines and liabilities for injuries to persons and property and other costs. The existence of any such material environmental liability could have a material adverse effect on the results of operations and cash flow of any such Real Estate
Company, and, as a result, the amount available to make distributions on its shares could be reduced.
SMALLER COMPANIES. Even the larger Real Estate Companies tend to be small to medium-sized companies in relation to the equity markets as a whole. There may be less trading in a smaller company's shares, which means that buy and sell transactions in those shares could have a larger impact on the share's price than is the case with larger company shares. Smaller companies also may have fewer lines of business so that changes in any one line of business may have a greater impact on a smaller company's share price than is the case for a larger company. Further, smaller company shares may be more volatile than, and perform differently in different cycles than, larger company shares. Accordingly, Real Estate Company shares can be more volatile than -- and at times will perform differently from -- large company shares such as those found in the Dow Jones Industrial Average.
TAX AND RELATED ISSUES. REITs are subject to highly technical and complex provisions of the Code. It is possible that the Fund may invest in a Real Estate Company that purports or intends to be a REIT but fails to qualify for treatment as such under the Code. In the event of any such unexpected failure, the Real Estate Company would be subject to corporate-level taxation, significantly reducing the return to the Fund on its investment in such company. A REIT also could possibly fail to maintain its exemption from registration under the 1940 Act, which also could adversely affect its operations. In the event of a default by a borrower or lessee, a REIT may experience delays in enforcing its rights as a creditor or lessor and may incur substantial costs associated with protecting its investments. There is a risk that future changes in U.S. tax laws may affect the tax treatment of REITs and their stockholders.
Like a regulated investment company, a REIT that satisfies a minimum distribution requirement for a taxable year is not required to pay federal income tax on its income and realized capital gains for that year that it distributes to its stockholders. See "Tax Matters." Also like a regulated investment company, a REIT must make annual distributions to avoid a non-deductible 4% federal excise tax on certain undistributed real estate investment trust taxable income and capital gain net income. REITs generally make distributions to avoid the imposition of federal income and excise taxes in December each year (or make distributions in January that are treated for federal income tax purposes as made on the preceding December 31). Those distributions will be included in the Fund's income and realized gains, respectively, on the ex-distribution date, even though some part thereof may represent a return of the Fund's investment in the REIT(s) that distributed them.
TERRORISM. Terrorist attacks may adversely affect or even destroy completely the value of individual properties or wide areas. Economic disruption or recession stemming from such attacks can reduce the value of real property of all kinds. Such attacks can also disrupt business and tourism, either in a particular city or in the nation as a whole, which can adversely affect the value of properties in particular industries, e.g., hotels and retail establishments. Higher insurance costs may adversely affect Real Estate Companies, and certain Real Estate Companies may be unable to obtain certain kinds of insurance.
INTEREST RATE RISK
Interest rate risk is the risk that fixed-income investments such as preferred shares, U.S. government obligations and debt securities, and to a lesser extent dividend-paying common stocks and shares such as REIT common shares, will decline in value because of changes in market interest rates. When interest rates rise, the market value of such securities generally will fall. Generally, the longer the maturity of a fixed-income security, the more its value falls in response to a given rise in interest rates. The Fund's investment in such securities means that its net assets and the asset coverage for the Preferred Shares will tend to decline if market interest rates rise. Because investors generally look to REITs for a stream of income, the prices of REIT shares may be more sensitive to changes in interest rates than are other equity securities. Since interest rates are at or near historical lows, it is likely that they will rise in the near future.
The Fund intends to utilize leverage, which magnifies the interest rate risks. The Fund intends to use interest rate swaps, interest rate caps, futures contracts and options on futures contracts to help control interest rate risks. See "Interest Rate Transactions."
CREDIT RISK
The Fund could lose money if the issuer of a debt security, or the counterparty to a derivatives contract or other obligation, is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. In general, lower-rated securities carry a greater degree of risk that the issuer will lose its ability to make interest and principal payments, which could have a negative impact on the Fund's net asset value or distributions.
If rating agencies lower their ratings of debt securities in the Fund's portfolio, the value of those obligations could decline, which could reduce the asset coverage on the Preferred Shares and negatively impact the rating agencies' ratings of the Fund's Preferred Shares. Even if an issuer does not actually default, adverse changes in the issuer's financial condition may negatively affect its credit rating or presumed creditworthiness. These developments would adversely affect the market value of the issuer's obligations and, correspondingly, the net asset value of the Fund.
RISKS OF INVESTING IN BELOW-INVESTMENT GRADE QUALITY SECURITIES
Below-investment grade quality securities are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal and may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-grade securities. The prices of such securities have been found to be less sensitive to interest rate changes than higher-quality investments but more sensitive to adverse economic downturns or individual corporate developments. Yields on investment grade securities will fluctuate. If an issuer of lower-rated securities defaults, the Fund may incur additional expenses to seek recovery.
The secondary markets in which below-investment grade quality securities are traded may be less liquid than the market for higher-grade quality securities. Less liquidity in the secondary trading markets could adversely affect the price at which the Fund could sell a particular below-investment grade security when necessary to meet liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the issuer, and could adversely affect and cause large fluctuations in the net asset value of the Fund. Valuation of securities that are illiquid or that trade infrequently often requires the exercise of greater judgment. Adverse publicity and investor perceptions may decrease the values and liquidity of below-investment grade quality securities.
It is reasonable to expect that any adverse economic conditions could disrupt the market for below-investment grade quality securities, have an adverse impact on the value of such securities, and adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon. New laws and proposed new laws may have an adverse impact on the market for below-investment grade quality securities.
INTEREST RATE TRANSACTIONS RISK
The Fund may enter into an interest rate swap or cap transaction to attempt to protect itself from increasing dividend or interest expenses resulting from increasing short-term interest rates. A decline in interest rates may result in a decline in net amounts receivable by the Fund from the counterparty under the interest rate swap or cap (or an increase in the net amounts payable by the Fund to the counterparty under the swap), which may result in a decline in the net asset value of the Fund. See "Interest Rate Transactions."
RISKS OF FUTURES AND OPTIONS ON FUTURES
The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations and risks, as described below:
o Successful use of hedging transactions depends upon Neuberger Berman's ability to predict correctly the direction of changes in interest rates. While Neuberger Berman is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed.
o There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates being hedged. Such a lack of correlation might occur due to factors unrelated to the interest rates being hedged, such as market liquidity and speculative or other pressures on the markets in which the hedging instrument is traded.
o Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable movements in the hedged interest rates.
o There is no assurance that a liquid secondary market will exist for any particular futures contract or option thereon at any particular time. If the Fund were unable to liquidate a futures contract or an option on a futures contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position.
o There is no assurance that the Fund will use hedging transactions. For example, if the Fund determines that the cost of hedging will exceed the potential benefit to it, it will not enter into such transaction.
INFLATION RISK
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As a result of inflation, the real value of the Preferred Shares and distributions on the Preferred Shares can decline.
TERRORISM; EVENTS IN IRAQ
Some of the U.S. securities markets were closed for a four-day period as a result of the terrorist attacks on the World Trade Center and Pentagon on September 11, 2001. These terrorist attacks, the war with Iraq and its aftermath, continuing occupation of Iraq by coalition forces and related events have led to increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. Those events could also have an acute effect on individual issuers or related groups of issuers. A similar disruption of the financial markets or other terrorist attacks could adversely impact interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Preferred Shares and adversely affect Fund service providers and the Fund's operations, including its ability to conduct auctions.
FOREIGN SECURITY RISK
The prices of foreign securities may be affected by factors not present in U.S. markets, including:
o CURRENCY EXCHANGE RATES. The dollar value of the Fund's foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded.
o FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS. The value of the Fund's foreign investments may be adversely affected by political and social instability in their home countries and by changes in economic or taxation policies in those countries.
o REGULATIONS. Foreign companies generally are subject to less stringent regulations, including financial and accounting controls, than are U.S. companies. As a result, there generally is less publicly available information about foreign companies than about U.S. companies.
o MARKETS. The securities markets of other countries are smaller than U.S. securities markets. As a result, many foreign securities may be less liquid and more volatile than U.S. securities.
NON-DIVERSIFIED RISK
Because the Fund is classified as "non-diversified" under the 1940 Act it can invest a greater portion of its assets in obligations of a single issuer than a "diversified" fund can. As a result, the Fund will be more susceptible than a more widely-diversified fund to any single corporate, economic, political or regulatory occurrence. However, the Fund has adopted a policy that it will not invest more than 10% of its total assets in the securities of any one issuer. See "The Fund's Investments." Moreover, the Fund intends to diversify its investments to the extent necessary to maintain its status as a regulated investment company under the Code. See "Tax Matters."
ANTI-TAKEOVER PROVISIONS
The Fund's Articles and Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert it to an open-end fund. If the Fund were converted to open-end status, the Fund would have to redeem the Preferred Shares. See "Anti-takeover and Other Provisions in the Articles of Incorporation."
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Board of Directors is broadly responsible for the management of the Fund, including general supervision of the duties performed by NB Management and Neuberger Berman, LLC. The names and business addresses of the Directors and officers of the Fund and their principal occupations and other affiliations during the past five years are set forth under "Management of the Fund" in the Statement of Additional Information.
INVESTMENT MANAGER
NB Management serves as the investment manager of the Fund. Subject to the general supervision of the Board of Directors, NB Management is responsible for managing, either directly or through others selected by it, the investment activities of the Fund and the Fund's business affairs and other administrative matters. NB Management is located at 605 Third Avenue, New York, New York 10158-0180.
Continuing an asset management history that began in 1939, NB Management provides investment management and advisory services to several investment company clients and other institutional investors, as well as to individuals. As of September 30, 2003, Neuberger Berman and its affiliates had approximately $ billion in assets under management, including more than $ billion in real estate-related securities (which include securities held by two other closed end-investment companies with substantially similar investment objectives and policies to those of the Fund).
NB Management has retained Neuberger Berman, LLC to serve as sub-adviser to the Fund. See "Sub-Adviser" below. NB Management and Neuberger Berman, LLC are located at 605 Third Avenue, New York, New York 10158-3698. NB Management and Neuberger Berman, LLC are wholly-owned subsidiaries of Lehman Brothers Holding Inc., a publicly-owned holding company located at 745 Seventh Avenue, New York, New York 10019.
Steven R. Brown serves as Portfolio Manager of the Fund. Mr. Brown is a
Vice President of NB Management and a Managing Director of Neuberger Berman,
LLC. Mr. Brown joined Neuberger Berman in January 2002 to head up the firm's
institutional and retail real estate securities effort. Until he joined
Neuberger Berman, Mr. Brown managed institutional separate accounts and served
as a Co-Portfolio Manager for the Cohen & Steers Equity Income Fund, Inc. and
the Cohen & Steers Advantage Income Realty Fund, Inc. He joined Cohen & Steers
in 1992. Prior to that, he was a debt rating analyst with Standard & Poor's
Corporation covering REITs, homebuilders and commercial mortgage securities.
SUB-ADVISER
NB Management has retained Neuberger Berman, LLC, 605 Third Avenue, New York, New York 10158-3698, to serve as the Fund's sub-adviser, responsible for providing investment recommendations and research.
NB Management (and not the Fund) pays for the services rendered by Neuberger Berman, LLC based on the direct and indirect costs to Neuberger Berman, LLC in connection with those services. Neuberger Berman, LLC also serves as sub-adviser for all of the open-end management investment companies and the other closed-end management investment companies managed by NB Management. Neuberger Berman, LLC and NB Management employ experienced professionals that work in a competitive environment.
MANAGEMENT AGREEMENT
Pursuant to an investment management agreement between NB Management and the Fund (the "Management Agreement"), the Fund has agreed to pay NB Management a management fee payable on a monthly basis at the annual rate of 0.60% of the Fund's average daily total assets minus liabilities other than the aggregate indebtedness entered into for purposes of leverage ("Managed Assets") for the services and facilities it provides. The liquidation preference of the Preferred Shares is not a liability or permanent equity. The Fund also pays NB Management a fee payable on a monthly basis at the annual rate of 0.25% of the Fund's average daily Managed Assets for services provided under an administration agreement.
In addition to the fees of NB Management, the Fund pays all other costs and expenses of its operations, including compensation of its Directors (other than those affiliated with NB Management), custodial expenses, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses of issuing any Preferred Shares, expenses of preparing, printing and distributing Prospectuses, stockholder reports, notices, proxy statements and reports to governmental agencies, and taxes, if any.
NB Management has contractually agreed to waive a portion of the management fees it is entitled to receive from the Fund in the amounts, and for the time periods, set forth below (covering commencement of the Fund's operations through October 31, 2011):
PERCENTAGE WAIVED (ANNUAL RATE AS A
PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO PERCENTAGE WAIVED (ANNUAL RATE AS A
COMMON SHARES--ASSUMING NO PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO
FISCAL PERIOD FINANCIAL LEVERAGE IS ISSUED OR COMMON SHARES--ASSUMING THE
ENDING OCTOBER 31, OUTSTANDING) ISSUANCE OF PREFERRED SHARES(2))
2003(1) 0.25% 0.37%
2004 0.25% 0.37%
2005 0.25% 0.37%
2006 0.25% 0.37%
2007 0.25% 0.37%
2008 0.25% 0.37%
2009 0.19% 0.28%
2010 0.13% 0.19%
2011 0.07% 0.10%
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(1) From the commencement of the Fund's operations.
(2) Assumes the issuance of Preferred Shares in an amount equal to 33% of the Fund's total assets (after issuance).
NB Management has not agreed to waive any portion of its fees beyond October 31, 2011.
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Because the fees received by NB Management are based on the Managed Assets of the Fund (including assets represented by the proceeds of any Financial Leverage), NB Management has a financial incentive for the Fund to utilize Financial Leverage, which may create a conflict of interest between NB Management and the holders of the Fund's Common Shares. Because holders of Preferred Shares or Borrowings receive a specified rate of return, the Fund's investment management fees and other expenses, including expenses incurred in the issuance and maintenance of any Financial Leverage, are paid only by the Common Stockholders, and not by holders of Preferred Shares or Borrowings.
DESCRIPTION OF PREFERRED SHARES
The following is a brief description of the terms of the Preferred Shares. This description does not purport to be complete and is subject to and qualified in its entirety by reference to the more detailed description of the Preferred Shares in the Fund's Articles Supplementary, which are attached as Appendix A to the Statement of Additional Information.
GENERAL
Under the Articles, the Fund is authorized to issue up to 1,000,000,000 shares of capital stock, all of it originally designated Common Shares. Pursuant to the Articles, the Board may classify or reclassify any unissued shares of capital stock without a stockholder vote into one or more classes of preferred or other stock. All Preferred Shares will have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared by the Fund, but excluding interest thereon).
Preferred Shares will rank on parity with shares of any other class or series of preferred stock of the Fund as to the payment of dividends and the distribution of assets upon liquidation. All Preferred Shares carry one vote per share on all matters on which such shares are entitled to be voted. Preferred Shares will, when issued, be fully paid and non-assessable and have no preemptive, exchange, conversion or cumulative voting rights. If the net assets of the Fund increase, the Fund may offer additional shares of preferred stock to maintain the leverage ratio of the Fund. The Preferred Shares will be subject to optional and mandatory redemption as described below under "--Redemption."
Generally, investors in Preferred Shares will not receive certificates representing ownership of their shares. The Depository Trust Company or any successor securities depository ("DTC") or its nominee for the account of the investor's broker-dealer will maintain record ownership of Preferred Shares in book-entry form. An investor's broker-dealer, in turn, will maintain records of that investor's beneficial ownership of Preferred Shares.
DIVIDENDS AND RATE PERIODS
GENERAL. The following is a general description of dividends and rate
periods for the Preferred Shares. The initial rate period will be ___ days in
the case of Series A Preferred Shares, ___ days in the case of Series B
Preferred Shares, ___ days in the case of Series C Preferred Shares and ___ days
in the case of Series D Preferred Shares. The dividend rate for this period will
be ___% in the case of Series A Preferred Shares, ___% in the case of Series B
Preferred Shares, ___% in the case of Series C Preferred Shares, and ___% in the
case of Series D Preferred Shares. Subsequent rate periods normally will be
[seven] days for Series A Preferred Shares and Series B Preferred Shares and
[28] days for Series C Preferred Shares and Series D Preferred Shares, and the
dividend rate for each such period will be determined by an auction generally
held on the business day before commencement of the rate period. The Fund,
subject to certain conditions, may change the length of subsequent rate periods,
depending on its needs and NB Management's outlook for interest rates, by
designating them as special rate periods. See "--Designations of Special Rate
Periods" below.
Any dividend payment made on Preferred Shares shall first be credited against the earliest accumulated but unpaid dividends due with respect to such shares. Dividends in arrears for any past dividend period may be declared and paid at any time, without reference to any regular dividend payment date, to the holders of the Preferred Shares as their names appear on the record books of the Fund on such date, not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Directors.
DIVIDEND PAYMENT DATES. Dividends on Preferred Shares will be payable, when, as and if declared by the Board, out of legally available funds in accordance with the Fund's Articles and applicable law. The new dividend rate determined in an auction generally will apply to the period beginning on the first business day after the auction and lasting through the date of the next auction. If dividends are payable on a day that is not a business day, then dividends will generally be payable on the next day if such day is a business day, or as otherwise specified in the Articles Supplementary.
Dividends will be paid through DTC on each dividend payment date. The dividend payment date will normally be the first business day after the rate period ends. DTC, in accordance with its current procedures, is expected to distribute dividends received from the Auction Agent in same-day funds on each dividend payment date to agent members (members of DTC that will act on behalf of existing or potential Preferred Stockholders). These agent members are in turn expected to distribute such dividends to the persons for whom they are acting as agents. However, the current Broker-Dealers have indicated to the Fund that dividend payments will be available in same-day funds on each dividend payment date to customers that use a Broker-Dealer or a Broker-Dealer's designee as agent member.
If a dividend payment date is not a business day because the New York Stock Exchange ("NYSE") is closed for more than three consecutive business days due to an act of God, natural disaster, act of war, civil or military disturbance, act of terrorism, sabotage, riots or a loss or malfunction of utilities or communications services, or the dividend payable on such date can not be paid for any such reason, then:
- the dividend payment date for the affected rate period will be the next business day on which the Fund and its paying agent, if any, can pay the dividend;
- the affected rate period will end on the day it otherwise would have ended; and
- the next rate period will begin and end on the dates on which it otherwise would have begun and ended.
CALCULATION OF DIVIDEND PAYMENT. The Fund computes the amount of dividends per share payable on Preferred Shares by multiplying the rate in effect by a fraction. The numerator of this fraction will normally be the number of days in the rate period or part thereof, and the denominator of the fraction will be 365 for any rate period other than a special rate period and 360 for a special rate period. This rate is multiplied by $25,000 to arrive at the dividends per share. Dividends on Preferred Shares will accumulate from the date of their original issue, which is expected to be , 2004. For each rate period after the initial rate period, the dividend rate will be the rate determined at auction, except as described below. The dividend rate that results from an auction cannot be greater than the maximum rate.
The maximum rate for a rate period normally will be the higher of (a) the applicable percentage of the reference rate or (b) the applicable spread plus the reference rate. The reference rate will be the applicable Libor Rate for a dividend period of fewer than 365 days or the Treasury Index Rate for a dividend period of 365 days or more. The "Libor Rate" is the applicable London Inter-Bank Offered Rate for deposits in U.S. dollars for the period most closely approximating the applicable dividend period for the applicable series of Preferred Shares. The "Treasury Index Rate" is the average yield to maturity for certain U.S. Treasury securities having substantially the same length to maturity as the applicable dividend period for a series of Preferred Shares. The applicable percentage and applicable spread for a rate period generally will be determined based on the lower of the credit ratings assigned to the Preferred Shares by Moody's and Fitch on the auction date for such period (as set forth in the table below). Because the Fund will not issue Preferred Shares unless they are rated Aaa by Moody's and AAA by Fitch at the closing, the initial applicable percentage will be 125% and the applicable spread will be 125 bps.
Moody's Credit Fitch Credit Applicable Applicable
Rating Rating Percentage Spread
-------------- ------------------- ---------- -----------------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 160% 160 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Below Baa3 Below BBB- 275% 275 bps
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Assuming the Fund maintains an Aaa/AAA rating on the Preferred Shares, the practical effect of the different methods used to calculate the maximum rate is shown in the table below:
Maximum
Rate Using the Maximum Method Used to
Applicable Rate Using the Determine the Maximum
Reference Rate Percentage Applicable Spread Applicable Rate
-------------- ---------- -------------- ---------------------
1% 1.25% 2.25% Spread
2% 2.50% 3.25% Spread
3% 3.75% 4.25% Spread
4% 5.00% 5.25% Spread
5% 6.25% 6.25% Either
6% 7.25% 7.25% Percentage
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The Board of Directors may amend the definition of maximum rate to increase the percentage amount by which the reference rate described above is multiplied, or to increase the spread added to the reference rate, to determine the maximum rate without the vote or consent of the Preferred Stockholders or any other stockholder of the Fund, provided that immediately following any such increase the Fund could meet the Preferred Shares Basic Maintenance Amount Test.
On or prior to each dividend payment date, the Fund is required to deposit with the Auction Agent sufficient funds for the payment of declared dividends. The failure to make such deposit will not cancel the auction results for the current rate period or cause a new rate period to commence. The Fund does not intend to establish any reserves for the payment of dividends.
In most cases, but not all cases, if an auction for Preferred Shares is not held when scheduled or if sufficient clearing bids have not been made in an auction (other than because all Preferred Shares were subject to submitted hold orders), the dividend rate for the corresponding rate period will be the maximum rate on the date the auction was scheduled to be held. The maximum rate would not apply, for example, if an auction could not be held when scheduled because the NYSE was closed for three or more consecutive business days due to circumstances beyond its control or the Auction Agent was not able to conduct an auction in accordance with the Auction Procedures due to circumstances beyond its control.
RESTRICTION OF DIVIDENDS AND OTHER DISTRIBUTIONS. While any of the Preferred Shares are outstanding, the Fund generally may not declare, pay or set apart for payment, any dividend or other distribution in respect of its Common Shares (other than in additional Common Shares or rights to purchase Common Shares) or repurchase any of its Common Shares (except by conversion into or exchange for shares of the Fund ranking junior to the Preferred Shares as to the payment of dividends and the distribution of assets upon liquidation) unless each of the following conditions has been satisfied:
- In the case of the Moody's coverage requirements, immediately after such transaction, the aggregate Moody's discounted value (i.e., the aggregate value of the Fund's portfolio discounted according to Moody's criteria) would be equal to or greater than the Preferred Shares Basic Maintenance Amount (i.e., the amount necessary to pay all outstanding obligations of the Fund with respect to the Preferred Shares, any preferred stock outstanding, expenses for the next 90 days and any other liabilities of the Fund) (see "--Rating Agency Guidelines and Asset Coverage" below);
- In the case of Fitch's coverage requirements, immediately after such transaction, the aggregate Fitch discounted value (i.e., the aggregate value of the Fund's portfolio discounted according to Fitch criteria) would be equal to or greater than the Preferred Shares Basic Maintenance Amount;
- Immediately after such transaction, the 1940 Act Preferred Shares Asset Coverage (as defined in this Prospectus under "Rating Agency Guidelines and Asset Coverage" below) is met;
- Full cumulative dividends on the Preferred Shares 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 Auction Agent; and
- The Fund has redeemed the full number of Preferred Shares required to be redeemed by any provision for mandatory redemption contained in the Articles Supplementary.
The Fund generally will not declare, pay or set apart for payment any dividend on any shares of the Fund ranking as to the payment of dividends on a parity with Preferred Shares unless the Fund has declared and paid or contemporaneously declares and pays full cumulative dividends on the Preferred Shares through its most recent dividend payment date. However, when the Fund has not paid dividends in full on the Preferred Shares through the most recent dividend payment date or upon any shares of the Fund ranking, as to the payment of dividends, on a parity with Preferred Shares through their most recent respective dividend payment dates, the amount of dividends declared per share on Preferred Shares and such other class or series of shares will in all cases bear to each other the same ratio that accumulated dividends per share on the Preferred Shares and such other class or series of shares bear to each other.
DESIGNATIONS OF SPECIAL RATE PERIODS. The Fund, in certain circumstances, may designate any succeeding subsequent rate period as a special rate period consisting of a specified number of rate period days evenly divisible by seven, subject to certain adjustments. A designation of a special rate period shall be effective only if, among other things, (a) the Fund shall have given certain notices to the Auction Agent, which will include a report showing that, as of the third business day next preceding the proposed special rate period, the Moody's discounted value and Fitch discounted value, as applicable, were at least equal to the Preferred Shares Basic Maintenance Amount; (b) an auction shall have been held on the auction date immediately preceding the first day of such proposed special rate period and sufficient clearing bids shall have existed in such auction; and (c) if the Fund shall have mailed a notice of redemption with respect to any Preferred Shares, the redemption price with respect to such shares shall have been deposited with the Auction Agent. In
addition, full cumulative dividends, any amounts due with respect to mandatory redemptions and any additional dividends payable prior to such date must be paid in full or deposited with the Auction Agent. The Fund also must have portfolio securities with a discounted value at least equal to the Preferred Shares Basic Maintenance Amount. The Fund will give Preferred Stockholders notice of a special rate period as provided in the Articles Supplementary.
REDEMPTION
MANDATORY REDEMPTION. In the event the Fund does not timely cure a failure to maintain (a) a discounted value of its portfolio equal to the Preferred Shares Basic Maintenance Amount in accordance with the requirements of the rating agency or agencies then rating Preferred Shares, or (b) the 1940 Act Preferred Shares Asset Coverage, Preferred Shares will be subject to mandatory redemption on a date specified by the Board out of funds legally available therefor in accordance with the Articles, including the Articles Supplementary, and applicable law, at the redemption price of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared by the Fund, but excluding interest thereon) to (but not including) the date fixed for redemption. In the event that the Fund does not have funds legally available for the redemption of all the Preferred Shares that are subject to mandatory redemption or the Fund otherwise is unable to effect such redemption on or prior to such mandatory redemption date, the Fund will redeem those Preferred Shares on the earliest practicable date on which the Fund is able to effect such redemption. Any such redemption will be limited to the number of Preferred Shares necessary to restore the required discounted value or the 1940 Act Preferred Shares Asset Coverage, as the case may be. See the Articles Supplementary, attached as Appendix A to the Statement of Additional Information, for more information concerning the circumstances in which the Fund must redeem Preferred Shares.
In determining the number of Preferred Shares required to be redeemed in accordance with the foregoing, the Fund will allocate the number of shares required to be redeemed to satisfy the Preferred Shares Basic Maintenance Amount or the 1940 Act Preferred Shares Asset Coverage, as the case may be, pro rata among the Preferred Shares of the Fund and any other preferred stock of the Fund subject to redemption or retirement. If fewer than all outstanding shares of any series are, as a result, to be redeemed, the Fund may redeem such shares pro rata from the holders in proportion to their holdings, or by any other method that it deems fair and equitable.
OPTIONAL REDEMPTION. The Fund, at its option, may redeem shares of each
series of Preferred Shares, in whole or in part, out of funds legally available
therefor. Any optional redemption will occur on the second business day
preceding a dividend payment date at the optional redemption price per share of
$25,000, plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared by the Fund, but excluding interest thereon)
to (but not including) the date fixed for redemption plus the premium, if any,
specified in a special redemption provision. If fewer than all outstanding
shares of any series are to be redeemed, the Fund may redeem such shares pro
rata from the holders in proportion to their holdings, or by any other method
that it deems fair and equitable. No Preferred Shares may be redeemed if the
redemption would cause the Fund to violate the 1940 Act or applicable law.
Preferred Shares of a series may not be redeemed in part if fewer than 250
Preferred Shares of that series would remain outstanding after the redemption.
The Fund has the authority to redeem the Preferred Shares for any reason.
Except for the mandatory and optional redemption provisions, which are more fully described in the Articles Supplementary, nothing contained in the Articles Supplementary limits any right of the Fund to purchase or otherwise acquire any Preferred Shares outside of an auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the mandatory or optional redemption price with respect to, any shares for which Notice of Redemption has been given and the Fund meets the 1940 Act Preferred Shares Asset Coverage and the Preferred Shares Basic Maintenance Amount Test after giving effect to such purchase or acquisition on the date thereof. Any shares that are purchased, redeemed or otherwise acquired by the Fund shall have no voting rights. If fewer than all the outstanding shares of any series of Preferred Shares are redeemed or otherwise acquired by the Fund, the Fund shall give notice of such transaction to the Auction Agent, in accordance with the procedures agreed upon by the Board of Directors.
LIQUIDATION
Subject to the rights of holders of any series or class or classes of shares ranking on a parity with Preferred Shares with respect to the distribution of assets upon liquidation of the Fund, upon a liquidation of the Fund, whether voluntary or involuntary, the holders of Preferred Shares then outstanding will be entitled to receive and to be paid out of the assets of the Fund available for distribution to its stockholders, before any payment or distribution is made on the Common Shares, an amount equal to the liquidation preference with respect to such shares ($25,000 per share), plus an amount equal to all dividends thereon (whether or not earned or declared by the Fund, but excluding interest thereon) accumulated but unpaid to (but not including) the date of final distribution in same-day funds in connection with the liquidation of the Fund. After the payment to Preferred Stockholders of the full preferential amounts provided for as described herein, Preferred Stockholders as such shall have no right or claim to any of the remaining assets of the Fund.
Neither the sale of all or substantially all the property or business of the Fund, nor the merger or consolidation of the Fund into or with any other corporation nor the merger or consolidation of any other corporation into or with the Fund, shall be a liquidation, whether voluntary or involuntary, for the purposes of the foregoing paragraph.
RATING AGENCY GUIDELINES AND ASSETS COVERAGE
The Fund is required under Moody's and Fitch guidelines to maintain assets
having in the aggregate a discounted value at least equal to the Preferred
Shares Basic Maintenance Amount. (The discounted value of an asset (other than
cash and cash equivalents) is a specified percentage of its full value; the
concept is intended to provide increased assurance of adequate asset coverage in
the face of expected or unexpected fluctuation in the value of the assets.)
Moody's and Fitch have each established separate guidelines for determining
discounted value. To the extent any particular portfolio holding does not
satisfy the applicable rating agency's guidelines, all or a portion of such
holding's value will not be included in the calculation of discounted value (as
defined by such rating agency). The Moody's and Fitch guidelines impose certain
diversification requirements on the Fund's portfolio. Other than as needed to
meet the asset coverage tests, the Moody's and Fitch guidelines do not impose
any absolute limitations on the percentage of the Fund's assets that may be
invested in holdings not eligible for inclusion in the calculation of the
Discounted Value of the Fund's portfolio. The amount of ineligible assets
included in the portfolio at any time may vary depending upon the rating,
diversification and other characteristics of the eligible assets included in the
portfolio. The Preferred Shares Basic Maintenance Amount includes the sum of (a)
the aggregate liquidation preference of Preferred Shares then outstanding and
(b) certain accrued and projected dividend and other payment obligations of the
Fund.
The Fund is also required under the 1940 Act to maintain the 1940 Act Preferred Shares Asset Coverage. The Fund's 1940 Act Preferred Shares Asset Coverage is tested as of the last business day of each month in which any senior equity securities are outstanding. The minimum required 1940 Act Preferred Shares Asset Coverage amount of 200% may be increased or decreased if the 1940 Act is amended. Based on the composition of the portfolio of the Fund and market conditions as of _________, 2003, the 1940 Act Preferred Shares Asset Coverage with respect to all of the Fund's preferred stock, assuming the issuance on that date of all Preferred Shares offered hereby and giving effect to the deduction of related sales load and related offering costs estimated at $ would have been computed as follows:
Value of Fund assets less liabilities not constituting senior securities $ -------------------------------------------------- = -------- = % Senior securities representing indebtedness $ plus liquidation value of the Preferred Shares |
In the event the Fund does not timely cure a failure to maintain (a) a discounted value of its portfolio at least equal to the Preferred Shares Basic Maintenance Amount in accordance with the requirements of the rating agency or agencies then rating Preferred Shares, or (b) the 1940 Act Preferred Shares Asset Coverage, the Fund will be required to redeem Preferred Shares as described under "Redemption--Mandatory Redemption" above.
The Fund may, but is not required to, adopt any modifications to the guidelines that may hereafter be established by Moody's or Fitch. Failure to adopt any such modifications, however, may result in a change in the ratings described above or a withdrawal of ratings altogether. In addition, any rating agency providing a rating for Preferred Shares may, at any time, change or withdraw any such rating. The Board may, without stockholder approval, amend, alter or repeal any or all of the definitions and related provisions that have been adopted by the Fund pursuant to the rating agency guidelines in the event the Fund receives confirmation from Moody's or Fitch, or both, as appropriate, that any such amendment, alteration or repeal would not impair the ratings then assigned by Moody's and Fitch to Preferred Shares.
The Fund will issue Preferred Shares only if the shares carry a credit quality rating of Aaa from Moody's and AAA from Fitch at the time of closing. Of course, there can be no assurance that the Preferred Shares will carry a rating of Aaa from Moody's and AAA from Fitch at all times in the future. As described by Moody's and Fitch, a preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock obligations. The ratings on the Preferred Shares are not recommendations to purchase, hold or sell those shares, inasmuch as the ratings do not comment as to market price or suitability for a particular investor. The rating agency guidelines described above also do not address the likelihood that an owner of Preferred Shares will be able to sell such shares in an auction or otherwise. The ratings are based on current information furnished to Moody's and Fitch by the Fund and NB Management and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information. The Common Shares have not been rated by a rating agency.
A rating agency's guidelines will apply to Preferred Shares only so long as such rating agency is rating such shares. The Fund will pay certain fees to Moody's and Fitch for rating Preferred Shares.
VOTING RIGHTS
Except as otherwise provided in this Prospectus and in the Statement of Additional Information, in the Articles, including the Articles Supplementary, or as otherwise required by law, holders of Preferred Shares will have equal voting rights with holders of Common Shares and holders of any other shares of preferred stock of the Fund (one vote per share) and will vote together with holders of Common Shares and holders of any other shares of preferred stock of the Fund as a single class.
Holders of outstanding Preferred Shares, voting as a separate class, are entitled at all times to elect two of the Fund's Directors. The remaining Directors normally are elected by holders of Common Shares and preferred stock, including Preferred Shares, voting together as a single class. If at any time dividends (whether or not earned or declared by the Fund, but excluding interest thereon) on outstanding preferred stock, including Preferred Shares, shall be due and unpaid in an amount equal to two full years' dividends thereon, and sufficient cash or specified securities shall not have been deposited with the Auction Agent for the payment of such dividends, then, as the sole remedy of holders of outstanding Preferred Shares, the number of Directors constituting the Board shall be increased by the smallest number that, when added to the two Directors elected exclusively by the Preferred Stockholders, as described above, would constitute a majority of the Board as so increased by such smallest number, and at a special meeting of stockholders that will be called and held as soon as practicable, and at all subsequent meetings at which Directors are to be elected, the Preferred Stockholders, voting as a separate class, will be entitled to elect the smallest number of additional Directors that, together with the two Directors which such holders will be in any event entitled to elect, constitutes a majority of the total number of Directors of the Fund as so increased. The terms of office of the persons who are Directors at the time of that election will continue. If the Fund thereafter shall pay, or declare and set apart for payment, in full, all dividends payable on all outstanding Preferred Shares, the voting rights stated in the second preceding sentence shall cease, and the terms of office of all of the additional Directors elected by the Preferred Stockholders (but not of the Directors with respect to whose election the holders of Common Shares were entitled to vote or the two Directors the Preferred Stockholders have the right to elect in any event), will terminate automatically.
So long as any Preferred Shares are outstanding, the Fund will not, without the affirmative vote or consent of the holders of at least a majority of Preferred Shares outstanding at the time (voting together as a separate class):
(a) authorize, create or issue, or increase the authorized or issued amount of, any class or series of shares ranking prior to or on a parity with the Preferred Shares with respect to payment of dividends or the distribution of assets on dissolution, liquidation or winding up the affairs of the Fund, or authorize, create or issue additional shares of any series of Preferred Shares or any other preferred stock, unless, in the case of preferred stock on a parity with the Preferred Shares, the Fund obtains confirmation from Moody's (if Moody's is then rating the Preferred Shares), Fitch (if Fitch is then rating the Preferred Shares) or any substitute rating agency (if any such substitute rating agency is then rating the Preferred Shares) that the issuance of such a class or series would not impair the rating then assigned by such rating agency to the Preferred Shares and the Fund continues to comply with Section 13 of the 1940 Act, the 1940 Act Preferred Shares Asset Coverage requirements and the Preferred Shares Basic Maintenance Amount requirements, in which case the vote or consent of the holders of the Preferred Shares is not required;
(b) amend, alter or repeal the provisions of the Articles, including the Articles Supplementary, by merger, consolidation or otherwise, so as to adversely affect any preference, right or power of the Preferred Shares or Preferred Stockholders; provided, however, that (i) none of the actions permitted by the exception to (a) above will be deemed to affect such preferences, rights or powers, (ii) a division of Preferred Shares will be deemed to affect such preferences, rights or powers only if the terms of such division adversely affect the Preferred Stockholders and (iii) the authorization, creation and issuance of classes or series of shares ranking junior to the Preferred Shares with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund will be deemed to affect such preferences, rights or powers only if Moody's or Fitch is then rating the Preferred Shares and such issuance would, at the time thereof, cause the Fund not to satisfy the 1940 Act Preferred Shares Asset Coverage or the Preferred Shares Basic Maintenance Amount;
(c) authorize the Fund's conversion from a closed-end to an open-end investment company; or
(d) approve any reorganization (as such term is used in the 1940 Act) adversely affecting the Preferred Shares.
So long as any Preferred Shares are outstanding, the Fund shall not, without the affirmative vote or consent of the holders of at least a majority of the Preferred Shares outstanding at the time, in person or by proxy, either in writing or at a meeting, voting as a separate class, file a voluntary application for relief under federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent.
The Fund will not approve any of the actions set forth in (a) or (b) above which adversely affects the rights expressly set forth in the Articles, including the Articles Supplementary, of a holder of shares of a series of preferred stock differently than those of a holder of shares of any other series of preferred stock without the affirmative vote or consent of the holders of at least a majority of the shares of each series adversely affected. Even with such a vote, some of the actions set forth in (a) or (b) above may not be permitted under the 1940 Act. Unless a higher percentage is provided for under the Articles, including the Articles Supplementary, the affirmative vote of the holders of a majority of the outstanding Preferred Shares, voting together as a single class, will be required to approve any plan of reorganization (including bankruptcy proceedings) adversely affecting such shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. Under the 1940 Act, the vote of a majority of the outstanding Preferred Shares means the affirmative vote of the lesser of (a) 67% or more of the outstanding Preferred Shares present at a meeting of Preferred Stockholders or represented by proxy if the holders of more than 50% of the outstanding Preferred Shares are present or represented by proxy or (b) more than 50% of the outstanding Preferred Shares. However, to the extent permitted by Maryland law, the Articles, including the Articles Supplementary, no vote of holders of Common Shares, either separately or together with holders of Preferred Shares as a single class, is necessary to take the actions contemplated by (a) and (b) above.
The foregoing voting provisions will not apply with respect to Preferred Shares if, at or prior to the time when a vote is required, such shares shall have been (i) redeemed or (ii) called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.
THE AUCTION
GENERAL
The Articles Supplementary provide that, except as otherwise described herein, the applicable dividend rate for Preferred Shares for each rate period after the initial rate period shall be equal to the rate per annum that the Auction Agent advises has resulted on the business day preceding the first day of such subsequent rate period (an "auction date") from implementation of the auction procedures (the "Auction Procedures") set forth in the Articles Supplementary and summarized below, in which persons determine to hold or offer to sell or, based on dividend rates bid by them, offer to purchase or sell Preferred Shares. Each periodic implementation of the Auction Procedures is referred to herein as an "auction." See the Articles Supplementary for a more complete description of the auction process.
AUCTION AGENCY AGREEMENT. The Fund will enter into an Auction Agency Agreement (the "Auction Agency Agreement") with the Auction Agent (currently, The Bank of New York) that provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for Preferred Shares so long as the Applicable Rate is to be based on the results of an auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to the Fund on a date no earlier than 60 days after such notice (30 days if such termination is because amounts due to the Auction Agent are unpaid). If the Auction Agent should resign, the Fund will use its best efforts to enter into an agreement with a successor Auction Agent containing substantially the same terms and conditions as the Auction Agency Agreement. The Fund may remove the Auction Agent provided that prior to such removal the Fund shall have entered into such an agreement with a successor Auction Agent.
BROKER-DEALER AGREEMENTS. Each auction requires the participation of one or more Broker-Dealers. The Auction Agent will enter into agreements (collectively, the "Broker-Dealer Agreements") with one or more Broker-Dealers selected by the Fund, which provide for the participation of those Broker-Dealers in auctions for Preferred Shares.
The Auction Agent will pay to each Broker-Dealer after each auction, from funds provided by the Fund, a service charge at the annual rate of 1/4 of 1%, for any auction preceding a rate period of less than one year, or a percentage agreed to by the Fund and the Broker-Dealer, for any auction preceding a rate period of one year or more, of the liquidation preference ($25,000 per share) of the Preferred Shares held by a Broker-Dealer's customer upon settlement in the auction.
The Fund may request the Auction Agent to terminate one or more Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer Agreement is in effect after such termination. The Auction Agent may not terminate the Broker-Dealer Agreement with without the consent of the Fund.
AUCTION PROCEDURES
Prior to the submission deadline on each auction date for Preferred Shares, each customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of Preferred Shares (a "Beneficial Owner") may submit orders with respect to such Preferred Shares to that Broker-Dealer as follows:
- Hold order--indicating its desire to hold such shares without regard to the applicable rate for the next rate period.
- Bid--indicating its desire to sell such shares at $25,000 per share if the applicable rate for the next rate period thereof is less than the rate specified in such bid.
- Sell order--indicating its desire to sell such shares at $25,000 per share without regard to the applicable rate for the next rate period thereof.
A Beneficial Owner may submit different types of orders to its Broker-Dealer with respect to different shares of a series of Preferred Shares then held by the Beneficial Owner. A Beneficial Owner for shares of such series that submits its bid with respect to shares of such series to its Broker-Dealer having a rate higher than the applicable maximum rate for shares of such series on the auction date will be treated as having submitted a sell order to its Broker-Dealer. A Beneficial Owner of shares of such series that fails to submit an order to its Broker-Dealer with respect to such shares will ordinarily be deemed to have submitted a hold order with respect to such shares of such series to its Broker-Dealer. However, if a Beneficial Owner of shares of such series fails to submit an order with respect to such shares of such series to its Broker-Dealer for an auction relating to a rate period of more than 28 days, such Beneficial Owner will be deemed to have submitted a sell order to its Broker-Dealer. A sell order constitutes an irrevocable offer to sell the Preferred Shares subject to the sell order. A Beneficial Owner that offers to become the Beneficial Owner of additional Preferred Shares is, for purposes of such offer, a potential beneficial owner as discussed below.
A potential beneficial owner is either a customer of a Broker-Dealer that is not a Beneficial Owner of a series of Preferred Shares but that wishes to purchase shares of such series or that is a Beneficial Owner of shares of such series that wishes to purchase additional shares of such series. A potential beneficial owner may submit bids to its Broker-Dealer in which it offers to purchase shares of such series at $25,000 per share if the applicable rate for shares of such series for the next rate period is not less than the specified rate in such bid. A bid placed by a potential beneficial owner of shares of such series specifying a rate higher than the maximum rate for shares of such series on the auction date will not be accepted.
The Broker-Dealers in turn will submit the orders of their respective customers who are Beneficial Owners and potential beneficial owners to the Auction Agent. The Broker-Dealers will designate themselves (unless otherwise permitted by the Fund) as existing holders of shares subject to orders submitted or deemed submitted to them by Beneficial Owners. They will designate themselves as potential holders of shares subject to orders submitted to them by potential beneficial owners. However, neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's failure to comply with these procedures. Any order placed with the Auction Agent by a Broker-Dealer as or on behalf of an existing holder or a potential holder will be treated the same way as an order placed with a Broker-Dealer by a Beneficial Owner or potential beneficial owner. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an order for any Preferred Shares held by it or customers who are Beneficial Owners will be treated as a Beneficial Owner's failure to submit to its Broker-Dealer an order in respect of Preferred Shares held by it. A Broker-Dealer may also submit orders to the Auction Agent for its own account as an existing holder or potential holder, provided it is not an affiliate of the Fund.
There are sufficient clearing bids for shares of a series in an auction if the number of shares of such series subject to bids submitted or deemed submitted to the Auction Agent by Broker-Dealers for potential beneficial owners with rates or spreads equal to or lower than the applicable maximum rate for such series is at least equal to or exceeds the sum of the number of shares of such series subject to sell orders and the number of shares of such series subject to bids specifying rates or spreads higher than the applicable maximum rate for such series submitted or deemed submitted to the Auction Agent by Broker-Dealers for Beneficial Owners of such series. If there are sufficient clearing bids for shares of a series, the applicable rate for shares of such series for the next succeeding rate period thereof will be the lowest rate specified in the submitted bids which, taking into account such rate and all lower rates in the submitted bids, would result in existing holders and potential holders owning all the shares of such series available for purchase in the auction.
If there are not sufficient clearing bids for shares of such series, the applicable rate for the next rate period will be the maximum rate on the auction date. However, if the Fund has declared a special rate period and there are not sufficient clearing bids, the election of a special rate period will not be effective and a regular rate period will commence. If there are not sufficient clearing bids, Beneficial Owners of Preferred Shares that have submitted or are deemed to have submitted sell orders may not be able to sell in the auction all shares subject to such sell orders. If all of the applicable outstanding Preferred Shares are the subject of submitted hold orders, then the applicable rate for the next rate period will be 80% of the reference rate. The Auction Agent will notify the Fund and the Broker-Dealers of the results of each auction. The Broker-Dealers will notify each Beneficial Owner, potential beneficial owner, existing holder and potential holder on whose behalf they submitted orders of the auction results.
The Auction Procedures include a pro rata allocation of shares for purchase and sale that may result in an existing holder continuing to hold or selling, or a potential holder purchasing, a number of shares of a series of Preferred Shares that is different than the number of shares of such series specified in its order. To the extent the allocation procedures have that result, Broker-Dealers that have designated themselves as existing holders or potential holders in respect of customer orders will be required to make appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next business day (which is also a dividend payment date) after the auction date through DTC. Purchasers will make payment through their agent members in same day funds to DTC against delivery to their respective agent members. DTC will make payment to the sellers' agent members in accordance with DTC's normal procedures, which now provide for payment against delivery by their agent members in same day funds.
Auctions for Series A Preferred Shares and Series B Preferred Shares will normally be held every [seven] days, and a rate period will normally begin on the following business day. Auctions for Series C Preferred Shares and Series D Preferred Shares will normally be held every [28] days, and a rate period will normally begin on the following business day.
If an auction date is not a business day because the NYSE is closed for business for more than three consecutive business days due to an act of God, natural disaster, act of war, civil or military disturbance, act of terrorism, sabotage, riots or a loss or malfunction of utilities or communications services, or the Auction Agent is not able to conduct an auction in accordance with the Auction Procedures for any such reason, then the applicable rate for the next rate period will be the rate determined on the previous auction date.
The following is a simplified example of how a typical auction works. Assume that the Fund has 1,000 outstanding Preferred Shares of a series and three current holders. The three current holders and three potential holders submit orders through Broker-Dealers at the auction:
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Current Holder A Owns 500 shares, wants to sell all 500 Bid order of 2.1% rate for all 500 shares
shares if dividend rate is less than 2.1%
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Current Holder B Owns 300 shares, wants to hold Hold order - will take the dividend rate
---------------------------------------------------------------------------------------------------------------
Current Holder C Owns 200 shares, wants to sell all 200 Bid order of 1.9% rate for all 200 shares
shares if dividend rate is less than 1.9%
---------------------------------------------------------------------------------------------------------------
Potential Holder D Wants to buy 200 shares Places order to buy at or above 2.0%
---------------------------------------------------------------------------------------------------------------
Potential Holder E Wants to buy 300 shares Places order to buy at or above 1.9%
---------------------------------------------------------------------------------------------------------------
Potential Holder F Wants to buy 200 shares Places order to buy at or above 2.1%
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|
The lowest dividend rate that will result in all 1,000 Preferred Shares being bought or continuing to be held is 2.0% (the offer by D). Therefore, the dividend rate will be 2.0%. Current holders B and C will continue to own their shares. Current holder A will sell its shares because A's dividend rate bid was higher than the dividend rate. Potential holder D will buy 200 shares and potential holder E will buy 300 shares because their bid rates were at or below the dividend rate. Potential holder F will not buy any shares because its bid rate was above the dividend rate.
SECONDARY MARKET TRADING AND TRANSFER OF PREFERRED SHARES
The Broker-Dealers may maintain a secondary trading market in Preferred Shares outside of auctions, but are not obligated to do so, and may discontinue such activity at any time. There can be no assurance that such secondary trading market in Preferred Shares will provide owners with liquidity of investment. Preferred Shares are not registered on any stock exchange or on the Nasdaq Stock Market.
Investors who purchase shares in an auction (particularly if the Fund has declared a special rate period) should note that because the dividend rate on such shares will be fixed for the length of such rate period, the value of the shares may fluctuate in response to changes in interest rates, and may be more or less than their original cost if sold on the open market in advance of the next auction, depending upon market conditions.
A Beneficial Owner or an existing holder may sell, transfer or otherwise dispose of Preferred Shares only in whole shares and only (1) pursuant to a bid or sell order placed with the Auction Agent in accordance with the Auction Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be permitted by the Fund; provided, however, that (a) a sale, transfer or other disposition of Preferred Shares from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of the foregoing if such Broker-Dealer remains the existing holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to auctions, the Broker-Dealer (or other person, if permitted by the Fund) to whom such transfer is made shall advise the Auction Agent of such transfer.
DESCRIPTION OF COMMON SHARES
COMMON SHARES
The Articles authorize the issuance of 1,000,000,000 shares of capital stock. The Fund has issued 33,266,981 Common Shares with a par value of $0.0001 per share. All Common Shares have equal rights to the payment of dividends and the distribution of assets upon liquidation. The Common Shares are fully paid and non-assessable and have no pre-emptive or conversion rights or rights to cumulative voting. Whenever Preferred Shares are outstanding, Common Stockholders will not be entitled to receive any distributions from the Fund unless all accrued dividends on Preferred Shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to Preferred Shares would be at least 200% after giving effect to the distributions. See "Description of Preferred Shares" above.
The Common Shares are listed on the AMEX under the trading or "ticker" symbol "NRO." The Fund intends to hold annual meetings of stockholders so long as the Common Shares are listed on a national securities exchange and such meetings are required as a condition to such listing. The Fund must continue to meet the AMEX requirements in order for the Common Shares to remain listed.
ANTI-TAKEOVER AND OTHER PROVISIONS IN THE
ARTICLES OF INCORPORATION
The Articles and the Fund's Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure.
The Articles require a vote by at least a majority of the Fund's Board, including a majority of the Directors who are not "interested persons" of the Fund as defined in the 1940 Act ("Independent Directors"), and the holders of at least 75% of the shares of the Fund's capital stock outstanding and entitled to vote, except as described below, to authorize (1) the Fund's conversion from a closed-end to an open-end management investment company; (2) any merger or consolidation or share exchange of the Fund with or into any other company; (3) the dissolution or liquidation of the Fund; (4) any sale, lease, or exchange of all or substantially all of the Fund's assets to any Principal Stockholder (as defined below); (5) a change in the nature of the business of the Fund so that it would cease to be an investment company registered under the 1940 Act; (6) with certain exceptions, the issuance of any securities of the Fund to any Principal Stockholder for cash; or (7) any transfer by the Fund of any securities of the Fund to any Principal Stockholder in exchange for cash, securities or other property having an aggregate fair market value of $1,000,000 or more; provided, with respect to (1) through (5), if such action has been authorized by the affirmative vote of at least 75% of the Fund's Directors, including a majority of the Independent Directors, then the affirmative vote of the holders of only a majority of the Fund's shares of capital stock outstanding and entitled to vote at the time is required; and provided, further, with respect to (6) and (7), if such transaction has been authorized by the affirmative vote of at least 75% of the entire Board, including a majority of the Independent Directors, no stockholder vote is required to authorize such action. The term "Principal Stockholder" means any person, entity or group that holds, directly or indirectly, more than 5% of the outstanding shares of the Fund, and includes any associates or affiliates of such person or entity or of any member of the group. None of the foregoing provisions may be amended except by the vote of the holders of at least 75% of the outstanding shares of capital stock of the Fund outstanding and entitled to vote thereon. The percentage vote
required under these provisions is higher than that required under Maryland law or by the 1940 Act. The Board believes that the provisions of the Articles relating to such a higher vote are in the best interest of the Fund and its stockholders. Even if agreed to by the Fund, certain of the transactions described above may be prohibited by the 1940 Act. As noted above, Preferred Stockholders vote together with Common Stockholders on all matters on which Common Stockholders vote. The 1940 Act also requires approval of the holders of a majority of the outstanding Preferred Shares, tallied separately, for any conversion from a closed-end to an open-end management investment company. As the 1940 Act also prohibits doing indirectly what cannot be done directly, a vote of the holders of Preferred Shares may be required to effect some of the other transactions described above if the effective result would be conversion of the Fund from a closed-end to an open-end structure.
The Board is classified into three classes, each with a term of three years with only one class of Directors standing for election in any year. Such classification may prevent replacement of a majority of the Directors for up to a two-year period. Directors may be removed from office only for cause and only by vote of the holders of at least 75% of the shares entitled to be voted for such Director in an election of directors.
Reference should be made to the Articles on file with the SEC for the full text of these provisions. See the Statement of Additional Information under "Certain Provisions in the Articles of Incorporation" for a discussion of the voting requirements applicable to certain other transactions.
REPURCHASE OF COMMON SHARES; TENDER OFFERS; CONVERSION TO OPEN-END FUND
The Fund is a closed-end management investment company and as such its Common Stockholders do not have the right to cause the Fund to redeem their shares. Instead, the Common Shares trade in the open market at a price that is a function of several factors, including dividend levels (which are in turn affected by expenses), net asset value, call protection, dividend stability, portfolio credit quality, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Shares of a closed-end management investment company may frequently trade at prices lower than net asset value. The Fund's Board of Directors regularly monitors the relationship between the market price and net asset value of the Common Shares. If the Common Shares were to trade at a substantial discount to net asset value for an extended period of time, the Board may consider the repurchase of its Common Shares on the open market or in private transactions, the making of a tender offer for such shares, or the conversion of the Fund to an open-end management investment company. The Fund cannot assure you that its Board of Directors will decide to take or propose any of these actions, or that share repurchases or tender offers will actually reduce market discount. Any determination to repurchase Common Shares would reduce the asset coverage for the Preferred Shares and might make it necessary or desirable for the Fund to redeem Preferred Shares. As described above in "Description of Preferred Shares--Dividends and Rate Periods--Restrictions on Dividends and Other Distributions," the repurchase of Common Shares may be restricted or prohibited at times when there exist unpaid distributions on the Preferred Shares.
If the Fund converted to an open-end management investment company, it would be required to redeem all Preferred Shares then outstanding (requiring in turn that it liquidate a portion of its investment portfolio), and the Common Shares would no longer be listed on the AMEX. In contrast to a closed-end management investment company, stockholders of an open-end management investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less any redemption charge that is in effect at the time of redemption.
Before deciding whether to take any action to convert the Fund to an open-end management investment company, the Board would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund's portfolio, the impact of any action that might be taken on the Fund or its stockholders, and market considerations. Based on these considerations, even if the Fund's Common Shares should trade at a discount, the Board of Directors may determine that, in the interest of the Fund and its stockholders, no action should be taken. See the Statement of Additional Information under "Repurchase of Common Shares; Tender Offers; Conversion to Open-end Fund" for a further discussion of possible action to reduce or eliminate such discount to net asset value.
TAX MATTERS
The following is a brief summary of certain federal tax considerations affecting the Fund and its stockholders and does not purport to be complete or to deal with all aspects of federal taxation that may be relevant to stockholders in light of their particular circumstances. This discussion assumes that you are a U.S. stockholder and will hold your Preferred Shares as capital assets. More detailed information regarding the tax consequences of investing in the Fund is in the Statement of Additional Information.
The Fund has elected to be, and intends to qualify annually for treatment as, a regulated investment company under the Code, which requires (among other things) that it distribute each year to its stockholders at least 90% of its "investment company taxable income" (which generally includes dividends the Fund receives on shares of Real Estate Companies and other issuers, interest income, and the excess, if any, of net short-term capital gain over net long-term capital loss, all determined without regard to the deduction for dividends paid). If the Fund so qualifies, it will not be required to pay federal income tax on any income and gains it distributes to its stockholders, but such distributions generally will be taxable to you as a stockholder of the Fund when received.
The Fund believes that the Preferred Shares will constitute stock of the Fund, and distributions by the Fund with respect to the Preferred Shares (other than distributions in redemption of Preferred Shares that are treated as exchanges of stock under Section 302(b) of the Code) thus will constitute dividends to the extent of the Fund's current and accumulated earnings and profits, as calculated for federal income tax purposes. It is possible, however, that the IRS might take a contrary position, asserting, for example, that the Preferred Shares constitute debt of the Fund. If this position were upheld, the discussion of the treatment of distributions below would not apply. Instead, Fund distributions to Preferred Stockholders would constitute interest, whether or not they exceeded the Fund's earnings and profits, would be included in full in the recipient's income, and would be taxed as ordinary income. Counsel to the Fund believes that such a position, if asserted by the IRS, would be unlikely to prevail if the issue were properly litigated.
The IRS currently requires that a regulated investment company that has two or more classes of stock allocate to each such class proportionate amounts of each type of its income (such as ordinary income and capital gains) based upon the percentage of total dividends distributed to each class for the taxable year. Accordingly, the Fund intends each taxable year to allocate capital gain dividends among its Common Shares and Preferred Shares in proportion to the total dividends paid to each class during or with respect to such year.
Dividends paid to you out of the Fund's investment company taxable income generally will be taxable as ordinary income (currently at a maximum federal income tax rate of 35%, except as noted below) to the extent of its earnings and profits. Distributions to you of net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, will be taxable as long-term capital gain, regardless of how long you have held your Preferred Shares. The Fund intends to distribute to its stockholders, at least annually, substantially all of its investment company taxable income and net capital gain. A distribution to you of an amount in excess of the Fund's current and accumulated earnings and profits will be treated as a non-taxable return of capital that will reduce your tax basis in your Preferred Shares; the amount of any such distribution in excess of your basis will be treated as gain from a sale of your shares. Stockholders not subject to tax on their income generally will not be required to pay income tax on amounts distributed to them.
A distribution will be treated as paid to you on December 31 of a particular calendar year if it is declared by the Fund in October, November or December of that year with a record date in such a month and is paid during January of the following year. Each year, the Fund will notify you of the tax status of distributions.
After calendar year-end, REITs can and often do change the category (e.g., ordinary income dividend, capital gain distribution or return of capital) of the distributions they have made during that year, which could result at that time in the Fund's also having to re-categorize some of the distributions it has made to its stockholders. These would be reflected in your annual Form 1099, together with other tax information. Those forms generally will be distributed to you in January of each year, although the Fund may, in one or more years, request from the IRS an extension of time to distribute those forms until mid- or late-February to enable it to receive the latest information it can from the
REITs in which it invests and thereby accurately report that information to you on a single form (rather than having to send you an amended form).
If you sell your shares or have your shares repurchased by the Fund, you may realize a capital gain or loss in an amount equal to the difference between the amount realized and your adjusted tax basis in the shares sold, which gain or loss will be long-term or short-term depending on your holding period for the shares.
The Fund may be required to withhold federal income tax (at the rate of 28% through 2010) from all taxable distributions otherwise payable to you if you:
o fail to provide it with your correct taxpayer identification number;
o fail to make required certifications; or
o have been notified by the Service that you are subject to backup withholding.
The recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003
contains provisions that reduce to 15% the maximum federal income tax rate on
(1) net capital gain individuals recognize and (2) "qualified dividend income"
individuals receive from certain domestic and foreign corporations ("QDI").
Distributions of net capital gain the Fund makes will be eligible for the
reduced rate, which will also apply to capital gains recognized by stockholders
who sell Preferred Shares they have held for more than one year. The reduced
rate, which does not apply to short-term capital gains, generally applies to
long-term capital gains from sales or exchanges recognized after May 5, 2003
(and Fund distributions of such gain), and ceases to apply for taxable years
beginning after December 31, 2008.
The 15% rate for QDI applies to dividends that individuals receive during the years 2003 through 2008. Dividends paid by REITs generally are not QDI. Thus, it is currently expected that most dividends the Fund pays will not constitute QDI and thus will not be eligible for the reduced rate. You should consult your own tax adviser to evaluate the consequences of these changes in the tax law.
Fund distributions also may be subject to state and local taxes. You should consult with your own tax adviser regarding the particular consequences of investing in the Fund.
UNDERWRITING
Subject to the terms and conditions of the purchase agreement with the Fund, NB Management and Neuberger Berman, LLC dated as of ___________, 2004 (the "Purchase Agreement"), each underwriter named below (the "Underwriters") has agreed to purchase, and the Fund has agreed to sell to such Underwriter, the number of Preferred Shares set forth below opposite the name of such Underwriter.
UNDERWRITER SERIES A SERIES B SERIES C SERIES D
----------- -------- -------- -------- --------
________ ________ ________ ________
Total ======== ======== ======== ========
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The Purchase Agreement provides that the obligations of the Underwriters to purchase the Preferred Shares in this offering are subject to the approval of certain legal matters by counsel and other conditions, including, without limitation, the receipt by the Underwriters of customary closing certificates, opinions and other documents and the receipt by the Fund of an "Aaa" rating on the Preferred Shares from Moody's and of an "AAA" rating on the Preferred Shares from Fitch as of the time of the closing of the offering. The Underwriters are obligated to purchase all Preferred Shares offered hereby if they purchase any of the Preferred Shares. In the Purchase Agreement, the Fund, NB Management and Neuberger Berman, LLC have each agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make for any of those liabilities.
The Underwriters propose to initially offer some of the Preferred Shares directly to investors at the offering price set forth on the cover page of this Prospectus, and may offer some of the Preferred Shares to certain dealers at the offering price less a concession not in excess of $ ______ per Preferred Share. After the initial public offering, the public offering price and the concession may be changed. Investors must pay for any Preferred Shares purchased in the initial public offering on or before _____________, 2004.
The Fund anticipates that the Underwriters may from time to time act as brokers or dealers in connection with the execution of its portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may so act while they are Underwriters. The Underwriters are active underwriters of, and dealers in, securities and act as market makers in a number of such securities and therefore can be expected to engage in portfolio transactions with, and perform services for, the Fund.
The Fund anticipates that the Underwriters or their respective affiliates may, from time to time, act in auctions as Broker-Dealers and receive fees as set forth under "The Auction" and in the Statement of Additional Information.
In connection with the offering, the Underwriters or selected dealers may distribute prospectuses electronically.
The addresses of the principal Underwriters are __________________________.
The settlement date for the purchase of the Preferred Shares will be __________, 2004 as agreed upon by the Underwriters, the Fund and NB Management pursuant to Rule 15c6-1 under the Securities Exchange Act of 1934.
SERVICE PROVIDERS
In connection with the offering of Common Shares, NB Management agreed to pay certain fees to A.G. Edwards, Lehman Brothers Inc. ("Lehman Brothers") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which in the aggregate will equal 0.15% of the Fund's Managed Assets (including assets attributable to any Preferred Shares or other Financial Leverage of the Fund that may be outstanding) annually. NB Management has retained A.G. Edwards (the
"Servicing Agent") to provide certain corporate finance and consulting services
pursuant to a Corporate Finance Services and Consulting Agreement (the "Services
Agreement"). Pursuant to the Services Agreement, the Servicing Agent will (i)
provide relevant information, studies or reports regarding general trends in the
closed-end investment company and asset management industries, if reasonably
obtainable, and consult with representatives of NB Management in connection
therewith; (ii) at the request of NB Management, provide certain economic
research and statistical information and reports, if reasonably obtainable, on
behalf of NB Management or the Fund and consult with representatives of NB
Management or the Fund, and/or Directors of the Fund in connection therewith,
which information and reports shall include: (a) statistical and financial
market information with respect to the Fund's market performance; and (b)
comparative information regarding the Fund and other closed-end management
investment companies with respect to (x) the net asset value of their respective
shares (as made publicly available by the Fund and such investment companies),
(y) the respective market performance of the Fund and such other companies, and
(2) other relevant performance indicators; and (iii) provide NB Management with
such other services in connection with the Common Shares relating to the trading
price and market price thereof upon which NB Management and the Servicing Agent
shall, from time to time, agree, including after-market services designed to
maintain the visibility of the Fund in the market. Pursuant to the Services
Agreement, NB Management will pay to the Servicing Agent a quarterly fee that,
together with the incentive fees described below, will not exceed an annual rate
of 0.15% of the Fund's Managed Assets, and which will be payable only so long as
the Management Agreement remains in effect between the Fund and NB Management or
any successor in interest or affiliate of NB Management, as and to the extent
that such Management Agreement is renewed or continued periodically in
accordance with the 1940 Act. The amount of fee payments pursuant to the
Services Agreement will not exceed 2.07% of the aggregate offering price of the
Common Shares. Pursuant to an Additional Compensation Agreement (the "Additional
Compensation Agreement"), NB Management (and not the Fund) has agreed to pay
from its own assets to Lehman Brothers and Merrill Lynch, in their capacities as
co-lead managers of the Common Share offering, quarterly incentive fees, which
fees will be allocated on the basis of the lead underwriters' respective sales
in that offering. The amount of such incentive fee payments will not exceed
2.39% of the aggregate offering price of the Common Shares.
The custodian of the assets of the Fund is State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts, 02110. The Custodian performs custodial, fund accounting and portfolio accounting services. The Fund's Auction Agent, transfer agent, stockholder services agent and dividend paying agent is The Bank of New York, Attn: Corporate Trust, Dealing and Trading - Auction Desk, 100 Church Street, 8th Floor, New York, New York 10286.
LEGAL OPINIONS
Certain legal matters in connection with the Preferred Shares will be passed upon for the Fund by Kirkpatrick & Lockhart LLP, Washington, D.C., and for the Underwriters by ___________, New York, New York and Cleary, Gottlieb, Steen & Hamilton, New York, New York.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Investment Objectives, Policies and Limitations............................. Investment Strategies, Techniques and Risks................................. Portfolio Trading and Turnover Rate......................................... Management of the Fund...................................................... Investment Management and Administration Services........................... Portfolio Transactions...................................................... Net Asset Value............................................................. Description of Preferred Shares............................................. Additional Information Concerning the Auction for Preferred Shares ......... Certain Provisions in the Articles of Incorporation......................... Distributions on Common Shares ............................................. Repurchase of Common Shares; Tender Offers; Conversion to Open-end Fund..... Tax Matters................................................................. Reports to Stockholders..................................................... Custodian, Auction Agent and Transfer Agent................................. Independent Auditors........................................................ Counsel..................................................................... Registration Statement...................................................... Report of Independent Auditors.............................................. Financial Statement......................................................... Unaudited Financial Information ............................................ APPENDIX A - Form of Articles Supplementary................................. A-1 APPENDIX B - Ratings of Corporate Bonds and Commercial Paper................ B-1 |
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. THE FUND HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE FUND IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
TABLE OF CONTENTS
Page Prospectus Summary......................................................... Financial Highlights....................................................... The Fund................................................................... Use of Proceeds............................................................ Capitalization ............................................................ The Fund's Investments..................................................... Interest Rate Transactions................................................. Risks...................................................................... Management of the Fund..................................................... Description of Preferred Shares............................................ The Auction................................................................ Description of Common Shares............................................... Anti-takeover and Other Provisions in the Articles of Incorporation........ Repurchase of Common Shares; Tender Offers; Conversion to Open-End Fund.... Tax Matters................................................................ Underwriting............................................................... Service Providers.......................................................... Legal Opinions............................................................. Table of Contents of the Statement of Additional Information...............
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
AUCTION MARKET PREFERRED SHARES
SHARES, SERIES A
SHARES, SERIES B
SHARES, SERIES C
SHARES, SERIES D
PROSPECTUS
[UNDERWRITERS]
, 2004
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, dated , 2004
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
AUCTION MARKET PREFERRED SHARES
Neuberger Berman Real Estate Securities Income Fund Inc. ("Fund") is a newly organized, non-diversified closed-end management investment company.
This Statement of Additional Information ("SAI") relating to Series A, Series B, Series C and Series D auction market preferred shares (collectively, "Preferred Shares") is not a prospectus and should be read in conjunction with the Fund's Prospectus relating to Preferred Shares dated January , 2004 ("Prospectus"). This SAI does not include all information that a prospective investor should consider before purchasing Preferred Shares, and investors should obtain and read the Prospectus prior to purchasing such shares. You can get a free copy of the Prospectus from Neuberger Berman Management Inc. ("NB Management"), 605 Third Avenue, 2nd Floor, New York, NY 10158-0180, or by calling 877-461-1899. You may also obtain a copy of the Prospectus on the web site (http://www.sec.gov) of the Securities and Exchange Commission ("SEC"). Capitalized terms used but not defined in this SAI have the meanings ascribed to them in the Prospectus.
No person has been authorized to give any information or to make any representations not contained in the Prospectus or in this SAI in connection with the offering made by the Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Fund. The Prospectus and this SAI do not constitute an offering by the Fund in any jurisdiction in which such offering may not lawfully be made.
The "Neuberger Berman" name and logo are service marks of Neuberger Berman,
LLC. "Neuberger Berman Management Inc." and the name of the Fund are either
service marks or registered trademarks of NB Management. (C)2004 Neuberger
Berman Management Inc. All rights reserved.
This Statement of Additional Information is dated January , 2004.
TABLE OF CONTENTS
INVESTMENT OBJECTIVES, POLICIES AND LIMITATIONS..............................1 INVESTMENT STRATEGIES, TECHNIQUES AND RISKS..................................4 PORTFOLIO TRADING AND TURNOVER RATE.........................................27 MANAGEMENT OF THE FUND......................................................28 INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES...........................38 PORTFOLIO TRANSACTIONS......................................................42 DESCRIPTION OF PREFERRED SHARES.............................................47 ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES.........50 CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION.........................51 REPURCHASE OF COMMON SHARES; TENDER OFFERS; CONVERSION TO OPEN-END FUND.....54 TAX MATTERS.................................................................56 REPORTS TO STOCKHOLDERS.....................................................62 CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND DIVIDEND DISBURSEMENT AGENT....62 INDEPENDENT AUDITORS........................................................62 COUNSEL.....................................................................63 REGISTRATION STATEMENT......................................................63 REPORT OF INDEPENDENT AUDITORS..............................................64 FINANCIAL STATEMENT.........................................................65 APPENDIX A - FORM OF ARTICLES SUPPLEMENTARY................................A-1 APPENDIX B - RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER...............B-1 |
INVESTMENT OBJECTIVES, POLICIES AND LIMITATIONS
The investment objectives and general investment policies of the Fund are described in the Prospectus. Additional information concerning the characteristics of certain of the Fund's investments is set forth below.
The Fund's primary investment objective is high current income. Capital appreciation is a secondary investment objective. These investment objectives are fundamental. Unless otherwise specified, the investment policies and limitations of the Fund are not fundamental. Any investment policy or limitation that is not fundamental may be changed by the Board of Directors of the Fund ("Board") without stockholder approval. The investment objectives and fundamental investment policies and limitations of the Fund may not be changed without the approval of the holders of a majority of the outstanding shares of common stock ("Common Shares") and, if outstanding, Preferred Shares voting as a single class, as well as by the vote of the holders of a majority of the outstanding Preferred Shares tabulated separately. A "majority of the outstanding" shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever of (i) or (ii) is less. These percentages are required by the Investment Company Act of 1940, as amended ("1940 Act").
Under normal market conditions, the Fund invests at least 90% of its total
assets in income-producing common equity securities, preferred securities,
securities convertible into equity securities ("convertible securities") and
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non-convertible debt securities issued by Real Estate Companies. A "Real Estate Company" is a company, including a real estate investment trust ("REIT"), that generally derives at least 50% of its revenue from the ownership, construction, financing, management and/or sale of commercial, industrial and/or residential real estate (or has at least 50% of its assets invested in such real estate). The Fund invests at least 75% of its total assets under normal market conditions in income-producing equity securities of REITs.
The Fund may invest up to 25% of its total assets in below-investment grade debt securities (commonly referred to as "junk bonds"), as well as below-investment grade convertible and non-convertible preferred securities. For a description of the risks associated with below-investment grade securities, see "Investment Strategies, Techniques and Risks - Below-Investment Grade Securities" below.
Unless otherwise indicated, any investment policy or limitation that involves a maximum percentage of securities or assets will not be considered exceeded unless the percentage limitation is exceeded immediately after, and because of, a transaction by the Fund. If, because of changes in the value of the Fund's portfolio, the asset coverage for any borrowings were to fall below 300%, this would limit the Fund's ability to pay dividends, and, therefore, the Fund intends to restore the 300% asset coverage as soon as practical in light of the circumstances.
The Fund's fundamental investment policies and limitations are as follows:
1. BORROWING. The Fund may not borrow money in excess of 33 1/3% of its total assets (including the amount of money borrowed) minus liabilities (other
than the amount borrowed), except that it may borrow up to an additional 5% of its total assets for temporary purposes.
2. COMMODITIES. The Fund may not purchase physical commodities or contracts thereon, unless acquired as a result of the ownership of securities or instruments, but this restriction shall not prohibit the Fund from purchasing futures contracts or options (including options on futures contracts, but excluding options or futures contracts on physical commodities) or from investing in securities of any kind.
For purposes of the limitation on commodities, the Fund does not consider foreign currencies or forward contracts to be physical commodities.
3. DIVERSIFICATION. The Fund is non-diversified under the 1940 Act.
4. INDUSTRY CONCENTRATION. The Fund may not purchase any security if, as a result, 25% or more of its total assets (taken at current value) would be invested in the securities of issuers having their principal business activities in the same industry, except that the Fund will invest greater than 25% of its total assets in the real estate industry. This limitation does not apply to U.S. Government and Agency Securities (defined below).
5. LENDING. The Fund may not lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets (taken at current value) would be lent to other parties, except, in accordance with its investment objectives, policies and limitations, (i) through the purchase of debt securities or (ii) by engaging in repurchase agreements.
6. REAL ESTATE. The Fund may not purchase real estate unless acquired as a
result of the ownership of securities or instruments, except that the Fund may
(i) invest in securities of issuers that mortgage, invest or deal in real estate
or interests therein, (ii) invest in securities that are secured by real estate
or interests therein, (iii) purchase and sell mortgage-related securities, (iv)
hold and sell real estate it acquired as a result of the ownership of securities
and (v) invest in REITs of any kind.
7. SENIOR SECURITIES. The Fund may not issue senior securities, except as permitted under the 1940 Act.
8. UNDERWRITING. The Fund may not underwrite securities of other issuers, except to the extent that the Fund, in disposing of portfolio securities, may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended ("1933 Act").
The following investment policies and limitations are non-fundamental:
1. LENDING. Except for the purchase of debt securities and engaging in repurchase agreements, the Fund may not make any loans other than securities loans.
2. MARGIN TRANSACTIONS. The Fund may not purchase securities on margin from brokers or other lenders, except that it may obtain such short-term credits as are necessary for the clearance of securities transactions. Margin payments in connection with transactions in futures contracts and options on futures
contracts shall not constitute the purchase of securities on margin and shall not be deemed to violate the foregoing limitation.
3. FOREIGN SECURITIES. The Fund may not invest more than 10% of the value of its total assets in securities of non-U.S. issuers located in countries considered by NB Management to be industrialized, which securities may be U.S. dollar-denominated or denominated in a currency other than the U.S. dollar. This policy does not limit investment in American Depositary Receipts ("ADRs") and similar instruments denominated in U.S. dollars, where the underlying security may be denominated in a foreign currency.
4. INVESTMENTS IN ANY ONE ISSUER. At the close of each quarter of the Fund's taxable year, (i) no more than 25% of the value of its total assets may be invested in the securities of a single issuer and (ii) with regard to 50% of the value of its total assets, no more than 5% of the value of its total assets may be invested in the securities of a single issuer and it may not hold more than 10% of an issuer's outstanding voting securities. These limitations do not apply to U.S. Government securities, as defined for tax purposes, or securities of another regulated investment company ("RIC"), as defined in Subchapter M of the Internal Revenue Code of 1986, as amended ("Code").
5. SECURITIES OF REAL ESTATE COMPANIES. The Fund normally invests at least 80% of its Assets in securities of Real Estate Companies. If because of market action the Fund falls out of compliance with this policy, it will make future investments in such a manner as to bring it back into compliance with the policy. Although this is a non-fundamental policy, the Board will not change this policy without at least 60 days' notice to the Fund's stockholders. As used in this policy, Assets means net assets plus the amount of any borrowing for investment purposes.
Under the 1940 Act, a "senior security" does not include any promissory note or evidence of indebtedness regarding a loan for temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time the loan is made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed. Preferred Shares would be considered senior securities under the 1940 Act. The Fund may only issue Preferred Shares if the asset coverage (as defined in the 1940 Act) with respect to Preferred Shares would be at least 200% after such issuance.
To the extent the Fund covers its commitment under a derivative instrument by the segregation of assets determined by NB Management to be liquid and/or by holding instruments representing offsetting commitments, such instrument will not be considered a "senior security" for purposes of the asset coverage requirements otherwise applicable to borrowings by the Fund or its issuance of Preferred Shares.
The Fund interprets its policies with respect to borrowing and lending to permit such activities as may be lawful for it, to the fullest extent permitted by the 1940 Act or by exemption from the provisions thereof pursuant to an exemptive order of the SEC.
If rating agencies assign different ratings to the same security, NB Management will determine which rating it believes best reflects the security's quality and risk at that time, which may be the highest of the several assigned ratings.
The Fund will apply for ratings for its Preferred Shares from Moody's Investors Service, Inc. ("Moody's") and Fitch Ratings ("Fitch"). In order to obtain and maintain the required ratings, the Fund may be required to comply with investment quality, diversification and other guidelines established by Moody's and Fitch. Such guidelines will likely be more restrictive than the restrictions set forth above. The Fund does not anticipate that such guidelines would have a material adverse effect on holders of Common Shares ("Common Stockholders") or its ability to achieve its investment objectives. The Fund currently anticipates that any Preferred Shares that it intends to issue initially would be given the highest ratings by Moody's ("Aaa") and Fitch ("AAA"), but no assurance can be given that such ratings will be obtained. Moody's and Fitch receive fees in connection with their ratings issuances.
CASH MANAGEMENT AND TEMPORARY DEFENSIVE POSITIONS. For temporary defensive purposes, or to manage cash pending investment or payout, the Fund may invest up to 100% of its total assets in cash and cash equivalents, U.S. Government and Agency Securities, commercial paper and certain other money market instruments, as well as repurchase agreements collateralized by the foregoing.
Pursuant to an exemptive order received from the SEC, the Fund also may invest up to 25% of its total assets in shares of a money market fund managed by NB Management to manage uninvested cash and cash collateral received in connection with securities lending.
INVESTMENT STRATEGIES, TECHNIQUES AND RISKS
The following information supplements the discussion of the Fund's investment objectives, policies and techniques in the Prospectus. The Fund may make the following investments, among others, some of which are part of its principal investment strategies and some of which are not. The principal risks of the Fund's principal strategies are discussed in the Prospectus. The Fund may not buy all of the types of securities or use all of the investment techniques that are described.
REAL ESTATE COMPANIES. The Fund will not directly invest in real estate but rather in securities issued by Real Estate Companies. However, because of its fundamental policy to concentrate its investments in the securities of companies in the real estate industry, the Fund is subject to the risks associated with the direct ownership of real estate. These risks include declines in the value of real estate, risks associated with general and local economic conditions, possible lack of availability of mortgage funds, overbuilding, extended vacancies of properties, increased competition, increase in property taxes and operating expenses, changes in zoning laws, losses due to costs resulting from the clean-up of environmental problems, liability to third parties for damages resulting from environmental problems, casualty or condemnation losses, limitation on rents, changes in neighborhood values and the appeal of properties to tenants and changes in interest rates.
Securities of Real Estate Companies include securities of REITs, commercial and residential mortgage-backed securities and real estate financings. Such instruments are sensitive to factors such as real estate values and property taxes, interest rates, cash flow of underlying real estate assets, overbuilding and the management skill and creditworthiness of the issuer. Real estate-related
instruments may also be affected by tax and regulatory requirements, such as those relating to the environment.
REITs are sometimes informally characterized as Equity REITs, Mortgage REITs and Hybrid REITs. An Equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. An Equity REIT may also realize capital gains (or losses) by selling real properties in its portfolio that have appreciated (or depreciated) in value. A Mortgage REIT invests primarily in mortgages on real estate, which may secure construction, development or long-term loans. A Mortgage REIT generally derives its income primarily from interest payments on the credit it has extended. A Hybrid REIT combines the characteristics of Equity REITs and Mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate.
The types of REITs described above are dependent upon management skill, are not diversified and are subject to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for conduit income tax treatment under the Code and/or failing to maintain exemption from the 1940 Act.
REITs are subject to management fees and other expenses. Therefore, investments in REITs will cause the Fund to bear its proportionate share of the costs of the REITs' operations. At the same time, the Fund will continue to pay its own management fees and expenses with respect to all of its assets, including any portion invested in the shares of REITs. It is anticipated, although not required, that under normal circumstances a majority of the Fund's investments will consist of shares of Equity REITs.
The Fund may also invest in mortgage-backed securities. These are fixed-income securities that represent an interest in a pool of mortgages and entitle the holder to a payout derived from the payment of principal and interest on the underlying mortgages. Like other fixed-income securities, the value of mortgage-backed securities generally rises when market interest rates fall and falls when interest rates rise. These changes in value are more pronounced the longer the duration of the pool. However, because mortgagors have the option to refinance and pay off their mortgages early, the duration of a mortgage pool is somewhat unpredictable. When interest rates decline sufficiently, many mortgagors refinance. This will limit the Fund's ability to benefit from increases in value caused by a decline in rates. When rates increase, the value of mortgage-backed securities declines, and fewer mortgagors refinance, thereby extending the duration of the pool and accentuating the decline in value. Mortgage-backed securities are subject to the risk that mortgagors will default on their payments and the value of the underlying property will be inadequate to cover the loss. Mortgages that underlie securities issued by U.S. Government instrumentalities (such as Ginnie Mae, Fannie Mae and Freddie Mac, as defined below) generally must meet certain standards intended to reduce that risk and are usually guaranteed against such losses, but privately issued mortgage securities may not meet those standards or be guaranteed. Interests in Mortgage REITs, although they are equity securities, can be subject to many of the same risks as mortgage-backed securities.
POLICIES AND LIMITATIONS. Under normal market conditions, the Fund invests at least 90% of its total assets in income-producing common equity securities, preferred equity securities, securities convertible into equity securities and non-convertible debt securities issued by Real Estate Companies. Under normal
conditions, the Fund invests at least 75% of its total assets in income-producing equity securities issued by REITs.
BELOW-INVESTMENT GRADE SECURITIES. The Fund may invest in below-investment grade debt securities rated Caa/CCC or above as well as non-investment grade preferred and convertible preferred securities and unrated securities determined by NB Management to be of comparable quality. Below-investment grade quality debt securities are commonly referred to as "junk bonds." Bonds rated Baa or BBB are considered "investment grade" securities, although such bonds may be considered to possess some speculative characteristics.
Below-investment grade securities are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments and, therefore, carry greater price volatility and principal and income risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Issues rated CCC/Caa may be in default.
Below-investment grade securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in below-investment grade security prices because the advent of a recession could lessen the ability of an issuer to make principal and interest payments on its debt securities. If an issuer of below-investment grade securities defaults, the Fund, in addition to risking payment of all or a portion of interest and principal, may incur additional expenses to seek recovery. In the case of below-investment grade securities structured as zero coupon securities (see "Zero Coupon Securities," below), their market prices are affected to a greater extent by interest rate changes, and therefore tend to be more volatile, than securities that pay interest periodically and in cash. NB Management seeks to reduce these risks through diversification, credit analysis and attention to current developments and trends in both the economy and financial markets.
The secondary market on which below-investment grade securities are traded may be less liquid than the market for higher-grade securities. Less liquidity in the secondary trading market could adversely affect the price at which the Fund could sell a below-investment grade security and could adversely affect the Fund's net asset value ("NAV"). Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of below-investment grade securities, especially in a thinly-traded market. When secondary markets for below-investment grade securities are less liquid than the market for higher-grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is less reliable, objective data available. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling its portfolio securities. The Fund will be more dependent on NB Management's research and analysis when investing in below-investment grade securities. NB Management seeks to minimize the risks of investing in all securities through diversification, in-depth credit analysis and attention to current developments in interest rates and market conditions.
A general description of Moody's, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and Fitch ratings of bonds is set forth in Appendix B hereto. The ratings of Moody's, S&P and Fitch represent their opinions as to the quality of the bonds they rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, bonds with the same maturity, coupon and rating may have different yields while obligations with the same maturity and coupon with different ratings may have the same yield. For these reasons, the use of credit ratings as the sole method of evaluating below-investment grade securities can involve certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of below-investment grade securities. Also, credit rating agencies may fail to change credit ratings in a timely fashion to reflect events since the security was last rated. NB Management does not rely solely on credit ratings when selecting securities for the Fund, and develops its own independent analysis of issuer credit quality.
The Fund's credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security if a nationally recognized statistical rating organization ("rating agency") or NB Management downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell such a security, NB Management may consider such factors as its assessment of the credit quality of the issuer of such security, the price at which such security could be sold and the rating, if any, assigned to such security by any rating agency. However, analysis of the creditworthiness of issuers of below-investment grade securities may be more complex than for issuers of higher-quality debt securities.
POLICIES AND LIMITATIONS. The Fund may invest up to 25% of its total assets in below-investment grade debt securities rated Caa/CCC or above as well as non-investment grade convertible and non-convertible preferred securities and unrated securities determined by NB Management to be of comparable quality.
WARRANTS. Warrants may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase at a later date other securities of the issuer. Warrants are securities permitting, but not obligating, their holder to subscribe for other securities or commodities. Warrants do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holder to purchase, and they do not represent any rights in the assets of the issuer. As a result, warrants may be considered more speculative than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to its expiration date.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be expected to be sold within seven days at approximately the price at which they are valued. These may include unregistered or other restricted securities, repurchase agreements maturing in greater than seven days, written over-the-counter ("OTC") options, securities or other liquid assets being used as cover for such options, certain loan participation interests, fixed time deposits that are not subject to prepayment or provide for withdrawal penalties upon prepayment (other than overnight deposits). Illiquid securities may also include commercial paper under section 4(2) of the 1933 Act and Rule 144A securities (restricted securities that may be traded freely among qualified
institutional buyers pursuant to an exemption from the registration requirements of the securities laws) (see "Restricted Securities and Rule 144A Securities" below); these securities are considered illiquid unless NB Management, acting pursuant to guidelines established by the Board, determines they are liquid. Generally, foreign securities freely tradable in their principal market are not considered restricted or illiquid. Illiquid securities may be difficult for the Fund to value or dispose of due to the absence of an active trading market. The Fund's sale of some illiquid securities may be subject to legal restrictions that could be costly to it.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund purchases securities from a bank that is a member of the Federal Reserve System or from a securities dealer that agrees to repurchase the securities from the Fund at a higher price on a designated future date. The agreed-upon repurchase price determines the yield during the Fund's holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. Repurchase agreements generally are for a short period of time, usually less than a week. Costs, delays or losses could result if the selling party to a repurchase agreement becomes bankrupt or otherwise defaults. NB Management monitors the creditworthiness of sellers.
POLICIES AND LIMITATIONS. Repurchase agreements with a maturity of more than seven days are considered to be illiquid securities. The Fund may enter into a repurchase agreement only if (1) the underlying securities are of a type that the Fund's investment policies and limitations would allow it to purchase directly, (2) the market value of the underlying securities, including accrued interest, at all times equals or exceeds the repurchase price and (3) payment for the underlying securities is made only upon satisfactory evidence that the securities are being held for the Fund's account by its custodian or a bank acting as the Fund's agent.
SECURITIES LOANS. The Fund may lend portfolio securities to banks, brokerage firms and other institutional investors judged creditworthy by NB Management, provided that cash or equivalent collateral, equal to at least 100% of the market value of the loaned securities, is continuously maintained by the borrower with the Fund. The Fund may invest the cash collateral and earn income, or it may receive an agreed-upon amount of interest income from a borrower who has delivered equivalent collateral. During the time securities are on loan, the borrower will pay the Fund an amount equivalent to any dividends or interest paid on such securities. These loans are subject to termination at the option of the Fund or the borrower. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. The Fund does not have the right to vote securities on loan but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. NB Management believes the risk of loss on these transactions is slight because, if a borrower were to default for any reason, the collateral should satisfy the obligation. However, as with other extensions of secured credit, loans of portfolio securities involve some risk of loss of rights in the collateral should the borrower fail financially.
POLICIES AND LIMITATIONS. The Fund may lend its securities with a value not exceeding 33-1/3% of its total assets to banks, brokerage firms or other institutional investors judged creditworthy by NB Management. Borrowers are required continuously to secure their obligations to return securities on loan from the Fund by depositing collateral in a form determined to be satisfactory
by the Board. The collateral, which must be marked to market daily, must be equal to at least 102% of the market value of the loaned securities, which will also be marked to market daily.
RESTRICTED SECURITIES AND RULE 144A SECURITIES. The Fund may invest in restricted securities, which are securities that may not be sold to the public without an effective registration statement under the 1933 Act. Before they are registered, such securities may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. In recognition of the increased size and liquidity of the institutional market for unregistered securities and the importance of institutional investors in the formation of capital, the SEC has adopted Rule 144A under the 1933 Act. Rule 144A is designed to facilitate efficient trading among institutional investors by permitting the sale of certain unregistered securities to qualified institutional buyers. To the extent privately placed securities held by the Fund qualify under Rule 144A and an institutional market develops for those securities, the Fund likely will be able to dispose of the securities without registering them under the 1933 Act. To the extent that institutional buyers become, for a time, uninterested in purchasing these securities, investing in Rule 144A securities could increase the level of the Fund's illiquidity. NB Management, acting under guidelines established by the Board, may determine that certain securities qualified for trading under Rule 144A are liquid. Regulation S under the 1933 Act permits the sale abroad of securities that are not registered for sale in the United States.
Where registration is required, the Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities for which no market exists are priced by a method that the Board believes accurately reflects fair value.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the Fund sells portfolio securities subject to its agreement to repurchase the securities at a later date for a fixed price reflecting a market rate of interest. There is a risk that the counter-party to a reverse repurchase agreement will be unable or unwilling to complete the transaction as scheduled, which may result in losses to the Fund.
POLICIES AND LIMITATIONS. Reverse repurchase agreements are considered borrowings for purposes of the Fund's investment policies and limitations concerning borrowings. While a reverse repurchase agreement is outstanding, the Fund will deposit in a segregated account with its custodian cash or appropriate liquid securities, marked to market daily, in an amount at least equal to the Fund's obligations under the agreement.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated securities of non-U.S. issuers and foreign branches of U.S. banks that are located in countries considered by NB Management to be industrialized; such securities include negotiable certificates of deposit ("CDs"), bankers' acceptances and commercial paper. Non-U.S. issuers are issuers organized and doing business principally outside the United States and include banks, non-U.S. governments and quasi-governmental organizations. While investments in foreign securities are intended to reduce risk by providing further diversification, such investments involve sovereign and other risks, in addition to the credit and market risks normally associated with domestic securities. These additional
risks include the possibility of adverse political and economic developments (including political instability, nationalization, expropriation or confiscatory taxation) and the potentially adverse effects of unavailability of public information regarding issuers, less governmental supervision and regulation of financial markets, reduced liquidity of certain financial markets and the lack of uniform accounting, auditing and financial reporting standards or the application of standards that are different or less stringent than those applied in the United States; different laws and customs governing securities tracking; and possibly limited access to the courts to enforce the Fund's rights as investor.
The Fund also may invest in equity, debt or other income-producing
securities that are denominated in or indexed to foreign currencies, including
(1) common and preferred stocks, (2) CDs, commercial paper, fixed time deposits
and bankers' acceptances issued by foreign banks, (3) obligations of other
corporations and (4) obligations of foreign governments and their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities. Investing in foreign currency-denominated securities involves the
special risks associated with investing in non-U.S. issuers, as described in the
preceding paragraph, and the additional risks of (a) adverse changes in foreign
exchange rates and (b) adverse changes in investment or exchange control
regulations (which could prevent cash from being brought back to the United
States). Additionally, dividends and interest payable on foreign securities (and
gains realized on disposition thereof) may be subject to foreign taxes,
including taxes withheld from those payments. Commissions on foreign securities
exchanges are often at fixed rates and are generally higher than negotiated
commissions on U.S. exchanges, although the Fund endeavors to achieve the most
favorable net results on its portfolio transactions.
Foreign securities often trade with less frequency and in less volume than domestic securities and therefore may exhibit greater price volatility. Additional costs associated with an investment in foreign securities may include higher custodial fees than apply to domestic custody arrangements and transaction costs of foreign currency conversions.
Foreign markets also have different clearance and settlement procedures. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of the Fund is uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause it to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result in losses to the Fund due to subsequent declines in value of the securities or, if the Fund has entered into a contract to sell the securities, could result in possible liability to the purchaser.
Interest rates prevailing in other countries may affect the prices of foreign securities and exchange rates for foreign currencies. Local factors, including the strength of the local economy, the demand for borrowing, the government's fiscal and monetary policies and the international balance of payments, often affect interest rates in other countries. Individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
The Fund may invest in ADRs, European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and International Depositary Receipts ("IDRs"). ADRs (sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust company evidencing its ownership of the underlying foreign securities. Most ADRs are denominated in U.S. dollars and are traded on a U.S. stock exchange. However, they are subject to the risk of fluctuation in the currency exchange rate if, as is often the case, the underlying securities are denominated in a foreign currency. Issuers of the securities underlying sponsored ADRs, but not unsponsored ADRs, are contractually obligated to disclose material information in the United States. Therefore, the market value of unsponsored ADRs is less likely to reflect the effect of such information. EDRs and IDRs are receipts typically issued by a European bank or trust company evidencing its ownership of the underlying foreign securities. GDRs are receipts issued by either a U.S. or non-U.S. banking institution evidencing its ownership of the underlying foreign securities and are often denominated in U.S. dollars.
POLICIES AND LIMITATIONS. To limit the risks inherent in investing in foreign currency-denominated securities of non-U.S. issuers located in countries considered by NB Management to be industrialized, the Fund may not purchase such securities if, as a result, more than 10% of its total assets (taken at market value) would be invested in such securities. Within those limitations, however, the Fund is not restricted in the amount it may invest in securities denominated in any one foreign currency.
Investments in securities of foreign issuers are subject to the Fund's quality standards. The Fund may invest only in securities of issuers in countries whose governments are considered stable by NB Management.
FIXED-INCOME SECURITIES. While the emphasis of the Fund's investment program is on common stocks and other equity securities, it may also invest in money market instruments, U.S. Government and Agency Securities and other fixed-income securities. The Fund may invest in debt securities and debentures rated both investment grade and below-investment grade.
"U.S. Government Securities" are obligations of the U.S. Treasury backed by the full faith and credit of the United States. "U.S. Government Agency Securities" are issued or guaranteed by U.S. Government agencies or by instrumentalities of the U.S. Government, such as Ginnie Mae (also known as the Government National Mortgage Association), Fannie Mae (also known as the Federal National Mortgage Association), Freddie Mac (also known as the Federal Home Loan Mortgage Corporation), Sallie Mae (also known as the Student Loan Marketing Association), and the Tennessee Valley Authority. (U.S. Government Securities and U.S. Government Agency Securities are referred to herein collectively as "U.S. Government and Agency Securities.") Some U.S. Government Agency Securities are supported by the full faith and credit of the United States, while others may by supported by the issuer's ability to borrow from the U.S. Treasury, subject to the Treasury's discretion in certain cases, or only by the credit of the issuer. U.S. Government Agency Securities include U.S. Government Agency mortgage-backed securities. The market prices of U.S. Government and Agency Securities are not guaranteed by the U. S. Government and generally fluctuate inversely with changing interest rates.
"Investment grade" debt securities are those receiving one of the four highest ratings from S&P, Moody's, Fitch or another rating agency") or, if unrated by any rating agency, deemed by NB Management to be comparable to such rated securities ("Comparable Unrated Securities"). Securities rated by Moody's in its fourth highest rating category (Baa) or Comparable Unrated Securities may be deemed to have speculative characteristics.
The ratings of a rating agency represent its opinion as to the quality of securities it undertakes to rate. Ratings are not absolute standards of quality; consequently, securities with the same maturity, coupon and rating may have different yields. Although the Fund may rely on the ratings of any rating agency, it primarily refers to ratings assigned by S&P and Moody's, which are described in Appendix B to this SAI.
Fixed-income securities are subject to the risk of an issuer's inability to meet principal and interest payments on its obligations ("credit risk") and are subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and market liquidity ("market risk"). The value of the fixed-income securities in which the Fund may invest is likely to decline in times of rising market interest rates. Conversely, when rates fall, the value of the Fund's fixed-income investments is likely to rise. Typically, the longer the time to maturity of a given security, the greater is the change in its value in response to a change in interest rates. Foreign debt securities are subject to risks similar to those of other foreign securities.
Lower-rated securities are more likely to react to developments affecting market and credit risk than are more highly-rated securities, which react primarily to movements in the general level of interest rates. Debt securities in the lowest rating categories may involve a substantial risk of default or may be in default. Changes in economic conditions or developments regarding the individual issuer are more likely to cause price volatility and weaken the capacity of the issuer of such securities to make principal and interest payments than is the case for higher-grade debt securities. An economic downturn affecting the issuer may result in an increased incidence of default. The market for lower-rated securities may be thinner and less active than for higher-rated securities. Pricing of thinly-traded securities requires greater judgment than pricing of securities for which market transactions are regularly reported. NB Management will invest in lower-rated securities only when it concludes that the anticipated return on such an investment to the Fund warrants exposure to the additional level of risk.
POLICIES AND LIMITATIONS. The Fund may invest in debt securities rated CCC or higher by S&P, rated Caa or higher by Moody's or rated CCC or higher by Fitch or unrated securities determined to be of comparable quality. The Fund may invest in convertible bonds that NB Management believes present a good value because they are convertible into equity securities and have an attractive yield. The Fund may invest up to 20% of its total assets in debt securities.
COMMERCIAL PAPER. Commercial paper is a short-term debt security issued by a corporation, bank or other issuer, usually for purposes such as financing current operations. The Fund may invest in commercial paper that cannot be resold to the public without an effective registration statement under the 1933 Act. While restricted commercial paper normally is deemed illiquid, NB Management may in certain cases determine that such paper is liquid, pursuant to guidelines established by the Board.
BANK OBLIGATIONS. The Fund may invest in bank obligations, including negotiable CDs, banker's acceptances, fixed time deposits and deposit notes. A CD is a short-term negotiable certificate issued by a commercial bank against funds deposited in the bank and is either interest-bearing or purchased on a discount basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction. The borrower is liable for payment as is the bank, which unconditionally guarantees to pay the draft at its face amount on the maturity date. Fixed time deposits are obligations of branches of U.S. banks or foreign banks that are payable at a stated maturity date and bear a fixed rate of interest. Although fixed time deposits do not have a market, there are no contractual restrictions on the right to transfer a beneficial interest in the deposit to a third party. Deposit notes are notes issued by commercial banks that generally bear fixed rates on interest and typically have original maturities ranging from eighteen months to five years.
Banks are subject to extensive governmental regulations that may limit both the amounts and types of loans and other financial commitments that may be made and the interest rates and fees that may be charged. The profitability of this industry is largely dependent upon that availability and cost of capital funds for the purpose of financing lending operations under prevailing money market conditions. Also, general economic conditions play an important part in the operations of this industry, and exposure to credit losses arising from possible financial difficulties of borrowers might affect a bank's ability to meet its obligations. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by governmental regulation. In addition, securities of foreign banks and foreign branches of U.S. banks may involve investment risks in addition to those relating to domestic bank obligations. Such risks include future political and economic developments, the possible seizure or nationalization of foreign deposits and the possible adoption of foreign governmental restrictions that might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements and non-U.S. issuers generally are subject to different accounting, auditing, reporting and recordkeeping standards than those applicable to U.S. issuers.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities, which are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or that specify a future date when the securities begin to pay current interest. Zero coupon securities are issued and traded at a discount from their face amount or par value. This discount varies depending on prevailing interest rates, the time remaining until cash payments begin, the liquidity of the security and the perceived credit quality of the issuer.
Zero coupon securities are redeemed at face value when they mature. The discount on zero coupon securities ("original issue discount" or "OID") must be taken into income ratably by the Fund as it accrues prior to the receipt of any actual payments. Because the Fund must distribute substantially all of its investment company taxable income (including its accrued original issue discount) to its stockholders each year to avoid payment of for federal income and excise taxes, it may have to dispose of portfolio securities under disadvantageous circumstances to generate cash, or may be required to borrow, to satisfy its distribution requirements. See "Tax Matters."
The market prices of zero coupon securities generally are more volatile than the prices of securities that pay interest periodically. Zero coupon securities are likely to respond to changes in interest rates to a greater degree than other types of debt securities having a similar maturity and credit quality. Because these securities usually trade at a deep discount, they will be subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities that make periodic distributions of interest. On the other hand, because there are no periodic interest payments to be reinvested prior to maturity, zero coupon securities eliminate the reinvestment risk and lock in a rate of return to maturity.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. Convertible securities generally have features of both common stocks and debt securities. A convertible security entitles the holder to receive the interest paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, such securities ordinarily provide a stream of income with generally higher yields than common stocks of the same or similar issuers but lower than the yield on non-convertible debt. Convertible securities are usually subordinated to comparable-tier non-convertible securities but rank senior to common stock in a corporation's capital structure. The value of a convertible security is a function of (1) its yield in comparison to the yields of other securities of comparable maturity and quality that do not have a conversion privilege and (2) its worth if converted into the underlying common stock.
The price of a convertible security often reflects variations in the price of the underlying common stock in a way that non-convertible debt may not. Convertible securities are typically issued by smaller capitalization companies whose stock prices may be volatile. A convertible security may be subject to redemption at the option of the issuer at a price established in the security's governing instrument. If a convertible security held by the Fund is called for redemption, the Fund will be required to convert it into the underlying common stock, sell it to a third party or permit the issuer to redeem the security. Any of these actions could have an adverse effect on the Fund and its ability to achieve its investment objectives.
POLICIES AND LIMITATIONS. Convertible debt securities are subject to the Fund's investment policies and limitations concerning fixed-income securities.
PREFERRED STOCK. The Fund may invest in preferred stock. Unlike interest payments on debt securities, dividends on preferred stock are generally payable at the discretion of the issuer's board of directors. Preferred stockholders may have certain rights if dividends are not paid but generally have no legal recourse against the issuer. Stockholders may suffer a loss of value if dividends are not paid. The market prices of preferred stocks are generally more sensitive to changes in the issuer's creditworthiness than are the prices of debt securities.
SWAP AGREEMENTS. The Fund may enter into swap agreements to manage or gain exposure to particular types of investments (including equity securities or indices of equity securities in which the Fund otherwise could not invest efficiently). In a swap agreement, one party agrees to make regular payments equal to a floating rate on a specified amount in exchange for payments equal to
a fixed rate, or a different floating rate, on the same amount for a specified period.
Swap agreements may involve leverage and may be highly volatile; depending on how they are used, they may have a considerable impact on the Fund's performance. The risks of swap agreements depend upon the other party's creditworthiness and ability to perform, as well as the Fund's ability to terminate its swap agreements or reduce its exposure through offsetting transactions. Swap agreements may be illiquid. The swap market is relatively new and is largely unregulated.
POLICIES AND LIMITATIONS. In accordance with SEC staff requirements, the Fund will segregate cash or appropriate liquid securities in an amount equal to its obligations under swap agreements; when an agreement provides for netting of the payments by the two parties, the Fund will segregate only the amount of its net obligation, if any.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in shares of other investment companies. Such investment may be the most practical or only manner in which the Fund can participate in certain foreign markets because of the expenses involved or because other vehicles for investing in those countries may not be available at the time the Fund is ready to make an investment. The Fund at times may invest in instruments structured as investment companies to gain exposure to the performance of a recognized securities index, such as the Standard & Poor's 500 Composite Stock Index ("S&P 500 Index"), or for other appropriate purposes. As a shareholder in an investment company, the Fund would bear its pro rata share of that investment company's expenses. Investment in other funds may involve the payment of substantial premiums above the value of such funds' portfolio securities. The Fund does not intend to invest in such funds unless, in the judgment of NB Management, the potential benefits of such investment justify the payment of any applicable premium or sales charge.
POLICIES AND LIMITATIONS. Except for investments in a money market fund managed by NB Management for cash management purposes, the Fund's investment in securities of other registered investment companies is limited to (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Fund's total assets with respect to any one investment company and (iii) 10% of the Fund's total assets in the aggregate.
Pursuant to an exemptive order received from the SEC, the Fund also may invest up to 25% of its total assets in shares of a money market fund managed by NB Management to manage uninvested cash and cash collateral received in connection with securities lending.
FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS, OPTIONS ON SECURITIES AND
INDICES,
FORWARD CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
(COLLECTIVELY, "FINANCIAL INSTRUMENTS")
FUTURES CONTRACTS AND OPTIONS Thereon. The Fund may purchase and sell interest rate futures contracts, stock and bond index futures contracts and foreign currency futures contracts and may purchase and sell options thereon in an attempt to hedge against changes in the prices of securities or, in the case
of foreign currency futures and options thereon, to hedge against changes in prevailing currency exchange rates. Because the futures markets may be more liquid than the cash markets, the use of futures contracts permits the Fund to enhance portfolio liquidity and maintain a defensive position without having to sell portfolio securities. The Fund views investment in (i) single stock interest rate and securities index futures and options thereon as a maturity management device and/or a device to reduce risk or preserve total return in an adverse environment for the hedged securities and (ii) foreign currency futures and options thereon as a means of establishing more definitely the effective return on, or the purchase price of, securities denominated in foreign currencies that are held or intended to be acquired by the Fund.
For purposes of managing cash flow, the Fund may purchase and sell stock index futures contracts, and may purchase and sell options thereon, to increase its exposure to the performance of a recognized securities index, such as the S&P 500 Index.
A "sale" of a futures contract (or a "short" futures position) entails the assumption of a contractual obligation to deliver the securities or currency underlying the contract at a specified price at a specified future time. A "purchase" of a futures contract (or a "long" futures position) entails the assumption of a contractual obligation to acquire the securities or currency underlying the contract at a specified price at a specified future time. Certain futures, including stock and bond index futures, are settled on a net cash payment basis rather than by the sale and delivery of the securities underlying the futures.
U.S. futures contracts (except certain currency futures) are traded on exchanges that have been designated as "contract markets" by the Commodity Futures Trading Commission ("CFTC"); futures transactions must be executed through a futures commission merchant that is a member of the relevant contract market. In both U.S. and foreign markets, an exchange's affiliated clearing organization guarantees performance of the contracts between the clearing members of the exchange.
Although futures contracts by their terms may require the actual delivery or acquisition of the underlying securities or currency, in most cases the contractual obligation is extinguished by being offset before the expiration of the contract. A futures position is offset by buying (to offset an earlier sale) or selling (to offset an earlier purchase) an identical futures contract calling for delivery in the same month. This may result in a profit or loss. While futures contracts entered into by the Fund will usually be liquidated in this manner, the Fund may instead make or take delivery of underlying securities or currency whenever it appears economically advantageous for it to do so.
"Margin" with respect to a futures contract is the amount of assets that must be deposited by the Fund with, or for the benefit of, a futures commission merchant or broker in order to initiate and maintain the Fund's futures positions. The margin deposit made by the Fund when it enters into a futures contract ("initial margin") is intended to assure its performance of the contract. If the price of the futures contract changes -- increases in the case of a short (sale) position or decreases in the case of a long (purchase) position -- so that the unrealized loss on the contract causes the margin deposit not to satisfy margin requirements, the Fund will be required to make an additional margin deposit ("variation margin"). However, if favorable price changes in the futures contract cause the margin deposit to exceed the required margin, the excess variation margin will be paid to the Fund. In computing its NAV, the Fund marks to market the value of its open futures positions. The Fund
also must make margin deposits with respect to options on futures that it has written (but not with respect to options on futures that it has purchased). If the futures commission merchant or broker holding the margin deposit goes bankrupt, the Fund could suffer a delay in recovering its funds and could ultimately suffer a loss.
An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in the contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the option exercise period. The writer of the option is required upon exercise to assume a short futures position (if the option is a call) or a long futures position (if the option is a put). Upon exercise of the option, the accumulated cash balance in the writer's futures margin account is delivered to the holder of the option. That balance represents the amount by which the market price of the futures contract at exercise exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option. Options on futures have characteristics and risks similar to those of securities options, as discussed herein.
Although the Fund believes that the use of futures contracts and options will benefit it, if NB Management's judgment about the general direction of the markets or about interest rate or currency exchange rate trends is incorrect, the Fund's overall return would be lower than if it had not entered into any such contracts. The prices of futures contracts and options are volatile and are influenced by, among other things, actual and anticipated changes in interest or currency exchange rates, which in turn are affected by fiscal and monetary policies and by national and international political and economic events. At best, the correlation between changes in prices of futures contracts or options and of securities being hedged can be only approximate due to differences between the futures and securities markets or differences between the securities or currencies underlying the Fund's futures or options position and the securities held by or to be purchased for the Fund. The currency futures or options market may be dominated by short-term traders seeking to profit from changes in exchange rates. This would reduce the value of such contracts used for hedging purposes over a short-term period. Such distortions are generally minor and would diminish as the contract approaches maturity.
Because of the low margin deposits required, futures trading involves an extremely high degree of leverage; as a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, or gain, to the investor. Losses that may arise from certain futures transactions are potentially unlimited.
Most U.S. futures exchanges limit the amount of fluctuation in the price of a futures contract or option thereon during a single trading day; once the daily limit has been reached, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day, however; it thus does not limit potential losses. In fact, it may increase the risk of loss, because prices can move to the daily limit for several consecutive trading days with little or no trading, thereby preventing liquidation of unfavorable futures and options positions and subjecting traders to substantial losses. If this were to happen with respect to a position the Fund held, it could have an adverse impact on its NAV.
Single stock and narrow-based security index futures, and options thereon, have not been permitted to trade in the United States until very recently. Therefore, it may be very difficult, at least initially, to predict how the
markets in these instruments will behave, particularly in unusual circumstances. In addition, as some of the markets on which such instruments will trade are also new (such as derivatives transaction execution facilities or "DTEFs"), they have no operating history. In addition, DTEFs are principal markets; therefore, no clearing house in effect guarantees performance of the counter-party to a contract executed on a DTEF.
New options and futures contracts and other financial products may be developed from time to time. The Fund may invest in any such options, contracts and products as may be developed to the extent consistent with its investment objectives and the regulatory requirements applicable to investment companies.
POLICIES AND LIMITATIONS. The Fund may purchase and sell futures contracts and options thereon in an attempt to hedge against changes in the prices of securities or, in the case of foreign currency futures and options thereon, to hedge against prevailing currency exchange rates. The Fund will not engage in transactions in futures and options on futures for speculation.
The Fund may purchase and sell stock index futures contracts and options thereon. The portfolio managers may use such futures and options to increase the Fund's exposure to the performance of a recognized securities index, such as the S&P 500 Index.
CALL OPTIONS ON SECURITIES. The Fund may write covered call options and may purchase call options on securities. The purpose of writing call options is to hedge (i.e., to reduce, at least in part, the effect of price fluctuations of the Fund's securities held by the Fund on its NAV) or to earn premium income. Portfolio securities on which call options may be written and purchased by the Fund are purchased solely on the basis of investment considerations consistent with its investment objectives.
When the Fund writes a call option, it is obligated to sell a security to a purchaser at a specified price at any time until a certain date if the purchaser decides to exercise the option. The Fund receives a premium for writing the call option. So long as the obligation of the call option continues, the Fund may be assigned an exercise notice, requiring it to deliver the underlying security against payment of the exercise price. The Fund may be obligated to deliver securities underlying an option at less than the market price.
The writing of covered call options is a conservative investment technique that is believed to involve relatively little risk but is capable of enhancing the Fund's total return. When writing a covered call option, the Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security above the exercise price, but conversely retains the risk of loss should the price of the security decline.
If a call option that the Fund has written expires unexercised, it will realize a gain in the amount of the premium; however, that gain may be offset by a decline in the market value of the underlying security during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security.
When the Fund purchases a call option, it pays a premium for the right to purchase a security from the writer at a specified price until a specified date.
POLICIES AND LIMITATIONS. The Fund may write covered call options and may purchase call options on securities. The Fund may also write covered call options and may purchase call options in related closing transactions. The Fund writes only "covered" call options on securities it owns (in contrast to the writing of "naked" or uncovered call options, which the Fund will not do).
The Fund would purchase a call option to offset a previously written call option. The Fund also may purchase a call option to protect against an increase in the price of the securities it intends to purchase.
PUT OPTIONS ON SECURITIES. The Fund may write and purchase put options on securities. The Fund will receive a premium for writing a put option, which obligates it to acquire a security at a certain price at any time until a certain date if the purchaser decides to exercise the option. The Fund may be obligated to purchase the underlying security at more than its current value.
When the Fund purchases a put option, it pays a premium to the writer for the right to sell a security to the writer for a specified amount at any time until a certain date. The Fund would purchase a put option in order to protect itself against a decline in the market value of a security it owns.
Portfolio securities on which put options may be written and purchased by the Fund are purchased solely on the basis of investment considerations consistent with its investment objectives. When writing a put option, the Fund, in return for the premium, takes the risk that it must purchase the underlying security at a price that may be higher than the current market price of the security. If a put option that the Fund has written expires unexercised, it will realize a gain in the amount of the premium.
POLICIES AND LIMITATIONS. The Fund generally writes and purchases put options on securities for hedging purposes (e.g., to reduce, at least in part, the effect of price fluctuations of securities the Fund holds on its NAV).
GENERAL INFORMATION ABOUT SECURITIES OPTIONS. The exercise price of an option may be below, equal to or above the market value of the underlying security at the time the option is written. Options normally have expiration dates between three and nine months from the date written. American-style options are exercisable at any time prior to their expiration date. The obligation under any option written by the Fund terminates upon expiration of the option or, at an earlier time, when the Fund offsets the option by entering into a "closing purchase transaction" to purchase an option of the same series. If an option is purchased by the Fund and is never exercised or closed out, the Fund will lose the entire amount of the premium paid.
Options are traded both on U.S. national securities exchanges and in the OTC market. Exchange-traded options are issued by a clearing organization affiliated with the exchange on which the option is listed; the clearing organization in effect guarantees completion of every exchange-traded option. In contrast, OTC options are contracts between the Fund and a counter-party, with no clearing organization guarantee. Thus, when the Fund sells (or purchases) an OTC option, it generally will be able to "close out" the option prior to its expiration only by entering into a closing transaction with the dealer to whom (or from whom) the Fund originally sold (or purchased) the option. There can be
no assurance that the Fund would be able to liquidate an OTC option at any time prior to expiration. Unless the Fund is able to effect a closing purchase transaction in a covered OTC call option it has written, it will not be able to liquidate securities used as cover until the option expires or is exercised or until different cover is substituted. In the event of the counter-party's insolvency, the Fund may be unable to liquidate its options position and the associated cover. NB Management monitors the creditworthiness of dealers with which the Fund may engage in OTC options transactions.
The premium received (or paid) by the Fund when it writes (or purchases) an option is the amount at which the option is currently traded on the applicable market. The premium may reflect, among other things, the current market price of the underlying security, the relationship of the exercise price to the market price, the historical price volatility of the underlying security, the length of the option period, the general supply of and demand for credit and the interest rate environment. The premium received by the Fund for writing an option is recorded as a liability on its Statement of Assets and Liabilities. This liability is adjusted daily to the option's current market value.
Closing transactions are effected to realize a profit (or minimize a loss) on an outstanding option, to prevent an underlying security from being called, or to permit the sale or the put of the underlying security. Furthermore, effecting a closing transaction permits the Fund to write another call option on the underlying security with a different exercise price or expiration date or both. There is, of course, no assurance that the Fund will be able to effect closing transactions at favorable prices. If the Fund cannot enter into such a transaction, it may be required to hold a security that it might otherwise have sold (or purchase a security that it would not have otherwise bought), in which case it would continue to be at market risk on the security.
The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from writing the call or put option. Because increases in the market price of a call option generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset, in whole or in part, by appreciation of the underlying security owned by the Fund; however, the Fund could be in a less advantageous position than if it had not written the call option.
The Fund pays brokerage commissions or spreads in connection with purchasing or writing options, including those used to close out existing positions. From time to time, the Fund may purchase an underlying security for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering the security from its portfolio. In those cases, additional brokerage commissions are incurred.
The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets.
POLICIES AND LIMITATIONS. The Fund may use American-style options. The assets used as cover (or held in a segregated account) for OTC options written
by the Fund will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Fund may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC call option written subject to this procedure will be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option.
PUT AND CALL OPTIONS ON SECURITIES INDICES. The Fund may purchase put and call options on securities indices and other financial indices to increase its exposure to the performance of a recognized securities index, such as the S&P 500 Index. In doing so, the Fund can pursue any of the same objectives it would pursue through the sale or purchase of options on individual securities or other instruments.
Unlike a securities option, which gives the holder the right to purchase or sell a specified security at a specified price, an option on a securities index gives the holder the right to receive a cash "exercise settlement amount" equal to (1) the difference between the exercise price of the option and the value of the underlying securities index on the exercise date (2) multiplied by a fixed "index multiplier." A securities index fluctuates with changes in the market values of the securities included in the index. Options on stock indices are currently traded on the Chicago Board Options Exchange, the New York Stock Exchange ("NYSE"), the American Stock Exchange and other U.S. and foreign exchanges. The gain or loss on an option on an index depends on price movements in the instruments comprising the market, market segment, industry or other composite on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options on securities.
The effectiveness of hedging through the purchase of securities index options will depend upon the extent to which price movements in the securities being hedged correlate with price movements in the selected securities index. Perfect correlation is not possible because the securities held or to be acquired by the Fund will not exactly match the composition of the securities indices on which options are available.
Securities index options have characteristics and risks similar to those of securities options, as discussed herein.
POLICIES AND LIMITATIONS. For purposes of managing cash flow, the Fund may purchase put and call options on securities indices to increase its exposure to the performance of a recognized securities index, such as the S&P 500 Index. All securities index options purchased by the Fund will be listed and traded on an exchange.
FOREIGN CURRENCY TRANSACTIONS. The Fund may enter into contracts for the purchase or sale of a specific currency at a future date (usually less than one year from the date of the contract) at a fixed price ("forward contracts"). The Fund also may engage in foreign currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market.
The Fund enters into forward contracts in an attempt to hedge against changes in prevailing currency exchange rates. The Fund does not engage in transactions in forward contracts for speculation; it views investments in forward contracts as a means of establishing more definitely the effective
return on, or the purchase price of, securities denominated in foreign currencies. Forward contract transactions include forward sales or purchases of foreign currencies for the purpose of protecting the U.S. dollar value of securities held or to be acquired by the Fund or protecting the U.S. dollar equivalent of dividends, interest or other payments on those securities.
Forward contracts are traded in the interbank market directly between dealers (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades; foreign exchange dealers realize a profit based on the difference (the spread) between the prices at which they are buying and selling various currencies.
At the consummation of a forward contract to sell currency, the Fund may either make delivery of the foreign currency or terminate its contractual obligation to deliver by purchasing an offsetting contract. If the Fund chooses to make delivery of the foreign currency, it may be required to obtain such currency through the sale of portfolio securities denominated in such currency or through conversion of other assets of the Fund into such currency. If the Fund engages in an offsetting transaction, it will incur a gain or a loss to the extent that there has been a change in forward contract prices. Closing purchase transactions with respect to forward contracts are usually made with the currency dealer who is a party to the original forward contract.
NB Management believes that the use of foreign currency hedging techniques, including "proxy-hedges," can provide significant protection of NAV in the event of a general rise or decrease in the U.S. dollar against foreign currencies. For example, the return available from securities denominated in a particular foreign currency would diminish if the value of the U.S. dollar increased against that currency. Such a decline could be partially or completely offset by an increase in value of a hedge involving a forward contract to sell that foreign currency or a proxy-hedge involving a forward contract to sell a different foreign currency whose behavior is expected to resemble the currency in which the securities being hedged are denominated but that is available on more advantageous terms.
However, a hedge or proxy-hedge cannot protect against exchange rate risks perfectly, and if NB Management is incorrect in its judgment of future exchange rate relationships, the Fund could be in a less advantageous position than if such a hedge had not been established. If the Fund uses proxy-hedging, it may experience losses on both the currency in which it has invested and the currency used for hedging if the two currencies do not vary with the expected degree of correlation. Using forward contracts to protect the value of the Fund's securities against a decline in the value of a currency does not eliminate fluctuations in the prices of underlying securities. Because forward contracts are not traded on an exchange, the assets used to cover such contracts may be illiquid. The Fund may experience delays in the settlement of its foreign currency transactions.
POLICIES AND LIMITATIONS. The Fund may enter into forward contracts for the purpose of hedging and not for speculation.
OPTIONS ON FOREIGN CURRENCIES. The Fund may write and purchase covered call and put options on foreign currencies.
Currency options have characteristics and risks similar to those of securities options, as discussed herein. Certain options on foreign currencies are traded on the OTC market and involve liquidity and credit risks that may not be present in the case of exchange-traded currency options.
POLICIES AND LIMITATIONS. The Fund may use options on foreign currencies to protect against declines in the U.S. dollar value of portfolio securities or increases in the U.S. dollar cost of securities to be acquired or to protect the U.S. dollar equivalent of dividends, interest or other payments on those securities.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions, including multiple options transactions, multiple interest transactions and any combination of options and interest rate transactions, instead of a single Financial Instrument as part of a single or combined strategy when, in the judgment of NB Management, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions will normally be entered into by the Fund based on NB Management's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase the risks or hinder achievement of the Fund's management objective.
COVER FOR FINANCIAL INSTRUMENTS. Transactions using Financial Instruments, other than purchased options, expose the Fund to an obligation to another party. The Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covering") position in securities, currencies or other options, futures contracts or forward contracts or (2) cash and liquid assets held in a segregated account with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above. The Fund will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or liquid assets in an account with its custodian in the prescribed amount as determined daily.
Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of the Fund's assets for cover or segregation could impede portfolio management of its ability to meet redemption requests or current obligations.
Securities held in a segregated account cannot be sold while the futures, options or forward strategy covered by those securities is outstanding, unless they are replaced with other suitable assets. As a result, segregation of a large percentage of the Fund's assets could impede Fund management or the its ability to meet current obligations. The Fund may be unable promptly to dispose of assets that cover, or are segregated with respect to, an illiquid futures, options or forward position; this inability may result in a loss to the Fund.
POLICIES AND LIMITATIONS. The Fund will comply with SEC guidelines regarding "cover" for Financial Instruments and, if the guidelines so require, set aside in a segregated account with its custodian the prescribed amount of cash or appropriate liquid securities.
GENERAL RISKS OF FINANCIAL INSTRUMENTS. The primary risks in using Financial Instruments are (1) imperfect correlation or no correlation between changes in market value of the securities or currencies held or to be acquired by the Fund and the prices of Financial Instruments; (2) possible lack of a liquid secondary market for Financial Instruments and the resulting inability to close out Financial Instruments when desired; (3) the fact that the skills needed to use Financial Instruments are different from those needed to select the Fund's securities; (4) the fact that, although use of Financial Instruments for hedging purposes can reduce the risk of loss, they also can reduce the opportunity for gain, or even result in losses, by offsetting favorable price movements in hedged investments; and (5) the possible inability of the Fund to purchase or sell a portfolio security at a time that would otherwise be favorable for it to do so, or the possible need for the Fund to sell a portfolio security at a disadvantageous time, due to its need to maintain cover or to segregate securities in connection with its use of Financial Instruments. There can be no assurance that the Fund's use of Financial Instruments will be successful.
The Fund's use of Financial Instruments may be limited by the provisions of the Code with which it must comply if it is to qualify for treatment as a RIC. See "Tax Matters." Financial Instruments may not be available with respect to some currencies, especially those of so-called emerging market countries.
POLICIES AND LIMITATIONS. NB Management intends to reduce the risk of imperfect correlation by investing only in Financial Instruments the behavior of which is expected to resemble or offset that of the Fund's underlying securities or currency. NB Management intends to reduce the risk that the Fund will be unable to close out Financial Instruments by entering into such transactions only if NB Management believes there will be an active and liquid secondary market.
REGULATORY LIMITATIONS ON USING FINANCIAL INSTRUMENTS. To the extent the Fund sells or purchases futures contracts or writes options thereon or options on foreign currencies that are traded on an exchange regulated by the CFTC other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") may not exceed 5% of the Fund's net assets.
ACCOUNTING CONSIDERATIONS FOR FINANCIAL INSTRUMENTS. When the Fund writes an option, an amount equal to the premium it receives is included in its Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When the Fund purchases an option, the premium the Fund pays is recorded as an asset in that statement and is subsequently adjusted to the current market value of the option.
In the case of a regulated futures contract the Fund purchases or sells, an amount equal to the initial margin deposit is recorded as an asset in its Statement of Assets and Liabilities. The amount of the asset is subsequently
adjusted to reflect changes in the amount of the deposit as well as changes in the value of the contract.
BORROWING AND LEVERAGE. The Fund is authorized to borrow amounts up to 33 1/3% of its total assets (including the amount borrowed) minus liabilities (other than the amount borrowed). The Fund's Articles of Incorporation ("Articles") authorize the Board to create additional classes of stock. The use of borrowed funds and/or the issuance of preferred stock involve the speculative factor known as "leverage." The Fund intends to use leverage for investment purposes by issuing Preferred Shares. The issuance of Preferred Shares would permit the Fund to assume leverage in an amount up to 50% of its total assets. It is currently anticipated that, taking into account Preferred Shares being offered in the Fund's current Prospectus, the amount of leverage will represent approximately 33% of the Fund's total assets (after issuance). Preferred stock, including, when issued, the Preferred Shares, would have a priority on the income and assets of the Fund over the Common Shares and would have certain other rights with respect to voting and the election of Directors. In certain circumstances, the NAV of and dividends payable on Common Shares could be adversely affected by such preferences. The Fund's leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. The Fund will utilize leverage only when there is an expectation that it will benefit the Fund. To the extent the income or other gain derived from securities purchased with the proceeds of borrowings or preferred stock issuances exceeds the interest or dividends the Fund would have to pay thereon, its net income or other gain would be greater than if leverage had not been used. Conversely, if the income or other gain from the securities purchased through leverage is not sufficient to cover the cost of such leverage, the Fund's total return would be less than if leverage had not been used. If leverage is used, in certain circumstances, the Fund could be required to liquidate securities it would not otherwise sell in order to satisfy dividend or interest obligations. The Fund may also borrow up to an additional 5% of its total assets for temporary purposes without regard to the foregoing limitations. See "Investment Objectives, Policies and Limitations." This could include, for example, borrowing on a short-term basis in order to facilitate the settlement of portfolio securities transactions.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a "when-issued" and "delayed delivery" basis. No income accrues to the Fund on securities in connection with such transactions prior to the date it actually takes delivery of such securities. These transactions are subject to market fluctuation; the value of the securities at delivery may be more or less than their purchase price, and yields generally available on securities when delivery occurs may be higher than yields on the securities obtained pursuant to such transactions. These transactions involve a commitment by the Fund to purchase securities that will be issued at a future date (ordinarily within two months, although the Fund may agree to a longer settlement period). The price of the underlying securities (usually expressed in terms of yield) and the date when the securities will be delivered and paid for (the settlement date) are fixed at the time the transaction is negotiated. When-issued purchases are negotiated directly with the other party, and such commitments are not traded on exchanges.
When-issued and delayed delivery transactions enable the Fund to "lock in" what NB Management believes to be an attractive price or yield on a particular security for a period of time, regardless of future changes in interest rates. In periods of falling interest rates and rising prices, the Fund might purchase
a security on a when-issued or delayed delivery basis and sell a similar security to settle such purchase, thereby obtaining the benefit of currently higher yields. If the seller fails to complete the sale, the Fund may lose the opportunity to obtain a favorable price.
The value of securities purchased on a when-issued or delayed delivery basis and any subsequent fluctuations in their value are reflected in the computation of the Fund's NAV starting on the date of the agreement to purchase the securities. Because the Fund has not yet paid for the securities, this produces an effect similar to leverage. A significant percentage of the Fund's assets committed to the purchase of securities on a "when-issued" or "delayed delivery" basis may increase the volatility of its NAV and may limit the flexibility to manage its investments. The Fund does not earn interest on securities it has committed to purchase until the securities are paid for and delivered on the settlement date.
POLICIES AND LIMITATIONS. The Fund will purchase securities on a when-issued or delayed delivery basis only with the intention of completing the transaction and actually taking delivery of the securities. If deemed advisable as a matter of investment strategy, however, the Fund may dispose of or renegotiate a commitment after it has been entered into. The Fund also may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. The Fund may realize capital gains or losses in connection with these transactions.
When the Fund purchases securities on a when-issued or delayed delivery basis, it will deposit in a segregated account with its custodian, until payment is made, appropriate liquid securities having an aggregate market value (determined daily) at least equal to the amount of the Fund's purchase commitments. This procedure is designed to ensure that the Fund maintains sufficient assets at all times to cover its obligations under when-issued and delayed delivery purchases. Subject to the requirement of maintaining a segregated account, no specified limitation exists as to the percentage of the Fund's assets that may be used to acquire securities on a "when-issued" or "delayed delivery" basis.
STRUCTURED NOTES AND OTHER HYBRID INSTRUMENTS. The Fund may invest in "structured" notes, which are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a benchmark asset, market or interest rate, such as selected securities, an index of securities or specified interest rates or the differential performance of two assets or markets, such as indices reflecting taxable and tax-exempt bonds. Depending on the terms of the note, the Fund may forgo all or part of the interest and principal that would be payable on a comparable conventional note. The rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of the referenced index(es) or other asset(s). Application of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss. The Fund currently intends that any use of structured notes will be for the purpose of reducing the interest rate sensitivity of its portfolio (and, thereby, decreasing its exposure to interest rate risk). Like other sophisticated strategies, the Fund's use of structured notes may not work as intended; for example, the change in the value of the structured notes may not match very closely the change in the value of bonds that the structured notes were purchased to hedge.
The Fund may invest in other types of "hybrid" instruments that combine the characteristics of securities, futures and options. For example, the principal amount or interest rate of a hybrid could be tied (positively or negatively) to the price of some securities index or another interest rate (each a "benchmark"). The interest rate or (unlike most debt obligations) the principal amount payable at maturity of a hybrid security may be increased or decreased, depending on changes in the value of the benchmark. Hybrids can be used as an efficient means of pursuing a variety of investment goals, including duration management and increased total return. Hybrids may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events that cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the Fund to the credit risk of the issuer of the hybrids. These risks may cause significant fluctuations in the NAV of the Fund.
Certain issuers of structured products, such as hybrid instruments, may be deemed to be investment companies as defined in the 1940 Act. As a result, the Fund's investments in these products may be subject to limits applicable to investments in investment companies and may be subject to restrictions contained in the 1940 Act. See "Securities of Other Investment Companies."
PORTFOLIO TRADING AND TURNOVER RATE
The Fund cannot accurately predict its turnover rate but anticipates that its annual turnover rate will not exceed 50%. The Fund's turnover rate is calculated by dividing (1) the lesser of the cost of the securities purchased or the proceeds from the securities sold by the Fund during the fiscal year (other than securities, including options, whose maturity or expiration date at the time of acquisition was one year or less) by (2) the month-end average of the value of such securities owned by the Fund during the fiscal year. The Fund generally will not engage in the trading of securities for the purpose of realizing short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or anticipated market conditions to accomplish its investment objective. For example, the Fund may sell portfolio securities in anticipation of a movement in interest rates. Higher turnover rates can result in corresponding increases in the Fund's transaction costs, which must be borne by the Fund and its stockholders. High portfolio turnover may also result in the realization of substantial net short-term capital gains, and any distributions attributable to those gains will be taxable at ordinary income rates for federal income tax purposes. Other than for consideration of tax consequences, frequency of portfolio turnover will not be a limiting factor if the Fund considers it advantageous to purchase or sell securities.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Board is broadly responsible for overseeing the management of the business and affairs of the Fund, including general supervision of the duties performed by NB Management and Neuberger Berman, LLC. Subject to the provisions of the Articles, the Fund's Bylaws and Maryland law, the Board has all powers necessary and convenient to carry out this responsibility, including the election and removal of the Fund's officers. Among other things, the Board generally oversees the portfolio management of the Fund and reviews and approves the Fund's management and sub-advisory agreements and other principal agreements.
The following tables set forth information concerning the Directors and officers of the Fund. All persons named as Directors and officers also serve in similar capacities for other funds administered or managed by NB Management and Neuberger Berman, LLC.
THE BOARD OF DIRECTORS
-------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex Other Directorships Held
Name, Age, Address(1) and Overseen by Outside Fund Complex by
Position with Fund Principal Occupation(s) (2) Director Director
-------------------------------------------------------------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------------------------------------------------------------
Independent Fund Directors*
-------------------------------------------------------------------------------------------------------------------------
Faith Colish (68) Counsel, Carter Ledyard & Millburn LLP 36 Director, American Bar
Director (law firm) since October 2002; prior Retirement Association (ABRA)
thereto, Attorney at Law and since 1997 (not-for-profit
President, Faith Colish, A membership association).
Professional Corporation, 1980 to 2002.
-------------------------------------------------------------------------------------------------------------------------
C. Anne Harvey (66) Consultant, C. A. Harvey Associates, 36 Member, Individual Investors
Director since June 2001; Director, AARP, 1978 Advisory Committee to the New
to December 2000. York Stock Exchange Board of
Directors, 1998 to June 2002;
President, Board of Associates
to The National Rehabilitation
Hospital's Board of Directors,
since 2002; Member, American
Savings Education Council's
Policy Board (ASEC),
1998-2000; Member, Executive
Committee, Crime Prevention
Coalition of America, 1997 -
2000.
-------------------------------------------------------------------------------------------------------------------------
28
|
-------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex Other Directorships Held
Name, Age, Address(1) and Overseen by Outside Fund Complex by
Position with Fund Principal Occupation(s) (2) Director Director
-------------------------------------------------------------------------------------------------------------------------
Cornelius T. Ryan (71) Founding General Partner, Oxford 36 Director, Capital Cash
Director Partners and Oxford Bioscience Management Trust (money market
Partners (venture capital fund), Naragansett Insured
partnerships) and President, Oxford Tax-Free Income Fund, Rocky
Venture Corporation. Mountain Equity Fund, Prime
Cash Fund, several private
companies and QuadraMed
Corporation (NASDAQ).
-------------------------------------------------------------------------------------------------------------------------
Peter P. Trapp (58) Regional Manager for Atlanta Region, 36
Director Ford Motor Credit Company since
August, 1997; prior thereto, President,
Ford Life Insurance Company, April
1995 until August 1997.
-------------------------------------------------------------------------------------------------------------------------
Director who is an "Interested Person"
-------------------------------------------------------------------------------------------------------------------------
Peter E. Sundman* (44) Executive Vice President, Neuberger 36 Executive Vice President,
Chief Executive Officer, Berman since 1999; Principal, Neuberger Berman Inc. (holding
Director and Chairman of Neuberger Berman from 1997 until 1999; company) since 1999 and
the Board Senior Vice President, NB Management Director from October 1999
from 1996 until 1999. through March 2003; President
and Director, NB Management
since 1999; Head of Neuberger
Berman Inc.'s Mutual Funds and
Institutional Business since
1999; Director and Vice
President, Neuberger & Berman
Agency, Inc. since 2000.
-------------------------------------------------------------------------------------------------------------------------
CLASS II
-------------------------------------------------------------------------------------------------------------------------
Independent Fund Directors*
-------------------------------------------------------------------------------------------------------------------------
John Cannon (73) Consultant. Formerly, Chairman and 36 Independent Trustee or
Director Chief Investment Officer, CDC Capital Director of three series of
Management (registered investment OppenheimerFunds: Limited Term
adviser), 1993-January 1999; prior New York Municipal Fund,
thereto, President and Chief Executive Rochester Fund Municipals, and
Officer, AMA Investment Advisors, an Oppenheimer Convertible
affiliate of the American Medical Securities Fund, since 1992.
Association.
-------------------------------------------------------------------------------------------------------------------------
Barry Hirsch (70) Attorney-at-Law. Senior Counsel, 36
Director Loews Corporation (diversified
financial corporation) May 2002 until
April 2003; prior thereto, Senior Vice
President, Secretary and General
Counsel, Loews Corporation.
-------------------------------------------------------------------------------------------------------------------------
29
|
-------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex Other Directorships Held
Name, Age, Address(1) and Overseen by Outside Fund Complex by
Position with Fund Principal Occupation(s) (2) Director Director
-------------------------------------------------------------------------------------------------------------------------
John P. Rosenthal (70) Senior Vice President, Burnham 36 Director, 92nd Street Y
Director Securities Inc. (a registered (non-profit) since 1967;
broker-dealer) since 1991. Formerly, Director, Cancer
Treatment Holdings, Inc.
-------------------------------------------------------------------------------------------------------------------------
Tom Decker Seip (53) General Partner, Seip Investments LP 36 Director, H&R Block, Inc.
Director (a private investment partnership); (financial services company)
President and CEO, Westaff, Inc. since May 2001; Director,
(temporary staffing), May 2001 to General Magic (voice
January 2002; Senior Executive at the recognition software) since
Charles Schwab Corporation from 1983 November 2001; Director,
to 1999, including Chief Executive Forward Management, Inc.
Officer, Charles Schwab Investment (asset management) since 2001;
Management, Inc. and Trustee, Schwab Director, E-Finance
Family of Funds and Schwab Investments Corporation (credit
from 1997 to 1998 and Executive Vice decisioning services) since
President-Retail Brokerage, Charles 1999; Director, Save-Daily.com
Schwab Investment Management from 1994 (micro investing services)
to 1997. since 1999; Formerly,
Director, Offroad Capital Inc.
(pre-public internet commerce
company).
-------------------------------------------------------------------------------------------------------------------------
Director who is an "Interested Person"
-------------------------------------------------------------------------------------------------------------------------
Jack L. Rivkin* (63) Executive Vice President and Chief 36 Director, Dale Carnegie and
President and Director Investment Officer, Neuberger Berman Associates, Inc. (private
since 2002 and 2003, respectively; company) since 1998; Director,
Director and Chairman, NB Management Emagin Corp. (public company)
since December 2002; Executive Vice since 1997; Director,
President, Citigroup Investments, Inc. Solbright, Inc. (private
from September 1995 to February 2002; company) since 1998; Director,
Executive Vice President, Citigroup Infogate, Inc. (private
Inc. from September 1995 to February company) since 1997.
2002.
-------------------------------------------------------------------------------------------------------------------------
CLASS III
-------------------------------------------------------------------------------------------------------------------------
Independent Fund Directors*
-------------------------------------------------------------------------------------------------------------------------
Walter G. Ehlers (70) Consultant; Retired President and 36
Director Director, Teachers Insurance & Annuity
(TIAA) and College Retirement Equities
Fund (CREF).
-------------------------------------------------------------------------------------------------------------------------
Robert A. Kavesh (76) Marcus Nadler Professor of Finance and 36 Director, DEL Laboratories,
Director Economics Emeritus, New York Inc. (cosmetics and
University Stern School of Business. pharmaceuticals) since 1978;
The Caring Community
(not-for-profit).
-------------------------------------------------------------------------------------------------------------------------
30
|
-------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in
Fund Complex Other Directorships Held
Name, Age, Address(1) and Overseen by Outside Fund Complex by
Position with Fund Principal Occupation(s) (2) Director Director
-------------------------------------------------------------------------------------------------------------------------
Howard A. Mileaf (66) Retired. Formerly, Vice President and 36 Director, WHX Corporation
Director Special Counsel, WHX Corporation (holding company) since August
(holding company) 1993-2001. 2002; Director, Webfinancial
Corporation (holding company)
since December 2002; Director,
State Theatre of New Jersey
(not-for-profit theater) since
2000; Formerly, Director,
Kevlin Corporation
(manufacturer of microwave and
other products).
-------------------------------------------------------------------------------------------------------------------------
William E. Rulon (71) Retired. Senior Vice President, 36 Director, Pro-Kids Golf and
Director Foodmaker. Inc. (operator and Learning Academy (teach golf
franchiser of restaurants) until and computer usage to "at
January 1997. risk" children) since 1998;
Director, Prandium, Inc.
(restaurants) from March 2001
until July 2002.
-------------------------------------------------------------------------------------------------------------------------
Candace L. Straight (55) Private investor and consultant 36 Director, Providence
Director specializing in the insurance Washington (property and
industry; Advisory Director, Securitas casualty insurance company)
Capital LLC (a global private equity since December 1998; Director,
investment firm dedicated to making Summit Global Partners
investments in the insurance sector). (insurance brokerage firm)
since October 2000.
-------------------------------------------------------------------------------------------------------------------------
Director who is an "Interested Person"
-------------------------------------------------------------------------------------------------------------------------
Edward I. O'Brien* (75) Member, Investment Policy Committee, 36 Director, Legg Mason, Inc.
Director Edward Jones 1993 - 2001; President, (financial services holding
Securities Industry Association ("SIA") company) since 1993; Director,
(securities industry's representative Boston Financial Group (real
in government relations and regulatory estate and tax shelters)
matters at the federal and state levels) 1993-1999.
1974 - 1992; Adviser to SIA, November
1992 - November 1993.
-------------------------------------------------------------------------------------------------------------------------
* Indicates a director who is an "interested person" within the meaning of the 1940 Act. Mr. Sundman and Mr. Rivkin are
interested persons of the Fund by virtue of the fact that each is an officer and/or director of NB Management and
Executive Vice President of Neuberger Berman. Mr. O'Brien is an interested person of the Fund by virtue of the fact that
he is a director of Legg Mason, Inc., a wholly owned subsidiary of which, from time to time, serves as broker or dealer
to the Fund and other funds or accounts for which NB Management serves as investment manager.
(1) The business address of each listed person is 605 Third Avenue, New York, New York 10158.
(2) Except as otherwise indicated, each person has held the positions shown for at least the last five years. The Board
of Directors shall at all times be divided as equally as possible into three classes of Directors designated Class I,
Class II, and Class III. The terms of office of Class I, Class II, and Class III Directors shall expire at the annual
meetings of stockholders held in 2006, 2004, and 2005, respectively, and at each third annual meeting of stockholders
thereafter.
31
|
----------------------------------------------------------------------------------------------------------------------------
Position and Length of
Name, Age, and Address (1) Time Served (2) Principal Occupation(s)
-------------------------- --------------- -----------------------
-----------------------------------------------------------------------------------------------------------------------------
Claudia A. Brandon (46) Secretary since 2003 Vice President-Mutual Fund Board Relations, NB
Management since 2000; Vice President,
Neuberger Berman since 2002 and employee since
1999; Vice President, NB Management from 1986
to 1999; Secretary, ten registered investment
companies for which NB Management acts as
investment manager and administrator (four
since 2002 and three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
Robert Conti (47) Vice President since 2003 Senior Vice President, Neuberger Berman since
2003; Vice President, Neuberger Berman from
1999 until 2003; Senior Vice President, NB
Management since 2000; Controller, NB
Management until 1996; Treasurer, NB Management
from 1996 until 1999; Vice President, ten
registered investment companies for which NB
Management acts as investment manager and
administrator (three since 2000, four since
2002 and three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
Brian J. Gaffney (50) Vice President since 2003 Managing Director, Neuberger Berman since 1999;
Senior Vice President, NB Management since
2000; Vice President, NB Management from 1997
until 1999; Vice President, ten registered
investment companies for which NB Management
acts as investment manager and administrator
(three since 2000, four since 2002 and three
since 2003).
-----------------------------------------------------------------------------------------------------------------------------
Sheila R. James (38) Assistant Secretary since 2003 Employee, Neuberger Berman since 1999;
Employee, NB Management from 1991 to 1999;
Assistant Secretary, ten registered investment
companies for which NB Management acts as
investment manager and administrator (seven
since 2002 and three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
Kevin Lyons (48) Assistant Secretary Since 2003 Employee, Neuberger Berman since 1999; Employee
NB Management from 1993 to 1999; Assistant
Secretary, ten registered investment companies
for which NB Management acts as investment
manager and administrator (seven since 2002 and
three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
John M. McGovern (33) Assistant Treasurer since 2003 Employee, NB Management since 1993; Assistant
Treasurer, ten registered investment companies
for which NB Management acts as investment
manager and administrator (seven since 2002 and
three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
32
|
----------------------------------------------------------------------------------------------------------------------------
Position and Length of
Name, Age, and Address (1) Time Served (2) Principal Occupation(s)
-------------------------- --------------- -----------------------
-----------------------------------------------------------------------------------------------------------------------------
Barbara Muinos (44) Treasurer and Principal Financial Vice President, Neuberger Berman since 1999;
and Accounting Officer since 2003 Assistant Vice President, NB Management from
1993 to 1999; Treasurer and Principal Financial
and Accounting Officer, ten registered
investment companies for which NB Management
acts as investment manager and administrator
(seven since 2002 and three since 2003);
Assistant Treasurer of three registered
investment companies for which NB Management
acts as investment manager and administrator
from 1996 until 2002.
-----------------------------------------------------------------------------------------------------------------------------
Frederic B. Soule (57) Vice President since 2003 Senior Vice President, Neuberger Berman since
2003; Vice President, Neuberger Berman from
1999 until 2003; Vice President, NB Management
from 1995 until 1999; Vice President, ten
registered investment companies for which NB
Management acts as investment manager and
administrator (three since 2000, four since
2002 and three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
Trani Jo Wyman (33) Assistant Treasurer since 2003 Employee, NB Management since 1991; Assistant
Treasurer, ten registered investment companies
for which NB Management acts as investment
manager and administrator (seven since 2002 and
three since 2003).
-----------------------------------------------------------------------------------------------------------------------------
--------------------
(1) The business address of each listed person is 605 Third Avenue, New York, New York 10158.
(2) Except as otherwise indicated, each individual has held the positions shown for at least the last five years.
33
|
The Board has established several standing committees to oversee particular aspects of the Fund's management. The standing committees of the Board are described below.
AUDIT COMMITTEE. The Audit Committee's purposes are (a) to oversee generally the Fund's accounting and financial reporting policies and practices, its internal controls and, as appropriate, the internal controls of certain service providers; (b) to oversee generally the quality and objectivity of the Fund's financial statements and the independent audit thereof; and (c) to act as a liaison between the Fund's independent auditors and the full Board. The Audit Committee is composed entirely of Independent Fund Directors; its members are John Cannon, Walter G. Ehlers, Cornelius T. Ryan (Chairman), and Peter P. Trapp.
CODE OF ETHICS COMMITTEE. The Code of Ethics Committee oversees the administration of the Fund's Code of Ethics, which restricts the personal securities transactions of employees, officers, and Directors. Its members are
John Cannon, Faith Colish, Robert A. Kavesh (Chairman), and Edward I. O'Brien. All members except for Mr. O'Brien are Independent Fund Directors.
CONTRACT REVIEW COMMITTEE. The Contract Review Committee is responsible for review and oversight of the Fund's principal contractual arrangements. Its members are Faith Colish (Chairwoman), Barry Hirsch, Howard A. Mileaf, William E. Rulon and Tom D. Seip. All members are Independent Fund Directors.
EXECUTIVE COMMITTEE. The Executive Committee has all the powers of the Directors when the Directors are not in session. Its members are John Cannon, Faith Colish, Jack L. Rivkin, John P. Rosenthal, William E. Rulon, Cornelius T. Ryan and Peter E. Sundman (Chairman). All members except for Mr. Rivkin and Mr. Sundman are Independent Fund Directors.
NOMINATING COMMITTEE. The Nominating Committee is responsible for
nominating individuals to serve as Directors, including as Independent Fund
Directors, as members of committees, and as officers of the Fund. The Nominating
Committee is composed entirely of Independent Fund Directors; its members are C.
Anne Harvey, Barry Hirsch, Howard A. Mileaf (Chairman), Cornelius T. Ryan and
Tom D. Seip. The Committee will consider nominees recommended by stockholders;
stockholders may send resumes of recommended persons to the attention of Claudia
A. Brandon, Secretary, Neuberger Berman Real Estate Securities Income Fund Inc.,
605 Third Avenue, 2nd Floor, New York, NY, 10158-0180.
PORTFOLIO TRANSACTIONS COMMITTEE. The Portfolio Transactions Committee from time to time reviews, among other things, quality of execution of portfolio trades, actual and potential uses of portfolio brokerage commissions, agency cross-transactions, information relating to the commissions charged by Neuberger Berman to the Fund and to its other customers, and information concerning the prevailing level of commissions charged by other brokers having comparable execution capability. The Committee is composed entirely of Independent Fund Directors; its members are Faith Colish, Walter G. Ehlers, C. Anne Harvey, Candace L. Straight (Chairwoman) and Peter P. Trapp.
PRICING COMMITTEE. The Pricing Committee oversees the procedures for
pricing the Fund's portfolio securities, and from time to time may be called
upon to establish or ratify the fair value of portfolio securities for which
market prices are not readily available. Its members are Jack L. Rivkin, Robert
A. Kavesh, Edward I. O'Brien, John P. Rosenthal (Chairman), Tom D. Seip and
Peter P. Trapp. All members except for Mr. Rivkin and Mr. O'Brien are
Independent Fund Directors.
The Fund's Articles provide that the Fund will indemnify its Directors and officers against liabilities and expenses to the extent permitted by Maryland law and the 1940 Act. This means that the Fund will indemnify its officers and Directors against liabilities and expenses reasonably incurred in connection with litigation in which they may be involved because of their offices with the Fund, unless it is adjudicated that they (a) engaged in bad faith, willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of their offices, or (b) did not act in good faith in the reasonable belief that their action was in the best interest of the Fund. In the case of
settlement, such indemnification will not be provided unless it has been determined (by a court or other body approving the settlement or other disposition, by a majority of disinterested Directors based upon a review of readily available facts, or in a written opinion of independent counsel) that such officers or Directors have not engaged in willful misfeasance, bad faith, gross negligence, or reckless disregard of their duties.
The Directors' compensation is allocated per fund based on the number of funds in the Neuberger Berman Fund Complex. It is estimated that the Directors will receive the amounts set forth in the following table from the Fund for the fiscal year ending October 31, 2003. For the calendar year ended December 31, 2002, the Directors received the compensation set forth in the following table for serving as Trustees or Directors of other investment companies in the "Fund Complex." Each officer and Director who is a Director, officer, partner or employee of NB Management, Neuberger Berman or any entity controlling, controlled by or under common control with NB Management or Neuberger Berman serves without any compensation from the Fund.
The following table sets forth information concerning the compensation of the Directors of the Fund. The Fund does not have any retirement plan for its Directors.
TABLE OF COMPENSATION
Total Compensation
from Fund and
Estimated Aggregate Neuberger Berman
Compensation Fund Complex Paid
Name and Position with the Fund from the Fund* to Directors
------------------------------- -------------- ------------------
Independent Fund Directors
John Cannon $2,000 $77,500
Director
Faith Colish $2,000 $77,500
Director
Walter G. Ehlers $2,000 $77,500
Director
C. Anne Harvey $2,000 $77,500
Director
Barry Hirsch $2,000 $77,500
Director
Robert A. Kavesh $2,000 $77,500
Director
Howard A. Mileaf $2,000 $77,500
Director
John P. Rosenthal $2,000 $70,000
Director
35
|
Total Compensation
from Fund and
Estimated Aggregate Neuberger Berman
Compensation Fund Complex Paid
Name and Position with the Fund from the Fund* to Directors
------------------------------- -------------- ------------------
William E. Rulon $2,000 $77,500
Director
Cornelius T. Ryan $2,000 $77,500
Director
Tom Decker Seip $2,000 $77,500
Director
Candace L. Straight $2,000 $77,500
Director
Peter P. Trapp $2,000 $62,500
Director
Directors who are "Interested
Persons"
Edward I. O'Brien $2,000 $70,000
Director
Jack L. Rivkin $0 $0
Director and President
Peter E. Sundman $0 $0
Director, Chairman of the Board
and Chief Executive Officer
|
* Since the Fund has not completed its first full fiscal year, compensation is estimated based on payments expected to be made to be made by the Fund during the current fiscal year.
As of , 2003, none of the Directors own Fund shares as of the date of this SAI.
Set forth below is the dollar range of equity securities owned by each Director as of 12/31/02.
--------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Name of Director Securities in all Registered Investment
Companies Overseen by Director in Family of
Investment Companies*
--------------------------------------------------------------------------------
Independent Fund Directors
--------------------------------------------------------------------------------
John Cannon $50,001 - $100,000
--------------------------------------------------------------------------------
Faith Colish Over $100,000
--------------------------------------------------------------------------------
Walter G. Ehlers Over $100,000
--------------------------------------------------------------------------------
C. Anne Harvey $10,001 - $50,000
--------------------------------------------------------------------------------
Barry Hirsch Over $100,000
--------------------------------------------------------------------------------
Robert A. Kavesh $10,001 - $50,000
--------------------------------------------------------------------------------
Howard A. Mileaf Over $100,000
--------------------------------------------------------------------------------
John P. Rosenthal Over $100,000
--------------------------------------------------------------------------------
36
|
--------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Name of Director Securities in all Registered Investment
Companies Overseen by Director in Family of
Investment Companies*
--------------------------------------------------------------------------------
William E. Rulon Over $100,000
--------------------------------------------------------------------------------
Cornelius T. Ryan Over $100,000
--------------------------------------------------------------------------------
Tom Decker Seip $1 - $10,000
--------------------------------------------------------------------------------
Candace L. Straight Over $100,000
--------------------------------------------------------------------------------
Peter P. Trapp $10,001 - $50,000
--------------------------------------------------------------------------------
Directors who are "Interested Persons"
--------------------------------------------------------------------------------
Edward I. O'Brien Over $100,000
--------------------------------------------------------------------------------
Jack L. Rivkin None
--------------------------------------------------------------------------------
Peter E. Sundman Over $100,000
--------------------------------------------------------------------------------
|
* Valuation as of December 31, 2002
As of 12/31/02, no Independent Fund Director (or his/her immediate family members) owned securities of Neuberger Berman or securities of any entity controlling, controlled by or under common control with Neuberger Berman (not including registered investment companies).
The Fund, NB Management and Neuberger Berman, LLC have personal securities trading policies that restrict the personal securities transactions of employees, officers, and Directors. Their primary purpose is to ensure that personal trading by these individuals does not disadvantage any fund managed by NB Management. The Fund managers and other investment personnel who comply with the policies' preclearance and disclosure procedures may be permitted to purchase, sell or hold certain types of securities which also may be or are held in the funds they advise, but are restricted from trading in close conjunction with their funds or taking personal advantage of investment opportunities that may belong to the Fund. Text-only versions of the Codes of Ethics can be viewed online or downloaded from the EDGAR Database on the SEC's internet web site at www.sec.gov. You may also review and copy those documents by visiting the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090. In addition, copies of the Codes of Ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the SEC's Public Reference Section, 450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
NB Management serves as the investment manager to the Fund pursuant to a management agreement with the Fund, dated as of October 31, 2003 ("Management Agreement"). NB Management also provides investment management and advisory services to private accounts of institutional and individual clients and to mutual funds and other registered investment companies. As of September 30, 2003, NB Management and its affiliates had approximately $ billion in assets under management. NB Management is located at 605 Third Avenue, New York, New York 10158-0180.
The Management Agreement provides, in substance, that NB Management will make and implement investment decisions for the Fund in its discretion and will continuously develop an investment program for the Fund's assets. The Management Agreement permits NB Management to effect securities transactions on behalf of the Fund through associated persons of NB Management. The Management Agreement also specifically permits NB Management to compensate, through higher commissions, brokers and dealers who provide investment research and analysis to the Fund, although NB Management has no current plans to pay a material amount of such compensation.
The Management Agreement provides that NB Management shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. In the event that litigation against NB Management, in connection with its obligations under the Management Agreement or Administration Agreement (described below), ends with a determination that NB Management acted without culpability, the Fund will reimburse NB Management for reasonable attorney's fees and other expenses. In the event a matter ends without a court ruling on NB Management's culpability, any unresolved issue will be determined by a committee of disinterested Directors who were not party to the suit or by an opinion of independent legal counsel. The Fund may advance expenses to NB Management if (1) a committee of non-party disinterested Directors or independent legal counsel determines that NB Management is likely to prevail, and (2) the Fund is adequately assured of repayment in the event of an adverse result.
NB Management provides to the Fund, without separate cost, office space, equipment, and facilities and the personnel necessary to perform executive, administrative, and clerical functions. NB Management pays all salaries, expenses, and fees of the officers, Directors, and employees of the Fund who are officers, Directors, or employees of NB Management. Two Directors of NB Management (who are also officers of Neuberger Berman, LLC), who also serve as officers of NB Management, currently serve as Directors and officers of the Fund. See "Directors and Officers."
Pursuant to the Management Agreement, the Fund has agreed to pay NB Management an annual management fee, payable on a monthly basis, at the annual rate of 0.60% of the Fund's average daily total assets (including the assets attributable to the proceeds from any Financial Leverage) minus liabilities
(other than liabilities related to any Financial Leverage) (the "Managed Assets"). The liquidation preference of the Preferred Shares is not a liability or permanent equity.
NB Management provides facilities, services, and personnel to the Fund pursuant to an administration agreement with the Fund, dated as of October 31, 2003 ("Administration Agreement"). Under the Administration Agreement, NB Management also provides certain stockholder, stockholder-related, and other services that are not furnished by the Fund's stockholder servicing agent. NB Management provides the direct stockholder services specified in the Administration Agreement and assists the stockholder servicing agent in the development and implementation of specified programs and systems to enhance overall stockholder servicing capabilities. NB Management solicits and gathers stockholder proxies, performs services connected with the Fund's exchange listing, and furnishes other services the parties agree from time to time should be provided under the Administration Agreement.
For administrative services, the Fund pays NB Management at the annual rate of 0.25% of average daily Managed Assets. With the Fund's consent, NB Management may subcontract to third parties some of its responsibilities to the Fund under the Administration Agreement. In addition, the Fund may compensate such third parties for accounting and other services.
All fees and expenses are accrued daily and deducted before payment of dividends to investors.
From the commencement of the Fund's operations through October 31, 2011, NB Management has contractually agreed to waive a portion of the management fees it is entitled to receive from the Fund in the amounts, and for the time periods, set forth below:
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Percentage Waived (annual rate Percentage Waived (annual
as a percentage of net assets rate as a percentage of net
attributable to Common Shares - assets attributable to Common
Fiscal Period assuming no Preferred Shares are Shares - assuming the issuance
Ending October 31, issued or outstanding) Preferred Shares(2))
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2003(1) 0.25% 0.37%
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2004 0.25% 0.37%
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2005 0.25% 0.37%
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2006 0.25% 0.37%
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2007 0.25% 0.37%
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2008 0.25% 0.37%
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2009 0.19% 0.28%
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2010 0.13% 0.19%
----------------------------------------------------------------------------------------------------------------------
2011 0.07% 0.10%
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(1) From the commencement of the Fund's operations.
(2) Assumes the issuance of Preferred Shares in an amount equal to 33% of the Fund's net assets (after issuance).
39
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NB Management has not agreed to waive any portion of its fees beyond October 31, 2011.
The Management Agreement continues until October 31, 2005. The Management
Agreement is renewable thereafter from year to year with respect to the Fund, so
long as its continuance is approved at least annually (1) by the vote of a
majority of the Fund Directors who are not "interested persons" of NB Management
or the Fund ("Independent Fund Directors"), cast in person at a meeting called
for the purpose of voting on such approval, and (2) by the vote of a majority of
the Fund Directors or by a 1940 Act majority vote of the outstanding stock in
the Fund. The Administration Agreement continues for a period of two years after
the date the Fund became subject thereto. The Administration Agreement is
renewable from year to year, so long as its continuance is approved at least
annually (1) by the vote of a majority of the Independent Fund Directors, and
(2) by the vote of a majority of the Fund Directors or by a 1940 Act majority
vote of the outstanding stock in the Fund.
The Management Agreement is terminable, without penalty, on 60 days' written notice either by the Fund or by NB Management. The Administration Agreement is terminable, without penalty, on 60 days' written notice either by NB Management or by the Fund. Each Agreement terminates automatically if it is assigned.
Except as otherwise described in the Prospectus, the Fund pays, in addition to the investment management fee described above, all expenses not assumed by NB Management, including, without limitation, fees and expenses of Directors who are not "interested persons" of NB Management or the Fund, interest charges, taxes, brokerage commissions, expenses of issue of shares, fees and expenses of registering and qualifying the Fund and its classes of shares for distribution under federal and state laws and regulations, charges of custodians, auditing and legal expenses, expenses of determining NAV of the Fund, reports to stockholders, expenses of meetings of stockholders, expenses of printing and mailing prospectuses, proxy statements and proxies to existing stockholders, and its proportionate share of insurance premiums and professional association dues or assessments. The Fund is also responsible for such nonrecurring expenses as may arise, including litigation in which the Fund may be a party, and other expenses as determined by the Board. The Fund may have an obligation to indemnify its officers and Directors with respect to such litigation.
NB Management has retained Neuberger Berman, LLC, 605 Third Avenue, New York, NY 10158-3698, as sub-adviser with respect to the Fund pursuant to a sub-advisory agreement dated as of October 31, 2003 ("Sub-Advisory Agreement").
The Sub-Advisory Agreement provides in substance that Neuberger Berman, LLC will furnish to NB Management, upon reasonable request, the same type of investment recommendations and research that Neuberger Berman, from time to time, provides to its officers and employees for use in managing client accounts. In this manner, NB Management expects to have available to it, in addition to research from other professional sources, the capability of the research staff of Neuberger Berman. This staff consists of numerous investment analysts, each of whom specializes in studying one or more industries, under the supervision of the Director of Research, who is also available for consultation
with NB Management. The Sub-Advisory Agreement provides that NB Management will pay for the services rendered by Neuberger Berman based on the direct and indirect costs to Neuberger Berman in connection with those services. Neuberger Berman also serves as sub-adviser for all of the other investment companies managed by NB Management.
The Sub-Advisory Agreement continues until October 31, 2005 and is renewable from year to year, subject to approval of its continuance in the same manner as the Management Agreement. The Sub-Advisory Agreement is subject to termination, without penalty, with respect to the Fund by the Directors or a 1940 Act majority vote of the outstanding stock in the Fund, by NB Management, or by Neuberger Berman on not less than 30 nor more than 60 days' prior written notice. The Sub-Advisory Agreement also terminates automatically with respect to the Fund if it is assigned or if the Management Agreement terminates with respect to the Fund. Neuberger Berman and NB Management employ experienced professionals that work in a competitive environment.
The Sub-Advisory Agreement provides that Neuberger Berman shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties.
In approving the Management and Sub-Advisory Agreements for the Fund, the Board primarily considered the nature and quality of the services to be provided under the Agreements and the overall fairness of the Agreements to the Fund.
With respect to the nature and quality of the services provided, the Board considered, among other things, the resources that NB Management plans to devote to managing the Fund and the firm's equity research and trading capabilities. They discussed the recent and long-term performance of the other equity funds managed by NB Management and Neuberger Berman, LLC. They also considered NB Management's and Neuberger Berman, LLC's positive compliance history, as the firms have been free of significant compliance problems. With respect to the overall fairness of the Management and Sub-Advisory Agreements, the Board primarily considered the fee structure of the Agreements and the proposed indemnity provision in the Management Agreement and Administration Agreement. The Board reviewed information about the rates of compensation paid to investment advisers, and the overall expense ratios, for funds pursuing a comparable investment strategy to the Fund. The Board also considered the contractual limits on the Fund's expenses undertaken by NB Management.
The Board concluded that the fees and other benefits likely to accrue to NB Management and its affiliates by virtue of their relationship to the Fund are reasonable in comparison with the benefits likely to accrue to the Fund. In considering the fees, the Board took note of the likelihood that the Fund would issue preferred stock and considered the effect of such issuance on the Fund's net assets and, therefore, the fees. The Board also concluded that approval of the Management and Sub-Advisory Agreements was in the best interests of the Fund's stockholders. These matters also were considered separately by the
Independent Fund Directors meeting with experienced 1940 Act counsel selected by the Independent Fund Directors.
Neuberger Berman and NB Management are wholly owned subsidiaries of Neuberger Berman Inc., a publicly owned holding company owned primarily by the employees of Neuberger Berman, former principals and their affiliates. The directors, officers and/or employees of NB Management, Neuberger Berman and Neuberger Berman Inc. who are deemed "control persons," all of whom have offices at the same address as NB Management and Neuberger Berman, are: Kevin Handwerker, Jeffrey B. Lane, Robert Matza, Heidi L. Steiger, Jack L. Rivkin and Peter E. Sundman. In addition, Marvin C. Schwartz, who is deemed a control person, owns 7.89% of Neuberger Berman Inc. Mr. Sundman and Mr. Rivkin are also Directors and officers of the Fund.
PORTFOLIO TRANSACTIONS
Investment decisions for the Fund and for the other investment advisory clients of NB Management are made independently of one another with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved (including the Fund). Some securities considered for investments by the Fund may also be appropriate for other clients served by NB Management. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. If a purchase or sale of securities consistent with the investment policies of the Fund and one or more of these clients served by NB Management is considered at or about the same time, transactions in such securities will be allocated among the Fund and clients in a manner deemed fair and reasonable by NB Management. NB Management may aggregate orders for the Fund with simultaneous transactions entered into on behalf of its other clients. When this occurs, the transactions are averaged as to price and allocated, in terms of amount, in accordance with a formula considered to be equitable to the clients involved. Likewise, a particular security may be bought for one or more clients when one or more clients are selling the security. In some instances, one client may sell a particular security to another client. Although in some cases these arrangements may have a detrimental effect on the price or volume of the securities as to the Fund, in other cases it is believed that the Fund's ability to participate in volume transactions may produce better executions for it. In any case, it is the judgment of the Directors that the desirability of the Fund's having its advisory arrangements with NB Management outweighs any disadvantages that may result from contemporaneous transactions.
The Fund is subject to certain limitations imposed on all advisory clients of Neuberger Berman (including the Fund, other Neuberger Berman funds, and other managed accounts) and personnel of Neuberger Berman and its affiliates. These include, for example, limits that may be imposed in certain industries or by certain companies, and policies of Neuberger Berman that limit the aggregate
purchases, by all accounts under management, of the outstanding shares of public companies.
The Fund is included in an order from the SEC that permits the Fund to pay Neuberger Berman, and Neuberger Berman to receive, compensation for services as a securities lending intermediary, subject to certain conditions. These services are provided by a separate operating unit of Neuberger Berman under the supervision of NB Management who is not involved in the securities lending intermediary's lending agency operations. Neuberger Berman will receive as compensation a reasonable fee based on revenues earned by the Fund through the securities lending program. The order also permits Neuberger Berman and other affiliated broker-dealers of the Fund to borrow portfolio securities from the Fund, subject to certain conditions.
The Board has delegated to Neuberger Berman the responsibility to vote proxies related to the securities held in the Fund's portfolios. Under this authority, Neuberger Berman is required by the Board to vote proxies related to portfolio securities in the best interests of the Fund and its stockholders. The Board permits Neuberger Berman to contract with a third party to obtain proxy voting and related services, including research of current issues.
Neuberger Berman has implemented written Proxy Voting Policies and Procedures ("Proxy Voting Policy") that are designed to reasonably ensure that Neuberger Berman votes proxies prudently and in the best interest of its advisory clients for whom Neuberger Berman has voting authority, including the Fund. The Proxy Voting Policy also describes how Neuberger Berman addresses any conflicts that may arise between its interests and those of its clients with respect to proxy voting.
Neuberger Berman's Proxy Committee is responsible for developing, authorizing, implementing and updating the Proxy Voting Policy, overseeing the proxy voting process and engaging and overseeing any independent third-party vendors as voting delegate to review, monitor and/or vote proxies. In order to apply the Proxy Voting Policy noted above in a timely and consistent manner, Neuberger Berman utilizes Institutional Shareholder Services Inc. ("ISS") to vote proxies in accordance with Neuberger Berman's voting guidelines.
Neuberger Berman's guidelines adopt the voting recommendations of ISS. Neuberger Berman retains final authority and fiduciary responsibility for proxy voting. Neuberger Berman believes that this process is reasonably designed to address material conflicts of interest that may arise between Neuberger Berman and a client as to how proxies are voted.
In the event that an investment professional at Neuberger Berman believes that it is in the best interests of a client or clients to vote proxies in a manner inconsistent with Neuberger Berman's proxy voting guidelines or in a manner inconsistent with ISS recommendations, the Proxy Committee will review information submitted by the investment professional to determine that there is no material conflict of interest between Neuberger Berman and the client with respect to the voting of the proxy in that manner.
If the Proxy Committee determines that the voting of a proxy as recommended by the investment professional presents a material conflict of interest between Neuberger Berman and the client or clients with respect to the voting of the proxy, the Proxy Committee shall: (i) take no further action, in which case ISS shall vote such proxy in accordance with the proxy voting guidelines or as ISS
recommends; (ii) disclose such conflict to the client or clients and obtain written direction from the client as to how to vote the proxy; (iii) suggest that the client or clients engage another party to determine how to vote the proxy; or (iv) engage another independent third party to determine how to vote the proxy.
Beginning September 2004, information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available without charge by calling 1-800-877-9700 (toll-free) or visiting www.nb.com or the website of the SEC, www.sec.gov.
Neuberger Berman acts as principal broker for the Fund, subject to periodic evaluation by the Portfolio Transactions Committee of the quality and cost of execution.
In effecting securities transactions, the Fund generally seeks to obtain the best price and execution of orders. Commission rates, being a component of price, are considered along with other relevant factors. The Fund plans to use Neuberger Berman as its broker where, in the judgment of NB Management, that firm is able to obtain a price and execution at least as favorable as other qualified brokers. To the Fund's knowledge, no affiliate of the Fund receives give-ups or reciprocal business in connection with its securities transactions.
The use of Neuberger Berman as a broker for the Fund is subject to the requirements of Section 11(a) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Section 11(a) prohibits members of national securities exchanges from retaining compensation for executing exchange transactions for accounts which they or their affiliates manage, except where they have the authorization of the persons authorized to transact business for the account and comply with certain annual reporting requirements. The Fund and NB Management have expressly authorized Neuberger Berman to retain such compensation, and Neuberger Berman has agreed to comply with the reporting requirements of Section 11(a).
Under the 1940 Act, commissions paid by the Fund to Neuberger Berman in connection with a purchase or sale of securities on a securities exchange may not exceed the usual and customary broker's commission. Accordingly, it is the Fund's policy that the commissions paid to Neuberger Berman must be (1) at least as favorable as commissions contemporaneously charged by Neuberger Berman on comparable transactions for its most favored unaffiliated customers, except for accounts for which Neuberger Berman acts as a clearing broker for another brokerage firm and customers of Neuberger Berman considered by a majority of the Independent Directors not to be comparable to the Fund, and (2) at least as favorable as those charged by other brokers having comparable execution capability in NB Management's judgment. The Fund does not deem it practicable and in its best interests to solicit competitive bids for commissions on each transaction effected by Neuberger Berman. However, consideration regularly is given to information concerning the prevailing level of commissions charged by other brokers on comparable transactions during comparable periods of time. The 1940 Act generally prohibits Neuberger Berman from acting as principal in the purchase of portfolio securities from, or the sale of portfolio securities to, the Fund unless an appropriate exemption is available.
A committee of Independent Directors from time to time reviews, among other things, information relating to the commissions charged by Neuberger Berman to the Fund and to its other customers and information concerning the prevailing level of commissions charged by other brokers having comparable execution capability. In addition, the procedures pursuant to which Neuberger Berman effects brokerage transactions for the Fund must be reviewed and approved no less often than annually by a majority of the Independent Directors.
To ensure that accounts of all investment clients, including the Fund, are treated fairly in the event that Neuberger Berman receives transaction instructions regarding a security for more than one investment account at or about the same time, Neuberger Berman may combine orders placed on behalf of clients, including advisory accounts in which affiliated persons have an investment interest, for the purpose of negotiating brokerage commissions or obtaining a more favorable price. Where appropriate, securities purchased or sold may be allocated, in terms of amount, to a client according to the proportion that the size of the order placed by that account bears to the aggregate size of orders contemporaneously placed by the other accounts, subject to de minimis exceptions. All participating accounts will pay or receive the same price.
Under policies adopted by the Board of Directors, Neuberger Berman may enter into agency cross-trades on behalf of the Fund. An agency cross-trade is a securities transaction in which the same broker acts as agent on both sides of the trade and the broker or an affiliate has discretion over one of the participating accounts. In this situation, Neuberger Berman would receive brokerage commissions from both participants in the trade. The other account participating in an agency cross-trade with the Fund cannot be an account over which Neuberger Berman exercises investment discretion. A member of the Board of Directors who is not affiliated with Neuberger Berman reviews confirmation of each agency cross-trade in which the Fund participates.
The Fund expects that it will execute a portion of its transactions through brokers other than Neuberger Berman. In selecting those brokers, NB Management will consider the quality and reliability of brokerage services, including execution capability, performance, and financial responsibility, and may consider research and other investment information provided by those brokers.
In certain instances Neuberger Berman specifically allocates brokerage for research services (including research reports on issuers and industries as well as economic and financial data). Such research may sometimes be available for cash purchase. While the receipt of such services has not reduced Neuberger Berman's normal internal research activities, Neuberger Berman's expenses could be materially increased if it were to generate such additional information internally. To the extent such research services are provided by others, Neuberger Berman is relieved of expenses it may otherwise incur. Research obtained in this manner may be used in servicing any or all clients of Neuberger Berman and may be used in connection with clients other than those clients whose brokerage commissions are used to acquire the research services described herein, a practice specifically permitted by the federal securities laws. With regard to allocation of brokerage to acquire research services, Neuberger Berman always considers its best execution obligation.
A committee comprised of officers of NB Management and employees of Neuberger Berman who are portfolio managers of several Neuberger Berman registered investment companies, or series thereof, (collectively, "NB Funds") and some of Neuberger Berman's managed accounts ("Managed Accounts") evaluates
semi-annually the nature and quality of the brokerage and research services provided by other brokers. Based on this evaluation, the committee establishes a list and projected rankings of preferred brokers for use in determining the relative amounts of commissions to be allocated to those brokers. Ordinarily, the brokers on the list effect a large portion of the brokerage transactions for the NB Funds and the Managed Accounts that are not effected by Neuberger Berman. However, in any semi-annual period, brokers not on the list may be used, and the relative amounts of brokerage commissions paid to the brokers on the list may vary substantially from the projected rankings. These variations reflect the following factors, among others: (1) brokers not on the list or ranking below other brokers on the list may be selected for particular transactions because they provide better price and/or execution, which is the primary consideration in allocating brokerage; (2) adjustments may be required because of periodic changes in the execution capabilities of or research provided by particular brokers or in the execution or research needs of the NB Funds and/or the Managed Accounts; and (3) the aggregate amount of brokerage commissions generated by transactions for the NB Funds and the Managed Accounts may change substantially from one semi-annual period to the next.
The commissions paid to a broker other than Neuberger Berman may be higher than the amount another firm might charge if NB Management determines in good faith that the amount of those commissions is reasonable in relation to the value of the brokerage and research services provided by the broker. NB Management believes that those research services benefit the Fund by supplementing the information otherwise available to NB Management. That research may be used by NB Management in servicing other Neuberger Berman funds and, in some cases, by Neuberger Berman in servicing the Managed Accounts. On the other hand, research received by NB Management from brokers effecting fund transactions on behalf of the other NB Funds and by Neuberger Berman from brokers effecting fund transactions on behalf of the Managed Accounts may be used for the Fund's benefit.
Steven R. Brown, who is a Vice President of NB Management and a Managing Director of Neuberger Berman, is the person primarily responsible for making decisions as to specific action to be taken with respect to the investments of the Fund. He has full authority to take action with respect to Fund transactions and may or may not consult with other personnel of NB Management prior to taking such action.
NET ASSET VALUE
The net asset value of the Common Shares is calculated by subtracting the Fund's total liabilities (including liabilities from Borrowings) and the liquidation preference of any outstanding Preferred Shares from total assets (the market value of the securities the Fund holds plus cash and other assets). The per share net asset value is calculated by dividing its net asset value by the number of Common Shares outstanding and rounding the result to the nearest full cent. The Fund calculates its net asset value as of the close of regular trading on the New York Stock Exchange ("NYSE"), usually 4 p.m. Eastern time, every day on which the NYSE is open. Information that becomes known to the Fund or its agent after the Fund's net asset value has been calculated on a particular day will not be used to retroactively adjust the price of a security or the Fund's net asset value determined earlier that day.
The Fund values equity securities at the last reported sale price on the principal exchange or in the principal over-the-counter market in which such securities are traded, as of the close of regular trading on the NYSE on the day the securities are being valued or, if there are no sales, at the last available bid price on that day. Securities traded primarily on the Nasdaq Stock Market are normally valued by the Fund at the Nasdaq Official Closing Price ("NOCP") provided by Nasdaq each business day. The NOCP is the most recently reported price as of 4:00:02 p.m., Eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, Nasdaq will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. Debt securities are valued at the last available bid price for such securities or, if such prices are not available, at prices for securities of comparable maturity, quality, and type. Foreign securities are translated from the local currency into U.S. dollars using current exchange rates. The Fund values all other types of securities and assets, including restricted securities and securities for which market quotations are not readily available, by a method that the Directors of the Fund believe accurately reflects fair value. The Fund periodically verifies valuations provided by the pricing services. Short-term securities with remaining maturities of less than 60 days may be valued at cost which, when combined with interest earned, approximates market value. The Fund's securities traded primarily in foreign markets may be traded in such markets on days that the NYSE is closed. As a result, the net asset value of the Fund may be significantly affected on days when holders of Common Shares have no ability to trade the Common Shares on the AMEX.
If NB Management believes that the price of a security obtained under the Fund's valuation procedures (as described above) does not represent the amount that the Fund reasonably expects to receive on a current sale of the security, the Fund will value the security based on a method that the Directors of the Fund believe accurately reflects fair value. Any interest rate swap transaction that the Fund enters into may, depending on the applicable interest rate environment, have a positive or negative value for purposes of calculating net asset value.
Any interest rate cap transaction that the Fund enters into may, depending on the applicable interest rate environment, have no value or a positive value. In addition, any accrued payments to the Fund under such transactions will be assets of the Fund and any accrued payments by the Fund will be liabilities of the Fund.
DESCRIPTION OF PREFERRED SHARES
Under the Articles, the Fund is authorized to issue up to 1,000,000,000 shares of capital stock, all of it originally designated Common Shares. Pursuant to the Articles, the Board may classify or reclassify any unissued shares of capital stock without a stockholder vote into one or more classes of preferred or other stock. Pursuant to that authority, the Board has classified 3,000 shares as Series A Preferred Shares, 3,000 shares as Series B Preferred Shares, 3,000 shares as Series C Preferred Shares and 3,000 shares as Series D Preferred Shares. All Preferred Shares will have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared).
Preferred Shares will rank on parity with shares of any other class or series of preferred stock of the Fund as to the payment of dividends and the distribution of assets upon liquidation. All Preferred Shares carry one vote per share on all matters on which such shares are entitled to be voted. Preferred Shares will, when issued, be fully paid and non-assessable and have no preemptive, exchange, conversion or cumulative voting rights.
As used in this Statement of Additional Information, unless otherwise noted, the Fund's "net assets" include assets of the Fund attributable to any outstanding Common and Preferred Shares, with no deduction for the liquidation preference of the Preferred Shares. Solely for financial reporting purposes, however, the Fund is required to exclude the liquidation preference of Preferred Shares from "net assets," so long as the Preferred Shares have redemption features that are not solely within the control of the Fund. For all regulatory and tax purposes, the Fund's Preferred Shares will be treated as stock (rather than indebtedness).
LIMITED ISSUANCE OF PREFERRED SHARES. Under the 1940 Act, the Fund could issue Preferred Shares with an aggregate liquidation value of up to one-half of the value of the Fund's net assets, measured immediately after issuance of the Preferred Shares. "Liquidation value" means the original purchase price of the shares being liquidated plus any accrued and unpaid dividends. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares unless the liquidation value of the Preferred Shares is less than one-half of the value of the Fund's net assets (determined after deducting the amount of such dividend or distribution) immediately after the distribution. To the extent that the Fund has outstanding any senior securities representing indebtedness (such as through the use of derivative instruments that constitute senior securities), the aggregate amount of such senior securities will be added to the total liquidation value of any outstanding Preferred Shares for purposes of these asset coverage requirements. The liquidation value of the Preferred Shares is expected to be approximately 33% of the value of the Fund's net assets. The Fund intends to purchase or redeem Preferred Shares, if necessary, to keep the liquidation value of the Preferred Shares plus the aggregate amount of other senior securities representing indebtedness at or below one-half of the value of the Fund's net assets.
DISTRIBUTION PREFERENCE. The Preferred Shares will have complete priority over the Common Shares as to distribution of assets.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Fund, holders of Preferred Shares ("Preferred Stockholders") will be entitled to receive a preferential liquidating distribution (expected to equal the original purchase price per share plus accumulated and unpaid dividends thereon, whether or not earned or declared) before any distribution of assets is made to holders of Common Shares. After payment of the full amount of the liquidating distribution to which they are entitled, Preferred Stockholders will not be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund with or into any business trust or corporation or a sale of all or substantially all of the assets of the Fund shall not be deemed to be a liquidation, dissolution or winding up of the Fund.
VOTING RIGHTS. In connection with any issuance of Preferred Shares, the Fund must comply with Section 18(i) of the 1940 Act, which requires, among other things, that Preferred Shares be voting shares. Except as otherwise provided in the Articles or the Fund's Bylaws or otherwise required by applicable law, Preferred Stockholders will vote together with Common Stockholders as a single class.
In connection with the election of the Fund's Directors, Preferred Stockholders, voting as a separate class, will also be entitled to elect two of the Fund's Directors, and the remaining Directors shall be elected by Common Stockholders and Preferred Stockholders, voting together as a single class. In addition, if at any time dividends on the Fund's outstanding Preferred Shares shall be unpaid in an amount equal to two full years' dividends thereon, the holders of all outstanding Preferred Shares, voting as a separate class, will be entitled to elect a majority of the Fund's Directors until all dividends in arrears have been paid or declared and set apart for payment.
The affirmative vote of the holders of a majority of the outstanding Preferred Shares, voting as a separate class, shall be required to approve any action requiring a vote of security holders under Section 13(a) of the 1940 Act including, among other things, changes in the Fund's investment objective, the conversion of the Fund from a closed-end to an open-end company, or changes in the investment restrictions described as fundamental policies under "Investment Restrictions." The class or series vote of Preferred Stockholders described above shall in each case be in addition to any separate vote of the requisite percentage of Common Shares and Preferred Shares, voting together, necessary to authorize the action in question.
Holders of Preferred Shares would not be entitled to vote on matters placed before stockholders if, at or prior to the time when a vote is required, such shares shall have been (1) redeemed or (2) called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.
REDEMPTION, PURCHASE AND SALE OF PREFERRED SHARES BY THE FUND. The terms of the Preferred Shares provide that they are redeemable at certain times, in whole or in part, at the original purchase price per share plus accumulated dividends, that the Fund may tender for or purchase Preferred Shares and that the Fund may subsequently resell any shares so tendered for or purchased. Any redemption or purchase of Preferred Shares by the Fund will reduce the leverage applicable to Common Shares, while any resale of shares by the Fund will increase such leverage.
The discussion above describes the Board's current intention with respect to a possible offering of Preferred Shares. If the Board determines to authorize such an offering, the terms of the Preferred Shares may be the same as, or different from, the terms described above, subject to applicable law and the Articles of Incorporation and Bylaws.
ADDITIONAL INFORMATION CONCERNING THE AUCTIONS
FOR PREFERRED SHARES
GENERAL. DTC will act as the Securities Depository with respect to the Preferred Shares. One certificate for all of the Preferred Shares will be registered in the name of Cede & Co., as nominee of the Securities Depository. Such certificate will bear a legend to the effect that such certificate is issued subject to the provisions restricting transfers of the Preferred Shares contained in the Fund's Articles Supplementary. The Fund will also issue stop-transfer instructions to the transfer agent for the Preferred Shares. Prior to the commencement of the right of holders of the Preferred Shares to elect a majority of the Directors, as described under "Description of Preferred Shares - Voting Rights" in the prospectus, Cede & Co. will be the holder of record of the Preferred Shares and owners of such shares will not be entitled to receive certificates representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs services for its participants, some of whom (and/or their representatives) own DTC. DTC maintains lists of its participants and will maintain the positions (ownership interests) held by each such participant in the Preferred Shares, whether for its own account or as a nominee for another person.
CONCERNING THE AUCTION AGENT. The Bank of New York (the "Auction Agent") will act as agent for the Fund in connection with the auctions of the Preferred Shares (the "Auctions"). In the absence of willful misconduct or gross negligence on its part, the Auction Agent will not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the auction agency agreement between the Fund and the Auction Agent and will not be liable for any error of judgment made in good faith unless the Auction Agent was grossly negligent in ascertaining the facts pertinent to making such decision. The Fund shall indemnify the Auction Agent and its officers, directors, employees and agents for, and hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on the part of the Auction Agent arising out of or in connection with its agency under the auction agency agreement and under the broker-dealer agreements entered by the Auction Agent pursuant to the auction agency agreement, including the costs and expenses of defending itself against any claim of liability in connection with its exercise or performance of any of its duties thereunder, except such as may result from its gross negligence or willful misconduct.
The Auction Agent may conclusively rely upon, as evidence of the identities
of the holders of the Preferred Shares, the Auction Agent's registry of holders,
and the results of auctions and notices from any Broker-Dealer (or other person,
if permitted by the Fund) with respect to transfers described under "The Auction
- Secondary Market Trading and Transfers of Preferred Shares" in the prospectus
and notices from the Fund. The Auction Agent is not required to accept any such
notice for an auction unless it is received by the Auction Agent by 3:00 p.m.,
Eastern time, on the business day preceding such Auction.
The Auction Agent may terminate its auction agency agreement with the Fund upon at least 60 days notice to the Fund (30 days if such termination is due to nonpayment of amounts due to it). If the Auction Agent should resign, the Fund will use its best efforts to enter into an agreement with a successor auction
agent containing substantially the same terms and conditions as the auction agency agreement. The Fund may remove the Auction Agent provided that prior to such removal the Fund shall have entered into such an agreement with a successor auction agent.
BROKER-DEALERS. The Auction Agent after each Auction for Preferred Shares will pay to each Broker-Dealer, from funds provided by the Fund, a service charge at the annual rate of 1/4 of 1% in the case of any Auction immediately preceding a dividend period of less than one year, or a percentage agreed to by the Fund and the Broker-Dealer in the case of any Auction immediately preceding a dividend period of one year or longer, of the purchase price of the Preferred Shares placed by such Broker-Dealer at such Auction. For the purposes of the preceding sentence, the Preferred Shares will be placed by a Broker-Dealer if such shares were (a) the subject of hold orders deemed to have been submitted to the Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its customers who are beneficial owners or (b) the subject of an order submitted by such Broker-Dealer that is (i) a submitted bid of an existing holder that resulted in the existing holder continuing to hold such shares as a result of the Auction or (ii) a submitted bid of a potential bidder that resulted in the potential holder purchasing such shares as a result of the Auction or (iii) a valid hold order.
The Fund may request the Auction Agent to terminate one or more Broker-Dealer agreements at any time, provided that at least one Broker-Dealer agreement is in effect after such termination.
The broker-dealer agreement provides that a Broker-Dealer (other than an affiliate of the Fund) may submit orders in auctions for its own account, unless the Fund notifies all Broker-Dealers that they may no longer do so, in which case Broker-Dealers may continue to submit hold orders and sell orders for their own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit orders in Auctions, but only if such orders are not for its own account. If a Broker-Dealer submits an order for its own account in any Auction, it might have an advantage over other bidders because it would have knowledge of all orders submitted by it in that Auction; such Broker-Dealer, however, would not have knowledge of orders submitted by other Broker-Dealers in that auction, if there are other Broker-Dealers.
CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION
The Articles include provisions that could limit the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure.
The Articles require a vote by a majority of the Directors, including a majority of the Directors who are not "interested persons," of the Fund, as defined in the 1940 Act ("Independent Directors"), and holders of at least 75% of the shares of capital stock of the Fund outstanding and entitled to vote, except as described below, to authorize (1) the Fund's conversion from a closed-end to an open-end investment company; (2) any merger or consolidation or share exchange of the Fund with or into any other company; (3) the dissolution or liquidation of the Fund; (4) any sale, lease or exchange of all or
substantially all of the Fund's assets to any Principal Stockholder (as defined
below); (5) a change in the nature of the business of the Fund so that it would
cease to be an investment company registered under the 1940 Act; (6) with
certain exceptions, the issuance of any securities of the Fund to any Principal
Stockholder for cash; or (7) any transfer by the Fund of any securities of the
Fund to any Principal Stockholder in exchange for cash, securities or other
property having an aggregate fair market value of one million dollars
($1,000,000) or more; provided, with respect to (1) through (5), if such action
has been authorized by the affirmative vote of 75% of the Directors, including a
majority of the Independent Directors, then the affirmative vote of the holders
of only a majority of the Fund's shares of capital stock outstanding and
entitled to vote at the time is required; and provided, further, with respect to
(6) and (7), if such transaction has been authorized by the affirmative vote of
75% of the Directors, including a majority of the Independent Directors, no
stockholder vote is required to authorize such action. The term "Principal
Stockholder" means any person, entity or group that holds, directly or
indirectly, more than 5% of the outstanding shares of the Fund and includes any
associates or affiliates of such person or entity or of any member of the group.
None of the foregoing provisions may be amended except by the vote of the
holders of at least 75% of the outstanding shares of capital stock of the Fund
outstanding and entitled to vote thereon. As discussed in the Prospectus,
certain of the actions described above also require approval by the holders of
the Preferred Shares, tallied separately. Certain of the transactions described
above, even if approved by stockholders, may be prohibited by the 1940 Act.
The percentage votes required under these provisions, which are greater than the minimum requirements under Maryland law or the 1940 Act, will make more difficult a change in the Fund's business or management and may have the effect of depriving Common Stockholders of an opportunity to sell shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The Board believes that the provisions of the Articles relating to such higher votes are in the best interest of the Fund and its stockholders.
Reference should be made to the Articles on file with the SEC for the full text of these provisions.
DISTRIBUTIONS
The Fund intends to distribute its net investment income on a monthly basis. The Fund intends to distribute at least annually, all of its net long- and short-term capital gains, if any. Both monthly and annual distributions to Common Stockholders will be made only after paying any accrued dividends on, or redeeming or liquidating, any Preferred Shares and making interest and required principal payments on any Borrowings. It is currently expected that most dividends the Fund pays under both the Level-Rate Dividend Policy and the Managed Dividend Policy will not be eligible for the reduced (15%) maximum income tax rate applicable to "qualified dividend income" under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (defined below). See "Tax Matters."
The Fund intends to seek exemptive relief from the SEC to permit it to adopt a Managed Dividend Policy. As more fully described below, a Managed
Dividend Policy would permit the Fund to make regular cash distributions to Common Stockholders, at a fixed rate per Common Share or at a fixed percentage of its net asset value, that may include periodic distributions of net long- and short-term capital gains, or, in certain circumstances, return of capital. There is no assurance that the Fund would be able to obtain the necessary exemptive relief.
LEVEL-RATE DIVIDEND POLICY
Prior to receiving exemptive relief for a Managed Dividend Policy and commencing with the Fund's first dividend, the Fund intends to make regular monthly cash distributions to Common Stockholders at a fixed rate per Common Share based on its projected performance, subject to adjustment from time to time ("Level-Rate Dividend Policy"). The Fund's ability to maintain a Level-Rate Dividend Policy will depend on a number of factors, including the stability of income received from its investments and dividends paid on Preferred Shares, and interest and required principal payments on any Borrowings.
The initial distribution to Common Stockholders is expected to be declared approximately 45 days, and paid approximately 60 to 90 days, from the commencement of this offering, depending upon market conditions. Over time, all the net investment income of the Fund will be distributed. That income will consist of all dividend and interest income accrued on portfolio assets less all expenses of the Fund, which will be accrued each day. In addition, the Fund currently expects that a portion of the cash flow it receives from Real Estate Companies that is initially characterized as "dividends" will later be recharacterized by the Real Estate Companies as a non-taxable return of capital to the Fund. In that event, amounts distributed to Common Stockholders may have to be subsequently recharacterized as a return of capital for tax purposes. See "Tax Matters."
To permit the Fund to maintain more stable monthly distributions, it may initially distribute less than the entire amount of its net investment income earned in a particular period. The undistributed net investment income may be available to supplement future distributions. The distributions the Fund pays for any particular monthly period may be more or less than the amount of net investment income it actually earns during the period, and the Fund may have to sell a portion of its investment portfolio to make a distribution at a time when independent investment judgment might not dictate such action. Undistributed net investment income is included in the Common Shares' net asset value, and, correspondingly, distributions from net investment income will reduce the Common Shares' net asset value.
While the Fund intends to pay a level dividend, investors should understand that there is no assurance that it will always be able to pay a dividend or that the dividend will be of any particular size.
MANAGED DIVIDEND POLICY
Following the commencement of this offering, the Fund intends to file an exemptive application with the SEC seeking an order under the 1940 Act facilitating the implementation of a Managed Dividend Policy. If, and when, the Fund receives the requested relief, it may, subject to the determination of its Board of Directors, implement a Managed Dividend Policy. If implemented, the Managed Dividend Policy would supercede the Level-Rate Dividend Policy. Under a
Managed Dividend Policy, the Fund would intend to make monthly distributions to Common Stockholders, at a fixed rate per Common Share or a fixed percentage of its net asset value, that may include periodic distributions of net long- and short-term capital gains or, in certain circumstances, return of capital. Under a Managed Dividend Policy, if, for any monthly distribution, the sum of net investment income and any net realized capital gains for the month was less than the amount of the distribution, the difference would be distributed from the Fund's capital. If, for any fiscal year, the total distributions exceed such income and gains (an "Excess"), the Excess would generally be treated by each Common Stockholder as a tax-free return of capital up to the amount of the tax basis in the Common Shares, with any amounts exceeding such basis being treated as gain from the sale of those Common Shares. The Excess, however, would be treated as ordinary dividend income to the extent of the Fund's current and accumulated earnings and profits. As with the Level-Rate Dividend Policy, the Fund currently expects that a portion of the cash flow it receives from Real Estate Companies and initially characterized as "dividends" will later be recharacterized by the Real Estate Companies as a non-taxable return of capital to the Fund. In that event, amounts distributed to Common Stockholders may have to be subsequently recharacterized as a return of capital for tax purposes. See "Tax Matters." Pursuant to the requirements of the 1940 Act and other applicable laws, a notice would accompany each monthly distribution with respect to the estimated source of the distribution made.
Any distribution of an Excess would decrease the Fund's total assets and, as a result, would have the likely effect of increasing its expense ratio. There is a risk that the Fund would not eventually realize capital gain in an amount corresponding to an Excess. In addition, in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action.
There is no guarantee that the Fund will receive an exemptive order facilitating the implementation of a Managed Dividend Policy or, if such an order is received, that the Board of Directors will implement a Managed Dividend Policy.
The Board of Directors reserves the right to change the Fund's dividend policy from time to time.
REPURCHASE OF COMMON SHARES; TENDER OFFERS;
CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its stockholders will not have the right to cause the Fund to redeem their shares. Instead, the Fund's Common Shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which in turn are affected by expenses), NAV, call protection, price, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Shares of a closed-end investment company may frequently trade at prices lower than NAV. The Board regularly monitors the relationship between the market price and NAV of the Common Shares. If the Common Shares were to trade at a substantial discount to NAV for an extended period of time, the Board may consider the repurchase of its Common Shares on the open market or in private transactions, or the making of a tender offer for
such shares, or the conversion of the Fund to an open-end investment company. There can be no assurance, however, that the Board will decide to take or propose any of these actions, or that share repurchases or tender offers, if undertaken, will actually reduce market discount. The Fund has no present intention to repurchase its Common Shares and would do so only in the circumstances described in this section.
Notwithstanding the foregoing, at any time when the Preferred Shares are outstanding, the Fund may not purchase, redeem or otherwise acquire any of its Common Shares unless (1) all accrued dividends on Preferred Shares have been paid and (2) at the time of such purchase, redemption or acquisition, the NAV of the Fund's portfolio (determined after deducting the acquisition price of the Common Shares) is at least 200% of the liquidation value of the outstanding Preferred Shares (expected to equal the original purchase price per share plus any accrued and unpaid dividends thereon).
Subject to its investment limitations, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any borrowings to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Fund's net income. Any share repurchase, tender offer or borrowing that might be approved by the Board would have to comply with the 1934 Act and the 1940 Act and the rules and regulations thereunder.
The Board may also from time to time consider submitting to the holders of the shares of stock of the Fund a proposal to convert the Fund to an open-end investment company. In determining whether to exercise its sole discretion to submit this issue to stockholders, the Board would consider all factors then relevant, including the relationship of the market price of the Common Shares to NAV, the extent to which the Fund's capital structure is leveraged and the possibility of re-leveraging, the spread, if any, between the yields on securities in the Fund's portfolio and interest and dividend charges on Preferred Shares issued by the Fund and general market and economic conditions.
See "Anti-Takeover and Other Provisions in the Articles of Incorporation" in the Prospectus and "Certain Provisions in the Articles of Incorporation" in this SAI for a discussion of voting requirements applicable to conversion of the Fund to an open-end company. If the Fund converted to an open-end company, it would be required to redeem all Preferred Shares then outstanding, and the Fund's Common Shares would no longer be listed on the American Stock Exchange. Holders of common stock of an open-end investment company may require the company to redeem their shares on any business day (except in certain circumstances as authorized by or under the 1940 Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments to meet redemptions, open-end companies typically engage in a continuous offering of their common stock. Open-end companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management.
The repurchase by the Fund of its shares at prices below NAV will result in an increase in the NAV of those shares that remain outstanding. However, there can be no assurance that share repurchases or tenders at or below NAV will result in the Fund's shares trading at a price equal to their NAV. Nevertheless,
the fact that the Fund's shares may be the subject of repurchase or tender offers at NAV from time to time, or that the Fund may be converted to an open-end company, may reduce any spread between market price and NAV that might otherwise exist.
In addition, a purchase by the Fund of its Common Shares will decrease the
Fund's total assets. This would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its Common Shares at a time when
Preferred Shares are outstanding will increase the leverage applicable to the
outstanding Common Shares then remaining. See the Fund's Prospectus under "Risks
- Risk of Financial Leverage."
Before deciding whether to take any action if the Fund's Common Shares trade below NAV, the Board would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund's portfolio, the impact of any action that might be taken on the Fund or its stockholders and market considerations. Based on these considerations, even if the Fund's shares should trade at a discount, the Board may determine that, in the interest of the Fund and its stockholders, no action should be taken.
TAX MATTERS
Set forth below is a discussion of the material federal income and excise tax aspects concerning the Fund and the purchase, ownership and disposition of Preferred Shares. This discussion does not purport to be complete or to deal with all aspects of federal taxation that may be relevant to stockholders in light of their particular circumstances. Unless otherwise noted, this discussion assumes that you are a U.S. person and hold your Preferred Shares as capital assets. This discussion is based on present provisions of the Code and the regulations promulgated thereunder and existing judicial decisions and administrative pronouncements, all of which are subject to change or differing interpretations (possibly with retroactive effect). Prospective investors should consult their own tax advisers with regard to the federal tax consequences of the purchase, ownership or disposition of Preferred Shares, as well as the tax consequences arising under the laws of any state, locality, foreign country or other taxing jurisdiction.
TAXATION OF THE FUND
The Fund intends to qualify each taxable year for treatment as a RIC. To qualify for that treatment, the Fund must, among other things:
(a) derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to certain securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in securities or those currencies ("Income Requirement");
(b) distribute with respect to each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income, the excess of net short-term capital gains over net long-term capital losses and net gains and losses from certain foreign currency
transactions, if any, all determined without regard to any deduction for dividends paid) for that year ("Distribution Requirement"); and
(c) diversify its holdings so that, at the end of each quarter of its taxable year, (1) at least 50% of the value of its total assets is represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and to not more than 10% of the issuer's outstanding voting securities, and (2) not more than 25% of the value of the Fund's total assets is invested in the securities (other than those of the U.S. Government or other RICs) of any one issuer or of two or more issuers that the Fund controls and are engaged in the same, similar or related trades or businesses.
If the Fund qualifies for treatment as a RIC, it generally will not be subject to federal income tax on income and gains it timely distributes to its stockholders (including Capital Gain Dividends, as defined below). If the Fund failed to qualify for treatment as a RIC for any taxable year, it would be taxed as an ordinary corporation on the full amount of its taxable income for that year without being able to deduct the distributions it makes to its stockholders and the stockholders would treat all those distributions, including distributions of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), as dividends (that is, generally as ordinary income) to the extent of the Fund's earnings and profits. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for treatment as a RIC.
To the extent the Fund fails to distribute in a calendar year at least an amount equal to the sum of (1) 98% of its ordinary income for that year plus (2) 98% of its capital gain net income for the one-year period ending October 31 of that year, plus 100% of any retained amount of either from the prior year, it will be subject to a nondeductible 4% excise tax ("Excise Tax"). For these purposes, the Fund will be treated as having distributed any amount with respect to which it pays income tax. A distribution the Fund pays to stockholders in January of any year generally will be deemed to have been paid on December 31 of the preceding year if the distribution is declared and payable to stockholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the Excise Tax.
If, at any time when Preferred Shares are outstanding, the Fund fails to meet the Preferred Shares Basic Maintenance Amount or the 1940 Act Preferred Shares Asset Coverage (both as defined in the Fund's Articles Supplementary, attached hereto as Appendix A), it will be required to suspend distributions to Common Stockholders until such maintenance amount or asset coverage, as the case may be, is restored. See "Description of Preferred Shares - Dividends and Rate Periods - Restriction on Dividends and Other Distributions" in the prospectus. Such a suspension may prevent the Fund from satisfying the Distribution Requirement and may therefore jeopardize its qualification for treatment as a RIC or cause it to incur an income tax or Excise Tax liability, or both. If the Fund fails to meet such maintenance amount or asset coverage when Preferred Shares are outstanding, it will be required to redeem Preferred Shares to maintain or restore such maintenance amount or asset coverage, as the case may be, and avoid the adverse consequences to the Fund and its stockholders of
failing to qualify for treatment as a RIC. There can be no assurance, however,
that any such redemption would achieve such objective.
TAXATION OF THE STOCKHOLDERS
DISTRIBUTIONS. As long as the Fund qualifies for treatment as a RIC,
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distributions it makes to its stockholders from its investment company taxable income will be taxable to them as ordinary income to the extent of its earnings and profits. The Fund currently expects that most dividends it pays will not be eligible for the dividends-received deduction available to corporations or the new reduced (15%) maximum federal income tax rate on "qualified dividend income" received by individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003 ("2003 Tax Act"). Distributions of net capital gain that are properly designated as such ("Capital Gain Dividends") will be taxable to each stockholder as long-term capital gain, regardless of how long the stockholder has held Fund shares. Under the 2003 Tax Act, Capital Gain Dividends the Fund pays to individuals with respect to gains it recognizes on sales or exchanges of capital assets between May 6, 2003, and December 31, 2008, also will be subject to a maximum federal income tax rate of 15%.
As noted under "Investment Strategies, Techniques and Risks - Securities Loans," the Fund may lend portfolio securities to institutional investors and, during the time securities are on loan, the borrower will pay the Fund an amount equivalent to any dividends the borrower receives on the securities. If securities are on loan over their ex-dividend date, the "equivalent" payments will not be treated as dividends for purposes of the reduced tax rate on individuals' dividends mentioned above.
Distributions on the Fund's shares are generally subject to federal income tax as described herein, even though those distributions may economically represent a return of a particular stockholder's investment. Those distributions are likely to occur in respect of shares purchased when the Fund's NAV reflects gains that are either unrealized or realized but not distributed or income that is not distributed. Those realized gains may be required to be distributed even when the Fund's NAV also reflects unrealized losses. Distributions are taxable to a stockholder even if they are paid from income or gains the Fund earned before the stockholder makes investment (and thus included in the price the stockholder paid).
If the Fund makes a distribution to a stockholder in excess of its current and accumulated earnings and profits, the excess distribution will be treated as a "return of capital" to the extent of the stockholder's tax basis in its shares and thereafter as capital gain. A return of capital is not taxable, but it reduces a stockholder's tax basis in its shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the stockholder of its shares.
If (1) the Fund may redeem all or part of a series of Preferred Shares upon payment of a premium, (2) based on all the facts and circumstances, the Fund is more likely than not to redeem such series, and (3) such premium exceeds a specified de minimis amount, it is possible that the holders of such series may be required to accrue the premium as a dividend (to the extent of the Fund's earnings and profits) in advance of the receipt of cash representing such premium.
The Fund will notify stockholders annually as to the federal tax status of Fund distributions to them.
SALE OR REDEMPTION OF SHARES. A stockholder's sale or other disposition of Fund shares may give rise to a taxable gain or loss in an amount equal to the difference between the amount realized and the stockholder's basis in those shares. In general, any gain or loss realized on a taxable disposition of shares will be treated as long-term capital gain or loss (and thus eligible, in the case of individuals, for the 15% maximum federal income tax rate enacted by the 2003 Tax Act on net capital gain, as described above) if the shares have been held for more than 12 months; otherwise, any such gain or loss will be treated as short-term capital gain or loss. However, if a stockholder sells shares at a loss within six months of their purchase, such loss will be treated as long-term, rather than short-term, to the extent of any Capital Gain Dividends the stockholder received (or the stockholder's share of any undistributed capital gains designated) with respect to the shares. All or a portion of any loss realized on a taxable disposition of Fund shares will be disallowed if other Fund shares are purchased within 30 days before or after the disposition. In that case, the basis in the newly purchased shares will be adjusted to reflect the disallowed loss.
From time to time the Fund may make a tender offer for some of its shares. A tender of shares pursuant to such an offer would be a taxable event. If the Fund decides to make a tender offer, the tax consequences thereof will be disclosed in the documents relating to the offer.
The Fund may, at its option, redeem Preferred Shares in whole or in part and is required to redeem Preferred Shares to the extent required to maintain the Preferred Shares Basic Maintenance Amount and the 1940 Act Preferred Shares Asset Coverage. Gain or loss, if any, resulting from such a redemption will be taxed as gain or loss from the sale or exchange of Preferred Shares rather than as a dividend, but only if the redemption distribution (a) is deemed not to be essentially equivalent to a dividend, (b) is in complete redemption of an owner's interest in the Fund, (c) is substantially disproportionate with respect to the owner's interest in the Fund or (d) with respect to non-corporate owners, is in partial liquidation of the Fund. For purposes of clauses (a), (b) and (c) above, a holder's ownership of Common Shares will be taken into account.
Under promulgated U.S. Treasury regulations, if a stockholder recognizes a loss with respect to shares of $2 million or more in any single taxable year (or $4 million or more in the taxable year in which the loss is recognized and the five succeeding taxable years) for an individual stockholder, or five times those amounts for a corporate stockholder, the stockholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct stockholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance stockholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to stockholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Stockholders should consult their own tax advisers to determine the applicability of these regulations in light of their individual circumstances.
BACKUP WITHHOLDING. The Fund generally is required to withhold and remit to the U.S. Treasury 28% (except as noted below) of all distributions (including Capital Gain Dividends) and redemption or repurchase proceeds otherwise payable to any individual or certain other non-corporate stockholder who fails to properly furnish the Fund with a correct taxpayer identification number. Withholding at that rate also is required from all distributions otherwise payable to such a stockholder who has under-reported dividend or interest income or who fails to certify to the Fund that he or she is not otherwise subject to that withholding (together with the withholding described in the preceding sentence, "backup withholding"). The backup-withholding rate is scheduled increase to 31% for amounts paid after December 31, 2010. Backup withholding is not an additional tax, and any amounts withheld with respect to a stockholder may be credited against the stockholder's federal income tax liability.
TAX CONSEQUENCES OF CERTAIN INVESTMENTS
CERTAIN REAL ESTATE COMPANIES. Income that the Fund derives from a Real Estate Company classified for federal tax purposes as a partnership (and not as a corporation or REIT) ("RE Partnership") will be treated as qualifying income under the Income Requirement only to the extent it is attributable to the RE Partnership's income items that would be qualifying income if realized directly by the Fund in the same manner as realized by the RE Partnership. The Fund will restrict its investment in RE Partnerships to maintain its qualification as a RIC.
REMICs. The Fund may invest in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under U.S. Treasury regulations that are authorized by the Code but have not yet been issued (but may apply retroactively), some of a REIT's income attributable to such an interest (an "excess inclusion") generally will be allocated to the REIT's shareholders in proportion to the dividends they receive; those regulations are expected to treat a RIC's excess inclusion income similarly. Excess inclusion income so allocated to certain tax-exempt entities (including qualified retirement plans, individual retirement accounts and public charities) would constitute unrelated business taxable income to them. In addition, if a "disqualified organization" (which term includes a governmental unit and a tax-exempt entity) is a record holder of a RIC's shares at any time during a taxable year, the RIC will be subject to tax equal to the portion of its excess inclusion income for the year that is allocable to the disqualified organization multiplied by the highest federal income tax rate imposed on corporations. The Fund will not invest directly in REMIC residual interests and does not intend to invest in REITs that, to its knowledge, invest in those interests.
HEDGING TRANSACTIONS. The use of hedging strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses the Fund realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options, futures and forward currency contracts the Fund derives with respect to its business of investing in securities or foreign currencies, will be treated as qualifying income under the Income Requirement.
Certain of the Fund's investment practices are subject to special and complex federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (2) convert lower taxed long-term capital gain to higher taxed short-term capital gain or ordinary income, (3) convert an ordinary loss or a deduction to a capital loss (the deductibility of which is more limited), (4) cause the Fund to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the timing as to when a purchase or sale of securities is deemed to occur and (6) adversely alter the characterization of certain complex financial transactions. The Fund will monitor its transactions and may make certain tax elections to mitigate the effect of these rules and prevent its disqualification as a RIC.
FOREIGN SECURITIES. Dividends and interest the Fund receives, and gains it realizes, may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the total return on its securities. Tax treaties between certain countries and the United States may reduce or eliminate these taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.
The Fund may invest in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income for the taxable year is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, if the Fund holds stock of a PFIC, it will be subject to federal income tax on a portion of any "excess distribution" the Fund receives on the stock or of any gain on its disposition of the stock (collectively, "PFIC income"), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend to its stockholders. The balance of the PFIC income will be included in the Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its stockholders. Fund distributions attributable to PFIC income will not be eligible for the 15% maximum federal income tax rate on "qualified dividend income" described above.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of the Fund's incurring the foregoing tax and interest obligation, it would be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain -- which the Fund most likely would have to distribute to satisfy the Distribution Requirement and avoid imposition of the Excise Tax -- even if the Fund did not receive those earnings and gain from the QEF. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof.
The Fund may elect to "mark-to-market" any stock in a PFIC it owns at the end of its taxable year. "Marking-to-market," in this context, means including in ordinary income for each taxable year the excess, if any, of the fair market value of the stock over the Fund's adjusted basis therein as of the end of that year. Pursuant to the election, the Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock the Fund included in income for prior taxable years under the election. The Fund's adjusted basis in each PFIC's stock subject to the election would be adjusted to reflect the amounts of income included and deductions taken thereunder.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund may acquire zero coupon or other securities issued with OID. As a holder of those securities, the Fund must include in gross income the OID that accrues on them during the taxable year, even if it receives no corresponding payment on them during the year. Because the Fund annually must distribute substantially all of its investment company taxable income, including any OID, to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, it may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from the Fund's cash assets or from the proceeds of sales of its portfolio securities, if necessary. The Fund may realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gain.
* * *
The foregoing is a general summary of the provisions of the Code and regulations thereunder currently in effect as they directly govern the taxation of the Fund and its stockholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. Stockholders are advised to consult their own tax advisers for more detailed information concerning the federal (as well as state, local and foreign) income and other tax consequences of purchasing, holding and disposing of Fund shares.
REPORTS TO STOCKHOLDERS
Stockholders of the Fund will receive unaudited semi-annual financial statements, as well as year-end financial statements audited by the independent auditors for the Fund. The Fund's statements show the investments owned by it and the market values thereof and provide other information about the Fund and its operations.
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND DIVIDEND
DISBURSEMENT AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110, serves as custodian for assets of the Fund. The custodian performs custodial and fund accounting services. The Bank of New York, Corporate Trust Administration, Attn: Corporate Trust Dealing and Trading Group - Auction Desk, 100 Church Street, 8th Floor, New York, New York 10286, serves as the transfer agent, registrar and dividend disbursement agent for the Preferred Shares, as well as agent for the Dividend Reinvestment Plan relating to the Common Shares.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, serves as independent auditors for the Fund. Ernst & Young LLP provides audit services, tax return preparation and assistance and consultation in connection with review of the Fund's filings with the Securities and Exchange Commission.
COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington D.C. 20036, will pass upon certain legal matters in connection with shares offered by the Fund, and also acts as counsel to the Fund.
REGISTRATION STATEMENT
A Registration Statement on Form N-2, including any amendments thereto, relating to the shares of the Fund offered hereby, has been filed by the Fund with the SEC, Washington, D.C. The Fund's Prospectus and this SAI do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the shares offered or to be offered hereby, reference is made to the Fund's Registration Statement. Statements contained in the Fund's Prospectus and this SAI as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement may be inspected without charge at the SEC's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the SEC upon the payment of certain fees prescribed by the SEC.
REPORT OF INDEPENDENT AUDITORS
[To be filed by amendment.]
FINANCIAL STATEMENT
[To be filed by amendment.]
APPENDIX A
FORM OF ARTICLES SUPPLEMENTARY
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
ARTICLES SUPPLEMENTARY CREATING AND FIXING THE RIGHTS OF
AUCTION PREFERRED SHARES
SERIES A
SERIES B
SERIES C
SERIES D
("PREFERRED SHARES")
TABLE OF CONTENTS
Page
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DESIGNATION....................................................................1
DEFINITIONS....................................................................2
PART I........................................................................19
1. NUMBER OF AUTHORIZED SHARES..............................................19
2. DIVIDENDS................................................................19
(a) RANKING.............................................................19
(b) CUMULATIVE CASH DIVIDENDS...........................................19
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE....................19
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF.......................19
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.........................20
(f) CURING A FAILURE TO DEPOSIT.........................................22
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT..........................22
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND...............22
(i) DIVIDENDS PAID TO HOLDERS...........................................22
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID
DIVIDENDS...........................................................22
3. RESERVED.................................................................23
4. DESIGNATION OF SPECIAL RATE PERIODS......................................23
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD.................23
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD.........................23
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD..............................24
(d) NOTICE OF SPECIAL RATE PERIOD.......................................24
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD....................25
5. VOTING RIGHTS............................................................25
(a) ONE VOTE PER SHARE OF PREFERRED SHARES..............................25
(b) VOTING FOR ADDITIONAL DIRECTORS.....................................25
(c) HOLDERS OF PREFERRED SHARES TO VOTE ON CERTAIN OTHER MATTERS........27
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(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT STOCKHOLDER APPROVAL.........28
(e) RELATIVE RIGHTS AND PREFERENCES.....................................29
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING...........................29
(g) VOTING FOR DIRECTORS SOLE REMEDY FOR FUND'S FAILURE TO PAY
DIVIDENDS...........................................................29
(h) HOLDERS ENTITLED TO VOTE............................................29
6. 1940 ACT PREFERRED SHARES ASSET COVERAGE.................................29
7. PREFERRED SHARES BASIC MAINTENANCE AMOUNT................................29
8. RESERVED.................................................................31
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS........................31
(a) DIVIDENDS ON SHARES OTHER THAN PREFERRED SHARES.....................31
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES
UNDER THE 1940 ACT..................................................32
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.............32
10. RESERVED.................................................................32
11. REDEMPTION...............................................................32
(a) OPTIONAL REDEMPTION.................................................32
(b) MANDATORY REDEMPTION................................................34
(c) NOTICE OF REDEMPTION................................................35
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES...........................35
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION...........................35
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND.............36
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO
LONGER OUTSTANDING..................................................36
(h) COMPLIANCE WITH APPLICABLE LAW......................................36
(i) ONLY WHOLE PREFERRED SHARES MAY BE REDEEMED.........................36
(j) MODIFICATION OF REDEMPTION PROCEDURES...............................36
(k) PURCHASE OR OTHER ACQUISITION OF PREFERRED SHARES OUTSIDE
OF AN AUCTION.......................................................36
12. LIQUIDATION RIGHTS.......................................................37
(a) RANKING.............................................................37
(b) DISTRIBUTIONS UPON LIQUIDATION......................................37
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(c) PRO RATA DISTRIBUTIONS..............................................37
(d) RIGHTS OF JUNIOR SHARES.............................................38
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION.........................38
13. FUTURES AND OPTIONS TRANSACTIONS: FORWARD COMMITMENTS....................38
14. MISCELLANEOUS............................................................42
(a) RESERVED............................................................42
(b) NO FRACTIONAL SHARES................................................42
(c) STATUS OF PREFERRED SHARES REDEEMED, EXCHANGED OR OTHERWISE
ACQUIRED BY THE FUND................................................42
(d) BOARD MAY RESOLVE AMBIGUITIES.......................................42
(e) HEADINGS NOT DETERMINATIVE..........................................42
(f) NOTICES.............................................................42
PART II.......................................................................42
1. ORDERS...................................................................42
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT..................44
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE..........................................................46
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS
AND ALLOCATION OF SHARES.................................................47
5. NOTIFICATION OF ALLOCATIONS..............................................49
6. AUCTION AGENT............................................................49
7. TRANSFER OF PREFERRED SHARES.............................................50
8. GLOBAL CERTIFICATE.......................................................50
9. FORCE MAJEURE............................................................50
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NEUBERGER BERMAN REALTY INCOME FUND INC., a Maryland corporation (the "Fund"), certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of Directors of the Fund by Article Sixth of the Fund's Articles of Incorporation (which, as restated, amended or supplemented from time to time are, together with these Articles Supplementary, herein called the "Charter"), the Board of Directors has, by resolution, reclassified from the unissued common stock of the Fund and authorized the issuance of [ ] Series A Auction Preferred Shares, [ ] Series B Auction Preferred Shares, [ ] Series C Auction Preferred Shares, and [ ] Series D Auction Preferred Shares, par value $.0001 per share, liquidation preference $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared).
SECOND: The preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, and other rights and limitation of the Series A, Series B, Series C and Series D Auction Preferred Shares and each other series of auction preferred shares now or hereafter described in this Articles Supplementary are as set forth in this Articles Supplementary.
THIRD: That to the extent permitted by Maryland law, any provisions of the Articles of Incorporation that conflict with or are inconsistent with the provisions of the Articles Supplementary are hereby amended to conform to the terms of these Articles Supplementary.
DESIGNATION
Series A: [ ] shares of preferred stock, par value $.0001 per share, liquidation preference $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), are hereby designated auction preferred shares, Series A ("Series A Shares"). Each Series A Share shall have an Applicable Rate for its Initial Rate Period determined pursuant to a resolution of the Board of Directors and an initial Dividend Payment Date of [ ], 2004.
Series B: [ ] shares of preferred stock, par value $.0001 per share, liquidation preference $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), are hereby designated auction preferred shares, Series B ("Series B Shares"). Each Series B Share shall have an Applicable Rate for its Initial Rate Period determined pursuant to a resolution of the Board of Directors and an initial Dividend Payment Date of [ ], 2004.
Series C: [ ] shares of preferred stock, par value $.0001 per share, liquidation preference $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), are hereby designated auction preferred shares, Series C ("Series C Shares"). Each Series C Share shall have an Applicable Rate for its Initial Rate Period determined pursuant to a resolution of the Board of Directors and an initial Dividend Payment Date of [ ], 2004.
Series D: [ ] shares of preferred stock, par value $.0001 per share, liquidation preference $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), are hereby designated auction preferred shares, Series D ("Series D Shares" and, together with Series A Shares, Series B Shares and Series C Shares, "Preferred Shares"). Each Series D Share shall have an Applicable Rate for its Initial Rate Period
determined pursuant to a resolution of the Board of Directors and an initial Dividend Payment Date of [ ], 2004.
Preferred Shares may be marketed under the name "auction preferred shares" or "Preferred Shares" or such other name as the Board of Directors may approve from time to time.
Each Preferred Share shall have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law, as are set forth in Part I and Part II of these Articles Supplementary. Subject to the provisions of Section 5(c) of Part I hereof, the Board of Directors of the Fund may, in the future, reclassify additional shares of the Fund's capital stock as Preferred Shares, with the same preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption and other terms herein described, except that the Applicable Rate for the Initial Rate Period, its initial Payment Date and any other changes in the terms herein set forth shall be as set forth in the Articles Supplementary reclassifying such shares as Preferred Shares.
Capitalized terms used in Part I and Part II of these Articles Supplementary shall have the meanings (with the terms defined in the singular having comparable meanings when used in the plural and vice versa) provided in the "Definitions" section immediately following, unless the context otherwise requires.
DEFINITIONS
As used in Parts I and II of these Articles Supplementary, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires:
(a) RESERVED
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in paragraph (c) of Section 7 of Part I of these Articles Supplementary.
(c) "AFFILIATE" shall mean, for purposes of the definition of "Outstanding," any Person known to the Auction Agent to be controlled by, in control of or under common control with the Fund; provided, however, that for purposes of these Articles Supplementary no Broker-Dealer controlled by, in control of or under common control with the Fund shall be deemed to be an Affiliate nor shall any corporation or any Person controlled by, in control of or under common control with such corporation, one of the trustees, directors, or executive officers of which is a Director of the Fund be deemed to be an Affiliate solely because such trustee, director or executive officer is also a Director of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the Securities Depository that will act on behalf of a Bidder.
(e) "ALL HOLD RATE" shall mean 80% of the Reference Rate.
(f) "ANNUAL VALUATION DATE" shall mean the last Business Day of December of each year.
(g) "APPLICABLE RATE" shall mean, for each Rate Period (i) if Sufficient
Clearing Orders exist for the Auction in respect thereof, the Winning Bid Rate,
(ii) if Sufficient Clearing Orders do not exist for the Auction in respect
thereof, the Maximum Rate, and (iii) in the case of any Dividend Period if all
the shares of each Series are the subject of Submitted Hold Orders for the
Auction in respect thereof, the All Hold Rate.
(h) "AUCTION" shall mean each periodic implementation of the Auction Procedures.
(i) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Fund and the Auction Agent which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for shares of a series of Preferred Shares so long as the Applicable Rate for shares of such series is to be based on the results of an Auction.
(j) "AUCTION AGENT" shall mean the entity appointed as such by a resolution of the Board of Directors in accordance with Section 6 of Part II of these Articles Supplementary.
(k) "AUCTION DATE" with respect to any Rate Period, shall mean the Business Day next preceding the first day of such Rate Period.
(l) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions set forth in Part II of these Articles Supplementary.
(m) "AVAILABLE PREFERRED SHARES" shall have the meaning specified in paragraph (a) of Section 3 of Part II of these Articles Supplementary.
(n) RESERVED.
(o) "BENEFICIAL OWNER" with respect to shares of a series of Preferred Shares, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of such series.
(p) "BID" and "BIDS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of these Articles Supplementary.
(q) "BIDDER" and "BIDDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of these Articles Supplementary; provided, however, that neither the Fund nor any affiliate thereof shall be permitted to be a Bidder in an Auction, except that any Broker-Dealer that is an affiliate of the Fund may be a Bidder in an Auction, but only if the Orders placed by such Broker-Dealer are not for its own account.
(r) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Fund or any duly authorized committee thereof.
(s) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer in Part II of these Articles Supplementary, that is a member of, or a participant in, the Securities Depository or is an affiliate of such member or participant, has been selected by the Fund and has entered into a Broker-Dealer Agreement that remains effective.
(t) "BROKER-DEALER AGREEMENT" shall mean an agreement between the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in Part II of these Articles Supplementary.
(u) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange is open for trading and which is neither a Saturday, Sunday nor any other day on which banks in The City of New York, New York, are authorized or obligated by law to close.
(v) "CHARTER" shall have the meaning specified on the first page of these Articles Supplementary.
(w) "CLOSING TRANSACTION" shall have the meaning specified in paragraph
(a)(i)(A) of Section 13 of Part I of these Articles Supplementary.
(x) "CODE" means the Internal Revenue Code of 1986, as amended.
(y) RESERVED.
(z) "COMMON SHARES" shall mean the outstanding shares of common stock, par value $.0001 per share, of the Fund.
(aa) "CURE DATE" shall mean the Preferred Shares Basic Maintenance Cure Date or the 1940 Act Cure Date, as the case may be.
(bb) "DATE OF ORIGINAL ISSUE" with respect to shares of a series of the Preferred Shares, shall mean the date on which the Fund initially issued such shares.
(cc) "DEPOSIT SECURITIES" shall mean cash and any obligations or securities, including Short Term Money Market Instruments that are Eligible Assets, rated at least AAA or F-1 by Fitch, P-1, MIG-1 or VMIG-1 by Moody's or AAA or A-1 by S&P.
(dd) "DISCOUNTED VALUE" as of any Valuation Date, shall mean, (i) with respect to a Fitch Eligible Asset or Moody's Eligible Asset that is not currently callable or prepayable as of such Valuation Date at the option of the issuer thereof, the quotient of the Market Value thereof divided by the Fitch Discount Factor for a Fitch Eligible Asset or Moody's Discount Factor for a Moody's Eligible Asset, (ii) with respect to a Fitch Eligible Asset or Moody's Eligible Asset that is currently callable as of such Valuation Date at the option of the issuer thereof, the quotient as calculated above or the call price, whichever is lower, and (iii) with respect to a Fitch Eligible Asset or Moody's Eligible Asset that is prepayable, the quotient as calculated above or the par value, whichever is lower.
(ee) "DIVIDEND PAYMENT DATE" with respect to shares of a series of Preferred Shares, shall mean any date on which dividends are payable on shares of such series pursuant to the provisions of paragraph (d) of Section 2 of Part I of these Articles Supplementary.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of Preferred Shares, shall mean the period from and including the Date of Original Issue of shares of a series of Preferred Shares to but excluding the initial Dividend Payment Date for shares of such series and thereafter any period from and including one Dividend Payment Date for shares of such series to but excluding the next succeeding Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of Preferred Shares, shall mean a Broker-Dealer (or any such other Person as may be permitted by the Fund) that is listed on the records of the Auction Agent as a holder of shares of such series.
(hh) "EXPOSURE PERIOD" shall mean the period commencing on a given Valuation Date and ending 45 days thereafter.
(ii) "FAILURE TO DEPOSIT," with respect to shares of a series of Preferred Shares, shall mean a failure by the Fund to pay to the Auction Agent, not later than 12:00 noon, Eastern time, (A) on any Dividend Payment Date for shares of such series, in funds available on such Dividend Payment Date in The City of New York, New York, the full amount of any dividend (whether or not earned or declared) to be paid on such Dividend Payment Date on any share of such series or (B) on any redemption date in funds available on such redemption date for shares of such series in The City of New York, New York, the Redemption Price to be paid on such redemption date for any share of such series after notice of redemption is mailed pursuant to paragraph (c) of Section 11 of Part I of these Articles Supplementary; provided, however, that the foregoing clause (B) shall not apply to the Fund's failure to pay the Redemption Price in respect of Preferred Shares when the related Notice of Redemption provides that redemption of such shares is subject to one or more conditions precedent and any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption.
(jj) RESERVED.
(kk) "FITCH" shall mean Fitch Ratings and its successors.
(ll) "FITCH DISCOUNT FACTOR" means for the purposes of determining the Preferred Shares Basic Maintenance Amount, the percentage determined below:
(a) Common Stock and Preferred Stock of REITs and Other Real Estate Companies:
REIT or Other Real Estate Company Preferred Shares 154%
REIT or Other Real Estate Company Common Stock 196%
(b) Corporate Debt Securities of REITs(1)(2):
Term to Maturity AAA AA A BBB BB B CCC ---------------- --- -- - --- -- - --- 1 year 111% 114% 117% 120% 121% 127% 130% 2 years or less (but longer than 1 year) 116% 125% 125% 127% 132% 137% 137% 3 years or less (but longer than 2 years) 121% 123% 127% 131% 133% 140% 152% 4 years or less (but longer than 3 years) 126% 126% 129% 132% 136% 140% 164% 5 years or less (but longer than 4 years) 131% 132% 135% 139% 144% 149% 185% 7 years or less (but longer than 5 years) 140% 143% 146% 152% 159% 167% 228% 10 years or less (but longer than 7 years) 141% 143% 147% 153% 160% 168% 232% 12 years or less (but longer than 10 years) 144% 144% 150% 157% 165% 174% 249% 15 years or less (but longer than 12 years) 148% 151% 155% 163% 172% 182% 274% |
20-30 years 152% 156% 160% 169% 180% 191% 306%
(1) The Fitch Discount Factors will also apply to interest rate swaps and caps, whereby the rating on the counterparty will determine the appropriate Discount Factor to apply.
(2) If a security is not rated by Fitch, but is rated by two other rating agencies, then the lower of the ratings on the security from the two other rating agencies should be used to determine the Fitch Discount Factor. If the security is not rated by Fitch, but has a rating from only one other rating agency, and the security is above investment grade, then the security will be notched one rating category, i.e., considered to be rated one rating category lower than the rating category assigned by that rating agency, for purposes of computing the Discount Factor. If the security is not rated by Fitch, but has a rating from only one other rating agency, and the security is below investment grade, then the security will be notched two rating categories for purposes of computing the Discount Factor.
(c) Convertible Securities:
The Fitch Discount Factor applied to convertible securities is (A) 200% for investment grade convertibles and (B) 222% for below investment grade convertibles so long as such convertible securities have neither (x) conversion premiums greater than 100% nor (y) a yield to maturity or yield to worst of greater than 15.00% above the relevant Treasury curve.
The Fitch Discount Factor applied to convertible securities which have conversion premiums of greater than 100% is (A) 152% for investment grade convertibles, and (B) 179% for below investment grade convertibles so long as a such convertible securities do not have a yield to maturity or yield to worst of greater than 15.00% above the relevant Treasury curve.
The Fitch Discount Factor applied to convertible securities that have a yield to maturity or yield to worst of greater than 15.00% above the relevant Treasury curve is 370%.
(d) U.S. government securities, including U.S. Treasury Securities:
Remaining Term to Maturity Discount Factor -------------------------- --------------- 1 year............ 101.5% 2 year............ 103% 3 year............ 105% 4 year............ 107% 5 year............ 109% 5-7 year.......... 112% 7-10 year......... 114% 15 year........... 122% 20 year........... 130% 25 year........... 146% 30 year........... 154% |
(e) Short-Term Instruments and Cash:
The Fitch Discount Factor applied to short-term portfolio securities, other than 2a-7 Money Market Funds, will be (A) 100%, so long as such portfolio securities or repurchase agreements mature or have a demand feature at par exercisable within the Exposure Period and (B) 125%, so long as such portfolio securities neither mature nor have a demand feature at par exercisable within the exposure period and are rated at least F-1/AA by Fitch, P-1/Aa by Moody's, or A-1/AA by S&P. The Fitch Discount Factor applied to 2a-7 Money Market Funds will be 100% if the 2a-7 Money Market Funds are rated by Fitch and 115% if the 2a-7 Money Market Funds are not rated by Fitch. A Fitch Discount Factor of 100% will be applied to cash.
(f) Other Securities:
The Fitch Discount Factor with respect to securities other than those described above will be the percentage provided in writing by Fitch.
(mm) "FITCH ELIGIBLE ASSET" shall mean the following:
(a) Common stock, preferred stock, and any debt security of REITs and Other Real Estate Companies.
(b) Unrated debt securities issued by an issuer which (1) has not filed for bankruptcy in the past three years; (2) is current on all interest and principal on its fixed income obligations; (3) is current on all preferred stock dividends.
(c) Interest rate swaps entered into according to International Swap
Dealers Association standards if (1) the counterparty to the swap transaction
has a short-term rating of not less than F-1, or, if the swap counterparty does
not have a short-term rating, the counterparty's senior unsecured long-term debt
rating is AA or higher by Fitch or the equivalent by another rating agency and
(2) the original aggregate notional amount of the interest rate swap transaction
or transactions is not greater than the liquidation preference of the Preferred
Shares originally issued.
(d) U.S. government securities, including U.S. Treasury securities and U.S. Treasury Strips.
(e) Short-Term Money Market Instruments as long as (i) such securities are
rated at least F-1 by Fitch or the equivalent by another rating agency, (ii) in
the case of demand deposits, time deposits and overnight funds, the depository
institution or supporting entity is rated at least A by Fitch or the equivalent
by another rating agency, (iii) such securities are of 2a-7 Money Market Funds,
(iv) such securities are repurchase agreements or (v) in all other cases, the
supporting entity (1) is rated at least A by Fitch and the security matures in
one month or (2) is rated at least AA by Fitch and matures within six months.
(f) Cash (including, for this purpose, interest and dividends due on assets rated (i) BBB or higher by Fitch if the payment date is within 5 Business Days of the Valuation Date, (ii) A or higher by Fitch if the payment is within thirty days of the Valuation Date (iii) A+ or higher by Fitch if the payment date is within the Exposure Period; provided, however, that such interest and dividends may, at the Fund's discretion, be discounted at the same rate as the related security or on such other basis as Fitch and the Fund may agree from time to time) and receivables for Fitch Eligible Assets sold if the receivable is due within five Business Days of the Valuation Date.
(nn) "FITCH HEDGING TRANSACTION" shall have the meaning specified in paragraph 13(b)(1) of Part I of these Articles Supplementary.
(oo) RESERVED.
(pp) "FORWARD COMMITMENTS" shall have the meaning specified in paragraph
(a)(iv) of Section 13 of Part I of these Articles Supplementary.
(qq) "FUND" shall mean the entity named on the first page of these Articles Supplementary, which is the issuer of the Preferred Shares.
(rr) RESERVED.
(ss) "HOLDER" with respect to shares of a series of Preferred Shares, shall mean the registered holder of such shares as the same appears on the record books of the Fund.
(tt) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of these Articles Supplementary.
(uu) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized accountant, or firm of accountants, that is with respect to the Fund an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended from time to time.
(vv) "INITIAL RATE PERIOD" shall be the period from and including the Date of Original Issue to but excluding [ ], 2004 with respect to Series A Shares, [ ], 2004 with respect to Series B Shares, [ ], 2004 with respect to Series C Shares and [ ], 2004 with respect to Series D Shares.
(ww) "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.
(xx) "LATE CHARGE" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of these Articles Supplementary.
(yy) "LIBOR DEALERS" means Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and such other dealer or dealers as the Fund may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors.
(zz) "LIBOR RATE" on any Auction Date, means (i) the rate for deposits in
U.S. dollars for the designated Dividend Period, which appears on display page
3750 of Moneyline's Telerate Service ("Telerate Page 3750") (or such other page
as may replace that page on that service, or such other service as may be
selected by the LIBOR Dealer or its successors that are LIBOR Dealers) as of
11:00 a.m., London time, on the day that is the London Business Day preceding
the Auction Date (the "LIBOR Determination Date"), or (ii) if such rate does not
appear on Telerate Page 3750 or such other page as may replace such Telerate
Page 3750, (A) the LIBOR Dealer shall determine the arithmetic mean of the
offered quotations of the Reference Banks to leading banks in the London
interbank market for deposits in U.S. dollars for the designated Dividend Period
in an amount determined by such LIBOR Dealer by reference to requests for
quotations as of approximately 11:00 a.m. (London time) on such date made by
such LIBOR Dealer to the Reference Banks, (B) if at least two of the Reference
Banks provide such quotations, LIBOR Rate shall equal such arithmetic mean of
such quotations, (C) if only one or none of the Reference Banks provide such
quotations, LIBOR Rate shall be deemed to be the arithmetic mean of the offered
quotations that leading banks in The City of New York selected by the LIBOR
Dealer (after obtaining the Fund's approval) are quoting on the relevant
Determination Date for deposits in U.S. dollars for the designated Dividend
Period in an amount determined by the LIBOR Dealer (after obtaining the Fund's
approval) that is representative of a single transaction in such market at such
time by reference to the principal London offices of leading banks in the London
interbank market; provided, however, that if one of the LIBOR Dealers does not
quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Fund to
provide such rate or rates not being supplied by the LIBOR Dealer; provided
further, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to determine a rate in accordance with at least one of the procedures
provided above, LIBOR Rate shall be LIBOR Rate as determined on the previous
Auction Date. If the number of Dividend Period days shall be (i) 7 or more but
fewer than 21 days, such rate shall be the seven-day LIBOR rate; (ii) more than
21 but fewer than 49 days, such rate shall be the one-month LIBOR rate; (iii) 49
or more but fewer than 77 days, such rate shall be the two-month LIBOR rate;
(iv) 77 or more but fewer than 112 days, such rate shall be the three-month
LIBOR rate; (v) 112 or more but fewer than 140 days, such rate shall be the
four-month LIBOR rate; (vi) 140 or more but fewer that 168 days, such rate shall
be the five-month LIBOR rate; (vii) 168 or more but fewer 189 days, such rate
shall be the six-month LIBOR rate; (viii) 189 or more but fewer than 217 days,
such rate shall be the seven-month LIBOR rate; (ix) 217 or more but fewer than
252 days, such rate shall be the eight-month LIBOR rate; (x) 252 or more but
fewer than 287 days, such rate shall be the nine-month LIBOR rate; (xi) 287 or
more but fewer than 315 days, such rate shall be the ten-month LIBOR rate; (xii)
315 or more but fewer than 343 days, such rate shall be the eleven-month LIBOR
rate; and (xiii) 343 or more but fewer than 365 days, such rate shall be the
twelve-month LIBOR rate.
(aaa) "LIQUIDATION PREFERENCE" with respect to a given number of Preferred Shares, means $25,000 times that number.
(bbb) "MARKET VALUE" of any asset of the Fund shall mean the market value thereof determined in accordance with the Pricing Procedures of the Neuberger Berman funds.
(ccc) "MAXIMUM RATE" for shares of a series of Preferred Shares on any date on which the Applicable Rate is determined, the higher of applicable percentage of the Reference Rate or the applicable spread plus the Reference Rate on the date of such Auction determined as set forth below based on the lower of the credit ratings assigned to the Preferred Shares by Moody's and Fitch subject to upward but not downward adjustment in the discretion of the Board of Directors after consultation with the Broker-Dealers; provided that immediately following any such increase the Fund would be in compliance with the Preferred Shares Basic Maintenance Amount.
Moody's Fitch Applicable Applicable Credit Rating Credit Rating Percentage Spread ------------- ------------- ---------- ---------- Aaa AAA 125% 125 bps Aa3 to Aa1 AA- to AA+ 150% 150 bps A3 to A1 A- to A+ 160% 160 bps Baa3 to Baa1 BBB- to BBB+ 250% 250 bps Below Baa3 Below BBB- 275% 275 bps |
(ddd) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of [7]
Rate Period Days for Series A Shares, [7] Rate Period Days for Series B Shares,
[28] Rate Period Days for Series C Shares and [28] Rate Period Days for Series D
Shares.
(eee) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware corporation, and its successors.
(fff) "MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the Discounted Value of any Moody's Eligible Asset, the percentage determined as follows. The Moody's Discount Factor for any Moody's Eligible Asset other than the securities set forth below will be the percentage provided in writing by Moody's.
(a) Common Stock and Preferred Stock of REITs and Other Real Estate Companies:
Discount Factor(1)(2)(3)
------------------------
Common stock of REITs 154%
Preferred stock of REITs
with Senior Implied or Unsecured Moody's (or Fitch) rating: 154%
without Senior Implied or Unsecured Moody's (or Fitch)
rating: 208%
Discount Factor(1)(2)(3)
------------------------
Preferred stock of Other Real Estate Companies
with Senior Implied or Unsecured Moody's (or Fitch) rating: 208%
without Senior Implied or Unsecured Moody's (or Fitch)
rating 250%
|
(1) A Discount Factor of 250% will be applied to those assets in a single Moody's Real Estate Industry/Property Sector Classification that exceed 30% of Moody's Eligible Assets but are not greater than 38% of Moody's Eligible Assets.
(2) A Discount Factor of 250% will be applied if dividends on such securities have not been paid consistently (either quarterly or annually) over the previous three years, or for such shorter time period that such securities have been outstanding.
(3) A Discount Factor of 250% will be applied if the market capitalization (including common stock and preferred stock) of an issuer is below $500 million.
(b) Debt Securities of REITs and Other Real Estate Companies(1):
Maturity in Years Aaa Aa A Baa Ba B NR(2) -------- --- -- - --- -- - ----- 1 or less 109% 112% 115% 118% 137% 150% 250% 2 or less (but longer than 1) 115% 118% 122% 125% 146% 160% 250% 3 or less (but longer than 2) 120% 123% 127% 131% 153% 168% 250% 4 or less (but longer than 3) 126% 129% 133% 138% 161% 176% 250% 5 or less (but longer than 4) 132% 135% 139% 144% 168% 185% 250% 7 or less (but longer than 5) 139% 143% 147% 152% 179% 197% 250% 10 or less (but longer than 7) 145% 150% 155% 160% 189% 208% 250% 15 or less (but longer than 10) 150% 155% 160% 165% 196% 216% 250% 20 or less (but longer than 15) 150% 155% 160% 165% 196% 228% 250% 30 or less (but longer than 20) 150% 173% 160% 165% 196% 229% 250% Greater than 30 ......... 165% 173% 181% 189% 205% 240% 250% |
(1) The Moody's Discount Factors for debt securities shall also be applied to any interest rate swap or cap, in which case the rating of the counterparty shall determine the appropriate rating category.
(2) Unless otherwise agreed by the Fund and Moody's, unrated fixed-income and convertible securities, which are securities that are not rated by any of Moody's, S&P or Fitch, are limited to 10% of discounted Moody's Eligible Assets. If a security is either rated below B or not rated by any of Moody's, S&P or Fitch, the Fund will use the applicable percentage set forth in the row of the table entitled "NR" (not rated). Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. Upon notice by Moody's, however, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent. Split rated securities assigned by S&P and Fitch will be accepted at the lower of the two ratings.
(c) U.S. Treasury Securities and U.S. Treasury Strips:
U.S. Treasury Securities U.S. Treasury Strips
Remaining Term to Maturity Discount Factor Discount Factor
-------------------------- ------------------------ --------------------
1 year or less 107% 107%
2 years or less (but longer than 1 year) 113% 114%
3 years or less (but longer than 2 years) 118% 120%
4 years or less (but longer than 3 years) 123% 127%
5 years or less (but longer than 4 years) 128% 133%
7 years or less (but longer than 5 years) 135% 145%
10 years or less (but longer than 7 years) 141% 159%
15 years or less (but longer than 10 years) 146% 184%
20 years or less (but longer than 15 years) 154% 211%
30 years or less (but longer than 20 years) 154% 236%
|
(d) Short-Term Instruments and Cash. The Moody's Discount Factor applied to short-term portfolio securities, including without limitation corporate debt securities and Short Term Money Market Instruments, other than 2a-7 Money Market Funds, will be (i) 100%, so long as such portfolio securities or repurchase agreements mature or have a demand feature at par exercisable within 49 days of the relevant valuation date, (ii) 102%, so long as such portfolio securities mature or have a demand feature at par not exercisable within 49 days of the relevant valuation date, and (iii) 125%, if such securities are not rated by Moody's, so long as such portfolio securities are rated at least A-1+/AA or SP- 1+/AA by S&P and mature or have a demand feature at par exercisable within 49 days of the relevant valuation date. The Moody's Discount Factor applied to 2a-7 Money Market Funds will be 100% if the 2a-7 Money Market Funds are rated by Moody's and 115% if the 2a-7 Money Market Funds are not rated by Moody's. A Moody's Discount Factor of 100% will be applied to cash.
(ggg) "MOODY'S ELIGIBLE ASSETS" shall mean the following:
(a) Common stock, preferred stock and any debt security of REITs and Real Estate Companies.
(i) Common stock of REITs and preferred stock and any debt security of REITs and Other Real Estate Companies: (A) which comprise at least 7 of the 14 Moody's Real Estate Industry/Property Sector Classifications ("Moody's Sector Classifications") listed below and of which no more than 38% may constitute a single such classification; (B) which in the aggregate constitute at least 40 separate classes of common stock, preferred stock, and debt securities, issued by at least 30 issuers; (C) issued by a single issuer which in the aggregate constitute no more than 7.0% of the Market Value of Moody's Eligible Assets, (D) issued by a single issuer which, with respect to 50% of the Market Value of Moody's Eligible Assets, constitute in the aggregate no more than 5% of Market Value of Moody's Eligible Assets; and
(ii) Unrated debt securities issued by an issuer which: (A) has not filed for bankruptcy within the past three years; (B) is current on all principal and interest on its fixed income obligations; (C) is current on all preferred stock dividends; (D) possesses a current, unqualified auditor's report without qualified, explanatory language and (E) in the aggregate, do not exceed 10% of the discounted Moody's Eligible Assets;
(b) Interest rate swaps entered into according to International Swap Dealers Association ("ISDA") standards if (i) the counterparty to the swap transaction has a short-term rating of not less than P-1 or, if the counterparty does not have a short-term rating, the counterparty's senior unsecured long-term debt rating is Aa3 or higher and (ii) the original aggregate notional amount of the interest rate swap transaction or transactions is not to be greater than the liquidation preference of the Preferred Shares originally issued. The interest rate swap transaction will be marked-to-market daily;
(c) U.S. government securities, including U.S. Treasury Securities and Treasury Strips;
(d) Short-Term Money Market Instruments so long as (A) such securities are rated at least P-1, (B) in the case of demand deposits, time deposits and overnight funds, the depository institution is rated at least A2, (C) such securities are of 2a-7 Money Market Funds, (D) such securities are repurchase agreements, or (E) in all other cases, the supporting entity (1) is rated A2 and the security matures within one month, (2) is rated A1 and the security matures within three months or (3) is rated at least Aa3 and the security matures within six months; provided, however, that for purposes of this definition, such instruments (other than commercial paper rated by Fitch and not rated by Moody's) need not meet any otherwise applicable Moody's rating criteria; and
(e) Cash (including, for this purpose, interest and dividends due on assets rated (A) Baa3 or higher by Moody's if the payment date is within five Business Days of the Valuation Date, (B) A2 or higher if the payment date is within thirty days of the Valuation Date, and (C) A1 or higher if the payment date is within 49 days of the relevant valuation date; provided, however, that such interest and dividends may, at the Fund's discretion, be discounted at the same rate as the related security or on such other basis as Moody's and the Fund may agree from time to time) and receivables for Moody's Eligible Assets sold if the receivable is due within five Business Days of the Valuation Date.
(hhh) "MOODY'S HEDGING TRANSACTION" shall have the meaning specified in paragraph (a)(i) of Section 13 of Part I of these Articles Supplementary.
(iii) "MOODY'S REAL ESTATE INDUSTRY/PROPERTY SECTOR CLASSIFICATION" means, for the purposes of determining Moody's Eligible Assets, each of the
following Industry Classifications (as defined by the National Association of Real Estate Investment Trusts, "NAREIT"):
1. Office
2. Industrial
3. Mixed
4. Shopping Centers
5. Regional Malls
6. Free Standing
7. Apartments
8. Manufactured Homes
9. Diversified
10. Lodging/Resorts
11. Health Care
12. Home Financing
13. Commercial Financing
14. Self Storage
15. Specialty
The Fund will use its discretion in determining which NAREIT Industry Classification is applicable to a particular investment in consultation with the independent auditor and/or Moody's, as necessary.
(jjj) RESERVED.
(kkk) RESERVED.
(lll) 1940 ACT" shall mean the Investment Company Act of 1940, as amended from time to time.
(mmm) "1940 ACT CURE DATE," with respect to the failure by the Fund to maintain the 1940 Act Preferred Shares Asset Coverage (as required by Section 6 of Part I of these Articles Supplementary) as of the last Business Day of each month, shall mean the last Business Day of the following month.
(nnn) "1940 ACT PREFERRED SHARES ASSET COVERAGE" shall mean asset coverage, as defined in Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Fund which are shares of stock, including all outstanding Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares or stock of a closed-end investment company as a condition of declaring dividends on its common shares or stock).
(ooo) "NOTICE OF REDEMPTION" shall mean any notice with respect to the redemption of Preferred Shares pursuant to paragraph (c) of Section 11 of Part I of these Articles Supplementary.
(ppp) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect to a Special Rate Period of shares of a series of Preferred Shares pursuant to subparagraph (d)(i) of Section 4 of Part I of these Articles Supplementary.
(qqq) "ORDER" and "ORDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of these Articles Supplementary.
(rrr) "OTHER REAL ESTATE COMPANIES" shall mean companies that generally derive at least 50% of their revenue from real estate or have at least 50% of their assets in real estate, but not including REITs.
(sss) "OUTSTANDING" shall mean, as of any Auction Date with respect to shares of a series of Preferred Shares, the number of shares theretofore issued by the Fund except, without duplication, (i) any shares of such series theretofore cancelled or delivered to the Auction Agent for cancellation or redeemed by the Fund, (ii) any shares of such series as to which the Fund or any Affiliate thereof shall be an Existing Holder and (iii) any shares of such series represented by any certificate in lieu of which a new certificate has been executed and delivered by the Fund.
(ttt) "PERSON" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
(uuu) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of Preferred Shares, shall mean a customer of a Broker-Dealer that is not a Beneficial Owner of shares of such series but that wishes to purchase shares of such series, or that is a Beneficial Owner of shares of such series that wishes to purchase additional shares of such series.
(vvv) "POTENTIAL HOLDER," with respect to Preferred Shares, shall mean a Broker-Dealer (or any such other person as may be permitted by the Fund) that is not an Existing Holder of Preferred Shares or that is an Existing Holder of Preferred Shares that wishes to become the Existing Holder of additional Preferred Shares.
(www) "PREFERRED SHARES" shall have the meaning set forth on the first page of these Articles Supplementary.
(xxx) "PREFERRED SHARES BASIC MAINTENANCE AMOUNT" as of any Valuation Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the number of Preferred Shares outstanding on such date (including Preferred Shares held by an Affiliate of the Fund but not Preferred Shares held by the Fund) multiplied by $25,000 (plus the product of the number of shares of any other series of preferred stock outstanding on such date multiplied by the liquidation preference of such shares) plus any redemption premium applicable to Preferred Shares (or other preferred stock) then subject to redemption; (B) the aggregate amount of dividends that will have accumulated at the respective Applicable Rates (whether or not earned or declared) to (but not including) the first respective Dividend Payment Dates for the Preferred Shares outstanding that follows such Valuation Date; (C) the aggregate amount of dividends that would accumulate on Preferred Shares outstanding from such first Dividend Payment Dates therefor referenced in (B) of this paragraph through the 45th day after such Valuation Date at the respective Applicable Rates referenced in (B) of this paragraph; (D) the amount of anticipated non-interest expenses of the Fund for the 90 days subsequent to such Valuation Date; (E) the amount of the current outstanding balances of any indebtedness or obligations of the Fund senior in right of payment to the Preferred Shares plus interest actually accrued together with 30 days additional interest on the current outstanding balances calculated
at the current rate; and (F) any other current liabilities payable during the 30 days subsequent to such Valuation Date, including, without limitation, indebtedness due within one year and any redemption premium due with respect to the Preferred Shares for which a Notice of Redemption has been sent, as of such Valuation Date, to the extent not reflected in any of (i)(A) through (i)(E) (including, without limitation, any liabilities incurred for the purpose of clearing securities transactions) less (ii) the sum of any cash plus the value of any of the Fund's assets irrevocably deposited by the Fund for the payment of any of (i)(A) through (i)(F) ("value," for purposes of this clause (ii), means the Discounted Value of the security, except that if the security matures prior to the relevant redemption payment date and is either fully guaranteed by the U.S. Government or is rated at least P-1 by Moody's, it will be valued at its face value).
(yyy) "PREFERRED SHARES BASIC MAINTENANCE CURE DATE," with respect to the failure by the Fund to satisfy the Preferred Shares Basic Maintenance Amount (as required by paragraph (a) of Section 7 of Part I of these Articles Supplementary) as of a given Valuation Date, shall mean the seventh Business Day following such Valuation Date.
(zzz) "PREFERRED SHARES BASIC MAINTENANCE REPORT" shall mean a report signed by the President, Treasurer, Assistant Treasurer, Controller, Assistant Controller or any Senior Vice President or Vice President of the Fund which sets forth, as of the related Valuation Date, the assets of the Fund, the Market Value and the Discounted Value thereof (seriatim and in aggregate), and the Preferred Shares Basic Maintenance Amount.
(aaaa) "PRICING SERVICE" shall mean any pricing service designated from time to time in accordance with the Fund's pricing procedures.
(bbbb) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each March, June, September and December of each year, commencing on [ ], 2004.
(cccc) "RATE PERIOD," with respect to shares of a series of Preferred Shares, shall mean the Initial Rate Period of such shares that have a Moody's rating of Aaa (if Moody's is then rating the Preferred Shares) and a Fitch rating of AAA (if Fitch is then rating the Preferred Shares) and any Subsequent Rate Period, including any Special Rate Period, of Preferred Shares.
(dddd) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means the number of days that would constitute such Rate Period or Dividend Period but for the application of paragraph (d) of Section 2 of Part I of these Articles Supplementary or paragraph (b) of Section 4 of Part I of these Articles Supplementary.
(eeee) "REIT," or real estate investment trust, means a company dedicated to owning, and usually operating, income producing real estate, or to financing real estate.
(ffff) "REDEMPTION PRICE" shall mean the applicable redemption price specified in Section 11 of Part I of these Articles Supplementary.
(gggg) "REFERENCE RATE" shall mean, with respect to the determination of the Maximum Rate, the applicable LIBOR Rate, for a Rate Period of fewer than 365 days, or the applicable Treasury Index Rate, for a Rate Period of 365 days or more.
(hhhh) "REGISTRATION STATEMENT" shall mean the Fund's registration statement on Form N-2 (333-[ ] ("Registration Statement"), as the same may be amended from time to time.
(iiii) "S&P" shall mean Standard & Poor's Ratings Services and its successors.
(jjjj) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and its successors and assigns or any other securities depository selected by the Fund that agrees to follow the procedures required to be followed by such securities depository in connection with the Preferred Shares.
(kkkk) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings specified in paragraph (a) of Section 1 of Part II of these Articles Supplementary.
(llll) "SHORT-TERM MONEY MARKET INSTRUMENTS" shall mean the following types of instruments if, on the date of purchase or other acquisition thereof by the Fund, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 or the equivalent if such commercial paper matures in 30 days or A-1+ or the equivalent if such commercial paper matures in over 30 days;
(ii) demand or time deposits in, and banker's acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia);
(iii) overnight funds;
(iv) U.S. Government Securities;
(v) registered investment companies that are money market funds in compliance with Rule 2a-7 under the 1940 Act ("2a-7 Money Market Funds"); and
(vi) overnight repurchase agreements.
(mmmm) "SPECIAL RATE PERIOD," with respect to Preferred Shares, shall have the meaning specified in paragraph (a) of Section 4 of Part I of these Articles Supplementary.
(nnnn) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in subparagraph (a)(i) of Section 11 of Part I of these Articles Supplementary.
(oooo) "SUBMISSION DEADLINE" shall mean 1:00 P.M., Eastern time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
(pppp) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of these Articles Supplementary.
(qqqq) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of these Articles Supplementary.
(rrrr) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of these Articles Supplementary.
(ssss) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the respective meanings specified in paragraph (a) of Section 3 of Part II of these Articles Supplementary.
(tttt) "SUBSEQUENT RATE PERIOD," with respect to Preferred Shares, shall mean the period from and including the first day following the Initial Rate Period of Preferred Shares to but excluding the next Dividend Payment Date for Preferred Shares and any period thereafter from and including one Dividend Payment Date for Preferred Shares to but excluding the next succeeding Dividend Payment Date for Preferred Shares; provided, however, that if any Subsequent Rate Period is also a Special Rate Period, such term shall mean the period commencing on the first day of such Special Rate Period and ending on the last day of the last Dividend Period thereof.
(uuuu) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean Credit Suisse First Boston or Morgan Stanley & Co., Incorporated or their respective affiliates or successors, if such entity is a commercial paper dealer or such other entity designated by the Fund; provided, however, that none of such entities shall be a Commercial Paper Dealer.
(vvvv) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean Credit Suisse First Boston or Merrill Lynch, Pierce, Fenner & Smith Incorporated or their respective affiliates or successors, if such entity is a U.S. Government securities dealer or such other entity designated by the Fund; provided, however, that none of such entities shall be a U.S. Government Securities Dealer.
(wwww) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in paragraph (a) of Section 3 of Part II of these Articles Supplementary.
(xxxx) "TREASURY BILL" shall mean a direct obligation of the U.S. Government having a maturity at the time of issuance of 364 days or less.
(yyyy) "SWAP" means a derivative transaction between two parties who contractually agree to exchange the returns (or differentials in rates of return) to be exchanged or "swapped" between the parties, which returns are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a "basket" of securities representing a particular index.
(i) "INTEREST RATE SWAP" means an arrangement whereby two parties (called counterparties) enter into an agreement to exchange periodic interest payments. The dollar amount the counterparties pay each other is an agreed-upon periodic interest rate multiplied by some predetermined dollar principal, called the notional principal amount. No principal (no notional amount) is exchanged between parties to the transaction; only interest is exchanged.
(ii) "TOTAL RETURN SWAP" means an agreement between counterparties in which one party agrees to make payments of the total return from the underlying asset(s) that may include securities, baskets of securities, or securities indices during the specified period, in return for payments equal to a fixed or floating rate of interest or the total return from other underlying asset(s).
(iii) "CREDIT DEFAULT SWAP" means an agreement between counterparties in which one party is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the agreement in the event of a default by a third party on the debt obligation. In return, such party would pay the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred.
(zzzz) "TREASURY FUTURES" shall have the meaning specified in paragraph
(a)(i) of Section 13 of Part I of these Articles Supplementary.
(aaaaa) "TREASURY INDEX RATE" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release shall not have been published during the 15 days preceding the date of computation, the foregoing computations shall be based upon the average of comparable data as quoted to the Fund by at least three recognized dealers in U.S. Government Securities selected by the Fund.
(bbbbb) "TREASURY NOTE" shall mean a direct obligation of the U.S. Government having a maturity at the time of issuance of five years or less but more than 364 days.
(ccccc) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Note Rate, the Treasury Note Rate shall be determined
on the basis of the quotation or quotations furnished by the remaining U.S.
Government Securities Dealer or U.S. Government Securities Dealers and any
Substitute U.S. Government Securities Dealers selected by the Fund to provide
such rate or rates not being supplied by any U.S. Government Securities Dealer
or U.S. Government Securities Dealers, as the case may be, or, if the Fund does
not select any such Substitute U.S. Government Securities Dealer or Substitute
U.S. Government Securities Dealers, by the remaining U.S. Government Securities
Dealer or U.S. Government Securities Dealers.
(ddddd) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc., Morgan Guaranty Trust Company of New York and any other U.S. Government Securities Dealer selected by the Fund as to which Moody's (if Moody's is then rating the Preferred Shares) or Fitch (if Fitch is then rating the Preferred Shares) shall not have objected or their respective affiliates or successors, if such entity is a U.S. Government Securities Dealer.
(eeeee) "U.S. TREASURY SECURITIES" means direct obligations of the United States Treasury that are entitled to the full faith and credit of the United States.
(fffff) "U.S. TREASURY STRIPS" means securities based on U.S. Treasury Securities created through the Separate Trading of Registered Interest and Principal of Securities program.
(ggggg) "VALUATION DATE" shall mean, for purposes of determining whether the Fund is maintaining the Preferred Shares Basic Maintenance Amount, the last Business Day of each month.
(hhhhh) "VOTING PERIOD" shall have the meaning specified in paragraph (b) of Section 5 of Part I of these Articles Supplementary.
(iiiii) "WINNING BID RATE" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of these Articles Supplementary.
PART I
1. NUMBER OF AUTHORIZED SHARES. The number of authorized shares constituting the Series A Shares is [ ], of which [ ] shares will be issued on [ ], 2004. The number of authorized shares constituting the Series B Shares is [ ], of which [ ] shares will be issued on [ ], 2004. The number of authorized shares constituting the Series C Shares is [ ], of which [ ] shares will be issued on [ ], 2004. The number of authorized shares constituting the Series D Shares is [ ], of which [ ] shares will be issued on [ ], 2004.
2. DIVIDENDS.
(a) RANKING. The shares of a series of Preferred Shares shall rank on a parity with each other, with shares of any other series of Preferred Shares and with any other series of preferred stock as to the payment of dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of a series of
Preferred Shares shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor in accordance with
the Charter and applicable law, cumulative cash dividends at the Applicable Rate
for shares of such series, determined as set forth in paragraph (e) of this
Section 2, and no more (except to the extent set forth in Section 3 of this Part
I), payable on the Dividend Payment Dates with respect to shares of such series
determined pursuant to paragraph (d) of this Section 2. Holders of Preferred
Shares shall not be entitled to any dividend, whether payable in cash, property
or shares, in excess of full cumulative dividends, as herein provided, on
Preferred Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Shares which
may be in arrears, and, except to the extent set forth in subparagraph (e)(i) of
this Section 2, no additional sum of money shall be payable in respect of any
such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on Preferred Shares of any series shall accumulate at the Applicable Rate for shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. Dividends shall be payable for the Initial Rate Period on [ ], 2004, with respect to Series A Shares, [ ], 2004 with respect to Series B Shares, [ ], 2004 with respect to Series C Shares and [ ], 2004 with respect to Series D Shares, and, if declared by the Board of Directors (which declaration may be by a single resolution for multiple such dates), on each [seventh] day thereafter (or after the Dividend Payment Date with respect to an intervening Special Rate Period), with respect to Series A Shares, each [seventh] day thereafter (or after the Dividend Payment Date with respect to an intervening Special Rate Period), with respect to Series B Shares, each [twenty-eighth] day thereafter (or after the Dividend Payment Date with respect to an intervening Special Rate Period), with respect to Series C Shares and each [twenty-eighth] day thereafter (or after the Dividend
Payment Date with respect to an intervening Special Rate Period), with respect to Series D Shares (each date being a "Dividend Payment Date"); provided, however, that:
(i) if the day on which dividends would otherwise be payable on Preferred Shares is not a Business Day, then such dividends shall be payable on such shares on the first Business Day that falls after such day, and
(ii) notwithstanding this paragraph (d) of Section 2, the Fund in its
discretion may establish the Dividend Payment Dates in respect of any Special
Rate Period of shares of a series of Preferred Shares consisting of more than
[7] Rate Period Days, with respect to Series A Shares, [7] Rate Period Days,
with respect to Series B Shares, [28] Rate Period Days, with respect to Series C
Shares, and [28] Rate Period Days, with respect to Series D Shares; provided,
however, that such dates shall be set forth in the Notice of Special Rate Period
relating to such Special Rate Period, as delivered to the Auction Agent, which
Notice of Special Rate Period shall be filed with the Secretary of the Fund; and
further provided that (1) any such Dividend Payment Date shall be a Business Day
and (2) the last Dividend Payment Date in respect of such Special Rate Period
shall be the Business Day immediately following the last day thereof, as such
last day is determined in accordance with paragraph (b) of Section 4 of this
Part I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.
(i) DIVIDEND RATES. The dividend rate on shares of a series of Preferred Shares during the period from and after the Date of Original Issue of shares of such series to and including the last day of the Initial Rate Period of shares of such series shall be equal to the rate per annum set forth with respect to shares of such series under "Designation." The initial dividend rate on any series of preferred stock subsequently established by the Fund shall be the rate set forth in or determined in accordance with the resolutions of the Board of Directors establishing such series. For each Subsequent Rate Period of shares of such series thereafter, the dividend rate on shares of such series shall be equal to the rate per annum that results from an Auction for shares of such series on the Auction Date next preceding such Subsequent Rate Period (but the rate set at the Auction will not exceed the Maximum Rate); provided, however, that if:
(A) subject to Section 9 of Part 2, an Auction for any Subsequent Rate Period of a series of Preferred Shares is not held for any reason other than as described below or if Sufficient Clearing Orders have not been made in an Auction (other than as a result of all shares of any series being the subject of Submitted Hold Orders), then the dividend rate on the shares of such series for such Subsequent Rate Period will be the Maximum Rate of such series on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with respect to shares of such series during any Rate Period thereof (other than any Special Rate Period consisting of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period consisting of more than 364 Rate Period Days during which a Failure to Deposit occurred that has not been cured), but, prior to 12:00 Noon, Eastern time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall have been cured in accordance with paragraph (f) of this Section 2, the Fund must pay to the Auction Agent a late charge ("Late Charge") equal to the sum of (1) if such Failure to Deposit consisted of the failure timely to pay to the Auction Agent the full amount of dividends with respect to any Dividend Period of shares of such series, an amount computed by multiplying (x) 200% of the Reference Rate for the Rate Period during which such Failure to Deposit occurs on the Dividend Payment Date for such Dividend Period by (y) a fraction, the numerator of which shall be the number of days for which such Failure to Deposit has not been cured
in accordance with paragraph (f) of this Section 2 (including the day such
Failure to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate obtained
against the aggregate Liquidation Preference of the outstanding shares of such
series and (2) if such Failure to Deposit consisted of the failure timely to pay
to the Auction Agent the Redemption Price of the shares, if any, of such series
for which Notice of Redemption has been mailed by the Fund pursuant to paragraph
(c) of Section 11 of this Part I, an amount computed by multiplying (x) 200% of
the Reference Rate for the Rate Period during which such Failure to Deposit
occurs on the redemption date by (y) a fraction, the numerator of which shall be
the number of days for which such Failure to Deposit is not cured in accordance
with paragraph (f) of this Section 2 (including the day such Failure to Deposit
occurs and excluding the day such Failure to Deposit is cured) and the
denominator of which shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the outstanding shares of such series to be
redeemed;
(C) any Failure to Deposit shall have occurred with respect to shares of such series during any Rate Period thereof (other than any Special Rate Period consisting of more than 364 Rate Period Days or any Rate Period succeeding any Special Rate Period consisting of more than 364 Rate Period Days during which a Failure to Deposit occurred that has not been cured), and, prior to 12:00 Noon, Eastern time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall not have been cured in accordance with paragraph (f) of this Section 2 or the Fund shall not have paid the applicable Late Charge to the Auction Agent, no Auction will be held in respect of shares of such series for the first Subsequent Rate Period thereof thereafter (or for any Rate Period thereof thereafter to and including the Rate Period during which (1) such Failure to Deposit is cured in accordance with paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late Charge to the Auction Agent (the condition set forth in this clause (2) to apply only in the event Moody's is rating such shares at the time the Fund cures such Failure to Deposit), in each case no later than 12:00 Noon, Eastern time, on the second Business Day prior to the end of such Rate Period), and the dividend rate for shares of such series for each such Subsequent Rate Period for shares of such series shall be a rate per annum equal to the Maximum Rate on the Auction Date for such Subsequent Rate Period; or
(D) any Failure to Deposit shall have occurred with respect to shares of such series during a Special Rate Period thereof consisting of more than 364 Rate Period Days, or during any Rate Period thereof succeeding any Special Rate Period consisting of more than 364 Rate Period Days during which a Failure to Deposit occurred that has not been cured, and, prior to 12:00 Noon, Eastern time, on the third Business Day preceding the Auction Date for the Rate Period subsequent to such Rate Period, such Failure to Deposit shall not have been cured in accordance with paragraph (f) of this Section 2 or, in the event Moody's is then rating such shares, the Fund shall not have paid the applicable Late Charge to the Auction Agent (such Late Charge, for purposes of this subparagraph (D), to be calculated by using, as the Reference Rate, the Reference Rate applicable to a Rate Period (x) consisting of more than 270 Rate Period Days and (y) commencing on the date on which the Rate Period during which Failure to Deposit occurs commenced), no Auction will be held with respect to shares of such series for such Subsequent Rate Period (or for any Rate Period thereof thereafter to and including the Rate Period during which (1) such Failure to Deposit is cured in accordance with paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late Charge to the Auction Agent (the condition set forth in this clause (2) to apply only in the event Moody's is rating such shares at the time the Fund cures such Failure to Deposit), in each case no later than 12:00 Noon, Eastern time, on the third Business Day prior to the end of such Rate Period), and the dividend rate for shares of such series
for each such Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate for shares of such series on the Auction Date for such Subsequent Rate Period (but with the prevailing rating for shares of such series, for purposes of determining such Maximum Rate, being deemed to be "Below "Baa3"/BBB-").
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per share payable on shares of a series of Preferred Shares on any date on which dividends on shares of such series shall be payable shall be computed by multiplying the Applicable Rate for shares of such series in effect for such Dividend Period or Dividend Periods or part thereof for which dividends have not been paid by a fraction, the numerator of which shall be the number of days in such Dividend Period or Dividend Periods or part thereof and the denominator of which shall be 365 if such Dividend Period consists of [7] Rate Period Days for Series A Shares, [7] Rate Period Days for Series B Shares, [28] Rate Period Days for Series C Shares or [28] Rate Period Days for Series D Shares and 360 for all other Dividend Periods, and applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of Preferred Shares shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Fund shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section 11 of Part I of these Articles Supplementary; provided, however, that
the foregoing clause (B) shall not apply to the Fund's failure to pay the
Redemption Price in respect of Preferred Shares when the related Redemption
Notice provides that redemption of such shares is subject to one or more
conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to the Auction Agent, not later than 12:00 Noon, Eastern time, on each Dividend Payment Date for shares of a series of Preferred Shares, an aggregate amount of funds available in The City of New York, New York, equal to the dividends to be paid to all Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys paid to the Auction Agent for the payment of dividends shall be held in trust for the payment of such dividends by the Auction Agent for the benefit of the Holders specified in paragraph (i) of this Section 2. Any moneys paid to the Auction Agent in accordance with the foregoing but not applied by the Auction Agent to the payment of dividends will, to the extent permitted by law, be repaid to the Fund at the end of 90 days from the date on which such moneys were to have been so applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on Preferred Shares shall be paid on the Dividend Payment Date therefor to the Holders thereof as their names appear on the record books of the Fund on the Business Day next preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID DIVIDENDS. Any dividend payment made on Preferred Shares shall first be credited against the earliest accumulated but unpaid dividends due with respect to such shares. Dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders
as their names appear on the record books of the Fund on such date, not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Directors.
3. RESERVED.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Fund, at its
option, may designate any succeeding Subsequent Rate Period of shares of a
series of Preferred Shares as a special rate period consisting of a specified
number of Rate Period Days, other than the number of Rate Period Days comprising
a Minimum Rate Period, that is evenly divisible by seven, subject to adjustment
as provided in paragraph (b) of this Section 4 (each such period, a "Special
Rate Period"). A designation of a Special Rate Period shall be effective only if
(A) notice thereof shall have been given in accordance with paragraph (c) and
subparagraph (d)(i) of this Section 4, (B) an Auction for shares of such series
shall have been held on the Auction Date immediately preceding the first day of
such proposed Special Rate Period and Sufficient Clearing Bids for shares of
such series shall have existed in such Auction, and (C) if any Notice of
Redemption shall have been mailed by the Fund pursuant to paragraph (c) of
Section 11 of this Part I with respect to any shares of such series, the
Redemption Price with respect to such shares shall have been deposited with the
Auction Agent. In the event the Fund wishes to designate any succeeding
Subsequent Rate Period for shares of a series of Preferred Shares as a Special
Rate Period consisting of more than 28 Rate Period Days, the Fund shall notify
Fitch (if Fitch is then rating the series of Preferred Shares) and Moody's (if
Moody's is then rating the series of Preferred Shares) in advance of the
commencement of such Subsequent Rate Period that the Fund wishes to designate
such Subsequent Rate Period as a Special Rate Period and shall provide Fitch (if
Fitch is then rating the series of Preferred Shares) and Moody's (if Moody's is
then rating the series of Preferred Shares) with such documents as either may
request. In addition, full cumulative dividends, any amounts due with respect to
mandatory redemptions and any additional dividends payable prior to such date
must be paid in full or deposited with the Auction Agent. The Fund also must
have portfolio securities with a discounted value at least equal to the
Preferred Share Maintenance Amount.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not (a) a [ ] that is a Business Day in case of Series A Shares, (b) a [ ]
that is a Business Day in the case of Series B Shares, (c) a [ ] that is a
Business Day in the case of Series C Shares or (d) a [ ] that is a Business Day
in the case of Series D Shares, then the Fund shall designate such Subsequent
Rate Period as a Special Rate Period consisting of the period commencing on the
first day following the end of the immediately preceding Rate Period and ending
(a) on the first [ ] that is followed by a [ ] that is a Business Day preceding
what would otherwise be such last day in the case of Series A Shares, (b) on the
first [ ] that is followed by a [ ] that is a Business Day preceding what would
otherwise be such last day in the case of Series B Shares, (c) on the first [ ]
that is followed by a [ ] that is a Business Day preceding what would otherwise
be such last day in the case of Series C Shares or (d) on the first [ ] that is
followed by a [ ] that is a Business Day preceding what would otherwise be such
last day in the case of Series D Shares.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Preferred Shares as a Special Rate Period pursuant to paragraph (a) of this
Section 4, not less than 7 (or such lesser number of days as determined by the
Fund with appropriate consultation with the Auction Agent and Broker-Dealers)
nor more than 30 days prior to the date the Fund proposes to designate as the
first day of such Special Rate Period (which shall be such day that would
otherwise be the first day of a Minimum Rate Period), notice shall be mailed by
the Fund by first-class mail, postage prepaid, to the Holders of shares of such
series. Each such notice shall state (A) that the Fund may exercise its option
to designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Fund
will, by 11:00 A.M., Eastern time, on the second Business Day next preceding
such date (or by such later time or date, or both, as determined by the Fund
with appropriate consultation with the Auction Agent and Broker-Dealers) notify
the Auction Agent of either (x) its determination, subject to certain
conditions, to exercise such option, in which case the Fund shall specify the
Special Rate Period designated, or (y) its determination not to exercise such
option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., Eastern time, on the second Business Day next preceding the first day of any proposed Special Rate Period of shares of a series of Preferred Shares as to which notice has been given as set forth in paragraph (c) of this Section 4 (or such later time or date, or both, as determined by the Fund with appropriate consultation with the Auction Agent and Broker-Dealers), the Fund shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that the Fund has determined to designate the next succeeding Rate Period of shares of such series as a Special Rate Period, specifying the same and the first day thereof, (B) the Auction Date immediately prior to the first day of such Special Rate Period, (C) that such Special Rate Period shall not commence if (1) an Auction for shares of such series shall not be held on such Auction Date for any reason or (2) an Auction for shares of such series shall be held on such Auction Date but Sufficient Clearing Bids for shares of such series shall not exist in such Auction (other than because all Outstanding shares of such series are subject to Submitted Hold Orders), (D) the scheduled Dividend Payment Dates for shares of such series during such Special Rate Period and (E) the Special Redemption Provisions, if any, applicable to shares of such series in respect of such Special Rate Period, such notice to be accompanied by a Preferred Shares Basic Maintenance Report showing that, as of the third Business Day next preceding such proposed Special Rate Period, Moody's Eligible Assets (if Moody's is then rating the series in question) and Fitch Eligible Assets (if Fitch is then rating the series in question) each have an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount as of such Business Day (assuming for purposes of the foregoing calculation that (a) the Maximum Rate is the Maximum Rate on such Business Day as if such Business Day were the Auction Date for the proposed Special Rate Period, and (b) if applicable, the Moody's Discount Factors applicable to Moody's Eligible Assets and the Fitch Discount Factors applicable to Fitch Eligible Assets are determined by reference to the first Exposure Period longer than the Exposure Period then applicable to the Fund, as described in the definitions of Moody's Discount Factor and Fitch Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to exercise its option to designate a Special Rate Period of shares of such series and that the next succeeding Rate Period of shares of such series shall be a Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a Preferred Shares Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or Fitch is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., Eastern time, on the second Business
Day next preceding the first day of such proposed Special Rate Period (or by
such later time or date, or both, as determined by the Fund with appropriate
consultation with the Auction Agent and Broker-Dealers), the Fund shall be
deemed to have delivered a notice to the Auction Agent with respect to such
Special Rate Period to the effect set forth in subparagraph (d)(ii) of this
Section 4. In the event the Fund delivers to the Auction Agent a notice
described in subparagraph (d)(i) of this Section 4, it shall file a copy of such
notice with the Secretary of the Fund, and the contents of such notice shall be
binding on the Fund. In the event the Fund delivers to the Auction Agent a
notice described in subparagraph (d)(ii) of this Section 4, the Fund will
provide Moody's (if Moody's is then rating the series in question) and Fitch (if
Fitch is then rating the series in question) a copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF PREFERRED SHARES. Except as otherwise provided in the Charter or as otherwise required by law, (i) each Holder of Preferred Shares shall be entitled to one vote for each Preferred Share held by such Holder on each matter submitted to a vote of Stockholders of the Fund, and (ii) the holders of outstanding shares of preferred stock, including Preferred Shares, and of Common Shares shall vote together as a single class; provided, however, that, at any meeting of the Stockholders of the Fund held for the election of Directors, the holders of outstanding shares of preferred stock, including Preferred Shares, represented in person or by proxy at said meeting, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of shares of stock of the Fund, to elect two Directors of the Fund (regardless of the total number of Directors serving on the Fund's Board of Directors), each share of preferred stock, including each Preferred Share, entitling the holder thereof to one vote; provided, further, that if the Board of Directors shall be divided into one or more classes, the Board of Directors shall determine to which class or classes the Directors elected by the holders of preferred stock shall be assigned and the holders of the preferred stock shall only be entitled to elect the Directors so designated as being elected by the holders of the preferred stock when their term shall have expired; provided, finally, that such Directors appointed by the holders of preferred shares shall be allocated as evenly as possible among the classes of Directors. Subject to paragraph (b) of this Section 5, the holders of outstanding Common Shares and shares of preferred stock, including Preferred Shares, voting together as a single class, shall elect the balance of the Directors.
(b) VOTING FOR ADDITIONAL DIRECTORS.
(i) VOTING PERIOD. Except as otherwise provided in the Charter or as otherwise required by law, during any period in which any one or more of the conditions described in subparagraphs (A) or (B) of this subparagraph (b)(i) 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 two Directors elected exclusively by the holders of preferred stock, including Preferred Shares, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of shares of preferred stock, including Preferred Shares, shall be entitled, voting as a class on a one-vote-per-share basis (to the exclusion of the holders of all other securities and classes of shares of
stock of the Fund), to elect such smallest number of additional Directors, together with the two Directors that such holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment date accumulated dividends (whether or not earned or declared) on any outstanding shares of preferred stock, including Preferred Shares, 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 Auction Agent for the payment of such accumulated dividends; or
(B) if at any time holders of Preferred Shares are entitled under the 1940 Act to elect a majority of the Directors of the Fund.
Upon the termination of a Voting Period, the voting rights described in this subparagraph (b)(i) shall cease, subject always, however, to the revesting of such voting rights in the Holders upon the further occurrence of any of the events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after the accrual of any right of the holders of preferred stock, including Preferred Shares, to elect additional Directors as described in subparagraph (b)(i) of this Section 5, the Fund shall notify the Auction Agent and the Auction Agent shall call a special meeting of such holders, by mailing a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 30 days after the date of mailing of such notice. If the Fund fails to send such notice to the Auction Agent or if the Auction Agent does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed or on such other date as the Fund and the Auction Agent may agree. At any such special meeting and at each meeting of holders of preferred stock, including Preferred Shares, held during a Voting Period at which Directors are to be elected, such holders, voting together as a class (to the exclusion of the holders of all other securities and classes of shares of stock of the Fund), shall be entitled to elect the number of Directors prescribed in subparagraph (b)(i) of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING DIRECTORS. The terms of office of all persons who are Directors of the Fund at the time of a special meeting of Holders and holders of other shares of preferred stock of the Fund to elect Directors shall continue, notwithstanding the election at such meeting by the Holders and such other holders of the number of Directors that they are entitled to elect, and the persons so elected by the Holders and such other holders, together with the two incumbent Directors elected by the Holders and such other holders of shares of preferred stock of the Fund and the remaining incumbent Directors elected by the holders of the Common Shares and preferred stock, including Preferred Shares, shall constitute the duly elected Directors of the Fund.
(iv) TERMS OF OFFICE OF CERTAIN DIRECTORS TO TERMINATE UPON TERMINATION OF
VOTING PERIOD. Simultaneously with the termination of a Voting Period, the terms
of office of the additional Directors elected by the Holders and holders of
other shares of preferred stock of the Fund pursuant to subparagraph (b)(i) of
this Section 5 shall terminate, the remaining Directors shall constitute the
Directors of the Fund and the voting rights of the Holders and such other
holders to elect additional Directors pursuant to subparagraph (b)(i) of this
Section 5 shall cease, subject to the provisions of the last sentence of
subparagraph (b)(i) of this Section 5.
(c) HOLDERS OF PREFERRED SHARES TO VOTE ON CERTAIN OTHER MATTERS.
(i) INCREASES IN CAPITALIZATION. So long as any Preferred Shares are outstanding, the Fund shall not, without the affirmative vote or consent of the Holders of at least a majority of the Preferred Shares outstanding at the time, in person or by proxy, either in writing or at a meeting, voting as a separate class: (a) authorize, create or issue any class or series of shares ranking prior to or on a parity with Preferred Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, or authorize, create or issue additional shares of any series of Preferred Shares (except that, notwithstanding the foregoing, but subject to the provisions of paragraph (c) of Section 13 of this Part I, the Board of Directors, without the vote or consent of the Holders of Preferred Shares, may from time to time authorize and create, and the Fund may from time to time issue additional shares of, any series of Preferred Shares, or classes or series of preferred shares ranking on a parity with Preferred Shares with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund; provided, however, that if Moody's or Fitch is not then rating the Preferred Shares, the aggregate liquidation preference of all Preferred Shares of the Fund outstanding after any such issuance, exclusive of accumulated and unpaid dividends, may not exceed $[ ]) or (b) amend, alter or repeal the provisions of the Charter, or these Articles Supplementary, whether by merger, consolidation or otherwise, so as to affect any preference, right or power of such Preferred Shares or the Holders thereof; provided, however, that (i) none of the actions permitted by the exception to (a) above will be deemed to affect such preferences, rights or powers, (ii) a division or split of a share of Preferred Shares will be deemed to affect such preferences, rights or powers only if the terms of such division adversely affect the Holders of Preferred Shares and (iii) the authorization, creation and issuance of classes or series of shares ranking junior to Preferred Shares with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, will be deemed to affect such preferences, rights or powers only if Moody's or Fitch is then rating Preferred Shares and such issuance would, at the time thereof, cause the Fund not to satisfy the 1940 Act Preferred Shares Asset Coverage or the Preferred Shares Basic Maintenance Amount. So long as any Preferred Shares are outstanding, the Fund shall not, without the affirmative vote or consent of the Holders of at least a majority of the Preferred Shares outstanding at the time, in person or by proxy, either in writing or at a meeting, voting as a separate class, file a voluntary application for relief under Federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent. If any action set forth above would adversely affect the rights of one or more series (the "Affected Series") of Preferred Shares in a manner different from any other series of Preferred Shares, the Fund will not approve any such action without the affirmative vote or consent of the holders of at least a majority of the shares of each such Affected Series outstanding at the time, in person or by proxy, either in writing or at a meeting (each such Affected Series voting as a separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided for in the Charter, (A) the affirmative vote of the Holders of a "majority of the outstanding" (as such term is defined in the 1940 Act) preferred stock of the Fund, including Preferred Shares, voting as a separate class, shall be required to approve (A) any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares and (B) any action requiring a vote of security holders of the Fund under Section 13(a) of the 1940 Act. In the event a vote of Holders of Preferred Shares is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund shall, not later than ten Business Days prior to
the date on which such vote is to be taken, notify Moody's (if Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating the Preferred Shares) that such vote is to be taken and the nature of the action with respect to which such vote is to be taken. The Fund shall, not later than ten Business Days after the date on which such vote is taken, notify Moody's (if Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating the Preferred Shares) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT STOCKHOLDER APPROVAL. The Board of Directors may, without the vote or consent of the Holders of the Preferred Shares, or any other stockholder of the Fund, from time to time amend, alter or repeal any or all of the definitions of the terms listed below, or any provision of the Articles Supplementary viewed by Moody's or Fitch as a predicate for any such definition, and any such amendment, alteration or repeal will not be deemed to affect the preferences, rights or powers of the Preferred Shares or the Holders thereof, provided the Board of Directors receives confirmation from Moody's (if Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating the Preferred Shares), that any such amendment, alteration or repeal would not impair the ratings then assigned to the Preferred Shares by Moody's (if Moody's is then rating the Preferred Shares) or Fitch (if Fitch is then rating the Preferred Shares):
Accountant's Confirmation Moody's Hedging Transactions Annual Valuation Date Moody's Real Estate Industry/Property Sector Classification Closing Transaction 1940 Act Cure Date Deposit Securities 1940 Act Preferred Shares Asset Coverage Discounted Value Other Real Estate Company Exposure Period Preferred Shares Basic Maintenance Amount Fitch Discount Factor Preferred Shares Basic Maintenance Cure Date Fitch Eligible Assets Preferred Shares Basic Maintenance Report Fitch Hedging Transactions Quarterly Valuation Date Forward Commitments Real Estate Index Hedging Transactions REIT Independent Accountant Swap Market Value Treasury Futures Moody's Discount Factor Valuation Date Moody's Eligible Assets |
In addition, subject to compliance with applicable law, the Board of Directors may amend the definition of Maximum Rate to increase the percentage amount by which the Reference Rate is multiplied, or to increase the spread added to the Reference Rate, to determine the Maximum Rate without the vote or consent of the holders of shares of preferred stock, including each series of Preferred Shares, or any other stockholder of the Fund, and without receiving any confirmation from any rating agency, after consultation with the Broker-Dealers, provided that immediately following any such increase the Fund would meet the Preferred Shares Basic Maintenance Amount Test.
(e) RELATIVE RIGHTS AND PREFERENCES. Unless otherwise required by law or provided elsewhere in the Charter, the Holders of Preferred Shares shall not have any relative rights or preferences or other special rights other than those specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of Preferred Shares shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR DIRECTORS SOLE REMEDY FOR FUND'S FAILURE TO PAY DIVIDENDS. In the event that the Fund fails to pay any dividends on the Preferred Shares, the exclusive remedy of the Holders shall be the right to vote for Directors pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of the Holders to vote on any matter, whether such right is created by these Articles Supplementary, by the other provisions of the Charter, by statute or otherwise, no Holder shall be entitled to vote any share of a series of Preferred Shares and no share of a series of Preferred Shares shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to vote or shares deemed outstanding for quorum purposes, as the case may be, the requisite Notice of Redemption with respect to such shares shall have been mailed as provided in paragraph (c) of Section 11 of this Part I and the Redemption Price for the redemption of such shares shall have been deposited in trust with the Auction Agent for that purpose. No share of a series of Preferred Shares held by the Fund or any affiliate of the Fund (except for shares held by a Broker-Dealer that is an affiliate of the Fund for the account of its customers) shall have any voting rights or be deemed to be outstanding for voting or other purposes.
6. 1940 ACT PREFERRED SHARES ASSET COVERAGE. The Fund shall maintain, as of the last Business Day of each month in which any share of a series of Preferred Shares is outstanding, the 1940 Act Preferred Shares Asset Coverage; provided, however, that the redemption pursuant to Section 11(b) shall be the sole remedy in the event the Fund fails to do so.
7. PREFERRED SHARES BASIC MAINTENANCE AMOUNT.
(a) So long as Preferred Shares are outstanding, the Fund shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date, (i) Fitch Eligible Assets having an
aggregate Discounted Value equal to or greater than the Preferred Shares Basic
Maintenance Amount (if Fitch is then rating the Preferred Shares) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount (if Moody's is then rating
the Preferred Shares); provided, however, that the redemption pursuant to
Section 11(b) shall be the sole remedy in the event the Fund fails to do so.
(b) On or before 5:00 P.M., Eastern time, on the third Business Day after a Valuation Date on which the Fund fails to satisfy the Preferred Shares Basic Maintenance Amount, and on the third Business Day after the Preferred Shares Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall complete and deliver to Fitch (if Fitch is then rating the Preferred Shares) and Moody's (if Moody's is then rating the Preferred Shares) a Preferred Shares Basic Maintenance Report as of the date of such failure or such Preferred Shares Basic Maintenance Cure Date, as the case may be. The Fund shall also deliver a Preferred Shares Basic Maintenance Report to Moody's (if Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating the Preferred Shares),
in each case on or before the seventh Business Day after the last Business Day of each month. A failure by the Fund to deliver a Preferred Shares Basic Maintenance Report pursuant to the preceding sentence shall be deemed to be delivery of a Preferred Shares Basic Maintenance Report indicating the Discounted Value for all assets of the Fund is less than the Preferred Shares Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7 relating to a Quarterly Valuation Date that is also an Annual Valuation Date,
the Fund shall cause the Independent Accountant to confirm in writing to Fitch
(if Fitch is then rating the Preferred Shares) and Moody's (if Moody's is then
rating the Preferred Shares) (i) the mathematical accuracy of the calculations
reflected in such Report, (ii) that, in such Report, the Fund correctly
determined in accordance with these Articles Supplementary whether the Fund had,
at such Annual Valuation Date, Fitch Eligible Assets (if Fitch is then rating
the Preferred Shares) of an aggregate Discounted Value at least equal to the
Preferred Shares Basic Maintenance Amount and Moody's Eligible Assets (if
Moody's is then rating the Preferred Shares) of an aggregate Discounted Value at
least equal to the Preferred Shares Basic Maintenance Amount, (iii) that, in
such Report, the Fund determined whether the Fund had, at such Annual Valuation
Date in accordance with these Articles Supplementary, with respect to the Fitch
ratings on Real Estate Securities, the issuer name and issue size and coupon
rate listed in such Report, verified by the Independent Accountant by reference
to Bloomberg Financial Services or another independent source approved by
Moody's (if Moody's is then rating the Preferred Shares) and Fitch (if Fitch is
then rating the Preferred Shares) and the Independent Accountant shall provide a
listing in its letter of any differences, (iv) with respect to the Moody's
ratings on Real Estate Securities, the issuer name, issue size and coupon rate
listed in such Report, that such information has been verified by the
Independent Accountant by reference to Bloomberg Financial Services or another
independent source approved by Moody's (if Moody's is then rating the Preferred
Shares) and Fitch (if Fitch is then rating the Preferred Shares) and the
Independent Accountant shall provide a listing in its letter of any differences,
(v) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Fund's assets to the Fund for purposes of valuing securities in the Fund's
portfolio, that the Independent Accountant has traced the price used in such
Report to the bid or mean price listed in such Report as provided to the Fund
and verified that such information agrees (in the event such information does
not agree, the Independent Accountant will provide a listing in its letter of
such differences) and (vi) with respect to such confirmation to Moody's (if
Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating
the Preferred Shares), that the Fund has satisfied the requirements of Section
13 of this Part I of these Articles Supplementary with respect to portfolio
holdings as of the date of such Report (such confirmation is herein called the
"Accountant's Confirmation"); provided, however, that the Accountant may base
the conclusions related to (ii) through (vi) above on a sample of at least 25
securities (or such other number of securities as the Accountant and Moody's (if
Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating
the Preferred Shares) may agree from time to time).
(d) Within ten Business Days after the date of delivery of a Preferred Shares Basic Maintenance Report in accordance with paragraph (b) of this Section 7 relating to any Valuation Date on which the Fund failed to satisfy the Preferred Shares Basic Maintenance Amount, and relating to the Preferred Shares Basic Maintenance Cure Date with respect to such failure to satisfy the Preferred Shares Basic Maintenance Amount, the Fund shall cause the Independent Accountant to provide to Fitch (if Fitch is then rating the shares of series in question) and Moody's (if Moody's is then rating the series in question) an Accountant's Confirmation as to such Preferred Shares Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or (d) of this Section 7 shows that an error was made in the Preferred Shares Basic Maintenance Report for a particular Valuation Date for which such Accountant's Confirmation was required to be delivered, or shows that a lower aggregate Discounted Value for the aggregate of all Fitch Eligible Assets (if Fitch is then rating the Preferred Shares) or Moody's Eligible Assets (if Moody's is then rating the Preferred Shares), as the case may be, of the Fund was determined by the Independent Accountant, then in the absence of manifest error the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Fund, and the Fund shall accordingly amend and deliver the Preferred Shares Basic Maintenance Report to Fitch (if Fitch is then rating the Preferred Shares) and Moody's (if Moody's is then rating the Preferred Shares) promptly following receipt by the Fund of such Accountant's Confirmation.
(f) On or before 5:00 p.m., Eastern time, on the first Business Day after the Date of Original Issue of any Preferred Shares, the Fund shall complete and deliver to Fitch (if Fitch is then rating the Preferred Shares) and Moody's (if Moody's is then rating the Preferred Shares) a Preferred Shares Basic Maintenance Report as of the close of business on such Date of Original Issue.
(g) On or before 5:00 p.m., Eastern time, on the seventh Business Day after either (i) the Fund shall have redeemed Common Shares or (ii) the ratio of the Discounted Value of Fitch Eligible Assets or the Discounted Value of Moody's Eligible Assets to the Preferred Shares Basic Maintenance Amount on any valuation date is less than or equal to 105% or (iii) whenever requested by Moody's or Fitch, the Fund shall complete and deliver to Fitch (if Fitch is then rating the Preferred Shares) or Moody's (if Moody's is then rating the Preferred Shares), as the case may be, a Preferred Shares Basic Maintenance Report as of the date of either such event.
8. RESERVED.
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON SHARES OTHER THAN PREFERRED SHARES. Except as set forth in the next sentence, no dividends shall be declared or paid or set apart for payment on the shares of any class or series of shares of stock of the Fund ranking, as to the payment of dividends, on a parity with Preferred Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the shares of each series of Preferred Shares through its most recent Dividend Payment Date. When dividends are not paid in full upon the shares of each series of Preferred Shares through its most recent Dividend Payment Date or upon the shares of any other class or series of shares of stock of the Fund ranking on a parity as to the payment of dividends with Preferred Shares through their most recent respective dividend payment dates, all dividends declared upon Preferred Shares and any other such class or series of shares of stock ranking on a parity as to the payment of dividends with Preferred Shares shall be declared pro rata so that the amount of dividends declared per share on Preferred Shares and such other class or series of shares of stock shall in all cases bear to each other the same ratio that accumulated dividends per share on the Preferred Shares and such other class or series of shares of stock bear to each other (for purposes of this sentence, the amount of dividends declared per share of Preferred Shares shall be based on the Applicable Rate for such share for the Dividend Periods during which dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES UNDER THE 1940 ACT. The Board of Directors shall not declare any dividend (except a dividend payable in Common Shares), or declare any other distribution, upon the Common Shares, or purchase Common Shares, unless in every such case the Preferred Shares have, at the time of any such declaration or purchase, an asset coverage (as defined in and determined pursuant to the 1940 Act) of at least 200% (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares or stock of a closed-end investment company as a condition of declaring dividends on its common shares or stock) after deducting the amount of such dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so long
as any Preferred Shares are outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the
Fund 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 in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the Preferred Shares as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Shares or any other shares of the Fund
ranking junior to or on a parity with the Preferred Shares as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Fund ranking junior to the
Preferred Shares as to the payment of dividends and the distribution of assets
upon dissolution, liquidation or winding up), or any such parity shares (except
by conversion into or exchange for shares of the Fund ranking junior to or on a
parity with Preferred Shares as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up), unless (i) full
cumulative dividends on shares of each series of Preferred Shares through its
most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Fund has redeemed the full number of Preferred Shares
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Fund 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 in options, warrants or rights to subscribe for or purchase,
Common Shares or other shares, if any, ranking junior to Preferred Shares as to
the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Shares or any other shares of
the Fund ranking junior to Preferred Shares as to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
Common Shares or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to Preferred Shares as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless immediately after such transaction the
Discounted Value of Moody's Eligible Assets (if Moody's is then rating the
Preferred Shares) and Fitch Eligible Assets (if Fitch is then rating the
Preferred Shares) would each at least equal the Preferred Shares Basic
Maintenance Amount.
10. RESERVED.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) Subject to the provisions of subparagraph (v) of this paragraph (a), Preferred Shares of any series may be redeemed, at the option of the Fund, as a whole or from time to time in part, on the second Business Day preceding any Dividend Payment Date for shares of such series, out of funds legally available therefor, at a redemption price per share equal to the sum of $25,000 plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption; provided, however, that (1) shares of a series of Preferred Shares may not be redeemed in part if after such partial redemption fewer than 250 shares of such series of Preferred Shares remain outstanding; (2) shares of a series of Preferred Shares are redeemable by the Fund during the Initial Rate Period only on the second Business Day next preceding the last Dividend Payment Date for such Initial Rate Period; and (3) subject to subparagraph (ii) of this paragraph (a), the Notice of Special Rate Period relating to a Special Rate Period of shares of a series of Preferred Shares, as delivered to the Auction Agent and filed with the Secretary of the Fund, may provide that shares of such series shall not be redeemable during the whole or any part of such Special Rate Period (except as provided in subparagraph (iv) of this paragraph (a)) or shall be redeemable during the whole or any part of such Special Rate Period only upon payment of such redemption premium or premiums as shall be specified therein ("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a series of Preferred Shares for a Special Rate Period thereof may contain Special Redemption Provisions only if the Fund's Board of Directors, after consultation with the Broker-Dealer or Broker-Dealers for such Special Rate Period of shares of such series, determines that such Special Redemption Provisions are in the best interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series of Preferred Shares are to be redeemed pursuant to subparagraph (i) of this paragraph (a), the number of shares of such series to be redeemed shall be determined by the Board of Directors, and such shares shall be redeemed pro rata from the Holders of shares of such series in proportion to the number of shares of such series held by such Holders or by such other method that the Board of Directors deems fair and equitable.
(iv) Subject to the provisions of subparagraph (v) of this paragraph (a), shares of any series of Preferred Shares may be redeemed, at the option of the Fund, as a whole but not in part, out of funds legally available therefor, on the first day following any Dividend Period thereof included in a Rate Period consisting of more than 364 Rate Period Days if, on the date of determination of the Applicable Rate for shares of such series for such Rate Period, such Applicable Rate equaled or exceeded on such date of determination the Treasury Note Rate for such Rate Period, at a redemption price per share equal to the sum of $25,000 plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption.
(v) The Fund may not on any date mail a Notice of Redemption pursuant to paragraph (c) of this Section 11 in respect of a redemption contemplated to be effected pursuant to this paragraph (a) unless on such date (a) the Fund has available Deposit Securities with maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the amount (including any applicable premium) due to Holders of Preferred Shares by reason of the redemption of such shares on such redemption date and (b) the Discounted Value of Moody's Eligible Assets (if Moody's is then rating the Preferred Shares) and the Discounted Value of Fitch Eligible Assets (if Fitch is then rating the Preferred Shares) each at least equal to the Preferred Shares Basic Maintenance Amount, and would at least equal the Preferred Shares Basic
Maintenance Amount immediately subsequent to such redemption if such redemption were to occur on such date. The Fund shall not be required to have available Deposit Securities as described in clause (a) of this subparagraph (v) in respect of a redemption of any Preferred Shares, as a whole or in part, contemplated to be effected pursuant to paragraph 11(a) where such redemption is subject to the issuance of shares of any other series of preferred stock of the Fund. For purposes of determining in clause (b) of the preceding sentence whether the Discounted Value of Moody's Eligible Assets and Fitch Eligible Assets at least equals the Preferred Shares Basic Maintenance Amount, the Moody's Discount Factors applicable to Moody's Eligible Assets and the Fitch Discount Factor applicable to Fitch Discount Assets shall be determined by reference, if applicable, to the first Exposure Period longer than the Exposure Period then applicable to the Fund, as described in the definition of Moody's Discount Factor and Fitch Discount Factor herein.
(b) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Directors for redemption, certain of the Preferred Shares, if the Fund
fails to have either Moody's Eligible Assets with a Discounted Value or Fitch
Eligible Assets with a Discounted Value greater than or equal to the Preferred
Shares Basic Maintenance Amount, in accordance with the requirements of the
rating agency or agencies then rating the Preferred Shares, or fails to maintain
the 1940 Act Preferred Shares Asset Coverage and such failure is not cured on or
before the Preferred Shares Basic Maintenance Cure Date or the 1940 Act Cure
Date, as the case may be. The number of Preferred Shares to be redeemed shall be
equal to the lesser of (i) the minimum number of Preferred Shares, together with
all other preferred stock subject to redemption or retirement, the redemption of
which, if deemed to have occurred immediately prior to the opening of business
on the Cure Date, would have resulted in the Fund's having both Moody's Eligible
Assets with a Discounted Value and Fitch Eligible Assets with a Discounted Value
greater than or equal to the Preferred Shares Basic Maintenance Amount or
maintaining the 1940 Act Preferred Shares Asset Coverage, as the case may be, on
such Cure Date (provided, however, that if there is no such minimum number of
Preferred Shares and other preferred stock the redemption or retirement of which
would have had such result, all Preferred Shares and other preferred stock then
outstanding shall be redeemed), and (ii) the maximum number of Preferred Shares,
together with all other shares of preferred stock subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor in accordance with the Charter and applicable law. In determining the
Preferred Shares required to be redeemed in accordance with the foregoing, the
Fund shall allocate the number required to be redeemed to satisfy the Preferred
Shares Basic Maintenance Amount or the 1940 Act Preferred Shares Asset Coverage,
as the case may be, pro rata among Preferred Shares and other preferred stock
(and, then, pro rata among each series of Preferred Shares) subject to
redemption or retirement. The Fund shall effect such redemption on the date
fixed by the Fund therefor, which date shall not be earlier than 20 days (or
such lesser number of days as determined by the Fund with appropriate
consultation with the Auction Agent and Broker-Dealers) nor later than 40 days
after such Cure Date, except that if the Fund does not have funds legally
available for the redemption of all of the required number of Preferred Shares
and other preferred stock that are subject to redemption or retirement or the
Fund otherwise is unable to effect such redemption on or prior to 40 days after
such Cure Date, the Fund shall redeem those Preferred Shares and other preferred
stock which it was unable to redeem on the earliest practicable date on which it
is able to effect such redemption. If fewer than all of the outstanding shares
of a series of Preferred Shares are to be redeemed pursuant to this paragraph
(b), the number of shares of such series to be redeemed shall be redeemed pro
rata from the Holders of shares of such series in proportion to the number of shares of such series held by such Holders or by such other method that the Board of Directors deems fair and equitable.
(c) NOTICE OF REDEMPTION. If the Fund shall determine or be required to redeem shares of a series of Preferred Shares pursuant to paragraph (a) or (b) of this Section 11, it shall mail a Notice of Redemption with respect to such redemption by first class mail, postage prepaid, to each Holder of the shares of such series to be redeemed, at such Holder's address as the same appears on the record books of the Fund on the record date established by the Board of Directors. Such Notice of Redemption shall be so mailed not less than 20 (or such lesser number of days as determined by the Fund with appropriate consultation with the Auction Agent and Broker-Dealers) nor more than 45 days prior to the date fixed for redemption. Each such Notice of Redemption shall state: (i) the redemption date; (ii) the number of Preferred Shares to be redeemed and the series thereof; (iii) the CUSIP number for the shares of such series; (iv) the Redemption Price; (v) the place or places where the certificate(s) for such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the Notice of Redemption shall so state) are to be surrendered for payment of the Redemption Price; (vi) that dividends on the shares to be redeemed will cease to accumulate on such redemption date; and (vii) the provisions of this Section 11 under which such redemption is made. If fewer than all shares of a series of Preferred Shares held by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder shall also specify the number of shares of such series to be redeemed from such Holder. The Fund may provide in any Notice of Redemption relating to a redemption contemplated to be effected pursuant to paragraph (a) of this Section 11 that such redemption is subject to one or more conditions precedent and that the Fund shall not be required to effect such redemption unless each such condition shall have been satisfied at the time or times and in the manner specified in such Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the provisions of paragraphs (a) or (b) of this Section 11, if any dividends on shares of a series of Preferred Shares (whether or not earned or declared) are in arrears, no Preferred Shares shall be redeemed unless all outstanding shares of such series are simultaneously redeemed, and the Fund shall not purchase or otherwise acquire any shares of such series; provided, however, that the foregoing shall not prevent the purchase or acquisition of all outstanding shares of such series pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to, and accepted by, Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any redemption for which Notice of Redemption has been mailed is not made by reason of the absence of legally available funds therefor in accordance with the Charter and applicable law, such redemption shall be made as soon as practicable to the extent such funds become available. Failure to redeem Preferred Shares shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Fund shall have failed, for any reason whatsoever, to deposit in trust with the Auction Agent the Redemption Price with respect to any shares for which such Notice of Redemption has been mailed; provided, however, that the foregoing shall not apply in the case of the Fund's failure to deposit in trust with the Auction Agent the Redemption Price with respect to any shares where (1) the Notice of Redemption relating to such redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption. Notwithstanding the fact that the Fund may not have redeemed Preferred Shares
for which a Notice of Redemption has been mailed, dividends may be declared and paid on Preferred Shares and shall include those Preferred Shares for which a Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys paid to the Auction Agent for payment of the Redemption Price of Preferred Shares called for redemption shall be held in trust by the Auction Agent for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on the Business Day fixed for redemption thereby, in funds available on that Business Day in The City of New York, New York) of funds sufficient to redeem the Preferred Shares that are the subject of such notice, dividends on such shares shall cease to accumulate and such shares shall no longer be deemed to be outstanding for any purpose, and all rights of the Holders of the shares so called for redemption shall cease and terminate, except the right of such Holders to receive the Redemption Price, but without any interest or other additional amount, except as provided in subparagraph (e)(i) of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in accordance with the Notice of Redemption of the certificates, if any, for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the Notice of Redemption shall so state), the Redemption Price shall be paid by the Auction Agent to the Holders of Preferred Shares subject to redemption. In the case that fewer than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued, representing the unredeemed shares, without cost to the Holder thereof. The Fund shall be entitled to receive from the Auction Agent, promptly after the date fixed for redemption, any cash deposited with the Auction Agent in excess of (i) the aggregate Redemption Price of the Preferred Shares called for redemption on such date and (ii) all other amounts to which Holders of Preferred Shares called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of 90 days from such redemption date shall, to the extent permitted by law, be repaid to the Fund, after which time the Holders of Preferred Shares so called for redemption may look only to the Fund for payment of the Redemption Price and all other amounts to which they may be entitled.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption pursuant to this Section 11, the Fund shall use its best efforts to comply with all applicable conditions precedent to effecting such redemption under the 1940 Act and any applicable Maryland law, but shall effect no redemption except in accordance with the 1940 Act and any applicable Maryland law.
(i) ONLY WHOLE PREFERRED SHARES MAY BE REDEEMED. In the case of any redemption pursuant to this Section 11, only whole Preferred Shares shall be redeemed, and in the event that any provision of the Charter would require redemption of a fractional share, the Auction Agent shall be authorized to round up so that only whole shares are redeemed.
(j) MODIFICATION OF REDEMPTION PROCEDURES. Notwithstanding any of the foregoing provisions of this Section 11, the Fund may modify any or all of the requirements relating to the Notice of Redemption provided that (i) any such modification does not materially and adversely affect any holder of the relevant series of Preferred Shares, and (ii) the Fund receives notice from Moody's (if Moody's is then rating the Preferred Shares) and Fitch (if Fitch is then rating
the Preferred Shares) that such modification would not impair the ratings assigned by Moody's and Fitch to the Preferred Shares.
(k) PURCHASE OR OTHER ACQUISITION OF PREFERRED SHARES OUTSIDE OF AN AUCTION. Except for the provisions described above, nothing contained in these Articles Supplementary limits any right of the Fund to purchase or otherwise acquire any shares of each series of Preferred Shares outside of an Auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the mandatory or optional redemption price with respect to, any shares of each series of Preferred Shares for which Notice of Redemption has been given and the Fund meets the 1940 Act Preferred Shares Asset Coverage and the Preferred Shares Basic Maintenance Amount Test after giving effect to such purchase or acquisition on the date thereof. Any shares that are purchased, redeemed or otherwise acquired by the Fund shall have no voting rights. If fewer than all the Outstanding shares of any series of Preferred Shares are redeemed or otherwise acquired by the Fund, the Fund shall give notice of such transaction to the Auction Agent, in accordance with the procedures agreed upon by the Board of Directors.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of Preferred Shares shall rank on a parity with each other, with shares of any other series of Preferred Shares and with shares of any other series of preferred stock as to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of Preferred Shares then outstanding shall be entitled to receive and to
be paid out of the assets of the Fund available for distribution to its
Stockholders, before any payment or distribution shall be made on the Common
Shares or on any other class of shares of the Fund ranking junior to the
Preferred Shares upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared but excluding interest
thereon) accumulated but unpaid to (but not including) the date of final
distribution in same day funds. After the payment to the Holders of the
Preferred Shares of the full preferential amounts provided for in this paragraph
(b), the Holders of Preferred Shares as such shall have no right or claim to any
of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund available for distribution to the Holders of Preferred Shares upon any dissolution, liquidation, or winding up of the affairs of the Fund, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (b) of this Section 12, no such distribution shall be made on account of any shares of any other class or series of preferred stock ranking on a parity with the Preferred Shares with respect to the distribution of assets upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the Preferred Shares, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of shares of any series or class or classes of shares ranking on a parity with the Preferred Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, after payment shall have been made in full to the Holders of the Preferred Shares as provided in paragraph (b) of this Section 12, but not prior thereto, any other series or class or classes of shares ranking junior to the Preferred Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the Preferred Shares shall not be entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of all or substantially all the property or business of the Fund, nor the merger or consolidation of the Fund into or with any corporation nor the merger or consolidation of any corporation into or with the Fund shall be a dissolution, liquidation or winding up, whether voluntary or involuntary, for the purposes of this Section 12.
13. FUTURES AND OPTIONS TRANSACTIONS; FORWARD COMMITMENTS.
(a) For so long as any Preferred Shares are rated by Moody's, the Fund may buy or sell financial futures contracts, write, purchase or sell call options on financial futures contracts or purchase put options on financial futures contracts or write call options on portfolio securities, swaps and securities lending unless it receives written confirmation from Moody's that engaging in such transactions would impair the ratings then assigned to the Preferred Shares by Moody's, (collectively "Moody's Hedging Transactions"), subject to the following limitations:
(i) FUTURE AND CALL OPTIONS: For purposes of the Preferred Shares Basic Maintenance Amount, futures held by the Fund and call options sold by the Fund shall not be included as Moody's Eligible Assets. Likewise, assets held in segregated accounts, including assets used to cover good faith margin deposits and maximum daily variation payments, in connection with such futures and any uncovered call options shall not be included as Moody's Eligible Assets. For call options purchased by the Fund, the Market Value of the call options will be included as Moody's Eligible Asset subject to a Moody's Discount Factor mutually agreed to between the Fund and Moody's.
(ii) SECURITIES LENDING: For purposes of calculating the Preferred Shares Basic Maintenance Amount, such securities lent shall be included as Moody's Eligible Assets with the appropriate Moody's Discount Factor applied to each such lent security. The obligation to return such collateral shall not be included as an obligation/liability for purposes of calculating the Preferred Shares Basic Maintenance Amount. Moreover, the Fund may reinvest cash collateral for securities lent in conformity with its investment objectives and policies and the provisions of these Articles Supplementary in securities that otherwise would qualify as Moody's Eligible Assets. As collateral for securities lent, the Fund also may receive securities that otherwise would qualify as Moody's Eligible Assets. In either such event, to the extent that the securities lending collateral constitutes Moody's Eligible Assets, if the value of such collateral exceeds, whether due to appreciation or otherwise, the value of the securities lent, in each case after applying the appropriate Moody's Discount Factor, such excess shall be included as a Moody's Eligible Asset. Conversely, if the discounted value of such securities lending collateral is less than the discounted value of the securities lent, such difference shall be included as an obligation/liability of the Fund for purposes of calculating the Preferred Shares Basic Maintenance Amount.
(iii) SWAPS (INCLUDING TOTAL RETURN SWAPS, INTEREST RATE SWAPS AND CREDIT DEFAULT SWAPS): Total Return and Interest Rate Swaps are subject to the following provisions:
(A) Only the cumulative unsettled profit and loss from a Total Return Swap transaction will be calculated when determining the Preferred Shares Basic Maintenance Amount. If the Fund has an outstanding gain from a swap transaction on a Valuation Date, the gain will be included as a Moody's Eligible Asset subject to the Moody's Discount Factor on the counterparty to the swap transaction. If the Fund has an outstanding liability from a swap transaction on a Valuation Date, the Fund will subtract the outstanding liability from the total Moody's Eligible Assets in calculating the Preferred Shares Basic Maintenance Amount.
In addition, for swaps other than Total Return Swaps, the Market Value of the position (positive or negative) will be included as a Moody's Eligible Asset. The aggregate notional value of all swaps will not exceed the Liquidation Preference of the Outstanding Preferred Shares. At the time a swap is executed, the Fund will only enter into swap transactions where the counterparty has at least a Fitch rating of A- or Moody's rating of A3.
(B) (1) The underlying securities subject to a Credit Default Swap sold by the Fund will be subject to the applicable Moody's Discount Factor for each security subject to the swap;
(2) If the Fund purchases a Credit Default Swap and holds the underlying security, the Market Value of the Credit Default Swap and the underlying security will be included as a Moody's Eligible Asset subject to the Moody's Discount Factor assessed based on the counterparty rating; and
(3) The Fund will not include a Credit Default Swap as a Moody's Eligible Asset purchased by the Fund without the Fund holding the underlying security or when the Fund buys a Credit Default Swap for a basket of securities without holding all the securities in the basket.
If not otherwise provided for in (a)(i)-(iii) above, derivative instruments shall be treated as follows: Any derivative instruments will be valued pursuant to the Fund's Valuation Procedures on a Valuation Date. The amount of the net payment obligation and the cost of a closing transaction, as appropriate, on any derivative instrument on a Valuation Date will be counted as a liability for purposes of determining the Preferred Shares Basic Maintenance Amount. Any derivative instrument with respect to which the Fund is owed payment on the Valuation Date that is not based upon an individual security or securities that are Moody's Eligible Assets will either have a mutually agreed upon valuation by Moody's and the Fund for purposes of determining Moody's Eligible Assets or will be excluded from Moody's Eligible Assets. Any derivative instrument with respect to which the Fund is owed payment on the Valuation Date that is based upon an individual security or securities that are Moody's Eligible Assets (e.g., a purchased call option on a bond that is in-the-money) will be valued as follows for purposes of determining Moody's Eligible Assets: (A) For such derivative instruments that are exchange traded, the value of the in-the-money amount of the payment obligation to the Fund will be reduced by applying the Moody's Discount Factor (as it would apply to the underlying security or securities) and then added to Moody's Eligible Assets; and (B) for such derivative instruments that are not exchange traded, the value of the in-the-money amount of the payment obligation to the Fund will be (1) reduced as described in (A) and (2) further reduced by applying to the remaining amount the Moody's Discount Factor
determined by reference to the credit rating of the derivative counterparty, with the remaining amount after these reductions then added to Moody's Eligible Assets.
For purposes of determining whether the Fund has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the Preferred Shares Basic Maintenance Amount, the Discounted Value of all Forward Commitments to which the Fund is a party and of all securities deliverable to the Fund pursuant to such Forward Commitments shall be zero.
(b) For so long as any Preferred Shares are rated by Fitch, the Fund may buy or sell financial futures contracts, write, purchase or sell call options on financial futures contracts or purchase put options on financial futures contracts or write call options on portfolio securities, swaps and securities lending unless it receives written confirmation from Fitch that engaging in such transactions would impair the ratings then assigned to the Preferred Shares by Fitch, (collectively "Fitch Hedging Transactions"), subject to the following limitations:
(i) FUTURE AND CALL OPTIONS: For purposes of the Preferred Shares Basic Maintenance Amount, futures held by the Fund and call options sold by the Fund shall not be included as Fitch Eligible Assets. Likewise, assets held in segregated accounts, including assets used to cover good faith margin deposits and maximum daily variation payments, in connection with such futures and any uncovered call options shall not be included as Fitch Eligible Assets. For call options purchased by the Fund, the Market Value of the call options will be included as Fitch Eligible Asset subject to a Fitch Discount Factor mutually agreed to between the Fund and Fitch.
(ii) SECURITIES LENDING: For purposes of calculating the Preferred Shares Basic Maintenance Amount, such securities lent shall be included as Fitch Eligible Assets with the appropriate Fitch Discount Factor applied to each such lent security. The obligation to return such collateral shall not be included as an obligation/liability for purposes of calculating the Preferred Shares Basic Maintenance Amount. Moreover, the Fund may reinvest cash collateral for securities lent in conformity with its investment objectives and policies and the provisions of these Articles Supplementary in securities that otherwise would qualify as Fitch Eligible Assets. As collateral for securities lent, the Fund also may receive securities that otherwise would qualify as Fitch Eligible Assets. In either such event, to the extent that the securities lending collateral constitutes Fitch Eligible Assets, if the value of such collateral exceeds, whether due to appreciation or otherwise, the value of the securities lent, in each case after applying the appropriate Fitch Discount Factor, such excess shall be included as a Fitch Eligible Asset. Conversely, if the discounted value of such securities lending collateral is less than the discounted value of the securities lent, such difference shall be included as an obligation/liability of the Fund for purposes of calculating the Preferred Shares Basic Maintenance Amount.
(iii) SWAPS (INCLUDING TOTAL RETURN SWAPS, INTEREST RATE SWAPS AND CREDIT DEFAULT SWAPS): Total Return and Interest Rate Swaps are subject to the following provisions:
(A) Only the cumulative unsettled profit and loss from a Total Return Swap transaction will be calculated when determining the Preferred Shares Basic Maintenance Amount. If the Fund has an outstanding gain from a swap transaction on a Valuation Date, the gain will be included as a Fitch Eligible Asset subject to the Fitch Discount Factor on the counterparty to the swap transaction. If the Fund has an outstanding liability from a swap transaction on a Valuation Date, the Fund will subtract the outstanding liability from the total Fitch Eligible Assets in calculating the Preferred Shares Basic Maintenance Amount.
In addition, for swaps other than Total Return Swaps, the Market Value of the position (positive or negative) will be included as a Fitch Eligible Asset. The aggregate notional value of all swaps will not exceed the Liquidation Preference of the Outstanding Preferred Shares. At the time a swap is executed, the Fund will only enter into swap transactions where the counterparty has at least a Fitch rating of A- or Moody's rating of A3.
(B) (1) The underlying securities subject to a Credit Default Swap sold by the Fund will be subject to the applicable Fitch Discount Factor for each security subject to the swap;
(2) If the Fund purchases a Credit Default Swap and holds the underlying security, the Market Value of the Credit Default Swap and the underlying security will be included as a Fitch Eligible Asset subject to the Fitch Discount Factor assessed based on the counterparty rating; and
(3) The Fund will not include a Credit Default Swap as a Fitch Eligible Asset purchased by the Fund without the Fund holding the underlying security or when the Fund buys a Credit Default Swap for a basket of securities without holding all the securities in the basket.
If not otherwise provided for in (a)(i)-(iii) above, derivative instruments shall be treated as follows: Any derivative instruments will be valued pursuant to the Fund's Valuation Procedures on a Valuation Date. The amount of the net payment obligation and the cost of a closing transaction, as appropriate, on any derivative instrument on a Valuation Date will be counted as a liability for purposes of determining the Preferred Shares Basic Maintenance Amount. Any derivative instrument with respect to which the Fund is owed payment on the Valuation Date that is not based upon an individual security or securities that are Fitch Eligible Assets will either have a mutually agreed upon valuation by Fitch and the Fund for purposes of determining Fitch Eligible Assets or will be excluded from Fitch Eligible Assets. Any derivative instrument with respect to which the Fund is owed payment on the Valuation Date that is based upon an individual security or securities that are Fitch Eligible Assets (e.g., a purchased call option on a bond that is in-the-money) will be valued as follows for purposes of determining Fitch Eligible Assets: (A) For such derivative instruments that are exchange traded, the value of the in-the-money amount of the payment obligation to the Fund will be reduced by applying the Fitch Discount Factor (as it would apply to the underlying security or securities) and then added to Fitch Eligible Assets; and (B) for such derivative instruments that are not exchange traded, the value of the in-the-money amount of the payment obligation to the Fund will be (1) reduced as described in (A) and (2) further reduced by applying to the remaining amount the Fitch Discount Factor determined by reference to the credit rating of the derivative counterparty, with the remaining amount after these reductions then added to Fitch Eligible Assets.
For purposes of determining whether the Fund has Fitch Eligible Assets with an aggregate Discounted Value that equals or exceeds the Preferred Shares Basic Maintenance Amount, the Discounted Value of all Forward Commitments to which the Fund is a party and of all securities deliverable to the Fund pursuant to such Forward Commitments shall be zero.
In the event any Preferred Shares are outstanding and another rating agency is rating such shares in addition to or in lieu of Moody's or Fitch, the Fund shall comply with any restrictions imposed by such rating agency, which restrictions may be more restrictive than those imposed by Moody's or Fitch.
14. MISCELLANEOUS.
(a) AMENDMENT OF ANNEX A TO ADD ADDITIONAL SERIES. Subject to the provisions of paragraph (c) of Section 10 of this Part I, the Board of Directors may, by resolution duly adopted, without stockholder approval (except as otherwise provided by these Articles Supplementary or required by applicable law), approving an annex hereto, (1) reflect any amendments hereto which the Board of Directors is entitled to adopt pursuant to the terms of these Articles Supplementary without shareholder approval or (2) add additional series of Preferred Shares or additional shares of a series of Preferred Shares (and terms relating thereto) to the series and Preferred Shares described herein. Each such additional series and all such additional shares shall be governed by the terms of these Articles Supplementary.
(b) NO FRACTIONAL SHARES. No fractional Preferred Shares shall be issued.
(c) STATUS OF PREFERRED SHARES REDEEMED, EXCHANGED OR OTHERWISE ACQUIRED BY THE FUND. Preferred Shares that are redeemed, exchanged or otherwise acquired by the Fund shall return to the status of authorized and unissued Preferred Shares.
(d) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by applicable law, the Board of Directors may interpret or adjust the provisions of these Articles Supplementary to resolve any inconsistency or ambiguity or to remedy any formal defect, and may amend these Articles Supplementary with respect to any series of Preferred Shares prior to the issuance of shares of such series.
(e) HEADINGS NOT DETERMINATIVE. The headings contained in these Articles Supplementary are for convenience of reference only and shall not affect the meaning or interpretation of these Articles Supplementary.
(f) NOTICES. All notices or communications, unless otherwise specified in the Bylaws of the Fund or these Articles Supplementary, shall be sufficiently given if in writing and delivered in person or by facsimile or mailed by first-class mail, postage prepaid. Notices delivered pursuant to this Section 14 shall be deemed given on the earlier of the date received or the date five days after which such notice is mailed, except as otherwise provided in these Articles Supplementary or by the Maryland General Corporation Law for notices of stockholders' meetings.
PART II
1. ORDERS.
(a) Prior to the Submission Deadline on each Auction Date for shares of a series of Preferred Shares:
(i) each Beneficial Owner of shares of such series may submit to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for shares of such series for the next succeeding Rate Period of such series;
(B) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner offers to sell if the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of
such series shall be less than the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner offers to sell without regard to the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series; and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial Owners, shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact Potential Beneficial Owners (by telephone or otherwise), including Persons that are not Beneficial Owners, on such lists to determine the number of shares, if any, of such series which each such Potential Beneficial Owner offers to purchase if the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series shall not be less than the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or
(ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the Auction Agent, is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders"; an Order containing the information referred
to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a series of Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Bid if the Applicable Rate for shares of such series determined on such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such series to be determined as set forth in clause (iv) of paragraph (a) of Section 4 of this Part II if the Applicable Rate for shares of such series determined on such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified in such Bid if the rate specified therein shall be higher than the Maximum Rate for shares of such series, or such number or a lesser number of Outstanding shares of such series to be determined as set forth in clause (iii) of paragraph (b) of Section 4 of this Part II if the rate specified therein shall be higher than the Maximum Rate for shares of such series and Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of a series of Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of such series as
set forth in clause (iii) of paragraph (b) of Section 4 of this Part II if
Sufficient Clearing Bids for shares of such series do not exist; provided,
however, that a Broker-Dealer that is an Existing Holder with respect to shares
of a series of Preferred Shares shall not be liable to any Person for failing to
sell such shares pursuant to a Sell Order described in the proviso to paragraph
(c) of Section 2 of this Part II if (1) such shares were transferred by the
Beneficial Owner thereof without compliance by such Beneficial Owner or its
transferee Broker-Dealer (or other transferee person, if permitted by the Fund)
with the provisions of Section 7 of this Part II or (2) such Broker-Dealer has
informed the Auction Agent pursuant to the terms of its Broker-Dealer Agreement
that, according to such Broker-Dealer's records, such Broker-Dealer believes it
is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder of shares of a series of Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in such Bid if the Applicable Rate for shares of such series determined on such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such series as set forth in clause (v) of paragraph (a) of Section 4 of this Part II if the Applicable Rate for shares of such series determined on such Auction Date shall be equal to the rate specified therein.
(C) No Order for any number of Preferred Shares other than whole shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for Preferred Shares of a series subject to an Auction on such Auction Date obtained by such Broker-Dealer, designating itself (unless otherwise permitted by the Fund) as an Existing Holder in respect of shares subject to Orders submitted or deemed submitted to it by Beneficial Owners and as a Potential Holder in respect of shares subject to Orders submitted to it by Potential Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares of such series:
(A) the number of shares, if any, of such series subject to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such series, the rate and number of shares of such series specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding Preferred Shares of a series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding shares of such series held by such Existing Holder and not subject to Orders submitted to the Auction Agent; provided, however, that if an Order or Orders covering all of the Outstanding shares of such series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline for an Auction relating to a Special Rate Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem a Sell Order to have been submitted by or on behalf of such Existing Holder covering the number of outstanding shares of such series held by such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding Preferred Shares of a series subject to an Auction held by such Existing Holder, such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered valid, but only up to and including in the aggregate the number of Outstanding shares of such series held by such Existing Holder, and if the number of shares of such series subject to such Hold Orders exceeds the number of Outstanding shares of such series held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered valid up to and including the excess of the number of Outstanding shares of such series held by such Existing Holder over the number of shares of such series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with the same rate and the number of Outstanding shares of such series subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess, and the number of shares of such series subject to each Bid with the same rate shall be reduced pro rata to cover the number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with different rates, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding shares of such series subject to any portion of Bids considered not valid in whole or in part under this clause (ii) shall be treated as the subject of a Bid for shares of such series by or on behalf of a Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered valid up to and including the excess of the number of Outstanding shares of such series held by such Existing Holder over the sum of shares of such series subject to
valid Hold Orders referred to in clause (i) above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of Preferred Shares is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE.
(a) Not earlier than the Submission Deadline on each Auction Date for shares of a series of Preferred Shares, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers in respect of shares of such series (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding Preferred Shares of such series over the number of Outstanding shares of such series subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available Preferred Shares" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to Submitted Bids of Potential Holders specifying one or more rates equal to or lower than the Maximum Rate for shares of such series exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series subject to Submitted Bids of Existing Holders specifying one or more rates higher than the Maximum Rate for shares of such series; and
(C) the number of Outstanding shares of such series subject to Submitted Sell Orders (in the event such excess or such equality exists (other than because the number of shares of such series in subclauses (B) and (C) above is zero because all of the Outstanding shares of such series are subject to Submitted Hold Orders), such Submitted Bids in subclause (A) above being hereinafter referred to collectively as "Sufficient Clearing Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders specifying such lowest rate and (II) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and
(B) (I) each such Submitted Bid of Potential Holders specifying such lowest rate and (II) all other such Submitted Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above continuing to hold an aggregate number of Outstanding shares of such series which, when added to the number of Outstanding shares of such series to be
purchased by such Potential Holders described in subclause (B) above, would equal not less than the Available Preferred Shares of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant to paragraph (a) of this Section 3, the Auction Agent shall advise the Fund of the Maximum Rate for shares of the series of Preferred Shares for which an Auction is being held on the Auction Date and, based on such determination, the Applicable Rate for shares of such series for the next succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be equal to the Winning Bid Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to Submitted Hold Orders, the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be the All Hold Rate.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES.
Existing Holders shall continue to hold the Preferred Shares that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph (a) of Section 3 of this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of Preferred Shares have been made, all Submitted Sell Orders with respect to shares of such series shall be accepted and, subject to the provisions of paragraphs (d) and (e) of this Section 4, Submitted Bids with respect to shares of such series shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying any rate that is higher than the Winning Bid Rate for shares of such series shall be accepted, thus requiring each such Existing Holder to sell the Preferred Shares subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series specifying any rate that is lower than the Winning Bid Rate for shares of such series shall be rejected, thus entitling each such Existing Holder to continue to hold the Preferred Shares subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such series specifying any rate that is lower than the Winning Bid Rate for shares of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series specifying a rate that is equal to the Winning Bid Rate for shares of such series shall be rejected, thus entitling such Existing Holder to continue to hold the Preferred Shares subject to such Submitted Bid, unless the number of Outstanding Preferred Shares subject to all such Submitted Bids shall be greater than the number of Preferred Shares ("remaining shares") in the excess of the Available Preferred Shares of such series over the number of Preferred Shares subject to Submitted Bids described in clauses (ii) and (iii) of this paragraph
(a), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold Preferred Shares subject to such Submitted Bid, but only in an amount equal to the number of Preferred Shares of such series obtained by multiplying the number of remaining shares by a fraction, the numerator of which shall be the number of Outstanding Preferred Shares held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Preferred Shares subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series specifying a rate that is equal to the Winning Bid Rate for shares of such series shall be accepted but only in an amount equal to the number of shares of such series obtained by multiplying the number of shares in the excess of the Available Preferred Shares of such series over the number of Preferred Shares subject to Submitted Bids described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the numerator of which shall be the number of Outstanding Preferred Shares subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Preferred Shares subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of Preferred Shares have not been made (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), subject to the provisions of paragraph (d) of this Section 4, Submitted Orders for shares of such series shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying any rate that is equal to or lower than the Maximum Rate for shares of such series shall be rejected, thus entitling such Existing Holders to continue to hold the Preferred Shares subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series specifying any rate that is equal to or lower than the Maximum Rate for shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such series specifying any rate that is higher than the Maximum Rate for shares of such series and the Submitted Sell Orders for shares of such series of each Existing Holder shall be accepted, thus entitling each Existing Holder that submitted or on whose behalf was submitted any such Submitted Bid or Submitted Sell Order to sell the shares of such series subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the number of shares of such series obtained by multiplying the number of shares of such series subject to Submitted Bids described in clause (ii) of this paragraph (b) by a fraction, the numerator of which shall be the number of Outstanding shares of such series held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of such series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of Preferred Shares are subject to Submitted Hold Orders, all Submitted Bids for shares of such series shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of a series of Preferred
Shares on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of Preferred Shares of such series to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole Preferred Shares.
(e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share of a series of Preferred Shares on any Auction
Date, the Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate Preferred Shares of such series for purchase among
Potential Holders so that only whole Preferred Shares of such series are
purchased on such Auction Date as a result of such procedures by any Potential
Holder, even if such allocation results in one or more Potential Holders not
purchasing Preferred Shares of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of Preferred Shares, the Auction Agent shall determine the aggregate number of shares of such series to be purchased and the aggregate number of shares of such series to be sold by Potential Holders and Existing Holders and, with respect to each Potential Holder and Existing Holder, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Potential Holder(s) or Existing Holder(s) they shall deliver, or from which other Potential Holder(s) or Existing Holder(s) they shall receive, as the case may be, Preferred Shares of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of shares of a series of Preferred Shares with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of Preferred Shares that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of such series that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial Owner or its respective Agent Member to deliver Preferred Shares of any series or to pay for Preferred Shares of any series sold or purchased pursuant to the Auction Procedures or otherwise.
5. RESERVED.
6. AUCTION AGENT.
For so long as any Preferred Shares are outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be in each case a commercial bank, trust company or other financial institution independent of the Fund and its affiliates (which however, may engage or have engaged in business transactions with the Fund or its affiliates) and at no time shall the Fund or any of its affiliates act as the Auction Agent in connection with the Auction Procedures. If the Auction Agent resigns or for any reason its appointment is terminated during any period that any Preferred Shares are outstanding, the Board of Directors shall use its best efforts promptly thereafter to appoint another
qualified commercial bank, trust company or financial institution to act as the
Auction Agent. The Auction Agent's registry of Existing Holders of shares of a
series of Preferred Shares shall be conclusive and binding on the
Broker-Dealers. A Broker-Dealer may inquire of the Auction Agent between 3:00
p.m. Eastern time on the Business Day preceding an Auction for shares of a
series of Preferred Shares and 9:30 a.m. Eastern time on the Auction Date for
such Auction to ascertain the number of shares in respect of which the Auction
Agent has determined such Broker-Dealer to be an Existing Holder. If such
Broker-Dealer believes it is the Existing Holder of fewer shares of such series
than specified by the Auction Agent in response to such Broker-Dealer's inquiry,
such Broker-Dealer may so inform the Auction Agent of that belief. Such
Broker-Dealer shall not, in its capacity as Existing Holder of shares of such
series, submit Orders in such Auction in respect of shares of such series
covering in the aggregate more than the number of shares of such series
specified by the Auction Agent in response to such Broker-Dealer's inquiry.
7. TRANSFER OF PREFERRED SHARES.
Unless otherwise permitted by the Fund, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of Preferred Shares only in whole shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the procedures described in this Part II or to a Broker-Dealer, provided, however, that (a) a sale, transfer or other disposition of Preferred Shares from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to whom such transfer is made shall advise the Auction Agent of such transfer.
8. GLOBAL CERTIFICATE.
Prior to the commencement of a Voting Period, (i) all of the shares of a series of Preferred Shares outstanding from time to time shall be represented by one global certificate registered in the name of the Securities Depository or its nominee and (ii) no registration of transfer of shares of a series of Preferred Shares shall be made on the books of the Fund to any Person other than the Securities Depository or its nominee.
9. FORCE MAJEURE.
(a) Notwithstanding anything else set forth herein, if an Auction Date is not a Business Day because the New York Stock Exchange is closed for business for more than three consecutive business days due to an act of God, natural disaster, act of war, civil or military disturbance, act of terrorism, sabotage, riots or a loss or malfunction of utilities or communications services or the Auction Agent is not able to conduct an Auction in accordance with the Auction Procedures for any such reason, then the Auction Rate for the next Dividend Period shall be the Auction Rate determined on the previous Auction Date.
(b) Notwithstanding anything else set forth herein, if a Dividend Payment Date is not a Business Day because the New York Stock Exchange is closed for business for more than three consecutive business days due to an act of God, natural disaster, act of war, civil or military disturbance, act of terrorism, sabotage, riots or a loss or malfunction of utilities or communications services or the dividend payable on such date cannot be paid for any such reason, then:
(i) the Dividend Payment Date for the affected Dividend Period shall be the next Business Day on which the Fund and its paying agent, if any, are able to cause the dividend to be paid using their reasonable best efforts;
(ii) the affected Dividend Period shall end on the day it would have ended had such event not occurred and the Dividend Payment Date had remained the scheduled date; and
(iii) the next Dividend Period will begin and end on the dates on which it would have begun and ended had such event not occurred and the Dividend Payment Date remained the scheduled date.
IN WITNESS WHEREOF, NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC. has caused these presents to be signed on ________, 2004 in its name and on its behalf by its President or a Vice President and witnessed by its Secretary or Assistant Secretary and the said officers of the Fund acknowledge said instrument to be the corporate act of the Fund, and state under penalties of perjury that to the best of their knowledge, information and belief the matters and facts therein set forth with respect to authorization and approval are true in all material respects.
NEUBERGER BERMAN REAL ESTATE
SECURITIES INCOME FUND INC.
Title:
WITNESS:
Appendix B
RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
AAA - Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest-rated issues only in a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher-rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to pay interest and repay principal for bonds in this category than for bonds in higher-rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
BB - Bonds rated BB are less vulnerable to nonpayment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B - Bonds rated B are more vulnerable to nonpayment than obligations rated 'BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC - Bonds rated CCC are currently vulnerable to nonpayment and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC - Bonds rated CC are currently highly vulnerable to nonpayment.
C - Bonds rated C may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. A subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. A C rating also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying.
CI - The rating CI is reserved for income bonds on which no interest is being paid.
D - Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears.
Plus (+) Minus (-) - The ratings above may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
A-1 - This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is satisfactory. However, it is somewhat more susceptible to the adverse effects of changes in circumstance and economic conditions than issues in the highest rating category.
A-3 - Issues carrying this designation have adequate capacity for timely payment. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity for timely payment.
B - Issues with this rating are regarded as having only speculative capacity for timely payment.
C - This rating is assigned to short-term debt obligations with high vulnerability to nonpayment.
D - Debt with this rating is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless it is believed that such payments will be made during such grace period.
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
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Ca - Bonds rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Modifiers - Moody's may apply numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to Caa. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
Prime-1 - Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term promissory obligations. Prime-1 repayment ability will often be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
- Well-established access to a range of financial markets and assured sources of alternate liquidity.
Prime-2 - Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term promissory obligations. This will often be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 - Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term promissory obligations. The effects of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt-protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Not Prime - Issuers rated Not Prime do not fall within any of the Prime rating categories.
Note: A Moody's commercial paper rating may also be assigned as an evaluation of the demand feature of a short-term or long-term security with a put option.
AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is highly unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F1+'.
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. This is the lowest investment grade category.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
Withdrawn: A rating will be withdrawn when an issue matures, is called, or refinanced, or when Fitch Ratings deems the amount of information available to be inadequate for rating purposes.
Rating Watch: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. Rating Watch is typically resolved over a relatively short period.
BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. A significant credit risk is present. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and is contingent upon a sustained, favorable business and economic environment.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations is solely reliant upon sustained, favorable business or economic developments.
CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these bonds, and 'D' represents the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the 'DDD,' 'DD,' or 'D' categories.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner.
F1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated 'F1+'.
F2: Good Credit Quality. Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned 'F1+' and 'F1' ratings.
F3: Fair Credit Quality. Issues carrying this rating have characteristics suggesting that the degree of assurance for timely payment is adequate; however, near-term adverse changes could cause these securities to be rated below investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions.
C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment default.
* * * * * * * *
Notes: Bonds which are unrated expose the investor to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated speculative bonds. The Fund is dependent on the Investment Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating service may not reflect the effect of recent developments on the issuer's ability to make interest and principal payments.
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
Report of Independent Auditors. (to be filed)
Statement of Assets and Liabilities. (to be filed)
Unaudited Financial Statements. (to be filed)
2. Exhibits:
a. (1) Articles of Incorporation. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on August 29, 2003)
(2) Form of Articles Supplementary. (Filed herewith as Appendix A to the Statement of Additional Information,
Part B of the Registrant's Registration Statement)
b. By-Laws. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on October 27, 2003)
c. None.
d. Articles Sixth, Ninth, Tenth, Eleventh and Thirteenth of the Articles of Incorporation and Articles II, VI and X of the By-Laws.
e. Dividend Reinvestment Plan. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on September 29, 2003)
f. None.
g. (1) Management Agreement. (filed herewith)
(2) Sub-Advisory Agreement. (filed herewith)
h. (1) Underwriting Agreement with respect to Registrant's common stock. (filed herewith)
(2) Form of Master Agreement Among Underwriters. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on September 29, 2003)
(3) Form of Master Selected Dealer Agreement. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on September 29, 2003)
(4) Form of Underwriting Agreement with respect to Registrant's preferred stock. (to be filed)
i. None
j. Custodian Contract. (filed herewith)
k. (1) Transfer Agency and Service Agreement. (filed herewith)
(2) Administration Agreement. (filed herewith)
(3) Fee Waiver Agreement. (filed herewith)
(4) Corporate Finance Services and Consulting Agreement.
(filed herewith)
(5) Additional Compensation Agreement. (filed herewith)
(6) Form of Auction Agency Agreement with respect to Registrant's preferred stock. (filed herewith)
(7) Form of Broker-Dealer Agreement with respect to Registrant's preferred stock. (filed herewith)
l. (1) Opinion and Consent of Counsel with respect to Registrant's common stock. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on October 27, 2003 and the Registrant's Registration Statement, File Nos. 333-110078 and 811-21421, filed on October 29, 2003)
(2) Opinion and Consent of Counsel with respect to Registrant's preferred stock. (to be filed)
m. None.
n. Consent of Independent Auditors. (to be filed)
o. None.
p. Letter of Investment Intent. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on October 27, 2003)
q. None.
r. Code of Ethics for Registrant, its Investment Adviser and its Sub-Adviser. (filed herewith)
ITEM 25. MARKETING ARRANGEMENTS
Incorporated by reference to the Underwriting Agreement to be filed as Exhibit 2. h. (4) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be incurred in connection with the offering described in this Registration Statement:
Securities and Exchange Commission Fees............... $
Rating Agency Fees....................................
Federal Taxes ....................................
State Taxes and Fees..................................
Printing and Engraving Expenses.......................
Legal Fees ....................................
Director Fees ....................................
Accounting Expenses...................................
Miscellaneous Expenses................................ _______
Total .................................... $
=======
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ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Stockholders as of
Title of Class December 3, 2003
-------------- ----------------
Shares of common stock, par value $0.0001 per share 1
|
Shares of preferred stock, par value $0.0001 per share 0
ITEM 29. INDEMNIFICATION
Article Twelfth of the Registrant's Articles of Incorporation and Article
IX of the Registrant's Bylaws provide that the Fund shall indemnify its present
and past directors, officers, employees and agents, and persons who are serving
or have served at the Fund's request in similar capacities for, other entities
to the maximum extent permitted by applicable law (including Maryland law and
the 1940 Act), provided, however, that a transfer agent is not entitled to such
indemnification unless specifically approved by the Fund's Board of Directors.
Section 2-418(b) of the Maryland General Corporation Law ("Maryland Code")
permits the Registrant to indemnify its directors unless it is proved that the
act or omission of the director was material to the cause of action adjudicated
in the proceeding, and (a) the act or omission was committed in bad faith or was
the result of active or deliberate dishonesty or (b) the director actually
received an improper personal benefit in money, property or services or (c) in
the case of a criminal proceeding, the director had reasonable cause to believe
the act or omission was unlawful. Indemnification may be made against judgments,
penalties, fines, settlements and reasonable expenses incurred in connection with a proceeding, in accordance with the Maryland Code. Pursuant to Section 2-418(j)(1) and Section 4-418(j)(2) of the Maryland Code, the Registrant is permitted to indemnify its officers, employees and agents to the same extent. The provisions set forth above apply insofar as consistent with Section 17(h) of the Investment Company Act of 1940, as amended ("1940 Act"), which prohibits indemnification of any director or officer of the Registrant against any liability to the Registrant or its shareholders to which such director or officer otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Sections 9.1 and 9.2 of the Management Agreement between Neuberger Berman Management Inc. ("NB Management") and the Registrant provide that neither NB Management nor any director, officer or employee of NB Management performing services for the Registrant at the direction or request of NB Management in connection with NB Management's discharge of its obligations under the Management Agreement shall be liable for any error of judgment or mistake of law or for any loss suffered by the Registrant in connection with any matter to which the Management Agreement relates; provided, that nothing herein contained shall be construed (i) to protect NB Management against any liability to the Registrant or its Stockholders to which NB Management would otherwise be subject by reason of NB Management's misfeasance, bad faith, or gross negligence in the performance of NB Management's duties, or by reason of NB Management's reckless disregard of its obligations and duties under the Management Agreement ("disabling conduct"), or (ii) to protect any director, officer or employee of NB Management who is or was a Director or officer of the Registrant against any liability to the Registrant or its Stockholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Registrant. The Registrant will indemnify NB Management against, and hold it harmless from, any and all expenses (including reasonable counsel fees and expenses) incurred investigating or defending against claims for losses or liabilities described above not resulting from negligence, disregard of its obligations and duties under the Management Agreement or disabling conduct by NB Management. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that NB Management was not liable by reason of negligence, disregard of its obligations and duties under the Management Agreement or disabling conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that NB Management was not liable by reason of negligence, disregard of its obligations and duties under the Management Agreement or disabling conduct by (a) the vote of a majority of a quorum of directors of the Registrant who are neither "interested persons" of the Registrant nor parties to the proceeding ("disinterested non-party directors") or (b) an independent legal counsel in a written opinion. NB Management shall be entitled to advances from the Registrant for payment of the reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification under the Management Agreement in the manner and to the fullest extent permissible under the Maryland General Corporation Law. NB Management shall provide to the Registrant a written affirmation of its good faith belief that the standard of conduct necessary for indemnification by the Registrant has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) NB Management shall provide security in form and amount acceptable to the Registrant for its undertaking; (b) the Registrant is insured against losses arising by reason of the advance; or (c) a majority of a quorum of the full
Board of Directors of the Registrant, the members of which majority are disinterested non-party directors, or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Registrant at the time the advance is proposed to be made, that there is reason to believe that NB Management will ultimately be found to be entitled to indemnification under the Management Agreement.
Section 1 of the Sub-Advisory Agreement between NB Management and Neuberger Berman, LLC ("Neuberger Berman") with respect to the Registrant provides that, in the absence of willful misfeasance, bad faith or gross negligence in the performance of its duties, or of reckless disregard of its duties and obligations under the Sub-Advisory Agreement, Neuberger Berman will not be subject to liability for any act or omission or any loss suffered by the Registrant or its security holders in connection with the matters to which the Sub-Advisory Agreement relates.
Sections 11.1 and 11.2 of the Administration Agreement between the Registrant and NB Management provide that neither NB Management nor any director, officer or employee of NB Management performing services for the Registrant at the direction or request of NB Management in connection with NB Management's discharge of its obligations under the Administration Agreement shall be liable for any error of judgment or mistake of law or for any loss suffered by the Registrant in connection with any matter to which the Administration Agreement relates; provided, that nothing herein contained shall be construed (i) to protect NB Management against any liability to the Registrant or its Stockholders to which NB Management would otherwise be subject by reason of NB Management's misfeasance, bad faith, or gross negligence in the performance of NB Management's duties, or by reason of NB Management's reckless disregard of its obligations and duties under the Administration Agreement ("disabling conduct"), or (ii) to protect any director, officer or employee of NB Management who is or was a Director or officer of the Registrant against any liability to the Registrant or its Stockholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Registrant. The Registrant will indemnify NB Management against, and hold it harmless from, any and all expenses (including reasonable counsel fees and expenses) incurred investigating or defending against claims for losses or liabilities described above not resulting from negligence, disregard of its obligations and duties under the Administration Agreement or disabling conduct by NB Management. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that NB Management was not liable by reason of negligence, disregard of its obligations and duties under the Administration Agreement or disabling conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that NB Management was not liable by reason of negligence, disregard of its obligations and duties under the Administration Agreement or disabling conduct by (a) the vote of a majority of a quorum of directors of the Registrant who are neither "interested persons" of the Registrant nor parties to the proceeding ("disinterested non-party directors") or (b) an independent legal counsel in a written opinion. NB Management shall be entitled to advances from the Registrant for payment of the reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification under the Administration Agreement in the manner and to the fullest extent permissible under the Maryland General Corporation Law. NB Management shall provide to the Registrant a written affirmation of its good faith belief that the standard of conduct necessary for indemnification by
the Registrant has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) NB Management shall provide security in form and amount acceptable to the Registrant for its undertaking; (b) the Registrant is insured against losses arising by reason of the advance; or (c) a majority of a quorum of the full Board of Directors of the Registrant, the members of which majority are disinterested non-party directors, or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Registrant at the time the advance is proposed to be made, that there is reason to believe that NB Management will ultimately be found to be entitled to indemnification under the Administration Agreement.
Section 9(a) of the Underwriting Agreement with respect to Registrant's common stock among the Registrant, NB Management, Neuberger Berman and A.G. Edwards & Sons, Inc., as representative of the several underwriters, provides that the Registrant, NB Management and Neuberger Berman, jointly and severally, agree to indemnify and hold harmless each of A.G. Edwards & Sons, Inc. and each other Underwriter (as defined in the Underwriting Agreement) and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all losses, claims, damages, liabilities and expenses, joint or several (including reasonable costs of investigation), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, any Prepricing Prospectus, any Sales Material (each as defined in the Underwriting Agreement) (or any amendment or supplement to any of the foregoing) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, (except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the Underwriter Information); provided, however, that the foregoing indemnification contained in this paragraph (a) with respect to the Red Herring Preliminary Prospectus (as defined in the Underwriting Agreement) (or any amendment or supplement thereto) shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if it is shown that a copy of any such amendment or supplement to the Red Herring Preliminary Prospectus or of the Prospectus (which term as used in this proviso shall not include any statement of additional information unless specifically requested by such person) was not delivered or sent to such person within the time required by the 1933 Act and the 1933 Act Rules and Regulations (as defined in the Underwriting Agreement) and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in the Red Herring Preliminary Prospectus was corrected in the supplement or amendment to the Red Herring Preliminary Prospectus or in the Prospectus, provided that the Fund has delivered such supplements or amendments or the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit proper delivery or sending. The foregoing indemnity agreement shall be in addition to any liability that the Fund, the Adviser or the Sub-Adviser may otherwise have.
Section 9(c) of the Underwriting Agreement with respect to Registrant's common stock among provides that each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Registrant, NB Management and Neuberger Berman, their directors, members or managers, any officers of the
Registrant who sign the Registration Statement and any person who controls the Registrant, NB Management or Neuberger Berman within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the same extent as the foregoing indemnity from the Registrant, NB Management and Neuberger Berman to each Underwriter, but only with respect to the Underwriter Information (as defined in the Underwriting Agreement) relating to such Underwriter. The foregoing indemnity agreement shall be in addition to any liability that the Underwriters may otherwise have.
The Underwriting Agreement with respect to Registrant's preferred stock to be filed as Exhibit 2.h.(4) is expected to contain provisions limiting the liability and providing for indemnification of the Underwriter and its directors, officers, employees and agents under certain conditions.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended ("1933 Act"), may be provided 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 SEC 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 of the Registrant in connection with the successful defense of any action, suit or proceeding or payment pursuant to any insurance policy) is asserted against the Registrant by such 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. The Fund also maintains Directors and Officers Insurance.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND SUB-ADVISER
There is set forth below information as to any other business, profession, vocation or employment of a substantial nature in which each director or officer of NB Management and each executive officer of Neuberger Berman is, or at any time during the past two years has been, engaged for his or her own account or in the capacity of director, officer, employee, partner or trustee.
NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Claudia Brandon Secretary, Neuberger Berman Advisers
Vice President, Neuberger Management Trust; Secretary, Neuberger Berman
Berman since 2002; Employee, Equity Funds; Secretary, Neuberger Berman
Neuberger Berman since 1999; Income Funds; Secretary, Neuberger Berman
Vice President/Mutual Fund Real Estate Income Fund Inc.; Secretary,
Board Relations, NB Management Neuberger Berman Intermediate Municipal Fund
since May 2000; Vice President, Inc.; Secretary, Neuberger Berman New York
NB Management from 1986-1999. Intermediate Municipal Fund Inc.; Secretary,
Neuberger Berman California Intermediate
Municipal Fund Inc.; Secretary, Neuberger
Berman Realty Income Fund Inc.; Secretary,
Neuberger Berman Income Opportunity Fund
Inc.; Secretary, Neuberger Berman Real Estate
Securities Income Fund Inc.
|
NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Thomas J. Brophy None.
Managing Director, Neuberger
Berman; Vice President, NB
Management since March 2000.
Steven R. Brown Portfolio Manager, Neuberger Berman Real
Managing Director, Neuberger Estate Income Fund Inc.; Portfolio Manager,
Berman; Vice President, NB Neuberger Berman Realty Income Fund Inc.;
Management since 2002. Portfolio Manager, Neuberger Berman Income
Opportunity Fund Inc.; Portfolio Manager,
Neuberger Berman Real Estate Securities
Income Fund Inc.
Lori Canell None.
Managing Director, Neuberger
Berman; Vice President, NB
Management.
Valerie Chang None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Brooke A. Cobb None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Robert Conti Vice President, Neuberger Berman Income
Vice President, Neuberger Funds; Vice President, Neuberger Berman
Berman; Senior Vice President, Equity Funds; Vice President, Neuberger
NB Management since November Berman Advisers Management Trust; Vice
2000; Treasurer, NB Management President, Neuberger Berman Real Estate
until May 2000. Income Fund Inc.; Vice President, Neuberger
Berman Intermediate Municipal Fund Inc.; Vice
President Neuberger Berman New York
Intermediate Municipal Fund Inc.; Vice
President, Neuberger Berman California
Intermediate Municipal Fund Inc.; Vice
President, Neuberger Berman Realty Income
Fund Inc.; Vice President, Neuberger Berman
Income Opportunity Fund Inc.; Vice President,
Neuberger Berman Real Estate Securities
Income Fund Inc.
Robert W. D'Alelio None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
C-8
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NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Ingrid Dyott None.
Vice President, Neuberger
Berman; Vice President,
NB Management.
Michael F. Fasciano President, Fasciano Company Inc. until March
Managing Director, Neuberger 2001; Portfolio Manager, Fasciano Fund Inc.
Berman since March 2001; Vice until March 2001.
President, NB Management since
March 2001.
Robert S. Franklin None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Brian P. Gaffney Vice President, Neuberger Berman Income
Managing Director, Neuberger Funds; Vice President, Neuberger Berman
Berman since 1999, Senior Vice Equity Funds; Vice President, Neuberger
President, NB Management since Berman Advisers Management Trust; Vice
November 2000; Vice President, President, Neuberger Berman Real Estate
NB Management from April 1997 Income Fund Inc.; Vice President, Neuberger
through November 1999. Berman Intermediate Municipal Fund Inc.; Vice
President Neuberger Berman New York
Intermediate Municipal Fund Inc.; Vice
President, Neuberger Berman California
Intermediate Municipal Fund Inc.; Vice
President, Neuberger Berman Realty Income
Fund Inc.; Vice President, Neuberger Berman
Income Opportunity Fund Inc.; Vice President,
Neuberger Berman Real Estate Securities
Income Fund Inc.
Robert I. Gendelman None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Thomas E. Gengler, Jr. None.
Senior Vice President,
Neuberger Berman since February
2001, prior thereto, Vice
President, Neuberger Berman
since 1999; Senior Vice
President, NB Management since
March 2001 prior thereto, Vice
President, NB Management.
C-9
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NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Theodore P. Giuliano None.
Vice President (and Director
until February 2001),
NB Management; Managing
Director, Neuberger Berman.
Kevin Handwerker Senior Vice President, General Counsel and
Senior Vice President, General Secretary, Neuberger Berman Inc.
Counsel and Secretary,
Neuberger Berman.
Joseph K. Herlihy Treasurer, Neuberger Berman Inc.
Senior Vice President,
Treasurer, Neuberger Berman;
Treasurer, NB Management.
Barbara R. Katersky None.
Senior Vice President,
Neuberger Berman; Senior Vice
President, NB Management.
Robert B. Ladd None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Kelly M. Landron None.
Vice President, NB Management
Inc. since March 2000.
Jeffrey B. Lane Director, Chief Executive Officer and
Chief Executive Officer and President, Neuberger Berman Inc.; Director,
President, Neuberger Berman; Neuberger Berman Trust Company from June 1999
Director, NB Management since until November 2000.
February 2001.
Michael F. Malouf None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
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NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Robert Matza Executive Vice President, Chief Operating
Executive Vice President and Officer and Director, Neuberger Berman Inc.
Chief Operating Officer, since January 2001, prior thereto, Executive
Neuberger Berman since January Vice President, Chief Administrative Officer
2001, prior thereto, Executive and Director, Neuberger Berman Inc.
Vice President and Chief
Administrative Officer,
Neuberger Berman; Director,
NB Management since April 2000.
Ellen Metzger Assistant Secretary, Neuberger Berman Inc.
Vice President, Neuberger since 2000.
Berman; Secretary,
NB Management.
Arthur Moretti Managing Director, Eagle Capital from January
Managing Director, Neuberger 1999 until June 2001.
Berman since June 2001; Vice
President, NB Management since
June 2001.
S. Basu Mullick None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Janet W. Prindle Director, Neuberger Berman National Trust
Managing Director, Neuberger Company since January 2001; Director
Berman; Vice President, Neuberger Berman Trust Company of Delaware
NB Management. since April 2001.
Kevin L. Risen None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
C-11
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NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Jack L. Rivkin Executive Vice President, Neuberger Berman
Executive Vice President, Inc.; President and Director, Neuberger
Neuberger Berman. Berman Real Estate Income Fund Inc.;
President and Director, Neuberger Berman
Intermediate Municipal Fund Inc.; President
and Director, Neuberger Berman New York
Intermediate Municipal Fund Inc.; President
and Director, Neuberger Berman California
Intermediate Municipal Fund Inc.; President
and Trustee, Neuberger Berman Advisers
Management Trust; President and Trustee,
Neuberger Berman Equity Funds; President and
Trustee, Neuberger Berman Income Funds;
President and Director, Neuberger Berman
Realty Income Fund Inc.; President and
Director, Neuberger Berman Income Opportunity
Fund Inc.; President and Director, Neuberger
Berman Real Estate Securities Income Fund Inc.
Benjamin E. Segal None.
Managing Director, Neuberger
Berman since November 2000,
prior thereto, Vice President,
Neuberger Berman; Vice
President, NB Management.
Jennifer Silver None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Kent C. Simons None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Matthew S. Stadler Senior Vice President and Chief Financial
Senior Vice President and Chief Officer, Neuberger Berman Inc. since August
Financial Officer, Neuberger 2000; Senior Vice President and Chief
Berman since August 2000, prior Financial Officer, National Discount Brokers
thereto, Controller, Neuberger Group from May 1999 until October 1999.
Berman from November 1999 to
August 2000; Senior Vice
President and Chief Financial
Officer, NB Management since
August 2000.
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NAME BUSINESS AND OTHER CONNECTIONS
---- ------------------------------
Heidi S. Steiger Executive Vice President and Director,
Executive Vice President, Neuberger Berman Inc.; Chair and Director,
Neuberger Berman; Director, NB Neuberger Berman National Trust Company since
Management since February 2001. January 2001; Director, Neuberger Berman
Trust Company of Delaware since February 2000
(and Chair until January 2001); Director,
Neuberger Berman Trust Company until
September 2001 (and Chair from September 1999
until January 2001).
Peter E. Sundman Executive Vice President and Director,
President and Director, Neuberger Berman Inc.; Chairman of the Board,
NB Management; Executive Vice Chief Executive Officer and Trustee,
President, Neuberger Berman. Neuberger Berman Income Funds; Chairman of
the Board, Chief Executive Officer and
Trustee, Neuberger Berman Advisers Management
Trust; Chairman of the Board, Chief Executive
Officer and Trustee Neuberger Berman Equity
Funds; Chairman of the Board, Chief Executive
Officer and Director, Neuberger Berman Real
Estate Income Fund Inc.; Chairman of the
Board, Chief Executive Officer and Director,
Neuberger Berman Intermediate Municipal Fund
Inc.; Chairman of the Board, Chief Executive
Officer and Director, Neuberger Berman New
York Intermediate Municipal Fund Inc.;
Chairman of the Board, Chief Executive
Officer and Director, Neuberger Berman
California Intermediate Municipal Fund Inc.;
Chairman of the Board, Chief Executive
Officer and Director, Neuberger Berman Realty
Income Fund Inc.; Chairman of the Board,
Chief Executive Officer and Director,
Neuberger Berman Income Opportunity Fund
Inc.; Chairman of the Board, Chief Executive
Officer and Director, Neuberger Berman Real
Estate Securities Income Fund Inc.
Judith M. Vale None.
Managing Director, Neuberger
Berman; Vice President,
NB Management.
Catherine Waterworth None.
Vice President, Neuberger
Berman; Vice President,
NB Management.
|
NAME BUSINESS AND OTHER CONNECTIONS ---- ------------------------------ Allan R. White, III None. Managing Director, Neuberger Berman; Vice President, NB Management. |
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, as amended ("1940 Act"),
and the rules promulgated thereunder with respect to the Registrant are
maintained at the offices of its custodian and accounting agent, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, and
its transfer agent, The Bank of New York, 1 Wall Street, New York, New York
10286, except for the Registrant's Articles of Incorporation and Bylaws, minutes
of meetings of the Registrant's Directors and stockholders and the Registrant's
policies and contracts, which are maintained at the offices of the Registrant,
605 Third Avenue, New York, New York 10158-0180.
ITEM 32. MANAGEMENT SERVICES
None.
ITEM 33. UNDERTAKINGS
1. The Registrant hereby undertakes to suspend the offering of its shares until it amends its Prospectus if:
(1) subsequent to the effective date of this Registration Statement, the net asset value per share declines more than 10% from its net asset value per share as of the effective date of the Registration Statement; or
(2) the net asset value increases to an amount greater than its net proceeds as stated in the Prospectus.
2. N/A
3. N/A
4. N/A
5. The Registrant hereby undertakes:
(1) For purposes of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 497(h) under the 1933 Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and
(2) For the purposes of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof.
6. The Registrant hereby undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York, on the 5th day of December 2003.
NEUBERGER BERMAN REAL ESTATE
SECURITIES INCOME FUND INC.
By: /S/ Jack L. Rivkin
-------------------------
Name: Jack L. Rivkin*
Title: President and Director
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Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board,
Chief Executive Officer December 5, 2003
/s/ Peter E. Sundman and Director
----------------------------
Peter E. Sundman*
/s/ Jack L. Rivkin President and Director December 5, 2003
----------------------------
Jack L. Rivkin*
Treasurer and Principal
Financial and Accounting December 5, 2003
/s/ Barbara Muinos Officer
----------------------------
Barbara Muinos
/s/ John Cannon Director December 5, 2003
----------------------------
John Cannon*
/s/ Faith Colish Director December 5, 2003
----------------------------
Faith Colish*
/s/ Walter G. Ehlers Director December 5, 2003
----------------------------
Walter G. Ehlers*
/s/ C. Anne Harvey Director December 5, 2003
----------------------------
C. Anne Harvey*
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Signature Title Date --------- ----- ---- /s/ Barry Hirsch Director December 5, 2003 ---------------------------- Barry Hirsch* /s/ Robert A. Kavesh Director December 5, 2003 ---------------------------- Robert A. Kavesh* /s/ Howard A. Mileaf Director December 5, 2003 ---------------------------- Howard A. Mileaf* /s/ Edward I. O'Brien Director December 5, 2003 ---------------------------- Edward I. O'Brien* /s/ John P. Rosenthal Director December 5, 2003 ---------------------------- John P. Rosenthal* /s/ William E. Rulon Director December 5, 2003 ---------------------------- William E. Rulon* /s/ Cornelius T. Ryan Director December 5, 2003 ---------------------------- Cornelius T. Ryan* /s/ Tom Decker Seip Director December 5, 2003 ---------------------------- Tom Decker Seip* /s/ Candace L. Straight Director December 5, 2003 ---------------------------- Candace L. Straight* /s/ Peter P. Trapp Director December 5, 2003 ---------------------------- Peter P. Trapp* |
*Signatures affixed by Arthur C. Delibert on December 5, 2003 pursuant to power of attorney, which is filed herewith.
POWER OF ATTORNEY
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC., a Maryland corporation (the "Fund"), and each of its undersigned officers and directors hereby nominates, constitutes and appoints Peter E. Sundman, Richard M. Phillips, Arthur C. Delibert, Lori L. Schneider, Jennifer R. Gonzalez and Fatima S. Sulaiman (with full power to each of them to act alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on its/his/her behalf and in its/his/her name, place and stead in any and all capacities, to make, execute and sign the Fund's registration statement on Form N-2 and any and all amendments to such registration statement of the Fund, and to file with the Securities and Exchange Commission, and any other regulatory authority having jurisdiction over the offer and sale of the shares of capital stock of the Fund, such registration statement and any such amendment, and any and all supplements thereto or to any prospectus or statement of additional information forming a part thereof, and any and all exhibits and other documents requisite in connection therewith, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as the Fund and the undersigned officers and directors itself/themselves might or could do.
NEUBERGER BERMAN REAL ESTATE INCOME FUND INC. has caused this power of attorney to be executed in its name by its President, and attested by its Secretary, and the undersigned officers and directors have hereunto set their hands and seals at New York, New York this 10th day of September, 2003.
NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
By: /s/ Jack L. Rivkin
-----------------------------------
Jack L. Rivkin
President and Director
[SEAL]
ATTEST:
/s/ Claudia A. Brandon
--------------------------------
Claudia A. Brandon,
Secretary
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[Signatures Continued on Next Page]
Signature Title
--------- -----
/s/ John Cannon Director
-----------------------------
John Cannon
/s/ Faith Colish Director
-----------------------------
Faith Colish
/s/ Walter G. Ehlers Director
-----------------------------
Walter G. Ehlers
/s/ C. Anne Harvey Director
-----------------------------
C. Anne Harvey
/s/ Barry Hirsch Director
-----------------------------
Barry Hirsch
/s/ Robert A. Kavesh Director
-----------------------------
Robert A. Kavesh
/s/ Howard A. Mileaf Director
-----------------------------
Howard A. Mileaf
/s/ Edward I. O'Brien Director
-----------------------------
Edward I. O'Brien
/s/ Jack L. Rivkin President and Director
-----------------------------
Jack L. Rivkin
/s/ John P. Rosenthal Director
-----------------------------
John P. Rosenthal
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/s/ William E. Rulon Director ----------------------------- William E. Rulon /s/ Cornelius T. Ryan Director ----------------------------- Cornelius T. Ryan /s/ Tom Decker Seip Director ----------------------------- Tom Decker Seip /s/ Candace L. Straight Director ----------------------------- Candace L. Straight /s/ Peter E. Sundman Chairman of the Board, Chief ----------------------------- Executive Officer and Director Peter E. Sundman /s/ Peter P. Trapp Director ----------------------------- Peter P. Trapp |
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
EXHIBIT INDEX
Exhibit Document Description
------- --------------------
a. (1) Articles of Incorporation. (Incorporated by reference to
the Registrant's Registration Statement, File Nos.
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333-108412 and 811-21421, filed on August 29, 2003)
(2) Form of Articles Supplementary. (Filed herewith as Appendix A to the Statement of Additional Information,
Part B of the Registrant's Registration Statement)
b. By-Laws. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on October 27, 2003)
c. None.
d. Articles Sixth, Ninth, Tenth, Eleventh and Thirteenth of the Articles of Incorporation and Articles II, VI and X of the By-Laws.
e. Dividend Reinvestment Plan. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on September 29, 2003)
f. None.
g. (1) Management Agreement. (filed herewith)
(2) Sub-Advisory Agreement. (filed herewith)
h. (1) Underwriting Agreement with respect to Registrant's common stock. (filed herewith)
(2) Form of Master Agreement Among Underwriters. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on September 29, 2003)
(3) Form of Master Selected Dealer Agreement. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on September 29, 2003)
(4) Form of Underwriting Agreement with respect to Registrant's preferred stock. (to be filed)
i. None
j. Custodian Contract. (filed herewith)
k. (1) Transfer Agency and Service Agreement. (filed herewith)
(2) Administration Agreement. (filed herewith)
(3) Fee Waiver Agreement. (filed herewith)
(4) Corporate Finance Services and Consulting Agreement.
(filed herewith)
(5) Additional Compensation Agreement. (filed herewith)
(6) Form of Auction Agency Agreement with respect to Registrant's preferred stock. (filed herewith)
(7) Form of Broker-Dealer Agreement with respect to Registrant's preferred stock. (filed herewith)
l. (1) Opinion and Consent of Counsel with respect to Registrant's common stock. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on October 27, 2003 and the Registrant's Registration Statement, File Nos. 333-110078 and 811-21421, filed on October 29, 2003)
(2) Opinion and Consent of Counsel with respect to Registrant's preferred stock. (to be filed)
m. None.
n. Consent of Independent Auditors. (to be filed)
o. None.
p. Letter of Investment Intent. (Incorporated by reference to the Registrant's Registration Statement, File Nos. 333-108412 and 811-21421, filed on October 27, 2003)
q. None.
r. Code of Ethics for Registrant, its Investment Adviser and its Sub-Adviser. (filed herewith)
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
MANAGEMENT AGREEMENT
This Agreement is made as of October 31, 2003, between Neuberger Berman Real Estate Securities Income Fund Inc., a Maryland corporation ("Fund"), and Neuberger Berman Management Inc., a New York corporation ("Manager").
W I T N E S S E T H:
WHEREAS, Fund is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as a closed-end, non-diversified management investment company; and
WHEREAS, Fund desires to retain the Manager as investment adviser to furnish the investment advisory and portfolio management services described herein and the Manager is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows:
1. SERVICES OF THE MANAGER.
1.1 INVESTMENT MANAGEMENT SERVICES. The Manager shall act as the investment adviser to the Fund and, as such, shall (i) obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in discharging its responsibilities hereunder, (ii) formulate a continuing program for the investment of the assets of the Fund in a manner consistent with its investment objectives, policies and restrictions, and (iii) determine from time to time securities to be purchased, sold, retained or lent by the Fund, and implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected; provided, that the Manager will place orders pursuant to its investment determinations either directly with the issuer or with a broker or dealer, and if with a broker or dealer, (a) will attempt to obtain the best net price and most favorable execution of its orders, and (b) may nevertheless in its discretion purchase and sell portfolio
securities from and to brokers and dealers who provide the Manager with research, analysis, advice and similar services and pay such brokers and dealers in return a higher commission or spread than may be charged by other brokers or dealers.
The Fund hereby authorizes any entity or person associated with the Manager which is a member of a national securities exchange to effect or execute any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a-2(T)(a)(iv).
The Manager shall carry out its duties with respect to the Fund's investments in accordance with applicable law and the investment objectives, policies and restrictions of the Fund adopted by the directors of Fund ("Directors"), and subject to such further limitations as the Fund may from time to time impose by written notice to the Manager.
1.2 The Manager can use any of the officers and employees of Neuberger Berman, LLC to provide any of the non-investment advisory services described herein, and can subcontract to third parties, provided the Manager remains as fully responsible to the Fund under this contract as if the Manager had provided services directly.
2. EXPENSES OF THE FUND.
2.1 EXPENSES TO BE PAID BY THE MANAGER. The Manager shall pay all salaries, expenses and fees of the officers, directors and employees of the Fund who are officers, directors or employees of the Manager.
In the event that the Manager pays or assumes any expenses of the Fund not required to be paid or assumed by the Manager under this Agreement, the Manager shall not be obligated hereby to pay or assume the same or any similar expense in the future; PROVIDED, that nothing herein contained shall be deemed
to relieve the Manager of any obligation to the Fund under any separate agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE FUND. The Fund shall bear the expenses of its operation, except those specifically allocated to the Manager under this Agreement or under any separate agreement between the Fund and the Manager. Subject to any separate agreement or arrangement between the Fund and the Manager, the expenses hereby allocated to the Fund, and not to the Manager, include, but are not limited to:
2.2.1 CUSTODY. All charges of depositories, custodians, and other agents for the transfer, receipt, safekeeping, and servicing of its cash, securities, and other property.
2.2.2 STOCKHOLDER SERVICING. All expenses of maintaining and servicing Stockholder accounts, including but not limited to the charges of any Stockholder servicing agent, dividend disbursing agent or other agent engaged by the Fund to service Stockholder accounts.
2.2.3 STOCKHOLDER REPORTS. All expenses of preparing, setting in type, printing and distributing reports and other communications to Stockholders of the Fund.
2.2.4 PRICING AND PORTFOLIO VALUATION. All expenses of computing the Fund's net asset value per share, including any equipment or services obtained for the purpose of pricing shares or valuing the Fund's investment portfolio.
2.2.5 COMMUNICATIONS. All charges for equipment or services used for communications between the Manager or the Fund and any custodian, Stockholder servicing agent, portfolio accounting services agent, dividend disbursing agent, dividend reinvestment plan agent or other agent engaged by the Fund.
2.2.6 LEGAL AND ACCOUNTING FEES. All charges for services and expenses of the Fund's legal counsel and independent auditors.
2.2.7 DIRECTORS' FEES AND EXPENSES. All compensation of Directors other than those affiliated with the Manager, all expenses incurred in connection with such unaffiliated Directors' services as Directors, and all other expenses of meetings of the Directors or committees thereof.
2.2.8 STOCKHOLDER MEETINGS. All expenses incidental to holding meetings of Stockholders, including the printing of notices and proxy materials, and proxy solicitation therefor.
2.2.9 BONDING AND INSURANCE. All expenses of bond, liability, and other insurance coverage required by law or regulation or deemed advisable by the Directors, including, without limitation, such bond, liability and other insurance expense that may from time to time be allocated to the Fund in a manner approved by the Directors.
2.2.10 BROKERAGE COMMISSIONS. All brokers' commissions and other charges incident to the purchase, sale or lending of the Fund's portfolio securities.
2.2.11 TAXES. All taxes or governmental fees payable by or with respect to the Fund to federal, state or other governmental agencies, domestic or foreign, including stamp or other transfer taxes.
2.2.12 TRADE ASSOCIATION FEES. All fees, dues and other expenses incurred in connection with the Fund's membership in any trade association or other investment organization.
2.2.13 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring and extraordinary expenses as may arise, including the costs of actions, suits, or proceedings to which the Fund is a party and the expenses the Fund may incur as a result of its legal obligation to provide indemnification to Fund's officers, Directors and agents.
2.2.14 ORGANIZATIONAL EXPENSES AND OFFERING EXPENSES FOR COMMON STOCK. Any and all organizational expenses of the Fund and any and all offering expenses for shares of the Fund's common stock paid by the Manager shall be reimbursed by the Fund if and at such time or times agreed by the Fund and the Manager.
2.2.15 EXPENSES OF LISTING ON A NATIONAL SECURITIES EXCHANGE. Any and all expenses of listing and maintaining the listing of shares of the Fund's common stock on any national securities exchange.
2.2.16 OFFERING EXPENSES FOR ANY PREFERRED STOCK. Any and all offering expenses (including rating agency fees) for any preferred stock of the Fund paid by the Manager shall be reimbursed by the Fund if and at such time or times agreed by the Fund and the Manager.
2.2.17 DIVIDEND REINVESTMENT PLAN. Any and all expenses incident to any dividend reinvestment plan.
2.2.18 INTEREST. Such interest as may accrue on borrowings of the Fund.
3. ADVISORY FEE.
3.1 FEE. As compensation for all services rendered, facilities provided and expenses paid or assumed by the Manager under this Agreement, the Fund shall pay the Manager an annual fee equal to 0.60% of the Fund's average daily total assets minus liabilities other than the aggregate indebtedness entered into for purposes of leverage ("Managed Assets").
3.2 COMPUTATION AND PAYMENT OF FEE. The advisory fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accruals shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the annual advisory fee rate, and multiplying this product by the
Managed Assets of the Fund, determined in the manner established by the Directors, as of the close of business on the last preceding business day on which the Fund's net asset value was determined.
4. OWNERSHIP OF RECORDS.
All records required to be maintained and preserved by the Fund pursuant to the provisions or rules or regulations of the Securities and Exchange Commission under Section 31 (a) of the 1940 Act and maintained and preserved by the Manager on behalf of the Fund are the property of the Fund and shall be surrendered by the Manager promptly on request by the Fund; provided, that the Manager may at its own expense make and retain copies of any such records.
5. REPORTS TO MANAGER.
The Fund shall furnish or otherwise make available to the Manager such copies of the Fund's financial statements, proxy statements, reports, and other information relating to its business and affairs as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS TO THE FUND.
The Manager shall prepare and furnish to the Fund such reports, statistical data and other information in such form and at such intervals as the Fund may reasonably request.
7. RETENTION OF SUB-ADVISER.
Subject to the Fund obtaining the initial and periodic approvals required under Section 15 of the 1940 Act, the Manager may retain a sub-adviser, at the Manager's own cost and expense, for the purpose of making investment recommendations and research information available to the Manager. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of the Manager under this Agreement and the Manager shall be responsible to Fund for
all acts or omissions of the sub-adviser in connection with the performance of the Manager's duties hereunder.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment management and administrative services to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, or to engage in other business activities.
9. LIMITATION OF LIABILITY OF MANAGER AND ITS PERSONNEL.
9.1 Neither the Manager nor any director, officer or employee of the Manager performing services for the Fund at the direction or request of the Manager in connection with the Manager's discharge of its obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with any matter to which this Agreement relates; provided, that nothing herein contained shall be construed (i) to protect the Manager against any liability to the Fund or its Stockholders to which the Manager would otherwise be subject by reason of the Manager's willful misfeasance, bad faith, or gross negligence in the performance of the Manager's duties, or by reason of the Manager's reckless disregard of its obligations and duties under this Agreement ("disabling conduct"), or (ii) to protect any director, officer or employee of the Manager who is or was a Director or officer of the Fund against any liability to the Fund or its Stockholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Fund.
9.2 The Fund will indemnify the Manager against, and hold it harmless from, any and all expenses (including reasonable counsel fees and expenses) incurred investigating or defending against claims for losses or liabilities described in Section 9.1 not resulting from negligence, disregard of its obligations and duties under this Agreement or disabling conduct by the Manager. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that the Manager
was not liable by reason of negligence, disregard of its obligations and duties under this Agreement or disabling conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the Manager was not liable by reason of negligence, disregard of its obligations and duties under this Agreement or disabling conduct by (a) the vote of a majority of a quorum of directors of the Fund who are neither "interested persons" of the Fund nor parties to the proceeding ("disinterested non-party directors") or (b) an independent legal counsel in a written opinion. The Manager shall be entitled to advances from the Fund for payment of the reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification hereunder in the manner and to the fullest extent permissible under the Maryland General Corporation Law. The Manager shall provide to the Fund a written affirmation of its good faith belief that the standard of conduct necessary for indemnification by the Fund has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) the Manager shall provide security in form and amount acceptable to the Fund for its undertaking; (b) the Fund is insured against losses arising by reason of the advance; or (c) a majority of a quorum of the full Board of Directors of the Fund, the members of which majority are disinterested non-party directors, or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Fund at the time the advance is proposed to be made, that there is reason to believe that the Manager will ultimately be found to be entitled to indemnification hereunder.
10. EFFECT OF AGREEMENT.
Nothing herein contained shall be deemed to require the Fund to take any action contrary to the Articles of Incorporation or By-Laws of the Fund, any actions of the Directors binding upon the Fund, or any applicable law, regulation or order to which the Fund is subject or by which it is bound, or to relieve or deprive the Directors of their responsibility for and control of the conduct of the business and affairs of the Fund.
11. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written and, unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through October 31, 2005. Thereafter, this Agreement shall continue in effect from year to year, subject to the termination provisions and all other terms and conditions hereof, provided, such continuance is approved at least annually by vote of the holders of a majority of the outstanding voting securities of the Fund or by the Directors, provided, that in either event such continuance is also approved annually by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Directors who are not parties to this Agreement or interested persons of either party hereto; and provided further that the Manager shall not have notified the Fund in writing at least sixty (60) days prior to the first expiration date hereof or at least sixty (60) days prior to any expiration date hereof of any year thereafter that it does not desire such continuation. The Manager shall furnish to the Fund, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment thereof.
12. AMENDMENT OR ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing signed by the parties hereto; provided, that no such amendment shall be effective unless authorized on behalf of the Fund (i) by resolution of the Directors, including the vote or written consent of a majority of the Directors who are not parties to this Agreement or interested persons of either party hereto, and (ii) by vote of a majority of the outstanding voting securities of the Fund. This Agreement shall terminate automatically and immediately in the event of its assignment.
13. TERMINATION OF AGREEMENT.
This Agreement may be terminated at any time by either party hereto, without the payment of any penalty, upon sixty (60) days' prior written notice to the other party; provided, that in the case of termination by the Fund, such action shall have been authorized (i) by resolution of the Directors, including
the vote or written consent of a majority of Directors who are not parties to this Agreement or interested persons' of either party hereto, or (ii) by vote of a majority of the outstanding voting securities of the Fund.
14. NAME OF THE FUND.
The Fund hereby agrees that if the Manager shall at any time for any reason cease to serve as investment adviser to the Fund, the Fund shall, if and when requested by the Manager, eliminate from the Fund's name the name "Neuberger Berman" and thereafter refrain from using the name "Neuberger Berman" or the initials "NB" in connection with its business or activities, and the foregoing agreement of the Fund shall survive any termination of this Agreement and any extension or renewal thereof.
15. INTERPRETATION AND DEFINITION OF TERMS.
Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretation thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment" and "affiliated person," as used in this Agreement shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition, when the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
16. CHOICE OF LAW.
This Agreement is made and to be principally performed in the State of New York and except insofar as the 1940 Act or other federal laws and regulations may be controlling, this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York.
17. CAPTIONS.
The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
18. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written.
NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
/s/ Robert Conti
-------------------------------------
By: Robert Conti
Title: Vice President
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NEUBERGER BERMAN MANAGEMENT INC.
/s/ Peter E. Sundman
-------------------------------------
By: Peter E. Sundman
Title: President
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SUB-ADVISORY AGREEMENT
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
NEUBERGER BERMAN MANAGEMENT INC.
605 Third Avenue
New York, New York 10158-0006
October 31, 2003
Neuberger Berman, LLC
605 Third Avenue
New York, New York 10158-3698
Dear Sirs:
We have entered into a Management Agreement with Neuberger Berman Real Estate Securities Income Fund Inc. ("Fund") pursuant to which we are to act as investment adviser to the Fund. We hereby agree with you as follows:
1. You agree for the duration of this Agreement to furnish us with such investment recommendations and research information, of the same type as that which you from time to time provide to your employees for use in managing client accounts, all as we shall reasonably request. In the absence of willful misfeasance, bad faith or gross negligence in the performance of your duties, or of the reckless disregard of your duties and obligations hereunder, you shall not be subject to liability for any act or omission or any loss suffered by the Fund or its security holders in connection with the matters to which this Agreement relates.
2. In consideration of your agreements set forth in paragraph 1 above, we agree to pay you on the basis of direct and indirect costs to you of performing such agreements. Indirect costs shall be allocated on a basis mutually satisfactory to you and to us.
3. As used in this Agreement, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the meanings given to them by Section 2(a)(4) and 2(a)(42), respectively, of the Investment Company Act of 1940, as amended.
This Agreement shall terminate automatically in the event of its assignment, or upon termination of the Management Agreement between the Fund and the undersigned.
This Agreement may be terminated at any time, without the payment of any penalty, (a) by the Directors of the Fund or by vote of a majority of the outstanding securities of the Fund or by the undersigned on not less than sixty days' written notice addressed to you at your principal place of business; and (b) by
you, without the payment of any penalty, on not less than thirty nor more than sixty days' written notice addressed to the Fund and the undersigned at the Fund's principal place of business.
This Agreement shall remain in full force and effect until October 31, 2005 (unless sooner terminated as provided above) and from year to year thereafter only so long as its continuance is approved in the manner required by the Investment Company Act of 1940, as from time to time amended.
If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart hereof and return the same to us.
The foregoing is hereby accepted as of the date hereof.
Very truly yours,
NEUBERGER BERMAN MANAGEMENT INC.
/s/ Robert Conti
---------------------------------
By: Robert Conti
Title: Senior Vice President
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The foregoing is hereby accepted as of the date first above written.
NEUBERGER BERMAN, LLC
/s/ Peter E. Sundman
---------------------------------
By: Peter E. Sundman
Title: Executive Vice President
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29,000,000 SHARES
NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
COMMON STOCK
October 28, 2003
A.G. Edwards & Sons, Inc.
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Advest, Inc.
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
Dominick & Dominick LLC
Ferris, Baker Watts, Incorporated
J.J.B. Hilliard, W.L. Lyons, Inc.
Janney Montgomery Scott LLC
Legg Mason Wood Walker Incorporated
McDonald Investments Inc., a KeyCorp Company
Oppenheimer & Co. Inc.
RBC Dain Rauscher Inc.
Stifel, Nicholas & Company, Incorporated
SunTrust Capital Markets, Inc.
Wells Fargo Securities, LLC
As Representatives of the Several Underwriters c/o A.G. Edwards & Sons, Inc. One North Jefferson Avenue St. Louis, Missouri 63103
Dear Sirs:
The undersigned, Neuberger Berman Real Estate Securities Income Fund Inc., a Maryland corporation (the "Fund"), Neuberger Berman Management Inc., a New
York corporation (the "Adviser"), and Neuberger Berman, LLC, a Delaware limited liability company (the "Sub-Adviser"), address you as Underwriters and as the Representatives (the "Representatives") of each of the other persons, firms and corporations, if any, listed in Schedule I hereto (herein collectively called "Underwriters"). The Fund proposes to issue and sell an aggregate of 29,000,000 shares of common stock, $0.0001 par value per share (the "Firm Shares"), of the Fund to the several Underwriters. The Fund also proposes to sell upon the terms and conditions contained in Section 2 hereof, up to 4,350,000 additional shares of common stock (the "Additional Shares," which together with the Firm Shares are hereinafter collectively referred to as the "Shares").
The Fund, the Adviser and the Sub-Adviser wish to confirm as follows their agreements with you and the other several Underwriters on whose behalf you are acting in connection with the several purchases of the Shares by the Underwriters.
The Fund has entered into an investment management agreement with the Adviser dated October 28, 2003 (the "Management Agreement"), an administration agreement with the Adviser dated October 28, 2003 (the "Administration Agreement"), a Custodian Contract with State Street Bank and Trust Company dated October 28, 2003 (the "Custodian Contract"), and a Transfer Agency Agreement with The Bank of New York dated October 28, 2003 (the "Transfer Agency Agreement"). In addition, the Fund has adopted a dividend reinvestment plan (the "Dividend Reinvestment Plan"), pursuant to which holders of Shares shall have their dividends automatically reinvested in additional shares of common stock of the Fund unless they elect to receive such dividends in cash. Collectively, the Management Agreement, Administration Agreement, Custodian Contract and Transfer Agency Agreement are herein referred to as the "Fund Agreements." The Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser dated October 28, 2003 (the "Sub-Advisory Agreement"), a Corporate Finance Services and Consulting Agreement with A.G. Edwards & Sons, Inc. dated October 31, 2003 (the "Corporate Finance Services and Consulting Agreement") and an Additional Compensation Agreement with Merrill Lynch, Pierce Fenner & Smith Incorporated and Lehman Brothers Inc.
dated October 31, 2003 (the "Additional Compensation Agreement"). Collectively the Management Agreement, Administration Agreement, Sub-Advisory Agreement, the Corporate Finance Services and Consulting Agreement and the Additional Compensation Agreement are herein referred to as the "Adviser Agreements." This Underwriting Agreement is herein referred to as the "Agreement."
1. REGISTRATION STATEMENT AND PROSPECTUS. The Fund has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations of the Commission under the 1933 Act (the "1933 Act Rules and Regulations") and the 1940 Act (the "1940 Act Rules and Regulations" and together with the 1933 Act Rules and Regulations, the "Rules and Regulations") a registration statement on Form N-2 (File No. 333-108412 under the 1933 Act) (the "registration statement"), including a prospectus and statement of additional information relating to the Shares, and a notification of registration of the Fund as an investment company under the 1940 Act on Form N-8A (File No. 811-21421 under the 1940 Act, the "1940 Act Notification"), and may pursuant to the Rules and Regulations prepare and file an additional registration statement relating to a portion of the Shares pursuant to Rule 462(b) of the 1933 Act Rules and Regulations (a "Rule 462 registration statement"). The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective under the 1933 Act or, if the registration statement became effective under the 1933 Act prior to the execution of this Agreement, as amended or supplemented thereto, prior to the execution of this Agreement and includes any information deemed to be included by Rule 430A under the 1933 Act Rules and Regulations. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed under the 1933 Act and must be declared effective before the offering of Shares may commence, the term "Registration Statement" as used in this Agreement means the Registration Statement as amended by said post-effective amendment. If the Fund has filed a Rule 462 registration
statement, then the reference herein to the term "Registration Statement" shall include such Rule 462 registration statement. The term "Prospectus" as used in this Agreement means the prospectus and statement of additional information in the forms included in the Registration Statement or, if the prospectus and statement of additional information included in the Registration Statement omit information in reliance on Rule 430A under the 1933 Act Rules and Regulations and such information is included in a prospectus and statement of additional information filed with the Commission pursuant to Rule 497(h) under the 1933 Act Rules and Regulations, the term "Prospectus" as used in this Agreement means the prospectus and statement of additional information in the forms included in the Registration Statement as supplemented by the addition of the information contained in the prospectus (including the statement of additional information) filed with the Commission pursuant to Rule 497(h). The term "Prepricing Prospectus" as used in this Agreement means the prospectus and statement of additional information subject to completion in the form included in the registration statement at the time of the initial filing of the registration statement with the Commission and as such prospectus and statement of additional information shall have been amended from time to time prior to the date of the Prospectus, together with any other prospectus (including any other statement of additional information) relating to the Fund other than the Prospectus. The terms "Registration Statement," "Prospectus" and "Prepricing Prospectus" shall also include any financial statements and other information included or incorporated by reference therein.
The Fund has furnished the Representatives with copies of such Registration Statement, each amendment to such Registration Statement filed with the Commission and each Prepricing Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. The Fund hereby agrees, subject to all the terms and conditions set forth herein, to issue and to sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Fund, the Adviser and the Sub-Adviser herein contained and subject to all of the other terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Fund at a
purchase price of $14.325 per Share (the "Price per Share"), the number of Shares set forth opposite the name of such Underwriter in Schedule I hereto.
The Fund also agrees, subject to all the terms and conditions set forth herein, to issue and to sell to the Underwriters and, upon the basis of the representations, warranties and agreements of the Fund, the Adviser and the Sub-Adviser herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Fund, at the Price per Share, pursuant to an option (the "over-allotment option"), Additional Shares. The over-allotment option may be exercised, in whole or in part, once by the Managing Representative (as defined below) on behalf of the Underwriters, (or twice as mutually agreed by the Fund and the Managing Representative) at any time prior to 9:00 A.M., New York City time, on or before the 45th day after the date of the Prospectus (or if such 45th day shall be a Saturday or a Sunday or a holiday, on the next business day thereafter when the American Stock Exchange (the "AMEX") is open for trading). Additional Shares may be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Shares. Upon any exercise in whole or in part of the over-allotment option, upon the basis of the representations, warranties and agreements of the Fund, the Adviser and the Sub-Adviser, herein contained and subject to all of the other terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Fund the number of Additional Shares as to which the option is being exercised (subject to such adjustments as you may determine to avoid fractional shares), which bears the same proportion to the aggregate number of Additional Shares to be purchased by the Underwriters as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I (or such number of Firm Shares increased as set forth in Section 11 hereof) bears to the aggregate number of Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Fund and the Adviser have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and
this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus.
(a) Payment of the purchase price for the Firm Shares shall be made to the Fund by Federal Funds wire transfer, against delivery of the certificates, if any, (or, if no certificates, against notification of electronic delivery) for the Firm Shares to the Representatives through the facilities of the Depository Trust Company ("DTC") for the respective accounts of the Underwriters. Delivery to the Underwriters of and payment to the Fund for the Firm Shares and compensation of the Underwriters with respect thereto shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York at 9:00 a.m. New York City time on October 31, 2003 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement between the Fund and A.G. Edwards & Sons, Inc., as the managing representative (the "Managing Representative") of the Underwriters.
(b) Delivery to the Underwriters of and payment to the Fund for any Additional Shares to be purchased by the Underwriters and compensation of the Underwriters with respect thereto shall be made in the same manner and at the same office as for the Firm Shares at such time on such date (an "Option Closing Date"), which may be the same as the Closing Date, but shall in no event be earlier than the Closing Date nor earlier than two nor later than seven business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Fund of the Underwriters' determination to purchase a number, specified in said notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Additional Shares may be varied by agreement between you and the Fund.
(c) The Shares shall be registered in such names and in such
denominations as the Underwriters shall request prior to 1:00 P.M., New
York City time (or such other time as the parties agree), (i) with respect
to the Firm Shares, on the first business day preceding the Closing Date
(ii) with respect to the Additional Shares, on the day of the giving of
the written notice in respect of such Additional Shares. Certificates for
shares, if any, will be made available to you in New York City for
inspection and packaging not later than 9:00 A.M., New York City time, on
the business day next preceding the Closing Date or any Option Closing
Date, as the case may be. The certificates, if any, evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the
case may be, against payment of the purchase price therefor in immediately
available funds in the manner described above.
5. AGREEMENTS OF THE FUND, THE ADVISER AND THE SUB-ADVISER. The Fund, the Adviser and the Sub-Adviser, jointly and severally, agree with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective under the 1933 Act before the offering of the Shares may commence, the Fund will use its best efforts to cause the Registration Statement or such post-effective amendment to become effective under the 1933 Act as soon as possible. If the Registration Statement has become effective and the Prospectus contained therein omits certain information at the time of effectiveness pursuant to Rule 430A of the 1933 Act Rules and Regulations, the Fund will file a prospectus including such information pursuant to Rule 497(h) of the 1933 Act Rules and Regulations, as promptly as practicable, but no later than the second business day following the earlier of the date of the determination of the offering price of the Shares or the date the Prospectus is first used after the effective date of the Registration Statement. If the Registration Statement has become effective and the Prospectus contained therein does not so omit such information, the Fund will file a Prospectus
or certification pursuant to Rule 497(c) or (j), as the case may be, of the 1933 Act Rules and Regulations as promptly as practicable, but no later than the fifth business day following the date of the later of the effective date of the Registration Statement or the commencement of the public offering of the Shares after the effective date of the Registration Statement. The Fund will advise you promptly and, if requested by you, will confirm such advice in writing (i) when the Registration Statement or such post-effective amendment has become effective, (ii) when the Prospectus has been timely filed pursuant to Rule 497(c) or Rule 497(h) of the 1933 Act Rules and Regulations or (iii) when the certification permitted pursuant to Rule 497(j) of the 1933 Act Rules and Regulations has been timely filed, whichever is applicable.
(b) The Fund, and (in the case of (iii)(B) below with respect to communications received by the Adviser or the Sub-Adviser) the Adviser or the Sub-Adviser, will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request made by the Commission for amendment of or a supplement to the Registration Statement, the Prospectus or any Prepricing Prospectus (or any amendment or supplement to any of the foregoing) or for additional information, (ii) of the issuance by the Commission, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official of any order suspending the effectiveness of the Registration Statement, prohibiting or suspending the use of the Prospectus, any Prepricing Prospectus or any sales material (as hereinafter defined), of any notice pursuant to Section 8(e) of the 1940 Act, of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation or contemplated initiation of any proceeding for any such purposes, (iii) of receipt by (A) the Fund, any affiliate of the Fund or attorney of the Fund of any other material communication from the Commission, or (B) the Fund, the Adviser, the Sub-Adviser, any affiliate of the Fund, the Adviser or the Sub-Adviser or attorney of the Fund, the Adviser or the Sub-Adviser of any other material communication from the
Commission, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official relating, in the case of either clause (A) or (B), to the Fund (if such communication relating to the Fund is received by such person within three years after the date of this Agreement), the Registration Statement, the 1940 Act Notification, the Prospectus, any Prepricing Prospectus, any Sales Material (as hereinafter defined) (or any amendment or supplement to any of the foregoing) or this Agreement, any of the Fund Agreements or the Adviser Agreements and (iv) within the period of time referred to in paragraph (f) below, of any material, adverse change in the condition (financial or other), business, business prospects, properties, net assets or results of operations of the Fund (other than as a result of changes in market conditions generally or the market for real estate securities generally) or any event, which has or would reasonably be expected to have a material adverse effect on the ability of the Adviser or the Sub-Adviser to perform their respective obligations under this Agreement, the Advisory Agreement or the Sub-Advisory Agreement, as the case may be, or of the happening of any event (but as to each of the Fund, the Adviser and the Sub-Adviser, an event known to that respective entity), which makes any statement of a material fact made in the Registration Statement, the Prospectus, any Prepricing Prospectus or any Sales Material (or any amendment or supplement to any of the foregoing) untrue or which requires the making of any additions to or changes in the Registration Statement, the Prospectus, any Prepricing Prospectus or any Sales Material (or any amendment or supplement to any of the foregoing) in order to state a material fact required by the 1933 Act, the 1940 Act or the Rules and Regulations to be stated therein or necessary in order to make the statements therein (in the case of a prospectus or any sales material, in light of the circumstances under which they were made) not misleading or of the necessity to amend or supplement the Registration Statement, the Prospectus, any Prepricing Prospectus or any Sales Material (or any amendment or supplement to any of the foregoing) to comply with the 1933
Act, the 1940 Act, the Rules and Regulations or any other law or order of any court or regulatory body. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, prohibiting or suspending the use of the Prospectus or any Sales Material (or any amendment or supplement to any of the foregoing) or suspending the qualification of the Shares for offering or sale in any jurisdiction, the Fund, the Adviser and the Sub-Adviser will use their best efforts to obtain the withdrawal of such order at the earliest possible time. If at any time any national securities exchange, any state securities commission, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official shall issue any order suspending the effectiveness of the Registration Statement, prohibiting or suspending the use of the Prospectus or any Sales Material (or any amendment or supplement to any of the foregoing) or suspending the qualification of the Shares for offering or sale in any jurisdiction, the Fund, the Adviser and the Sub-Adviser will use their respective best efforts to obtain the withdrawal of such order at the earliest possible time.
(c) The Fund will furnish to you, without charge, one signed copy of the registration statement and the 1940 Act Notification as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto and will also furnish to you, without charge, such number of conformed copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may reasonably request.
(d) Within five years from the date hereof, the Fund will not (i) file any amendment (except any post-effective amendment required by Rule 8b-16 of the 1940 Act, which is filed with the Commission after the later of (x) one year from the date of this Agreement or (y) the date on which the distribution of the Shares is completed) to the registration statement or the Registration Statement or make any amendment or supplement to the Prospectus, any Prepricing Prospectus or any Sales Material (or any
amendment or supplement to any of the foregoing) of which you shall not previously have been advised or (with respect to amendments filed within two years from the date hereof) to which you shall reasonably object within two business days after being so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a Prospectus is required to be delivered in connection with sales of Shares by any Underwriter or dealer, file any information, documents or reports pursuant to the 1933 Act, the 1940 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), without delivering a copy of such information, documents or reports to you, as Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Fund has delivered to you, without charge, in such quantities as you have reasonably requested, copies of each form of any Prepricing Prospectus. The Fund consents to the use, in accordance with the provisions of the 1933 Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Fund.
(f) As soon after the execution and delivery of this Agreement as reasonably possible and thereafter from time to time, for such period as in the opinion of counsel for the Underwriters a prospectus is required by the 1933 Act to be delivered in connection with sales of Shares by any Underwriter or dealer, the Fund will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may reasonably request. The Fund consents to the use of the Prospectus (and of any amendments or supplements thereto) in accordance with the provisions of the 1933 Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by law to be delivered in connection with sales of Shares by any Underwriter or dealer. If during such period of time any
event shall occur that in the judgment of the Fund or in the opinion of counsel for the Underwriters is required to be set forth in the Registration Statement or the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading or if it is necessary to supplement or amend the Registration Statement or the Prospectus to comply with the 1933 Act, the 1940 Act, the Rules and Regulations or any other applicable law, rule or regulation, the Fund will forthwith notify you of such event, prepare and, subject to the provisions of paragraph (d) above, promptly file with the Commission an appropriate amendment or supplement thereto and will furnish as promptly as reasonably possible to the Underwriters and dealers, without charge, such number of copies thereof as they may reasonably request; provided, however, that if such amendment or supplement is required solely as a result of a material misstatement in or material omission from the information furnished in writing by or on behalf of an Underwriter to the Fund, the Adviser or the Sub-Adviser expressly for use in the Registration Statement or the Prospectus (such information, as described in Section 9(h) of this Agreement, being referred to herein as the "Underwriter Information"), then the Fund shall deliver such amendment or supplement at cost.
(g) The Fund will cooperate with you and with counsel for the
Underwriters in connection with any registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers as
may be required under the applicable securities or Blue Sky laws of such
jurisdictions as you may designate and will file such consents to service
of process or other documents necessary or appropriate in order to effect
such registration or qualification; PROVIDED, HOWEVER, that the foregoing
shall not apply to the extent that the Shares are "covered securities"
that are exempt from state regulation of securities offerings pursuant to
Section 18 of the 1933 Act.
(h) As soon as practicable, but in no event later than the last day of the 18th full calendar month following the calendar quarter in which the effective date of the Registration Statement falls, the Fund will make generally available to its security holders an earnings statement, which need not be audited, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 of the 1933 Act Rules and Regulations.
(i) The Fund will comply with the undertaking set forth in sub-item 6 of Item 33 of Part C of the Registration Statement.
(j) During the period of three years hereafter, the Fund will furnish or will have furnished to you as soon as available, a copy of each report of the Fund mailed to shareholders or filed with the Commission (other than reports on Form N-SAR or Form N-CSR) or furnished to the AMEX.
(k) If this Agreement shall terminate or be terminated after execution pursuant to any provisions hereof (other than pursuant to the second paragraph of Section 11 hereof or by notice given by you terminating this Agreement pursuant to Section 12 hereof) or if this Agreement shall be terminated by the Underwriters because of any inability, failure or refusal on the part of the Fund, the Adviser or the Sub-Adviser to comply with any material terms in this Agreement or because any of the conditions in Section 10 of this Agreement required to be complied with or fulfilled by them are not satisfied, then the Fund, the Adviser and the Sub-Adviser, jointly and severally, agree to reimburse the Representatives for all out-of-pocket expenses not to exceed the amounts set forth in Section 13 of this Agreement (including reasonable fees and expenses of counsel for the Underwriters) incurred by you in connection herewith.
(l) The Fund will direct the investment of the net proceeds of the offering of the Shares (i) in accordance with the description set forth in the Prospectus and (ii) in such a manner as to comply with the investment
objectives, policies and restrictions of the Fund as described in the Prospectus.
(m) The Fund will file the requisite copies of the Prospectus with the Commission in a timely fashion pursuant to Rule 497(c) or Rule 497(h) of the 1933 Act Rules and Regulations, whichever is applicable or, if applicable, will file in a timely fashion the certification permitted by Rule 497(j) of the 1933 Act Rules and Regulations and will advise you of the time and manner of such filing.
(n) The Fund will use its best efforts to have the Shares listed, subject to notice of issuance, on the AMEX concurrently with the effectiveness of the Registration Statement and to comply with the rules or regulations of such exchange.
(o) Except as provided in this Agreement or pursuant to any dividend reinvestment plan of the Fund, the Fund will not sell, contract to sell or otherwise dispose of, any common stock of the Fund or any securities convertible into or exercisable or exchangeable for common stock of the Fund or grant any options or warrants to purchase common stock of the Fund, for a period of 180 days after the date of the Prospectus, without the prior written consent of the Representatives.
(p) Except as stated in this Agreement and in the Prospectus, none of the Fund, the Adviser or the Sub-Adviser will take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Shares in violation of federal securities laws.
(q) The Fund will direct the investment of the proceeds of the offering of the Shares so as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), to qualify as a regulated investment company under the Code.
6. REPRESENTATIONS AND WARRANTIES OF THE FUND, THE ADVISER AND THE SUB-ADVISER. The Fund, the Adviser and the Sub-Adviser, jointly and severally, represent and warrant to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto or filed pursuant to Rule 497 of the 1933 Act Rules and Regulations, complied when so filed in all material respects with the provisions of the 1933 Act, the 1940 Act and the Rules and Regulations (except that this representation and warranty does not apply to statements in or omissions from the Prepricing Prospectus (and any amendment or supplement thereto) made in reliance upon and in conformity with the Underwriter Information) and the Commission has not issued any order preventing or suspending the use of the Prepricing Prospectus.
(b) The registration statement, in the form in which it was originally filed, in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective, the Prospectus and any amendment or supplement thereto when filed with the Commission under Rule 497 of the 1933 Act Rules and Regulations and the 1940 Act Notification when originally filed with the Commission and any amendment or supplement thereto when filed with the Commission complied or will comply in all material respects with the provisions of the 1933 Act, the 1940 Act and the Rules and Regulations and each of the Registration Statement and the Prospectus (or any supplement or amendment to either of them) did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading; except that this representation and warranty does not apply to statements in or omissions from the Registration Statement and the Prospectus (and any amendment or supplement to either of them) made in reliance upon and in conformity with
the Underwriter Information.
(c) All the outstanding shares of capital stock of the Fund have
been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; the Shares have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights; and the capital stock of the Fund conforms in all material
respects to the description thereof in the Registration Statement or the
Prospectus (or any amendment or supplement to either of them). Except for
the Shares and the shares of common stock issued in accordance with
Section 14(a) of the 1940 Act, no other shares of capital stock are issued
or outstanding and the capitalization of the Fund conforms in all material
respects to the description thereof in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them).
(d) The Fund has been duly formed and is validly existing in good standing as a corporation under the laws of the State of Maryland, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) and is duly registered and qualified to conduct business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does not or would not have a material, adverse effect on the condition (financial or other), business, business prospects, properties, net assets or results of operations of (a "Material Adverse Effect") the Fund. The Fund has no subsidiaries.
(e) There are no legal or governmental proceedings pending or, to the knowledge of the Fund, threatened, against the Fund, or to which the Fund or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus (and any
amendment or supplement to either of them) but are not described therein and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) or to be filed as an exhibit to the Registration Statement that are not described therein or filed as an exhibit thereto as required by the 1933 Act, the 1940 Act or the Rules and Regulations.
(f) The Fund is not (i) in violation of its Articles of
Incorporation ("Articles"), by-laws or other organizational documents,
(ii) in violation of any law, ordinance, administrative or governmental
rule or regulation applicable to the Fund or of any decree of the
Commission, any state securities commission, any national securities
exchange, any arbitrator, any court or any other governmental, regulatory,
self-regulatory or administrative agency or any other agency or any body
or official having jurisdiction over the Fund or (iii) in breach or
default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness or in any agreement, indenture, lease or other instrument to
which the Fund is a party or by which it or any of its properties may be
bound, except, in the case of (ii) and (iii) above, for violations,
breaches or defaults that do not or would not have, either individually or
in the aggregate, a Material Adverse Effect on the Fund.
(g) Neither the issuance and sale of the Shares, the execution, delivery or performance of this Agreement or any of the Fund Agreements by the Fund, nor the consummation by the Fund of the transactions contemplated hereby or thereby (i) requires any consent, approval, authorization or order of or registration or filing with the Commission, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency or official having jurisdiction over the Fund (except (A) such as have been obtained or made prior to the date of this Agreement, (B) for compliance with the securities or Blue Sky laws of
various jurisdictions, which have been or will be effected in accordance with this Agreement and (C) for compliance with the filing requirements of the NASD Division of Corporate Finance) or conflicts or will conflict with or constitutes or will constitute a breach of the Articles, bylaws, or other organizational documents of the Fund or (ii) (A) conflicts or will conflict with or constitutes or will constitute a breach of or a default under any agreement, indenture, lease or other instrument to which the Fund is a party or by which it or any of its properties may be bound or (B) violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Fund or any of its properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Fund is subject except, in the case of (ii) above, for conflicts, breaches, defaults, violations or encumbrances that do not or would not have, either individually or in the aggregate, a Material Adverse Effect on the Fund. As of the date hereof, the Fund is not subject to any order of any court or of any arbitrator, governmental authority or administrative agency that has or would have, either individually or in the aggregate, a Material Adverse Effect on the Fund.
(h) Since the date as of which information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), except as otherwise stated therein, (i) there has been no change that has or would have a Material Adverse Effect on the Fund (other than those in the ordinary course of business as described in the Prospectus); (ii) there have been no transactions entered into by the Fund other than those in the ordinary course of its business or as described in the Prospectus (and any amendment or supplement thereto); and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Fund on any class of its common stock.
(i) Ernst & Young LLP, who have audited the Statement of Assets and Liabilities included in, and whose report appears in, the Registration Statement and the Prospectus (and any amendment or supplement to either of them), are independent public accountants with respect to the Fund as required by the 1933 Act, the 1940 Act and the Rules and Regulations.
(j) The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) present fairly the financial position of the Fund on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved except as disclosed therein; and the other financial and statistical information and data included in the Registration Statement or the Prospectus (or any amendment or supplement thereto) are accurately derived from such financial statements and the books and records of the Fund.
(k) The Fund, subject to the Registration Statement having been declared effective and the filing of the Prospectus under Rule 497 under the 1933 Act Rules and Regulations, has taken all action required to be taken by it under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Shares as contemplated by this Agreement.
(l) The execution and delivery of and the performance by the Fund of its obligations under this Agreement and the Fund Agreements have been duly and validly authorized by the Fund and this Agreement and each of the Fund Agreements have been duly executed and delivered by the Fund and (assuming due and valid authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each Fund Agreement constitutes the valid and legally binding agreement of the Fund, enforceable against the Fund in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Fund's obligations hereunder and thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law).
(m) Except as disclosed in or contemplated by the Registration Statement or the Prospectus (or any amendment or supplement to either of them), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), the Fund has not incurred any debt, liability or obligation, direct or contingent, and there has not been any change in the capital stock or capitalization of the Fund.
(n) The Fund has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute to the public any offering material in
connection with the offering and sale of the Shares other than the
Registration Statement, the Prepricing Prospectus included in
Pre-Effective Amendment No. 1 to the registration statement (the "Red
Herring Preliminary Prospectus"), the Prospectus and the Sales Material
(or any other material, if any, permitted by the 1933 Act, the 1940 Act or
the Rules and Regulations).
(o) (i) The Fund has such licenses, permits, and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its property and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto); (ii) the Fund has fulfilled and performed all its obligations with respect to such permits and no event has occurred, which allows or, after notice or lapse of time, would allow, revocation or termination thereof or results in any other
impairment of the rights of the Fund under any such permit, subject in each case to such qualification as may be set forth in the Prospectus (and any amendment or supplement thereto); and, (iii) except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Fund; except where the failure to obtain or perform its obligations with respect to such permits, or the restrictions set forth in such permits, as set forth in clauses (i), (ii) and (iii), either individually or in the aggregate, does or would not have a Material Adverse Effect on the Fund.
(p) The Fund will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with the Board of Directors' general or specific authorization and with the investment policies and restrictions of the Fund and the applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and the Code; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles, to calculate net asset value and fee accruals, to maintain accountability for assets and to maintain compliance with the books and records requirements under the 1940 Act and the 1940 Act Rules and Regulations; (iii) access to assets is permitted only in accordance with the Board of Directors' general or specific authorization; and (iv) the recorded account for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(q) The conduct by the Fund of its business (as described in the Prospectus) does not require it to be the owner, possessor, licensee of, or otherwise require it to have the right to use, any patents, patent licenses, trademarks, service marks or trade names (collectively, "Intellectual Property"), which it does not own, possess, license or otherwise have the right to use, except where the failure to own, possess, license or otherwise have the right to use such Intellectual Property,
individually or in the aggregate, does or would not have a Material Adverse Effect on the Fund.
(r) Except as stated in this Agreement and in the Prospectus (and any amendment or supplement thereto), the Fund has not taken and will not take, directly or indirectly, any action designed to or which could cause or result in or which will constitute stabilization or manipulation of the price of the Shares in violation of federal securities laws and, to the Fund's knowledge, no such action has been, or will be, taken by any affiliates of the Fund.
(s) The Fund is duly registered under the 1940 Act and the Rules and Regulations as a closed-end, non-diversified management investment company and the 1940 Act Notification has been duly filed with the Commission and, at the time of filing thereof and at all times through the date hereof the 1940 Act Notification conformed in all material respects with all applicable provisions of the 1940 Act and the Rules and Regulations; no order of suspension or revocation of such registration under the 1940 Act and the Rules and Regulations has been issued or proceedings therefor initiated or, to the knowledge of the Fund, threatened by the Commission. The provisions of the Articles, and the investment policies and restrictions described in each of the Registration Statement and the Prospectus, comply in all material respects with the requirements of the 1940 Act and the Rules and Regulations.
(t) All advertising, sales literature, "prospecting letters," "prospectus wrappers," envelopes, prospectuses omitted from the Registration Statement pursuant to the 1933 Act Rules and Regulations or other promotional material prepared or authorized in writing by the Fund or the Adviser for use or distribution to the public for use in connection with the offering and sale of the Shares (including the client brochure and the broker flyer each filed with the NASD) (collectively, "Sales Material") complied and comply in all respects with the applicable requirements of the 1933 Act, the 1933 Act Rules and Regulations and the rules and interpretations of the NASD and no Sales Material contained or
contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that this representation and warranty does not apply to statements in or omissions from the Sales Material made in reliance upon and in conformity with the Underwriter Information).
(u) Each of the Fund Agreements complies in all material respects with all applicable provisions of the 1933 Act, the 1940 Act, the Rules and Regulations, the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations of the Commission promulgated under the Advisers Act (the "Advisers Act Rules and Regulations").
(v) No holder of any security of the Fund has any right to require registration of any Shares, capital stock or any other security of the Fund because of the filing of the registration statement or consummation of the transactions contemplated by this Agreement.
(w) The Fund, the Adviser and the Sub-Adviser intend to direct the investment of the proceeds of the offering of the Shares in such a manner as to comply with the requirements of Subchapter M of the Code.
(x) None of the promotional material for use by brokers in connection with the marketing of the Shares (including any "broker kits," "road show slides," "road show scripts," "broker post-cards" and "broker reference cards" authorized in writing by or prepared by the Fund or the Adviser for use in connection with the offering and sale of the Shares (collectively, "Broker Material") when read together with the Prospectus, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that this representation and warranty does not apply to statements in or omissions from the Broker
Material made in reliance upon and in conformity with the Underwriter Information) and no Broker Material was or has been made available by the Fund, the Adviser or the Sub-Adviser by means of an Internet web site or similar electronic means.
(y) The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus or the Prospectus.
(z) Except as disclosed in the Registration Statement or the Prospectus (or any amendment or supplement to either of them), to the Fund's knowledge, after due inquiry, no director of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of any Underwriter listed in Schedule I hereto.
(aa) The Shares have been approved for listing on the AMEX, subject to official notice of issuance, and that the Fund's registration statement on Form 8-A under the 1934 Act has become effective.
7. REPRESENTATIONS AND WARRANTIES OF THE ADVISER. The Adviser represents and warrants to each Underwriter as follows:
(a) The Adviser is a corporation duly organized and validly existing in good standing under the laws of the State of New York, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in each of the Registration Statement and the Prospectus (or any amendment or supplement to either of them) and is duly registered and qualified to conduct business and is in good standing in each jurisdiction or place where the nature of its properties or conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does or would not have a Material Adverse Effect on the Adviser.
(b) The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Management Agreement for the Fund as contemplated by the Registration Statement or the Prospectus (or any amendment or supplement to either of them). There does not exist any proceeding, which, if determined adversely with respect to the Adviser, does or would have a material and adverse effect on the registration of the Adviser with the Commission.
(c) There are no legal or governmental proceedings pending or, to the knowledge of the Adviser, threatened against the Adviser that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required or that, if determined adversely with respect to the Adviser, does or would have a Material Adverse Effect on the Adviser or does or would have a material and adverse effect on the ability of the Adviser to perform its obligations under this Agreement or any of the Adviser Agreements.
(d) Neither the execution, delivery or performance of this Agreement or any of the Adviser Agreements, nor the consummation by the Adviser of the transactions contemplated hereby or thereby (i) requires the Adviser to obtain any consent, approval, authorization or other order of, or registration or filing with, the Commission, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency or official having jurisdiction over the Adviser or conflicts or will conflict with or constitutes or will constitute a breach of or a default under, the certificate of incorporation or bylaws, or other organizational documents of the Adviser or (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any agreement, indenture, lease or other instrument to which the Adviser is a party or by which the Adviser or any of its properties may be bound, or violates or will violate any statute, law, regulation or judgment, injunction, order or decree applicable to the Adviser or any of its
properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Adviser is subject, except in any case under clause (i) or (ii) as does or would not have a Material Adverse Effect on the Adviser or does or would have a material and adverse effect on the ability of the Adviser to perform its obligations under this Agreement or any of the Adviser Agreements. The Adviser is not subject to any order of any court or of any arbitrator, regulatory body, administrative agency or other governmental body, agency or official that would have a Material Adverse Effect on the Adviser or does or would have a material and adverse effect on the ability of the Adviser to perform its obligations under this Agreement or any of the Adviser Agreements.
(e) The Adviser has full power and authority to enter into this Agreement and each of the Adviser Agreements; the execution and delivery of and the performance by the Adviser of its obligations under this Agreement and the Adviser Agreements have been duly and validly authorized by the Adviser; and this Agreement and each of the Adviser Agreements have been duly executed and delivered by the Adviser and (assuming due and valid authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each Adviser Agreement constitutes the valid and legally binding agreement of the Adviser, enforceable against the Adviser in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Adviser's obligations hereunder and thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law).
(f) The Adviser has the financial resources necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) or under this Agreement or any of the Adviser Agreements.
(g) The description of the Adviser in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) complied and comply in all material respects with the provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations; and such description and the statements attributable to the Adviser in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading.
(h) Since the date as of which information is given in the Registration Statement or the Prospectus (or any amendment or supplement to either of them), except as otherwise stated therein, there has been no material adverse change in the condition (financial or other), business, properties, net assets or results of operations or business prospects of the Adviser, whether or not arising from the ordinary course of business that does or would have a Material Adverse Effect on the Adviser or does or would have a material and adverse effect on the ability of the Adviser to perform its obligations under this Agreement or any of the Adviser Agreements.
(i) (i) The Adviser has such permits as are necessary to own its property and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto); (ii) the Adviser has fulfilled and performed all its obligations with respect to such permits and no event has occurred, which allows or, after notice or lapse of time, would allow, revocation or termination thereof or results in any other
impairment of the rights of the Adviser under any such permit, subject in each case to such qualification as may be set forth in the Prospectus (and any amendment or supplement thereto); and, (iii) except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Adviser; except where the failure to obtain or perform its obligations with respect to such permits, or the restrictions set forth in such permits, as set forth in clauses (i), (ii) and (iii), either individually or in the aggregate, does or would have a Material Adverse Effect on the Adviser or does or would have a material and adverse effect on the ability of the Adviser to perform its obligations under this Agreement or any of the Adviser Agreements.
(j) Each of the Adviser Agreements complies in all material respects with the applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(k) Except as stated in this Agreement and in the Prospectus (and any amendment or supplement thereto), the Adviser has not taken and will not take, directly or indirectly, any action designed to or which could cause or result in or which will constitute stabilization or manipulation of the price of the Shares in violation of federal securities laws and, to the Adviser's knowledge, no such action has been, or will be, taken by any affiliates of the Adviser.
8. REPRESENTATIONS AND WARRANTIES OF THE SUB-ADVISER. The Sub-Adviser represents and warrants to each Underwriter as follows:
(a) The Sub-Adviser is a limited liability company duly formed and validly existing in good standing under the laws of the State of Delaware, with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in each of the Registration Statement and the Prospectus (or any amendment or
supplement to either of them) and is duly registered and qualified to conduct business and is in good standing in each jurisdiction or place where the nature of its properties or conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does or would not have a Material Adverse Effect on the Sub-Adviser.
(b) The Sub-Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under this Agreement or the Sub-Advisory Agreement for the Fund as contemplated by the Registration Statement or the Prospectus (or any amendment or supplement to either of them). There does not exist any proceeding, which, if determined adversely with respect to the Sub-Adviser, does or would have a material and adverse effect on the registration of the Sub-Adviser with the Commission.
(c) There are no legal or governmental proceedings pending or, to the knowledge of the Sub-Adviser, threatened against the Sub-Adviser that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required or that, if determined adversely with respect to the Sub-Adviser, does or would have a Material Adverse Effect on the Sub-Adviser or does or would have a material and adverse effect on the ability of the Sub-Adviser to perform its obligations under this Agreement or the Sub-Advisory Agreement.
(d) Neither the execution, delivery or performance of this Agreement or the Sub-Advisory Agreement, nor the consummation by the Sub-Adviser of the transactions contemplated hereby or thereby (i) requires the Sub-Adviser to obtain any consent, approval, authorization or other order of, or registration or filing with, the Commission, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency
or official having jurisdiction over the Sub-Adviser or conflicts or will conflict with or constitutes or will constitute a breach of or a default under, the certificate of incorporation or bylaws, or other organizational documents of the Sub-Adviser or (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any agreement, indenture, lease or other instrument to which the Sub-Adviser is a party or by which the Sub-Adviser or any of its properties may be bound, or violates or will violate any statute, law, regulation or judgment, injunction, order or decree applicable to the Sub-Adviser or any of its properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Sub-Adviser pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Sub-Adviser is subject, except in any case under clause (i) or (ii) as would not have a Material Adverse Effect on the Sub-Adviser or on the ability of the Sub-Adviser to perform its obligations under this Agreement or the Sub-Advisory Agreement. The Sub-Adviser is not subject to any order of any court or of any arbitrator, regulatory body, administrative agency or other governmental body, agency or official that does or would have a Material Adverse Effect on the Sub-Adviser or does or would have a material and adverse effect on the ability of the Sub-Adviser to perform its obligations under this Agreement or the Sub-Advisory Agreement.
(e) The Sub-Adviser has full power and authority to enter into this Agreement and the Sub-Advisory Agreement; the execution and delivery of and the performance by the Sub-Adviser of its obligations under this Agreement and the Sub-Advisory Agreement have been duly and validly authorized by the Sub-Adviser; and this Agreement and the Sub-Advisory Agreement have been duly executed and delivered by the Sub-Adviser and (assuming due and valid authorization, execution and delivery by the other parties hereto and thereto) this Agreement and the Sub-Advisory Agreement constitutes the valid and legally binding agreement of the Sub-Adviser, enforceable against the Sub-Adviser in accordance with its terms, except
as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Sub-Adviser's obligations hereunder and thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law).
(f) The Sub-Adviser has the financial resources necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) or under this Agreement and the Sub-Advisory Agreement.
(g) The description of the Sub-Adviser in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) complied and comply in all material respects with the provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations; and such description and the statements attributable to the Sub-Adviser in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading.
(h) Since the date as of which information is given in the Registration Statement or the Prospectus (or any amendment or supplement to either of them), except as otherwise stated therein, there has been no material adverse change in the condition (financial or other), business, properties, net assets or results of operations or business prospects of the Sub-Adviser, whether or not arising from the ordinary course of business that does or would have a Material Adverse Effect on the Sub-Adviser or does or would have a material and adverse effect on the
ability of the Sub-Adviser to perform its obligations under this Agreement or the Sub-Advisory Agreement.
(i) (i) The Sub-Adviser has such permits as are necessary to own its property and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto); (ii) the Sub-Adviser has fulfilled and performed all its obligations with respect to such permits and no event has occurred, which allows or, after notice or lapse of time, would allow, revocation or termination thereof or results in any other impairment of the rights of the Sub-Adviser under any such permit, subject in each case to such qualification as may be set forth in the Prospectus (and any amendment or supplement thereto); and, (iii) except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Sub-Adviser; except where the failure to obtain or perform its obligations with respect to such permits, or the restrictions set forth in such permits, as set forth in clauses (i), (ii) and (iii), either individually or in the aggregate, does or would have a Material Adverse Effect on the Sub-Adviser or does or would have a material and adverse effect on the ability of the Sub-Adviser to perform its obligations under this Agreement or the Sub-Advisory Agreement.
(j) The Sub-Advisory Agreement complies in all material respects with the applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(k) Except as stated in this Agreement and in the Prospectus (and any amendment or supplement thereto), the Sub-Adviser has not taken and will not take, directly or indirectly, any action designed to or which could cause or result in or which will constitute stabilization or manipulation of the price of the Shares in violation of federal securities
laws and, to the Sub-Adviser's knowledge, no such action has been, or will be, taken by any affiliates of the Sub-Adviser.
(a) The Fund, the Adviser and the Sub-Adviser, jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all losses, claims, damages, liabilities and expenses, joint or several (including reasonable costs of investigation), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, any Prepricing Prospectus, any Sales Material (or any amendment or supplement to any of the foregoing) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, (except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission, which has been made therein or omitted therefrom in reliance upon and in conformity with the Underwriter Information); provided, however, that the foregoing indemnification contained in this paragraph (a) with respect to the Red Herring Preliminary Prospectus (or any amendment or supplement thereto) shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if it is shown that a copy of any such amendment or supplement to the Red Herring Preliminary Prospectus or of the Prospectus (which term as used in this proviso shall not include any statement of additional information unless specifically requested by such person) was not delivered or sent to such person within the time required by the 1933 Act and the 1933 Act Rules and Regulations and the
untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in the Red Herring Preliminary Prospectus was corrected in the supplement or amendment to the Red Herring Preliminary Prospectus or in the Prospectus, provided that the Fund has delivered such supplements or amendments or the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit proper delivery or sending. The foregoing indemnity agreement shall be in addition to any liability, which the Fund, the Adviser or the Sub-Adviser may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Fund, the Adviser or the Sub-Adviser,
such Underwriter or such controlling person shall promptly notify the
Fund, the Adviser or the Sub-Adviser and the Fund, the Adviser or the
Sub-Adviser shall assume the defense thereof, including the employment of
counsel and the payment of all fees and expenses. Such Underwriter or any
such controlling person shall have the right to employ separate counsel in
any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of such Underwriter or controlling person unless (i) the Fund, the Adviser
or the Sub-Adviser have agreed in writing to pay such fees and expenses,
(ii) the Fund, the Adviser or the Sub-Adviser have failed within a
reasonable time to assume the defense and employ counsel or (iii) the
named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling
person and the Fund, the Adviser or the Sub-Adviser and such Underwriter
or such controlling person shall have been advised by its counsel that
representation of such indemnified party and the Fund, the Adviser or the
Sub-Adviser by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by
the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the Fund, the Adviser and the
Sub-Adviser shall not have the right to assume the defense of such action,
suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the Fund, the Adviser and the Sub-Adviser shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel if there is any action, suit or proceeding in more than one jurisdiction) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by the Representatives and that, subject to the requirements of 1940 Act Release No. 11330 and Section 17(i) of the 1940 Act, all such fees and expenses shall be reimbursed promptly as they are incurred. The Fund, the Adviser and the Sub-Adviser shall not be liable for any settlement of any such action, suit or proceeding effected without the written consent of the Fund, the Adviser or the Sub-Adviser (whether or not the fund, the Adviser or the Sub-Adviser are actual or potential parties to such action, suit or proceeding), but if settled with such written consent or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Fund, the Adviser and the Sub-Adviser agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph and any such controlling person from and against any loss, liability, damage or expense by reason by such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Fund, the Adviser and the Sub-Adviser, their
directors, members or managers, any officers of the Fund who sign the
Registration Statement and any person who controls the Fund, the Adviser
or the Sub-Adviser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, to the same extent as the foregoing indemnity
from the Fund, the Adviser and the Sub-Adviser to each Underwriter, but
only with respect to the Underwriter Information relating to such
Underwriter. If any action, suit or proceeding shall be brought against
the Fund, the Adviser or the Sub-Adviser, any of their directors, members or managers, any such officer or any such controlling person, based on the Registration Statement, the Prospectus or any Prepricing Prospectus (or any amendment or supplement thereto) and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to each of the Fund, the Adviser and the Sub-Adviser by paragraph (b) above (except that if the Fund, the Adviser or the Sub-Adviser shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense) and the Fund, the Adviser and the Sub-Adviser, their directors, managers or members, any such officer and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability, which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund, the Adviser and the Sub-Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Fund, the Adviser and the Sub-Adviser on the one hand (treated jointly for this purpose as one person) and of the Underwriters on the other in
connection with the statements or omissions, which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Fund, the Adviser and the Sub-Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Fund bear to the total underwriting discounts and commissions received by the Underwriters, in each case, as set forth in the table on the cover page of the Prospectus. The relative fault of the Fund, the Adviser and the Sub-Adviser on the one hand (treated jointly for this purpose as one person) and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Fund, the Adviser and the Sub-Adviser on the one hand (treated jointly for this purpose as one person) or by the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) The Fund, the Adviser, the Sub-Adviser and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and
distributed to the public exceeds the amount of any damages, which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in
proportion to the respective number of Shares set forth opposite their
names in Schedule I (or such number of Shares increased as set forth in
Section 11 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability from claimants on claims that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 9 shall, subject to the requirements of Release No. 11330 and
Section 17(i) of the 1940 Act, be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses
are incurred. The indemnity and contribution agreements contained in this
Section 9 and the representations and warranties of each of the Fund, the
Adviser and the Sub-Adviser set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Adviser, the Sub-Adviser or
their directors, managers, members, officers or any person controlling the
Fund, the Adviser or the Sub-Adviser, (ii) acceptance of any Shares and
payment therefor hereunder and (iii) any termination of this Agreement. A
successor to any Underwriter or to the Fund, the Adviser or the Sub-Adviser or their directors, managers, members, officers or any person controlling the Fund, the Adviser or the Sub-Adviser shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 9.
(h) The Fund, the Adviser and the Sub-Adviser each acknowledge, and the Underwriters severally confirm, that the statements in the Prospectus with respect to (1) the "Price to Public" of the Shares as set forth on the cover page of the Prospectus,(2) the dollar amount of the selling concessions and reallowances of selling concessions in the fourth paragraph under the caption "Underwriting" in the Prospectus, (3) imposition of a penalty bid in the eleventh paragraph under the caption "Underwriting" in the Prospectus. (4) stabilization in the twelfth paragraph under the caption "Underwriting" in the Prospectus and (5) payment of fees to Representatives that meet certain minimum sales thresholds in the fourteenth paragraph under the caption "Underwriting" in the Prospectus constitute the only Underwriter Information. The Underwriters severally confirm that these statements are correct in all material respects and were so furnished by or on behalf of the Underwriters severally for use in the Prospectus.
(i) The indemnification provisions of this Section 9 that are applicable to the Fund are subject to any applicable limitations and provisions of Section 17(i) of the 1940 Act.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters to purchase the Shares hereunder are subject to the accuracy of and compliance with the representations, warranties and agreements of and by each of the Fund, the Adviser and the Sub-Adviser contained herein on and as of the date on which the Registration Statement becomes or became effective, the date of the Prospectus (and of any amendment or supplement thereto) and the Closing Date and, with respect to any Additional Shares, any Option Closing Date (each, a "Condition Compliance Date" and collectively, the "Condition Compliance Dates"); to the accuracy and completeness of all statements made by the Fund, the Adviser, the Sub-Adviser or any of their respective officers in any certificate delivered to the Representatives or their counsel pursuant to this Agreement on any Condition Compliance Date, and to the following conditions (each of which shall be satisfied as of each of the Condition Compliance Dates):
(a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Registration Statement or such post-effective amendment
shall have become effective not later than 5:30 p.m., New York City time, on the date hereof or at such later date and time as shall be consented to in writing by you and all filings, if any, required by Rules 497 and 430A under the 1933 Act and the 1933 Act Rules and Regulations shall have been timely made; no order pursuant to Section 8(e) of the 1940 Act shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Fund, the Adviser or any Underwriter, threatened by the Commission and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change or any development involving a prospective change that does or would have a Material Adverse Effect on the Fund, the Adviser or the Sub-Adviser (in each case not contemplated by the Prospectus) or (ii) any event or development relating to or involving the Fund, the Adviser or the Sub-Adviser, which makes any statement made in the Prospectus untrue or which, in the opinion of the Fund and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the 1933 Act, the 1940 Act or the Rules and Regulations or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, make it impracticable or inadvisable to continue with the offering of the Shares.
(c) That you shall have received on the Closing Date an opinion of Kirkpatrick & Lockhart LLP, counsel for the Fund, dated the Closing Date and addressed to you, as the Representatives of the several Underwriters, in substantially the form attached hereto as Exhibit A.
(d) That you shall have received on the Closing Date an opinion of Willkie Farr & Gallagher, counsel for the Adviser, dated the Closing Date
and addressed to you, as Representatives of the several Underwriters, in substantially the form attached hereto as Exhibit B.
(e) That you shall have received on the Closing Date an Opinion of Willkie Farr & Gallagher, counsel for the Sub-Adviser, dated the Closing Date and addressed to you, as the Representatives of the several Underwriters, in substantially the form attached hereto as Exhibit C.
(f) That you shall have received on the Closing Date (i) an opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), and (ii) a letter from Cleary, Gottleib, Steen & Hamilton, each dated the Closing Date and addressed to you, as the Representatives of the several Underwriters, with respect to such matters as you may require, and the Fund, the Adviser, the Sub-Adviser and their respective counsel shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters.
(g) That you shall have received letters addressed to you, as the Representatives of the several Underwriters and dated each of the date hereof and the Closing Date, from Ernst & Young LLP, independent auditors, substantially in the forms attached hereto as Exhibit D. You also must receive on each Closing Date a signed letter from such accountants, dated as of such Closing Date, confirming on the basis of a review in accordance with the procedures set forth in their letter that nothing has come to their attention during the period from a date not more than five business days before the date of this Underwriting Agreement, specified in the letter, to a date not more than five business days before such Closing Date, that would require any change in their letter referred to in the foregoing sentence.
(h) (i) No stop order suspending the effectiveness of the Registration Statement or prohibiting or suspending the use of the Prospectus (or any amendment or supplement to any of the foregoing) or any Prepricing Prospectus or any Sales Material shall have been issued and no proceedings for such purpose or for the purpose of commencing an
enforcement action against the Fund, the Adviser or the Sub-Adviser or, with respect to the transactions contemplated by the Prospectus (or any amendment or supplement thereto) and this Agreement, may be pending before or, to the knowledge of the Fund, the Adviser, the Sub-Adviser or any Underwriter or in the reasonable view of counsel to the Underwriters, shall be threatened or contemplated by the Commission at or prior to the Closing Date and that any request for additional information on the part of the Commission (to be included in the Registration Statement, the Prospectus or otherwise) be complied with to the satisfaction of the Representatives, (ii) there shall not have been any change in the capital stock of the Fund nor any increase in debt of the Fund from that set forth in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) and the Fund shall not have sustained any material liabilities or obligations, direct or contingent, other than those reflected in or contemplated by the Registration Statement or the Prospectus (or any amendment or supplement to either of them), (iii) since the date of the Prospectus, there shall not have been any material, adverse change in the condition (financial or other) business, business prospects, properties, net assets or results of operations of the Fund, the Adviser or the Sub-Adviser, (iv) none of the Fund, the Adviser or the Sub-Adviser shall have sustained any material loss or interference with their businesses from any court or from legislative or other governmental action, order or decree or from any other occurrence not described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them), and (v) all of the representations and warranties of each of the Fund, the Adviser or the Sub-Adviser contained in this Agreement shall be true and correct on and as of the date hereof and as of the respective Condition Compliance Date as if made on and as of such Condition Compliance Date.
(i) That none of the Fund, the Adviser, or the Sub-Adviser shall have failed at or prior to the respective Condition Compliance Date to have performed or complied with any of the agreements herein contained and
required to be performed or complied with by them at or prior to the such Condition Compliance Date.
(j) That you shall have received on the Closing Date a certificate, dated such date, of each of the chief executive officer and chief financial officer of the Fund, and of the President (or a Vice President) and Treasurer (or an Assistant Treasurer) of each of the Adviser and the Sub-Adviser certifying that (i) the signers have carefully examined the Registration Statement, the Prospectus (and any amendments or supplements to either of them) and this Agreement, (ii) the representations and warranties of the Fund (with respect to the certificates from such Fund officers), the representations and warranties of the Adviser (with respect to the certificates from such officers of the Adviser), and the representations and warranties of the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser) in this Agreement are true and correct on and as of the date of the certificate as if made on such date, (iii) since the date of the Prospectus (and any amendment or supplement thereto) there has not been any change that does or would have a Material Adverse Effect on the Fund (with respect to the certificates from such Fund officers) or the Adviser (with respect to the certificates from such officers of the Adviser) or the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser), (iv) to the knowledge of such officers after reasonable investigation, no order suspending the effectiveness of the Registration Statement or prohibiting the sale of any of the Shares or having a Material Adverse Effect on the Fund (with respect to the certificates from such Fund officers) or the Adviser (with respect to the certificates from such officers of the Adviser) or the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser) has been issued and no proceedings for any such purpose are pending before or, to the knowledge of such officers, threatened by the Commission or any court or other regulatory body, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative
agency or any official, (v) each of the Fund (with respect to certificates from such Fund officers), the Adviser (with respect to certificates from such officers of the Adviser) and the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser) has performed and complied with all agreements that this Agreement requires it to perform by such Closing Date and (vi) with respect to the certificate from such officers of the Fund, there has not been any change in the capital stock of the Fund nor any increase in the debt of the Fund from that set forth in the Prospectus (or any amendment or supplement thereto) and the Fund has not sustained any material liabilities or obligations, direct or contingent, other than those reflected in the Prospectus (or any amendment or supplement thereto).
(k) That the Fund, the Adviser and the Sub-Adviser shall have furnished to you such further certificates and documents as you shall reasonably request.
All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel acting in good faith.
Any certificate or document signed by any officer of the Fund, the Adviser or the Sub-Adviser and delivered to you, as the Representatives of the Underwriters or to Underwriters' counsel, shall be deemed a representation and warranty by the Fund, the Adviser or the Sub-Adviser to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to (i) the accuracy of and compliance with the representations and warranties of the Fund, the Adviser and the Sub-Adviser contained herein on and as of the Option Closing Date as though made on any Option Closing Date, (ii) satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 10 except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in Sections 10 (c), (d), (e), (f), (g) and (k) and this paragraph
shall be dated the Option Closing Date in question and the opinions called for by Sections 10 (c), (d), (e), (f) and (g) shall be revised to reflect the sale of Additional Shares and (iii) the absence of circumstances on or prior to the Option Closing Date, which would permit termination of this Agreement pursuant to Section 12 hereof if they existed on or prior to the Closing Date.
11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when the Registration
Statement or such post-effective amendment has become effective. Until such time
as this Agreement shall have become effective, it may be terminated by the Fund
by notifying you, or by you by notifying the Fund.
If any one or more of the Underwriters shall fail or refuse to purchase Shares, which it or they have agreed to purchase hereunder and the aggregate number of Shares, which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares, each non-defaulting Underwriter shall be obligated, severally, in the proportion, which the aggregate number of Shares set forth opposite its name in Schedule I hereby bears to the aggregate number of Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 7 of the A.G. Edwards Master Agreement Among Underwriters, to purchase Shares, which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares and arrangements satisfactory to you and the Fund for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Fund are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Fund. In any such case, which does not result
in termination of this Agreement, either you or the Fund shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect to any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule I hereto who, with your approval and the approval of the Fund, purchases Shares, which a defaulting Underwriter agreed, but failed or refused, to purchase.
Any notice under this Section 11 may be made by telegram, telecopy or telephone but shall be subsequently confirmed by letter.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Fund or the Adviser by notice to the Fund or the Adviser if at any time at or prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in any securities of the Fund has been suspended or materially limited by the Commission or the AMEX or such other national securities exchange upon which the Fund's securities trade or trading in securities generally on the New York Stock Exchange, AMEX, Nasdaq National Market or the Nasdaq Stock Market shall have been suspended or limited or minimum or maximum prices shall have been established or required by such exchanges, the Commission, NASD or other governmental authority, (ii) additional governmental restrictions not in force on the date of this Agreement have been imposed upon trading in securities generally or a general moratorium on commercial banking activities shall have been declared by Federal or any state's authorities or (iii) there has occurred any outbreak or material escalation of hostilities or other international or domestic calamity, crisis or change or development in political, financial, economic, legal or regulatory conditions or
markets, the effect of which is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Fund, the Adviser or the Sub-Adviser by telegram, telecopy or telephone but shall be subsequently confirmed by letter.
13. EXPENSES. The Fund agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by the Fund of its
obligations hereunder: (a) the preparation, printing or reproduction, filing
(including, without limitation, the filing or registration fees prescribed by
the 1933 Act, the 1934 Act, the 1940 Act and the Rules and Regulations) and
distribution of the Registration Statement (including exhibits thereto), the
Prospectus, each Prepricing Prospectus and the 1940 Act Notification and all
amendments or supplements to any of them, (b) the printing (or reproduction) and
delivery to the Underwriters (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, the
Prospectus, each Prepricing Prospectus, any Sales Material (and all amendments
or supplements to any of them, except as provided in Section 5(f) of this
Agreement) as may be reasonably requested for use in connection with the
offering and sale of the Shares, (c) the preparation, printing, authentication,
issuance and delivery of certificates (if any) for the Shares, including any
stamp taxes and transfer agent and registrar fees payable in connection with the
original issuance and sale of such Shares, (d) the registrations or
qualifications of the Shares for offer and sale thereof, if any, as are required
under the securities or Blue Sky laws of the several states as provided in
Section 5(g) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Underwriters relating to the preparation, printing or
reproduction and delivery of the preliminary and supplemental Blue Sky Memoranda
and such registration and qualification), (e) the fees and expenses of the
Fund's independent accountants, counsel for the Fund and of the transfer agent,
(f) the printing (or reproduction) and delivery of this Agreement, any dealer
agreements, the preliminary and supplemental Blue Sky Memoranda (if any) and all
other company-authorized agreements or other documents printed (or reproduced)
and delivered in connection with the offering of the Shares, (g) the filing fees
and the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (the "NASD") and incurred with respect to the review of the offering of the
Shares and the use of any Sales Materials by the NASD, which fees and expenses
of counsel, together with the fees, expenses and disbursements of counsel set
forth in paragraph (d) of this Section 13 above, shall not exceed $15,000,
exclusive of NASD and state filing fees, (h) the transportation, lodging,
graphics and other expenses of the Fund and its officers related to the
preparation for and participation by the Fund and its officers in the roadshow,
(i) the listing of the Shares on the AMEX and (j) an amount equal to the greater
of (1) $50,000 and (2) $0.005 per Share payable on the Closing Date to the
Representatives in partial reimbursement of their expenses (but not including
reimbursement for the cost of one tombstone advertisement in a newspaper that is
one-quarter of a newspaper page or less in size) in connection with the
offering.
Notwithstanding the foregoing, in the event that the sale of the Shares is not consummated pursuant to Section 2 hereof, the Adviser or the Sub-Adviser will pay the costs and expenses of the Fund set forth above in this Section 13(a) through (i), and reimbursements of Underwriter expenses in connection with the offering shall be made in accordance with Section 5(k) hereof.
14. MISCELLANEOUS. Except as otherwise provided in Sections 5, 11 and 12
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (a) if to the Fund, the Adviser or the
Sub-Adviser, c/o Neuberger Berman LLC, 605 Third Avenue, New York, New York
10158; Attention: Ellen Metzger, Esq., with a copy to Kirkpatrick & Lockhart
LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036, Attention Art
Delibert (b) if to you, as Representatives of the Underwriters, at the office of
A.G. Edwards & Sons, Inc., One North Jefferson Avenue, St. Louis, Missouri
63103, Attention: Douglas Rubenstein, with a copy to Skadden, Arps, Slate,
Meagher & Flom (Illinois), 333 West Wacker Drive, Chicago, Illinois 60606, Attention: Thomas A. Hale, Esq.
This Agreement has been and is made solely for the benefit of the several Underwriters, the Fund, the Adviser, the Sub-Adviser, their directors, officers, managers, members and the other controlling persons referred to in Section 9 hereof and their respective successors and assigns, to the extent provided herein and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser.
15. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
This Agreement may be signed in various counterparts, which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement among the Fund, the Adviser, the Sub-Adviser and the several Underwriters.
Very truly yours,
NEUBERGER BERMAN REAL ESTATE
SECURITIES INCOME FUND INC.
By: /s/ Robert Conti ------------------------ Name: Robert Conti Title: Vice President |
NEUBERGER BERMAN MANAGEMENT INC.
By: /s/ Robert Conti ------------------------ Name: Robert Conti Title: Senior Vice President |
NEUBERGER BERMAN, LLC
By: /s/ Robert Conti ------------------------ Name: Robert Conti Title: Vice President |
Confirmed as of the date
first above written on
behalf of themselves and
the other several Under-
writers named in Schedule
I hereto.
AS REPRESENTATIVE OF THE SEVERAL UNDERWRITERS
A.G. EDWARDS & SONS, INC.
By: /s/ Brian N. Hansen
---------------------------------
Name: Brian N. Hansen
Title: Vice President
|
SCHEDULE I
Underwriter Number of Shares ----------- ---------------- A.G. Edwards & Sons, Inc. 8,500,000 Lehman Brothers Inc. 1,525,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated 8,500,000 Advest, Inc. 500,000 BB&T Capital Markets, a division of Scott & Stringfellow, Inc. 500,000 Dominick & Dominick LLC 500,000 Ferris, Baker Watts, Incorporated 500,000 J.J.B. Hilliard, W.L. Lyons, Inc. 500,000 Janney Montgomery Scott LLC 750,000 Legg Mason Wood Walker Incorporated 900,000 McDonald Investments Inc., a KeyCorp Company 500,000 Oppenheimer & Co. Inc. 900,000 RBC Dain Rauscher Inc. 900,000 Stifel, Nicholas & Company, Incoporated 500,000 SunTrust Capital Markets, Inc. 500,000 Wells Fargo Securities, LLC 900,000 Deutsche Bank Securities Inc. 250,000 U.S. Bancorp Piper Jaffray Inc. 250,000 Robert W. Baird & Co. Incorporated 125,000 D.A. Davidson & Co. 125,000 First Southwest Company 125,000 Huntleigh Securities Corporation 125,000 Johnston, Lemon & Co. Incorporated 125,000 Ladenburg Thalmann & Co. Inc. 125,000 Morgan Keegan & Company, Inc. 125,000 Quick & Reilly, Inc., A FleetBoston Financial Company 125,000 Ryan Beck & Co. 125,000 Sanders Morris Harris 125,000 Southwest Securities, Inc. 125,000 TD Waterhouse Investor Services, Inc. 125,000 Wedbush Morgan Securities Inc. 125,000 Total 29,000,000 |
EXHIBIT A
FORM OF KIRKPATRICK & LOCKHART OPINION
1. The Fund is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland and is qualified to do business as a foreign corporation in the State of New York, which such counsel has been advised by an officer of the Fund is the only state in which the Fund maintains an office for the conduct of its business.
2. The Fund has the corporate power and authority to: (i) own its properties and conduct its business as described in the Registration Statement and the Prospectus; and (ii) execute, deliver, and perform its obligations under the Underwriting Agreement and the Fund Agreements.
3. To such counsel's knowledge, the Fund does not have any subsidiaries.
4. The shares of common stock of the Fund, par value $0.0001 per share (the "Common Shares"), conform in all material respects as to all statements as to legal matters relating thereto contained in the Prospectus. No person is entitled to any preemptive or other similar rights with respect to the Common Shares.
5. The number of authorized Common Shares is as set forth in the Prospectus under the caption "Description of Shares -- Common Shares." All Common Shares that to such counsel's knowledge have been issued and are outstanding prior to the issuance of the Firm Shares: (i) have been duly authorized, validly issued and are fully paid and non-assessable; and (ii) have been offered and sold by the Fund in compliance with applicable law.
6. The Shares have been duly authorized for issuance and sale to the Underwriters pursuant to the Underwriting Agreement and, when issued and delivered by the Fund pursuant to the Underwriting Agreement against payment of the consideration set forth in the Underwriting
Agreement, will be validly issued and fully paid and non-assessable.
7. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective under the 1933 Act, any required filing of the Prospectus pursuant to Rule 497(c) or Rule 497(h) has been made in the manner and within the time period required by Rule 497, and to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement or of any Rule 462(b) Registration Statement has been issued, or proceedings therefor threatened by the Commission, under the 1933 Act.
8. The Fund is duly registered with the Commission under the 1940 Act as a closed-end non-diversified management investment company.
9. Other than with respect to financial statements and related notes and schedules and any other financial, accounting and statistical information that is included or incorporated by reference in, or omitted from, the following documents, as to which such counsel need express no opinion; (i) the Registration Statement, including any Rule 462(b) Registration Statement and any Rule 430A Information, the Prospectus and any amendment or supplement thereto through the date hereof complied as to form in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations thereunder; and (ii) the Fund's notification of registration on Form N-8A complied as to form in all material respects with the requirements of the 1940 Act and the Rules and Regulations thereunder.
10. Insofar as the statements in the Prospectus under the captions "Description of Shares - Common Shares," "Tax Matters - General; Taxation of the Fund" and "Tax Matters - Taxation of the Fund's Shareholders" and in the Registration Statement under Item 29 (Indemnification) constitute summaries of legal matters, provisions of the Fund's articles of incorporation or by-laws or legal proceedings or legal conclusions referred to therein, those statements fairly present the information called for with respect to
those legal matters, documents, proceedings or conclusions.
11. To such counsel's knowledge, there is no action, suit, proceeding, inquiry or investigation by or before any court or governmental agency that is pending against the Fund or to which any of its properties are subject or that is threatened against the Fund, which may reasonably be expected to result in a Material Adverse Effect or to materially and adversely affect the properties or assets of the Fund, the consummation by the Fund of the transactions contemplated in the Underwriting Agreement or the performance by the Fund of its obligations thereunder.
12. The terms of the Underwriting Agreement and each of the Fund Agreements do not violate in any material respect any applicable provision of 1940 Act, the Rules and Regulations thereunder, the Advisers Act or the Advisers Act Rules and Regulations.
13. Neither the execution and delivery by the Fund of, and the performance by the Fund of its obligations under, the Underwriting Agreement or the Fund Agreements, nor the issuance and sale of the Shares to the Underwriters and the use by the Fund of the proceeds thereof as provided by the Underwriting Agreement and as described in the Prospectus under the caption "Use of Proceeds": (i) violate the Fund's articles of incorporation or bylaws; (ii) violate, breach or constitute a default or event of default under the terms of any agreement or instrument that is filed as an exhibit to the Registration Statement and to which the Fund is a party or by which its property may be bound, except for violations, breaches or defaults that would not have a Material Adverse Effect; (iii) violate the laws of the United States, the States of Maryland and New York and The Commonwealth of Massachusetts that are, in such counsel's experience, applicable to the transactions of the types covered by the Underwriting Agreement and the Fund Agreements (the "Covered Laws"); (iv) violates the terms of any order of any court, governmental instrumentality, securities exchange or association or arbitrator specifically naming the Fund and known to such counsel or
(v) to such counsel's knowledge, require the Fund to obtain any consent or approval by, or make any filing with, any court, or any regulatory body, administrative or other governmental body, agency or official under any statute, rule, or regulation of the State of Maryland or of the United States, other than consents, approvals and filings previously obtained or made and in full force and effect.
14. The execution and delivery of, and performance of the Fund's obligations under, the Underwriting Agreement and each of the Fund Agreements have been duly authorized by all necessary action of the Fund, and the Fund has duly executed and delivered the Underwriting Agreement and each of the Fund Agreements.
15. Each of the Fund Agreements constitutes the legal, valid and binding obligation of the Fund, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by the effect of bankruptcy, insolvency, fraudulent transfer, reorganization, receivership, moratorium, and other, similar laws affecting the rights and remedies of creditors generally and by general principles of equity (whether applied by a court of law or equity), and except as rights to indemnity thereunder may be limited by federal or state securities laws.
Such counsel shall also state that they have been informed that the Shares have been approved for listing on the American Stock Exchange, subject to official notice of issuance, and the Fund's Registration Statement on Form 8-A under the 1934 Act is effective.
In addition, such counsel shall state that they are not opining as to factual matters, and the character of determinations involved in the registration process is such that such counsel are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the information included in the Registration Statement and the Prospectus or in any amendment or supplement thereto. Such counsel may assume the correctness and completeness of the information included therein, and such counsel need have made no independent investigation or verification of that information. However, such counsel shall state that they have participated in the preparation of the
Registration Statement and the Prospectus and in discussions with certain officers and directors of the Fund, certain officers and employees of the Advisers and your representatives, and such counsel shall have reviewed certain Fund records and documents relative to the Fund, the Adviser and the Sub-Adviser. Based on that participation and review, such counsel shall advise you that nothing has come to such counsel's attention that causes such counsel to believe that the Registration Statement, including any Rule 462(b) Registration Statement and any Rule 430A Information, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any amendment or supplement thereto, at the time that the Prospectus was issued or at the Closing Date, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. This paragraph does not address, and such counsel need express no opinion with respect to, the financial statements and related notes and schedules, and other financial, accounting, and statistical information, included in, incorporated by reference in, or omitted from the Registration Statement, the Prospectus, or any amendment or supplement to either of them. Such counsel need also express no opinion with respect to any matter relating to compliance with financial covenants or financial requirements.
EXHIBIT B
FORM OF WILLKIE FARR & GALLAGHER ADVISER OPINION
i. The Adviser is validly existing as a corporation under the laws of the State of New York with full corporate power and authority to own or lease all of the assets owned or leased by it and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under the Underwriting Agreement and the Adviser Agreements.
ii. The Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act from acting as investment adviser for the Fund under the Advisory Agreement as contemplated by the Registration Statement and the Prospectus.
iii. The Underwriting Agreement and each Adviser Agreement has been duly and validly authorized, executed and delivered by the Adviser; each of the Management Agreement, the Administration Agreement and the Sub-Advisory Agreement complies in all material respects with all provisions of the Investment Company Act and the Advisers Act; and assuming due authorization, execution and delivery by each of the other parties thereto, each of the Management Agreement, the Administration Agreement and the Sub-Advisory Agreement constitutes a legal, valid and binding obligation of the Adviser, enforceable against the Adviser in accordance with its terms, (1) subject, as to enforcement, to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (2) except as rights to indemnity thereunder may be limited by public policy or federal or state securities laws (except that counsel may state that it expresses no opinion as to the reasonableness or fairness of compensation payable under the Management Agreement or the Sub-Advisory Agreement).
iv. Neither (A) the execution and delivery by the Adviser of the Underwriting Agreement or of any Adviser Agreement nor (B) the consummation by the Adviser of the transactions contemplated by, or the performance of its obligations under, the Underwriting Agreement or any Adviser Agreement conflicts or will conflict with, or results or will result in a breach of, (i) the charter
or by-laws of the Adviser, (ii) any agreement or instrument listed on an Annex to such opinion (which the Adviser, in an officer's certificate accompanying such opinion or otherwise delivered to the Underwriters on the Closing Date, shall have identified as the only material agreements or instruments to which the Adviser is a party or by which the Adviser is bound) or (iii) any applicable United States federal or New York law, rule or regulation (other than state securities or "blue sky" laws, as to which such counsel need express no opinion), or order of any New York or United States federal court, governmental instrumentality, securities exchange or association or arbitrator, (or any other orders of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, in any other jurisdiction, as set forth on an Annex to such opinion (which the Adviser, in an officer's certificate accompanying such opinion or otherwise delivered to the Underwriters on the Closing Date, shall have identified as the only orders that are material to the Adviser) in each case specifically naming the Adviser and (in the case of New York or United States federal orders) known to such counsel, except in the case of each of clauses (ii) and (iii) for such conflicts or breaches, which do not, either alone or in the aggregate, have a material adverse effect on the Adviser's ability to perform its obligations under the Underwriting Agreement or the Adviser Agreements.
v. To such counsel's knowledge, no consent, approval, authorization or order of any New York or United States federal court, governmental agency or body or securities exchange or association is required for the consummation of the transactions contemplated in, or the performance by the Adviser of its obligations under, the Underwriting Agreement, the Management Agreement, the Administration Agreement or the Sub-Advisory Agreement, except (i) such as have been obtained under the United States federal securities laws and (ii) may be required by the American Stock Exchange or under state securities or "blue sky" laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to the Underwriting Agreement.
vi. To such counsel's knowledge, there is no legal or governmental proceeding pending or threatened against the Adviser that is either (i) required to be described in the Registration Statement or Prospectus that is not described therein or (ii) which would, under Section 9 of the Investment Company
Act, make the Adviser ineligible to act as the Fund's investment adviser.
EXHIBIT C
FORM OF WILLKIE FARR & GALLAGHER SUB-ADVISER OPINION
i. The Sub-Adviser is validly existing as a limited liability company under the laws of the State of Delaware with full power and authority to own or lease all of the assets owned or leased by it and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under the Underwriting Agreement and Sub-Advisory Agreement.
ii. The Sub-Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act from acting as investment adviser for the Fund under the Sub-Advisory Agreement as contemplated by the Registration Statement and the Prospectus.
iii. Each of the Underwriting Agreement and the Sub-Advisory Agreement
has been duly and validly authorized, executed and delivered by the Sub-Adviser;
the Sub-Advisory Agreement complies in all material respects with all provisions
of the Investment Company Act and the Advisers Act; and assuming due
authorization, execution and delivery by each of the other parties thereto, the
Sub-Advisory Agreement constitutes a legal, valid and binding obligation of the
Sub-Adviser, enforceable against the Sub-Adviser in accordance with its terms,
(1) subject, as to enforcement, to applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws affecting creditors'
rights generally and to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (2) except as
rights to indemnity thereunder may be limited by public policy or federal or
state securities laws (except that counsel my state that it expresses no opinion
as to the reasonableness or fairness of compensation payable under the
Sub-Advisory Agreement).
iv. Neither (A) the execution and delivery by the Sub-Adviser of the Underwriting Agreement or the Sub-Advisory Agreement nor (B) the consummation by the Sub-Adviser of the transactions contemplated by, or the performance of its obligations under, the Underwriting Agreement or the Sub-Advisory Agreement conflicts or will conflict with, or results or will result in a breach of, (i) the organizational documents of the Sub-Adviser, (ii) any agreement or
instrument listed on an Annex to such opinion (which the Sub-Adviser, in an officer's certificate accompanying such opinion or otherwise delivered to the Underwriters on the Closing Date, shall have identified as the only material agreements or instruments to which the Adviser is a party or by which the Sub-Adviser is bound) or (iii) any applicable United States federal or Delaware law, rule or regulation (other than state securities or "blue sky" laws, as to which such counsel need express no opinion), or order of any Delaware or United States federal court, governmental instrumentality, securities exchange or association or arbitrator, (or any other orders of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, in any other jurisdiction, as set forth on an Annex to such opinion (which the Sub-Adviser, in an officer's certificate accompanying such opinion or otherwise delivered to the Underwriters on the Closing Date, shall have identified as the only orders that are material to the Sub-Adviser) in each case specifically naming the Sub-Adviser and (in the case of Delaware or United States federal orders) known to such counsel, except in the case of each of clauses (ii) and (iii) for such conflicts or breaches, which do not, either alone or in the aggregate, have a material adverse effect on the Sub-Adviser's ability to perform its obligations under the Underwriting Agreement or the Sub-Advisory Agreement.
v. To such counsel's knowledge, no consent, approval, authorization or order of any New York or United States federal court, governmental agency or body or securities exchange or association is required for the consummation of the transactions contemplated in, or the performance by the Sub-Adviser of its obligations under, the Underwriting Agreement or the Sub-Advisory Agreement, except (i) such as have been obtained under the United States federal securities laws and (ii) may be required by the American Stock Exchange or under state securities or "blue sky" laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to the Underwriting Agreement.
vi. To such counsel's knowledge, there is no legal or governmental proceeding pending or threatened against the Sub-Adviser that is either (i) required to be described in the Registration Statement or Prospectus that is not
described therein or (ii) which would, under Section 9 of the Investment Company Act, make the Sub-Adviser ineligible to act as the Fund's investment adviser.
EXHIBIT D
FORM OF ERNST & YOUNG LLP COMFORT LETTER
[ ], 2003
The Board of Directors of
Neuberger Berman Real Estate Securities Income Fund Inc.
605 Third Avenue
New York, New York 10058
A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
as Managing Representative of the Underwriters
Ladies and Gentlemen:
We have audited the statement of assets and liabilities of Neuberger Berman Real Estate Securities Income Fund Inc. (the "Fund") as of [ ], 2003 (the "financial statement") included in Pre-effective Amendment No. [ ] to the Registration Statement on Form N-2 filed by the Fund under the Securities Act of 1933 (the " 1933 Act") (File No. 333-108412) and under the Investment Company Act of 1940 (the "1940 Act," collectively, the 1933 Act and the 1940 Act, the "Acts") (File No. 811-21421); such statement and our report with respect to such statement are included in the Registration Statement.
In connection with the Registration Statement:
1. We are independent auditors with respect to the Fund within the meaning of the Acts and the applicable rules and regulations adopted thereunder by the Securities and Exchange Commission (the "SEC").
2. In our opinion, the financial statement audited by us and included in the Registration Statement complies as to form in all respects with the applicable accounting requirements of the Acts and the related rules and regulations thereunder adopted by the SEC.
3. For purposes of this letter we have read the minutes of all meetings of the Shareholders, the Board of Directors and all Committees of the Board of Directors of the Fund as set forth in the minute books at the
offices of the Fund, officials of the Fund having advised us that the minutes of all such meetings through [ ], 2003, were set forth therein.
4. Fund officials have advised us that no financial statements as of any date subsequent to [ ], 2003, are available. We have made inquiries of certain officials of the Fund who have responsibility for financial and accounting matters regarding whether there was any change at [ ], 2003, in the capital shares or net assets of the Fund as compared with amounts shown in the [ ], 2003, statement of assets and liabilities included in the Registration Statement, except for changes that the Registration Statement discloses have occurred or may occur. On the basis of our inquiries and our reading of the minutes as described in Paragraph 3, nothing came to our attention that caused us to believe that there were any such changes.
5. In addition to the procedures referred to in clauses 3 and 4 about, we have performed other specified procedures, not constituting and audit, with respect to certain amounts, percentages, numerical data and financial information appearing in the Registration Statement, which have previously been specified by the Managing Representative and which shall be specified in this letter, and have compared such items with, and have found such items to be in agreement with, the accounting and financial records of the Fund.
The foregoing procedures do not constitute an audit made in accordance with generally accepted auditing standards. Accordingly, we make no representations as to the sufficiency of the foregoing procedures for your purposes.
This letter is solely for the information of the addressees and to assist the underwriters in conducting and documenting their investigation of the affairs of the Fund in connection with the offering of the securities covered by the Registration Statement, and is not to be used, circulated, quoted or otherwise referred to within or without the underwriting group for any other purpose, including but not limited to the registration, purchase or sale of securities, nor is it to be filed with or referred to in whole or in part in the Registration Statement or any other document, except that reference may be made
to it in the underwriting agreement or in any list of closing documents pertaining to the offering of the securities covered by the Registration Statement.
CUSTODIAN AGREEMENT
This Agreement between NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC., a corporation organized and existing under the laws of Maryland and registered with the Securities and Exchange Commission as a non-diversified, closed-end management investment company (the "FUND"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the "CUSTODIAN"),
WITNESSETH: that in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
The Fund hereby employs the Custodian as the custodian of its assets, including securities which the Fund desires to be held in places within the United States ("DOMESTIC SECURITIES") and securities it desires to be held outside the United States ("FOREIGN SECURITIES"). The Fund agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by it from time to time, and the cash consideration received by it for such new or treasury shares of stock of the Fund ("SHARES") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian.
Upon receipt of "PROPER INSTRUCTIONS" (as such term is defined in Section 6
hereof), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Directors of the Fund (the "Board"). The Custodian may
employ as sub-custodian for the Fund's foreign securities the foreign banking
institutions and foreign securities depositories designated in Schedules A and B
hereto, but only in accordance with the applicable provisions of Sections 3 and
4. The Custodian shall have no more or less responsibility or liability to the
Fund on account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of the Fund all non-cash property, to be held by it in the United States, including all domestic securities owned by the Fund other than securities which are maintained pursuant to Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. SECURITIES SYSTEM").
SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic securities owned by the Fund held by the Custodian or in a U.S. Securities System account of the Custodian only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.9 hereof;
4) To the depository agent in connection with tender or other similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.7 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; PROVIDED that, in any such case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the Fund, BUT ONLY against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund, BUT ONLY against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission ("CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent for the Fund (the "TRANSFER AGENT") for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus and statement of additional information (the "PROSPECTUS"), in satisfaction of requests by holders of Shares for repurchase or redemption; and
15) For any other purpose, BUT ONLY upon receipt of Proper Instructions specifying the securities of the Fund to be delivered and naming the person or persons to whom delivery of such securities shall be made.
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, UNLESS the
Fund has authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment advisor as
the Fund, or in the name or nominee name of any agent appointed pursuant to
Section 2.7 or in the name or nominee name of any sub-custodian appointed
pursuant to Section 1. All securities accepted by the Custodian on behalf of the
Fund under the terms of this Agreement shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best efforts only
to timely collect income due the Fund on such securities and to notify the Fund
on a best efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940, as amended (the "1940 ACT"). Monies held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; PROVIDED, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the monies to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board. Such monies shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.
SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for payment
all coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held hereunder.
Income due the Fund on securities loaned pursuant to the provisions of Section
2.2 (10) shall be the responsibility of the Custodian so long as the securities
are registered and remain in the name of the Fund, the Custodian, or its
nominee, or in the Depository Trust Company account of the Custodian, but shall
otherwise be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title to
such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
1940 Act to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name of
the Fund or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case
of a purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.8 hereof; (c)
in the case of repurchase agreements entered into between the Fund
and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund; or (d) for transfer to a time deposit account of the Fund in
any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined herein;
2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 5 hereof;
4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of securities sold short; and
7) For any other purpose, BUT ONLY upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made.
SECTION 2.7 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. Except as specifically stated otherwise in this Agreement, in any and every case where payment for purchase of domestic securities is made by the Custodian in advance of receipt of the securities purchased in the absence of specific instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian.
SECTION 2.8 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; PROVIDED, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder.
SECTION 2.9 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by the Fund in a U.S. Securities System in compliance with the requirements of Rule 17f-4 of the 1940 Act, as amended from time to time.
SECTION 2.10 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.9 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose upon receipt of Proper Instructions.
SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of the Fund held by it and in connection with transfers of securities.
SECTION 2.12 PROXIES. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.
SECTION 2.13 COMMUNICATIONS RELATING TO FUND SECURITIES. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall (when possible using its best efforts) notify the Custodian at least three business days prior to the date on which the Custodian is to take such action.
SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the following capitalized terms shall have the indicated meanings:
"Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.
"Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7.
"Foreign Assets" means any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5.
"Rule 17f-5" means Rule 17f-5 promulgated under the 1940 Act.
"Rule 17f-7" means Rule 17f-7 promulgated under the 1940 Act.
3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The
Fund, by resolution adopted by its Board, hereby delegates to the Custodian,
subject to Section (b) of Rule 17f-5, the responsibilities set forth in this
Section 3.2 with respect to Foreign Assets held outside the United States, and
the Custodian hereby accepts such delegation as Foreign Custody Manager of the
Fund.
3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Contract, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the Fund's assets, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Contract. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of the Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Fund with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn.
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1).
(b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
(c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder.
3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Fund.
3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material
change in the foreign custody arrangements of the Fund described in this Section 3.2 after the occurrence of the material change.
3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE FUND. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise.
3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Contract to the Custodian as the Foreign Custody Manager of the Fund.
3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Fund shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Fund with respect to designated countries.
3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment advisor) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.
3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1.
SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the following capitalized terms shall have the indicated meanings:
"Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian.
SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Fund the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Fund, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Fund which are maintained in such account shall identify those securities as belonging to the Fund and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country.
4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Fund held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Fund in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign securities;
(iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Fund;
(iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;
(viii)in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund;
(x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made.
4.4.2.PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of the Fund in the following cases only:
(i) upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a
purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign securities of the Fund;
(iii) for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Contract, legal fees, accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(vi) for payment of part or all of the dividends received in respect of securities sold short;
(vii) in connection with the borrowing or lending of foreign securities; and
(viii)for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made.
4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Contract to the contrary, settlement and payment for Foreign Assets received for the account of the Fund and delivery of Foreign Assets maintained for the account of the Fund may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.
The Custodian shall provide to the Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder.
SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of the
Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of the Fund under the terms of this Contract unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.
SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of the Fund with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Fund. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.
SECTION 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Fund shall be entitled and shall credit such income, as collected, to the Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.
SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights.
SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Fund (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Fund at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is
in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power.
SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim.
SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information.
SECTION 4.12. LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Contract and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care.
The Custodian shall receive from the distributor for the Shares or from the Transfer Agent and deposit into the Fund's account such payments as are received for Shares thereof issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund.
From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian.
Proper Instructions, which may also be standing instructions, as used throughout this Agreement, shall mean instructions received by the Custodian from the Fund, the Fund's investment manager, or a person or entity duly authorized by either of them. Such instructions may be in writing signed by the authorized person or persons or may be in a tested communication or in a communication utilizing access codes effected between electro-mechanical or electronic devices or may be by such other means and utilizing such intermediary systems and utilities as may be agreed to from time to time by the Custodian and the person or entity giving such instructions, provided that the Fund has followed any security procedures agreed to from time to time by the Fund and the Custodian, including, but not limited to, the security procedures selected by the Fund in the Funds Transfer Addendum to this Agreement. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any multi-party agreement which requires a segregated asset account in accordance with Section 2.10 of this Agreement. The Fund shall cause its duly authorized officer to certify to the Custodian in writing the names and specimen signatures of persons authorized to give Proper Instructions. The Custodian shall be entitled to rely upon the identity and authority of such persons until it receives notice from the Fund to the contrary.
The Custodian may in its discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, PROVIDED that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive form;
3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board.
The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a copy of a resolution of the Board, certified by the Secretary or an Assistant Secretary of the Fund ("CERTIFIED RESOLUTION"), as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.
The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board to keep the books of account of the Fund and/or compute the net asset value per Share of the outstanding Shares or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or compute such net asset value per Share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per Share and the daily income of the Fund shall be made at the time or times described from time to time in the Prospectus.
The Custodian shall create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations.
The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-2, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.
The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, other assets, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System, relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.
The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian.
So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization,
expropriation, currency restrictions, or acts of war, revolution, riots or terrorism.
Except as may arise from the Custodian's own negligence, bad faith or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, work
stoppages, natural disasters, or other similar events or acts; (ii) errors by
the Fund or its duly-authorized investment manager or investment advisor in
their instructions to the Custodian provided such instructions have been in
accordance with this Agreement; (iii) the insolvency of or acts or omissions by
a Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement.
If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or consequential damages.
This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; PROVIDED, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's Articles of Incorporation, and further provided, that the Fund may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements.
If a successor custodian for the Fund shall be appointed by the Board, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of the Fund then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of the Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a Certified Resolution, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such resolution.
In the event that no written order designating a successor custodian or Certified Resolution shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian hereunder and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of the Fund, and to transfer to an account of such successor custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement.
In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the Certified Resolution to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.
In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, PROVIDED that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund's Articles of Incorporation. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.
This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.
This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between the Fund and the Custodian relating to the custody of the Fund's assets.
Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time.
To the Fund: NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
605 Third Avenue, Second Floor
New York, NY 10158-0180
Attention: Barbara Muinos
Telephone: 212-476-8130
Telecopy: 212-476-8939
To the Custodian: STATE STREET BANK AND TRUST COMPANY
2 Avenue de Lafayette
Boston, MA 02111
Attention: Robert F. Dempsey
Telephone: 617-662-2246
Telecopy: 617-662-1838
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Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.
This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
The Custodian and the Fund agree to be bound by the terms of the Remote Access Services Addendum attached hereto.
SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If the Fund tells the Custodian "no", the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For the Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
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SECTION 24. CONFIDENTIALITY. The Custodian agrees that all books, records, information and data pertaining to the business of the Fund which are exchanged or received pursuant to the negotiation or carrying out of this Agreement shall remain confidential, shall not be disclosed to any other person, except as may be required by law, regulation or order by a court of competent jurisdiction, and shall not be used by the custodian for any purpose not directly related to the business of the Fund, except with the Fund's written consent.
SECTION 25. ASSIGNMENT. Neither the Fund nor the Custodian shall have the right to assign any of its rights or obligations under this Agreement without the prior written consent of the other party, such consent not to be unreasonably withheld.
[Remainder of page left intentionally blank]
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of October 28, 2003.
NEUBERGER BERMAN REAL ESTATE SECURITIES FUND SIGNATURE ATTESTED TO BY:
INCOME FUND INC.
By: /s/Robert Conti By: /s/ Claudia A. Brandon
------------------------- -------------------------
Name: Robert Conti Name: Claudia A. Brandon
Title: Vice President Title: Secretary
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STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: /s/ Joseph L. Hooley By: /s/ Kevin L. Courtney
------------------------- -------------------------
Name: Joseph L. Hooley Name: Kevin L. Courtney
Title: Executive Vice President Title: Vice President and Counsel
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STOCK TRANSFER AGENCY AGREEMENT
AGREEMENT, made as of October 28, 2003, by and between NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter referred to as the "Customer"), and THE BANK OF NEW YORK, a New York trust company (hereinafter referred to as the "Bank"). Schedule A is deemed a part of this Agreement and all functions and activities contained in Schedule I are subject to the provisions of this Agreement.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth, the parties hereto covenant and agree as follows:
Whenever used in this Agreement, the following words and phrases shall have the following meanings:
1. "Business Day" shall be deemed to be each day on which the Bank is open for business.
2. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Bank by the Customer which is signed by any Officer, as hereinafter defined, and actually received by the Bank.
3. "Officer" shall be deemed to be the Customer's Chief Executive Officer, President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Treasurer, and any Assistant Secretary duly authorized by the Board of Directors of the Customer to execute any Certificate, instruction, notice or other instrument on behalf of the Customer and named in a Certificate, as such Certificate may be amended from time to time.
4. "Shares" shall mean all or any part of each class of the shares of capital stock of the Customer which from time to time are authorized and/or issued by the Customer and identified in a Certificate of the Secretary of the
Customer under corporate seal, as such Certificate may be amended from time to time, with respect to which the Bank is to act hereunder.
1. The Customer hereby constitutes and appoints the Bank as its agent to perform the services described herein and as more particularly described in Schedule A attached hereto (the "Services"), and the Bank hereby accepts appointment as such agent and agrees to perform the Services in accordance with the terms hereinafter set forth.
2. In connection with such appointment, the Customer shall deliver the following documents to the Bank:
(a) A certified copy of the Certificate of Incorporation or other document evidencing the Customer's form of organization (the "Charter") and all amendments thereto;
(b) A certified copy of the By-Laws of the Customer;
(c) A certified copy of a resolution of the Board of Directors of the Customer appointing the Bank to perform the Services and authorizing the execution and delivery of this Agreement;
(d) A Certificate signed by the Secretary of the Customer specifying:
the number of authorized Shares, the number of such authorized
Shares issued and currently outstanding, and the names and specimen
signatures of all persons duly authorized by the Board of Directors
of the Customer to execute any Certificate on behalf of the
Customer, as such Certificate may be amended from time to time;
(e) A Specimen Share certificate for each class of Shares in the form approved by the Board of Directors of the Customer, together with a Certificate signed by the Secretary of the Customer as to such approval and covenanting to supply a new such Certificate and specimen whenever such form shall change;
(f) An opinion of counsel for the Customer, in a form reasonably satisfactory to the Bank, with respect to the validity of the authorized and outstanding Shares, the obtaining of all necessary governmental consents, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (I.E., if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor);
(g) A list of the name, address, social security or taxpayer identification number of each Shareholder, number of Shares owned, certificate numbers, and whether any "stops" have been placed; and
(h) An opinion of counsel for the Customer, in a form satisfactory to the Bank, with respect to the due authorization by the Customer and the validity and effectiveness of the use of facsimile signatures by the Bank in connection with the countersigning and registering of Share certificates of the Customer.
3. The Customer shall furnish the Bank with a sufficient supply of blank Share certificates and from time to time will renew such supply upon request of the Bank. Such blank Share certificates shall be properly signed, by facsimile or otherwise, by Officers of the Customer authorized by law or by the By-Laws to sign Share certificates, and, if required, shall bear the corporate seal or a facsimile thereof.
1. The Customer shall deliver to the Bank the following documents on or before the effective date of any increase, decrease or other change in the total number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Charter giving effect to such increase, decrease or change;
(b) An opinion of counsel for the Customer, in a form satisfactory to the Bank, with respect to the validity of the Shares, the
obtaining of all necessary governmental consents, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable federal law or regulations (I.E., if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the Bank was theretofore expressly limited, a certified copy of a resolution of the Board of Directors of the Customer increasing the authority of the Bank.
2. Prior to the issuance of any additional Shares pursuant to stock dividends, stock splits or otherwise, and prior to any reduction in the number of Shares outstanding, the Customer shall deliver the following documents to the Bank:
(a) A certified copy of the resolutions adopted by the Board of Directors and/or the shareholders of the Customer authorizing such issuance of additional Shares of the Customer or such reduction, as the case may be;
(b) A certified copy of the order or consent of each governmental or regulatory authority required by law as a prerequisite to the issuance or reduction of such Shares, as the case may be, and an opinion of counsel for the Customer that no other order or consent is required; and
(c) An opinion of counsel for the Customer, in a form satisfactory to the Bank, with respect to the validity of the Shares, the obtaining of all necessary governmental consents, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (I.E., if subject to registration, that they have been registered and that the Registration Statement has become effective, or, if exempt, the specific grounds therefor).
1. In the case of any negative stock split, recapitalization or other capital adjustment requiring a change in the form of Share certificates, the Bank will issue Share certificates in the new form in exchange for, or upon transfer of, outstanding Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of Share certificates in the new form;
(b) A certified copy of any amendment to the Charter with respect to the change;
(c) Specimen Share certificates for each class of Shares in the new form approved by the Board of Directors of the Customer, with a Certificate signed by the Secretary of the Customer as to such approval;
(d) A certified copy of the order or consent of each governmental or regulatory authority required by law as a prerequisite to the issuance of the Shares in the new form, and an opinion of counsel for the Customer that the order or consent of no other governmental or regulatory authority is required; and
(e) An opinion of counsel for the Customer, in a form satisfactory to the Bank, with respect to the validity of the Shares in the new form, the obtaining of all necessary governmental consents, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (I.E., if subject to registration, that the Shares have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor).
2. The Customer shall furnish the Bank with a sufficient supply of blank Share certificates in the new form, and from time to time will replenish such supply upon the request of the Bank. Such blank Share certificates shall be
properly signed, by facsimile or otherwise, by Officers of the Customer authorized by law or by the By-Laws to sign Share certificates and, if required, shall bear the corporate seal or a facsimile thereof.
1. The Bank will issue and transfer Shares in certificated form as follows:
(a) The Bank will issue Share certificates upon receipt of a Certificate from an Officer, but shall not be required to issue Share certificates after it has received from an appropriate federal or state authority written notification that the sale of Shares has been suspended or discontinued, and the Bank shall be entitled to rely upon such written notification. The Bank shall not be responsible for the payment of any original issue or other taxes required to be paid by the Customer in connection with the issuance of any Shares.
(b) Shares will be transferred upon presentation to the Bank of Share certificates in form deemed by the Bank properly endorsed for transfer, accompanied by such documents as the Bank deems necessary to evidence the authority of the person making such transfer, and bearing satisfactory evidence of the payment of applicable stock transfer taxes. In the case of small estates where no administration is contemplated, the Bank may, when furnished with an appropriate surety bond, and without further approval of the Customer, transfer Shares registered in the name of the decedent where the current market value of the Shares being transferred does not exceed such amount as may from time to time be prescribed by the various states. The Bank reserves the right to refuse to transfer Shares until it is satisfied that the endorsements on Share certificates are valid and genuine, and for that purpose it may require, unless otherwise instructed by an Officer of the Customer, a guaranty of signature by an "eligible guarantor institution" meeting the requirements of the Bank, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined
by the Bank in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. The Bank also reserves the right to refuse to transfer Shares until it is satisfied that the requested transfer is legally authorized, and it shall incur no liability for the refusal in good faith to make transfers which the Bank, in its reasonable judgment, deems improper or unauthorized, or until it is satisfied that there is no basis to any claims adverse to such transfer. The Bank may, in effecting transfers of Shares, rely upon those provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be amended from time to time, applicable to the transfer of securities, and the Customer shall indemnify the Bank for any act done or omitted by it in good faith in reliance upon such laws.
(c) All certificates representing Shares that are subject to restrictions on transfer (E.G., securities acquired pursuant to an investment representation, securities held by controlling persons, securities subject to stockholders' agreement, etc.), shall be stamped with a legend describing the extent and conditions of the restrictions or referring to the source of such restrictions. The Bank assumes no responsibility with respect to the transfer of restricted securities where counsel for the Customer advises that such transfer may be properly effected.
2. The Bank will issue and transfer Shares in book-entry form as follows:
(a) Shares may be maintained by the Bank in book-entry form known as the "Direct Registration System" ("DRS"). Upon issuance of Shares, the Shares of each registered owner will be credited to the account of each such registered owner (the registered owner of Shares is referred to herein as, or, if there are more than one registered owner of the same Shares, such registered owners are collectively referred to herein as, the "Registered Owner").
(b) Customer understands that Profile is a required feature of DRS. Profile allows a DTC participant claiming to act on behalf of the
Registered Owner of Shares, to direct the Bank to transfer to such DTC participant the Shares designated by such DTC participant without receipt by the Bank of such prior written authorization from the Registered Owner to transfer such Shares.
(c) Customer understands the Bank will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of a Registered Owner is, in fact, authorized to act on behalf of such Registered Owner. Moreover, Customer agrees that the Bank shall have no liability for relying upon and complying with directions from a DTC participant as set forth above; and Customer shall indemnify and hold harmless the Bank from and against any liability, expense, damage, loss and judgment arising from or related to the foregoing (including reasonable attorneys fees and expenses and expenses arising from or connected with the enforcement of this provision). For the avoidance of doubt, (i) the Bank shall be fully protected by the foregoing limitation of liability and indemnification with respect to reliance upon and compliance with instructions from the DTC participant even if the Bank's reliance on, and compliance with, such instructions is determined by a final, non-appealable order or judgment of a court of competent jurisdiction to constitute negligence, willful misconduct, breach of any duty owed by the Bank to such Registered Owner or violation of any law and (ii) the forgoing shall not apply to the manner in which the Bank carries out actual transfer of the Shares which are the subject of the DTC participant's instruction, which transfer shall continue to be governed by Article VIII, Section 6 hereof. By way of example and not by way of limitation, if a court determines that the transfer of Shares pursuant to a DTC participant's instruction without obtaining prior authorization from the Registered Owner constitutes negligence, the Bank will nevertheless be protected under this subparagraph (c); on the other hand, in carrying out such instructions, if the Bank transfers Shares from the wrong account or to the wrong DTC participant, the obligation to indemnify the Bank shall be determined in accordance with Article VIII, Section 6 hereof. In the event of a loss or damage to Customer or a Registered
Owner arising from operation of the DRS, the Bank will reasonably assist Customer in identifying the responsible persons and recovering the loss and/or compensation for damages, including any expenses.
1. The Customer shall furnish to the Bank a copy of a resolution of its
Board of Directors, certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, the record
date as of which shareholders entitled to payment, or accrual, as the case may
be, shall be determined, the amount per Share of such dividend or distribution,
the payment date on which all previously accrued and unpaid dividends are to be
paid, and the total amount, if any, payable to the Bank on such payment date, or
(ii) authorizing the declaration of dividends and distributions on a periodic
basis and authorizing the Bank to rely on a Certificate setting forth the
information described in subsection (i) of this paragraph.
2. Prior to the payment date specified in such Certificate or resolution,
as the case may be, the Customer shall, in the case of a cash dividend or
distribution, pay to the Bank an amount of cash, sufficient for the Bank to make
the payment, specified in such Certificate or resolution, to the shareholders of
record as of such payment date. The Bank will, upon receipt of any such cash,
(i) in the case of shareholders who are participants in a dividend reinvestment
and/or cash purchase plan of the Customer, reinvest such cash dividends or
distributions in accordance with the terms of such plan, and (ii) in the case of
shareholders who are not participants in any such plan, make payment of such
cash dividends or distributions to the shareholders of record as of the record
date by mailing a check, payable to the registered shareholder, to the address
of record or dividend mailing address. The Bank shall not be liable for any
improper payment made in accordance with a Certificate or resolution described
in the preceding paragraph. If the Bank shall not receive sufficient cash prior
to the payment date to make payments of any cash dividend or distribution
pursuant to subsections (i) and (ii) above to all shareholders of the Customer
as of the record date, the Bank shall, upon notifying the Customer, withhold
payment to all shareholders of the Customer as of the record date until sufficient cash is provided to the Bank.
3. It is understood that the Bank shall in no way be responsible for the determination of the rate or form of dividends or distributions due to the shareholders.
4. It is understood that the Bank shall file such appropriate information returns concerning the payment of dividends and distributions with the proper federal, state and local authorities as are required by law to be filed by the Customer but shall in no way be responsible for the collection or withholding of taxes due on such dividends or distributions due to shareholders, except and only to the extent required of it by applicable law.
1. The Customer shall promptly deliver to the Bank written notice of any change in the Officers authorized to sign Share certificates, Certificates, notifications or requests, together with a specimen signature of each new Officer. In the event any Officer who shall have signed manually or whose facsimile signature shall have been affixed to blank Share certificates shall die, resign or be removed prior to issuance of such Share certificates, the Bank may issue such Share certificates as the Share certificates of the Customer notwithstanding such death, resignation or removal, and the Customer shall promptly deliver to the Bank such approvals, adoptions or ratifications as may be required by law.
2. Each copy of the Charter of the Customer and copies of all amendments thereto shall be certified by the Secretary of State (or other appropriate official) of the state of incorporation, and if such Charter and/or amendments are required by law also to be filed with a county or other officer or official body, a certificate of such filing shall be filed with a certified copy submitted to the Bank. Each copy of the By-Laws and copies of all amendments thereto, and copies of resolutions of the Board of Directors of the Customer, shall be certified by the Secretary or an Assistant Secretary of the Customer under the corporate seal.
3. Customer hereby represents and warrants:
(a) It is a corporation duly organized and validly existing under the laws of Maryland.
(b) This Agreement has been duly authorized, executed and delivered on its behalf and constitutes the legal, valid and binding obligation of Customer. The execution, delivery and performance of this Agreement by Customer do not and will not violate any applicable law or regulation and do not require the consent of any governmental or other regulatory body except for such consents and approvals as have been obtained and are in full force and effect.
ARTICLE VIII
CONCERNING THE BANK
1. The Bank represents and warrants to the Customer that:
(a) It is a national banking association with trust powers existing and in good standing under the laws of the United States.
(b) It is duly qualified to carry on its business in the State of New York.
(c) This Agreement has been duly authorized, executed and delivered on its behalf and constitutes the legal, valid and binding obligation of the Bank. The execution, delivery and performance of this Agreement by the Bank do not and will not violate any applicable law or regulation and do not require the consent of any governmental or other regulatory body except for such consents and approvals as have been obtained and are in full force and effect.
(d) It will maintain its registration as a transfer agent as provided in
Section 17(A)(c) of the Securities Exchange Act of 1934, as amended,
(the "1934 Act") and shall comply with all applicable provisions of
Section 17A of the 1934 Act and the rules promulgated thereunder, as
may be amended from time to time, including rules relating to record
retention.
(e) It shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule A in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the Investment Company Act of 1940, as amended ("1940 Act"), and the rules thereunder. Where applicable, such records shall be maintained by the Bank for the periods and in the places required by Rule 31a-2 under the 1940 Act. To the extent required by Section 31 of the 1940 Act and the rules thereunder, all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Customer and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Customer on and in accordance with its request.
(f) It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.
2. The Bank shall not be liable and shall be fully protected in acting upon any oral instruction, writing or document reasonably believed by it to be genuine and to have been given, signed or made by the proper person or persons and shall not be held to have any notice of any change of authority of any person until receipt of written notice thereof from an Officer of the Customer. It shall also be protected in processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the duly authorized Officer or Officers of the Customer and the proper countersignature of the Bank.
3. The Bank may establish such additional procedures, rules and regulations governing the transfer or registration of Share certificates as it may deem advisable and consistent with such rules and regulations generally adopted by bank transfer agents.
4. The Bank may keep such records as it deems advisable but not inconsistent with resolutions adopted by the Board of Directors of the Customer. The Bank may deliver to the Customer from time to time at its discretion, for safekeeping or disposition by the Customer in accordance with law, such records,
papers, Share certificates which have been cancelled in transfer or exchange and other documents accumulated in the execution of its duties hereunder as the Bank may deem expedient, other than those which the Bank is itself required to maintain pursuant to applicable laws and regulations, and the Customer shall assume all responsibility for any failure thereafter to produce any record, paper, cancelled Share certificate or other document so returned, if and when required. The records maintained by the Bank pursuant to this paragraph which have not been previously delivered to the Customer pursuant to the foregoing provisions of this paragraph shall be considered to be the property of the Customer, shall be made available upon request for inspection by the Officers, employees and auditors of the Customer, and shall be delivered to the Customer upon request and in any event upon the date of termination of this Agreement, as specified in Article IX of this Agreement, in the form and manner kept by the Bank on such date of termination or such earlier date as may be requested by the Customer.
5. The Bank may employ agents or attorneys-in-fact and the expense shall be borne in accordance with Schedule A hereto, and shall be not liable for any loss or expense arising out of, or in connection with, the actions or omissions to act of its agents or attorneys-in-fact, so long as the Bank acts in good faith and without negligence or willful misconduct in connection with the selection and retention of such agents or attorneys-in-fact.
6. The Bank shall only be liable for any loss or damage arising out of its own negligence or willful misconduct; provided, however, that the Bank shall not be liable for any indirect, special, punitive or consequential damages.
7. The Customer shall indemnify and hold harmless the Bank from and against any and all claims (whether with or without basis in fact or law), costs, demands, expenses and liabilities, including reasonable attorney's fees, which the Bank may sustain or incur or which may be asserted against the Bank except for any liability which the Bank has assumed pursuant to the immediately preceding section. The Bank shall be deemed not to have acted with negligence and not to have engaged in willful misconduct by reason of or as a result of any action taken or omitted to be taken by the Bank without its own negligence or willful misconduct in reliance upon (i) any provision of this Agreement, (ii) any instrument, order or Share certificate reasonably believed by it to be genuine and to be signed, countersigned or executed by any duly authorized Officer of the Customer, (iii) any Certificate or other instructions of an
Officer, (iv) any opinion of legal counsel for the Customer or the Bank, or (v) any law, act, regulation or any interpretation of the same even though such law, act, or regulation may thereafter have been altered, changed, amended or repealed. Nothing contained herein shall limit or in any way impair the right of the Bank to indemnification under any other provision of this Agreement.
8. If an action, claim or legal proceeding (collectively "Proceeding") shall be brought or asserted against the Bank in respect of which indemnity may be sought by the Bank pursuant to the preceding paragraph, the Bank shall promptly (and in no event more than ten (10) days after receipt of notice of such Proceeding) notify the Customer of such Proceeding. The failure of the Bank to so notify the Customer shall not impair the Bank's ability to seek indemnification from the Customer (but only for costs, expenses and liabilities incurred after such notice) unless such failure adversely affects the Customer's ability to adequately oppose or defend such Proceeding. Upon receipt of such notice from the Bank, the Customer shall be entitled to participate in such Proceeding and, to the extent that it shall so desire and provided no conflict of interest exists as specified in subparagraph (b) below or there are no other defenses available to the Bank as specified in subparagraph (d) below, to assume the defense thereof with counsel reasonably satisfactory to the Bank (in which case all attorney's fees and expenses shall be borne by the Customer) and the Customer shall in good faith defend the Bank. The Bank shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be borne by the Bank unless (a) the Customer agrees in writing to pay such fees and expenses, (b) the Bank shall have reasonably and in good faith concluded that there is a conflict of interest between the Customer and the Bank in the conduct of the defense of such action, which the parties are not willing to waive, (c) the Customer fails, within ten (10) days prior to the date the first response or appearance is required to be made in such Proceeding, to assume the defense of such Proceeding with counsel reasonably satisfactory to the Bank or (d) there are legal defenses available to the Bank that are different from or are in addition to those available to the Customer.
9. Specifically, but not by way of limitation, the Customer shall indemnify and hold harmless the Bank from and against any and all claims
(whether with or without basis in fact or law), costs, demands, expenses and liabilities, including reasonable attorney's fees, of any and every nature which the Bank may sustain or incur or which may be asserted against the Bank in connection with the genuineness of a Share certificate, the Bank's due authorization by the Customer to issue Shares and the form and amount of authorized Shares.
10. The Bank shall not incur any liability hereunder if by reason of any act of God or war or other circumstances beyond its control, it, or its employees, officers or directors shall be prevented, delayed or forbidden from, or be subject to any civil or criminal penalty on account of, doing or performing any act or thing which by the terms of this Agreement it is provided shall be done or performed or by reason of any nonperformance or delay, caused as aforesaid, in the performance of any act or thing which by the terms of this Agreement it is provided shall or may be done or performed, provided that the Bank maintains and implements a disaster recovery plan designed to comply with applicable banking regulations.
11. At any time the Bank may apply to an Officer of the Customer for written instructions with respect to any matter arising in connection with the Bank's duties and obligations under this Agreement, and the Bank shall not be liable for any action taken or omitted to be taken by the Bank in good faith in accordance with such instructions. Such application by the Bank for instructions from an Officer of the Customer may, at the option of the Bank, set forth in writing any action proposed to be taken or omitted to be taken by the Bank with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken, and the Bank shall not be liable for any action taken or omitted to be taken in accordance with a proposal included in any such application on or after the date specified therein unless, prior to taking or omitting to take any such action, the Bank has received written instructions in response to such application specifying the action to be taken or omitted. The Bank may consult counsel to the Customer or its own counsel, at the reasonable expense of the Customer, and shall be fully protected with respect to anything done or omitted by it in good faith in accordance with the advice or opinion of such counsel.
12. When mail is used for delivery of non-negotiable Share certificates, the value of which does not exceed the limits of the Bank's Blanket Bond, the
Bank shall send such non-negotiable Share certificates by first class mail, and such deliveries will be covered while in transit by the Bank's Blanket Bond. Non-negotiable Share certificates, the value of which exceed the limits of the Bank's Blanket Bond, will be sent by insured registered mail. Negotiable Share certificates will be sent by insured registered mail. The Bank shall advise the Customer of any Share certificates returned as undeliverable after being mailed as herein provided for.
13. The Bank may issue new Share certificates in place of Share certificates represented to have been lost, stolen or destroyed upon receiving instructions in writing from an Officer and indemnity satisfactory to the Bank. Such instructions from the Customer shall be in such form as approved by the Board of Directors of the Customer in accordance with applicable law or the By-Laws of the Customer governing such matters. If the Bank receives written notification from the owner of the lost, stolen or destroyed Share certificate within a reasonable time after he has notice of it, the Bank shall promptly notify the Customer and shall act pursuant to written instructions signed by an Officer. If the Customer receives such written notification from the owner of the lost, stolen or destroyed Share certificate within a reasonable time after he has notice of it, the Customer shall promptly notify the Bank and the Bank shall act pursuant to written instructions signed by an Officer. The Bank shall not be liable for any act done or omitted by it pursuant to the written instructions described herein. The Bank may issue new Share certificates in exchange for, and upon surrender of, mutilated Share certificates.
14. The Bank will issue and mail subscription warrants for Shares, Shares representing stock dividends, exchanges or splits, or act as conversion agent upon receiving written instructions from an Officer and such other documents as the Bank may deem necessary.
15. The Bank will supply shareholder lists to the Customer from time to time upon receiving a request therefor from an Officer of the Customer.
16. The Bank agrees that all books, records, information and data pertaining to the business of the Customer or its prior, present or potential shareholders which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, shall be used only for
the purposes contemplated by this Agreement, and shall not be voluntarily
disclosed to any other person, except as may be requested by a governmental
entity or as may be required by law or which the Bank deems in its sole
discretion to be necessary for the performance of the services. The foregoing
shall not apply to information which (a) is in the public domain at the time of
the disclosure, (b) prior to disclosure is within the legitimate possession of
the Bank, (c) becomes known to the Bank from a third party without restriction,
(d) is independently developed by the Bank or (e) is approved for release by
written authorization of the Customer. In case of any requests or demands for
the inspection of the shareholder records of the Customer, the Bank will notify
the Customer and endeavor to secure instructions from an Officer as to such
inspection. The Bank reserves the right, however, to exhibit the shareholder
records to any person whenever it is advised by its counsel that there is a
reasonable likelihood that the Bank will be held liable for the failure to
exhibit the shareholder records to such person.
17. At the request of an Officer, the Bank will address and mail such appropriate notices to shareholders as the Customer may direct.
18. Notwithstanding any provisions of this Agreement to the contrary, the Bank shall be under no duty or obligation to inquire into, and shall not be liable for:
(a) The legality of the issue, sale or transfer of any Shares, the sufficiency of the amount to be received in connection therewith, or the authority of the Customer to request such issuance, sale or transfer;
(b) The legality of the purchase of any Shares, the sufficiency of the amount to be paid in connection therewith, or the authority of the Customer to request such purchase;
(c) The legality of the declaration of any dividend by the Customer, or the legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of the Shares.
19. The Bank shall be entitled to receive and the Customer hereby agrees
to pay to the Bank for its performance hereunder (i) reasonable out-of-pocket
expenses (including reasonable legal expenses and reasonable attorney's fees)
incurred in connection with this Agreement and its performance hereunder, and
(ii) the compensation for services as set forth in Schedule A.
20. The Bank shall not be responsible for any money, whether or not represented by any check, draft or other instrument for the payment of money, received by it on behalf of the Customer, until the Bank actually receives and collects such funds.
21. The Bank shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against the Bank in connection with this Agreement.
Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Customer, it shall be accompanied by a copy of a resolution of the Board of Directors of the Customer, certified by its Secretary, electing to terminate this Agreement and designating a successor transfer agent or transfer agents. In the event such notice is given by the Bank, the Customer shall, on or before the termination date, deliver to the Bank a copy of a resolution of its Board of Directors certified by its Secretary designating a successor transfer agent or transfer agents. In the absence of such designation by the Customer, the Bank may designate a successor transfer agent. If the Customer fails to designate a successor transfer agent and if the Bank is unable to find a successor transfer agent, the Customer shall, upon the date specified in the notice of termination of this Agreement and delivery of the records maintained hereunder, be deemed to be its own transfer agent and the Bank shall thereafter be relieved of all duties and responsibilities hereunder. Upon termination hereof, the Customer shall pay to the Bank such compensation as may be due to the Bank as of the date of such termination, and shall reimburse
the Bank for any disbursements and expenses made or incurred by the Bank and payable or reimbursable hereunder. The Bank shall, promptly upon such termination, transfer all records and shall cooperate in the transfer of such duties and responsibilities.
1. The indemnities and confidentiality provisions contained herein shall be continuing obligations of the Customer, its successors and assigns, notwithstanding the termination of this Agreement.
2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Customer shall be sufficiently given if addressed to the Customer and mailed or delivered to it at Neuberger Berman Real Estate Securities Income Fund Inc., 605 Third Avenue, New York, NY 10158, Attention: Frederic Soule, Vice President for Operations, Telephone: (212) 476-8130, Telecopy: (212) 476-8939, or at such other place as the Customer may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Bank shall be sufficiently given if addressed to the Bank and mailed or delivered to it at its office at 101 Barclay Street (11E), New York, New York 10286 or at such other place as the Bank may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except by a written agreement duly authorized and executed by both parties. Any duly authorized Officer may amend any Certificate naming Officers authorized to execute and deliver Certificates, instructions, notices or other instruments, and the Secretary or any Assistant Secretary may amend any Certificate listing the shares of capital stock of the Customer for which the Bank performs Services hereunder.
5. This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party without the prior written consent of the other party, and provided, further, that any reorganization, merger, consolidation, or sale of assets, by the Bank shall not be deemed to
constitute an assignment of this Agreement, provided that the surviving entity is duly registered as a transfer agent pursuant to Section 17A(c)(2) of the 1934 Act and is qualified to perform all duties required under this Agreement.
6. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The parties agree that, all actions and proceedings arising out of this Agreement or any of the transactions contemplated hereby, shall be brought in the United States District Court for the Southern District of New York or in a New York State Court in the County of New York and that, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such court. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby.
7. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original; but such counterparts, together, shall constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the Bank and the Customer, and no rights shall be granted to any other person by virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate officers, thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written.
Attest: NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
/s/ Claudia A. Brandon By: /s/ Robert Conti
------------------------------- -------------------------------
Name: Robert Conti
Title: Vice President
Attest: THE BANK OF NEW YORK
/s/ Derrick R. Brown By: /s/ Annette Hogan
------------------------------- ------------------------------
Name: Annette Hogan
Title: Assistant Vice President
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PROFILE
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STOCK TRANSFER AGENCY AGREEMENT
between
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
and
THE BANK OF NEW YORK
Dated as of October 28, 2003
ACCOUNT NUMBER(S) ___________________________
ADMINISTRATION AGREEMENT
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
This Agreement is made as of October 31, 2003, between Neuberger Berman Real Estate Securities Income Fund Inc., a Maryland corporation ("Fund"), and Neuberger Berman Management Inc., a New York corporation ("Administrator").
WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as a closed-end, non-diversified management investment company;
WHEREAS, the Fund desires to retain the Administrator to furnish administrative services, including stockholder accounting, recordkeeping, and other services to stockholders and the Administrator is willing to furnish such services,
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows:
1.1 ADMINISTRATIVE SERVICES. The Administrator shall supervise the business and affairs of the Fund and shall provide such services required for effective administration of the Fund as are not provided by employees or other agents engaged by the Fund; PROVIDED, that the Administrator shall not have any obligation to provide under this Agreement any services related to the distribution of the Fund's shares, or any other services that are the subject of a separate agreement or arrangement between the Fund and the Administrator. The Administrator can use any of the officers and employees of Neuberger Berman, LLC to provide any of the services or reports required under this agreement. Subject to the foregoing, in providing administrative services hereunder, the Administrator shall:
1.1.1 OFFICE SPACE, EQUIPMENT AND FACILITIES. Furnish without cost to the Fund, or pay the cost of, such office space, office equipment and office facilities as are adequate for the needs of the Fund;
1.1.2 PERSONNEL. Provide, without remuneration from or other cost to the Fund, the services of individuals competent to perform all of the executive, administrative and clerical functions of the Fund that are not performed by employees or other agents engaged by the Fund or by the Administrator acting in some other capacity pursuant to a separate agreement or arrangement with the Fund;
1.1.3 AGENTS. Assist the Fund in selecting and coordinating the activities of the other agents engaged by the Fund, including the Fund's stockholder servicing agent, dividend disbursing agent, custodian, independent auditors and legal counsel;
1.1.4 DIRECTORS AND OFFICERS. Authorize and permit the Administrator's directors, officers or employees who may be elected or appointed as officers of the Fund or directors of the Fund ("Directors") to serve in such capacities, without remuneration from or other cost to the Fund;
1.1.5 BOOKS AND RECORDS. Assure that all financial, accounting and other records required to be maintained and preserved by the Fund are maintained and preserved by it or on its behalf in accordance with applicable laws and regulations; and
1.1.6 REPORTS AND FILINGS. Assist in the preparation of (but not pay for) all periodic reports by the Fund to stockholders of the Fund and all reports and filings required to maintain the registration, qualification and listing on a national securities exchange of the Fund and the shares of the
Fund, or to meet other regulatory or tax requirements applicable to the Fund or the shares of the Fund, under federal and state securities and tax laws.
1.2 STOCKHOLDER AND RELATED SERVICES. The Administrator shall provide such of the following services as are required by the Fund or its stockholders:
1.2.1 Direct stockholder services, consisting of:
(a) Responding to telephonic and in-person inquiries from existing stockholders or their representatives requesting information regarding matters such as stockholder account or transaction status, net asset value ("NAV") of Fund shares, and Fund performance, Fund services, plans and options, Fund investment policies, Fund portfolio holdings, and Fund distributions and classification thereof for tax purposes;
(b) Dealing with stockholder complaints and correspondence directed to or brought to the attention of the Administrator; and
(c) Generating or developing and distributing special data, notices, reports, programs and literature required by large stockholders, by stockholders with specialized informational needs, or by stockholders generally in light of developments, such as changes in tax laws.
1.2.2 Soliciting and gathering stockholder proxies.
1.2.3 Such other stockholder and stockholder-related services, whether similar to or different from those described in Subparagraphs 1.2.1 and 1.2.2 of this Paragraph 1.2, as the parties may from time to time agree in writing.
1.3 BLUE SKY SERVICES. The Administrator shall maintain under this Agreement the registration or qualification of the Fund and its shares under state Blue Sky or securities laws and regulations, as necessary; PROVIDED that
such Fund shall pay all related filing fees and registration or qualification fees.
1.4 OTHER SERVICES. The Administrator shall provide such other services required by the Fund as the parties may from time to time agree in writing are appropriate to be provided under this Agreement.
2.1 EXPENSES TO BE PAID BY THE ADMINISTRATOR. The Administrator shall pay all salaries, expenses and fees of the officers, Directors, or employees of the Fund who are officers, directors or employees of the Administrator. If the Administrator pays or assumes any expenses of the Fund not required to be paid or assumed by the Administrator under this Agreement, the Administrator shall not be obligated hereby to pay or assume the same or any similar expense in the future; PROVIDED, that nothing herein contained shall be deemed to relieve the Administrator of any obligation to the Fund under any separate agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE FUND. The Fund shall bear all expenses of its operation, except those specifically allocated to the Administrator under this Agreement or under any separate agreement between the Fund and the Administrator. Subject to any separate agreement or arrangement between the Fund and the Administrator, the expenses hereby allocated to the Fund, and not to the Administrator, include, but are not limited to:
2.2.1 CUSTODY. All charges of depositories, custodians, and other agents for the transfer, receipt, safekeeping, and servicing of its cash, securities, and other property;
2.2.2 STOCKHOLDER SERVICING. All expenses of maintaining and servicing stockholder accounts, including but not limited to the charges of any stockholder servicing agent, dividend disbursing agent, dividend reinvestment plan agent or other agent (other than the Administrator hereunder) engaged by the Fund to service stockholder accounts;
2.2.3 STOCKHOLDER REPORTS. All expenses of preparing, setting in type, printing and distributing reports and other communications to stockholders of the Fund;
2.2.4 PROSPECTUSES. All expenses of preparing, setting in type, printing and mailing annual or more frequent revisions of the Fund's Prospectus and SAI and any supplements thereto and of supplying them to stockholders of the Fund and Account holders;
2.2.5 PRICING AND PORTFOLIO VALUATION. All expenses of computing the Fund's NAV per share, including any equipment or services obtained for the purpose of pricing shares or valuing the Fund's investment portfolio;
2.2.6 COMMUNICATIONS. All charges for equipment or services used for communications between the Administrator or the Fund and any custodian, stockholder servicing agent, portfolio accounting services agent, or other agent engaged by the Fund;
2.2.7 LEGAL AND ACCOUNTING FEES. All charges for services and expenses of the Fund's legal counsel and independent auditors;
2.2.8 DIRECTORS' FEES AND EXPENSES. All compensation of Directors other than those affiliated with the Administrator, all expenses incurred in connection with such unaffiliated Directors' services as Directors, and all other expenses of meetings of the Directors or committees thereof;
2.2.9 STOCKHOLDER MEETINGS. All expenses incidental to holding meetings of stockholders, including the printing of notices and proxy materials, and proxy solicitation therefor;
2.2.10 FEDERAL REGISTRATION FEES. All fees and expenses of registering and maintaining the registration of the Fund under the 1940 Act and the registration of the Fund's shares under the Securities Act of 1933 (the "1933 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any Registration Statement, Prospectus and SAI under the 1933 Act or the 1940 Act, and any amendments or supplements that may be made from time to time;
2.2.11 STATE REGISTRATION FEES. All fees and expenses of qualifying and maintaining the qualification of the Fund and of the Fund's shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Fund under all other laws applicable to the Fund or its business activities (including registering the Fund as a broker-dealer, or any officer of the Fund or any person as agent or salesman of the Fund in any state);
2.2.12 SHARE CERTIFICATES. All expenses of preparing and transmitting the Fund's share certificates, if any;
2.2.13 CONFIRMATIONS. All expenses incurred in connection with the issue and transfer of the Fund's shares, including the expenses of confirming all share transactions;
2.2.14 BONDING AND INSURANCE. All expenses of bond, liability, and other insurance coverage required by law or regulation or deemed advisable by the Directors, including, without limitation, such bond, liability and other insurance expense that may from time to time be allocated to the Fund in a manner approved by the Directors;
2.2.15 BROKERAGE COMMISSIONS. All brokers' commissions and other charges incident to the purchase, sale or lending of the Fund's portfolio securities;
2.2.16 TAXES. All taxes or governmental fees payable by or with respect to the Fund to federal, state or other governmental agencies, domestic or foreign, including stamp or other transfer taxes;
2.2.17 TRADE ASSOCIATION FEES. All fees, dues and other expenses incurred in connection with the Fund's membership in any trade association or other investment organization;
2.2.18 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring and extraordinary expenses as may arise, including the costs of actions, suits, or proceedings to which the Fund is a party and the expenses the Fund may incur as a result of its legal obligation to provide indemnification to the Fund's officers, Directors and agents;
2.2.19 ORGANIZATIONAL EXPENSES AND OFFERING EXPENSES FOR COMMON STOCK. Any and all organizational expenses and any and all offering expenses for shares of the Fund's common stock paid or assessed by the Administrator, which the Fund shall reimburse to the Administrator if and at such time or times agreed by the Fund and the Administrator; and
2.2.20 INVESTMENT ADVISORY SERVICES. Any fees and expenses for investment advisory services that may be incurred or contracted for by the Fund.
2.2.21 EXPENSES OF LISTING ON A NATIONAL SECURITIES EXCHANGE. Any and all expenses of listing and maintaining the listing of shares of the Fund's common stock on any national securities exchange.
2.2.22 OFFERING EXPENSES FOR ANY PREFERRED STOCK. Any and all offering expenses (including rating agency fees) for any preferred stock of the Fund paid or assessed by the Administrator shall be reimbursed by the Fund if and at such time or times agreed by the Fund and the Administrator.
2.2.23 DIVIDEND REINVESTMENT PLAN. Any and all expenses incident to any dividend reinvestment plan.
2.2.24 INTEREST. Such interest as may accrue on borrowings of the Fund.
3.1 FEE. As compensation for all services rendered, facilities provided and expenses paid or assumed by the Administrator to or for the Fund under this Agreement, the Fund shall pay the Administrator an annual fee as set out in Schedule A to this Agreement.
3.2 COMPUTATION AND PAYMENT OF FEE. The administration fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accruals for the Fund shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual administration fee rate (as set forth in Schedule A hereto), and multiplying this product by the total assets minus liabilities other than the aggregate indebtedness entered into for purposes of leverage ("Managed Assets") of the Fund, determined in the manner set forth in the Fund's Prospectus, as of the close of business on the last preceding business day on which the Fund's NAV was determined.
4. OWNERSHIP OF RECORDS. All records required to be maintained and preserved by the Fund pursuant to the provisions or rules or regulations of the Securities and Exchange Commission ("SEC") under Section 31(a) of the 1940 Act and maintained and preserved by the Administrator on behalf of the Fund are the property of the Fund and shall be surrendered by the Administrator promptly on request by the Fund; PROVIDED, that the Administrator may at its own expense make and retain copies of any such records.
5. REPORTS TO ADMINISTRATOR. The Fund shall furnish or otherwise make available to the Administrator such copies of the Fund's Prospectus, SAI, financial statements, proxy statements, reports, and other information relating to its business and affairs as the Administrator may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS TO THE FUND. The Administrator shall prepare and furnish to the Fund such reports, statistical data and other information in such form and at such intervals as the Fund may reasonably request.
7. OWNERSHIP OF SOFTWARE AND RELATED MATERIALS. All computer programs, written procedures and similar items developed or acquired and used by the Administrator in performing its obligations under this Agreement shall be the property of the Administrator, and the Fund will not acquire any ownership interest therein or property rights with respect thereto.
8. CONFIDENTIALITY. The Administrator agrees, on its own behalf and on behalf of its employees, agents and contractors, to keep confidential any and all records maintained and other information obtained hereunder which relates to the Fund or to any of the Fund's former, current or prospective stockholders, EXCEPT that the Administrator may deliver records or divulge information (a) when requested to do so by duly constituted authorities after prior notification to and approval in writing by the Fund (which approval will not be unreasonably withheld and may not be withheld by the Fund where the Administrator advises the Fund that it may be exposed to civil or criminal contempt proceedings or other penalties for failure to comply with such request) or (b) whenever requested in writing to do so by the Fund.
9. THE ADMINISTRATOR'S ACTIONS IN RELIANCE ON FUND'S INSTRUCTIONS, LEGAL OPINIONS, ETC.; FUND'S COMPLIANCE WITH LAWS.
9.1 The Administrator may at any time apply to an officer of the Fund for instructions, and may consult with legal counsel for the Fund or with the Administrator's own legal counsel, in respect of any matter arising in connection with this Agreement; and the Administrator shall not be liable for any action taken or omitted to be taken in good faith and with due care in accordance with such instructions or with the advice or opinion of such legal counsel. The Administrator shall be protected in acting upon any such instructions, advice or opinion and upon any other paper or document delivered by the Fund or such legal counsel which the Administrator believes to be genuine and to have been signed by the proper person or persons, and the Administrator shall not be held to have notice of any change of status or authority of any officer or representative of the Fund, until receipt of written notice thereof from the Fund.
9.2 Except as otherwise provided in this Agreement or in any separate agreement between the parties and except for the accuracy of information furnished to the Fund by the Administrator, the Fund assumes full responsibility for the preparation, contents, filing and distribution of its Prospectus and SAI, and full responsibility for other documents or actions required for compliance with all applicable requirements of the 1940 Act, the Securities Exchange Act of 1934, the 1933 Act, and any other applicable laws, rules and regulations of governmental authorities having jurisdiction over the Fund.
10. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the freedom of the Administrator or any affiliated person of the Administrator to render administrative or stockholder services to other investment companies, to act as administrator to other persons, firms, or corporations, or to engage in other business activities.
11.1 LIABILITY OF THE ADMINISTRATOR. Neither the Administrator nor any director, officer or employee of the Administrator performing services for the Fund at the direction or request of the Administrator in connection with the Administrator's discharge of its obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with any matter to which this Agreement relates; provided, that nothing herein contained shall be construed (i) to protect the Administrator against any liability to the Fund or its Stockholders to which the Administrator would otherwise be subject by reason of the Administrator's misfeasance, bad faith, or gross negligence in the performance of the Administrator's duties, or by reason of the Administrator's reckless disregard of its obligations and duties under this Agreement ("disabling conduct"), or (ii) to protect any director, officer or employee of the Administrator who is or was a Director or officer of the Fund against any liability to the Fund or its Stockholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Fund.
11.2 INDEMNIFICATION BY THE FUND. The Fund will indemnify the Administrator against, and hold it harmless from, any and all expenses (including reasonable counsel fees and expenses) incurred investigating or defending against claims for losses or liabilities described in Section 11.1 not resulting from negligence, disregard of its obligations and duties under this Agreement or disabling conduct by the Administrator. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that the Administrator was not liable by reason of negligence, disregard of its obligations and duties under this Agreement or disabling conduct or (ii)
in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the Administrator was not liable by reason of negligence, disregard of its obligations and duties under this Agreement or disabling conduct by (a) the vote of a majority of a quorum of directors of the Fund who are neither "interested persons" of the Fund nor parties to the proceeding ("disinterested non-party directors") or (b) an independent legal counsel in a written opinion. The Administrator shall be entitled to advances from the Fund for payment of the reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification hereunder in the manner and to the fullest extent permissible under the Maryland General Corporation Law. The Administrator shall provide to the Fund a written affirmation of its good faith belief that the standard of conduct necessary for indemnification by the Fund has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) the Administrator shall provide security in form and amount acceptable to the Fund for its undertaking; (b) the Fund is insured against losses arising by reason of the advance; or (c) a majority of a quorum of the full Board of Directors of the Fund, the members of which majority are disinterested non-party directors, or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Fund at the time the advance is proposed to be made, that there is reason to believe that the Administrator will ultimately be found to be entitled to indemnification hereunder.
12. INDEMNIFICATION BY THE ADMINISTRATOR. The Administrator shall indemnify the Fund and hold it harmless from and against any and all losses, damages and expenses, including reasonable attorneys' fees and expenses, incurred by the Fund which result from: (i) the Administrator's failure to
comply with the terms of this Agreement; or (ii) the Administrator's lack of good faith in performing its obligations hereunder; or (iii) the Administrator's negligence or misconduct or that of its employees, agents or contractors in connection herewith. The Fund shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or misconduct on the part of the Fund or its employees, agents or contractors other than the Administrator unless such negligence or misconduct results from or is accompanied by negligence or misconduct on the part of the Administrator, any affiliated person of the Administrator, or any affiliated person of an affiliated person of the Administrator. Before confessing any claim against it which may be subject to indemnification hereunder, the Fund shall give the Administrator reasonable opportunity to defend against such claim in its own name or in the name of the Fund.
13. EFFECT OF AGREEMENT. Nothing herein contained shall be deemed to require the Fund to take any action contrary to the Articles of Incorporation or By-laws of the Fund or any applicable law, regulation or order to which it is subject or by which it is bound, or to relieve or deprive the Directors of their responsibility for and control of the conduct of the business and affairs of the Fund.
14. TERM OF AGREEMENT. The term of this Agreement shall begin on date first written above and, unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through October 31, 2004. Thereafter, this Agreement shall continue in effect from year to year, subject to the termination provisions and all other terms and conditions hereof; PROVIDED, such continuance is approved at least annually by vote or written consent of the Directors, including a majority of the Directors who are not interested persons of either party hereto ("Disinterested Directors"); and PROVIDED FURTHER, that the Administrator shall not have notified the Fund in writing at least sixty days
prior to the first expiration date hereof or at least sixty days prior to any expiration date in any year thereafter that it does not desire such continuation. The Administrator shall furnish the Fund, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment thereof.
15. AMENDMENT OR ASSIGNMENT OF AGREEMENT. Any amendment to this Agreement shall be in writing signed by the parties hereto; PROVIDED, that no such amendment shall be effective unless authorized on behalf of any Fund (i) by resolution of the Directors, including the vote or written consent of a majority of the Disinterested Directors, or (ii) by vote of a majority of the outstanding voting securities of the Fund. This Agreement shall terminate automatically and immediately in the event of its assignment; provided, that with the consent of the Fund, the Administrator may subcontract to another person any of its responsibilities with respect to the Fund.
16. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time by either party hereto, without the payment of any penalty, upon at least sixty days' prior written notice to the other party; PROVIDED, that in the case of termination by the Fund, such action shall have been authorized (i) by resolution of the Directors, including the vote or written consent of the Disinterested Directors, or (ii) by vote of a majority of the outstanding voting securities of the Fund.
17. NAME OF THE FUND. The Fund hereby agrees that if the Administrator shall at any time for any reason cease to serve as administrator to the Fund, the Fund shall, if and when requested by the Administrator, eliminate from the Fund's name the name "Neuberger Berman" and thereafter refrain from using the name "Neuberger Berman" or the initials "NB" in connection with its business or
activities, and the foregoing agreement of the Fund shall survive any termination of this Agreement and any extension or renewal thereof.
18. INTERPRETATION AND DEFINITION OF TERMS. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretation thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested persons," "assignment" and "affiliated person," as used in this Agreement shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition, when the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the SEC, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
19. CHOICE OF LAW. This Agreement is made and to be principally performed in the State of New York, and except insofar as the 1940 Act or other federal laws and regulations may be controlling, this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York.
20. CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
21. EXECUTION IN COUNTERPARTS. This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written.
NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
/s/ Robert Conti
--------------------------------------
By: Robert Conti
Title: Vice President
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NEUBERGER BERMAN MANAGEMENT INC.
/s/ Peter E. Sundman
--------------------------------------
By: Peter E. Sundman
Title: President
|
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
ADMINISTRATION AGREEMENT
SCHEDULE A
Compensation pursuant to Paragraph 3 of the Neuberger Berman Real Estate Securities Income Fund Inc. Administration Agreement shall be:
(1) For the services provided to the Fund and its stockholders (including amounts paid to third parties), 0.25% per annum of the average daily total assets minus liabilities other than the aggregate indebtedness entered into for purposes of leverage ("Managed Assets") of the Fund; plus
(2) Certain out-of-pocket expenses for technology used for stockholder servicing and stockholder communication, subject to the prior approval of an annual budget by the Fund's Board of Directors, including a majority of those Directors who are not interested persons of the Fund or of Neuberger Berman Management Inc., and periodic reports to the Board of Directors on actual expenses.
DATED: October 31, 2003
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
605 Third Avenue
New York, New York 10158-0180
October 31, 2003
Neuberger Berman Management Inc.
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Dear Ladies and Gentlemen:
Neuberger Berman Real Estate Securities Income Fund Inc. ("Fund"), a Maryland corporation, has entered into a Management Agreement with you dated as of October 31, 2003. Under the Management Agreement, the Fund agrees to pay you a management fee (the "Management Fee") payable on a monthly basis at the annual rate of 0.60% of the Fund's average daily total assets minus liabilities other than the aggregate indebtedness entered into for purposes of leverage ("Managed Assets"). (The liquidation preference of any preferred shares issued by the Fund is not a liability.)
In consideration of the Fund agreeing to enter into the Management Agreement with you, you hereby agree to waive payment of a portion of the Management Fee, according to the following schedule:
FISCAL PERIOD PERCENTAGE WAIVED (ANNUAL RATE AS A
ENDING OCTOBER 31, PERCENTAGE OF MANAGED ASSETS)
2003.................................... 0.25%
2004.................................... 0.25%
2005.................................... 0.25%
2006.................................... 0.25%
2007.................................... 0.25%
2008.................................... 0.25%
2009.................................... 0.19%
2010.................................... 0.13%
2011.................................... 0.07%
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You agree that the Fund will not be required to reimburse you for amounts waived pursuant to this agreement. The Fund agrees to furnish or otherwise make available to you such copies of its financial statements, reports, and other
information relating to its business and affairs as you may, at any time or from time to time, reasonably request in connection with this Agreement.
This agreement is made and to be performed principally in the State of New York, and except insofar as the Investment Company Act of 1940, as amended, or other federal laws and regulations may be controlling, this agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York. Any amendment to this agreement shall be in writing signed by the parties hereto.
If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart hereof and return the same to us.
Very truly yours,
NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
By: /s/ Frederic Soule
-----------------------------
Name: Frederic Soule
-----------------------------
Title: Vice President
-----------------------------
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The foregoing agreement is hereby accepted as of October 31, 2003.
NEUBERGER BERMAN MANAGEMENT INC.
By: /s/ Robert Conti
------------------------
Name: Robert Conti
------------------------
Title: Senior Vice President
------------------------
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CORPORATE FINANCE SERVICES AND CONSULTING AGREEMENT
This CORPORATE FINANCE SERVICES AND CONSULTING AGREEMENT (the "Agreement"), dated as of October 31, 2003, between A.G. Edwards & Sons, Inc. ("A.G. Edwards") and Neuberger Berman Management Inc. ("Neuberger Berman").
WHEREAS, Neuberger Berman Real Estate Securities Income Fund Inc. (the "Fund") is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares of common stock, par value $0.0001 per share (the "Common Stock"), are registered under the Securities Act of 1933, as amended;
WHEREAS, Neuberger Berman is the investment manager and the administrator of the Fund;
WHEREAS, Neuberger Berman desires to retain A.G. Edwards to provide certain corporate finance and consulting services to Neuberger Berman and to the Fund on an ongoing basis, and A.G. Edwards is willing to render such services; and
WHEREAS, Neuberger Berman desires to provide compensation to A.G. Edwards for providing such services;
NOW, THEREFORE, in consideration of the mutual terms and conditions set forth below, the parties hereto agree as follows:
1. Neuberger Berman hereby employs A.G. Edwards, for the period and on the
terms and conditions set forth herein, to provide the following
services: (i) provide relevant information, studies or reports
regarding general trends in the closed-end investment company and asset
management industries, if reasonably obtainable, and consult with
representatives of Neuberger Berman in connection therewith; (ii) at
the request of Neuberger Berman, provide certain economic research and
statistical information and reports, if reasonably obtainable, on
behalf of Neuberger Berman or the Fund and consult with representatives
of Neuberger Berman or the Fund, and/or Directors of the Fund in
connection therewith, which information and reports shall include: (a)
statistical and financial market information with respect to the Fund's
market performance; and (b) comparative information regarding the Fund
and other closed-end management investment companies with respect to
(x) the net asset value of their respective shares (as made publicly
available by the Fund and such investment companies), (y) the
respective market performance of the Fund and such other companies, and
(z) other relevant performance indicators; and (iii) provide Neuberger
Berman with such other services in connection with the Common Stock
relating to the trading price and market price thereof upon which
Neuberger Berman and A.G. Edwards shall, from time to time, agree,
including after-market services designed to maintain the visibility of
the Fund in the market. At the request of Neuberger Berman, A.G.
Edwards shall limit or cease any action or service provided hereunder to
the extent and for the time period requested by Neuberger Berman;
provided, however, that pending termination of this Agreement as
provided for in Section 7 hereof, any such limitation or cessation
shall not relieve Neuberger Berman of its payment obligations pursuant to Section 3 hereof.
2. A.G. Edwards will promptly notify Neuberger Berman in writing if it learns of any material inaccuracy or misstatement in, or material omission from, any written information provided by A.G. Edwards to Neuberger Berman in connection with the performance of services by A.G. Edwards under this Agreement. A.G. Edwards agrees that in performing its services under this Agreement, it shall comply in all material respects with all applicable laws, rules and regulations.
3. Neuberger Berman shall pay to A.G. Edwards a fee payable quarterly in
arrears, commencing December 31, 2003, prorated in respect to the period
from the closing date of the firm shares offered pursuant to the
Underwriting Agreement to December 31 , 2003, at an annualized rate of
0.07% of the Fund's average daily Managed Assets (as such term is defined
in the Prospectus relating to the Offering) for a term as described in
Section 7 hereof; provided that the total amount of the fee hereunder
shall not exceed 2.07% of the aggregate offering price of the shares of
Common Stock in the Offering (the "Maximum Fee Amount"). Neuberger Berman
shall be permitted to discharge all or a portion of its payment
obligations hereunder upon prepayment in full or in part of the remaining
balance of that portion of the Maximum Fee Amount due to A.G. Edwards
under this Agreement as described in Section 3 above.
4. Neuberger Berman acknowledges that the services of A.G. Edwards provided for hereunder do not include any advice as to the value of securities or regarding the advisability of purchasing or selling any securities, in each case for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of A.G. Edwards, and A.G. Edwards is not agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii) render any opinions, valuations of portfolio securities or recommendations of any kind in connection with providing the services described in Section 1 hereof, to the extent that any such services would constitute investment advisory or investment banking services, it being understood between the parties hereto that any such investment advisory or investment banking services if, and to the extent, agreed to be performed by A.G. Edwards, shall be the subject of a separate agreement with Neuberger Berman.
5. Nothing herein shall be construed as prohibiting A.G. Edwards or any of its respective affiliates from providing similar or other services to any other clients (including other registered investment companies or other investment managers), so long as A.G. Edwards's services to Neuberger Berman are not impaired thereby. Neither this Agreement nor the performance of the services contemplated hereunder shall be considered to constitute a partnership, association or joint venture between A.G. Edwards and Neuberger Berman. In addition, nothing in this Agreement shall be construed to constitute A.G. Edwards as the agent or employee of Neuberger Berman or Neuberger Berman as the agent or employee of A.G. Edwards, and neither party shall make any representation to the contrary. It is understood that A.G. Edwards is being engaged hereunder solely to provide the services described above to Neuberger Berman and that A.G. Edwards is not acting as an agent or fiduciary of Neuberger Berman. It is further understood that A.G. Edwards shall not have any duties or liabilities to the current or
future shareholders of the Fund or any other third party in connection with its engagement hereunder, all of which are hereby expressly waived to the extent Neuberger Berman has the authority to waive such duties and liabilities.
6. Neuberger Berman will furnish A.G. Edwards with such information as
A.G. Edwards reasonably believes appropriate to the performance of its
obligations hereunder (all such information so furnished being the
"Information"). Neuberger Berman recognizes and confirms that A.G.
Edwards (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in
performing the services contemplated by this Agreement without having
independently verified the same and (b) does not assume responsibility
for the accuracy or completeness of the Information and such other
information. To the best of Neuberger Berman's knowledge, the
Information to be furnished by Neuberger Berman when delivered, will be
true and correct in all material respects and will not contain any
material misstatement of fact or omit to state any material fact.
Neuberger Berman will promptly notify A.G. Edwards if it learns of any
material inaccuracy or misstatement in, or material omission from, any
Information delivered to such party.
7. This Agreement shall terminate on the earliest to occur of (a) notice by
A.G. Edwards to Neuberger Berman that further payments hereunder would
exceed the Maximum Fee Amount, (b) the dissolution and winding up of the
Fund, (c) the date on which the Management Agreement or other investment
management agreement between the Fund and Neuberger Berman or any
successor in interest to Neuberger Berman, including but not limited to
an affiliate of Neuberger Berman, shall terminate and (d) the prepayment
by Neuberger Berman of an agreed upon amount in accordance Section 3
hereof.
8. Neuberger Berman agrees that A.G. Edwards shall not have any liability to
Neuberger Berman or the Fund for any act or omission to act by A.G.
Edwards in the course of its performance under this Agreement, in the
absence of gross negligence or willful misconduct on the part of A.G.
Edwards. Neuberger Berman agrees that it shall provide indemnification to
A.G. Edwards as set forth in the Indemnification Agreement appended
hereto.
9. This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement ("Claim") shall be governed by and construed in accordance with the laws of the State of New York.
10. No Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and Neuberger Berman and A.G. Edwards consent to the jurisdiction of such courts and personal service with respect thereto. Each of Neuberger Berman and A.G. Edwards waives all right to trial by jury in any proceeding (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. Each of Neuberger Berman and A.G. Edwards agrees that a final judgment in any proceeding or counterclaim brought in any such court shall be conclusive and binding upon such party and may be
enforced in any other courts to the jurisdiction of which such party is or may be subject, by suit upon such judgment.
11. This Agreement may not be assigned by either party without the prior written consent of the other party.
12. This Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect. This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by Neuberger Berman and A.G. Edwards.
13. All notices required or permitted to be sent under this Agreement shall be sent, if to Neuberger Berman:
Neuberger Berman Management Inc.
605 Third Avenue
New York, NY 10058
Attention: Peter Sundman (cc: General Counsel)
or if to A.G. Edwards:
A.G. Edwards & Sons, Inc.
One North Jefferson
St. Louis, MO 63103
Attention: Investment Banking--Corporate Finance
Any notice shall be deemed to be given or received on the third day after deposit in the U.S. mail with certified postage prepaid or when actually received, whether by hand, express delivery service or facsimile transmission, whichever is earlier.
14. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Corporate Finance Services and Consulting Agreement as of the date first above written.
NEUBERGER BERMAN MANAGEMENT INC. A.G. EDWARDS & SONS, INC.
By: /s/ Robert Conti By: /s/ Brian N. Hansen
----------------------------- -------------------------------
Name: Robert Conti Name: Brian N. Hansen
Title: Senior Vice President Title: Vice President
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A.G. Edwards & Sons, Inc.
One North Jefferson
St. Louis, MO 63103
Ladies and Gentlemen:
In connection with the engagement of A.G. Edwards & Sons, Inc. ("A.G.
Edwards") to provide services to the undersigned (together with its affiliates
and subsidiaries, referred to as the "Company") in connection with the matters
set forth in the Corporate Finance Services and Consulting Agreement dated
October 31, 2003 (the "Agreement"), between the Company and A.G. Edwards, in the
event that A.G. Edwards becomes involved in any capacity in any claim, suit,
action, proceeding, investigation or inquiry (including, without limitation, any
shareholder or derivative action or arbitration proceeding) (collectively, a
"Proceeding") in connection with any matter in any way relating to or referred
to in the Agreement or arising out of the matters contemplated by the Agreement,
including, without limitation, related services and activities prior to the date
of the Agreement, the Company agrees to indemnify, defend and hold A.G. Edwards
harmless to the fullest extent permitted by law, from and against any losses,
claims, damages, liabilities and expenses in connection with any matter in any
way relating to or referred to in the Agreement or arising out of the matters
contemplated by the Agreement, including, without limitation, related services
and activities prior to the date of the Agreement, except to the extent that it
shall be determined by a court of competent jurisdiction in a judgment that has
become final in that it is no longer subject to appeal or other review, that
such losses, claims, damages, liabilities and expenses resulted from the gross
negligence or willful misconduct of A.G. Edwards. In addition, in the event that
A.G. Edwards becomes involved in any capacity in any Proceeding in connection
with any matter in any way relating to or referred to in the Agreement or
arising out of the matters contemplated by the Agreement, including, without
limitation, related services and activities prior to the date of the Agreement,
the Company will reimburse A.G. Edwards for its legal and other expenses
(including the cost of any investigation and preparation) as such expenses are
reasonably incurred by A.G. Edwards in connection therewith. If such
indemnification were not to be available for any reason, the Company agrees to
contribute to the losses, claims, damages, liabilities and expenses involved (i)
in the proportion appropriate to reflect the relative benefits received or
sought to be received by the Company and its stockholders and affiliates and
other constituencies, on the one hand, and A.G. Edwards, on the other hand, in
the matters contemplated by the Agreement or (ii) if (but only if and to the
extent that) the allocation provided for in clause (i) is for any reason held
unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of the
Company and its stockholders and affiliates and other constituencies, on the one
hand, and the party entitled to contribution, on the other hand, as well as any
other relevant equitable considerations. The Company agrees that for the
purposes of this paragraph the relative benefits received, or sought to be
received, by the Company and its stockholders and affiliates, on the one hand,
and the party entitled to contribution, on the other hand, of a transaction as
contemplated shall be deemed to be in the same proportion that the total value
received or paid or contemplated to be received or paid by the Company or its
stockholders or affiliates and other constituencies, as the case may be, as a
result of or in connection with the transaction (whether or not consummated) for
which A.G. Edwards has been retained to perform services bears to the fees paid
to A.G. Edwards under the Agreement; provided, that in no event shall the
Company contribute less than the amount necessary to assure that A.G. Edwards is
not liable for losses, claims, damages, liabilities and expenses in excess of
the amount of fees actually received by A.G. Edwards pursuant to the Agreement.
Relative fault shall be determined by reference to, among other things, whether
any alleged untrue statement or omission or any other alleged conduct relates to
information provided by the Company or other conduct by the Company (or its
employees or other agents), on the one hand, or by A.G. Edwards, on the other
hand. The Company shall not be liable under this Indemnification Agreement to
A.G. Edwards regarding any settlement or compromise or consent to the entry of
any judgment with respect to any Proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not the Company is an actual
or potential party to such Proceeding) unless such settlement, compromise or
judgment is consented to by the Company. The Company shall not, without the
prior written consent of A.G. Edwards, settle or compromise or consent to the
entry of any judgment with respect to any Proceeding in respect of which
indemnification or contribution could be sought under this Indemnification
Agreement (whether or not A.G. Edwards is an actual or potential party thereto),
unless such settlement, compromise or consent (i) includes an unconditional
release of A.G. Edwards from all liability arising out of such Proceeding and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of A.G. Edwards. For purposes of this
Indemnification Agreement, A.G. Edwards shall include any of its affiliates,
their respective officers, current and former directors, employees and agents,
and the successors and assigns of all of the foregoing persons. The foregoing
indemnity and contribution agreement shall be in addition to any rights that any
indemnified party may have at common law or otherwise.
The Company agrees that neither A.G. Edwards nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either A.G. Edwards's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted from the gross negligence or willful misconduct of A.G. Edwards in performing the services that are the subject of the Agreement.
Notwithstanding any provision contained herein, in no event shall A.G. Edwards be entitled to indemnification by the Company hereunder from and against any losses, claims, damages, liabilities or expenses in respect of which indemnity may be sought under Section 9 of the Underwriting Agreement.
For clarification, the parties to this Indemnification Agreement agree that the term "affiliate" as used in the definition of "Company" herein does not include any registered investment company for which Neuberger Berman Management Inc. serves as investment manager.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF
ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW,
NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE
COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH
COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS,
AND THE COMPANY AND A.G. EDWARDS CONSENT TO THE JURISDICTION OF SUCH COURTS AND
PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL
JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF
OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST
A.G. EDWARDS OR ANY INDEMNIFIED PARTY. A.G. EDWARDS AND THE COMPANY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE
COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF
OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE
CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS
TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH
JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of A.G. Edwards's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
NEUBERGER BERMAN MANAGEMENT INC.
By: /s/ Robert Conti
----------------------------
Name: Robert Conti
Title: Senior Vice President
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Accepted and agreed to as of
the date first above written:
A.G. EDWARDS & SONS, INC.
By: /s/ Brian N. Hansen
-------------------------
Name: Brian N. Hansen
Title: Vice President
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October 31, 2003
Neuberger Berman Management Inc.
605 Third Avenue
New York, NY 10058
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated October 28, 2003 (the "Underwriting Agreement"), by and among Neuberger Berman Real Estate Securities Income Fund Inc., a closed-end management investment company (the "Fund"), Neuberger Berman Management Inc. ("Neuberger Berman") and each of the respective Underwriters named therein, with respect to the issuance and sale of the Fund's shares of common stock, par value $0.0001 per share (the "Common Stock"), as described therein. Reference is also made to (i) the Investment Management Agreement (the "Management Agreement") to be entered into between Neuberger Berman and the Fund and (ii) the registration statement on Form N-2 regarding the Common Stock of the Fund (the "Registration Statement"). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
The Investment Manger agrees to pay to each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Lehman Brothers Inc. ("Lehman
Brothers") (each a "Co-Lead Manager" and together, the "Co-Lead Managers"), in
their capacities as co-lead managers of the offering of the Fund's Common Stock
described in the Registration Statement (the "Offering"), additional
compensation (collectively, the "Additional Compensation") as provided for in
Section 3 hereof; provided, however, that such payments shall not, in the
aggregate, exceed the "Maximum Additional Compensation Amount" (as defined in
Section 3 hereof). The Additional Compensation shall be payable as set forth in
Section 2 hereof.
SECTION 1. PRO RATA PERCENTAGE. Each Co-Lead Manager shall be assigned a "Pro Rata Percentage," as set forth on Schedule A hereto.
SECTION 2. PAYMENT OF ADDITIONAL COMPENSATION.
(a) Subject to Section 3, in consideration of the services rendered by each of Merrill Lynch and Lehman Brothers in its capacity as a Co-Lead Manager, Neuberger Berman shall pay the Additional Compensation, quarterly in arrears, to each Co-Lead Manager in an amount equal to such Co-Lead Manager's Pro Rata Percentage multiplied by 0.02% of the aggregate average daily managed assets of the Fund for such quarter (including assets attributable to any preferred shares or other financial leverage of the Fund that may be outstanding).
(b) All fees payable hereunder shall be paid to each respective Co-Lead Manager by wire transfer of immediately available funds within 15 days following the end of each calendar quarter to a bank account designated by such Co-Lead Manager. At the time of each payment of Additional Compensation hereunder, Neuberger Berman shall deliver to the applicable Co-Lead Manager a statement indicating the amount of the average daily managed assets of the Fund for such quarter (including assets attributable to any preferred shares or other financial leverage of the Fund that may be outstanding) on which such payment was based.
(c) The initial payment of Additional Compensation hereunder shall be paid with respect to the calendar quarter ending December 31, 2003, prorated in respect to the period from the closing date of the firm shares offered pursuant to the Underwriting Agreement to December 31, 2003. In the event that this Additional Compensation Agreement terminates prior to the end of a calendar quarter, the Additional Compensation required to be paid hereunder shall be due and payable within 15 days following the termination hereof and shall be pro-rated in respect of the period prior to such termination. Notwithstanding the foregoing, if any payment hereunder would otherwise fall on a day which is not a business day, it shall be due on the next day which is a business day. All fees payable hereunder shall be in addition to any fees paid by Neuberger Berman pursuant to the Underwriting Agreement.
(d) Neuberger Berman shall be permitted to discharge all or a portion of its payment obligations hereunder upon prepayment in full or in part of the remaining balance due of that portion of the Maximum Additional Compensation Amount (as defined in Section 3) due to the Co-Lead Managers under this Additional Compensation Agreement as described in this Section 2.
SECTION 3. MAXIMUM ADDITIONAL COMPENSATION AMOUNT. The "Maximum Additional Compensation Amount" payable by Neuberger Berman hereunder shall be 2.39% of the aggregate offering price of the shares of Common Stock in the offering.
SECTION 4. TERM. This Additional Compensation Agreement shall terminate on the earliest to occur of (a) notice by the Co-Lead Managers to Neuberger Berman that further payments hereunder would exceed the Maximum Additional Compensation Amount, (b) the dissolution and winding up of the Fund, (c) the date on which the Management Agreement or other investment management agreement between the Fund and Neuberger Berman or any successor in interest to Neuberger Berman, including but not limited to an affiliate of Neuberger Berman, shall terminate and (d) the prepayment by Neuberger Berman of an agreed upon amount in accordance Section 2(d) hereof.
SECTION 5. NOT AN INVESTMENT ADVISER. Neuberger Berman acknowledges that neither Co-Lead Manager is providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund. No provision of this Additional Compensation Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of either Co-Lead Manager, and neither Co-Lead Manager is hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services.
SECTION 6. NOT EXCLUSIVE. Nothing herein shall be construed as prohibiting either Co-Lead Manager or their respective affiliates from acting as underwriter for any other clients (including other registered investment companies or other investment advisers). This Additional Compensation agreement shall not be considered to constitute a partnership, association or joint venture between Neuberger Berman and either Co-Lead Manager. In addition, nothing in this Additional Compensation Agreement shall be construed to constitute either Co-Lead Manager as the agent or employee of Neuberger Berman or Neuberger Berman as the agent or employee of either Co-Lead Manager and neither of the parties hereto shall make any representation to the contrary.
SECTION 7. NO LIABILITY. With respect to each Co-Lead Manager, Neuberger Berman agrees that such Co-Lead Manager shall not have liability to Neuberger Berman or the Fund for any act or omission to act by such Co-Lead Manager in the course of its performance under this Additional Compensation Agreement, in the absence of gross negligence or willful misconduct on the part of such Co-Lead Manager. The Investment Adviser agrees to indemnify and hold harmless each Co-Lead Manager and its respective officers, directors, agents and employees against any loss or expense arising out of or in connection with such Co-Lead Manager's performance under this Additional Compensation Agreement. This provision shall survive the termination, expiration or supersession of this Additional Compensation Agreement.
SECTION 8. ASSIGNMENT. This Additional Compensation Agreement may not be assigned by any party without the prior written consent of each other party.
SECTION 9. AMENDMENT; WAIVER. No provision of this Additional Compensation Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
SECTION 10. GOVERNING LAW. This Additional Compensation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. No claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and Neuberger Berman and each Co-Lead Manager each consents to the jurisdiction of such courts and personal service with respect thereto. Each of Neuberger Berman and each Co-Lead Manager waives all right to trial by jury in any proceeding (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Additional Compensation Agreement. Each of Neuberger Berman and each Co-Lead Manager agrees that a final judgment in any proceeding or counterclaim brought in any such court shall be conclusive and binding upon Neuberger Berman and such Co-Lead Manager and may be enforced in any other courts the jurisdiction of which Neuberger Berman and such Co-Lead Manager is or may be subject, by suit upon such judgment.
SECTION 11. This Additional Compensation Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provision of this Additional Compensation Agreement is determined to be invalid
or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Additional Compensation Agreement, which will remain in full force and effect. This Additional Compensation Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by Neuberger Berman and each Co-Lead Manager.
SECTION 12. All notices required or permitted to be sent under this Agreement shall be sent, if to Neuberger Berman:
Neuberger Berman Management Inc.
605 Third Avenue
New York, NY 10058
Attention: Peter Sundman (cc: General Counsel)
or if to Merrill Lynch:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, NY 10080
Attention: Doug Bond
or if to Lehman Brothers:
Lehman Brothers Inc.
745 Seventh Ave.
New York, NY 10019
Attn: Kurt Locher
Any notice shall be deemed to be given or received on the third day after deposit in the U.S. mail with certified postage prepaid or when actually received, whether by hand, express delivery service or facsimile transmission, whichever is earlier.
SECTION 13. COUNTERPARTS. This Additional Compensation Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Additional Compensation Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among Neuberger Berman, Merrill Lynch and Lehman Brothers Inc. in accordance with its terms.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Douglas R. Bond
-----------------------------------------
Name: Douglas R. Bond
Title: First Vice President
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LEHMAN BROTHERS INC.
By: /s/ Kurt A. Locher
-----------------------------------------
Name: Kurt A. Locher
Title: Managing Director
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CONFIRMED AND ACCEPTED,
as of the date first above written:
NEUBERGER BERMAN MANAGEMENT INC.
By: /s/ Robert Conti
--------------------------------------------
Name: Robert Conti
Title: Senior Vice President
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SCHEDULE A
--------------------------------------------------------------------------------
PRO RATA
CO-LEAD MANAGER PERCENTAGE
--------------------------------------------------------------------------------
Merrill Lynch, Pierce, Fenner
& Smith Incorporated 87.85%
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Lehman Brothers Inc. 12.15%
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NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
AUCTION AGENCY AGREEMENT
dated as of January , 2004
Relating to Auction Preferred Shares (Preferred Shares)
Series A, Series B, Series C and Series D
of
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
THE BANK OF NEW YORK
as Auction Agent
This Auction Agency Agreement (this "Agreement"), dated as of January ,
2004, is between NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC. (the
"Fund") and The Bank of New York, a New York banking corporation.
The Fund proposes to issue four series of auction preferred shares, par value $.0001 per share, designated Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares, liquidation preference $25,000 per share, ("Preferred Shares"), pursuant to the Fund's Articles Supplementary (as defined below).
The Fund desires that The Bank of New York perform certain duties as agent in connection with each Auction (as defined below) of Preferred Shares (in such capacity, the "Auction Agent"), and as the transfer agent, registrar, dividend paying agent and redemption agent with respect to the Preferred Shares (in such capacity, the "Paying Agent"), upon the terms and conditions of this Agreement, and the Fund hereby appoints The Bank of New York as said Auction Agent and Paying Agent in accordance with those terms and conditions (hereinafter generally referred to as the "Auction Agent," except in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Fund and the Auction Agent agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary.
As used herein, the following terms shall have the following meanings, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean such Person's agent member of a participant in the Securities Depository that will act on behalf of a Bidder.
(b) "Articles Supplementary" shall mean the Articles Supplementary for Preferred Shares of the Fund dated January , 2004 specifying the powers, preferences and rights of the Preferred Shares attached hereto as EXHIBIT B.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Procedures" shall mean the Auction Procedures that are set forth in Part II of the Articles Supplementary.
(e) "Authorized Officer" shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department, and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a written communication from the Auction Agent to the Fund.
(f) "Broker-Dealer Agreement" shall mean each agreement between the Auction Agent and a broker-dealer substantially in the form attached hereto as EXHIBIT A.
(g) "Closing" with respect to the Preferred Shares, shall mean the date the Fund consummates the transactions for the initial issuance and sale of the Preferred Shares.
(h) "Fund Officer" shall mean the Chairman, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer of the Fund and every other officer or employee of the Fund designated as a "Fund Officer" for purposes hereof in a written notice from the Fund to the Auction Agent.
(i) "Holder" shall be a holder of record of one or more Preferred Shares, listed as such in the stock register maintained by the Paying Agent pursuant to Section 4.6 hereof.
(j) "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.
Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
(e) Regardless of the capacity in which The Bank of New York is acting under this Agreement, the provisions of this Agreement that are of general applicability (e.g. Sections I, V, VI and VII) shall apply to The Bank of New York, in spite of referring to The Bank of New York as "Auction Agent."
II. THE AUCTION.
(a) The Articles Supplementary provide that the Applicable Rate on Preferred Shares for each Dividend Period therefor after the initial Dividend Period shall be the rate per annum that a commercial bank, trust company or other financial institution appointed by the Fund advises results from the implementation of the Auction Procedures. The Board of Directors of the Fund has adopted a resolution appointing The Bank of New York as Auction Agent for purposes of the Auction Procedures. The Auction Agent hereby accepts such appointment and agrees that, on each Auction Date, it shall follow the procedures set forth in this Section 2 and the Auction Procedures for the purpose of determining the Applicable Rate for the Preferred Shares for the next Dividend Period. Each periodic operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were set forth fully
herein. In the case of any conflict between the terms of any document incorporated herein by reference and the terms hereof, the Auction Agent shall not be liable for its actions or inaction in accordance with the terms of this Agreement.
(a) As of the date hereof, the Fund shall provide the Auction Agent with a list of the Broker-Dealers and shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent shall keep such list current and accurate based upon information provided to it by Broker-Dealers and shall indicate thereon, or on a separate list, the identity of each Existing Holder, if any, whose most recent Order was submitted by a Broker-Dealer on such list and resulted in such Existing Holder continuing to hold or purchase Preferred Shares. Not later than five Business Days prior to any Auction Date for which any change in such list of Broker-Dealers is to be effective, the Fund shall notify the Auction Agent in writing of such change and, if any such change is the addition of a Broker-Dealer to such list, the Fund shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction.
(b) The provisions contained in Section 4 of Part I of the Articles Supplementary concerning Special Rate Periods and the notification of a Special Rate Period will be followed by the Fund and, to the extent applicable, the Auction Agent, and the provisions contained therein are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were set forth fully herein. In the case of any conflict between the terms of any document incorporated herein by reference and the terms hereof, the Auction Agent shall not be liable for its actions or inaction in accordance with the terms of this Agreement.
(c) The current Applicable Percentage is 150%. In the event that the credit rating of the Preferred Shares changes in a way that results in a change in the Applicable Percentage, the Fund shall send prompt notice of such change to the Auction Agent. In the absence of its actual receipt of any such notice, the Auction Agent is authorized to apply, and shall be fully protected in applying, the Applicable Percentage last communicated to it by the Fund in a notice or set forth above in this paragraph.
(d) (i) On each Auction Date, the Auction Agent shall determine the dividend rate and the Maximum Rate. If any "AA" Financial Composite Commercial Paper Rate, Treasury Index Rate, Treasury Note Rate or Reference Rate, as the case may be, is not quoted on an interest equivalent, as the case may be, basis, the Auction Agent shall convert the quoted rate to the interest equivalent thereof as set forth in the definition of such rate in the Articles Supplementary if the rate obtained by the Auction Agent is quoted on a discount basis, or if such rate is quoted on a basis other than an interest equivalent or discount basis the Auction Agent shall convert the quoted rate to an interest equivalent rate after consultation with the Fund as to the method of such conversion.
(ii) If any "AA" Financial Composite Commercial Paper Rate is to be based on rates supplied by Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall not provide a quotation for the determination of such "AA" Financial Composite Commercial Paper Rate, the Auction Agent shall promptly notify the Fund so that the Fund can determine whether to select a substitute Commercial Paper Dealer or substitute Commercial Paper Dealers to provide the quotation or quotations not being supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The Fund shall promptly advise the Auction Agent of any such selection.
(iii) If any Treasury Index Rate or Treasury Note Rate is to be based on rates supplied by U.S. Government Securities Dealers and one or more of the U.S. Government Securities Dealers shall not provide a quotation for the determination of such Treasury Rate, the Auction Agent shall promptly notify the Fund so that the Fund can determine whether to select a substitute U.S. Government Securities Dealer or substitute U.S. Government Securities Dealers to provide the quotation or quotations not being supplied by any U.S. Government Securities Dealer or U.S. Government Securities Dealers. The Fund shall promptly advise the Auction Agent of any such selection.
(e) (i) The Auction Agent shall maintain a current registry of the Existing Holders of the Preferred Shares based upon information provided to it by Broker-Dealers for purposes of each individual Auction. The Fund shall use commercially reasonable efforts to provide or cause to be provided to the Auction Agent within ten Business Days following the date of the Closing a list of the initial Existing Holders of Preferred Shares, and the Broker-Dealer of each such Existing Holder through which such Existing Holder purchased such shares. The Auction Agent may conclusively rely upon, as evidence of the identities of the Existing Holders, such list, the results of each Auction and written notices from any Existing Holder, the Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder with respect to such Existing Holder's transfer of any Preferred Shares to another Person.
(ii) In the event of any partial redemption of Preferred Shares, upon notice in writing by the Fund to the Auction Agent of such partial redemption, the Auction Agent promptly shall request the Securities Depository to notify the Auction Agent in writing of the identities of the Agent Members (and the respective numbers of shares) from the accounts of which shares have been called for redemption and the person or department at such Agent Member to contact regarding such redemption. At least two Business Days prior to the Auction preceding the date of redemption, the Auction Agent shall request each Agent Member so identified to disclose to the Auction Agent (upon selection by such Agent Member of the Existing Holders whose shares are to be redeemed) the number of Preferred Shares of each such Existing Holder, if any, to be redeemed by the Fund, provided that the Auction Agent has been furnished with the name and telephone number of a person or department at such Agent Member from which it is to request such information. In the absence of receiving any such information with respect to an Existing Holder, from such Existing Holder's Agent Member or otherwise, the Auction Agent may continue to treat such Existing Holder as having ownership of the number of Preferred Shares shown in the Auction Agent's registry of Existing Holders.
(iii) The Auction Agent shall register a transfer of the ownership of Preferred Shares from an Existing Holder to another Existing Holder, or to another Person if permitted by the Fund, only if (A) such transfer is made pursuant to an Auction or (B) if such transfer is made other than pursuant to an Auction, the Auction Agent has been notified of such transfer in writing, in a notice substantially in the form of Exhibit B to the Broker-Dealer Agreement, by such Existing Holder or by the Agent Member of such Existing Holder. The Auction Agent is not required to accept any notice of transfer delivered for an Auction unless it is received by the Auction Agent by 3:00 p.m. on the Business Day next preceding the Auction Date. The Auction Agent shall rescind a transfer made on the registry of the Existing Holders of any Preferred Shares if the Auction Agent has been notified in writing, in a notice substantially in the form of Exhibit C to the Broker-Dealer Agreement, by the Agent Member or the Broker-Dealer of any Person that (i) purchased any Preferred Shares and the seller failed to deliver such shares or (ii) sold any Preferred Shares and the purchaser failed to make payment to such Person upon delivery to the purchaser of such shares.
(f) The Auction Agent may, but shall not be obligated to, request that the Broker Dealers, as set forth in Section 3.2(b) of the Broker-Dealer Agreements, provide the Auction Agent with a list of their respective customers that such Broker-Dealers believe are Beneficial Owners of Preferred Shares. The Auction Agent shall keep confidential any such information and shall not disclose any such information so provided to any Person other than the relevant
Broker-Dealer and the Fund; provided, however, that the Auction Agent reserves the right and is authorized to disclose any such information if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it.
The Auction Agent shall normally conduct Auctions every seven days after the first Auction, in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Fund, which consent shall not be withheld unreasonably. The Auction Agent shall give notice of any such change to each Broker-Dealer. Such notice shall be received prior to the first Auction Date on which any such change shall be effective.
Time Event
----
By 9:30 am. Auction Agent shall advise the Fund and the
Broker-Dealers of Maximum Rate as set forth in
Section 2.2(d)(i) hereof.
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9:30 a.m. - 1:00 p.m. Auction Agent shall assemble information communicated to it by Broker-Dealers as provided in Section 3(a) of Part II of the Articles Supplementary. Submission deadline is 1:00 p.m.
Not earlier than 1:00p.m. Auction Agent shall make determinations pursuant to Section 3(a) of Part II of the Articles Supplementary.
By approximately 3:30 p.m. Auction Agent shall advise the Fund of the results
(and not later than the of the Auction as provided in Section 3(b) of
close of business) Part II of the Articles Supplementary.
Submitted Bid Orders and Submitted Sell Orders
will be accepted and rejected in whole or in part
and Preferred Shares will be allocated as provided
in Section 4 of Part II of the Articles
Supplementary. Auction Agent shall give notice of
the Auction results as set forth in Section 2.4
hereof.
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On each Auction Date, the Auction Agent shall notify Broker-Dealers of the results of the Auction (i.e., the resulting rate and those bids accepted and rejected) by telephone or other electronic means acceptable to the parties.
(a) Not later than 12:00 noon on each Auction Date, the Fund shall
pay to the Auction Agent in Federal Funds or similar same-day funds an amount in
cash equal to (i) in the case of any Auction Date immediately preceding a
seven-day Dividend Period, the product of (A) a fraction the numerator of which
is the number of days in such Dividend Period (calculated by counting the first
day of such Dividend Period but excluding the last day thereof) and the
denominator of which is 360, times (B) 1/4 of 1%, times (C) $25,000 times (D)
the sum of the aggregate number of outstanding Preferred Shares for which the
Auction is conducted and (ii) in the case of any Special Rate Period, the amount
determined by mutual consent of the Fund and the Broker-Dealers pursuant to
Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall apply such
moneys as set forth in Section 3.5 of the Broker-Dealer Agreements and shall thereafter remit to the Fund any remaining funds paid to the Auction Agent pursuant to this Section 2.5(a).
(b) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed in writing by the Fund.
(c) The Auction Agent from time to time shall enter into such Broker-Dealer Agreements as the Fund shall request in writing.
Neither the Fund nor any Affiliate of the Fund may submit any Sell Order or Bid, directly or indirectly, in any Auction, except that an Affiliate of the Fund that is a Broker-Dealer may submit a Sell Order or Bid on behalf of a Beneficial Owner or a Potential Beneficial Owner. The Fund shall notify the Auction Agent in writing if the Fund or, to the best of the Fund's knowledge, any Affiliate of the Fund becomes a Beneficial Owner of any Preferred Shares. Any Preferred Shares redeemed, purchased or otherwise acquired (i) by the Fund shall not be reissued, except in accordance with the requirements of the Securities Act of 1933, as amended ("Securities Act") or (ii) by its Affiliates shall not be transferred (other than to the Fund). The Auction Agent shall have no duty or liability with respect to enforcement of this Section 2.6.
The Auction Agent shall afford to the Fund, its agents, independent public accountants and counsel, access at reasonable times during normal business hours to review and make extracts or copies (at the Fund's sole cost and expense) of all books, records, documents and other information concerning the conduct and results of Auctions, provided that any such agent, accountant or counsel shall furnish the Auction Agent with a letter from the Fund requesting that the Auction Agent afford such person access at least one Business Day prior to the date of such access. The Auction Agent shall maintain records relating to any Auction for a period of at least two years after such Auction (unless requested in writing by the Fund to maintain such records for such longer period not in excess of six years, then for such longer period), and such records, in reasonable detail, shall accurately and fairly reflect the actions taken by the Auction Agent hereunder. The Fund agrees to keep confidential any information regarding the customers of any Broker-Dealer received from the Auction Agent in connection with this Agreement or any Auction, and shall not disclose such information or permit the disclosure of such information without the prior written consent of the applicable Broker-Dealer to anyone except such agent, accountant or counsel engaged to audit or review the results of Auctions as permitted by this Section 2.7. The Fund reserves the right to disclose any such information if it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having authority to compel such disclosure, or if it is advised by its counsel that its failure to do so would (i) be unlawful or (ii) expose it to liability, unless the Broker-Dealer shall have offered indemnification satisfactory to the Fund. Any such agent, accountant or counsel, before having access to such information, shall agree to keep such information confidential and not to disclose such information or permit disclosure of such information without the prior written consent of the applicable Broker-Dealer, provided that such agent, accountant or counsel may reserve the right to disclose any such information if it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi judicial agency or authority having authority to compel such disclosure, or if it is advised by its counsel that its failure to do so would (i) be unlawful or (ii) expose it to liability, unless the Broker-Dealer shall have offered indemnification satisfactory to such agent, accountant or counsel. The Auction Agent shall have no responsibility for, and shall have no liability in connection with, the Fund's performance of its duties under this Section 2.7.
III. THE AUCTION AGENT AS PAYING AGENT.
The Board of Directors of the Fund has adopted a resolution appointing The Bank of New York as Auction Agent and Paying Agent. The Paying Agent hereby accepts such appointment and agrees to act in accordance with its standard procedures and the provisions of the Articles Supplementary which are specified herein with respect to the Preferred Shares and as set forth in this Section 3. If there is any conflict between its standard procedures and this Agreement, the terms of this Agreement will govern.
Whenever any Preferred Shares are to be redeemed, the Fund promptly shall deliver to the Paying Agent a Notice of Redemption, which will be mailed by the Paying Agent to each Holder at least five Business Days prior to the date such Notice of Redemption is required to be mailed pursuant to the Articles Supplementary. Subject to the standards of Section 6.1 of this Agreement, the Paying Agent shall have no responsibility to confirm or verify the accuracy of any such Notice.
(a) Not later than 12:00 noon on each Dividend Payment Date, the Fund shall deposit with the Paying Agent an aggregate amount of Federal Funds or similar same-day funds equal to the declared dividends to be paid to Holders on such Dividend Payment Date, and shall give the Paying Agent irrevocable written instructions to apply such funds to the payment of such dividends on such Dividend Payment Date.
(b) If the Fund shall give a Notice of Redemption, then by noon of the date fixed for redemption, the Fund shall deposit in trust with the Paying Agent an aggregate amount of Federal Funds or similar same-day funds sufficient to redeem such Preferred Shares called for redemption and shall give the Paying Agent irrevocable written instructions and authority to pay the redemption price to the Holders of Preferred Shares called for redemption upon surrender of the certificate or certificates therefor.
After receipt of the Federal Funds or similar same-day funds and instructions from the Fund described in Section 3.3 above, the Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i) on each corresponding Dividend Payment Date, dividends on the Preferred Shares, and (ii) on any date fixed for redemption, the redemption price of any shares of Preferred Shares called for redemption. The amount of dividends for any Dividend Period to be paid by the Paying Agent to Holders will be determined by the Fund as set forth in Section 2 of Part I of the Articles Supplementary. The redemption price to be paid by the Paying Agent to the Holders of any shares of Preferred Shares called for redemption will be determined by the Fund as set forth in Section 11 of Part I of the Articles Supplementary. The Paying Agent shall have no duty to determine the redemption price and may rely on the amount thereof set forth in the Notice of Redemption.
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
On the Date of Original Issue for any Preferred Shares, one certificate for the Preferred Shares shall be issued by the Fund and registered in the name of Cede & Co., as nominee of the Securities Depository, and countersigned by the Paying Agent.
Except as provided in this Section 4.2, the Preferred Shares shall be registered solely in the name of the Securities Depository or its nominee. If the Securities Depository shall give notice of its intention to resign as such, and if the Fund shall not have selected a substitute Securities Depository acceptable to the Paying Agent prior to such resignation, then, upon such resignation of the Securities Depository, the Preferred Shares, at the Fund's request, may be registered for transfer or exchange, and new certificates thereupon shall be issued in the name of the designated transferee or transferees, upon surrender of the old certificate in form deemed by the Paying Agent to be properly endorsed for transfer with (a) all necessary endorsers' signatures guaranteed in such manner and form and by such guarantor as the Paying Agent may reasonably require, (b) such assurances as the Paying Agent shall deem necessary or appropriate to evidence the genuineness and effectiveness of each necessary endorsement and (c) satisfactory evidence of compliance with all applicable laws relating to the collection of taxes in connection with any registration of transfer or exchange or funds necessary for the payment of such taxes. During any period when the certificate or certificates for Preferred Shares are not held by a Securities Depository or its nominee in book-entry form, no Auctions shall be held and this Agreement may be terminated at the instance of either party as soon as practicable.
Any request for removal of a legend indicating a restriction on transfer from a certificate evidencing Preferred Shares shall be accompanied by an opinion of counsel stating that such legend may be removed and such shares may be transferred free of the restriction described in such legend, said opinion to be delivered under cover of a letter from a Fund Officer authorizing the Paying Agent to remove the legend on the basis of said opinion.
The Paying Agent shall issue and register replacement certificates for certificates represented to have been lost, stolen or destroyed, upon the fulfillment of such requirements as shall be deemed appropriate by the Fund. The Paying Agent may issue new certificates in exchange for and upon the cancellation of mutilated certificates. Any request by the Fund to the Paying Agent to issue a replacement or new certificate pursuant to this Section 4.4 shall be deemed to be a representation and warranty by the Fund to the Paying Agent that such issuance will comply with provisions of applicable law and the Articles Supplementary and resolutions of the Fund.
The Paying Agent shall retain stock certificates which have been canceled in transfer or in exchange and accompanying documentation in accordance with applicable rules and regulations of the Securities and Exchange Commission (the "Commission") for at least two calendar years from the date of such cancellation. The Paying Agent, upon written request by the Fund, shall afford to the Fund, its agents and counsel access at reasonable times during normal business hours to review and make extracts or copies (at the Fund's sole cost and expense) of such certificates and accompanying documentation. Upon written request by the Fund at any time within the six month period commencing immediately after the expiration of this two-year period, the Paying Agent shall deliver to the Fund the canceled certificates and accompanying documentation. The Fund, at its expense, shall retain such records for a minimum additional period of at least four calendar years from the date of delivery of the records to the Fund and shall make such records available during this period at any time, or from time to time, for reasonable periodic, special, or other examinations by representatives of the Commission. The Fund also shall undertake to furnish to the Commission, upon demand, either at its principal office or at any regional office, complete, correct and current hard copies of any and all such records. Thereafter, such records shall not be destroyed by the Fund
without the approval of the Paying Agent, which approval shall not be withheld unreasonably, but will be safely stored for possible future reference.
The Paying Agent shall maintain the stock register, which shall contain a list of the Holders, the number of shares held by each Holder and the address of each Holder. The Paying Agent shall record in the stock register any change of address of a Holder upon written notice by such Holder. In case of any written request or demand for the inspection of the stock register or any other books of the Fund in the possession of the Paying Agent, the Paying Agent will notify the Fund and secure instructions as to permitting or refusing such inspection. The Paying Agent reserves the right, however, to exhibit the stock register or other records to any person in case (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it.
Any funds deposited with the Paying Agent by the Fund for any reason (other than for the payment of amounts due to the Paying Agent) under this Agreement, including for the payment of dividends or the redemption of Preferred Shares, that remain with the Paying Agent after 12 months shall be repaid to the Fund upon written request by the Fund.
V. REPRESENTATIONS AND WARRANTIES.
The Fund represents and warrants to the Auction Agent that:
(i) the Fund is duly organized and is validly existing as a corporation under the laws of the State of Maryland, and has full power to execute and deliver this Agreement and to authorize, create and issue the Preferred Shares;
(ii) the Fund is registered with the Commission under the 1940 Act as a closed-end, non-diversified, management investment company;
(iii) this Agreement has been duly and validly authorized, executed and delivered by the Fund and constitutes the legal, valid and binding obligation of the Fund, enforceable against the Fund in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles;
(iv) the form of the certificates evidencing the Preferred Shares comply with all applicable laws of the State of Maryland;
(v) the Preferred Shares have been duly and validly authorized by the Fund and, upon completion of the initial sale of the Preferred Shares and receipt of payment therefor, will be validly issued by the Fund, fully paid and nonassessable;
(vi) at the time of the offering of the Preferred Shares, the shares offered will be registered under the Securities Act and no further action by or before any governmental body or authority of the United States or of any state thereof is required in connection with the execution and delivery of this
Agreement or will be required in connection with the issuance of shares of the Preferred Shares, except such action as required by applicable state securities laws;
(vii) the execution and delivery of this Agreement and the issuance and delivery of the Preferred Shares do not and will not conflict with, violate, or result in a breach of the terms, conditions or provisions of, or constitute a default under, the Articles of Incorporation, any order or decree of any court or public authority having jurisdiction over the Fund, or any mortgage, indenture, contract, agreement or undertaking to which the Fund is a party or by which it is bound; and
(viii) no taxes are payable upon or in respect of the execution of this Agreement or will be payable upon or in respect of the issuance of the Preferred Shares.
The Auction Agent represents and warrants to the Fund that:
(i) the Auction Agent is duly organized and is validly existing as a banking corporation in good standing under the laws of the State of New York and has the corporate power to enter into and perform its obligations under this Agreement; and
(ii) this Agreement has been duly and validly authorized, executed and delivered by the Auction Agent and constitutes the legal, valid and binding obligation of the Auction Agent, enforceable against the Auction Agent in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles.
VI. THE AUCTION AGENT.
(a) The Auction Agent is acting solely as agent for the Fund hereunder, owes no fiduciary duties to any Person by reason of this Agreement, and owes no duties, fiduciary or otherwise, to any other Person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as are set forth specifically in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of willful misconduct or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted by it or for any error of judgment made by it in the performance of its duties under this Agreement.
(d) In no event shall the Auction Agent be liable for special, punitive, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
(a) The Auction Agent may conclusively rely upon, and shall be fully protected in acting or refraining from acting upon, any communication authorized hereby and any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or
document reasonably believed by it to be genuine. The Auction Agent shall not be liable for acting or refraining from acting upon any telephone communication authorized hereby which the Auction Agent reasonably believes in good faith to have been given by the Fund or by a Broker-Dealer. The Auction Agent may record telephone communications with the Fund or with the Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reasonable reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. The Auction Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Fund.
(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys (other than its officers and employees) and shall not be responsible for the negligence or misconduct of any such agent or attorney selected and appointed by it with due care.
(e) The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining the pertinent facts necessary to make such judgment.
(f) The Auction Agent shall not be required to and shall make no representations and have no responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own and those of its Authorized Officers, employees, agents, and attorneys. The Auction Agent makes no representations as to and shall have no liability with respect to the correctness of the recitals in, or the validity, accuracy or adequacy of this Agreement, any Broker-Dealer Agreement, any offering material used in connection with the offer and sale of the Preferred Shares or any other agreement or instrument executed in connection with the transactions contemplated herein or in any thereof. The Auction Agent shall have no obligation or liability in respect of the registration or exemption therefrom of the Preferred Shares under federal or state securities laws in respect of the sufficiency or the conformity of any transfer of the Preferred Shares pursuant to the terms of the Auction Agency Agreement, any Broker Dealer Agreement, or any other document contemplated thereby or related thereto.
(g) Whenever in the administration of the provisions of this Agreement the Auction Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, such matter may, in the absence of gross negligence or willful misconduct on the part of the Auction Agent, be deemed to be conclusively proved and established by a certificate signed by the Fund or the Broker-Dealer, and delivered to the Auction Agent and such certificate, in the absence of gross negligence or willful misconduct on the part of the Auction Agent, shall be full warrant to the Auction Agent for any action taken or omitted by it under the provisions of this Agreement upon the faith thereof. Upon receipt of any such certificate signed by the Fund or a Broker-Dealer, the Auction Agent shall promptly provide a copy of said certificate to the Broker-Dealer or the Fund, respectively.
(h) The Auction Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document furnished by Fund or the Broker-Dealer, except to the extent that such failure to investigate would be deemed grossly negligent.
(i) Any corporation into which the Auction Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Auction Agent shall be a party, or any corporation succeeding to the Dealing and Trading business of the Auction Agent shall be the successor of the Auction Agent hereunder, with the consent of the Fund but without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto, except where any instrument of transfer or assignment may be required by law to effect such succession, anything herein to the contrary notwithstanding.
(a) The Fund shall pay to the Auction Agent from time to time such reasonable compensation for all services rendered by it under this Agreement and under the Broker-Dealer Agreements as shall be set forth in a separate writing signed by the Fund and the Auction Agent, subject to adjustments if the Preferred Shares no longer are held of record by the Securities Depository or its nominee or if there shall be such other change as shall increase or decrease materially the Auction Agent's obligations hereunder or under the Broker-Dealer Agreements.
(b) The Fund shall reimburse the Auction Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Auction Agent in accordance with any provision of this Agreement and of the Broker-Dealer Agreements (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any expense, disbursement or advance attributable to its gross negligence or willful misconduct, or that of its officers, directors or employees.
(c) The Fund shall indemnify the Auction Agent and its officers, directors, employees and agents for, and hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on the part of the Auction Agent arising out of or in connection with its agency under this Agreement and under the Broker-Dealer Agreements, including the costs and expenses of defending itself against any claim of liability in connection with its exercise or performance of any of its duties hereunder and thereunder, except such as may result from its gross negligence or willful misconduct, or that its officers, directors or employees.
The Auction Agent shall not be responsible for or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions of utilities; computer (hardware or software) or communications services (provided that Auction Agent has not been grossly negligent with respect to selection, operation or maintenance of such utilities, computer (hardware or software) or communications service); accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
VII. MISCELLANEOUS.
(a) The term of this Agreement is unlimited unless it shall be terminated as provided in this Section 7.1. The Fund may terminate this Agreement at any time by so notifying the Auction Agent in writing, provided
that, if any Preferred Shares remain outstanding, the Fund shall have entered into an agreement with a successor auction agent. The Auction Agent may terminate this Agreement upon prior notice to the Fund on the date specified in such notice, which date shall be no earlier than 60 days after delivery of such notice. The Auction Agent may resign after 30 days following the delivery of notice to the Fund that the Auction Agent has not been paid amounts due to it. If the Auction Agent terminates this Agreement while any Preferred Shares remains outstanding, the Fund shall use its best efforts to enter into an agreement with a successor auction agent containing substantially the same terms and conditions as this Agreement.
(b) Except as otherwise provided in this Section 7.1(b), the respective rights and duties of the Fund and the Auction Agent under this Agreement shall cease upon termination of this Agreement. The Fund's representations, warranties, covenants and obligations to the Auction Agent under Sections 5.1 and 6.3 hereof, and the Auction Agent's representations and warranties under Section 5.2 hereof shall survive the termination hereof. Upon termination of this Agreement, the Auction Agent shall (i) resign as Auction Agent under the Broker-Dealer Agreements, (ii) at the Fund's written request, deliver promptly to the Fund copies of all books and records maintained by it in connection with its duties hereunder, and (iii) at the written request of the Fund, transfer promptly to the Fund's custodian or to any successor auction agent any funds deposited by the Fund with the Auction Agent (whether in its capacity as Auction Agent or as Paying Agent) pursuant to this Agreement which have not been distributed previously by the Auction Agent in accordance with this Agreement.
Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party at its address or telecopier number set forth below:
If to the Fund, Neuberger Berman Management Inc.
addressed to: Attn: Peter E. Sundman
605 Third Avenue
New York, New York 10158-0180
cc: Art Delibert
Kirkpatrick & Lockhart
1800 Massachusetts Avenue NW
Washington, DC 20036
If to the Auction Agent, The Bank of New York
addressed to: Corporate Trust Administration
100 Church Street, 8th Floor
New York, New York 10286
Attention: Corporate Trust Dealing and
Trading Group - Auction Desk
Telephone No.: (212) 437-6166
Facsimile No.: (212) 437-6123
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or such other address or telecopier number as such party hereafter may specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of the Fund by a Fund Officer and on behalf of the Auction Agent by an Authorized Officer.
This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof, except for written agreements relating to the compensation of the Auction Agent.
Nothing herein, express or implied, shall give to any Person, other than the Fund, the Auction Agent and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim hereunder.
(a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged. The Fund shall notify the Auction Agent in writing of any change in the Articles Supplementary prior to the effective date of any such change. If any such change in the Articles Supplementary materially increases the Auction Agent's obligations hereunder, the Fund shall obtain the written consent of the Auction Agent prior to the effective date of such change.
(b) Failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of the Fund and the Auction Agent. This Agreement may not be assigned by either party hereto absent the prior written consent of the other party, which consent shall not be withheld unreasonably.
If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.
This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed wholly in said state.
The parties agree that all actions and proceedings arising out of this Auction Agency Agreement or any of the transactions contemplated hereby shall be brought in the County of New York, and, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such County. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby.
[Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written.
NEUBERGER BERMAN REAL ESTATE SECURITIES
INCOME FUND INC.
By:_______________________________________
Name:
Title:
THE BANK OF NEW YORK, As Auction Agent
By:_______________________________________
Name:
Title:
EXHIBIT A
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
THE BANK OF NEW YORK,
as Auction Agent
BROKER-DEALER AGREEMENT
dated as of January , 2004
Relating to
Auction Preferred Shares (Preferred Shares)
Series A, Series B, Series C and Series D
of
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
[BROKER-DEALER]
EXHIBIT B
(Note: To be used only for transfers made other than pursuant to an Auction)
TRANSFER FORM
Re: NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
Auction Preferred Shares ("Preferred Shares")
We are (check one):
[ ] the Existing Holder named below;
[ ] the Broker-Dealer for such Existing Holder; or
[ ] the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred ___________ Series __ Preferred Shares to _____________________________.
By:___________________
Printed Name:
Title:
EXHIBIT C
(Note: To be used only for failures to deliver or to pay for Preferred Shares sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
We are a Broker-Dealer for ___________________ (the "Purchaser"), which purchased ________ Series __ Preferred Shares of NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC. in the Auction held on _____________________ from the seller of such shares.
We hereby notify you that (check one):
_____ the Seller failed to deliver such shares to the Purchaser.
_____ the Purchaser failed to make payment to the Seller upon delivery of such shares.
Name:__________________________
(Name of Broker-Dealer)
By: __________________________
Printed Name:
Title:
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
BROKER-DEALER AGREEMENT
dated as of January __, 2004
Relating to
Auction Preferred Shares ("Preferred Shares")
Series A, Series B, Series C and Series D
of
NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
[BROKER-DEALER]
BROKER-DEALER AGREEMENT
This Broker-Dealer Agreement dated as of January __, 2004, is between The Bank of New York, a New York banking corporation (the "Auction Agent") (not in its individual capacity, but solely as agent of NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC. (the "Fund"), pursuant to authority granted to it in the Auction Agency Agreement dated as of January __, 2004, between the Fund and the Auction Agent (the "Auction Agency Agreement") and [Broker-Dealer] (together with its successors and assigns, "BD").
The Fund proposes to issue four series of auction preferred shares, par value $.0001 per share, designated Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares, liquidation preference $25,000 per share ("Preferred Shares"), pursuant to the Fund's Articles Supplementary (as defined below).
The Fund's Articles Supplementary provide that for each subsequent Dividend Period of Preferred Shares then outstanding, the Applicable Rate for Preferred Shares for each subsequent Dividend Period shall be equal to the rate per annum that results from an Auction for Outstanding Preferred Shares on the respective Auction Date therefor next preceding the period from and after the Date of Original Issue to and including the last day of the initial Dividend Period. The Board of Directors of the Fund has adopted a resolution appointing The Bank of New York as Auction Agent for purposes of the Auction Procedures, and pursuant to Section 2.5 of the Auction Agency Agreement, the Fund has requested and directed the Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more Broker-Dealers.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary.
As used herein, the following terms shall have the following meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles Supplementary for Preferred Shares of the Fund dated as of January , 2004, specifying the powers, preferences and rights of the Preferred Shares.
(b) "Auction" shall have the meaning specified in Section 2.1 of the Auction Agency Agreement.
(c) "Auction Procedures" shall mean the Auction Procedures that are set forth in Part II of the Articles Supplementary.
(d) "Authorized Officer" of the Auction Agent shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Dealing and Trading Group of the Corporate Trust Department of the Auction Agent and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes of this Agreement in a written communication to BD.
(e) "BD Officer" shall mean each officer or employee of BD designated as a "BD Officer" for purposes of this Agreement in a written communication to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement and any substantially similar agreement between the Auction Agent and a Broker-Dealer.
Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
II. NOTIFICATION OF DIVIDEND.
The provisions contained in Section 4 of Part I of the Articles Supplementary concerning the notification of a Special Rate Period will be followed by the Auction Agent and BD, and the provisions contained therein are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were set forth fully herein. In the case of any conflict between the terms of any document incorporated herein by reference and the terms hereof, the Auction Agent shall not be liable for its actions or inaction in accordance with the terms of this Agreement, provided it shall have complied with the standards of conduct in the Auction Agency Agreement.
III. THE AUCTION.
(a) On each Auction Date, the provisions of the Auction Procedures will be followed by the Auction Agent for the purpose of determining the Applicable Rate for the Preferred Shares, for each Dividend Period. Each periodic operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were set forth fully herein. In the case of any conflict between the terms of any document incorporated herein by reference and the terms hereof, the Auction Agent shall not be liable for its actions or inaction in accordance with the terms of this Agreement, provided it shall have complied with the standards of conduct in the Auction Agency Agreement.
(c) BD agrees to act as, and assumes the obligations of and limitations and restrictions placed upon, a Broker-Dealer under this Agreement. BD understands that other Persons meeting the requirements specified in the definition of "Broker-Dealer" contained in "Definitions" in the Articles Supplementary may execute a Broker-Dealer Agreement and participate as Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for their own accounts. However, the Fund, by notice to BD and all other Broker Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for their own accounts, PROVIDED that Broker-Dealers may continue to submit Hold Orders and Sell Orders. At the request of the Fund, the Auction Agent will seek written certification from the Broker-Dealer that none of its orders are for its own account, other than Hold Orders or Sell Orders and will provide to the Fund such written certifications as it receives. The Auction Agent shall have no other responsibility for and shall have no liability with respect to the enforcement of this Section 3.1(d).
(a) Not later than 9:30 A.M. on each Auction Date for the Preferred Shares, the Auction Agent shall advise BD by telephone or other electronic means of communication acceptable to the parties of the Maximum Rate in effect on such Auction Date.
(b) The Auction Agent from time to time may, but shall not be obligated to, request BD to provide it with a list of the respective customers BD believes are Beneficial Owners of Preferred Shares. BD shall comply with any such request, and the Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any Person other than the Fund; and such information shall not be used by the Auction Agent or its officers, employees, agents or representatives for any purpose other than such purposes as are described herein or in the Auction Agency Agreement; provided, however, that the Auction Agent reserves the right and is authorized to disclose any such information if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it. In the event that the Auction Agent is required to disclose information in accordance with the foregoing sentence, it shall provide written notice of such requirement to BD as promptly as practicable. The Auction Agent shall, subject to the terms of the Auction Agency Agreement, transmit any list of customers BD believes are Beneficial Owners of Preferred Shares and information related thereto only to its officers, employees, agents or representatives who need to know such information for the purposes of acting in accordance with this Agreement, and the Auction Agent shall use commercially reasonable efforts to prevent the transmission of such information to others and shall cause its officers, employees, agents and representatives to abide by the foregoing confidentiality restrictions; PROVIDED, HOWEVER, that the Auction Agent shall have no responsibility or liability for the actions of any of its officers, employees, agents or representatives after they have left the employ of the Auction Agent.
(a) The Fund and the Auction Agent shall conduct Auctions for Preferred Shares in accordance with the schedule set forth below. Such schedule may be changed at any time by the Auction Agent with the consent of the Fund, which consent shall not be withheld unreasonably. The Auction Agent shall give notice of any such change to BD. Such notice shall be received prior to the first Auction Date on which any such change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent shall advise the Fund and the
Broker-Dealers of the Maximum Rate as set
forth in Section 3.2(a) hereof.
3
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Time Event
---- -----
9:30 A.M. - 1:00 P.M. Auction Agent shall assemble information
communicated to it by Broker-Dealers as
provided in Section 3(a) of Part II of the
Articles Supplementary. Submission Deadline
is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent shall make determinations
pursuant to Section 3(a) of Part II of the
Articles Supplementary.
By approximately 3:30 P.M. Auction Agent shall advise the Fund of the
(and not later than the close results of the Auction as provided in Section
of business) 3(b) of Part II of the Articles Supplementary.
Submitted Bid Orders and Submitted Sell Orders
will be accepted and rejected in whole or in
part and Preferred Shares will be allocated as
provided in Section 4 of Part II of the
Articles Supplementary.
Auction Agent shall give notice of the Auction
results as set forth in Section 3.4(a) hereof.
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(b) BD agrees to maintain a list of Potential Beneficial Owners and to contact the Potential Beneficial Owners on such list on or prior to each Auction Date for the purposes set forth in Section 2 of Part II of the Articles Supplementary.
(c) BD shall submit Orders to the Auction Agent in writing in substantially the form attached hereto as Exhibit A. BD shall submit separate Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial Owner on whose behalf BD is submitting an Order and shall not net or aggregate the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice, substantially in the form attached hereto as Exhibit B, of transfers of Preferred Shares, made through BD by an Existing Holder to another Person other than pursuant to an Auction, and (ii) a written notice, substantially in the form attached hereto as Exhibit C, of the failure of Preferred Shares to be transferred to or by any Person that purchased or sold Preferred Shares through BD pursuant to an Auction. The Auction Agent is not required to accept any notice delivered pursuant to the terms of the foregoing sentence with respect to an Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next preceding the applicable Auction Date.
(a) On each Auction Date, the Auction Agent shall notify BD by telephone or other electronic means acceptable to the parties of the Auction results. On the Business Day next succeeding such Auction Date, the Auction Agent shall notify BD in writing of the disposition of all Orders submitted by BD in the Auction held on such Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an Order, of the Auction results and take such other action as is required of BD.
If any Beneficial Owner or Existing Holder selling Preferred Shares in an Auction fails to deliver such shares, the Broker-Dealer of any Person that was to have purchased Preferred Shares in such Auction may deliver to such
Person a number of whole shares of Preferred Shares that is less than the number of shares that otherwise was to be purchased by such Person. In such event, the number of Preferred Shares to be so delivered shall be determined by such Broker-Dealer. Delivery of such lesser number of shares shall constitute good delivery. Upon the occurrence of any such failure to deliver shares, such Broker-Dealer shall deliver to the Auction Agent the notice required by Section 3.3(d)(ii) hereof. Notwithstanding the foregoing terms of this Section 3.4(b), any delivery or non-delivery of Preferred Shares which represents any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the terms of Section 3.3(d) hereof. The Auction Agent shall have no duty or liability with respect to enforcement of this Section 3.4(b). Any delivery or non-delivery of Preferred Shares which represents any departure from the results of an Auction shall not affect the results of the Auction.
On the Business Day next succeeding each Auction Date, the Auction
Agent shall pay to BD from moneys received from the Fund an amount equal to: (a)
in the case of any Auction Date immediately preceding a Dividend Period of less
than one year, the product of (i) a fraction the numerator of which is the
number of days in such Dividend Period (calculated by counting the first day of
such Dividend Period but excluding the last day thereof) and the denominator of
which is 360, times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of
(A) the aggregate number of Preferred Shares placed by BD in the applicable
Auction that were (x) the subject of a Submitted Bid of a Beneficial Owner
submitted by BD and continued to be held as a result of such submission and (y)
the subject of a Submitted Bid of a Potential Beneficial Owner submitted by BD
and were purchased as a result of such submission plus (B) the aggregate number
of Preferred Shares subject to valid Hold Orders (determined in accordance with
Section 2 of Part II of the Articles Supplementary) submitted to the Auction
Agent by BD plus (C) the number of Preferred Shares deemed to be subject to Hold
Orders by Beneficial Owners pursuant to Section 2 of Part II of the Articles
Supplementary that were acquired by BD for its own account or were acquired by
such Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Rate Period of one year or longer, that amount
as mutually agreed upon by the Fund and BD, based on the selling concession that
would be applicable to an underwriting of fixed or variable rate preferred
shares with a similar final maturity or variable rate dividend period, at the
commencement of such Special Rate Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any Beneficial Owner who acquired Preferred Shares through BD transfers those shares to another Person other than pursuant to an Auction, then the Broker-Dealer for the shares so transferred shall continue to be BD, PROVIDED, HOWEVER, that if the transfer was effected by, or if the transferee is, a Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.
IV. THE AUCTION AGENT.
(a) The Auction Agent is acting solely as agent for the Fund hereunder, owes no fiduciary duties to any Person by reason of this Agreement, and owes no duties, fiduciary or otherwise, to any other Person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as are set forth specifically in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of willful misconduct or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted by it or for any error of judgment made by it in the performance of its duties under this Agreement.
(d) In no event shall the Auction Agent be liable for special, punitive, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
(a) The Auction Agent may conclusively rely upon, and shall be fully protected in acting or refraining from acting upon, any communication authorized hereby and any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document reasonably believed by it to be genuine. The Auction Agent shall not be liable for acting or refraining from acting upon any telephone communication authorized hereby that the Auction Agent reasonably believes in good faith to have been given by the Fund or by a Broker-Dealer. The Auction Agent may record telephone communications with the Fund or with the Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reasonable reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. The Auction Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Fund.
(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys (other than its officers and employees) and shall not be responsible for the negligence or misconduct of any such agent or attorney selected and appointed by it with due care.
(e) The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining the pertinent facts necessary to make such judgment.
(f) The Auction Agent shall not be required to and shall make no representations and have no responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own and those of its Authorized Officers, employees, agents, and attorneys. The Auction Agent makes no representations as to and shall have no liability with respect to the correctness of the recitals in, or the validity, accuracy or adequacy of this Agreement, the Auction Agent Agreement, any offering material used in connection with the offer and sale of the Preferred Shares or any other agreement or instrument executed in connection with the transactions contemplated herein or in any thereof. The Auction Agent shall have no obligation or liability in respect of the registration or exemption therefrom of the Preferred Shares under federal or state securities laws in respect of the sufficiency or the conformity of any transfer of the Preferred Shares pursuant to the terms of the Auction Agency Agreement, this Agreement, or any other document contemplated thereby or related thereto.
(g) Whenever in the administration of the provisions of this Agreement the Auction Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, such matter may, in the absence of gross negligence or willful misconduct on the part of the Auction Agent, be deemed to be conclusively proved and established by a certificate signed by the Fund or the Broker-Dealer, and delivered to the Auction Agent and such certificate, in the absence of gross negligence or willful misconduct on the part of the Auction Agent, shall be full warrant to the Auction Agent for any action taken or omitted by it under the provisions of this Agreement upon the faith thereof. Upon receipt of any such certificate signed by the Fund or a Broker-Dealer, the Auction Agent shall promptly provide a copy of said certificate to the Broker-Dealer or the Fund, respectively.
(h) The Auction Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document furnished by Fund or the Broker-Dealer, except to the extent that such failure to investigate would be deemed grossly negligent.
Any corporation into which the Auction Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Auction Agent shall be a party, or any corporation succeeding to the Dealing and Trading business of the Auction Agent shall be the successor of the Auction Agent hereunder, with the consent of the Fund but without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto, except where any instrument of transfer or assignment may be required by law to effect such succession, anything herein to the contrary notwithstanding.
V. MISCELLANEOUS.
Any party may terminate this Agreement at any time upon five days' prior written notice to the other party; PROVIDED, HOWEVER, that if the Broker-Dealer is A.G. Edwards & Sons, Inc. it may not terminate this Agreement without first obtaining the prior written consent of the Fund to such termination, which consent shall not be withheld unreasonably. The Auction Agent is without discretion to terminate this Agreement and will move to terminate it only pursuant to written direction from the Fund. This Agreement shall automatically terminate upon the redemption of all outstanding Preferred Shares or upon termination of the Auction Agent Agreement.
Neither party to this Agreement shall be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions or utilities; computer (hardware or software) or communications services (provided that Auction Agent has not been grossly negligent with respect to selection, operation or maintenance of such utilities, computer (hardware or software) or communications service); accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the parties shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
(a) BD is, and shall remain for the term of this Agreement, a member of, or a participant in, the Securities Depository (or an affiliate of such a member or participant).
(b) BD represents that it (or if BD does not act as Agent Member, one of its affiliates) shall make all dividend payments on the Preferred Shares available in same-day funds on each Dividend Payment Date to customers that use BD (or its affiliate) as Agent Member.
At the date hereof, BD is a participant of the Securities Depository.
Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with the Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party at its address or telecopier number set forth below:
If to the Auction Agent,
addressed to: The Bank of New York
Corporate Trust Administration
100 Church Street, 8th Floor
New York, New York 10286
Attention: Corporate Trust Dealing
and Trading Group - Auction Desk
Telephone No.: (212) 437-6166
Facsimile No.: (212) 437-6123
If to the BD,
addressed to: [Broker-Dealer]
[Address]
Attn:
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Telephone No.:
or such other address or telecopier number as such party hereafter may specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of BD by a BD Officer and on behalf of the Auction Agent by an Authorized Officer. BD may record telephone communications with the Auction Agent.
This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof.
Nothing in this Agreement, express or implied, shall give to any person, other than the Fund, the Auction Agent and BD and their respective successors and permitted assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement.
(a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged.
(b) Failure of either party to this Agreement to exercise any right or remedy hereunder in the event of a breach of this Agreement by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of BD and the Auction Agent. This Agreement may not be assigned by either party hereto absent the prior written consent of the other party and the Fund.
If any clause, provision or section of this Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or section hereof.
This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed wholly in said state.
The parties agree that all actions and proceedings arising out of this Broker-Dealer Agreement or any of the transactions contemplated hereby shall be brought in the County of New York, and, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such County. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written.
THE BANK OF NEW YORK, As Auction Agent
By:____________________________________________
Name:
Title:
[BROKER-DEALER]
By:____________________________________________
Name:
Title:
THE BANK OF NEW YORK
AUCTION BID FORM
Submit To: Issue:
--------- -----
The Bank of New York NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
Corporate Trust Administration Auction Market Preferred Shares, Series __
100 Church Street, 8th Floor ("Preferred Shares")
New York, New York 10286
Attention: Corporate Trust Dealing and
Trading Group - Auction Desk
Telephone No.: (212) 437-6166
Facsimile No.: (212) 437-6123
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The undersigned Broker-Dealer submits the following Order on behalf of the Bidder listed below:
Name of Bidder:_______________________________________
BENEFICIAL OWNER
Preferred Shares now held ________________ HOLD_____________
BID at rate of_____________
SELL_____________
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POTENTIAL BENEFICIAL OWNER
# of Series __ Preferred Shares _____
BID at rate of___________ Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction Bid Forms.
(2) If one or more Bids covering in the aggregate more than the number of outstanding shares held by any Beneficial Owner are submitted, such bid shall be considered valid in the order of priority set forth in the Auction Procedures on the above issue.
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must specify a rate. If more than one Bid is submitted on behalf of any Potential Beneficial Owner, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal point (.001 of 1%). Fractions will not be accepted.
(6) An Order must be submitted in whole shares of Preferred Shares with an aggregate liquidation preference of $25,000.
A.G. EDWARDS & SONS, INC.
Authorized Signature _________________________________________
EXHIBIT B
(Note: To be used only for transfers made other than pursuant to an Auction)
TRANSFER FORM
Re: NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC.
Auction Preferred Shares ("Preferred Shares")
We are (check one):
[ ] the Existing Holder named below;
[ ] the Broker-Dealer for such Existing Holder; or
[ ] the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred _________ Series __ Preferred Shares to _____________________________________
By: ______________________________________
Printed Name:
Title:
EXHIBIT C
(Note: To be used only for failures to deliver or to pay for Preferred Shares sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
We are a Broker-Dealer for _____________________ (the "Purchaser"), which purchased _______ Series __ Preferred Shares of NEUBERGER BERMAN REAL ESTATE SECURITIES INCOME FUND INC. in the Auction held on ____________________ from the seller of such shares.
We hereby notify you that (check one):
______ the Seller failed to deliver such shares to the Purchaser.
______ the Purchaser failed to make payment to the Seller upon delivery of such shares.
Name:______________________________
[BROKER-DEALER]
By:________________________________
Printed Name:
Title:
CODE OF ETHICS - AMENDED AND RESTATED
This Code of Ethics ("Code") is adopted pursuant to Rule 17j-1 promulgated by the Securities and Exchange Commission (the "Rule") under the Investment Company Act of 1940 by:
Each of the following registered investment companies (each such registered investment company, a "Company/Trust" and collectively, the "Companies/Trusts") on its own behalf and on behalf of its respective series, if applicable (each such series, a "Fund"):
Neuberger Berman Advisers Management Trust Neuberger Berman Equity Funds Neuberger Berman Income Funds Neuberger Berman California Intermediate Municipal Fund Inc. Neuberger Berman Intermediate Municipal Fund Inc. Neuberger Berman New York Intermediate Municipal Fund Inc. Neuberger Berman Real Estate Income Fund Inc. Neuberger Berman Realty Income Fund Inc. Neuberger Berman Income Opportunity Fund Inc. Neuberger Berman Real Estate Securities Income Fund Inc.
Neuberger Berman Management Inc. ("NB Management"), in its capacity as investment manager of certain Companies/Trusts or as administrator and distributor of certain Companies/Trusts; and
Neuberger Berman, LLC ("NB"), in its capacity as sub-adviser of certain Companies/Trusts.
STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics is adopted in recognition of the following principles that govern personal investment activities of all individuals associated with the Company/Trust, Fund, NB Management, and NB:
It is their duty at all times to place the interests of Fund shareholders ahead of their personal interests. Priority must be given to Fund trades over personal securities trades.
All personal securities transactions must be conducted consistent with this Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility.
Individuals should not take advantage of their positions to benefit themselves at the expense of any Fund.
In personal securities investing, individuals should follow a philosophy of investment rather than trading.
TABLE OF CONTENTS
1. General Prohibitions .................................................... 4
2. Definitions ............................................................. 4
Access Person ........................................................... 4
Advisory Person ........................................................ 4
Beneficial Interest ..................................................... 5
Blind Trust ............................................................. 5
Covered Security ........................................................ 6
Day ..................................................................... 6
Immediate Family ........................................................ 6
Investment Company ...................................................... 6
Investment Personnel .................................................... 6
Legal and Compliance Department ......................................... 7
Related Issuer .......................................................... 7
Trading Desk ............................................................ 7
3. Required Compliance Procedures .......................................... 7
3.1 All Securities Accounts and Positions at
Neuberger Berman ................................................... 7
3.2 Preclearance of Securities Transactions by
Access Persons .................................................... 8
3.3 Post-Trade Monitoring of Precleared Transactions ................... 9
3.4 Notification of Reporting Obligations .............................. 9
3.5 Certification of Compliance with Code of Ethics .................... 9
4. Restrictions ............................................................ 9
4.1 Initial Public Offerings ........................................... 9
4.2 Private Placements .................................................10
4.3 Related Issuers ....................................................10
4.4 Blackout Period ....................................................10
4.5 Price Switches .....................................................11
4.6 Gifts ..............................................................13
4.7 Service as Director of Publicly Traded Companies ...................13
5. Procedures with Regard to Dissemination of Information ..................13
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6. Reports of Holdings by Access Persons ..................................14
6.1 Initial Report .....................................................14
6.2 Annual Report ......................................................14
6.3 Exceptions .........................................................14
7. Quarterly Reports of Transactions by Access Persons .....................15
7.1 General Requirement ................................................15
7.2 Disinterested Directors/Trustees ...................................15
7.3 Contents of Quarterly Report of Transactions .......................15
7.4 Exceptions .........................................................16
8. Quarterly Reports by Access Persons
Regarding Securities Accounts ...........................................16
9. Code of Ethics Committee ................................................16
10. Annual Report to Board of Directors/Trustees ............................17
11. Implementation ..........................................................17
11.1 Violations ........................................................17
11.2 Sanctions .........................................................17
11.3 Forms .............................................................18
11.4 Exceptions ........................................................18
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No person associated with the Company/Trust, any Fund, NB Management, or NB, in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by such Company/Trust or Fund, shall:
Employ any device, scheme or artifice to defraud such Company/Trust or Fund;
Make to such Company/Trust or Fund any untrue statement of a material fact or omit to state to such Company/Trust or Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any such Company/Trust or Fund;
Engage in any manipulative practice with respect to such Company/Trust or Fund;
Engage in any transaction in a security while in possession of material nonpublic information regarding the security or the issuer of the security; or
Engage in any transaction intended to raise, lower, or maintain the price of any security or to create a false appearance of active trading.
The following words have the following meanings, regardless of whether such terms are capitalized or not in this Code:
ACCESS PERSON - any Director/Trustee, director, officer, or Advisory Person of the Company/Trust, NB Management or NB. The determination as to whether an individual is an Access Person shall be made by the Legal and Compliance Department.
ADVISORY PERSON - any employee of the Company/Trust, NB Management or NB (or of any company in a control relationship to the Company/Trust, NB or NB Management) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Company/Trust orFund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and any natural person in a control relationship to such Company/Trust, NB Management or NB who obtains information concerning recommendations made to such Company/Trust or Fund with regard to the purchase or sale of Covered Securities by such Company/Trust or Fund.
BENEFICIAL INTEREST - a person has a Beneficial Interest in an account in which he or she may profit or share in the profit from transactions. Without limiting the foregoing, a person has a Beneficial Interest when the securities in the account are held:
(i) in his or her name;
(ii) in the name of any of his or her Immediate Family;
(iii) in his or her name as trustee for himself or herself or for his or her Immediate Family;
(iv) in a trust in which he or she has a Beneficial Interest or is the settlor with a power to revoke;
(v) by another person and he or she has a contract or an understanding
with such person that the securities held in that person's name are for his or her benefit;
(vi) in the form of a right to acquisition of such security through the exercise of warrants, options, rights, or conversion rights;
(vii) by a partnership of which he or she is a member;
(viii) by a corporation which he or she uses as a personal trading medium;
(ix) by a holding company which he or she controls; or
(x) any other relationship in which a person would have beneficial ownership under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect Beneficial Interest shall apply to all securities which an Access Person has or acquires.
Any person who wishes to disclaim a Beneficial Interest in any securities must submit a written request to the Legal and Compliance Department explaining the reasons therefor. Any disclaimers granted by the Legal and Compliance Department must be made in writing. Without limiting the foregoing, if a disclaimer is granted to any person with respect to shares held by a member or members of his or her Immediate Family, the provisions of this Code of Ethics applicable to such person shall not apply to any member or members of his or her Immediate Family for which such disclaimer was granted, except with respect to requirements specifically applicable to members of a person's Immediate Family.
BLIND TRUST - a trust in which an Access Person or employee has Beneficial Interest or is the settlor with a power to revoke, with respect to which the Legal and Compliance Department has determined that such Access Person or
employee has no direct or indirect influence or control over the selection or disposition of securities and no knowledge of transactions therein, provided, however, that direct or indirect influence or control of such trust is held by a person or entity not associated with Neuberger Berman or any affiliate of Neuberger Berman and not a relative of such Access Person or employee.
COVERED SECURITY - (a) any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation on any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of trust for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly know as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing; and (b) any security or instrument related to, but not necessarily the same as, those held or to be acquired by a particular Company/Trust or Fund ; The term Covered Security does not include: direct obligations of the Government of the United States; bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and shares of registered open-end investment companies.
DAY - a calendar day.
IMMEDIATE FAMILY - any of the following relatives sharing the same household with an individual: child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, including adoptive relationships.
INVESTMENT COMPANY - each registered investment company and series thereof for which NB Management is the investment manager, investment adviser, sub-adviser, administrator or distributor, or for which NB is the investment adviser or sub-adviser.
INVESTMENT PERSONNEL - Any employee of the Company/Trust, NB Management or NB (or of any company in a control relationship to the Company/Trust, NB Management or NB) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by a Fund that is a series of the Company/Trust; and any natural person who controls the Company/Trust, NB Management or NB and who obtains information concerning recommendations made to such Fund regarding the purchase or sale of securities by such Fund. Each member of this category is individually referred to as an Investment Person. The determination as to whether an individual is an Investment Person shall be made by the Legal and Compliance Department.
LEGAL AND COMPLIANCE DEPARTMENT - NB Legal and Compliance Department.
RELATED ISSUER - an issuer with respect to which an Investment Person or
his or her Immediate Family: (i) has a business relationship with such issuer or
any promoter, underwriter, officer, director, or employee of such issuer; or
(ii) is related to any officer, director or senior management employee of such
issuer.
TRADING DESK - NB Trading Desk.
(a) Every Access Person, and every employee of the Company/Trust, NB Management, or NB is required to execute in an account at Neuberger Berman ("NB") all transactions in Covered Securities held in his or her own name or in which he or she has a direct or indirect Beneficial Interest. In addition, all securities and securities accounts in which an Access Person and every employee of the Company/Trust, NB Management or NB has a beneficial interest must be held in an account at NB.
(b) Paragraph (a) shall not apply to: (i) any Director/Trustee of the Company/Trust who is unaffiliated with Neuberger Berman or any of its affiliates (other than by virtue of serving as a Director/Trustee of one or more investment companies managed or advised by NB Management or NB); and (ii) Blind Trusts.
(c) Exceptions will only be granted upon a showing of extenuating circumstances. Any individual seeking an exception to this policy must submit a written request to the Legal and Compliance Department explaining the reasons therefor. Any exceptions granted must be made in writing.
(d) Any individual granted an exception is required to direct his or her broker, adviser or trustee, as the case may be, to supply to the Legal and Compliance Department, on a timely basis, duplicate copies of confirmations of all personal securities transactions and copies of periodic statements for all securities accounts in his or her own name or in which he or she has a Beneficial Interest.
(e) Individuals are not required to execute through NB transactions in which they are establishing a dividend reinvestment plan directly through an issuer. However, individuals must obtain written approval from the Legal and Compliance Department prior to establishing any such plan and supply to the
Legal and Compliance Department, on a timely basis, duplicate copies of all confirmations relating to the plan.
(a) Every Access Person must obtain prior approval from the Trading Desk before executing any transaction in Covered Securities held in his or her own name or in which he or she has a Beneficial Interest. Before granting such approval, the Trading Desk shall determine that:
(i) No Investment Company has a pending "buy" or "sell" order in that security;
(ii) The security does not appear on any "restricted" list of NB; and
(iii) In the case of Access Persons who are Investment Personnel, such transaction is not short selling or option trading that is economically opposite any pending transaction for any Investment Company.
(b) The following securities are exempt from preclearance requirements:
(i) Securities transactions effected in blind trusts;
(ii) The acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities;
(iii) The acquisition of securities through the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent the rights were acquired in the issue, and sales of such rights so acquired;
(iv) Options on the Standard & Poor's "500" Composite Stock Price Index; and
(v) Other securities that may from time to time be so designated in writing by the Code of Ethics Committee.
(c) A disinterested Director/Trustee of the Company/Trust must obtain prior written approval from the Legal and Compliance Department regarding a transaction in a Covered Security held in his or her own name or in which he or she has (or, as a result of such transaction, will have) a Beneficial Interest only if such Director/Trustee, at the time of that transaction, knew or, in the ordinary course of fulfilling his or her official duties as a Director/Trustee of the Company/Trust, should have known about any security that, during the 15-day period immediately before or after the date of the transaction by that Director/Trustee, was purchased or sold by a Company/Trust or Fund or was being considered by NB Management for purchase or sale by a Company/Trust or Fund.
(d) Obtaining preclearance approval does not constitute a waiver of any prohibitions, restrictions, or disclosure requirements in this Code of Ethics.
After the Trading Desk has granted preclearance to an Access Person with respect to any personal securities transaction, the investment activity of such Access Person shall be monitored by the Legal and Compliance Department to ascertain that such activity conforms to the preclearance so granted and the provisions of this Code.
The Legal and Compliance Department shall identify all Access Persons who are required to make reports under the Code and inform those Access Persons of their reporting obligations.
All Access Persons, except Directors/Trustees of the Company/Trust who are unaffiliated with Neuberger Berman or any of its affiliates, are required to certify annually in writing that they have:
(a) read and understand the Code of Ethics and recognize that they are subject thereto;
(b) complied with the requirements of the Code of Ethics;
(c) disclosed or reported all personal securities transactions, holdings and accounts required to be disclosed or reported pursuant to the requirements of the Code; and
(d) with respect to any blind trusts in which such person has a Beneficial Interest, that such person has no direct or indirect influence or control and no knowledge of any transactions therein.
(a) All Investment Personnel are prohibited from acquiring a Beneficial Interest in any Covered Securities in an initial public offering, in order to preclude any possibility of their profiting improperly from their positions on behalf of a Company/Trust or Fund. No member of an Immediate Family of an Investment Person may acquire a Beneficial Interest in an initial public
offering without the prior written consent of the Legal and Compliance Department.
(b) Prior approval shall take into account, among other factors, whether the investment opportunity should be reserved for a Company/Trust or Fund and its shareholders and whether the opportunity is being offered to an individual by virtue of his or her position or relationship to the Company/Trust or Fund.
(a) No Investment Person or member of his or her Immediate Family may acquire a direct or indirect Beneficial Interest in any Covered Securities in private placements without prior written approval by the Legal and Compliance Department.
(b) Prior approval shall take into account, among other factors, whether the investment opportunity should be reserved for a Company/Trust or Fund and its shareholders and whether the opportunity is being offered to an individual by virtue of his or her position or relationship to the Company/Trust or Fund.
(c) An Investment Person who has (or a member of whose Immediate Family has) acquired a Beneficial Interest in securities in a private placement is required to disclose that investment to the Legal and Compliance Department when such Investment Person plays a part in any subsequent consideration of an investment in the issuer for any Company/Trust or Fund. In any such circumstances, the decision to purchase securities of the issuer for a Company/Trust or Fund is subject to an independent review by Investment Personnel with no personal interest in the issuer. Such independent review shall be made in writing and furnished to the Legal and Compliance Department.
Investment Personnel are required to disclose to the Legal and Compliance Department when they play a part in any consideration of an investment by a Company/Trust or Fund in a Related Issuer. In any such circumstances, the decision to purchase securities of the Related Issuer for a Company/Trust or Fund is subject to an independent review by Investment Personnel with no personal interest in the Related Issuer. Such independent review shall be made in writing and furnished to the Legal and Compliance Department.
No Access Person may execute a securities transaction in Covered Securities held in his or her own name or in which he or she has, or as a result of such transaction, will have, a direct or indirect Beneficial Interest on a day during which any Investment Company has a pending "buy" or "sell" order in that same security until that order is executed or withdrawn; PROVIDED, HOWEVER,
that this prohibition shall apply to a disinterested Director/Trustee only if such Director/Trustee, at the time of that transaction, knew or, in the ordinary course of fulfilling his or her official duties as a Director/Trustee of the Company/Trust, should have known that the security, during the 15-day period immediately before or after the date of the transaction by that Director/Trustee, was purchased or sold by a Company/Trust or Fund or was being considered by NB Management for purchase or sale by a Company/Trust or Fund.
(i) If any employee of the Company/Trust, NB Management or NB purchases a Covered Security (other than a fixed income security) held, or by reason of such transaction held, in his or her own name or in which he or she has a Beneficial Interest and an Investment Company purchases the same security during the same day, then, to the extent that the price paid per share by the Investment Company for such purchase is less favorable than the price paid per share by such employee, the Investment Company shall have the benefit of the more favorable price per share.
(ii) If any employee of the Company/Trust, NB Management or NB sells a Covered Security (other than a fixed income security) held in his or her own name or in which he or she has a Beneficial Interest and an Investment Company sells the same security during the same day, then, to the extent that the price per share received by the Investment Company for such sale is less favorable than the price per share received by the employee, the Investment Company shall have the benefit of the more favorable price per share.
(i) If any Investment Person purchases a Covered Security (other than a fixed income security) held, or by reason of such transaction held, in his or her own name or in which he or she has a Beneficial Interest and within seven (7) days prior or subsequent thereto a Fund with respect to which he or she is an Investment Person has purchased or purchases the same security, then, to the extent that the price paid per share by such Company/Trust or Fund for such purchase was or is less favorable than the price paid per share by such Investment Person, such Company/Trust or Fund shall have the benefit of the more favorable price per share.
(ii) If any Investment Person sells a Covered Security (other than a fixed income security) held in his or her own name or in which he or she has a Beneficial Interest and within seven (7) days prior or subsequent thereto a Company/Trust or Fund with respect to which he or she is an Investment Person has sold or sells the same security, then, to the extent that the price received per share by such
Company/Trust or Fund for such sale was or is less favorable than the price received per share by such Investment Person, such Company/Trust or Fund shall have the benefit of the more favorable price per share.
(c) An amount of money necessary to effectuate the price switch shall be transferred from the account of the employee or Investment Person subject to the price switch policies, to the Investment Company's or Fund's account, as the case may be. The price switch shall be limited to the number of shares purchased or sold by the employee or Investment Person or the number of shares purchased or sold by the Investment Company or Fund, as the case may be, whichever is smaller.
(d) Notwithstanding the foregoing, price switching shall not apply to:
(i) Securities transactions effected in blind trusts;
(ii) Securities transactions that are non-volitional on the part of either the employee, Investment Person or the Investment Company;
(iii) The acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities;
(iv) The acquisition of securities through the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent the rights were acquired in the issue, and sales of such rights so acquired;
(v) Options on the Standard & Poor's "500" Composite Stock Price Index;
(vi) Transactions in which the adjustment resulting from the price
switch is less than One Thousand Dollars ($1,000.00), provided,
however, that this exclusion applies solely to price switching under
Section 4.5(a);
(vii) Transactions arising through arbitrage, market making activities or hedged options trading;
(viii) Transactions in the NB ERISA Profit Sharing and Retirement Plan;
(ix) Transactions involving odd lots; and
(x) Other securities that may from time to time be so designated in writing by the Code of Ethics Committee.
All Access Persons and employees are prohibited from giving or receiving any gift or other thing of more than One Hundred Dollars ($ 100) in value to or from any person or entity that does business with or on behalf of the Company/Trust or Fund in any one year.
Investment Personnel are prohibited from serving on the Boards of Directors of publicly traded companies.
(a) NB, NB Management, and the Company/Trust, and their officers, directors, Director/Trustees and employees, shall not disclose to any disinterested Director/Trustee of the Company/Trust information regarding the consideration or decision to purchase or sell a particular security when it is contemplated that such action will be taken within the next 15 days, unless it is:
(i) requested in writing by a disinterested Director/Trustee of the Company/Trust or requested through a formal action of the Board of the Company/Trust or any committee thereof;
(ii) given because it is determined that the disinterested Director/ Trustee should have the information so that he or she may effectively carry out his or her duties; or
(iii) given so that NB or NB Management may carry out its duties as investment manager, administrator, distributor or sub-adviser of a Company/Trust or Fund.
(b) If any information regarding transactions contemplated by the Company/Trust or Fund is given to a disinterested Director/Trustee, such disinterested Director/Trustee shall be subject to the provisions of Sections 3.2, 4.4, and 7.2 of this Code with respect to any security held or to be acquired by the Company/Trust or Fund, as indicated in the information which has been disclosed, for the next succeeding 15 days.
(c) Subject to Sections 5(a) and 5(b), Access Persons and employees of NB Management, NB, or the Company/Trust are prohibited from revealing information relating to current or anticipated investment intentions, portfolio transactions or activities of Companies/Trusts or Funds except to persons whose responsibilities require knowledge of the information.
No later than 10 days after a person becomes an Access Person, such person shall report to the Company/Trust. NB Management or NB:
(a) The title, number of shares and principal amount of each Covered Security in which the Access Person had a direct or indirect beneficial ownership when the person became an Access Person;
(b) The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person become an Access Person; and
(c) The date that the report is submitted by the Access Person.
Annually, each Access Person shall report the following information, which must be current as of a date no more than 30 days before the report is submitted:
(a) The title, number of shares and principal amount of each Covered Security in which the Access Person had a direct or indirect beneficial ownership;
(b) The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and
(c) The date that the report is submitted by the Access Person.
(a) No report is required with respect to holdings where such report would duplicate information recorded by NB or NB Management pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940. For purposes of the foregoing, no report is required with respect to the holdings of securities in accounts maintained at NB.
(b) A disinterested Director/Trustee of the Company/Trust who is required to make a report under Section 7.2 need not make an initial holdings report or annual holdings report.
Every Access Person shall report, or cause to be reported, to the
Company/Trust and Legal and Compliance Department the information described in
Section 7.3 with respect to transactions in any Covered Security in which such
Access Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Interest.
A disinterested Director/Trustee of the Company/Trust need only report a transaction in a security if such Director/Trustee, at the time of that transaction, knew or, in the ordinary course of fulfilling his or her official duties as a Director/Trustee, should have known that, during the 15-day period immediately before or after the date of the transaction in a Covered Security by that Director/Trustee, such Covered Security was purchased or sold by a Company/Trust or Fund or was being considered for purchase or sale by NB Management.
Every report shall be made not later than 10 days after the end of the calendar quarter and shall contain the following information:
(a) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares, and the principal amount of each Covered Security involved;
(b) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
(c) The price of the Covered Security at which the transaction was effected;
(d) The name of the broker, dealer or bank with or through whom the transaction was effected; and
(e) The date that the report is submitted by the Access Person.
Unless otherwise stated, no report shall be construed as an admission by the person making such report that he or she has any direct or indirect Beneficial Interest in the security to which the report relates.
No report is required with respect to transactions where such report would duplicate information recorded by NB or NB Management pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940. For purposes of the foregoing, the Legal and Compliance Department maintains (i) electronic records of all securities transactions effected through NB, and (ii) copies of any duplicate confirmations that have been provided to the Legal and Compliance Department under this Code of Ethics with respect to securities transactions that, pursuant to exceptions granted by the Legal and Compliance Department, have not been effected through NB; accordingly, no report is required with respect to such transactions.
(a) Every Access Person shall report, or cause to be reported, to the Company/Trust and Legal and Compliance Department, the information regarding any securities account established by the Access Person during any quarter. Every report shall be made not later than 10 days after the end of the calendar quarter and shall contain the following information:
(i) The name of the broker, dealer or bank with whom the Access Person established the account;
(ii) The date the account was established; and
(iii) The date that the report is submitted by the Access Person.
(b) No report is required with respect to securities accounts where such report would duplicate information recorded by NB or NB Management pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940. For purposes of the foregoing, no report is required with respect to securities accounts at NB.
(a) A Code of Ethics Committee shall be composed of at least two members who shall be disinterested Director/Trustees selected by the Board of Director/Trustees of the Company/Trust.
(b) The Code of Ethics Committee shall consult regularly with the Legal and Compliance Department, and either the Committee or the Board of Director/Trustees of the Company/Trust shall meet no less frequently than annually with, the Legal and Compliance Department regarding the implementation of this Code. The Legal and Compliance Department shall provide the Code of Ethics Committee with such reports as are required herein or as are requested by the Code of Ethics Committee.
(c) A monthly report shall be provided to the Director/Trustees of the Company/Trust certifying that except as specifically disclosed to the Code of Ethics Committee, the Legal and Compliance Department knows of no violation of this Code. A representative of the Legal and Compliance Department shall attend all regular meetings of the Director/Trustees to report on the implementation of this Code.
No less frequently than annually, the Company/Trust, NB Management and NB shall furnish to the Board of Directors/Trustees of the Company/Trust, and the Board must consider, a written report that:
(i) describes any issues arising under this Code or procedures concerning personal investing since the last such report, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations;
(ii) certifies that the Company/Trust, NB Management and NB, as applicable, have adopted procedures reasonably necessary to prevent Access Persons from violating the Code; and
(iii) identifies any recommended changes in existing restrictions or procedures based upon the Company/Trust's or Fund's experience under the Code of Ethics, evolving industry practices, or developments in applicable laws or regulations.
Any person who has knowledge of any violation of this Code shall report said violation to the Legal and Compliance Department.
The Legal and Compliance Department is authorized, with the advice of counsel, to prepare written forms for use in implementing this Code. Such forms shall be attached as an Appendix to this Code and shall be disseminated to all individuals subject to the Code.
Exceptions to the requirements of this Code shall rarely, if ever, be granted. However, the Legal and Compliance Department shall have authority to grant exceptions on a case-by-case basis. Any exceptions granted must be in writing and reported to the Code of Ethics Committee.
Effective September 2003